Without a Remedy, Your Lease or Other Contract May Mean Nothing!

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Having contract rights is “pretty neat,” but without any remedy if those rights aren’t fulfilled, they are just empty promises. So, when the other party breaches your agreement and doesn’t deliver what you bargained for and you can’t “work it out” between the two of you, you’ve got to “ask the judge (or an arbitrator, if that’s what you’ve agreed to do)” to step in and give you a remedy for this breach. In such a case, what can you expect?

Given that it is unusual for contracting parties to go to court, one might think that having a well-grounded knowledge of the kinds of damages that are or are not available in a given situation isn’t very important. That would be a mistake because one of the factors driving contract compliance is the “fear” of the need to pay damages or to be legally compelled to comply. If parties could breach their agreements without adverse consequence, our commercial system would break down. A contracting party is always in the position of weighing the cost of delivering promised performance against the cost (damages) of non-performance.

This is a very big topic even after cutting it to the core. So, expect our treatment of this subject to be spread out in four installments. The first three will be somewhat academic, but hopefully easy to read and digest. The last installment will attempt to work through the remedies that a landlord may have against a defaulting tenant. It is our intention to spread the four installments over seven weeks, allowing Ruminations to mix in some other topics of applied practice. Unless distracted by unrelated events, next week’s edition will explore post-sale and post-lease commencement date environmental responsibilities of the parties.

To repeat, our overall topic for this series is about “remedies,” an important subset of which is “damages.” This isn’t going to be a law review article. In fact, we’re going to put the “mumbo jumbo” at the end of the third installment for those brave readers who are compelled to “read on.” Also, you’ve heard this caveat before – it is even at the bottom of the web page – “no one should mistake anything written on this blog as resembling legal advice, even when written by an attorney – not the original blog entries, and not any comments.”

There are two kinds of remedies available to an aggrieved party: (a) those remedies that can make someone do what they should have done on their own or stop them from doing what they shouldn’t be doing; and (b) those remedies that try to make the aggrieved “whole,” that is, get compensated for its losses.  In the case of a contract, like a lease, losses include the benefits it expected, but didn’t get.

We’re going to give short shrift to equitable remedies such as various injunctions and specific performance. You can see some thoughts way down below. Similarly, we’ll say (very) little about declaratory judgments (a statutory remedy), and that will also be near the bottom. While you’re searching near the bottom of this posting, you’ll also find some contract remedies that are “equitable” in nature, such as rescission and reformation.

The real action is in contractual money damages. Most are designed to put the aggrieved (generally, non-breaching) party where it should have been absent the other party’s default. If you want to know about “tort” damages, you’ll need to find a blog site other than Ruminations.

If all that granting contractual money damages did was to make someone “whole,” then these damages wouldn’t be characterized as “General,” or “Special” or “Liquidated” because it wouldn’t make a difference as to  how your lease or other contract described them. And, there wouldn’t be subcategories such as “actual or compensatory damages,” “consequential damages,” “exemplary or presumptive or punitive damages,” “incidental damages” (which we aren’t going to define), or the myriad of other terms that courts and commentators (or even laypersons) throw around.

This is important because you often see a lease or other contract say things like: “Notwithstanding anything to the contrary set forth in this Lease, neither party shall ever be liable to the other for consequential, indirect or punitive damages arising out of any breach or default of this Lease, including, without limitation, loss of use or income from the Shopping Center or the Premises or any equipment or facilities therein and each party waives, to the extent permitted by law, any and all claims for such damages.” How many of us actually know what is being given up or gained?

So, what Ruminations will try to do is to define some of these terms and, in some cases, add a little commentary. Here we go.

The place to start is with compensatory damages, not restitutionary damages. OK, we’ll explain “restitutionary” later, but you won’t miss anything before we get there.

Now, we’re going to reveal a big secret about the whole judicial treatment of “Damages.”  Courts are all over the place when it comes to definitions. The main source of confusion is that some of the definitions change depending on whether you are looking a tort or at a contract breach.

In the case of a tort (think of those as “civil” wrongs, rather than wrongs arising out of a contract), compensatory damages can be either “General” or “Special.” Plainly speaking, the distinction between those damages is that every finder of fact (think, jury) can figure out General damages, like pain and suffering or how much someone gets for disfigurement (there really isn’t a calculation that can be made), but while Special damages also arise out of the “wrong,” you need to specifically prove them (and, in a lot of cases, plead them, but that’s litigation stuff, and Ruminations doesn’t do windows, floors or litigation).

When talking about the remedies a party has when harmed by a breach of contract, “Special Damages” takes on a different meaning. In contract cases, courts treat “General” damages as the “opposite” of “Consequential Damages.”  That would mean that “Special Damages” are not opposite of “Consequential Damages.” More plainly speaking, when you are talking “contract,” there isn’t much of, if any, distinction between Special Damages and Consequential Damages. To Ruminations, “Natural Damages” might be a more accurate “opposite” of “Consequential Damages” than “General Damages,” and we’d do away with “Special” altogether.

So, here is drafting tip number one: If you agree to waive “Special” damages, make sure you understand what you are giving up. If what you intend to exclude are damages that arise out of the breach because they are too remote or unexpected, then all you need to waive are “Consequential Damages.” If you say both “Special” and “Consequential,” a court might want to give “extra” meaning to the word “Special,” and in doing so it might conclude that you are waiving any (tort) damages that would need to be proven such as “how much it reasonably and actually cost you to get something fixed that the other party was supposed to fix.” You see, for a tort, that’s not a “General” damage because a finder of fact doesn’t have it in her or his “general” experience to know how much it cost to fix your building’s particular roof.  It is a “Special” damage because you have to prove to the finder of fact how you came up with the dollar amount you are claiming. If you don’t know what “Special” damages are, you might think there was something “really” special about them. There isn’t. Waiving them probably might not sound so innocuous any more.

We’re going to stop here, and if our plans remain undisturbed, Ruminations will return in two weeks with the next installment, starting off with the topic of consequential damages.

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Comments

  1. very good and thorough information. Having remedies planned out could save considerable time and effort in the event that they are needed.

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