Breach of Contract Damages: Everything You Need to Know
Breach of contract damages can either be claimed through remedies in law or through remedies in equity. 3 min read updated on January 01, 2024
Breach of contract damages can either be claimed through remedies in law or through remedies in equity. Remedies in law include compensatory damages, restitution, punitive damages, nominal damages, liquidated damages, and quantum meruit, whereas remedies in equity include contract cancellation, specific performance, and contract reformation.
Breach of Contract Definition
When you sign a business contract, there are certain obligations to be fulfilled by each party. If any of the parties fails to fulfill its obligations, it is known as breach of contract. Compensation claim for a breach of contract depends upon whether the breach is material or immaterial as well as the nature of the contract.
Breach of Contract Explained
Say for example, Company A enters into a contract with Company B to purchase certain products and the delivery is scheduled by Monday evening. Due to some reasons, Company B delivers the product a day after Monday, i.e., on Tuesday. In this case, the breach of contract is considered immaterial since a minor detail of the contract is not going to affect its functionality.
However, if the contract clearly states that time is of the essence, and the product must be delivered by Monday evening, then it becomes a material breach of contract, and Company A becomes entitled to claim damages.
Breach of Contract Damages
When there is a breach of contract, you can either choose to enforce the contract or claim compensation for any financial loss caused by the breach. If the dispute cannot be resolved informally, the next option is a lawsuit. If the financial loss involved is small ($3,000 to $7,500, depending upon the state), you can take the case to a small claims court.
However, courtrooms are not the only place to solve a dispute. There are two common methods of alternative dispute resolution:
- Parties can mutually agree to appoint and approach a mediator to resolve a dispute.
- Parties can enter into an arbitration agreement.
Remedies for Breach of Contract
Contracts are an essential part of every business transaction. The enforceability of a contract gives assurance to the parties to carry out their business dealing without any fear of getting cheated. When a party breaks its promise or breaches a contract, you can basically have two broad types of remedies:
- Remedies in law
- Remedies in equity
Remedies in Law
Remedies in law are monetary compensation for damages caused by the breach of contract. Following are the principal types of remedies in law awarded to a breach victim:
- Compensatory Damages: These are the payments made to the victim to reimburse the cost and compensate for the losses incurred. You can also claim for the profit you would have gained had the contract been not breached.
- Restitution: In this type of remedy, court orders the breaching party to pay back the money or property it received from the plaintiff.
- Punitive Damages: Where one party intentionally or deliberately causes damage to the other, court can ask the breaching party to pay punitive damages. However, punitive damages are rarely awarded for a breach of contract. They are more common in tort law.
- Nominal Damages: Where no party has suffered any damage or loss, nominal damages are awarded by the court. These are usually awarded in a breach of contract that overlaps with a tort.
- Liquidated Damages: These are the damages that are already mentioned in the contract as compensation for a breach. The parties negotiate the amount of damage at the time of entering into the contract.
- Quantum Meruit: Quantum Meruit means “what one has earned.” Where one party has performed its part and yet the other party refuses to pay the agreed amount, the performing party is entitled to compensation for the work done by it.
Remedies in Equity
These are the remedies wherein court orders a party to do something.
- Cancellation and Restitution: Cancellation relieves all the parties to a contract from their obligations whereas restitution puts back the non-breaching party in the same position as it was before the breach of contract.
- Specific Performance: The non-breaching party can seek specific performance of a contract if the damages would be inadequate. A court orders to follow the initial agreement.
- Contract Reformation: It is rewriting of a contract in cases where parties had a misunderstanding or mistake over the content of the contract.
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