Expectation Damages: Getting the Benefit of Your Bargain
What Are Expectation Damages?
Expectation damages are the most common remedy for breach of contract. They aim to put you in the financial position you would have been in if the other party had fully performed their obligations. In other words, they give you the benefit of the bargain.
How Courts Calculate Expectation Damages
The basic formula is:
Expectation damages = Value of promised performance - Costs you avoided by not having to perform
For example, if a buyer agreed to purchase your goods for $50,000 and then backed out, and it would have cost you $30,000 to produce and deliver those goods, your expectation damages are $20,000 — the profit you lost.
Key Components
- Loss in value — The difference between what was promised and what was actually received (or nothing, if performance never occurred).
- Incidental damages — Additional costs caused by the breach, such as finding a replacement supplier or storing goods.
- Consequential damages — Foreseeable losses flowing from the breach, such as lost business from downstream customers.
- Minus costs avoided — Expenses you did not incur because the contract was not performed.
Limitations on Expectation Damages
- Foreseeability — Under the rule from Hadley v. Baxendale (1854), consequential damages must have been reasonably foreseeable at the time the contract was formed.
- Certainty — You must prove damages with reasonable certainty, not speculation.
- Mitigation — You must take reasonable steps to minimize your losses.
Contract Clauses That Affect Expectation Damages
Many contracts include clauses that limit or modify the default rules for damages, such as liability caps, exclusions of consequential damages, or liquidated damages provisions. These terms can significantly affect what you can actually recover.
When to Consult a Lawyer
If you are facing a breach of contract, consider consulting an attorney to calculate your potential damages and identify any contract terms that might limit your recovery.
This article is for informational purposes only and does not constitute legal advice. Consult a licensed attorney for guidance specific to your situation.