5 Types of Damages for Breach of Contract

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5 Types of Damages for Breach of Contract

Are you wondering about seeking damages for breach of contract? There are five important types of damages that might be available, depending on your situation: compensatory damages, specific performance, an injunction, liquidated damages, or rescission. If you are dealing with a potential breach of contract, you probably need legal advice on what you should do next. You also need advice about your potential remedies for the breach. Obtaining a satisfactory remedy for a breach of contract could be important for your business.

A breach of contract happens when one party who signed a contract does not fulfill its obligations to the other party to the contract. For example, a supplier of goods might fail to deliver the goods on time, according to the deadline specified in the written contract between the supplier and the purchaser. Many contracts are time-sensitive or have other specific requirements for fulfilling their terms. Being late, delivering sub-par goods, or simply not meeting the contract terms are common reasons why a business might need to seek damages for breach of contract. As mentioned above, the damages available may vary depending on your situation.

  1. Compensatory Damages

First, compensatory damages are “intended to compensate the injured party for loss or injury”. These damages are also called “actual damages”. Compensatory damages include two subtypes: general and special damages. General damages compensate you for direct losses you suffered due to a breach. For example, if your supplier failed to deliver goods on time, you might have needed to purchase replacement goods. These goods may have been more expensive because you had to buy them at the last minute. The general damages that the supplier might owe you would include (1) the difference between the more expensive goods’ price and the price you were going to pay the supplier, as well as (2) refund of any money prepaid to the supplier, and (3) reimbursement for expenses if you had to return unused goods to the supplier.

Special damages also might be available if there were any special circumstances attached to the deal. For example, you might have needed your supplier to deliver a machine by a certain day because you had to meet a production order due several days later. You might be able to obtain special damages for renting a machine for a few days so you could meet the order.

  1. Specific Performance

A second, less common form of damages for breach of contract is specific performance. Specific performance is an order to the person or company who breached the contract. It requires them to fulfill the terms of the contract as written, notwithstanding the previous breach. A court may order specific performance when “monetary damages are somehow inadequate to fix the harm”. This remedy is more common in real estate disputes. For example, a seller may be ordered to sign a property over to a buyer as required in the purchase agreement.

  1. Injunction

Third, an injunction is a possible breach of contract remedy. An injunction can be seen as the opposite of specific performance – it requires a party to a contract to refrain from doing something. When a court orders an injunction, it states that a party to a contract must stop taking some action relating to the subject of the contract. For example, a court might order an injunction to stop a business owner from repeatedly violating a contract’s terms.

  1. Liquidated Damages

Liquidated damages are a type of compensatory damages available when general or special damages are exceptionally difficult to prove. Sometimes a business cannot directly show the amount of losses resulting from a breach of contract. Instead, the business can request liquidated damages, often in a specific amount listed in the contract. A typical situation when liquidated damages might be an appropriate remedy is when intellectual property is at stake. If a party to a contract discloses the other party’s software source code or other IP to the public, its value could greatly diminish. The other party may have recourse by seeking liquidated damages.

  1. Rescission

Finally, rescission or cancellation of a contract might be available as a remedy. You could have the option of ending the contract because the other party materially breached its terms. Conversely, you and the other party might mutually agree to end the contract and “discharge all remaining obligations”. Courts also can rescind or “void” contracts if they violate public policy.

Breach of Contract Questions? We’re Here to Help

Henke, Williams & Boll’s experienced Houston business lawyers can assist you with breach of contract questions. If you think you are owed damages under a contract, you need legal advice about your options for moving forward. We help our clients find the best solution possible to their business litigation issues. To schedule a confidential consultation, call (713) 936-5521 or use our convenient Contact Form.

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