In law, the money awarded to a party in a civil suit as reparation for the loss or injury for which another is liable. The theory of an award of damages in a personal-injury or other tort case is that injured parties should be placed in the position they would have been in if the injury had not occurred, so far as this can be accomplished with a monetary award. Where the legal wrong at issue is the breach of a contract, the goal of the damages remedy is to give the injured parties the benefit they would have received had the contract been performed. More than one type of damages (e.g., direct, incidental, and punitive) may be awarded for a single injury.
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When it is either not possible or desirable to award damages measured in that way, a court may award money damages designed to restore the injured party to the economic position that he or she had occupied at the time the contract was entered (known as the "reliance measure"), or designed to prevent the breaching party from being unjustly enriched ("restitution") (see below).
Parties may contract for liquidated damages to be paid upon a breach of the contract by one of the parties. Under common law, a liquidated damages clause will not be enforced if the purpose of the term is solely to punish a breach (in this case it is termed penal damages). The clause will be enforceable if it involves a genuine attempt to quantify a loss in advance and is a good faith estimate of economic loss. Courts have ruled as excessive and invalidated damages which the parties contracted as liquidated, but which the court nonetheless found to be penal.
General damages are generally awarded only in claims brought by individuals, when they have suffered personal harm. Examples would be personal injury (following the tort of negligence by the defendant), or in the tort of defamation.
Special damages can include direct losses (such as amounts the claimant had to spend to try to mitigate problems) and consequential or economic losses resulting from lost profits in a business. Special damages basically include the compensatory and punitive damages for the tort committed in lieu of the injury or harm to the plaintiff.
Damages in tort are awarded generally to place the claimant in the position in which he would have been had the tort not taken place. Damages for breach of contract are generally awarded to place the claimant in the position in which he would have been had the contract not been breached. This can often result in a different measure of damages. In cases where it is possible to frame a claim in either contract or tort, it is necessary to be aware of what gives the best outcome.
If the transaction was a ‘good bargain’ contract generally gives a better result for the claimant.
As an example, Fred sells Bob a watch for £100. Fred tells Bob it is an antique Rolex. In fact it is a fake one and worth £50. If it had been a genuine antique Rolex, it would be worth £500. Fred is in breach of contract and could be sued. In contract, Bob is entitled to an item worth £500, but he has only one worth £50. His damages are £450. Fred also induced Bob to enter into the contract through a misrepresentation (a tort). If Bob sues in tort, he is entitled to damages that put himself back to the same financial position place he would have been in had the misrepresentation not been made. He would clearly not have entered into the contract knowing the watch was fake, and is entitled to his £100 back. Thus his damages in tort are £100.
If the transaction were a ‘bad bargain’, tort gives a better result for the claimant. If in the above example Bob had overpaid, paying £750 for the watch, his damages in contract would still be £450 (giving him the item he contracted to buy), however in tort damages are £700. This is because damages in tort put him in the position he would have been in had the tort not taken place, and are calculated as his money back (£750) less the value of what he actually got (£50).
Special damages are sometimes divided into direct losses, and consequential or economic losses.
Direct losses include the costs needed to remedy problems and put things right. The largest element is likely to be the reinstatement of property damage. Take for example a factory which was burnt down by the negligence of a contractor. The claimant would be entitled to the direct costs required to rebuild the factory and replace the damaged machinery.
The claimant may also be entitled to any consequential losses. These are the lost profits that the claimant could have been expected to make in the period whilst the factory was closed and rebuilt.
This rule does not usually apply to intentional torts (e.g. deceit), and also has stunted applicability to the quantum in negligence where the maxim Intended consequences are never too remote applies 'never' is inaccurate here but resorts to unforeseeable direct and natural consequences of an act.
Statutory damages are laid down in law. Mere violation of the law can entitle the victim to a statutory award.
On the other hand, nominal damages are very small damages awarded to show that the loss or harm suffered was technical rather than actual. Perhaps the most famous nominal damages award in modern times has been the $1 verdict against the National Football League (NFL) in the 1986 antitrust suit prosecuted by the United States Football League. Although the verdict was automatically trebled pursuant to antitrust law in the United States, the resulting $3 judgment was regarded as a victory for the NFL. Historically, one of the best known nominal damage awards was the farthing that the jury awarded to James Whistler in his libel suit against John Ruskin. In the English jurisdiction, nominal damages are generally fixed at £2.
Many times a party that has been wronged but is not able to prove significant damages will sue for nominal damages. This is particularly common in cases involving alleged violations of constitutional rights, such as freedom of speech.
Generally, punitive damages, which are also termed exemplary damages in the United Kingdom, are not awarded in order to compensate the plaintiff, but in order to reform or deter the defendant and similar persons from pursuing a course of action such as that which damaged the plaintiff. Punitive damages are awarded only in special cases where conduct was egregiously invidious and are over and above the amount of compensatory damages. Great judicial restraint is expected to be exercised in their application. In the United States punitive damages awards are subject to the limitations imposed by the due process of law clauses of the Fifth and Fourteenth Amendments to the United States Constitution.
In certain areas of the law another head of damages has long been available, whereby the defendant is made to give up the profits made through the civil wrong in restitution. The plaintiff thereby gains damages which are not measured by reference to any loss sustained. In some areas of the law this heading of damages is uncontroversial; most particularly intellectual property rights and breach of fiduciary relationship.
In England and Wales the House of Lords case of Attorney-General v. Blake opened up the possibility of restitutionary damages for breach of contract. In this case the profits made by a defecting spy, George Blake, for the publication of his book, were awarded to the British Government for breach of contract. The case has been followed in English courts, but the situations in which restitutionary damages will be available remain unclear.
The basis for restitutionary damages is much debated, but is usually seen as based on denying a wrongdoer any profit from his wrongdoing. The really difficult question, and one which is currently unanswered, relates to what wrongs should allow this remedy.
In addition to damages, the successful party is entitled to be awarded his reasonable legal costs that he spent during the case. This is the rule in most countries other than the United States. In the United States, a party generally is not entitled to its attorneys' fees or for hardships undergone during trial. See American rule.