Carissa Ellis
October 23, 2015
Litigation

What is a Breach of Contract?

Damages-of-Breach-Of-Contract-In-WisconsinA breach of contract is when a party to a contract fails to live up to the terms of a contract.

 

What happens when a party to a contract fails to perform its obligations which results in a breach of the contract?

Often times, the parties will attempt to negotiate the situation amongst themselves. However, if the matter cannot be settled, the parties may resort to utilizing mediation, arbitration, or court action. If the parties are forced to go to court and a party is found to be in breach of contract, this may result in damages being awarded to the other party.

 

What type of damages may be awarded by a court?

Damages for Breach of Contract:

Compensatory Damages: These damages assist in compensating the non-breaching party for any economic losses caused by the breach of contract. The goal of this type of damage is to place the non-breaching party in the same position they would have been in had the contract been performed.

Liquidated Damages: These types of damages are awarded when there is a provision in a contract which states the amount of damages that shall be awarded in the event of a breach. Liquidated damages cannot be used as punishment to a party or to harm the party for the breach.

Punitive Damages: In incidents where the breaching party acted with extreme negligence the court may award punitive damages. These damages are used to both punish the breaching party and to prevent future breaches of the same manner. These types of damages are not normally involved in contract disputes.

 

How are Compensatory Damages Measured?

Compensatory damages are meant to compensate the non-breaching party for the harms and/or losses suffered due to breach on the part of the other party. The following are ways in which this type of damage is measured:

      1. Interest of the non-breaching party to a breached contract
        • Expectation Interest: The interest in having the benefit of the contract. The court grants the non-breaching party the amount they would have received had the contract not been breached.
        • Reliance Interest: The interest in being reimbursed for losses caused by reliance on the contract. This is used when expectation damages are excessive or uncertain. It is the cost that came out of the non-breaching party’s pocket but did not go into the breaching party’s pocket.
        • Restitution Interest: The interest in getting back what was paid while trying to complete part of a contract, taking away any benefit the breaching party was given by the non-breaching party. Unlike expectation damages, restitution damages places the non-breaching party back to their pre-contract position.
      2. Types of Breaches
        • Delay:  Failure to perform a contract in a set time frame unless excused. The non-breaching party may receive damages which were caused by the delay. Actual losses sustained is the measure of such damages.
        • Anticipatory Repudiation: When a party does not intend to live up to their obligations under a contract. If the non-repudiating party is willing to perform, they may recover damages caused by breach. The time at which the unconditional repudiation is communicated to the non-repudiating party is the time beyond which that non-repudiating party may incur no more damages.
        • Defective but Substantial Performance: The measure of damages for defective performance is generally the reasonable cost of making the work performed. If the defects are so substantial that the performance is worthless, then the non-breaching party may be entitled to recover the cost of having the job redone.
      3. Interest, Attorney Fees, and Costs: Unless stated in the contract, attorney’s fees, costs, and interests are not generally recoverable as an element of damage. When drafting a contract, parties should consider including a clause providing for interest, attorney’s fees, and costs as a part of the damages for a breach.
      4. Limitations of Recovery:
        • An injured party to a breach of contract may recover damages only for those losses that they can prove with reasonable certainty.
        • A breaching party is responsible for paying only those losses that were foreseeable to them at the time of the contracting.
        • Plaintiffs injured by a breach of contract have the duty to avoid or minimize damages.

 

How are Liquidated Damages Enforced?

      1. When it is difficult to determine the actual damages suffered by the party and to arrive at a compensatory damage amount.
      2. Liquidated damages are reasonable predictions of what it will take to compensate the non-breaching party and may not be a penalty.

 

How are Punitive Damages Measured?

      1. Claimant’s Evidence:
        • The Claimant must present evidence showing the outrageous behavior.
        • The Claimant may also be required to produce evidence of a sum of money for the jury to decide if it is appropriate.
      2. Jury’s Factors: The following factors are considered by the jury when determining a proper amount to be award for punitive damages:
        • Severeness of the defendant’s acts;
        • Degree of malicious intention;
        • Potential and/or actual damages that might have resulted from such acts;
        • The defendant’s ability to pay;
        • Seriousness of the hazard to the public;
        • Profitability of the misconduct;
        • The defendant’s attitude and conduct upon discovery of the misconduct;
        • The defendant’s awareness of the damage and its excessiveness;
        • Employees involved in causing or concealing the misconduct;
        • Duration of both the improper behavior and its concealment;
        • The defendant’s financial condition; and
        • Particular judgement’s probable effect on the defendant, including the total punishment the defendant will receive from other source.

If you have any questions regarding damages resulting from a breach of contract, contact one of our Green Bay Attorneys today at 920-499-5700 or send us a message below and a Gerbers Law litigation attorney will answer your inquiry as soon as possible.

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Sources:
www.wisbar.org

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