13.3 Damages

LibraryContract Law in Virginia (Virginia CLE) (2019 Ed.)

13.3 DAMAGES

13.301 In General. The elements of a claim for breach of contract are (i) a legally enforceable obligation of a defendant to a plaintiff; (ii) the defendant's violation or breach of that obligation; and (iii) injury or damage to the plaintiff caused by the breach of that obligation. 50

Monetary damages for breach of contract are awarded with the goal of making the nonbreaching party whole, by placing the nonbreaching party in as good a position as if the contract had been performed (to the extent money can do so). 51 The plaintiff will generally be entitled to claim both direct and consequential damages as a part of this amount. "[O]ne who violates his contract with another should generally be held responsible for all direct and proximate damages which result from such violation." 52

"A plaintiff . . . must prove two primary factors relating to damages. First, a plaintiff must show a causal connection between the defendant's wrongful conduct and the damages asserted. Second, a plaintiff must prove the amount of those damages by using a proper method and factual foundation for calculating damages." 53 Virginia causation law recognizes that there

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may be more than one proximate cause of an event, 54 and generally "[p]roximate cause need not be established 'with such certainty as to exclude every other possible conclusion.'" 55 But, "[i]f [damages] are so remote as not to be directly traceable to that breach, or are attributable to some other intervening cause, then they cannot be allowed." 56

The amount of damages flowing from the breach "need not be established with mathematical certainty. Rather, a plaintiff is required only to furnish evidence of sufficient facts to permit the trier of fact to make an intelligent and probable estimate of the damages sustained." 57 If this standard is met, "uncertainty as to the exact amount of damages does not preclude recovery." 58 As the Virginia Supreme Court reiterated in MCR Fed., LLC v. JB&A, Inc. 59

When it is "certain that substantial damages have been caused by the breach of a contract, and the uncertainty is not whether there have been damages, but only an uncertainty as to their true amount, then there can rarely be any good reason for refusing all damages due to the breach merely because of that uncertainty."

Determination of breach of contract damages "will always be fact specific, and no single method exists for calculating the amount necessary to place the plaintiff in the position he would have occupied had the breach not

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occurred." 60 Finally, "[t]he general rule is that damages are to be determined at the time of breach of a contract" and thus "[e]vidence of fluctuations in value after the breach is irrelevant." 61

13.302 Direct Damages. Direct damages "are those which arise 'naturally' or 'ordinarily' from a breach of contract; they are damages which, in the ordinary course of human experience, can be expected to result from a breach." 62 Direct damages flowing from a breach of contract are always compensable (absent some contract provision establishing a different remedy or measure of damages for breach). 63

Typical examples of direct damages are additional costs of labor and material from delays in a construction contract or interest costs incurred from a delay in construction. 64 Similarly, the cost of repairing and restoring property damaged by the failure to carry out contractual obligations constitutes compensable direct damage. 65 In Fairfax County Redevelopment & Housing Authority v. Worcester Bros., 66 the court held that

[w]hen a breach by one party imposes a delay on the ability of the other party to perform its obligations under a contract, "the damages are to be measured by the direct cost of all labor and material . . . plus fair and reasonable overhead expenses properly chargeable . . . during the reasonable time required" to complete performance. 67

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In Lockheed Information Management Systems Co. v. Maximus, Inc., 68 the court made clear that only "unabsorbed overhead" is properly recoverable, explaining that

[u]nabsorbed overhead is that overhead which continues regardless of the business activity. Thus, a contractor experiences unabsorbed overhead when idle. When a breach by a party causes a delay to the ability of the other party to perform, the injured party is entitled to recover, as damages, unabsorbed overhead expenses. To recover such damages, the injured party must show that it could not otherwise recoup its pro rata home office expenses incurred during the delay and it must prove the amount of these expenses with reasonable certainty. 69

The Virginia Supreme Court has held in certain types of cases that the measure of direct damages should be determined by the "value method" rather than by the "cost method." As the court explained,

[a] successful plaintiff is entitled to recover those damages which are "the natural and direct result of the breach of the contract." And "[t]he object of the law in awarding damages is to make amends, or reparations, by putting the party injured in the same position, as far as money can do it, as he would have been if the contract had been performed.

Whether the "value" formula or the "cost" formula is applicable "will depend on the facts and the circumstances of the particular case." We have recognized application of the "value" formula in an appropriate case. The test is the nature of the motivation which induced the promisee to make the contract. If his primary interest was the value of the result performance would have produced, then the "value" formula is applicable; if performance itself, then the "cost" formula. 70

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The Virginia Supreme Court has held more recently, however, that when a party is required to incur costs to restore the benefit of a contractual bargain or to enforce a warranty, the "cost measure" is the proper measure of damages:

Under certain circumstances, a party seeking to restore the benefit of a bargain or to enforce a warranty is permitted to show that the cost of remedying the breach is the appropriate measure of damages. "The cost measure is calculated on the basis of the cost to complete the contract according to its terms or the cost to repair what has been done so that the contract terms are met. The cost measure is appropriate unless the cost to repair would be grossly disproportionate to the results to be obtained, or would involve unreasonable economic waste." 71

The Virginia Supreme Court has adopted a rule for determining damages that are recoverable when an insurance agent fails to procure insurance pursuant to a contract:

[W]hen the intended insured suffers a loss, the measure of damages for failure to procure insurance is the amount that would have been due under the policy. However, when no loss has occurred, the measure of damages is the amount paid by the intended insured as the premium. 72

13.303 Consequential Damages. Consequential damages are damages that arise from special circumstances and that would not ordinarily

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be predicted to flow from a breach of contract. 73 They are damages that occur only on the happening of or as a consequence of some intermediate event. 74

Consequential damages are recoverable only if the special circumstances were within the contemplation of the parties at the time they entered into the contract. 75 In essence, the test is whether the damages were foreseeable, and the test encompasses both (i) what was actually foreseen by the parties and (ii) what was reasonably foreseeable in the event of a breach. 76 In determining whether consequential damages were reasonably foreseeable, the "reasonable person" test is employed—the special circumstances that give rise to consequential damages are deemed to have been reasonably foreseeable if a reasonable person in the same position as the parties would have known about them. 77

The typical example of consequential damages is lost profits flowing from a breach of contract. 78 The Virginia Supreme Court has also held that attorney fees are a recoverable item of consequential damages when the defendant's breach of contract forced the plaintiff to litigate a claim against a third party. 79 Even if a party classifies damages as "direct" damages, the court will look at the true nature of the claim to determine whether the damages sought are direct or consequential. 80 Consequential damages must

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be pled specially in order to be recovered. 81 The Virginia Supreme Court has also indicated its reluctance to permit recovery of damages for emotional harm as consequential damages in an action for breach of contract. 82

Whether damages are direct damages or consequential damages is a question of law for the court. 83 Whether special circumstances were within the parties' contemplation so as to justify the recovery of consequential damages, however, is a question of fact for the jury. 84

13.304 Damages Under the Virginia Uniform Commercial Code.

A. In General. The Virginia Uniform Commercial Code has its own set of monetary remedies for breach and its own rules for administration of these remedies. Section 8.1A-305 of the Virginia Code provides that:

The remedies provided by [this act] shall be liberally administered to the end that the aggrieved party may be put in as good a position as if the other party had fully performed but neither consequential or special damages nor penal damages may be had except as specifically provided in [this act] or by other rule of law. 85

B. The Seller's Right to Damages. Sections 8.2-702 through 8.2-710 of the Virginia Code define a seller's remedies in the case of breach of a contract for the sale of goods under the UCC. Sections 8.2-703 and 8.2-709 permit a seller to recover incidental damages, which are defined in section 8.2-710

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to include "any commercially reasonable charges, expenses or commissions incurred in stopping delivery, in the transportation...

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