Also known as: expectation damages rule · expectation-damage rule · expectation damages · expectation interest
Written by attorneys · grounded in primary & secondary sources — see below
A principle of contract remedies that awards damages measured by the injured party's expectation interest in having the benefit of the bargain. The measure places the injured party in as good a position as it would have occupied had the contract been performed. Recovery is subject to limitations including the requirements of certainty and avoidability.
Park Merchandise agreed to deliver five thousand conforming units to Pacific Retail by March 1 for a spring collection. Park delivered only one thousand units, many of inferior quality. Pacific paid rush premiums for substitutes and lost the margin it would have earned on the full order. The court awards damages that restore Pacific to the net position it would have occupied if all five thousand units had arrived on time and met specifications.
Enigma Technologies contracted to supply a custom prototype machine to Elite Dynamics for an automated assembly line. Enigma refused to deliver. Elite Dynamics located an identical machine from another supplier at a comparable price and could calculate its lost production margin with reasonable certainty. The court denies specific performance because an award of damages measured by the expectation interest fully compensates Elite Dynamics for the benefit of the bargain.
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East River Steamship purchased turbines from Transamerica Delaval for its vessels. The turbines malfunctioned, causing only economic loss to the ships with no personal injury or other property damage. East River sought recovery under tort theories. The court held that contract remedies measured by the expectation interest, rather than tort, govern the claim for disappointed commercial expectations.
Expectation damages place the injured party in the position it would have occupied had the contract been performed. Reliance damages instead reimburse expenditures made in reliance on the contract by restoring the party to the position it would have occupied had the contract never been made. When no enforceable contract exists, courts often award reliance damages rather than expectation damages.
Lost profits are recoverable as part of expectation damages if they can be proved with reasonable certainty. The requirement of certainty excludes elements of loss that cannot be established by the evidence. Courts resolve doubts against the party in breach when a significant loss has been shown.
Yes. Any costs the injured party saved because it did not have to perform must be deducted from the damages award. This adjustment ensures the award places the injured party in the net position it would have occupied had the contract been performed.
Specific performance will be denied if damages measured by the expectation interest are adequate to protect the injured party. Adequacy turns on whether the injured party can obtain a substitute or calculate its loss with reasonable certainty.
…to supply NIPSCO with coal for 20 years (about $3.1 million). The latter item was a form of reliance damages, and the former of expectation damages. The $5.4 million figure was the present value of these items, discounted at 6 percent. The district judge refused to order specific performance. He did, however, enjoin NIPSCO, pending the…