CONTRACT DAMAGES: WHAT CAN YOU EXPECT?
There are several types of damages each having one goal -- compensation of the injured party. In this tutorial, we will go over the most common type of damages for a party's breach of contract: expectancy damages. Put simply, expectancy means “What you bargained for minus (-) what you got.”
WHAT ARE GENERAL EXPECTANCY DAMAGES?General expectancy damages use the market value of the thing promised at the time of performance.
For example, if a party (D) agrees to sell to another party (P) certain number of shares of stock for $10,000 and then breaches that contract, P's expectancy damages would be the market price of shares at the time they were sold minus (-) the contract price ($10,000).
NOTE: this will sometimes result in no damages if P is able to buy the shares of stock from another party at the same or lower price. Indeed, P may be under a duty to "mitigate" its loss by attempting to purchase the shares from another party. The principle of "mitigation of damages" will be discussed in another tutorial.
WHAT ARE SPECIAL (CONSEQUENTIAL) DAMAGES?These damages are not measured by value of promised performance alone, but by the loss that is produced due to the lack of performance.
For example, let's assume that same party (D) agrees to repair P's factory machinery and breaches the agreement. As a consequence, P's factory cannot operate for 2 weeks. The consequential damages in this scenario equals the profit that P's factory would have otherwise made with the repaired machinery. As you can imagine, these are the damages which most parties will (attempt to) claim in a breach of contract case because they are generally greater than general damages. As a result, there are two (2) important limitations on these types of damages preventing a windfall to the party claiming them. That is, these damages must be proved with "reasonable certainty" and they must be "reasonable foreseeable."
WHAT IS REASONABLY CERTAIN?Lost profits cannot be recovered where they are "speculative, uncertain and conjectural." For example, in the scenario above, if the factory just opened, there may not be enough factual data to compute probable losses. That is, testimony and exhibits must provide a reasonably certain basis upon which a jury could use lost future profits as the measure of damages.
WHAT IS REASONABLY FORESEEABLE?The rule that damages must be "reasonably foreseeable" has its roots in the famous case of Hadley vs. Baxendale. In that the case, the court held that consequential damages must be within the "contemplation of the parties"
For example, let's assume that a funeral director entered into a contract with a deceased's girl's mother to keep punk rockers out of the funeral ceremonies and breached the contract by allowing abusive rockers to attend funeral, take drugs, abuse mourners and express their feelings at cemetery by wearing live rats. Can the grieving mother sue the funeral director for emotional distress? The answer, according to the 1984 case of Ross v. Forest Lawn Memorial Park, is "yes." The court decided that the contract, by its nature, put the funeral director "on notice that a breach would result in emotional and mental suffering" to the grieving mother.
WHAT ARE THERE OTHER, LESS COMMON MEASURES OF DAMAGES?RELIANCE DAMAGES seek to prevent losses instead of protecting expectancy. They are often utilized where a party (P) cannot prove consequential damages with reasonable certainty, such as a situation where P agrees to producing custom software for another party (D) and expends substantial time, energy and money in process. If D breaches the contract and P cannot sell the software elsewhere, P may be "limited" to reliance damages based upon his/her expenditures in producing the software.
LIQUIDATED DAMAGES are those damages that are actually spelled out in the contract. In Washington state, they cannot act as a penalty. Rather, they must be a "reasonable estimate of just compensation" for a party's breach. These types of damages are very common in lease agreements. Indeed, if you are renting your home or apartment, there is most likely a liquidated damages clause for "quitting the premises" (i.e. terminating your tenancy) before the lease term expires. Most of these clauses will be upheld so long as they do not appear to act as a penalty. Because of the potential for abuse, this is an area that legislatures concern themselves with regularly. Washington's Residential Landlord-Tenant Act (RCW 58.18) (which is beyond the scope of this tutorial, but will be addressed in another tutorial) has several provisions addressing withholding of deposits for various reasons set forth in the lease. For example, check out RCW 59.18.260 by entering this citation in the search engine of your browser.
One important note about liquidated damages is that courts "abhor forfeiture."
WHAT DAMAGES ARE NOT RECOVERABLE?In Washington state, PUNITIVE DAMAGES and MENTAL ANGUISH DAMAGES are generally not recoverable in breach of contract cases because they are considered "extra-contractual"
There are, of course, some exceptions to the above principle:
In some instances, a party's breach of contract may constitute a "tort" in which emotional distress damages are recoverable. In addition, there are certain situations where the contract has such strong personal elements that "non-economic" damages may be recoverable, such as the funeral director case discussed above. Other examples include the following: contracts to perform C-sections; contracts to bury a body; and contract to deliver a bride's trousseau.
CAN I RECOVER MY ATTORNEY'S FEES?Generally speaking, attorney's fee's are not recoverable under the "American rule" unless the contract states differently. That is, a written contact can (and often does) provide that the "prevailing party" is entitled to reasonable attorney's fees in the event of breach. In Washington, however, if a party brings a lawsuit which includes a request for attorney's fees and loses, the party may have to pay D's attorney fees. That is, RCW 4.84.330 makes unilateral fee provisions bilateral, and authorizes an award of fees to the party in whose favor final judgment is rendered. SO, IF YOU SUE, YOU'D BETTER BE RIGHT!!!