Damages For Breach Of Contract

By harley erbe

04 03 6   Shaking Hands Web

Contracts are everywhere.  Your everyday affairs are probably governed by contractual agreements that you don't even think about.  Telephone, cable, loans, utilities, concert tickets, plane tickets, amusement park admission tickets, memberships to something on the internet, car insurance, property insurance, all are covered by contract language that you've agreed to and that binds both parties to the deal.  Now let's say that prove that someone or something breached a contract with you.  What are your potential legal remedies?

A party injured by a contract breach is generally entitled to be placed in as good a position as he or she would have occupied had the contract been performed.   This type of damages is sometimes referred to as the injured party's "expectation interest" or "benefit of the bargain" damages.  The nonbreaching party's recovery is limited to the loss the party has actually suffered by reason of the breach; the nonbreaching party is not entitled to be placed in a better position than it would have been in if the contract had not been broken.

Any damages awarded must relate to the nature and purpose of the contract itself.  Damages cannot be speculative.  Damages based on breach of a contract must have been foreseeable or have been contemplated by the parties when the parties entered into the agreement.  Whether the damages were reasonably anticipated by the parties when the contract was formed may be discerned from the language of the contract in the light of the facts, including the nature and purpose of the contract and circumstances attending its execution.  Damages that a reasonable person would expect to follow from breach of a contract are direct and thus should be awarded.  Damages may also be considered foreseeable if they arise from the ordinary cause of events or as a result of special circumstances that the party in breach had reason to know.

Courts also look at the price of the contract in determining whether certain damages for breach of that contract are proper.  A lack of proportion between the two numbers is an indication that the requested damages are improper.  In other words, if a party is only be paid a small amount of money in exchange for its services under a contract, courts may take that as an indication that the small payment for services was not intended to expose that party to large financial risk if it breached the contract.

As you can tell, the law governing damages for breach of contract leaves much room for creativity because there are no hard-and-fast rules concerning what you can recover as damages and what you can't.  For example, in a recent employment law decision the Iowa Court of Appeals allowed damages to a terminated employee who had to sell his home after his employment ended.  He received damages for the mortgage, insurance, and real estate taxes he paid while waiting for the home to sell.  The employee had a noncompete agreement, so when he quit his employment because the employer breached other aspects of the employment agreement, the employee had no choice but to sell his home and leave the area that was covered by the noncompete agreement.  Thus, the employer's breach of the contract's compensation provisions, coupled with the noncompete agreement, not only forced the employee out of a job but also forced him to move, which made the related housing costs a legitimate item of damages for the employer's breach of contract.

By Harley Erbe

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