Monetary Damages For Breach Of Contract: Everything You Need to Know
Monetary damages for breach of contract are one of the most common remedies that a court will award when a contract is broken. However, there are several other types of damages that can also be awarded.3 min read
2. Different Forms of Monetary Damages
3. What Are Liquidated Damages?
4. Facts About Punitive Damages
Updated November 16, 2020:
Monetary damages for breach of contract are one of the most common remedies that a court will award when a contract is broken. However, there are several other types of damages that can also be awarded.
Breach of Contract Damages
When two parties enter into a contract, they are legally bound by the contract's agreed-upon terms. When a contract is used for the purpose of a business transaction, one party can experience tremendous losses if the other party breaches the contract.
Because of the harm that can be caused by a broken contract, there are several legal remedies that are meant to encourage fulfillment of a contract and can also reimburse a party that is affected by a breach:
- Contract recession.
- Contract modification.
- Specific performance.
Different Forms of Monetary Damages
When a contract is broken, monetary damages for breach of contract are a popular remedy. Monetary damages can also be referred to as compensatory damages. The goal of these damages is to make up for the losses suffered by one party when a breach of contract occurs. Imagine, for instance, that you hire someone to repair your car for $100, and they don't perform the repair services, even though they have been paid.
Because your car still needs to be repaired, you need to hire another technician. Unfortunately, you cannot find any repair services cheaper than $150. If you take the first repairman to court, and the court decides that $150 is a reasonable price for repairing your vehicle, you would be awarded $150 in monetary damages that the first repairman would have to pay.
When a contract is breached, two different types of monetary damages can be awarded by the court.
The first type is called expectation damages. As you might be able to tell from their name, expectation damages are awarded to make up for the value that the damaged party thought they would receive by entering the contract. For example, if you purchased a specific item, but the wrong item was delivered, you may be able to sue successfully for expected damages if you are unable to receive the item you intended to purchase.
The second type of monetary damages are known as special damages. If there is a special circumstance resulting from the breach that could not have been predicted, special damages can be awarded. These losses were not directly caused by the breach but are still a result of the broken contract. Before you can receive special damages, you would need to provide proof that the party that broke the contract was aware of the special circumstances when the contract was entered.
Let's assume that you've purchased a piece of furniture and that your old furniture will be removed on a specific day to make room for the new arrival. If the company you purchased the new furniture from knew about the removal date of the old furniture and did not deliver your purchase on the agreed-upon date, forcing you to rent furniture, you could receive special damages for the rental expense.
What Are Liquidated Damages?
In some circumstances, a contract will outline exactly what types of damages are available if the agreement is breached. These are known as liquidated damages. Liquidated damages are typically included in a contract when it would be difficult to know beforehand the losses that would result from breach of contract. The amount of these damages must be reasonable.
When negotiating the contract, both parties should discuss what amount of damages would be reasonable if the contract were ever broken. Courts will generally only enforce liquidated damages if two requirements are met. First, the damages should be a fixed amount that would reasonably compensate for a broken contract. Second, the parties should not have been able to foresee what amount of harm would be caused by a contract breach.
Facts About Punitive Damages
Punitive damages are another type of damages that can be awarded for a breach of contract. These damages will only be awarded if you can prove that the actions of the breaching party were fraudulent or malicious. Punitive damages are much different from monetary damages. Where the purpose of monetary damages is making up for a loss, punitive damages are used to punish someone who has committed a wrongdoing and are also meant as a warning for future wrongdoers.
In some cases, both punitive and monetary damages can be awarded.
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