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What is a Breach of Contract? 

A breach of contract is when a party to a contract fails to abide by the contract's terms. 

What happens when a party to a contract fails to perform its obligations which results in a breach of the contract? 

Frequently, the parties will attempt to negotiate ​a resolution of the breach. However, if the matter cannot be settled, the parties may resort to utilizing mediation, arbitration, or court action. If the parties are forced into litigation and a party is found to be in breach of contract, this may result in damages being awarded to the other party. 

What type of damages may be awarded by a court? 

Damages for Breach of Contract: 

Compensatory Damages: These damages assist in compensating the non-breaching party for any economic losses caused by the breach of contract. The goal of this type of damage is to place the non-breaching party in the same position they would have been in had the contract been performed. 

Liquidated Damages: These types of damages are awarded when there is a provision in a contract which states the amount of damages that shall be awarded in the event of a breach. Liquidated damages cannot be used as punishment to a party or to harm the party for the breach.  

How are Compensatory Damages Measured? 

Compensatory damages are meant to compensate the non-breaching party for the harms and/or losses suffered due to breach on the part of the other party. The following are ways in which this type of damage is measured: 

Interest of the non-breaching party to a breached contract 

Expectation Interest: The interest in having the benefit of the contract. The court grants the non-breaching party the amount they would have received had the contract not been breached. 

Reliance Interest: The interest in being reimbursed for losses caused by reliance on the contract. This is used when expectation damages are excessive or uncertain. It is the cost that came out of the non-breaching party’s pocket but did not go into the breaching party’s pocket. 

Restitution Interest: The interest in getting back what was paid while trying to complete part of a contract, taking away any benefit the breaching party was given by the non-breaching party. Unlike expectation damages, restitution damages places the non-breaching party back to their pre-contract position. 

Here are Several Types of Breaches that may Occur: 

Delay: Failure to perform a contract in a set time frame unless excused. The non-breaching party may receive damages which were caused by the delay. Actual losses sustained is the measure of such damages. 

Anticipatory Repudiation: When a party does not intend to live up to their obligations under a contract. If the non-repudiating party is willing to perform, they may recover damages caused by breach. The time at which the unconditional repudiation is communicated to the non-repudiating party is the time beyond which that non-repudiating party may incur no more damages. 

Defective but Substantial Performance: The measure of damages for defective performance is generally the reasonable cost of making the work performed. If the defects are so substantial that the performance is worthless, then the non-breaching party may be entitled to recover the cost of having the job redone. 

Can a Party Recover Interest, Attorney Fees, and Costs? 

Unless stated in the contract, attorney’s fees, costs, and interests are not generally recoverable as an element of damage. When drafting a contract, parties should consider including a clause providing for interest, attorney’s fees, and costs as a part of the damages for a breach. 

What are the Limitations of Recovery? 

An injured party to a breach of contract may recover damages only for those losses that they can prove with reasonable certainty. 

A breaching party is responsible for paying only those losses that were foreseeable to them at the time of the contracting. 

Plaintiffs injured by a breach of contract have the duty to avoid or minimize damages. 

What are Liquidated Damages? 

When it is difficult to determine the actual damages suffered by the party and to arrive at a compensatory damage amount liquidated damages may apply. 

Liquidated damages are reasonable predictions of what it will take to compensate the non-breaching party and may not be a penalty. 

If you are contemplating filing a Breach of Contract claim, contacting an attorney is the first step to understanding your rights and limitations.  Please contact one of our DeWitt LLP litigation or business attorneys to discuss your circumstances