Compensatory Damages in Business Cases

Compensatory damages is an amount paid to compensate a loss claimed by a person in a civil action for breach of duty by another that resulted in loss, injury, or harm.  The burden of proof for such harm or loss is on the plaintiff.

If a bank agrees to extend credit to a corporation for its business operations but breaches the agreement, the  resulting  loss for the corporation shall be recovered, provided they were within the contemplation of the parties at the time of the making of the agreement and were the natural and proximate results flowing from its breach.  If the loss suffered by the corporation is above the amount it owes to the bank on previous advances, the bank’s right to maintain an action against the guarantors of the corporation’s debts cannot be maintained successfully.

In a breach of a contract case, the jury tends to award a sum of money to redress the loss suffered by the plaintiff.  This grant is usually based on expected monetary benefits that arose upon fulfillment of the contract.  This is known as expectation measure or benefit of bargain measure of damages.  If such a measure is not possible, the court may enter an amount so as to restore the plaintiff to the condition that existed at the time of the signing the contract.  This method of measuring damages is known as reliance measure.  Business contracts may also contain a clause defining the amount of damages to be paid in case of non-compliance with the contract.

Generally, a borrower is not entitled to recover special damages for business losses if s/he was able to secure a substitute loan.  Recovery in such situations is usually limited to the difference in interest rates.  If a contract supports loss of business opportunity, appropriate damages may be awarded for a period commensurate with the term of that contract, though damages cannot be claimed for missed business opportunities without the parties accepting the loss as a cause for recovery.

In Oliver-Electrical Mfg. Co. v. I. O. Teigen Constr. Co., 177 F. Supp. 572 (D. Minn. 1959), a contractor claimed to recover costs incurred when a manufacturer delivered construction materials late.  The contractor’s damages were calculated by considering the initial cost of the delay and the extra cost incurred by winter construction.  The court awarded the contractor a judgment against the manufacturer but offset the award by the amount the contractor owed on the goods shipped and used. While deciding the case, the court contended that “the damages which are within the contemplation of the parties are to be measured in terms of knowledge of the parties at the time of making the contract.  Nevertheless, inferences may be drawn from subsequent acts of the parties as to the scope and extent of their original contemplation.  Failure to refer to obvious elements of special damages after a breach has occurred thus remains relevant even though the court has already found that there was no failure to give notice of the breach or waiver of the right to damages.”


Inside Compensatory Damages in Business Cases