Before you go to court, you should know what relief you want the court to give you. Courts can award a wide variety of damages, or financial remedies, to a party that suffered a wrong. The damages a court will award vary depending on the applicable area of law. This article will focus on the typical categories of damages a party might be entitled to receive in a contract dispute.
Damages in contract
In contract law, damages are meant to put the wronged party in the position it would have been in had the other party followed through on its end of the bargain. This requires the court to examine the contract, what it was worth, and what loss the wronged party suffered.
A wronged party must choose which type of remedy it wants: damages, or specific performance. Specific performance is when the court requires a breaching party to fulfil the agreement as promised. If the party chooses money equivalent to its entire loss, it cannot then seek specific performance as well. For example, if Alice contracted to sell her house to Mark and then refused to follow through, Mark could ask the court to award him either the house (specific performance) or damages equivalent to what the house is worth. He cannot seek both the house and the damages; otherwise, he would recover twice the contract's value.
Reliance damages compensate a plaintiff for expenses they incurred while expecting the other party to honour the contract. For example, let's say Valerie hires Gary to build her a fence and Gary buys the supplies he needs. If Valerie tells him not to build and refuses to pay, Gary can claim for the supplies he bought while relying on the contract.
If one party provides the other party with a benefit before the breach, it can sue to get that benefit back. For example, say Jolene agreed to pay Lola $1,000 for her motorcycle: $500 up front, and $500 after receiving the motorcycle. She paid the initial $500, but Lola never gave her the motorcycle as promised. Lola can sue to get her $500 back in restitution.
Loss of profits
A plaintiff may lose profits because of the defendant's breach. Say Emile hired Sharon, a famous singer, to perform at his concert hall, and advertised accordingly. If Sharon then refuses to perform, Emile loses the profit he would have made. He can sue Sharon for that lost profit.
Diminution in value
Sometimes in the interim between breach and trial, the property contracted for decreases in value. For example, one party could contract to buy another party's stocks. If the buyer refuses to go through with the transaction, and the stocks then fall in value, the seller could claim for the difference in the stocks' value.
Loss of chance
Sometimes parties sue when, because of someone else's wrongful behaviour, they lose the opportunity to obtain a benefit. As this area of the law is by definition nebulous, certain requirements apply. The benefit cannot be so remote that imposing liability on the other party would be unfair. Furthermore, the plaintiff must prove the probability that it would have obtained the benefit if not for the other party's wrongful behaviour. The fact the opportunity existed is not enough; the plaintiff must show (on the balance of probabilities) that it would have earned the benefit.
Courts award punitive damages when a party has committed egregious behaviour which the court wishes to punish and deter. For example, in one case an insurance company tried to avoid covering a family's home which burned down by claiming the family committed arson. In that case, the Supreme Court of Canada held that a high punitive damages award was justified.
Courts will only award punitive damages where a party has committed particularly shocking behaviour; therefore, a common breach of contract is likely not enough to meet this threshold.
Mitigation and nominal damages
Even if the court determines you were in the right, and that the other party owes you damages, you still bear the responsibility to mitigate. This means you must do what you can to keep your losses as minimal as possible.
For example, if Beth contracts to buy Louise's painting for $1,000 then refuses to go through with the deal, Beth is liable for breach of contract. However, Louise must mitigate her damages by trying to find another buyer for the painting. If she sells the painting for $800, she can then sue Beth for the remaining $200, as she has mitigated the other damages.
If Louise unreasonably refuses to sell the painting, she has failed to mitigate, and a court may then lower her damages accordingly. In some situations, the court may only award her nominal damages—a very low amount which only covers a fraction of her claim. For example, in some cases, courts have awarded nominal damages of a single dollar.
Therefore to protect her interests and her right to full recovery, Louise must properly mitigate what she suffered.
If you have encountered a contractual dispute, it is important to know what damages and other remedies are properly recoverable. With that knowledge you might be in a better position to resolve your dispute, failing which you will be better armed to preserve your position.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.