When there is breach of contract, you would normally read the contract, and sue, expecting to receive whatever you would have received, had the contract been perfumed by the other side the way it should have been. This is generally the way damages are measured in a breach of contract case—we want the non breaching party to receive whatever it is they expected to receive under the contract.
Going Beyond the Contract
But sometimes, when a contract is breached, the damages sustained by the nonbreaching party go far beyond just what is in the contract.
For example, imagine that a restaurant was supposed to have its plumbing redone, and the job, by contract, was to be performed in 5 days. The plumbing company doesn’t fulfill its agreement, and walks off the job. As a result, the restaurant loses out on New Year’s dinner business—it cannot take customers without plumbing.
According to the contract, all the restaurant was to receive was working plumbing. But by not getting the services delivered when expected, as a consequence, the restaurant lost thousands in New Years Eve customer business.
This is a classic example of consequential damages. Consequential damages must be related to, or caused by, the other party’s breach.
Consequential damages often include lost profits, losses of profitable opportunities, or loss of business revenue, for and caused by the breach of contract.
Can You Get Consequential Damages?
Courts are often hesitant to award consequential damages, because although they are caused by the breach of the contract, they are not specifically written into the contract itself, and they go beyond what the expectations are of the parties under the contract.
Writing Your Contract
One way to avoid this, enabling you to receive consequential damages, is to include them in the contract—for example, to state that there is an event, or a date, which is important, and stating what your losses will be, in the event of a breach. This would snake your otherwise consequential damages, more like direct damages from the breach of contract, and thus, easier to recover.
The Pros and Cons
If consequential damages are included in your business contracts, it can serve as protection in the event the other side breaches the contract—if you are the non breaching party, you can truly be made whole by all the damages and losses the breach of contract caused you.
On the other hand, if you are the party accused of a breach, you may find that the damages you may owe to the other side if you in fact did breach, far exceed the terms written into the contract. Consequential damages makes it hard for parties to budget “worst case scenario” in the event they are found to breach an agreement, and they can open the door to a party claiming excessive and expensive damages, for what would otherwise be a relatively small-damage breach of contract case.
Do you have a contract to enforce or are you being sued for breaching an agreement? Call the West Palm Beach business lawyers at Pike & Lustig today.
Sources:
law.cornell.edu/wex/consequential_damages
scholar.google.com/scholar_url?url=https://www.journals.uchicago.edu/doi/pdf/10.1086/468142&hl=en&sa=X&ei=DhSnZMalLN2Sy9YP2fyhwAg&scisig=ABFrs3yHD33cNOOBRZFsv5M8qpqX&oi=scholarr
By Michael Pike and Daniel Lustig | Posted on August 4, 2023
