Think of a contract as a private set of laws that only apply to the two parties

Question

Think of a contract as a private set of laws that only apply to the two parties who signed it. Those two parties have determined and agreed to the subject, consideration, timing, duration, etc. for the contract. Generally, the court does not interfere with the parties’ agreement, except in certain circumstances (e.g. if the subject of the contract violates public policy). When a contract is breached and a lawsuit is filed, the court will generally award compensatory damages that make the non-breaching party “whole” again, as if the breach didn’t happen. The court rarely awardspunitive damages that are designed to punish the breaching party.

Do you think punitive damages should be awarded in breach of contract cases? If so, discuss why and under what circumstances. If not, discuss why not, even under circumstances including fraud or malice.

Explanation / Answer

Punitive damages should be awarded in breach of contract cases if the following circumstances arise:

1.      The cases where compensatory damages are inadequate to the situation when the defendant acted in a horribly shocking manner or in an egregious fashion.

2.      They can also be awarded in insurance bad faith case claims that are indicated in the insurance policy. The insurer’s breach of contract is very wrongful and violates the implied clauses of good faith and fair dealing, it’s a tort.

3.      Punitive damages may also be awarded in a product liability case where the drug manufacturer a corporate company sells a drug knowing its harmful effects without issuing any warning on the product.

4.      Careless behavior like driving a car and using phone or texting leading to an accident you would need to pay compensatory damages plus punitive damages to set an example that similar activity is not repeated. The main purpose is the deterrence of the behavior that brought about a lawsuit.

5.      Punitive damages are also awarded in addition to compensatory damages if the judge wants to make an example of the lawsuit.

To sum it up compensation damages in a breach of contract are awarded to bring the person back to the original position before the contract was breached and compensates for the direct losses, punitive damages are in addition to make an example of the lawsuit.

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