Contracts are a part of many areas of life and serve many purposes. When a contract is broken, however, it can cause significant issues. Financial injury is a particularly common and serious result of a broken contract. If a contract is broken, the injured party is able to seek compensation for their losses. This can come in the form of damages, specific performance, contract rescission, and contract modification. Find out what types of damages may be awarded in a breach of contract case.
Compensatory Damages
These damages are for a monetary amount that will compensate the non-breaching party for their losses. These payments are intended to repair any financial injury caused by the breach of contract. There are two types of compensatory damages:
- Expectation damages, which cover what the injured party had expected to receive from the contract. This is usually based on the contract itself or market values.
- Consequential damages, which are intended to reimburse the non-breaching party for indirect damages, such as a loss of business profits due to a failure to make a delivery or a repair. The losses must stem directly from the breach of contract and be reasonably foreseen by both parties.
Liquidation Damages
These are damages that are specifically stated in the contract. These are typically available when damages may be hard to foresee. They must be a fair estimate of that potential damages could be in the event of a breach. These damages are negotiated by both parties at the start of the contract.
Punitive Damages
These are damages that are intended to punish the breaching party for breaking the contract and deter any future breaches. These damages aren’t generally awarded in a breach of contract case, but may be awarded in cases that overlap with other legal areas, such as fraud or tort cases.
Restitution
These are not legal damages by definition, but are an equitable remedy awarded to prevent the breaching party from becoming unjustly enriched. If a party has delivered goods, but the other party did not pay, the delivering party would be entitled to restitution, such as the cost of the delivered goods.
Other Penalties for Breach of Contract
Legal damages, or monetary compensation, are not the only form of penalty available in a breach of contract claim. Equitable remedies are also available. They are typically awarded when money alone will not resolve the situation. Typically, these remedies involved a court order to compel or forbid an action from the breaching party. Types of equitable remedies are:
- Specific performance: A court order that the breaching party performs their part of the contract, such as shipping or delivering goods.
- Contract rescission: The former contract is canceled, and a new contract is drafted to suit the needs of both parties. This remedy is typically ordered when both parties agree to cancel the contract or the contract was fraudulent.
- Contract reformation: The former contract is rewritten and changed to reflect the parties’ true intent. This requires a valid contract to begin with. It is often used when there was a misunderstanding when the initial contract was created and agreed to.
Get Help with Breach of Contract Claims
Donati Law, PLLC is backed by more than a century of collective experience in employment law, including employment contracts. Our Memphis employment lawyers can help you understand and defend your contract, and can help you fight for the compensation you deserve if your contract is broken. Don’t hesitate to get the help you need from our dedicated, knowledgeable team.
Contact Donati Law, PLLC to request a consultation by calling (901) 209-5500.