What is compensatory damages in relation to breach of contract?

Compensatory damages refer to monetary compensation awarded to a party who suffers loss due to a breach of contract. These damages are specifically intended to make the injured party "whole" again, essentially covering the actual monetary loss they incurred as a result of the breach. This means that the damages calculated will reflect the amount of actual losses, such as lost profits or costs incurred due to the contract not being fulfilled.

In the realm of contracts, this form of damages seeks to restore the financial condition of the injured party to what it would have been had the contract been performed as agreed. This is important in contract law because it helps to ensure that parties adhere to their agreements, knowing that failure to do so can lead to tangible financial consequences.

The other options do not correctly capture the essence of compensatory damages. For example, predetermined amounts or amounts only related to emotional distress do not reflect the actual financial loss suffered. Meanwhile, voluntary negotiation between parties usually pertains to settlement discussions rather than damage awards determined through legal proceedings.