Expectation Damages - Measuring Expectation Damages

Measuring Expectation Damages

In expectation damages, the measure of damages is the difference between what was given and what was promised, along with consequential and incidental expenses MINUS any payments received from the breaching party and any costs saved as a result of the breach. The proper amount is that which gives the non-breaching party the "benefit of the bargain." However, it is important to note that expectation damages are not punitive; its theoretical purpose is to place the injured, non-breaching party in the same position that they would have occupied had there been full performance of the contract. In other words, it is the amount that makes the injured party indifferent to the breach.

Example: General contractor accepts an offer from a subcontractor and enters into a contract. The general contractor breaches / repudiates their contract part way through the subcontractor's performance. Generally, the subcontractor is entitled to seek an amount equal to the contract price or unrealized value of the promised performance plus costs incurred in preparing or performing under the contract (and costs incidental to the breach e.g., storage costs, restocking fees for returns; penalties or costs for canceling contracts, supply orders etc) MINUS any progress payments made by the general contractor and minus costs saved by the breach; can include anticipated profit.

NOTE: Expectation damage calculations can be different in contracts with the United States Government e.g., see Page, Bruce D. Major, WHEN RELIANCE IS DETRIMENTAL: ECONOMIC, MORAL, AND POLICY ARGUMENTS FOR EXPECTATION DAMAGES IN CONTRACTS TERMINATED FOR THE CONVENIENCE OF THE GOVERNMENT, U.S. Air Force Law Review, Vol 61, 1 (2008). See http://www.afjag.af.mil/shared/media/document/AFD-081009-006.pdf