Login
Copyright

Non-Recoverable Damages: Damages Due to Breach of Contract

An error occurred trying to load this video.

Try refreshing the page, or contact customer support.

Coming up next: Liquidated Damages: Damages Due to Breach of Contract

You're on a roll. Keep up the good work!

Take Quiz Watch Next Lesson
 Replay
Your next lesson will play in 10 seconds
  • 2:07 Non-Recoverable Damages
  • 5:10 Foreseeability
  • 6:50 Emotional Distress
  • 8:28 Attorney's Fees
  • 9:53 Mitigation
  • 10:55 Lesson Summary
Add to Add to Add to

Want to watch this again later?

Log in or sign up to add this lesson to a Custom Course.

Login or Sign up

Timeline
Autoplay
Autoplay
Create an account to start this course today
Try it free for 5 days!
Create An Account

Recommended Lessons and Courses for You

Lesson Transcript
Instructor: Ashley Dugger

Ashley is an attorney. She has taught and written various introductory law courses.

A money damage award is the most common remedy for a breach of contract. However, there are several limitations on money damage awards. This lesson discusses items that aren't recoverable, or won't usually be included, in a damage award.

Breach of Contract

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?

Non-Recoverable Damages

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:

  1. The breach of contract involves a claim against an insurance company in which the company acted in bad faith. Generally, this means that insurance companies are required to act fairly and in good faith toward policyholders. An insurance company can't unreasonably deny or delay a claim.
  2. The breach of contract involves a violation of fiduciary duty. This means that a party in a position of trust, such as a director, agent or broker, failed the duty to act solely in the best interest of his or her employer or principal.
  3. The breach of contract also constitutes a tort, and that tort allows for punitive damages. This is true in breach of contract cases that involve gross negligence or fraud. A tort is a wrongful act that leads to legal liability for the party that committed the act.

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.

Foreseeability and Special Damages

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.

Emotional Distress

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:

  1. The breach of contract involved a promise to marry.
  2. The breach of contract involved a failure to properly deliver an urgent message regarding death or serious illness.
  3. The breach of contract involved the loss of a treasured and unique item.

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.

Attorney's Fees

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:

  1. The contract explicitly states that the breaching party will be responsible for the innocent party's reasonable attorney's fees.
  2. The breach of contract claim involves an abuse of the legal system, such as an unfounded claim or a frivolous defense.
  3. Some states have certain laws allowing the recovery of attorney's fees in particular situations.

To unlock this lesson you must be a Study.com Member.
Create your account

Register for a free trial

Are you a student or a teacher?
I am a teacher

Unlock Your Education

See for yourself why 30 million people use Study.com

Become a Study.com member and start learning now.
Become a Member  Back

Earning College Credit

Did you know… We have over 95 college courses that prepare you to earn credit by exam that is accepted by over 2,000 colleges and universities. You can test out of the first two years of college and save thousands off your degree. Anyone can earn credit-by-exam regardless of age or education level.

To learn more, visit our Earning Credit Page

Transferring credit to the school of your choice

Not sure what college you want to attend yet? Study.com has thousands of articles about every imaginable degree, area of study and career path that can help you find the school that's right for you.

Create an account to start this course today
Try it free for 5 days!
Create An Account
Support