Contract Terms to Know: Punitive Damages

We are doing a deep dive into specific contract terms so you will know why they are in the contract.

Unless there is fraud or egregious contract (and not just a breach of contract) a business owner are also not entitled to punitive damages or pain and suffering for a breach of contract.  As we have discussed, most contracts are limited to direct damages. 

Many business owners experiencing a breach of contract are hot, and want to punish the other party.  I recently had a client send a demand to the other side for $150,000 because the other party was not doing its job, was unresponsive, and didn’t provide critical information to my client.  My client was incensed at the incompetence and the time it was taking them to get necessary information from the other party. When we drilled down on the actual monetary damages my clients suffered from the other party’s non-performance, the costs were closer to $50,000. 

As the name implies, “punitive” comes from “punish.”  And in most cases in NC, you cannot punish someone for breaching a contract.  The parties are presumed to have negotiated damages in good faith, so the contractual remedies are supposed to be sufficient.  In North Carolina, punitive damages are awarded sparingly and only “to punish a defendant for egregiously wrongful acts and to deter the defendant and others from committing similar wrongful acts."

They are rare.