What are damages in relation to a contract?

Damages in relation to a contract refer specifically to compensation awarded when a contract is broken or breached. This concept is rooted in contract law, where the objective of awarding damages is to restore the injured party to the position they would have been in had the breach not occurred. These damages can take various forms, including compensatory damages for actual losses incurred, consequential damages for losses that occur as a direct result of the breach, and sometimes punitive damages, which are intended to deter particularly harmful behavior.

In contrast, reparations for verbal agreements do not accurately describe damages, as damages specifically relate to breaches of formal contracts. Legal fees incurred during negotiations also do not fit under the definition of damages, as they pertain to expenses associated with the process of creating or negotiating a contract rather than the outcomes of breaching it. Lastly, punishments applied for breach of contract might imply a more punitive measure rather than a focus on compensating the affected party, which underscores why the notion of compensation is central to understanding damages in this context.