When a contract is breached, the injured party may seek damages to recover their losses. The law recognizes three general categories of damages: expectation damages, reliance damages, and restitution damages. Each serves a distinct purpose in compensating a plaintiff and ensuring fairness in contractual disputes.
Expectation Damages: The Standard Compensation
The primary measure of damages for a breach of contract is expectation damages. These damages aim to place the plaintiff in the position they would have been in had the contract been performed as agreed. Courts may calculate this in various ways, including covering pre-contractual expenses or assessing the value of property at the time of trial. However, expectation damages are subject to legal principles such as reasonableness, mitigation, remoteness, and foreseeability.
Reliance Damages: Compensating for Investments Made
When expectation damages cannot be precisely calculated—such as when lost profits are too speculative—plaintiffs may seek reliance damages. These damages reimburse expenses incurred in reliance on the contract being performed. This ensures that plaintiffs are not left at a financial disadvantage due to a defendant’s breach.
Restitution Damages and Unjust Enrichment: Preventing Wrongful Gain
Restitution damages, unlike expectation or reliance damages, focus on preventing a wrongdoer from profiting from their breach. These damages aim to strip the defendant of any unjust gains made at the plaintiff’s expense. However, not all contract breaches will give rise to claims of unjust enrichment—this remedy is reserved for cases where other forms of damages prove inadequate.
The Role of Reasonableness, Foreseeability, and Mitigation
Damages for breach of contract must be reasonably foreseeable at the time of contracting. This means that compensation is limited to losses that both parties would have reasonably anticipated as a likely consequence of a breach. Additionally, plaintiffs have a duty to mitigate their losses, meaning they must take reasonable steps to reduce the financial impact of the breach. The fact that the expenditure of time or money is required to avoid a larger loss will not excuse the plaintiff from making the expenditure if the expenditure is reasonably small and the chances of avoiding the greater loss favourable.
When a contract is breached, the law provides multiple avenues for recovery. Whether through expectation, reliance, or restitution damages, plaintiffs can seek compensation tailored to their specific losses. Understanding these principles is essential for both businesses and individuals entering contractual agreements, ensuring they are prepared to protect their interests in the event of a dispute. Parties involved in contract disputes are encouraged to discuss potential claims they may have relating to breaches of contract in all manners of commercial arrangements.
At Gilbertson Davis LLP, our lawyers can assist you with breach of contract matters involving Commercial and Civil Litigation, Commercial Litigation, Real Estate Litigation, Contract Litigation and can aid in resolving your legal issues in a timely and cost-effective manner. Please contact Gilbertson Davis LLP to schedule a consultation with one of our lawyers.
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