Actual Damages: Example

A buyer and a seller enter into an agreement where the buyer agrees to pay $2500 for the seller's Rolex wrist watch.  If the buyer breaches the contract by refusing to purchase the Rolex, he would be liable to the seller for actual (also known as compensatory) damages.  Actual damages are the real losses sustained by the seller.  Therefore, if the seller sells the Rolex to a different buyer for only $2000, the original breaching buyer is liable to the seller for $500, which equals the real losses incurred by the seller.