Which statement best describes compensatory damages in contract breach remedies?

• A. They compensate for actual economic loss.
• B. They restore the injured party to the pre-contract position.
• C. They are a pre-negotiated fee for breach.
• D. They require the court to order performance of the contract.

Answer: (A)

Compensatory damages are designed to put the non-breaching party in the financial position they would have been in if the contract had been performed, by covering the actual economic losses caused by the breach. This means compensating for the value of what was promised but not delivered and for costs incurred due to reliance on the contract, including any foreseeable special losses. That fits best with the idea of making the injured party whole based on actual loss.

The other remedies describe different aims: restoring the party to the pre-contract situation is restitution, not compensatory damages; a pre-negotiated fee for breach is a liquidated damages clause, which sets a fixed sum ahead of time rather than measuring actual loss; and ordering performance is specific performance, an equitable remedy that compels completion of the contract rather than awarding monetary damages.