A damage limitation provision in a contract which was the subject matter of a litigation filed by the International Truck and Engine Corporation (“International”) against the Ford Motor Company (“Ford”) raises the question of the type of damages recoverable in a breach of contract action. The provision provided as follows:
. . . neither Party shall be liable for any consequential, incidental or special (including multiple or punitive) damages of the other Party arising out of the performance of this Agreement.
Ordinarily, when awarding damages for a breach of contract, the court awards damages which will put the non-breaching party in the position it would have been in had the contract been properly performed. Such damages are commonly known as “benefit-of-the-bargain” damages and can include costs incurred in remedying the breach (also known as “incidental damages”), out-of-pocket costs incurred in performance prior to the breach, and lost profits and other damages suffered by the non-breaching party which were anticipated by the parties at the time the contract was entered into (also known as “consequential and/or special damages”). Such damages, however, are not the only type of damages recoverable for a breach of contract.
Another type of damages that may be recovered in a breach of contract action are restitution damages. These damages arise when the non-breaching party has conferred a benefit on the other party by, for example, making a partial payment or providing services under the contract. Restitution damages are an award of damages in an amount necessary to disgorge the benefit received by the breaching party.
The final types of damages recoverable for a breach of contract are punitive damages and/or statutory damages. Punitive damages are only recoverable if the breaching conduct is considered tortious, such as fraud or conversion. Similarly, statutory damages – which sometimes provide a damage award be doubled or tripled (also known as “multiple or treble damages”) – are recoverable if the breaching conduct violates a statute prohibiting such conduct, such as a consumer fraud statute.
Given the types of damages that are recoverable in a breach of contract action, the damage limitation provision contained in the contract between International and Ford would limit the damages recoverable in the event of a breach of contract action to the non-breaching party’s out-of-pocket costs incurred as a result of the breach. All other damages, including restitution damages, would appear to be contractually precluded. Such a damage limitation provision is not unusual when parties are trying to define and negotiate a limit to the amount and types of damages recoverable in the event of a breach of contract. If you have a question about the damages recoverable in a breach of contract action or contractual provisions that limit such recovery, please call a member of the firm