Breach of Contract and Damages: Everything You Need to Know
What is a breach of contract and damages? A breach of contract is a common lawsuit form that often results in a legal award of damages.3 min read
Damages Faced in a Breach of Contract
One of the most popular forms of civil lawsuits is a breach of contract. A breach of contract lawsuit occurs when an individual of a contract does not perform the duties he or she was required to do per the contract.
There are two types of breaches that can occur:
A material breach means that the opposing individual or group of the contract was given something significantly different than what the contract called for. A minor breach, on the other hand, means that the opposing individual or group was given the proper, contracted service, but the other party did not do it correctly. The only way a lawsuit can be sought out is if the breach of contract was material.
For instance, if an individual signs a contract agreeing to renovate a full house but fails to renovate the dining room, he or she would be performing a material breach of contract. If the individual merely installed the wrong flooring in the dining room, he or she would be guilty of a minor breach of contract.
When an individual or group commits a breach of contract, the opposing party is considered the innocent individual or group. This innocent party has the ability to sue in hopes of legal rectification. This legal rectification refers to the court's effort to compensate the innocent individual or group.
Usually, this legal rectification includes what is known as an award of damages. An award of damages is money that is paid to the innocent party for the wrongdoing that was done to him, her, or them.
The following are damages that can result from a breach of contract:
- Compensatory damages.
- Consequential damages.
- Liquidated damages.
- Nominal damages.
- Specific performance.
- Reliance damages.
- Quantum meruit damages.
Compensatory damages mean that the court awards the plaintiff so that he/she will be in the position that the contract would have put him/her in if it had been upheld properly. This court award covers the following:
- Any lost profits.
- The cost of substitute performance.
Lost profits are known as the gains that were expected to occur from the completion of the contract. In other words, the lost profits would be the the value received from the contracted services less the cost of the service. This calculation is called the expectation damages.
Consequential damages are awarded by the court for abnormal losses that were known and expected to occur upon a breach of contract. These damages could be regained in situations where the individual or group that committed the breach was warned or should have known that the other party would face losses.
If damages are listed in the contract as a result of a failure to complete one's obligations, they are considered liquidated damages. Sometimes, parties choose to incorporate liquidated damages when damages caused by a breach of contract are unclear. For this reason, they choose to include damages that would be caused by a breach in the contract. The court will either uphold the damages specified in the contract or punish the defendant.
When a small award is given by the court to the injured party due to a breach of contract that did not financially hurt the plaintiff, the damages are considered nominal. In some cases, because punitive damages can only be awarded when the defendant is found liable, an award for nominal damages can lead to the revealing of punitive damages as well.
Damages Faced That Are Non-Recoverable
Although a money damage award is the most popular award given from a breach of contract, it comes with many limitations. For this reason, it is important that the plaintiff be aware of these limitations, knowing that he or she may not recover all of his or her losses.
For example, many losses or expenses caused by a breach of contract are considered non-recoverable damages or, to put it simply, damages that the innocent party will not receive awarded money for.
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