Contractual Damages Available when a Breach Occurs

One of the most important ways you can protect yourself in a contract is to outline the damages that are available if a breach occurs. Not only will this type of provision discourage the breach of the agreement , but it can also assist with how to handle settling or litigating a dispute. The primary types of contractual damages include:

• As the name indicates, compensatory damages are intended to compensate the non-breaching party. In other words, it is the amount of money that will make the party “whole” again. The two types of compensatory damages are expectation damages (what the non-breaching party expected to gain from the contract) and consequential damages (reimbursement for indirect damages directly resulting from the breach, such as the loss of profits).
• The damages that are set forth in the contract are referred to as “liquidated damages.” While it is often difficult to foresee what damages will occur, the parties may be able to make a fair estimate of what damages should be recovered if a breach occurs.
• Typically damages that are used to punish a party for their breach will be awarded only in cases were wrong-doing has occurred. For example, if fraud was involved.
• If the non-breaching party does not incur a monetary loss, nominal damages may be awarded by the court to demonstrate that the injured party was in the right. This type of award is rare in breach of contract cases.
• In order to prevent a party from being unjustly enriched by a breach, the equitable remedy of restitution can be awarded by the court.
• Specific performance. The court can order the breaching party to perform their part of the contract.
• Contract rescission. If the agreement at issue has been cancelled, a new contract can be created to meet the parties’ needs.
• Contract reformation. A contract can be rewritten in order to reflect the true intent of the parties. Reformation is most commonly used when the parties had a mistaken understanding when the contract was created.