Law Matters

Damages for Breach of Contract are not Unlimited

A big part of deciding whether to file a lawsuit for breach of contract is estimating the dollar value of damages that might be awarded by the court. That helps decide if the cost of suit is worth it. What can be recovered and why is often determined by the circumstances of the parties. In a contract case, the general rule is that the non-breaching party is entitled to the benefit of the bargain. What that includes can vary.

Benefit of the bargain means that the non-breaching party should be put in the position that party would occupy if the contract was performed. In simplest terms, what would it cost to replace performance by the breaching party? Let’s take a look at what that means for a home repair.

The homeowner hires a repairman and the repairman fails to do the job. The homeowner paid the repairman $5,000 of the $10,000 contract. The homeowner hires a second repairman to complete the work and pays the second repairman $7,500. The homeowner’s damages are $2,500. 

If the homeowner collects $2,500 from the first repairman, the homeowner gets the benefit of the bargain as the repair cost the same. If the homeowner was able to complete the repair for less money, the homeowner would have no claim for damages against the first repairman for breach of contract.

There might be more damages recoverable by the homeowner. A party is not limited to the difference in contract price but is entitled to damages which a reasonable person would expect from a breach of the particular contract. That means additional damages, known as consequential damages, could be recoverable.

Home repair offers a good scenario for consequential damages. If the home is not usable, the homeowner may be entitled to the fair rental value for any time the home is unusable due to delay in completing repair. If this was a rental property, damages for loss of use could be calculated based on the lost rent and those damages could extend beyond the date when the home was repaired if it took additional time to get a new tenant. If not rented, loss of use is valued at fair rental value.

It could get worse for the repairman. If the house was under contract for sale contingent on repair by a certain date and the repairman knew it, failure to repair could lose the sale. If the sale was lost because the repair was not timely completed, the homeowner loses a lot more than the difference in cost of the repair. The repairman could be liable for all the expenses incurred by the homeowner before the house is finally sold to another buyer. That could include mortgage payments, property taxes, insurance, lost rent, and even lost interest on the net proceeds from the sale that should have been received under the first sale contract.

If the property sells for less, the repairman can also be liable for that loss. What if the property sells for more? The homeowner would not have to pay the repairman the additional profit, but the repairman would benefit because the additional profit would offset other losses (i.e., lost rent).

Lawsuits are expensive. Attorney fees can easily be tens of thousands of dollars. Filing fees, process servers, expert witnesses all cost money. In an ideal world, the winner in a lawsuit would recover all of those expenses to truly be made whole. In the real world, that does not happen.

Attorney fees are not generally recoverable unless provided by statute or contract. There is no statute that provides for recovery of attorney’s fees in most breach of contract cases. That means the homeowner will only be able to seek attorney fees if contract with the repairman provides for recovery of attorney’s fees by the prevailing party. Even with an attorney fees clause, the homeowner will probably find a judge awarding less than 100% of the homeowner’s attorney fees, explains a reasonable fee for the case is less.

The homeowner will probably have better luck with many of the other lawsuit expenses. The prevailing party in a lawsuit is entitled to recover legal costs. Legal costs include such matters as filing fees, service fees and even expert witness fees as long as the expert is useful in the trial. They do not usually include postage, copies, mileage and other expenses.

Pain-and-suffering is not generally recoverable to breach of contract case. Emotional stress is also not recoverable. Personal time of the homeowner is usually not recoverable, even if the homeowner does some of the work. Personal time might be recoverable if the homeowner has particular expertise and could qualify as professional in the field. That might be the case if the homeowner is a licensed contractor and does some of the work. It would not allow an everyday homeowner doing some of the painting to get paid for time painting (but could get cost of the paint).

Terms of the contract can reduce recoverable damages. Florida courts have upheld “no damages for delay” clauses. Some contracts also included a liquidated damages clause.

A liquidated damages clause is an agreement by the parties on an amount of damages that would be recoverable if a party defaults. Liquidated damages clauses are common and real estate sale agreements, which often provide that in the event of default by the buyer the seller’s opening remedy is forfeiting the deposit. 

Liquidated damages must be reasonable. Florida courts have generally allowed as much as one third of contract price is agreed upon damages but more is usually considered a penalty and unenforceable. 

A claim for breach of contract seems simple. Figuring out what damages are recoverable not so much. Good legal advice in these cases is priceless.

William G. Morris is the principal of William G. Morris, P.A. William G. Morris and his firm have represented clients in Collier County for over 30 years. His practice includes litigation and divorce, business law, estate planning, associations and real estate. The information in this column is general in nature and not intended as legal advice.