Question 1

What's the difference between compensatory and consequential damages?

Accepted Answer

Compensatory damages cover your direct losses — what you actually paid or lost because of the breach. Consequential damages cover the indirect fallout — lost profits, missed opportunities, damage to your reputation. A late delivery costs you $5,000 in rush shipping (compensatory) and $50,000 in lost sales because your product launch was delayed (consequential).

Question 2

Can you get punitive damages for breach of contract?

Accepted Answer

Almost never. Punitive damages are designed to punish bad behavior, and courts reserve them for tort claims (like fraud or intentional harm), not contract disputes. The rare exception is when the breach also involves fraud or other egregious misconduct. Don't count on punitive damages in a contract case.

Question 3

What are liquidated damages and when are they used?

Accepted Answer

Liquidated damages are a pre-agreed amount written into the contract — 'If Party A is late, they owe $500 per day.' They're common in construction and project contracts where delays have clear costs. Courts enforce them as long as the amount is a reasonable estimate of actual harm, not a penalty. Penalty clauses get thrown out.

Question 4

How do you prove damages in a contract dispute?

Accepted Answer

You need documentation. Invoices, receipts, financial records, communications showing the impact. For lost profits, you'll need financial projections backed by historical data. Courts require you to prove damages with 'reasonable certainty' — vague claims of loss won't cut it. Keep records of everything from day one.

Question 5

Can a contract limit what damages you can recover?

Accepted Answer

Yes — and most commercial contracts do. Limitation of liability clauses cap total damages (often at the fees paid under the contract), and many exclude consequential damages entirely. These clauses are generally enforceable unless they're unconscionable. Read them carefully before signing — they determine your real exposure if things go wrong.

Question 6

What does 'mitigation of damages' mean?

Accepted Answer

It means you can't sit back and let your losses pile up. If a supplier breaches, you have a duty to find an alternative and minimize the damage. Courts will reduce your award by whatever you could have reasonably avoided. If a replacement supplier was available at a slightly higher price and you didn't use them, you can't claim the full loss.

Damages

Definition

In Practice

Common in these contract types

Related terms

Frequently asked questions about damages

Create a contract with proper damages clauses