Business Law

Contract Damages Available After a Breach

Updated by Brian Farkas, Attorney
Several kinds of contract remedies available to you if the other party breaches, or breaks, a contract.

When most people sign a contract, they expect the other side to honor its terms. Whether the contract relates to your personal life or your professional life, there is an assumption that each side will do as promised—for example, provide a good or service, or pay for the good or service.

Unfortunately, however, the world is not always so dependable. Vendors fail to deliver the goods they promised at the correct quantity. Independent contractors fail to perform at the time and in the manner they promised. Businesses may abandon a contract when they decide it is no longer lucrative. Or buyers may refuse to pay.

Contract disputes such as these are all too common. When another party breaches an agreement, what can you do? There are several types of contract remedies available to you if the other party breaches (breaks) a contract and you decide to sue.

Specific Performance of the Contractual Obligation

Perhaps the most complete remedy for a party's failure to perform a contract is for a court to force that party to perform. 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, imagine that you enter into a written agreement to purchase a person's house at a specific price and on exact terms. If the seller then gets cold feet and refuses to sell after the contract is signed, 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 are not sufficient to make the aggrieved party whole. 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.

Courts generally will not grant specific performance on employment contracts, as courts are usually hesitant to force individuals to works for others against their will.

Compensatory Damages for Breach of Contract

Compensatory damages, perhaps the most common type of contract damages, help compensate you for the economic loss caused by a broken contract.

For example, imagine that Mr. Smith signs a contract agreeing to buy ten hours of landscaping services from Green's Landscaping for $50 an hour. If Mr. Smith breaks the contract and does not use any of Green's Landscaping's services, compensatory damages paid to Green's Landscaping would be $500, which is the economic loss 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).

Note that compensatory damages are not meant to be punitive in nature. In other words, the goal is not to punish the breaching party for "immoral" conduct, but rather to put the non-breaching party back into the position he or she would have been in, had the contract been performed. Absent specific language in a contract, it is far more common for courts to award simple compensatory damages than punitive damages.

Consequential Damages for Breach of Contract

Consequential damages are those caused indirectly by the broken contract. They are damages above and beyond standard compensatory damages.

For example, imagine that a retail store buys customized software to run its cash registers and inventory system. One day, the system completely breaks down. 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.

Put differently, consequential damages aim to address the flow of problems that reasonably result from a party's breach of contract. As a plaintiff bringing a court case, it is your burden to establish the precise quantity of these damages to you or your business.

Liquidated Damages Written Within the Contract

Liquidated damages are damages specified in the contract itself as a remedy for breach. They may operate as an incentive not to break the contract, but the dollar amount does not have to be directly related to the actual loss caused by the breaking of the contract.

For example, imagine that you want to have your kitchen remodeling job finished in time for your big birthday party. You include a provision in the contract that says the contractor must pay you $100 per day for every day after the stated completion date that the job is not completed. If the contract requires him to finish your project by August 1, but he does not finish for another week, that would be seven days (or $700) of damages explicitly provided for in the contract.

Courts tend to be hesitant to enforce liquidated damages clauses that are excessive. To protect against a court throwing out this provision, such clauses should be reasonable in the amount of damages specified, so that they are not viewed as heavily punitive. Also, some state's laws specifically restrict the amount of liquidated damages allowed for certain types of contracts.

Punitive Damages for Breach of Contract

Punitive damages are damages that punish the wrongdoer in a breach of contract lawsuit. They are not based on actual economic loss like compensatory damages, or even on a clause in the contract, as with liquidated damages. Rather, they are designed to make an example out of the party who broke the contract and impose punishment for the wrongful conduct.

It is rare for a court to assess punitive damages in breach of contract lawsuits. For the most part, courts do not like to punish parties for breaching standard commercial contracts, absent some sort of additional malicious or harmful conduct.

Questions for Your Attorney

  • My home improvement contractor breached our agreement. What damages can I expect to recover in court?
  • My business lost a huge amount of revenue because a vendor breached our agreement. Can I obtain consequential or punitive damages?
  • What are my options if I need to break a contract myself?
  • Will this liquidated damages amount pass muster in court?
  • If I breached a contract, what types of damages am I likely to pay?
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