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What damages can you recover from a breach of contract? Part 2

Contract disputes are an inevitable part of business. No matter how good of a “deal maker” you may be, circumstances change and people move on. Hopefully you are able to resolve this difference amicably but if you are not, then your business could face serious economic consequences depending upon the nature of the breach. It is in these situations that recovering damages is critical. A previous post discussed how you can recover compensatory and nominal damages, the two primary types of damages. This post will discuss the less common but still important punitive and liquidated damages.

Punitive damages are exactly what they sound like. They are ordered by the court to punish the offending party for bad behavior. This does not occur during contract-only litigation. Punitive damages generally only come in if there is a corresponding tort claim. In business litigation that is usually fraud, deceptive business practices or unfair competition. This occurs if your contract partner tried to deceive you or engaged in some other similar “bad” action.

Punitive damages are ordered on top of regular (compensatory) damage. Depending upon your jurisdiction, it is typically assessed as a formula. For example, punitive damages may be ordered that are three times your total damages. The point of punitive damages is to discourage future bad acts by the offender.

Liquidated damages are incorporated into a contract. They allow the victim in a breach of contract to enforce a damages provision against the breaching party. These provisions must be reasonable and fair to the other party. You cannot introduce these provisions as a way to punish the other party. These clauses are allowed because if there is a breach, you are not sure how much damage your company will suffer. They allow you to cover potential future losses.

As you can see, there are many different types of recovery for contract disputes. If a contract fell through, then you may want to speak to a lawyer as soon as possible. At this point it is about damage control and limiting your business losses. An attorney can help you do that by highlighting risk areas and helping you devise a business and legal strategy.

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