ARTICLE
10 April 2024

Defenses To Contract Damages In New York

KL
KI Legal

Contributor

KI Legal focuses on guiding companies and businesses throughout the entire legal spectrum. KI Legal’s services fall under three broad-based practice group areas: Transactions, Litigation, and General Counsel. Its extensive client base is primarily made up of restaurant and hospitality owners and operators, real estate developers and family offices, and lending institutions and investment funds.
Defendants who face breach of contract damages claims can assert several defenses to mitigate, or altogether eliminate, a potential award of damages against them.
United States Litigation, Mediation & Arbitration
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Defendants who face breach of contract damages claims can assert several defenses to mitigate, or altogether eliminate, a potential award of damages against them. It is up to counsel to assert these affirmative defenses at the time a defendant responds to the allegations asserted in the lawsuit's complaint.

The first such defense is that of duplicative damages. The law is equitable in that it prohibits plaintiffs, even successful plaintiffs with strong cases, from recovering twice for a single breach or circumstance. Similarly, a defendant can assert double recovery as a defense which, if successful, would bar the plaintiff from recovering under two or more claims because such recovery would amount to an impermissible double recovery.

Next, there is the concept of liquidated damages. Where parties can reasonably predict the amount of damages that either may incur if one party were to breach his or her obligations under a contract, the parties can draft a liquidated damages clause in the contract that sets forth the amount of damages. Defendants can assert a liquidated damages limitation as a defense to a claim for breach, asserting that plaintiff's damages are limited to the amount agreed upon by the parties at the time of contracting. Courts generally uphold and enforce liquidated damages clauses, so long as they are reasonable and not contrary to public policy. A defendant who believes a liquidated damages clause is unenforceable may so assert as a defense to a claim for breach. In addition to a liquidated damages clause being contrary to public policy or unreasonable, such a provision may also amount to a penalty when the amount is grossly disproportionate to the amount of plaintiff's actual damages. Such penalties are unenforceable, and courts will decline to allow a plaintiff to recover under such a liquidated damages provision.

A contract may also limit the types of damages a non-breaching party may recover. It is important for a defendant to understand the terms of a contract to which they are bound, because such terms may outrightly prohibit plaintiff from recovering the damages they are now seeking. For example, a contract may prohibit recovery of incidental damages, such as reliance damages, and therefore plaintiff cannot now assert a claim for reliance damages in their complaint.

A plaintiff bears a duty to mitigate the damages they incur. A failure to mitigate damages, such as when plaintiff fails to locate additional buyers for the goods that defendant was contractually bound to purchase, causing the value of the goods to decline, is limited in their recovery due to their failure to mitigate their damages.

Finally, it is important to understand that in New York, plaintiffs cannot recover damages that are too speculative or remote to be compensable. A plaintiff bears the burden of proving the damages they assert against the breaching party with evidence and statistical analysis supporting the amount of damages they seek.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

ARTICLE
10 April 2024

Defenses To Contract Damages In New York

United States Litigation, Mediation & Arbitration

Contributor

KI Legal focuses on guiding companies and businesses throughout the entire legal spectrum. KI Legal’s services fall under three broad-based practice group areas: Transactions, Litigation, and General Counsel. Its extensive client base is primarily made up of restaurant and hospitality owners and operators, real estate developers and family offices, and lending institutions and investment funds.
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