What is the purpose of awarding punitive damages in a breach of contract scenario?

The purpose of awarding punitive damages in a breach of contract scenario is primarily to punish the breaching party for their wrongful or egregious conduct and to deter similar behavior in the future. Punitive damages go beyond mere compensation for the losses suffered by the non-breaching party; their main function is to impose a penalty on the wrongdoer, particularly when their actions are found to be willfully negligent, malicious, or fraudulent.

Unlike compensatory damages, which aim to restore the injured party to the position they would have been in had the contract been fulfilled, punitive damages serve to make a statement about acceptable business conduct. They are not awarded for every breach of contract but are typically reserved for cases where the breach involved intentional wrongdoing or extreme misconduct.

In this context, the focus is on deterrence and retribution rather than compensation. Thus, punitive damages are significant because they emphasize the legal system's role in shaping behavior within contractual relationships by discouraging actions that undermine trust and violate agreed-upon terms.