On The Calculation Of Damages For Breach Of Contract

Compensation for damages of breach of contract is an important liability for the default party. Calculation of damages for breach of contract is a crucial legal issue which concerns the final amount of compensatory payment contract party received and is of great significance for both practice and theory in contract law.Damage is the basis of compensation for damages of breach of contract, the article discuss the concept of"damage"first. About the meaning of"damage", there are different opinions including"interest theory"and"organization theory". The theory of"interest"is widely criticized and"organization"gets more attention now. Which opinion we now agree with is not clear. By the opinion of Mr. Shiyuan Han, the contract law in china now is approach to"organization theory". Generally speaking, damages include reliance interest and expectation interest, both of which include damage suffered and profit lost. The meaning of expectation interest is the same in continental law as in Anglo-American law: it will put the contract party into a state as contract was totally fulfilled. The origin of reliance interest in the two legal systems and the way to protect it are different. Reliance interest originates from culpa in contrahendo in continental law. Reliance interest was proposed to balance the principle of consideration which causes unfairness to promise in Anglo-American law. As a result, the definition of reliance interest is different. But, recently the two concepts of reliance interest in two legal systems show a trend of blend and convergence: first, both of them admit that reliance interest can apply both in contracts that are null or revoked and in contracts that are valid. Second, both of them agree that reliance interest is to put contract party into a state as the contract never exists. The constitutive requirements for compensation for damages of breach of contract include the fact of damage, breach of contract and causal relationship. Damages here means property damages in principle and do not include damages causing to others who are not contract parties. Except for money liability, the injured party should prove that damages be a certainty, otherwise he can not get compensation payment. A certainty does not mean mathematical precision, but should reach a reasonable certainty. The causal relationship is relatively simple, but there are causal patch and other special problems.The methods of calculation include specific method (also called subjective method) and abstract method (also called objective method). Which of the methods should be principal? We should decide it based on the purpose of compensation and operability in practice. According to this paper, specific method should be the principal method based on the principle of full compensation in contract law. If it is difficult to calculate damages in specific method, abstract method can be used instead. The parameters of calculation include time, place and price. Different criteria we use, different amount of compensation result we get. Time include the time of breach of contract, the time of non-default party knows breach and the time of non-default party request for compensation. A constant standard to calculate all kinds of breach can not be built. We should apply different criteria depending on various situations. Price includes contract price, substitute price and market price. Contract price is an important proof for the value of subject matter of contract. When specific method is adapted, we use substitute price to calculate. When abstract method is applied, we use market price to calculate. In the event of default, if the injured party can prove the exact loss, the non-default party can request for compensation for expectation interest, a payment as if the contract were totally performed. The precondition is the injured party can prove the exact loss. The variety of contract and breach of contract in practice make it impossible to establish a calculation formula that fits any breach of contract. So, the paper discusses the calculation of damages for breach of contract mostly base on sales contract. The party who supply all kinds of goods or service can apply formula established for seller and the party who buy goods or service can use formula which established for buyer. There are four elements in calculation for damages, namely, value loss, other loss, avoid expense and avoid loss. The basic formula to calculate damages: value loss plus other loss minus avoid expense and avoid loss. The paper discusses the calculation of damages of buyer and seller on different situation of breach of contract, including the situation of refusal to perform, delay performance and defect performance. In the specific violation, the paper proposes a specific formula for calculating damages. If compensation for expectation interest is not certain, the injured party can request for reliance interest instead, in this occasion, there will be problems on reliance interest and expectation interest crossing, overlapping.Compensation for damages of breach is also limited by a series of restrictive rules, including the foreseeability rule, reducing loss rule, benefits rule and contributory negligence rule. The subject of foreseeability rule is non-default party and the content can be the type of damage and possible results. If the injured party does not take reasonable measures, he can not get compensation for avoidable damages. Benefits rule is under some restrictions, mainly based on the party who cause benefit and the principle of fairness. Contributory negligence rule can be applied on contract party as well as his legal representative and user. Benefits rule is different from contributory negligence rule. Benefit rule exists after the injured party realized damages breach may cause, but negligence exist simultaneously with breach or prior to it. So, benefits rule and contributory negligence rule play different role in limiting the amount of compensation for damages of breach.