Western Governors University (WGU) ACCT3350 D216 Business Law for Accountants Practice Exam

Compensatory damages are designed to put the injured party in the position they would have been in had the breach of contract not occurred. This type of damage seeks to cover the actual losses suffered by the aggrieved party, ensuring that they are compensated for their losses in a way that reflects the true impact of the breach.

For example, if a party fails to meet their contractual obligations, the injured party can claim compensatory damages to recover lost profits, costs incurred, or other financial detriments resulting from the breach. This principle embodies the fundamental goal of compensatory damages, which is to make the injured party whole again, rather than imposing penalties or punitive measures on the breaching party.

Other options, such as punitive damages, are designed to punish a wrongdoer or deter future misconduct, rather than to remedy a specific loss. Therefore, while compensatory damages focus on actual loss recovery, punitive damages would serve an entirely different purpose. Similarly, replacing damaged property falls under the umbrella of specific performance or restitution rather than compensatory damages, which are broader in their financial coverage. Avoiding legal proceedings is not a function of compensatory damages; rather, they are a remedy pursued when legal action is necessary to resolve a breach of contract.