What kinds of damages can be awarded in a breach of contract lawsuit?
As a general rule, the victim of a breach of contract is entitled to recover compensatory damages. This means the amount of money that would put the victim in the financial position he or she would have occupied had the contract not been breached.
There are two rules for measuring compensatory damages.
The first is called the expectation or benefit-of-the-bargain rule. Under this rule, damages are measured by the benefits the victim expected to receive upon successful completion of the contract. These damages often take the form of lost profits caused by the breach. Lost profits can be difficult to prove and may require the assistance of an expert witness such as a Certified Public Accountant.
In many cases, expectation damages are impossible to calculate. The law therefore recognizes a second measurement of damages, called reliance damages. In contrast to expectation damages, the purpose of reliance damages is to return the victim to the financial position he or she occupied before making the contact. Reliance damages might include out-of-pocket expenses incurred by the victim in performing his or her side of the contract. The goal is to compensate the victim for the harm caused by the breach.
The victim of a breach of contract almost always has a duty to mitigate damages. This means the victim must take reasonable steps to prevent or minimize damages, once the victim knows the contract has been breached. The breaching party will not normally be required to pay damages the victim could have avoided with reasonable efforts.
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