Back To CourseBusiness 103: Introductory Business Law
22 chapters | 172 lessons | 13 flashcard sets
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Ashley is an attorney. She has taught and written various introductory law courses.
Jill is an artist. She makes beautiful collages using old family photos. John recently lost both of his parents and is emotionally distraught. He spends months gathering and organizing precious photos of his parents, grandparents and other dear relatives. He then hands the original photos over to Jill for her to create a unique art piece just for John. John and Jill execute a contract, and John pays Jill $3,000 in advance. Jill promises to have the collage to John by March 1.
On March 2, John still hasn't heard from Jill. John contacts Jill, only to find out that she lost all of John's photos and won't be completing John's collage. John then sues Jill for breach of contract. John knows he'll likely recover his $3,000, but he's worried about the expense of the lawsuit. Can he also recover those expenses? And, he's devastated. He can't eat or sleep. He was really looking forward to having the collage and can't believe his photos are lost. He'd like to see a psychologist but is worried about that expense, too. Shouldn't Jill have to pay for that? What, exactly, can John recover?
A breach of contract case is a common type of civil lawsuit. Most often, the innocent party will be granted an award of money damages. This remedy is meant to compensate the innocent party, and make up for any injury or loss the party experienced or will likely experience due to the breach. We know that John can likely recover the $3,000 he paid to Jill, because this is John's actual monetary loss at this time. But are John's other damages recoverable?
An innocent party will want to be aware of the limitations placed on money damage awards. Not all of an innocent party's expenses are recoverable. Many types of expenses, though related to the breach of contract, are non-recoverable damages.
This simply means that the innocent party won't be granted a money award for these expenses. John needs to know what expenses are non-recoverable. Because contract damages are meant to be compensatory, an innocent party's damages must reflect an established, reasonable loss.
Contract damages can't be approximate. They can't be speculative, remote or contingent. Generally speaking, the court won't award money damages in an amount that will put the innocent party in a better position after the breach than the party would be in if the contract was performed.
Contract damages also can't usually be punitive damages, which means that the damages can't be geared toward punishing the breaching party. John is hurt and furious with Jill. He'd like to have her pay a large sum for his loss. He thinks his trouble is worth much more than $3,000.
There are, however, only a few, particular situations in which punitive damages will be awarded for the breach of contract. These are:
We probably need to know why, or how, Jill lost John's photos. If Jill was grossly negligent in her handling of John's photos, then John may be able to recover more than $3,000. Gross negligence would involve a serious mishandling of John's property. Let's say that Jill placed the photos on the hearth of her fireplace while enjoying a fire. The photos were burned. John will want to argue that this constitutes gross negligence, and that Jill should be ordered to pay more than $3,000 as a punitive remedy.
Keep in mind that all breach of contract damages must be foreseeable. This means that both contracting parties could have reasonably expected the damages to accompany a breach of contract at the time they executed the contract. We know that Jill should have reasonably foreseen that she'd have to repay John's $3,000 if she didn't deliver the collage to him.
But what other damages should Jill have reasonably foreseen? Direct damages are the easiest to foresee. For this reason, special damages are not usually recoverable. Special damages are meant to compensate the innocent party for injury or loss that is indirectly related to the breach.
Even special damages must be foreseeable to be recoverable. An innocent party can only recover a money award for those items that the breaching party knew, or should have known, would flow from a breach at the time the parties entered the contract. Normally, only those damages that are directly related may be recovered, because those are the damages that are reasonably foreseeable.
John's $3,000 is directly related to the breach and foreseeable. The court will have to decide which of John's indirect expenses were also foreseeable. John might have travel expenses, going back and forth to see Jill and check on the project. Perhaps John incurred expenses to acquire the photos that Jill then lost. Maybe John planned a party for his family in order to unveil the collage. These expenses are indirectly related to the breach.
Note that there are many different types of special damages. Emotional distress is one type of claim that is often included in a request for special damages. This is a claim for any mental anguish, emotional suffering or psychological trauma caused by the breach of contract. Normally, a court won't allow money damages for emotional distress due to a breach of contract. There are, however, a few special circumstances in which the court will consider these damages:
In our scenario, Jill's breach of contract involved the loss of John's treasured and unique items. If Jill should've reasonably foreseen that the breach would cause emotional distress to John, then she'll likely be ordered to pay any money damages directly related to John's mental anguish.
For instance, let's say that John decides to see a psychologist because he is heartbroken over the loss of his photos. John told Jill just how important the photos were before the two executed their contract and John handed the photos over to Jill. In this case, Jill will likely be ordered to pay a reasonable amount for John's psychologist appointments.
There are many civil action claims that also allow an innocent party to recover reasonable attorney's fees. This means that the innocent party can sometimes receive a damage award that includes the reasonable expenses he or she incurred in hiring an attorney to bring the claim. However, attorney's fees aren't usually recoverable in a breach of contract claim. There are a few, limited, exceptions. These include:
Let's say that Jill and John's contract contained an attorney's fees clause, or a prevailing party clause. This type of clause states that, if the parties are forced to litigate any issue directly related to the contract, the losing party will be responsible for paying the winning party's reasonable attorney's fees. Since Jill breached the contract, she'll be responsible for paying John's reasonable attorney's fees that he incurs in bringing the lawsuit for breach of contract.
It's also important to note that an innocent party can't recover damages that he or she could have avoided or made no reasonable effort to mitigate. This is known as the duty to mitigate. Generally speaking, this means that an innocent party must take reasonable steps to minimize his or her damages. Any damages that the innocent party could have reasonably avoided, or minimized, are not recoverable.
For example, let's say that John could have easily made copies of his family photos. In fact, Jill suggested that John make copies and keep the originals for himself. She told John that she could construct the collage from copies. If Jill loses the copies and is unable to create the collage by March 1, she'll likely still owe John $3,000 in damages since that's what he paid for the collage. However, Jill won't likely owe special damages since the photos weren't priceless and they are replaceable.
Let's review. In a breach of contract case, the innocent party will usually be granted an award of money damages. This remedy is meant to compensate the innocent party, and make up for any injury or loss the party experienced or will likely experience due to the breach. There are, however, several limitations on money damage awards. Not all of an innocent party's expenses are recoverable. Many types of expenses, though related to the breach of contract, are non-recoverable damages.
Contract damages can't be approximate, speculative, remote or contingent. Generally speaking, the court won't award money damages in an amount that will put the innocent party in a better position after the breach than the party would be in if the contract was performed. Contract damages also can't usually be punitive damages, which means that the damages can't be geared toward punishing the breaching party.
All breach of contract damages must be foreseeable. This means that both contracting parties could have reasonably expected the damages to accompany a breach of the contract at the time they executed the contract. For this reason, special damages are not usually recoverable. Special damages are meant to compensate the innocent party for injury or loss that is indirectly related to the breach.
One type of special damage is emotional distress. There are only limited circumstances in which emotional distress will be considered in a breach of contract case. The same is true for an award of attorney's fees. These fees aren't usually recoverable in a breach of contract claim. Also remember that the innocent party has a duty to mitigate. The party won't be allowed to recover any amount that he or she reasonably should have avoided or minimized.
When the lesson is done, you should be able to:
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Back To CourseBusiness 103: Introductory Business Law
22 chapters | 172 lessons | 13 flashcard sets