Contract law implements a policy in favor of allowing individuals to order their own affairs by making legally enforceable promises and here we discuss the damages for breach of contract in the United States.
This article focuses on damages for breach of contract under the Uniform Commercial Code. Normally, when a court concludes that there has been a breach of contract, it enforces the broken promise by protecting the expectation of the injured party. It does this by attempting to put him or her in as good a position as he or she would have been in had there been no breach. Every breach of contract gives the injured party a right to damages against the party in breach.
The claim for damages can be made either for total breach of the contract or for only a partial breach of the contract. Although a judgement awarding a sum of money as damages is the most common judicial remedy for breach of contract, other remedies may also be available, depending on the circumstances, such as equitable relief in the form of specific performance, rescission, reformation or injunction.
Contract damages are ordinarily based on the injured party’s expectation interest and are intended to give him or her the benefit of his or her bargain by awarding a sum of money that will, to the possible extent, put him or her in as good a position as he or she would have been in had the contract been performed.
In some situations, the sum awarded will do this adequately as, for example, where the injured party has simply had to pay an additional amount to arrange a substitute transaction and can be adequately compensated by damages based on that amount.
In other situations, the sum awarded cannot adequately compensate the injured party for his or her disappointed expectation as, for example, where a delay in performance has caused him or her to miss an invaluable opportunity. The measure of damages is subject to the agreement of the parties, as where they provide for liquidated damages or exclude liability for consequential damages.
The first element that must be estimated in attempting to fix a sum that will fairly represent the expectation interest is the loss in the value to the injured party of the other party’s performance that is caused by the failure of, or deficiency in, that performance. Moreover, the injured party is also entitled to recover for all loss actually suffered. Items of loss other than loss in value of the other party’s performance are often characterized as incidental or consequential. Incidental losses include costs incurred in a reasonable effort to avoid loss. Consequential losses include such items as injury to person or property resulting from defective performance or non-performance.
The injured party is limited to damages based on the actual loss caused by the breach. For instance, if he or she makes an especially favorable substitute transaction, so that he or she sustains a smaller loss than might have been expected, he or she will only be entitled to reduced damages. However, it is important to mention that one must determine if the subsequent transaction is a substitute for the broken contract or not. One must determine if the injured party could and would have entered into the subsequent contract, even if the contract had not been broken and could have the benefit of both. This is called “lost volume” and then the subsequent transaction is not a substitute for the broken contract. Therefore, the injured party’s damages are based on the net profit that he or she has lost as a result of the broken contract.
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