Expectation Damages
What is the Expectation Damages?
Expectation damages are the standard remedy for breach of contract, designed to put the non-breaching party in the position they would have been in had the contract been fully performed.
Definition
Expectation damages, also called benefit-of-the-bargain damages, are the primary measure of damages for breach of contract. They aim to put the non-breaching party in the economic position they would have occupied had the contract been performed as promised. This forward-looking measure reflects the law's commitment to protecting the expectation interest—the gains the promisee expected to receive from the contract.
The formula for expectation damages is generally expressed as: loss in value (the difference between the value of the performance promised and the value received) plus other losses (including incidental and consequential damages) minus costs avoided (expenses saved because of the breach) minus losses avoided (gains from mitigation efforts). Under the UCC, this translates to specific formulas: for buyers, the difference between the contract price and the cover price (UCC 2-712) or market price (UCC 2-713); for sellers, the difference between the contract price and the resale price (UCC 2-706) or market price (UCC 2-708).
Expectation damages must be proved with reasonable certainty—speculative or conjectural damages are not recoverable. Additionally, consequential damages must have been foreseeable at the time of contract formation under the Hadley v. Baxendale rule. The foreseeability limitation prevents promisors from being held liable for unusual and unforeseeable losses that flow from the breach. Lost profits are recoverable as expectation damages if they can be proved with reasonable certainty and were foreseeable.
Key Elements
- 1A breach of contract has occurred
- 2The loss in value of the promised performance is calculated
- 3Incidental and consequential damages are identified
- 4Costs avoided by the non-breaching party are subtracted
- 5Losses avoided through mitigation are subtracted
- 6Damages are proved with reasonable certainty
- 7Consequential damages must have been foreseeable at formation (Hadley v. Baxendale)
Landmark Cases
Hadley v. Baxendale
9 Ex. 341 (1854)
Established the foreseeability limitation on consequential damages: only damages that arise naturally from the breach or were in the contemplation of the parties at formation are recoverable.
Hawkins v. McGee
84 N.H. 114 (1929)
The 'hairy hand' case, demonstrating expectation damages as the difference between the value of the hand as promised and the value of the hand as received.
Kenford Co. v. Erie County
73 N.Y.2d 312 (1989)
Denied lost profit damages for a stadium project because they were too speculative and not proved with reasonable certainty.
Tongish v. Thomas
251 Kan. 728 (1992)
Applied UCC damages provisions, choosing the market-price formula over the lost-profit formula to encourage contract performance.
Exam Tips
- Always start with the expectation damages formula: loss in value + other loss - cost avoided - loss avoided.
- Apply the Hadley v. Baxendale foreseeability test to consequential damages—were the special circumstances communicated at formation?
- If expectation damages are too speculative, consider reliance damages as an alternative measure.
- Under the UCC, identify whether the buyer covers (2-712) or claims market damages (2-713), and whether the seller resells (2-706) or claims market damages (2-708).
Common Mistakes to Avoid
- Failing to subtract costs avoided and losses avoided from the damage calculation—this results in overcompensation.
- Applying the foreseeability test at the time of breach rather than at the time of contract formation.
- Confusing expectation damages with reliance damages: expectation looks forward to the promised benefit, reliance looks backward to expenditures made.
Memory Aid
Expectation = 'Where would I BE if the contract were kept?' Loss in value + other losses - costs saved - mitigation gains. Think: benefit of the bargain.