Strictly speaking, are damages an essential element of breach of contract?

Question

Several resources, including one from an attorney in California and another from an attorney in Arizona state that harm or damages to the non-breaching party is an essential element of a breach of contract action. This is apparently confirmed in the Colorado case W. Distrib. Co. v. Diodosio, 841 P.2d 1053, 1058 (Colo. 1992). In other words, if there has been no harm, no breach has occurred.

Taking this to its logical conclusion, it would mean that every single contract term in every single contract includes an implied clause limiting its application to instances where violating its requirements results in actual, legally cognizable damages. For example, a contract that provides, "Alice promises to Bob that she will not do the Hokey Pokey." actually means "Alice can do the Hokey Pokey all she wants as long as she doesn't thereby hurt Bob (e.g. causing an oil spill on his land, making his crops fail, making his debtors unable to pay him, driving away his customers, causing a personal injury, etc.).".

For a more practical example, I recently signed a car rental contract in which I agreed not to take the car outside of a specified geographical area without permission. Applying this harm rule, a court would actually interpret the clause to mean that I may take the car outside of that geographical area as long as no harm to the other party occurs (e.g. a car wreck, weather damage that is greater than it would have been if the car had been kept within the specified area, etc.). I could theoretically tell them, "Yes, I took the car to Oklahoma in violation of the letter of the contract, but I returned it without any more damage and wear and tear than it would have sustained had I kept it in Texas as I promised. Even if it did sustain damage as a direct result of my actions, there's no way you could prove that the damage was caused by my travel to Oklahoma or that it would necessarily not have occurred if I had stayed in Texas. No harm, no breach, get off my case!".

This would also mean that harms that the law typically does not consider, such as emotional trauma not rising to the level of IIED, likely also do not result in a breach of contract even if the express terms of the contract forbid the behavior that inflicted the trauma.

This seems untenable, as it would blur the distinction between contract and tort law and turn breach of contract into some sort of quasi-tort action. Common sense (which might not actually be worth that much) tells me that reducing every contract to "don't hurt the other party to this contract" isn't realistic and that a judge would look at me very strangely when I tell him that I gleefully turned around and did almost everything I promised not to do and almost nothing of what I promised to do but that at least nobody got hurt so please rule in my favor kthxbai.

So, strictly speaking, is a legally cognizable injury an essential element in breach of contract under Common Law principles?

To be clear, I'm not asking for help with any specific jurisdiction, but am asking about the history and theory of breach of contract under Common Law.

Another way to phrase the same question is, is "Nobody got hurt" a complete defense to an action for breach of contract (i.e. it is not a breach at all and the court would rule in favor of the defendant), or is lack of harm only be a mitigating factor when deciding how much to award the plaintiff for the defendant's breach?

Discussion

I'm picturing this sort of scenario more with standard form contracts that forbid all sorts of apparently innocuous behavior than with short, bespoke contracts that get right to the heart of the matter. For example, I might read a standard form contract and think, "There's no way they would know if I violated this clause or not. Even if they knew, there's no way they would actually be harmed. Even if they were harmed, there's no way they could prove it in court. Even if they could prove it, the harm would almost certainly be too remote, speculative, and/or de minimis to sustain an action. I can just ignore the actual words of this clause and just concern myself with not hurting anybody and be confident that I am not doing anything wrong."

As it pertains to my rental car hypothetical, I might think, "Ok, the contract clause says 'You agree not to take the car out of the state of Texas', but their real concern is stopping me from transferring the car to Guatemalan revolutionaries or disassembling it for parts to repair an Alaskan oil pipeline. A five-mile jaunt across the state line to visit my sister in Oklahoma doesn't give rise to the harm countenanced by the clause, so doing so does not constitute a breach." I have a very strong feeling that this is dangerous legal reasoning, but am having trouble figuring out exactly why.

Answer 1

Strictly speaking, are damages an element of breach of contract?

There are inconsistent formulations of breach of contract. But that inconsistency is inconsequential. What matters is that damages --whether anticipated or actual-- are relevant for ascertaining the remedies for the breaching party's violation(s) of the terms.

The wording in Restatement (Second) of Contracts at §355 implies that [punitive] damages are not breach of contract. Other sections reinforce that interpretation by referring to damages as the effect(s) of a breach, not an element of the breach itself. See §243. By contrast, some courts include damages in their formulation of prima facie elements of a breach. Examples are Sellers as Tr. of R&LD Trust II v. Felton, 626 S.W.3d 121, 125 (2021) (mentioning "resulting damages" among the allegations that "support the existence of [a] contract", brackets added), and CP3 BP Associates LLC v. CSL Plasma Inc., (Missouri CoA, Apr. 2022) ("To establish a prima facie case of breach of lease, a plaintiff must establish [...] that plaintiff was thereby damaged by the breach").

A defendant can be found in breach of contract. But the legal proceedings would be pointless unless the plaintiff sought declaratory relief or can prove damages.

That being said, scenarios like the car rental example can entitle the non-breaching party to remedies even if the rented car is not involved in an incident. Primarily the non-breaching party might be entitled to void the contract, given this party's awareness of the counterparty's non-compliance with terms they willfully and knowingly entered. For instance, even in the absence of incidents, an insurer is entitled to rescind a policy if it realizes the insured indulges in recklessness or moral hazard. That is because the insured's conduct contravenes the basic assumption of insured's risk aversion as well as the agreed allocation of risks on which an insurance policy is premised. See Restatement at §§151, 153, and 154(a).

In some contexts, the non-breaching party might also be entitled to a reasonable award if the formation of that contract is traceable to opportunity costs or, for instance, if voiding the contract [due to the counterparty's breach] causes the non-breaching party administrative expenses.

Answer 2

There is a split of authority between states. It is not an element of a contract claim in Colorado. See, e.g., Dennis I. Spenser Contractor, Inc. v. City of Aurora, 884 P.2d 326, 327 (Colo. 1994); Wheeler v. T.L. Roofing, Inc., 74 P.3d 499, 503-504 (Colo. App. 2003); McDonald v. Zions First Natl. Bank, N.A., 2015 COA 29, ¶ 49, 348 P.3d 957, 965, Colorado Jury Instructions (Civil) 30:10 (2021). W. Distrib. Co. v. Diodosio, 841 P.2d 1053, 1058 (Colo. 1992) is not the controlling case on this point in Colorado. Colorado actually takes the opposite view in the controlling cases where this question was actually at issue in the case, as opposed to being merely dicta.

But, in some states, it is an element of a contract claim, and the issue isn't always a clearly settled issue of law in a state.

There is quite a bit of scholarly legal theory literature addressing this questions and related ones (like the lack of emotional distress damages or punitive damages for most breaches of contract, and the question of "efficient breach" of a contract).

The difference matters, for example, in determining who is a prevailing party in the event that there is a attorney-fee shifting provision in the contract that awards fees to the prevailing party (which is very common), for an award of litigation costs other than attorney fees even without contractual fee shifting, and for purposes of determining whether a complaint filed in court states a claim for relief in the face of a motion to dismiss (if damages are not required, then only the existence of the contract and an alleged breach of a contract states a claim that survives a motion to dismiss even if damages aren't alleged).

The distinction also matters in breach of contract cases where one seeks specific performance or injunctive relief primarily to prevent damages in the future, rather than to recover damages for harms that have already taken place.

Another area where the distinction is important is where a breach of a contract constitutes a default under some other contract.

For example, suppose that breach of a construction contract constitutes a ground for a default under a promissory note which is payable over ten years in the absence of a default. The breach of the construction contract, e.g. by failing to meet a deadline that the contract declares to be material but causes no monetary damage, could cause a default under the promissory note allowing it to be accelerated and collected in full immediately.

For purposes of showing an "injury" for constitutional standing purposes and subject-matter jurisdiction, breach of a contract is sufficient without a showing of economic damages.

Answer 3

This seems untenable, as it would blur the distinction between contract and tort law and turn breach of contract into some sort of quasi-tort action.

The main difference between tort and breach of contract actions is that tort actions require establishing a duty of care. The primary purpose of a contract is to establish duty of care, thus this element generally isn't as much of an issue in a breach of contract action. When it comes to having to prove damages, yes, contract and tort law are very similar in that generally being a necessary element. There are exceptions, such as statutory or liquidated damages. If a contract specifies that X is a breach of the contract, but doesn't specify any recourse such as liquidated damages, and the complaining party can't show actual damages, what do you expect a court to do? The primary purpose of civil law is to make a party "whole". If the party is already whole, then what is there for the court to do? The purpose of contracts is not to allow parties to compel actions from others (hence specific performance is usually not an allowed remedy), but to protect the parties from costs incurred from the other parties not engaging in the desired actions.

For example, a contract that provides, "Alice promises to Bob that she will not do the Hokey Pokey." actually means "Alice can do the Hokey Pokey all she wants as long as she doesn't thereby hurt Bob.".

As far as your interactions with the courts means, what it means is "Alice can do the Hokey Pokey all she wants as long as she's willing to deal with the consequences of doing so." A contract can't change whether Alice can do the Hokey Pokey, it can only affect what the consequences are. (This applies to criminal law as well; there's no law that says that you can't commit murder, there's merely a law that says that if you commit murder, the state can put you in prison.) The state really doesn't have much public policy interest in allowing people to dictate others' participation or non-participation in the Hokey Pokey, so it's likely going to be difficult to get it to get involved. If Bob really wants Alice to not do the Hokey Pokey, it's up to him to come up with consequences, rather than asking the state to do it for him. The state does have a public policy interest in its citizens engaging in business without fear of monetary risk in the case of breach of contract, so it does allow actions if one can show damages. If you really want to compel someone to do the Hokey Pokey, put in a liquidated damages clause. Bob can also make a payment to Alice for her not engaging in the Hokey Pokey, and then ask for a refund of this money if Alice does do the Hokey Pokey.