574: Law Every 1L Should Know -- Contracts (Expectation Damages - Common Law)

So let's orient first.

Everything in contract law up to this point, formation, defenses, performance, is about whether there's an enforceable promise and whether it's been broken.

Damages is what happens next.

What does the injured party get? And the answer in contract law is almost always money, calculated to compensate rather than to punish.

Contract law does not care whether the breach was careless or deliberate.

It asks one question, what did the injured party lose? And there's a flip side to that question that's just as important.

The injured party shouldn't come out ahead.

Contract law is trying to make the non-breaching party whole, not to hand them a windfall, and not to let anyone be unjustly enriched because a deal fell apart.

If you ever find yourself calculating damages that would leave the plaintiff better off than if the contract had been performed, something has gone wrong.

That's the whole orientation.

Damages is a measuring exercise, and the target is exactly even.

So let's talk about how you measure.

The standard measure, the one courts use unless there's a reason not to, is the expectation interest.

Here's the definition.

Expectation damages put the injured party in as good a position as they would have been in had the contract been performed.

You'll hear this phrased as the benefit of the bargain.

The non-breaching party bargained for something, didn't get it, and the law gives them the money equivalent of what they were promised, not what they spent.

What they were promised.

How do you even calculate that? The restatement gives a formula worth learning, because it organizes every damages problem you'll see.

Expectation damages equal the loss in value of the performance you were promised, plus any other loss caused by the breach, minus any cost you saved by not having to perform, minus any loss you avoided.

Here it is in plain English.

Start with what you were supposed to get and didn't, and the losses that rippled out from that breach.

Subtract whatever you didn't have to spend because the deal fell through, and that number is your expectation damages.

So inside that formula, lawyers sort damages into three categories, and you need all three.

The first is direct damages, sometimes called general damages.