How to Calculate Damages for Breach of Contract

How to Calculate Damages for Breach of Contract

How to Calculate Damages for Breach of Contract

If another party breached your contract, you have a legal right to damages when you can prove your case. There are many measures of damages in a contract case, and you must be precise when you go to court seeking damages.

Before you can go to court or negotiate a solution, you must know how much money you deserve. An experienced contract litigation attorney can review your case to tell you what you can expect in a lawsuit or settlement.

A judge or jury will determine how much you are due if you win your breach of contract case. After proving your entitlement to damages, the second phase of your case involves determining how much you should receive. You also have a legal obligation to prove the scope of your damages.

Usually, your damages are based on how much you lost due to the breach of contract. However, other measures of damages may apply, either based on your specific facts or what it says in the contract.

In many cases, breach of contract cases will settle before the lawsuit goes to trial. If the case goes to trial and a verdict, a judge or jury will determine how much you deserve after you have proven a breach.

No matter how you resolve your breach of contract claim, you need the right attorney representing you. Whether you resolve through informal negotiation, pre-trial settlement negotiations, or at trial, you must request and receive the damages you deserve. The right breach of contract lawyer can calculate your damages and take every possible action to seek full payment for you.

The Four Types of Damages in a Breach of Contract Case

In general, four types of damages are available in a breach of contract lawsuit. We will explain each in further detail below.

Possible breach of contract damages are:

Compensatory Damages

Compensatory damages are the most common measure of damages in a breach of contract case. These damages will put you in the same position as if the breach of contract never happened. Compensatory damages make you whole - or as close as possible, given your circumstances.

You can address three classes of damages in a breach of contract case:

  • Expectation interest refers to the financial result that should have occurred had the breaching party performed the contract
  • Reliance damages refer to the money that you spent in reliance on the other party’s full performance of the contract
  • Restitution interest refers to your ability to receive compensation for what the other party gained from their breach of contract

Subcategories of Compensatory Damages in a Breach of Contract Case

There are two types of compensatory damages:

  • General damages pay you back for direct losses that you suffered because of the breach of contract
  • Special damages are losses due to the breach of contract due to exceptional circumstances

Never assume you know the damages you deserve. Instead, allow a legal professional to review the contract and your situation to determine what you must seek in a breach of contract claim.

Requirements for Compensatory Damages in a Personal Injury Case

You can receive damages that:

  • The breach of contract caused
  • Both parties could have reasonably foreseen when they signed the contract
  • You can prove with reasonable certainty

An example of general damages is when you contracted with a supplier to deliver goods you need to fulfill an order. If the supplier fails to deliver on time, you still need the goods and may have to buy replacement goods. The original supplier will need to pay for the additional money you spent because of their breach.

Special Damages and Lost Profits

Special damages can include lost business opportunities because of the breach of contract. However, the parties must have anticipated these damages when they signed the contract.

You can also get lost profits as a form of special damages because of the breach of contracts.

There are two requirements:

  • The lost profits must be a direct result of the breach
  • You must prove the lost profits with reasonable certainty

Lost profits refer to earnings, as opposed to revenues. You can seek payment for what you should have made after your cost of goods.

Punitive Damages 

Sometimes, the evidence a jury sees may anger them. They may realize the other party signed the contract with no intention of performing or otherwise put you in an unacceptable situation.

The jury might want to send a strong and stern message to the breaching party by assessing punitive damages. These damages are awards to the non-breaching party, increasing the size of their financial recovery.

A jury is more likely to assess punitive damages for an egregious breach of the contract. For example, if a party deliberately ignored their obligations under the terms of a contract in a dishonest manner, the jury can punish them. Usually, a breach of contract requires some intent.

Each state has rules about whether it permits punitive damages in a breach of contract case. Some states only allow punitive damages if the breach of contract is also a tort. Others allow it for egregious cases of breach of contract.

Breach of contract damages generally cannot exceed four times the actual losses, but everything depends on the facts of your specific case.

Your lawyer can identify whether you can recover these damages in your case.

Nominal Damages 

There are times when you can prove a breach of contract, but you cannot receive compensatory damages. This might happen when you cannot prove your actual economic damages from the breach.

In this case, the court will award you some money to commemorate that the other party breached the contract. However, it will be a tiny amount (such as $1). If all you receive in a breach of contract case is nominal damages, it will be a Pyrrhic victory.

Liquidated Damages

The contract itself can specify the amount of damages for breach. The contract can contain a provision that makes a party pay a set amount in liquidated damages. For example, if a construction contractor is late, the contract can specify that they must pay a certain amount daily.

Liquidated damages will be a substitute for compensatory damages. Presumably, the parties will have calculated the actual damages and may use liquidated damages as a substitute.

You cannot just pick any number and use it as liquidated damages. The amount should bear some relationship to the actual losses. If the amount of liquidated damages is too high, the court can strike down the provision if the other party challenges it.

Specific Performance

There may be times when monetary damages will not be enough to compensate you for what happened. While you can recover damages, you may also need the other party to perform the contract as you initially agreed.

The non-breaching party may seek an equitable remedy that will have the court order the breaching party to hold up their end of the bargain. For example, a court may order specific performance when one party agrees to buy a home. If the seller tries to evade their obligation to sell the home, the court can intervene and order the sale.

In most cases, the court will award breach of contract damages to a party. Specific performance is a rare remedy that a court will only order when the equities and particular circumstances warrant it.


Another type of equitable remedy that a court may order is rescission. This is also a rare remedy because courts prefer to award money. However, the court may allow you to undo the contract entirely in case of a breach.

An example of rescission is when you bought a house, and the seller failed to disclose defects they knew about. You discover you have hundreds of thousands of expenses if you keep the home. The court may allow you to leave the contract entirely, and it will be as if it never happened.

You Must Mitigate Your Damages

In a breach of contract case, the non-breaching party has the obligation to mitigate their damages. You cannot do nothing and collect full damages for the other party’s breach.

For example, if a supplier fails to deliver per the contract terms, you will need to look for another vendor, and the breaching party will need to compensate you for the difference in what you paid. You will need to try at least to hire someone new as mitigation.

You Need a Lawyer for Business Litigation

You need an attorney in every breach of contract case. Your lawyer will get involved at the beginning of the controversy, assuming you hire them early. A lawyer can communicate with the other party to avoid litigation. They will also give you advice that can position you for litigation.

You need a lawyer if the other party has their counsel. Without one, the opposing party can maneuver you into a difficult situation, making it harder to recover financially.

You Have to Determine Whether to Keep Performing

For example, one of the key questions you may deal with is whether you should keep performing your end of the contract. If the other party committed a material breach, you may have justification to stop performing yourself.

However, if you stop performing on your end when you do not have the right to do so, the other party can hold you liable for breach of contract yourself.

If and when you decide to stop performing on your end, you can put yourself in a precarious situation. If you do not stop your performance when the breach occurs, you may have to keep performing. If you do stop and do not have grounds to do so, you may breach the contract. You often feel stuck between the rock and the proverbial hard place.

Your Lawyer Will Help You Estimate Damages

Then, you will need a lawyer to estimate your damages to seek litigation. As you can see, you can measure your damages in many different ways. Not only will your attorney need to specify the amount of damages, but they will also need to prove that the breach of contract proximately caused them and the contract foresaw them.

You should hire a lawyer early in a breach of contract dispute, hoping it may not even reach litigation. Sometimes, the two parties can settle the dispute independently through a settlement or contract modification. You may prefer this outcome to the expense and uncertainty of drawn-out litigation.

However, you may have to file a lawsuit immediately to protect your interests. Your damages can pile up quickly if you do not take action. You may need to seek an immediate injunction from the court.

Other Ways That Your Business Litigation Attorney Can Help

Peter M. King, Breach of Contract Lawyer
Peter M. King, Chicago Breach of Contract Lawyer

Besides advising you on strategy and estimating damages, here are other functions that a contracts litigation attorney can do for you:

  • Communicate with the other party’s attorney in the hopes of reaching a resolution without litigation
  • Review the language of the contract to determine whether you have a strong case for breach of contract
  • Draft any changes to the contract that can resolve the dispute
  • Negotiate a settlement of your dispute that will fairly compensate you for the breach
  • Represent you in mediation so you can reach a mutually reasonable solution
  • Argue your case in court to persuade the judge or jury that the other party breached the contract

Seek the legal representation you need from a Chicago business litigation attorney immediately.