Contract Glossary
Punitive Damages
Definition
Money awarded to the plaintiff beyond their actual losses, designed to punish the defendant for especially egregious, malicious, or reckless conduct and to deter others from similar behavior. Unlike compensatory damages (which make the victim whole), punitive damages are meant to sting — they're the legal system's way of saying 'that was so bad, you need to pay extra.'
In Practice
A franchisor knowingly sells franchise rights in a territory it has already promised exclusively to another franchisee. The first franchisee discovers the overlap and sues. A court awards compensatory damages for lost revenue ($200,000) plus punitive damages ($600,000) because the franchisor acted intentionally and in bad faith — they knew exactly what they were doing and did it anyway. The punitive award sends a message to all franchisors: don't double-sell territories.
Common in these contract types
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Frequently asked questions about punitive damages
No — they're the exception, not the rule. Most contract breaches result only in compensatory damages. Punitive damages require something beyond a simple breach: fraud, malice, oppression, or willful and wanton disregard for the other party's rights. A contractor who misses a deadline won't face punitive damages. A contractor who deliberately uses dangerous materials while hiding it from the client might.
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Create your contractThis content is for informational purposes only and does not constitute legal advice. For contracts with significant financial or legal implications, review by a qualified attorney is recommended.