General Damages and Special Damages in Contract: Understanding the Key Differences

When two parties enter into a contract, it is essential that they understand the types of damages that can arise if there is a breach of the agreement. Damages are the monetary compensation that is awarded to the injured party by the court for the loss or harm suffered as a result of the other party’s breach. In contract law, there are typically two types of damages that can be awarded: general damages and special damages. In this article, we will explore the key differences between these two types of damages in contract.

General Damages

General damages are those that arise naturally from a breach of contract. These are losses that can be reasonably expected to result from a breach of the agreement. The purpose of awarding general damages is to compensate the injured party for the losses they have suffered as a direct result of the other party’s breach. Examples of general damages in contract include:

1. Loss of profit – if a contract breach causes the injured party to lose anticipated profits, they may be entitled to recover these losses as general damages.

2. Loss of reputation – if a contract breach causes harm to the injured party’s reputation or business, they may be entitled to recover damages for this loss.

3. Pain and suffering – in cases where a breach of contract causes the injured party to suffer emotional distress or mental anguish, they may be entitled to recover damages for pain and suffering.

Special Damages

Special damages, also known as consequential damages, are those that are not natural or direct consequences of a breach of contract. These are losses that are not foreseeable at the time the contract is entered into, but arise as a result of the breach. The purpose of awarding special damages is to compensate the injured party for the losses that are known to the parties at the time the contract is entered into, but may not be foreseeable to others. Examples of special damages in contract include:

1. Loss of opportunity – if a contract breach causes the injured party to lose a business opportunity that was known to the parties at the time the contract was entered into, they may be entitled to recover damages for this loss.

2. Consequential losses – if a contract breach causes the injured party to suffer losses that are not natural or direct consequences of the breach, but arise as a result of it, they may be entitled to recover damages for these losses.

3. Additional expenses – if a contract breach causes the injured party to incur additional expenses, such as legal fees or costs associated with finding a replacement supplier, they may be entitled to recover damages for these expenses.

In conclusion, it is important to understand the key differences between general damages and special damages in contract. While general damages compensate the injured party for losses that are a natural consequence of the breach, special damages compensate for losses that are not foreseeable at the time the contract is entered into. By understanding these differences, parties can ensure that they are appropriately compensated for any loss or harm suffered as a result of a contract breach.