Adam Keilen

How are damages calculated for contract disputes?

Expectation Damages. Generally, if your lawsuit involves a contract, the contract damages (also called “expectation damages”) are calculated so as to put you in the same position you would have been in had the contract been performed. In other words, you are entitled to the harm caused by the breach, and will be entitled to the damages that were reasonably foreseeable when the contract was made – such damages must be certain, not merely speculative.

Hypothetical. Damages – certain. Andy, a boat manufacturer, had a contract to sell a boat to Bob for $100,000. Andy’s cost to manufacture and deliver the boat was $70,000. Before Andy started the job and incurred any costs, Bob broke his promise to buy the boat, thereby breaching his contract with Andy. Andy’s damages would consist of $30,000, the profit he lost.

Damages – speculative. However, if Andy were to argue that he could have invested his $30,000 profit in a local start-up venture that later went public, he would not be able to include such a claim – such an argument would be deemed speculative, and outside the scope of reasonably foreseeable damages when the contract was formed.

The take away…. Generally, contract cases don’t result in windfall awards. The end result is usually the benefit of the bargain you contracted for; the non-breaching party is put in the same position they would have been in had the contract been performed.