Also known as: anticipated harm · actual harm · imminent harm · actual injury
Written by attorneys · grounded in primary & secondary sources — see below
A measure of loss used to assess whether a stipulated damages clause is enforceable. The amount must bear a reasonable relationship to the harm the parties anticipated at contracting or the harm that actually occurred.
Ridge Buildings paid WindowCo a 40 percent deposit for custom panels. When Ridge cancelled, WindowCo kept the entire deposit. The clause is enforceable because the amount reasonably approximates the anticipated harm from producing specialized goods that are hard to resell plus the difficulty of proving exact loss.
A newspaper published false statements about a business owner. At trial the owner proved specific reputational losses including lost contracts. The defendant is liable for the proved actual harm to reputation even if no presumed damages apply.
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An insurer's bad-faith conduct caused the insured $1 million in compensatory damages. The jury awarded $145 million in punitive damages. The award is unconstitutional because the ratio to actual harm is grossly excessive under due-process standards.
A car manufacturer concealed a paint defect that reduced a vehicle's value by $4,000. The jury awarded $2 million in punitive damages. The Supreme Court vacated the award because the ratio to actual harm was unconstitutionally high.
A noncitizen pleaded guilty after counsel failed to warn of deportation. The defendant later shows that correct advice would have led to a trial with a realistic chance of avoiding removal. The claim succeeds only upon proof of actual prejudice from the deficient performance.
The court compares the stipulated amount to the anticipated harm at the time of contracting and any actual harm that occurred. If the amount is unreasonably large in light of those harms and the difficulty of proving loss, the clause is unenforceable as a penalty.
Supporting sources
When the communication is defamatory, the defendant is liable for proved actual harm to reputation. Nominal damages are available even without proof of harm for libel or slander per se, but compensatory recovery requires evidence of actual injury.
Supporting sources
Courts examine whether the punitive award bears a reasonable relationship to the actual harm caused. Grossly excessive ratios, such as 145 to 1, violate due process and require reduction or reversal.
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