Breach of Contract Damages
in New York.

The Goal: The Benefit of the Bargain

New York contract damages are compensatory. The purpose is to give the injured party the benefit of its bargain, meaning the economic position it would have held had the contract been fully performed. The Court of Appeals stated the principle in Freund v. Washington Square Press, Inc., 34 N.Y.2d 379 (1974): damages are measured by the loss actually sustained, and where a plaintiff proves a breach but not actual loss, it recovers only nominal damages. Contract damages are not meant to punish the breaching party or to hand the plaintiff a windfall. They are meant to make the injured party whole. For the underlying elements of a claim, see our guide to the elements of a breach of contract claim in New York.

General Damages vs. Consequential Damages

New York distinguishes between two kinds of damages. General damages, sometimes called direct damages, are the natural and probable consequence of the breach, the value the plaintiff would have received directly under the contract. Consequential damages, sometimes called special damages, are the additional losses that flow from the breach but depend on the plaintiff's particular circumstances. The dividing line traces to the classic rule of Hadley v. Baxendale: a plaintiff can recover consequential damages only if those losses were reasonably foreseeable and within the contemplation of the parties at the time they made the contract. New York applies that foreseeability limit rigorously, and consequential damages that were not fairly within the parties' contemplation are not recoverable.

Lost Profits and the Reasonable Certainty Rule

Lost profits can be either general or consequential damages depending on whether they flow directly from the contract or from collateral business relationships. Either way, New York requires that lost profits be proven with reasonable certainty. In Kenford Co. v. County of Erie, 67 N.Y.2d 257 (1986), the Court of Appeals rejected a lost profits award because the projections rested on assumptions that were too speculative. The Court reaffirmed the certainty requirement in Ashland Management Inc. v. Janien, 82 N.Y.2d 395 (1993), and in Goodstein Construction Corp. v. City of New York, 80 N.Y.2d 366 (1992). Lost profits must be capable of proof with reasonable certainty, must be caused by the breach, and must have been within the contemplation of the parties. Damages that are speculative, remote, or dependent on the fortunes of an untested venture generally fail.

The Duty to Mitigate

A party injured by a breach cannot sit still and let its losses grow. New York imposes a duty to mitigate, meaning the injured party must take reasonable steps to avoid or reduce the loss, and it cannot recover for losses it could reasonably have avoided. The Court of Appeals applied the doctrine in Holy Properties Ltd., L.P. v. Kenneth Cole Productions, Inc., 87 N.Y.2d 130 (1995). The burden of proving a failure to mitigate rests on the breaching party, but the doctrine is a genuine limit: unreasonable inaction that increases the damages will reduce the recovery.

Liquidated Damages Clauses

Parties often agree in advance on the damages that will be payable if the contract is breached. New York enforces a liquidated damages clause when the amount is a reasonable estimate of probable loss and actual damages would be difficult to determine, but it will strike the clause down as an unenforceable penalty when the fixed sum is plainly disproportionate to any likely harm. The Court of Appeals set out the test in Truck Rent-A-Center, Inc. v. Puritan Farms 2nd, Inc., 41 N.Y.2d 420 (1977), and applied it again in JMD Holding Corp. v. Congress Financial Corp., 4 N.Y.3d 373 (2005). The party challenging the clause as a penalty bears the burden of showing that it is one.

Punitive Damages Are Rare in Contract Cases

New York does not award punitive damages for an ordinary breach of contract, even a deliberate one. Punitive damages require more than a broken promise. As the Court of Appeals explained in New York University v. Continental Insurance Co., 87 N.Y.2d 308 (1995), and in Rocanova v. Equitable Life Assurance Society, 83 N.Y.2d 603 (1994), a plaintiff must show conduct that is morally reprehensible, aimed at the public generally, and independently tortious, not merely a failure to perform. In the vast majority of commercial cases, the remedy is compensatory damages, not punishment.

Attorney Fees and Prejudgment Interest

New York follows the American Rule, under which each side bears its own attorney fees unless a statute or the contract itself provides otherwise. A well-drafted fee-shifting clause changes that result. We cover the point in detail in our article on attorney fees in New York contract cases. Separately, a prevailing plaintiff is generally entitled to prejudgment interest on a contract claim under CPLR 5001, computed at the statutory rate of nine percent per year under CPLR 5004, running from the date the cause of action accrued. On a substantial claim, that interest can add materially to the judgment.

Putting the Damages Case Together

Winning a breach of contract case is only half the work. The other half is proving damages with the evidence New York requires: a clear measure tied to the benefit of the bargain, foreseeability for any consequential losses, reasonable certainty for lost profits, and a record that answers a mitigation defense. Damages theory should be built into a case from the first pleading, not assembled at trial. The Law Office of Frederic R. Abramson handles breach of contract matters in the New York Supreme Court and builds the damages case alongside liability.

Frequently Asked Questions

What damages can I recover for a breach of contract in New York?

New York contract damages are compensatory and aim to give you the benefit of your bargain, the position you would have held if the contract had been performed. That can include general or direct damages, consequential damages that were foreseeable when the contract was made, and in a proper case lost profits proven with reasonable certainty. The Court of Appeals stated the compensatory principle in Freund v. Washington Square Press, Inc., 34 N.Y.2d 379 (1974).

What is the difference between general and consequential damages?

General damages, also called direct damages, are the natural and probable result of the breach and the value you would have received directly under the contract. Consequential or special damages are additional losses that flow from your particular circumstances. Under the rule of Hadley v. Baxendale, applied throughout New York law, consequential damages are recoverable only if they were reasonably foreseeable and within the contemplation of the parties when they made the contract.

Can I recover lost profits in a New York contract case?

Sometimes, but the standard is demanding. New York requires lost profits to be proven with reasonable certainty, to be caused by the breach, and to have been within the contemplation of the parties. In Kenford Co. v. County of Erie, 67 N.Y.2d 257 (1986), the Court of Appeals rejected a lost profits award that rested on speculative assumptions. Profits from a new or untested venture are especially hard to prove.

Do I have to try to reduce my damages after a breach?

Yes. New York imposes a duty to mitigate. You must take reasonable steps to avoid or reduce your losses, and you cannot recover for losses you could reasonably have avoided. The Court of Appeals applied the doctrine in Holy Properties Ltd., L.P. v. Kenneth Cole Productions, Inc., 87 N.Y.2d 130 (1995). The breaching party has the burden of proving a failure to mitigate.

Are liquidated damages clauses enforceable in New York?

They can be. New York enforces a liquidated damages clause when the amount is a reasonable estimate of probable loss and actual damages would be hard to determine, but it strikes the clause down as an unenforceable penalty when the sum is grossly disproportionate to any likely harm. The test comes from Truck Rent-A-Center, Inc. v. Puritan Farms 2nd, Inc., 41 N.Y.2d 420 (1977). The party arguing that the clause is a penalty bears the burden of proof.

Can I get punitive damages for a breach of contract?

Almost never. New York does not award punitive damages for an ordinary breach of contract, even an intentional one. As explained in New York University v. Continental Insurance Co., 87 N.Y.2d 308 (1995), punitive damages require conduct that is morally reprehensible, aimed at the public generally, and independently tortious, not just a failure to perform. The usual contract remedy is compensatory damages plus statutory interest.

Talk to a Breach of Contract Lawyer in New York

The Law Office of Frederic R. Abramson represents plaintiffs and defendants in breach of contract disputes in the New York Supreme Court, across the five boroughs, Nassau, Suffolk, and Orange counties, and builds the damages case alongside liability. More than 20 years of daily courtroom experience. The Lawyer's Lawyer.

Related: Breach of Contract  ·  The Elements of a Breach of Contract Claim  ·  Statute of Limitations for Contract Disputes  ·  Attorney Fees in NY Contract Cases  ·  What Constitutes Breach of Contract in New York

Attorney Advertising. Prior results do not guarantee a similar outcome. The information on this page is general and is not legal advice. Consult an attorney about the specific facts of your matter. Law Office of Frederic R. Abramson, 160 Broadway, Suite 500, New York, NY 10038. 212-233-0666.