If you are involved in a lawsuit—whether as the plaintiff or as the defendant—you may be wondering how much money can be at stake. This is where the question of damages comes into play.
Simply put, damages are the monetary award that you can receive (or be ordered to pay) as a result of a lawsuit. Many different items go into a calculation of damages. There are actual damages, liquidated damages, and even punitive damages.
Actual damages represent the harm that someone actually did suffer as a result of a wrongdoing. For example, if you miss work for 2 months and incur $50,000 in medical bills, your actual damages that you can recover for would be the $50,000 plus 2 month’s salary. The actual damages in a case are usually fairly easy to prove, because you can point to the bills that you incurred—and the paycheck that you didn’t get—and add it all up.
Liquidated damages is a term used when the parties agree beforehand how much one party will have to pay the other in the event of a breach of contract. These types of damages are usually—although not necessarily always—used in contract cases where the parties can make a pretty good guess beforehand how much a breach will cost.
Liquidated damages can also be used in situations where the parties agree beforehand that they don’t want to have to go through the time, expense, and hassle of calculating actual damages in the event of a breach. This can save both sides money, as determining damages can be almost an entire trial in and of itself. Note that some courts will refuse to honor a liquidated damages clause if it is unconscionable—for example, if a liquidated damages clause calls for an award of $1,000,000 if a person fails to purchase an automobile from another person.
Punitive damages are damages that are awarded as a punishment to someone for doing something especially wrong. They can also be used to send a message to other would-be wrongdoers. Punitive damages are not always available, so if you think you have a case for asking for them—and they tend to be much, much larger than other types of damages—you should probably talk with a lawyer.