What is the main function of compensatory damages?

Compensatory damages serve the primary purpose of recovering losses incurred by the injured party due to a breach of contract or wrongful act. These damages aim to place the innocent party in the position they would have been in had the breach not occurred. Essentially, they seek to restore the injured party to their prior state by compensating for any financial losses, expenses, or other detriments they have suffered as a result of the breach.

This is in stark contrast to punitive damages, which are intended to punish the wrongdoer and deter others from similar behavior, or fines, which serve a different function related to legal penalties. Compensatory damages do not focus on modifying future conduct or enforcing performance standards; instead, they are directly tied to the tangible losses experienced by the party who did not breach the contract. Thus, the main function of compensatory damages is crucial for ensuring that parties in a contract are held accountable for fulfilling their obligations and that those affected by breaches are adequately compensated for their losses.