Three Types of Contract Damages

When it comes to business, agreements and contracts are an essential part of the process. However, there are times when things don`t go as planned, and one party may be suffering from a loss. In these situations, contract damages come into play. Contract damages are monetary compensation provided to the party who has suffered a loss due to the breach of contract. In this article, we`ll discuss three types of contract damages that you may come across.

1. Compensatory Damages:

Compensatory damages are considered the most common type of damages that are awarded in a breach of contract. When a party suffers a loss due to a breach of contract, compensatory damages are awarded to put them in the same position as they would have been had the contract been fulfilled correctly. For example, let`s say Company A was supposed to deliver a product to Company B by a specific date. However, due to a delay, Company B had to purchase the product from another vendor at a higher price. In this scenario, Company A would be held liable for the difference in the cost of the product and the additional expenses incurred by Company B because of the breach of contract.

2. Consequential Damages:

Consequential damages are awarded when the party has suffered consequential losses resulting from the breach of contract. These damages are not a direct loss but are instead an indirect loss resulting from the breach. These damages are often more challenging to prove, as the party must show that the damages resulted from the breach of contract. For example, let`s say Company A and Company B had agreed to a contract for the supply of a specific product. Due to a breach of contract, Company B was unable to fulfill its obligation to its clients, leading to a loss of customers. In this scenario, Company B would be entitled to consequential damages.

3. Punitive Damages:

Punitive damages are awarded to punish the party responsible for the breach of contract and to deter them from breaching contracts in the future. These damages are usually awarded in situations where the breach of contract was intentional or malicious. However, punitive damages are not awarded in all cases, and the court usually has discretion over whether to award these damages or not.

In conclusion, understanding the different types of contract damages is essential to ensure that you protect yourself in case of a breach of contract. It`s essential to seek legal advice to understand the process and steps required to receive compensation. Remember, always ensure that you have a valid and enforceable contract to avoid any litigation or disputes in the future.