In China, compensation for mental damages for breach of contract is a controversial issue. The traditional civil law view holds that the liability for breach of contract does not include mental damage, and that mental damage belongs to tort liability. Cases of mental damage caused by breach of contract continue to appear, and some scholars have begun to affirm the rationality of compensation for breach of contract mental damage. In this context, this article analyzes the textual interpretation and systematic interpretation of Article 996 of the Civil Code and concludes that the legislator’s attitude towards compensation for mental damages for breach of contract is ambiguous. However, the judicial interpretations clearly oppose the system of compensation for mental damages in breach of contract. The contradiction between the two has also caused confusion in the judicial trial. The article uses big data to collect judicial cases and finds that although most judges deny compensation for mental damages for breach of contract in accordance with judicial interpretations, some judges affirm the compensation for mental damages based on the justice of individual cases. Then, the article refutes the view of negating the compensation for breach of contract mental damage, and launches a theoretical defense for constructing the compensation system for breach of contract mental damage from four perspectives, namely, to make up for the loopholes in the overlap of responsibilities, meet the requirements of predictability rules, and meet the principle of complete compensation, and judicial practice can provide experience for the amount of compensation. This article proposes that compensation for breach of contract mental damage needs to meet the conditions of general breach of contract, that is, there is a breach of contract, the injured party suffers serious mental damage, and there is a causal relationship between breach of contract and mental damage. Finally, in order to prevent the breach of contract mental damage compensation system from being abused, the subject of breach of contract mental damage should be restricted to natural persons, and at the same time, the contract type should be restricted. These two points should be used to limit the breach of contract mental damage compensation system.