Understanding the Loss-of-Bargain Rule in Contract Law
Definition & Meaning
The loss-of-bargain rule is a legal principle that aims to compensate a party for losses incurred due to a breach of contract. This rule ensures that the injured party is restored to the financial position they would have been in if the contract had been fulfilled as agreed. Essentially, it allows the injured party to claim the difference between the actual value of what they received and the value they would have received if the contract had been properly executed.
Legal Use & context
This term is primarily used in contract law, which falls under civil law. The loss-of-bargain rule is relevant in cases involving breaches of various types of contracts, such as sales agreements, service contracts, and real estate transactions. Users may find it beneficial to utilize legal forms and templates provided by US Legal Forms to draft contracts that clearly outline terms, helping to minimize disputes and clarify potential damages in case of a breach.
Real-world examples
Here are a couple of examples of abatement:
Example 1: A homeowner contracts a builder to construct a deck for $10,000. The builder fails to complete the deck, and the homeowner must hire another contractor at a cost of $15,000. Under the loss-of-bargain rule, the homeowner can claim $5,000 in damages, which is the difference between the original contract price and the cost incurred to fulfill the contract.
Example 2: A company enters into a contract to purchase machinery for $50,000. The seller breaches the contract, and the company must purchase the same machinery for $60,000 from another supplier. The company can claim $10,000 in damages based on the loss-of-bargain rule. (hypothetical example)