Are punitive damages available in an action for breach of contract? The answer: rarely, according to a recent decision from the Tennessee Court of Appeals in Dog House Investments, LLC v. Teal Properties, Inc., No. M2013-00597-COA-R3-CV (Feb. 7, 2014).
In Dog House, it was agreed that the tenant, Dog House, would advance the cost of repairs caused by the 2010 flood disaster. The landlord, Teal Properties, would then file a flood insurance claim and reimburse the tenant. Dog House filed suit alleging unjust enrichment, promissory fraud, breach of contract and sought to pierce the corporate veil, contending that Teal concealed the fact that it received the insurance proceeds and spent the money on the owner's personal expenses.
While the Court of Appeals held that the facts supporting Dog House’s claim for breach of contract did not rise “to the level of egregiousness” necessary to sustain an award of punitive damages, it went on to affirm the lower court’s award of punitive damages based on promissory fraud. (The key distinction between fraud and promissory fraud is that the promissory fraud relates to a promise of future action, without an intent to perform, and fraud is based on a misrepresentation that relates to past or existing facts).
The bottom line is that without fraud, punitive damages are not typically available in a breach of contract case. Just because a party breaches a contract, even intentionally, does not subject them to liability for damages beyond what is recoverable under contract law.