Damages

When one party breaches a contract, the other party may be entitled to damages. Generally, contract law provides damages designed to place the injured party in the same economic position as if the contract had been performed. Suppose I hire a photographer to take a series of law firm photographs and create pictures suitable for hanging for $1000. The day before the pictures are scheduled to be taken, my law firm cancels the order. The photographer claims damages. How can the court place the photographer in the same economic position as if the contract had been performed? The photographer would have received $1,000, but he may have avoided some production costs. Perhaps he will not have to pay some employees; perhaps he will avoid the cost of framing and developing charges. His damages will be reduced by the costs he avoids. Ordinarily, damages equals the contract price less costs avoided (plus incidental and consequential damages).

But supposing that afternoon, another law firm calls the photographer and offers to schedule a substitute photography session, also for $1,000. The photographer schedules the same team and they perform the photography for that other firm. Now, has the photographer lost anything? Should my law firm have to pay damages. Why or why not (as they say). Should the answer differ depending on whether the photographer has unlimited capacity to serve customers? Why should there be damages at all in this situation?

Mitigation of damages. When a party breaches a contract, the injured party commonly has a duty to mitigate damages, that is to behave in a way which limits the damages. If employee has a one year contract and employer fires employee after six months, without cause, employee cannot merely stay home and collect six months salary. Employee has a duty to mitigate damages. That means employee must make reasonable efforts to find substitute employment. The employee will collect six months salary less the amount obtained from substitute employment and the costs of the job search. These latter damages, incurred in an attempt to mitigate, are called incidental damages.

There are exceptions. If the benefits likely to come from the contract are uncertain, the injured party might receive his expenditures in reliance on the contract.

Uniform Commercial Code Remedies. The Uniform Commercial Code provides a specific roadmap for buyers and sellers. These remedies are set out in Uniform Commercial Code Article 2 Chapter 7.

Finally, in appropriate circumstances, an injured party may receive reasonably foreseeable consequential damages. The core question, in determining damages, is whether the breaching party would have had reason to see, at the time of the contract, that the damages would probably result from the breach.