What Damages Can a Business Recover for Breach of Contract in Texas?

The measure: the benefit of the bargain

Texas contract damages are compensatory. The goal is to give the injured party the economic position it would have occupied if the other side had performed, no more and no less. Courts call this expectation damages or the benefit of the bargain. The claim is not for what the breach made you feel or for punishment; it is for the value of the performance you were promised and did not receive, plus the losses that flowed from not receiving it.

Everything below is a category inside that measure, with its own proof.

Direct damages

Direct (or general) damages are the loss that follows naturally and necessarily from the breach. For a seller or service provider, the unpaid contract price for work done. For a buyer, the difference between the contract price and what it reasonably cost to obtain the same goods or services elsewhere. For defective performance, the cost to repair or complete, or the difference between the value promised and the value delivered.

Direct damages are the easiest to prove because they come from the contract and from invoices. In a sale of goods, the UCC spells them out: a buyer may "cover" by purchasing substitute goods and recover the difference under Business and Commerce Code section 2.712, or recover the difference between market price and contract price under section 2.713; a seller has parallel remedies.

Consequential damages: foreseeable and reasonably certain

Consequential (or special) damages are losses that result from the breach but are not the direct value of the performance itself: profits lost on other contracts, downtime, penalties paid to your own customers, extra financing costs. Texas allows them, with two conditions the Texas Supreme Court has stated together: the loss must have been foreseeable to the breaching party at the time of contracting, and it must be calculable with reasonable certainty.

Foreseeability turns on what the other side knew or should have known when the contract was made. A supplier who knew its component was going into a production line can foresee that a late shipment stops the line. A vendor who knew nothing about your downstream commitments has a stronger argument that those losses were outside the bargain.

Reliance and restitution as alternatives

Where the benefit of the bargain cannot be proved, a claimant may instead recover reliance damages: the money it spent preparing for or performing the contract that is now wasted. Where the other side received something of value and kept it, restitution (the value of what it received) is available, and in some cases is the better measure. These are alternatives to expectation damages, not additions to them; a claimant does not recover both the profit it expected and the cost it incurred to earn that profit.

What Texas does not award for breach of contract

• Punitive (exemplary) damages. Civil Practice and Remedies Code section 41.003 allows exemplary damages only on clear and convincing proof of fraud, malice or gross negligence. A breach of contract, however deliberate, does not meet that standard on its own. Exemplary damages require an independent tort, such as fraud, and tort damages separate from the contract loss.
• Mental anguish. Not recoverable for an ordinary commercial contract breach.
• Speculative losses. Any category, direct or consequential, fails if the amount cannot be shown with reasonable certainty.
• Losses you could have avoided. See mitigation below.

The duty to mitigate

A party injured by a breach must use reasonable efforts to minimize its loss. A buyer who could have covered promptly at a modest premium cannot wait six months and claim the larger loss. A landlord or service provider whose counterparty walks away must make reasonable efforts to find a replacement. The breaching party bears the burden of proving that the claimant failed to mitigate and by how much the loss would have been smaller. Mitigation costs themselves, such as the extra paid for a rush replacement, are recoverable as damages.

Example

Suppose a Richardson electronics assembler contracts with a supplier for a custom circuit board at a fixed price, with monthly deliveries, and tells the supplier at signing that the boards go into a product sold under a retail contract with a delivery schedule. The supplier stops shipping in month five. The assembler buys replacement boards from another vendor at a 22 percent premium within three weeks and finishes the retail order two weeks late, paying its retail customer a late-delivery charge under that contract. Direct damages: the price premium on the replacement boards. Consequential damages: the late-delivery charge, which was foreseeable because the supplier knew about the retail schedule, and which is certain because it is a fixed sum in a signed contract. Mitigation: the three-week cover was reasonable. Lost profits on retail orders the assembler claims it would have won the next year are the weak point; without contracts or a documented sales pipeline they are unlikely to meet the certainty requirement.

Interest and attorney's fees

Prejudgment interest is generally available on contract damages in Texas. Texas courts award it at the postjudgment rate set under Finance Code section 304.003, which tracks the prime rate with a floor of 5 percent and a ceiling of 15 percent, computed as simple interest. Postjudgment interest runs on the judgment at the same statutory rate until it is paid. A contract rate, if the agreement states one, can govern instead.

Attorney's fees are recoverable on a contract claim under Civil Practice and Remedies Code chapter 38, subject to presentment and proof of reasonableness, and under any fee clause in the contract. The requirements and the 2021 change extending the statute to LLCs and other organizations are covered in whether you can recover attorney's fees in a Texas contract case.

How the contract itself changes the answer

Commercial contracts routinely alter the default rules, and Texas courts generally enforce the alterations between businesses:

• A liquidated damages clause fixes the amount in advance. It is enforceable if it meets the Texas test for a reasonable forecast rather than a penalty, discussed in whether liquidated damages clauses are enforceable in Texas.
• A consequential damages waiver removes lost profits and similar losses from the recovery.
• A limitation of liability caps the total at the contract price or another figure.
• An exclusive remedy clause may limit the buyer to repair or replacement.

Read these clauses before valuing any claim. A strong breach case with a tight damages cap is worth the cap, not the loss.

Specific performance as an alternative

When money cannot substitute for the performance, such as a sale of unique property or a transfer of an ownership interest, a court may order the breaching party to perform instead of paying damages. Specific performance is an equitable remedy, available at the court's discretion when damages are inadequate and the claimant was ready to perform. It is the subject of whether a court can force the other side to perform.

Building the damages case early

The damages element is where contract cases are won or lost at trial, and it is built from records kept from the day of the breach: the cost of cover, the communications showing what the other side knew at signing, the downstream contracts affected, and the steps taken to limit the loss. A litigator's early review of a contract claim is as much about the recoverable number as about liability. Tina Wysk represents Dallas businesses pursuing and defending contract damages claims in state and federal court.