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Breach of Contract: What are your Damages?

It should come as no surprise that one of the most common causes of action involving businesses in North Carolina is breach of contract. Breaches of contract occur quite frequently in the everyday operations of most businesses, but they are often remedied without litigation. Sometimes a breach can be impact a business’ ability to operate – for example, a manufacturer not being supplied the materials they need to build their products. In North Carolina, there are two different ways to assess the strength of your breach of contract claim: (1) common law and statutory rights; and (2) contractual rights and limitations on remedies.

North Carolina Breach of Contract Law

In North Carolina, where a breach of contract has occurred, the law generally allows the non-breaching party to be “made whole” – i.e., obtain the benefit of the bargain contained in the contract. Breaching parties should not be allowed to benefit from their own breach. Generally, the non-breaching party may also be entitled to lost profits, expenses incurred in performing under the contract, and other consequential damages which were the foreseeable consequence of the breach (i.e., the cost of purchasing replacement goods are finding another supplier). However, North Carolina generally prohibits a business from recovering personal injury, punitive, or emotional damages resulting from a breach of contract.

Contractual Damages

North Carolina courts generally allow parties to include contractual remedies in the contract itself, in the event a breach of the contract occurs. This may include payment of costs and expenses in enforcing contractual provisions, liquidated damages, specific performance, and injunctive relief. However, courts generally will not enforce such provisions unless there is a legal basis for doing so.

Limitations on Remedies

Just as parties can add remedies to contracts, they can also remove them, even ones that are generally allowed by law. With most modern form contracts used by businesses, most types of damages are limited or removed from the contract, aside from actual, direct damages. Contractual provisions prohibiting the recovery of consequential, incidental, and punitive damages, as well as attorneys’ fees and expenses, are quite common in commercial agreements and large-scale projects.

Prior to entering into a contract, read the document very carefully and consider consulting an attorney to help guide you through the process. If you are the victim of a breached contract, consult a competent business litigation attorney to assess your options and the strength of your case.