A contract is an instrument to bind a number of parties to an agreement, but contracts are often breached. In the event that a breach occurs, the courts provide various remedies for the non-breaching party. This article discusses myriad damages available under contract law and the role of expert witnesses in assessing damages.
The law provides several remedies for breach of contact, including monetary damages, specific performance, contract rescission, and contract modification. However, each remedy is available only under a specific set of circumstances. While the most common form of relief available to a party is a monetary award, there are many forms of damages, and determining which is the most appropriate often requires the expertise of business, contract, valuation, and economic damages expert witnesses.
The most common form of judicial relief is compensatory damages. In the instance where compensatory damages are to be awarded, the intent is to compensate the injured party and make that party whole again. Two types of compensatory damages exist: 1) expectation damages and 2) consequential damages. In the case of expectation damages, the intent of the court is to cover what the injured party would have expected to receive had the contract not been breached. The calculations involved may require expert consultation and potentially expert testimony, as the amount can be based on the contract or the fair market value of the contract. While expectations based on the contract itself may seem simple to calculate, at times it is impossible to do so, and expert witnesses become indispensable in determining the market value of a contract.
Consequential damages are monetary amounts that are intended to reimburse the non-breaching party for any indirect damages sustained. These damages may include the loss of profits due to an undelivered product or service. Damages expert witnesses are often critical in proving consequential damages because to recover them, a party must prove that the injuries flow from the breach and were reasonably foreseeable to all parties to the contract. Issues of reasonability and the relationship between an injury and a breach are often topics for contract law experts.
Restitution is another remedy available to certain parties, but it is an equitable remedy, rather than a legal one. In the case of a restitution award, the intent of the court is to prevent the breaching party from being unjustly enriched. Restitution is a fact-intensive issue and is rarely invoked, particularly if compensatory damages are available instead. Determining whether a breaching party was, in fact, unjustly enriched may require the testimony of experts to determine what the economic results of the contractual breach was for all parties, in addition to evaluating what would constitute an “unjust” enrichment.
Specific performance is yet another equitable remedy available to certain parties in cases where a damages award appears inadequate or the breaching party has acted in a particularly egregious manner. In a situation where specific performance occurs, the court actually requires the breaching party to fulfill or perform its end of the contract. Within the context of specific performance, experts can be valuable in two ways. First, they can help courts determine if and when a damages award would be inadequate to make the injured party whole. Second, they can assess the circumstances to determine whether specific performance is even a feasible option. For example, a party was contracted to provide an impossible product couldn’t be asked to perform their end of the bargain. An expert witness can help to determine if and when it is reasonable and legitimate for a specific performance award to be made.
Both contract rescission and contract reformation tend to arise as remedies when the parties to a contract, either because of mutual mistake or for other reasons, agree to abandon a former contract and potentially create a new one. These cases do not generally require expert testimony, but they often use consulting experts to help parties determine whether cancelling or modifying a contract would be in their best interests.
Contract law offers many distinct remedies, most of which require economic calculations and valuations of a contract and its market value. Expert witnesses in the area of economics, accounting, and business can be of great use to attorneys in helping assess the amount and type of damages that should be awarded in a particular case, both in the consulting and testifying stages.
By: Kat S. Hatziavramidis, Attorney-at-Law