In: Accounting
Haply Inc. contracts with Barksdale LLC to have an engine repaired. After much negotiation, the parties agree that the engine will be repaired and reinstalled at Haply’s facilities in 5 days. Haply plans on losing $40,000 a day for each day the engine is not delivered after the five-day window (this is the cost for a replacement engine).
Haply tells Barksdale’s representatives that if the engine is not repaired on time that bad press will cause Haply to lose a client’s business totaling $3,000,000. Barksdale does not complete the contract until day 7.
It cost Haply $500 to secure the delivery of a replacement engine. The actual rental of the replacement engine cost $40,000 a day. And Haply lost the business of a client totaling $3,000,000. Haply sues Barksdale for incidental, consequential and compensatory damages. The court finds that there is a breach of contract. What are the consequential, incidental, and compensatory damages that Barksdale is liable for in this case? Be sure to define each of those terms.
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1. Consequential Damages : Consequential damages are indirect in naturewhich are incurred not as a result of the breach itself, but due to the end result of the breach.
Here, losing the client's business totalling to $3,000,000 is the consequential loss to Haply Inc
2.Incidental Damages : Incidental damages are reasonable expenses incurred by one party to a contract as a result of the other party’s breach of the contract.
Here since the engine is not repaired in 5 days therefore Haply Inc. had to make the rental expenditure of $40000 per day for 2 days.
Hence the incidental loss incurred by Haply Inc. is $80,000
3.Compensatory Damages : It refers to a sum of money awarded to an individual who suffers damages or losses directly caused by the acts of another. It is a loss which could be exactly measured in money.
Here Haply Inc. incures $500 to get the engine repaired which is the compensatory loss.
Hence, Barksdale is liable to give $3,000,000 as consequential damage, $80,000 as Incidental damage and $500 as compensatory damage.