Business Law II – Contract Remedies

Business Law II – Contract Remedies
Haply Inc. contracts with Barksdale LLC to have an engine repaired. After much negotiation, the parties agree that the engine will be repaired and reinstalled at Haply’s facilities in 5 days. Haply plans on losing $40,000 a day for each day the engine is not delivered after the five-day window (this is the cost for a replacement engine).
Haply tells Barksdale’s representatives that if the engine is not repaired on time that bad press will cause Haply to lose a client’s business totaling $3,000,000. Barksdale does not complete the contract until day 7.
It cost Haply $500 to secure the delivery of a replacement engine. The actual rental of the replacement engine cost $40,000 a day. And Haply lost the business of a client totaling $3,000,000. Haply sues Barksdale for incidental, consequential and compensatory damages. The court finds that there is a breach of contract. What are the consequential, incidental, and compensatory damages that Barksdale is liable for in this case? Be sure to define each of those terms.
Contractual remedies are available when there is a breach of contract. The most common form of redress is damages. There are several types of damages:
1. Compensatory damages compensate the injure party for the loss of the bargain. The standard for compensatory damages is the difference between the value of the promised performance and actual performance minus whatever could be mitigated by the non-breaching party. For example if Johnny hires Mark to paint his house for $500 and Mark breaches the contract and it costs Johnny $600 to find a new painter, the compensatory damages would be $100 dollars.

2. Consequential damages are foreseeable damages that flow from the consequences of a breach that are caused from circumstances beyond the contract. The breaching party must know or have reason to know that the special circumstances will cause the non-breaching party to suffer additional loss. By way of illustration, ABC Corp. hires XYZ Repair to repair a factory machine for $500. XYZ breaches the contract and as a result ABC Corp has to shut down for a week and loses $20,000 because there is no way to get a replacement machine. In this case, that $20,000 represents potential consequential damages. Whether ABC Corp. may collect those will depend on whether XYZ was told (or should have known) about the $20,000.

3. Punitive damages are designed to punish wrongful conduct. They are typically not awarded unless a tort, such as fraud, is also involved.

4. Liquidated damages are contractual provisions that set the damages in advance of a breach. To be enforceable, the damages must have been difficult to estimate and the estimate must be reasonable.

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