Expectation damages put the injured party in the position it would have been in if the contract had been performed. That is the default measure in contract law, and it is what makes contract remedies different from tort remedies, which look backwards to restore the plaintiff to where it started. The court is not punishing the breach. It is buying the plaintiff the value of the promise with money.
Rule
- The formula. Loss in value caused by the breach, plus any other loss the breach caused, minus any cost or loss the injured party avoided by not having to perform.
- Foreseeability. Damages are recoverable only for losses that were foreseeable at the time of contracting, either in the ordinary course or because of special circumstances the breaching party knew about.
- Certainty. The loss must be provable with reasonable certainty, which is where new business lost profit claims usually fail.
- Mitigation. Losses the injured party could reasonably have avoided are not recoverable.
- Alternatives. Where expectation cannot be measured, courts fall back on reliance damages or restitution.
Leading cases
- Hawkins v. McGee: damages for a botched operation promised to produce a good hand were the difference between the promised result and the actual result, not the patient's pain.
- Hadley v. Baxendale: a breaching party is liable only for losses arising naturally from the breach or within the contemplation of both parties when they contracted.
- Groves v. John Wunder Co.: the court awarded the cost of completing the promised grading work rather than the small drop in the land's value.
- Peevyhouse v. Garland Coal and Mining Co.: where the cost of performance is grossly disproportionate to the value gained, the court instead awarded the diminution in value.
Where students go wrong
The first mistake is confusing expectation with reliance. Expectation asks what performance was worth. Reliance asks what the plaintiff spent. A plaintiff who made a bad bargain may prefer reliance, and cannot use it to escape a loss the contract itself would have produced.
The second is skipping the subtraction. Costs the plaintiff saved by not performing come off the award, and forgetting that step produces an answer that is obviously too large.
The third is treating the cost of performance and diminution in value as a rule with a clean answer. Courts split, and the exam wants both measures argued with the waste and disproportion points on the table.
FAQ
Are punitive damages available for breach of contract?
Almost never. Contract remedies are compensatory. Punitive damages usually require an independent tort, such as fraud or bad faith denial of an insurance claim in some states.
What are consequential damages?
Losses beyond the value of the promised performance, such as lost profits from a shutdown. They are recoverable only if they pass the foreseeability and certainty limits.
When does a court order specific performance instead?
When damages are inadequate, which usually means the subject matter is unique. Land contracts are the classic example; ordinary goods are not.
Related terms
Working through this in your own casebook takes longer than reading it here. Syllume starts from your syllabus and turns each assigned case into a brief you can study from.