What purpose do damages serve in a contract?

Damages in a contract primarily serve to compensate the injured party for losses incurred due to the breach of that contract. When one party fails to fulfill their contractual obligations, the other party may experience financial loss or other forms of harm. The legal system provides for damages to make the injured party whole again, meaning that these monetary amounts aim to restore them, as closely as possible, to the position they would have been in had the breach not occurred.

Compensatory damages can cover various types of losses, including lost profits, additional costs incurred, and any other measurable detriment that arose directly from the breach of the contract. This focus on compensation rather than punishment emphasizes the aim of contract law, which is to uphold agreements and provide remedies that mitigate harm rather than to impose penalties for wrongdoing.

While punitive damages can exist in some legal contexts to punish wrongful conduct, they are not the standard measure in contract disputes. The main goal remains the compensation of the injured party, affirming that option as the essential function of damages in a contractual scenario.