Apr 252012

When a party breaches a contract, Pennsylvania law allows for recovery of damages in a breach of contract action. In general, damages in a breach of contract action will total a sum that compensates the nonbreaching party for the loss they sustained. Damages are reasonable compensation awarded for financial losses or injury suffered. However, the nonbreaching party must present evidence that the damages were 1. reasonably foreseeable at the time the contract was entered into, and 2. reasonably certain as to calculations.

A breach of a contract can have significant financial consequences such as:

  • lost profits,
  • lost rental income,
  • increased rental costs,
  • increased labor costs, and
  • increased material costs.

1. Reasonably Foreseeable

The damages must have been a direct result of the breach and reasonably foreseeable at the time the parties entered into the contract. This basically means that the losses incurred by the breach of contract must be in line with what the parties contemplated when they signed the contract. For example, a tenant would reasonably foresee or contemplate that if the tenant breached the lease, the landlord would incur costs such as lost rents, advertising costs, cleaning costs, etc.

2. Reasonably Certain Calculations

The nonbreaching party bears the burden of proving damages by a reasonable certainty or a fair degree of probability. Damages like lost profits must be based on specific evidence which permits a reasonably certain estimate of the amount lost. Exact amounts are not required to be shown. However, a jury is not allowed to speculate as to the amounts. In addition, the damage amount should put the nonbreaching party in as nearly as possible, the same position he or she would have occupied had the contract been performed.

If the financial losses cannot be determined with certainty, then the nonbreaching party is entitled to damages incurred in reliance on the contract, such as costs made during and/or in anticipation of performance. These damages function to place the party in the same position as if the contract had not been made.

Related Article: Pennsylvania Commercial Law: Breach of Contract and the Duty to Mitigate Damages

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