Understanding the 4 Key Types of Damages Available in a Breach of Contract Settlement
When a contract is made, it creates a legally binding agreement that protects the interests of each party. If one party breaches the terms of the agreement, it can cause considerable problems for the other. Thankfully, the wronged party can choose from several legal remedies to make up for any losses. One of the most common remedies comes in the form of damages, or monetary awards, which are further broken down into four general categories.
Compensatory DamagesCompensatory damages (or “actual damages”) are specifically meant to make up for the plaintiff’s losses. Plaintiffs may seek compensatory damages based on evidence of the losses, injuries, or harm they have suffered. The legal goal is to ensure that the injured party is “made whole again.” Compensatory damages come in two forms. Expectation damages aim to cover what the plaintiff expected to receive from the contract with calculations based on market values or the contract itself. Consequential damages refer to indirect damages that fall outside of the contract’s scope, but they may account for losses that occurred directly as a result of the breach.
Punitive DamagesAs the name suggests, punitive damages serve as a punishment and a deterrent from possible breaches in the future. They are typically awarded in addition to compensatory damages. Punitive damages are rare, but they may be awarded to the breaching party in response to deliberate and harmful behavior. They may also be found in cases that overlap with fraud or tort law.
Liquidation DamagesDamages are sometimes included in the contract itself, determined during contract negotiations, and later used as a guideline in the event of a breach. These liquidated damages make it easier to determine the right monetary award in cases where it’s difficult to calculate the appropriate amount.
Nominal DamagesIf a plaintiff can prove a breach of contract but didn’t lose money because of it, they may be awarded nominal damages. Nominal damages involve a token amount of money, such as one dollar, used to indicate that the plaintiff “won” the breach of contract claim. These damages are also rare in contract cases, which usually involve some form of loss, but they may also appear in cases that cross over with tort law.