Punitive Damages

Punitive damages are designed to punish.  A Court uses punitive damages to make an example of a defendant in order to keep others from committing a similar wrongful act.  Punitive damages are rare in a breach of contract case except bad faith insurance claims (e.g., when an insurance denies a claim for an invalid reason).

A non-breaching party has a duty to mitigate damages.  In other words, a non-breaching party has the duty to take reasonable steps to minimize damages.  The failure to mitigate damages may cause the victim to only be allowed to recover damages that would have resulted if mitigated.  In our truck example, say the truck was purchased and was to be delivered on January 5, to allow the buyer to perform a delivery job for $500.00.  Delivery was late. The delivery contract was lost.  However, suppose the buyer could have rented a truck for $150.00.  However, he failed to do this. His damages would therefore only be $150.00.

An appropriate remedy for a breach may be rescission of the contract.  This places the parties in the position they would have been had the contract never been entered into.  For example, money is returned to the buyer and the buyer returns the merchandise to the seller.  If performance has been involved, the performing party may get the reasonable value of his performance under an unjust enrichment theory.  Suppose that pursuant to a contract for the sale of land, a buyer has taken possession and made substantial improvements.  If the contract is rescinded, the buyer will return the land and the seller will return the money.  However, the seller may have to pay the buyer the reasonable value of the improvements.


Inside Punitive Damages