Our economic system is built on trust and foreseeability. If two people make a contract together, its expected that both parties will perform their obligation under the contract’s terms. When a party doesn’t perform as expected, this trust begins to break down. Thankfully, there are mechanisms in place to hold neglectful parties accountable.
When a party doesn’t live up to its contractual obligations, the aggrieved party can sue them in a court of law. If this lawsuit is successful, the court will award them compensation – known as damages – to address the losses they incurred because of the breach.
Here are the kinds of damages a court may grant for breach of contract:
Compensatory
These are straightforward damages that address the losses incurred by the plaintiff because of the defendant’s breach. In the vernacular of the court, they are intended to make the plaintiff “whole” again by bringing him to the state he would’ve enjoyed if the defendant had performed the contract.
For example, a laundry mat hires a mechanic to repair their washers for a fee of $5,000. If the mechanic performs the repairs and the laundry mat refuses to pay, the court will grant the mechanic $5,000 in compensatory damages.
Liquidated
These are damages established by the contract itself. For example, a boat owner signs a contract with a storage company to have his boat stored at the company’s facility until June 2nd. The contract might include a term that requires the owner pay $1,000 for each day the boat remains at the facility beyond June 2nd.
Equitable
In certain situations, the court might demand that the defendant perform the terms of the contract – this is known as specific performance. For example, a homeowner agrees to sell their house to a buyer and signs a contract of sale. If the homeowner later refuses to sell, the court may force them to sell the house to the buyer.
Contract law is notoriously slippery, and courts can be unpredictable in how they interpret certain terms. For these reasons, its important to have professional help by your side whenever you draft or sign a contract.
A lawyer can foresee issues before they arise and draft an airtight document that protects your interests both in the present and future.