Describe compensatory, incidental, consequential, and liquidated damages for breach of contract.

Question

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Answer 1

A breach of contract entitles the non breaching party to sue for money damages. Damages designed to compensate a party for the loss of the bargain include the following:•Compensatory damages -These are damages compensating the non breaching party for the loss of the bargain. These damages compensate the injured party only for damages actually sustained and proved to have arisen directly from the loss of the bargain caused by the breach of contract. They simply replace what was lost because of the breach. The amount of compensatory damages is the difference between the value of the breaching party's promised performance and the value of his or her actual performance. This amount is reduced by any loss that the injured party has avoided.•Incidental damages-These are expenses resulting directly from the breach of contract, such as those incurred to obtain performance from another source.•Consequential damages-Also called special damages, these are a type of compensatory damages. Consequential damages are caused by special circumstances beyond the contract itself. They flow from the consequences, or results, of a breach.For consequential damages to be awarded, the breaching party must have known (or have had reason to know) that special circumstances would cause the non breaching party to suffer an additional loss.•Liquidated damages-When writing a contract, the parties may specify an amount to be paid in the event of a future breach of the contract. This amount, called liquidated damages, must be reasonably related to the damages that may be suffered if the contract is not fulfilled. Liquidated damages are a form of compensatory damages.