At the law firm of Palmer Lehman Sandberg, PLLC, in Texas, we help many business owners negotiate and draft their numerous contracts. Since contracts represent such a large part of any business, having a good written contract with each of your partners, suppliers, independent contractors and a myriad of others best serves your interests.

Despite the best contract and the best intentions of its respective parties, however, breaches occasionally occur. When this happens, you have the right to sue the offending party for breach of contract. The University of New Mexico explains that in any such suit, you can collect two types of monetary damages,  compensatory and punitive.

Compensatory damages

Compensatory damages represent those that repay you for the actual losses you suffered due to the breach of contract. General compensatory damages repay you for any losses you suffered “directly and necessarily” as a result of the breach. Special compensatory damages, also known as consequential damages, repay you for the often unpredictable losses you suffered as a consequence of the breach.

Contracts often call for liquidated damages, a special kind of compensatory damages. If your contracts contain such provisions, they set forth the amount you and the other party agreed ahead of time to pay in the event of a breach. The problem with liquidated damages, however, is that a court may not enforce them. Why? Because you will have to prove that the liquidated damages amount is actually fair and reasonable, and not so out of proportion to the value of the breach that they represent punitive damages.

Punitive damages

When you sue someone for breach of contract, you can ask for punitive damages as well as compensatory damages. Remember, if a jury awards you punitive damages, it will be because they believe the defendant acted in a particularly egregious manner when (s)he breached the contract. In other words, punitive damages represent a punishment amount above and beyond your actual damages.

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