Money Damages (Expectation)

We open the Remedies module with the question every breach eventually raises: now what? Contract law’s answer is compensation, not punishment. The default measure is the expectation interest, and today we make its calculation precise.

The three remedial interests

R2d § 344. Contract remedies serve three interests. The expectation interest gives the injured party the benefit of the bargain — the position performance would have produced. The reliance interest reimburses costs incurred in reliance on the promise. The restitution interest restores benefits conferred on the breacher to prevent unjust enrichment. Expectation is the default; reliance and restitution step in when expectation is too speculative or otherwise unavailable.

The expectation formula

R2d § 347. Expectation damages equal loss in value (the difference between the performance promised and what was actually received) plus incidental and consequential loss, minus cost or other loss avoided by not having to perform. Work it as arithmetic: identify each term, sign it, and sum. In Joe the Plumber (Problem 24.2), a $20,000 job Joe never starts yields $5,000 — the lost profit — because the $15,000 he would have spent is cost avoided. A substitute job he could not have done alongside the original is a loss avoided and reduces recovery further.

Sales-law parallels. Where goods are involved, the UCC supplies the same logic in specific sections: a buyer recovers cover minus contract price (§ 2-712) or market minus contract (§ 2-713); a seller recovers the price for goods accepted or unresellable custom goods (§ 2-709), or the contract–resale or contract–market differential otherwise (§§ 2-706, 2-708). Pick the right section first; the formula follows.

Cases

Hawkins v. McGee measured expectation for a broken promise to produce a result: the value of the promised hand minus the value of the hand actually delivered, not the patient’s pain and suffering. It matters because it shows the expectation measure in operation — the law values the gap between the promise and the delivery, and stops there.

What you should be able to do

State the three remedial interests and explain why expectation is the default. Run the § 347 formula on a numeric fact pattern, signing each term correctly. Select among the UCC’s buyer and seller remedies by matching the facts to the right section. Next class adds the first limit on the number the formula produces: Hadley v. Baxendale and foreseeability.