Contract Damages

Sherrie Bennett

When most people sign a contract, they expect to honor the terms of the contract, and they hope that the other party will do so as well. There are several kinds of contract remedies available to you if the other party breaches (breaks) a contract.

Specific Performance

When a court orders the party that broke the contract to perform his or her obligations as agreed in the contract, this is known as specific performance.

For example, you enter into a written agreement to purchase a person's house at a specific price and on exact terms. If the seller refuses to sell, regardless of the reason, you may be able to bring a lawsuit to force him or her to sell at the agreed-upon price.

Specific performance is usually available when the contract involves some kind of unique goods or other unusual benefit to the other party, and ordinary money damages aren't sufficient. Real estate is often the subject of specific performance because, in most cases, each piece of property is unique. Specific performance may also be applied in the sales of one-of-a-kind items such as antiques or items of special personal value.

Compensatory Damages

Compensatory damages help compensate you for the economic loss caused by a broken contract.

For example, Mr. Smith signs a contract agreeing to buy 10 hours of landscaping services from Green's Landscaping for $50 an hour. If Mr. Smith breaks the contract and doesn't use any of Green's Landscaping's services, compensatory damages paid to Green's Landscaping would be $500, which is the economic loss they suffered. If Green's Landscaping breaks the contract, and Mr. Smith is forced to hire another service for $60 an hour, compensatory damages paid to Mr. Smith would equal $100 ($10 an hour, the difference in price between the original contract and the new contract).

Consequential Damages

Consequential damages are those caused indirectly by the broken contract.

For example, a retail store buys customized software to run its cash registers and inventory system. One day the system breaks down completely. As a result, the store must close for the day to repair the system. The store's loss of business for that day is a consequential damage of the broken contract.

Liquidated Damages

Liquidated damages are damages specified in the contract itself. They may operate as an incentive not to break the contract, but don't have to be directly related to the actual loss caused by the breaking of the contract.

For example, you want to have your kitchen remodeling job finished in time for your big party, so you include a provision in the contract that says the contractor must pay you $100 per day for every day after the completion date that the job isn't completed.

Courts don't like liquidated damages clauses and won't enforce them if they have the effect of being a punishment.

Punitive Damages

Punitive damages are damages that punish the wrongdoer in a breach of contract lawsuit. They aren't based on actual economic loss like compensatory damages, but are designed to make an example out of the party who broke the contract and punish them for their wrongful conduct. You usually can't recover punitive damages in a contract lawsuit.

Questions for Your Attorney

You'll want to talk to your lawyer before you break a contract, or if another party has broken a contract with you. Your attorney will be able to explain the consequences of that broken contract, help explain your options and may be able to negotiate a settlement with the other party to prevent the expense associated with a lawsuit.

Questions to consider asking your attorney include:

• Have you previously handled a breach-of-contract case?
• What are my options?
• How much can I hope to recover, or how much am I likely to pay in damages?
• Can we settle this case instead of going to trial?

Sherrie Bennett is the former director and staff attorney at the University of Washington Student Legal Services in Seattle.

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