Incidental damages

Definition

Incidental damages refer to the costs that are incurred as a result of a breach of contract, which are necessary to mitigate losses and are not related to the principal contract. These damages are typically secondary expenses that arise directly from the breach, such as costs for finding a substitute performance or expenses related to handling the breach. Understanding incidental damages is crucial because they help ensure that the injured party can recover costs that are directly tied to the breach, reinforcing the principle of making the injured party whole again.

5 Must Know Facts For Your Next Test

1. Incidental damages are typically recoverable in addition to direct damages and can include costs like shipping fees, storage fees, or expenses for sourcing replacement goods.
2. The party claiming incidental damages has the burden to prove that these costs were incurred due to the breach and were reasonably foreseeable at the time the contract was made.
3. Incidental damages do not include lost profits or other indirect losses, which fall under consequential damages and require a different standard for recovery.
4. Under the UCC, sellers and buyers have specific rights regarding incidental damages, allowing them to seek compensation for additional costs resulting from a breach.
5. To claim incidental damages successfully, it must be shown that all reasonable efforts were made to mitigate losses stemming from the breach.

Review Questions

• How do incidental damages differ from consequential damages in terms of recovery after a breach of contract?
  • Incidental damages are specific costs directly related to mitigating losses caused by a breach, such as shipping or storage fees, while consequential damages refer to indirect losses that occur as a result of the breach, like lost profits. The key difference lies in their connection to the breach; incidental damages must be proven to be necessary and foreseeable costs incurred due to the breach itself, whereas consequential damages can encompass broader financial impacts that were not necessarily direct results of the contract failure.
• What role do incidental damages play within the framework established by the UCC for remedies in sales contracts?
  • Under the UCC, incidental damages play a critical role by allowing injured parties—whether buyers or sellers—to recover additional costs incurred due to a breach. The UCC emphasizes that these costs are necessary for mitigating loss and encourages parties to minimize their losses wherever possible. By specifically allowing for incidental damages, the UCC ensures that parties have some level of protection and financial relief after a breach occurs, reinforcing accountability in sales transactions.
• Evaluate how the requirement for proof of reasonable mitigation affects claims for incidental damages following a breach of contract.
  • The requirement for proof of reasonable mitigation significantly impacts claims for incidental damages because it ensures that parties cannot simply claim any expense incurred after a breach without justification. This means that an injured party must demonstrate that they took appropriate steps to limit their losses and only incurred expenses that were directly necessary due to the breach. This standard helps prevent opportunistic behavior where one party might seek excessive compensation by inflating claims for incidental expenses, promoting fairness and responsibility in contractual relationships.

Related terms

consequential damages: Consequential damages are losses that occur as a secondary result of a breach and are not directly tied to the contract itself, often including lost profits.

breach of contract: A breach of contract occurs when one party fails to fulfill their obligations as set forth in the agreement, leading to potential legal remedies for the other party.

UCC (Uniform Commercial Code): The UCC is a comprehensive set of laws governing commercial transactions in the United States, including provisions related to sales contracts and remedies for breaches.