Compensatory Damages

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Definition: Compensatory Damages

Compensatory damages are those price or money that are paid by a party because of whom another party has suffered any kind of losses in their business or with respect to asset value. This may happen due to the negligence of one party or due to the deliberate attempt by one party to damage another party’s reputation.

These matters are settled in civil courts and the court orders the party which is guilty to pay the compensatory damages. Whenever there has been a business transaction between two parties, the party that has to execute the promise in accordance with all the conditions laid down by the second party. If there are any losses or damages to the deliverables or any other incurred by the receiver due to an action by the party that has promised, then the second party is supposed to pay for the damages that have been incurred. The exact amount of losses incurred due to the damages need to be submitted by the party and has to be accounted and audited for, in order to recover the compensatory damages.

For example, if there is a contract between a supplier and a buyer and if the goods are delivered to the buyer in a bad state or any damages are caused due to handling of the goods by the supplier, then the buyer can sue the supplier for delivering damaged goods and hence claim for compensatory damages.


Hence, this concludes the definition of Compensatory Damages along with its overview.

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