Legal Definitions - expectation damages

Expectation damages are a type of financial compensation awarded by a court when one party breaks a contract. The primary goal of expectation damages is to put the non-breaching party (the one who upheld their end of the agreement) in the same financial position they would have been in if the contract had been fully and properly performed by the breaching party. In essence, it aims to deliver the "benefit of the bargain" that the innocent party expected to receive.

Calculating expectation damages typically involves determining the value of what was promised versus what was actually received, along with any additional losses directly caused by the breach, such as extra costs incurred or profits lost.

• Example 1: Construction Project Delay

  A homeowner contracts with a builder to construct a custom garage for $40,000, with a completion date of June 1st. The builder breaches the contract by abandoning the project on May 15th, having completed only half the work and received $20,000 in payment. To finish the garage by the original deadline, the homeowner has to hire a different builder who charges $25,000 for the remaining work due to the urgent timeline.

  Explanation: The homeowner expected to pay a total of $40,000 for a completed garage. Due to the breach, they ended up paying $20,000 to the first builder and $25,000 to the second, totaling $45,000. The expectation damages would be $5,000 ($45,000 actual cost - $40,000 expected cost), which compensates the homeowner for the additional expense incurred to get the garage they were promised.

• Example 2: Specialized Equipment Purchase

  A small-batch coffee roaster contracts to buy a new, custom-built roasting machine from a manufacturer for $75,000, expecting delivery in three months. The manufacturer breaches the contract and informs the roaster they cannot fulfill the order. To avoid significant production delays and lost sales, the coffee roaster quickly finds a similar machine from another supplier, but it costs $85,000 and causes a two-week delay in production, resulting in an estimated $3,000 loss in potential revenue.

  Explanation: The coffee roaster expected to acquire the machine for $75,000 and have it delivered on time. Due to the breach, they had to pay an extra $10,000 for a replacement machine ($85,000 - $75,000) and lost $3,000 in profits due to the delay. The expectation damages would total $13,000 ($10,000 extra cost + $3,000 lost profits), putting the roaster in the financial position they would have been in had the original contract been honored.

• Example 3: Event Entertainment Booking

  A charity organization hires a popular band to perform at its annual fundraising gala for a fee of $15,000. Two weeks before the event, the band breaches the contract, stating they received a more lucrative offer. The charity, desperate to secure entertainment for its high-profile event, manages to book a less famous but still suitable band for $18,000.

  Explanation: The charity expected to pay $15,000 for the original band's performance. Because of the breach, they had to pay $18,000 for a replacement band. The expectation damages would be $3,000 ($18,000 actual cost - $15,000 expected cost), which covers the additional expense the charity incurred to secure the entertainment they needed for their event.