Justice, Compensatory

Conditions Required to Establish Duty to Compensate

Traditionally, three conditions are required to find that a person has a moral obligation to compensate an injured party:

• 1.
  The action that caused the injury was morally wrong, legally prohibited, or negligently committed. If you are prevented from achieving a particular goal [Page 1215]because I deliberately put blocks in your way, perhaps intentionally spreading a false rumor about your ability to perform a contract, then you would be entitled to compensation.
• 2.
  The person's action must be the real cause of the injury. If I use my money to purchase a defective forklift for the company and you are injured, then I am responsible for that injury. If my connection to the injury cannot be established, then I am not liable.
• 3.
  The person's injury was inflicted voluntarily. In this instance “voluntarily” means that I intentionally caused the injury or I acted negligently, with such a disregard for the consequences of my action that I am held morally liable for the injury.

To diffuse the financial liability, the community may choose to bundle resources for compensation, such as the purchasing of insurance, to spread the costs of compensation more equally across the community. The degree to which the community should demand reallocation of resources without regard to fault in causing injury is a perennial source of controversy.

Compensatory Damages in Breach of Contract

Historically, three measures of compensation may be due to a person who has suffered damage because another defaulted on a contract.

First, a person may receive compensatory damages to protect the restitution interest. This allows a court to deprive the person who defaulted on the contract any gain that resulted from the breach of contract. The purpose of this award is to prevent unjust enrichment to the party who is in the wrong.

Second, the person may receive compensatory damages to protect the reliance interest. If a person purchased goods or services to fulfill the contract, the cost of those goods or services should be repaid. If someone forgoes another opportunity in reliance on the contract, that lost revenue may also be recovered.

The third measure of compensation is protection of the expectation interest. This compensation is made to place the person in the position she would have been in if the promise had been performed. Thus, if a person expected a certain amount of profit from the contract being honored, the party in breach of the contract may be required to compensate the nonbreaching party for the profits that were expected.

The ethical basis for the first two types of compensation is malfeasance, deliberately choosing to not honor a contract or to keep one's word. In these situations, theorists agree that compensation is due. The ethical basis for the third measure of compensation is nonfeasance, granting damages for something that was never done. Theorists do not agree on this basis for compensation. The argument is that one should not recover damages for a failure to receive the anticipated financial benefit. Regardless of the theoretical controversy, the courts consistently recognize all three types of compensation.

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