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

Punitive damages serve a specific purpose in cases of breach of contract by focusing on the behavior of the breaching party rather than merely compensating the non-breaching party for their actual losses. Their primary aim is to punish the party that has violated the terms of the contract and to deter similar future misconduct. This deterrent effect is crucial, especially in scenarios where a breach may be considered egregious or where the typical compensatory damages would not be sufficient to discourage such behavior.

While compensatory damages are intended to restore the injured party to the position they would have been in had the contract been fulfilled, punitive damages go beyond this; they impose additional financial penalties to address the wrongdoer's conduct. This purpose sets punitive damages apart from other forms of damages that primarily focus on restoring losses or recognizing minor breaches. Thus, in cases of willful misconduct or gross negligence, punitive damages serve to uphold the integrity of contractual obligations and promote accountability among contracting parties.