Incidental damages

Definition

Incidental damages refer to the reasonable costs and expenses that a party incurs as a direct result of a breach of contract. These damages are typically necessary to mitigate the loss caused by the breach and can include costs related to finding alternative goods or services, transportation, and other related expenses. Understanding incidental damages is crucial for parties involved in sales contracts as they help determine the extent of recoverable losses when one party fails to fulfill their obligations.

5 Must Know Facts For Your Next Test

1. Incidental damages are typically claimed in addition to direct damages, which arise directly from the breach itself.
2. Under the Uniform Commercial Code (UCC), buyers have the right to recover incidental damages when a seller breaches a sales contract.
3. Common examples of incidental damages include costs associated with storing goods, shipping fees, or expenses incurred while attempting to replace goods that were not delivered.
4. The principle behind incidental damages is to place the injured party in a position as close as possible to where they would have been had the contract been performed.
5. Incidental damages must be proved with reasonable certainty, meaning that the injured party must provide evidence for their claims.

Review Questions

• How do incidental damages differ from consequential damages in the context of sales contracts?
  • Incidental damages are specific costs directly linked to mitigating the effects of a breach, such as shipping or storage fees, and are typically more straightforward to quantify. In contrast, consequential damages arise from secondary effects of a breach and can include lost profits or other indirect losses that may not be as easily connected to the initial breach. Understanding these differences is important for determining what types of damages can be claimed following a breach.
• Discuss the role of mitigation in recovering incidental damages after a breach of contract.
  • Mitigation plays a vital role in recovering incidental damages because it requires the injured party to take reasonable steps to minimize their losses after a breach occurs. If they fail to mitigate their damages, they may be barred from recovering certain incidental costs. This means that, for instance, if a buyer incurs extra shipping costs to obtain goods from another source, they must demonstrate that such measures were necessary and reasonable under the circumstances.
• Evaluate how understanding incidental damages influences the negotiation process in sales contracts.
  • Understanding incidental damages can significantly impact how parties negotiate sales contracts by influencing terms related to liability and compensation. By acknowledging potential incidental costs upfront, parties can set clearer expectations and responsibilities regarding what happens if a breach occurs. This understanding encourages more thorough discussions about risk management and can lead to better contractual protections for both buyers and sellers, ensuring that all parties are aware of the financial implications tied to performance failures.

Related terms

consequential damages: Consequential damages are losses that do not flow directly from a breach of contract but occur as a secondary consequence. These are often less predictable and can include lost profits or additional costs incurred due to the breach.

liquidated damages: Liquidated damages are pre-determined amounts specified within a contract that parties agree upon as compensation for potential breaches, providing clarity on the consequences of non-performance.

mitigation of damages: Mitigation of damages refers to the obligation of a party suffering loss to take reasonable steps to reduce or minimize their damages resulting from a breach of contract.