(9) Damages for Breach of Contract

What is the primary purpose of contract damages?

To protect the plaintiff's expectancy under the contract.

What does expectancy damages attempt to accomplish?

Place the plaintiff in the economic position they would have occupied had the contract been performed.

What are the four major categories of contract damages?

General damages, special damages, liquidated damages, and reliance damages.

What are general damages in a breach of contract action?

Damages the law presumes naturally flow from the breach.

What interest do general damages protect?

The plaintiff's benefit of the bargain.

What is the usual measure of general damages in a contract case?

The difference between the contract price and the fair market value at the time of the breach.

When is the market-price differential measured?

At the time the contract is breached.

If a buyer contracts to purchase an item for $1,000 and its fair market value at breach is $1,200, what are the buyer's general damages?

$200.

Why does the law award the market-price differential?

To give the plaintiff the benefit of the bargain.

What are special damages in a breach of contract action?

Damages that do not naturally flow from every breach but were within the parties' contemplation when the contract was made.

What famous case governs recovery of special damages?

Hadley v. Baxendale.

What rule did Hadley v. Baxendale establish?

Special damages are recoverable only if they were within the contemplation of the parties when the contract was formed.

What is the contract-law rule of foreseeability?

The Hadley v. Baxendale rule.

What burden does the plaintiff have when seeking special damages?

The plaintiff must prove the damages with reasonable certainty.

Why are lost future profits for a new business often difficult to recover?

Because they are difficult to prove with reasonable certainty.

What is the avoidable consequences rule in contract law?

The plaintiff must take reasonable steps to mitigate damages after the breach.

Does the plaintiff have a duty to mitigate contract damages?

Yes.

What are liquidated damages?

Contractually agreed damages that compensate for anticipated harm from a breach.

When will a liquidated damages clause generally be enforced?

When it is a reasonable approximation of anticipated damages rather than a penalty.

Why must damages be difficult to prove before a liquidated damages clause is enforced?

Because uncertainty justifies the parties agreeing on damages in advance.

How does the difficulty of proving damages affect the validity of a liquidated damages clause?

The more difficult damages are to prove, the more likely the clause is enforceable.

If a valid liquidated damages clause is designated as the sole remedy, what effect does it have?

It becomes the exclusive remedy available.

What happens if a court refuses to enforce a liquidated damages clause?

The plaintiff must prove actual damages.

What are reliance damages?

Damages reimbursing costs incurred in reliance on the contract before notice of the breach.

When are reliance damages generally available?

When expectation damages cannot be proven or are inappropriate.

Why might expectation damages be unavailable?

Because the normal measure does not apply or consequential damages cannot be proven with reasonable certainty.

What expenses do reliance damages compensate?

Reasonable costs incurred in reliance on the contract before learning of the breach.

Testable Issue: What is the difference between general and special damages in contract law?

General damages naturally flow from the breach, while special damages must have been foreseeable under Hadley v. Baxendale.

Testable Issue: What is the difference between expectation damages and reliance damages?

Expectation damages give the plaintiff the benefit of the bargain, while reliance damages reimburse expenses incurred because the plaintiff relied on the contract.

Testable Issue: When is a liquidated damages clause enforceable?

When it reasonably estimates anticipated damages, damages are difficult to prove, and the clause is not a penalty.

Testable Issue: What happens if a liquidated damages clause is unenforceable?

The plaintiff must prove actual damages.

Essay Rule: How should you analyze damages for breach of contract?

Begin with expectation damages, determine whether general and special damages are recoverable, analyze foreseeability under Hadley v. Baxendale, determine whether mitigation limits recovery, evaluate any liquidated damages clause, and consider reliance damages if expectation damages cannot be established.

Master Synthesis: What is the overall goal of contract damages?

To place the plaintiff in the same economic position they would have occupied had the contract been fully performed by protecting expectancy, while allowing special, liquidated, or reliance damages when appropriate.