Expectation Damages
Rule
The standard remedy for breach of contract is to put the injured party in as good a position as it would have occupied had the contract been performed — the “benefit of the bargain.” Expectancy is measured by the value of what was promised minus any costs saved.
Elements
- A valid, enforceable contract
- Breach by the defendant
- Damages measured to give plaintiff the benefit of the bargain:
- Building contracts (contractor breach): Cost of completion (reasonable cover) minus contract price
- Building contracts (owner breach): Contract price minus cost not yet expended (profit)
- Sale of goods (buyer breach): Contract price minus resale/market price
- Sale of goods (seller breach): Market price at time of breach minus contract price (UCC § 2-713)
- Employment (employer breach): Contract salary minus what employee could earn with reasonable effort in comparable employment
Exceptions
- Economic waste doctrine: When defect in building can only be remedied by destruction and rebuilding at grossly disproportionate cost, court awards diminution in market value instead of cost of performance (Restatement 2d § 346; Groves v. John Wunder dissent; Peevyhouse)
- Lost volume seller: When a seller could have made two sales but for the breach, lost profit on the additional sale is recoverable even if goods are resold (UCC § 2-708(2); Neri v. Retail Marine)
- Speculative damages: Lost profits for a new business may be too speculative; use rental value or other reasonable proxy (Evergreen Amusement Corp.)
- Certainty requirement: Damages must be proven to a reasonable certainty; doubts resolved in favor of the injured party
- No punitive damages: Pure breach of contract does not support punitive damages (White v. Benkowski)
- No damages for mental distress: Not recoverable for commercial contract breach, only for personal contracts involving “mental concern and solicitude”
Policy
Expectancy damages encourage efficient breach (breaching is worthwhile only if gain exceeds the victim’s loss), while protecting the injured party’s economic position. Fuller and Perdue identify a weaker theoretical basis for expectancy than for reliance (protecting actual loss), but practice supports expectancy because reliance is difficult to prove.
Key Cases
- Groves v. John Wunder Co. — cost of completion awarded over diminution in value where party specifically bargained for the performance
- Warner v. McLay — breaching owner owes contractor profit on unfinished work (contract price minus remaining costs)
- Neri v. Retail Marine Corp — lost-volume seller recovers full profit on unperformed sale plus incidental damages