Contracts are legally binding agreements that lead to enforceable obligations between parties. When one party breaches a contract, it can cause financial injury, operational disruption or other damages to the non-breaching party.
However, recovery of damages is not always guaranteed or unlimited, as contract law imposes specific limitations on what damages can be recovered and to what extent. These limitations include the following.
1. The duty to mitigate
For damages to be recoverable, the non-breaching party must take steps to minimize their losses after discovering the breach. They cannot passively allow damages to accumulate when reasonable actions could have reduced them. If the non-breaching party fails to make reasonable efforts to mitigate their damages, they cannot recover losses that could have been avoided through such efforts.
2. Foreseeability requirement
Damages must have been foreseeable by both parties at the time of contract formation. The breaching party is only liable for losses that were either a natural consequence of the breach or were specifically contemplated by both parties when making the contract. This requirement means that damages resulting from special circumstances unknown to the breaching party at the time of contracting will typically not be recoverable. Consequential damages that were not foreseeable at the time of contracting are generally not recoverable.
3. Certainty of damages
The non-breaching party must prove their damages with reasonable certainty. While absolute precision is not required, damages cannot be purely speculative or based on conjecture. Courts require sufficient evidence to establish both the existence and the amount of damages with reasonable accuracy. If the claimed damages are too uncertain or cannot be supported by credible evidence, courts will not award them even if some injury has occurred.
If you are dealing with a contract breach, seek legal guidance to better understand how these limitations may affect your ability to recover damages and to develop appropriate strategies for documenting, mitigating and proving your losses.