Legal Definitions - expectation interest

The expectation interest refers to the legal principle in contract law that aims to put a party who has suffered a breach of contract in the same financial position they would have been in had the contract been fully performed as agreed. When a contract is broken, damages awarded based on the expectation interest are intended to compensate the non-breaching party for the benefit or profit they reasonably expected to gain from the successful completion of the agreement.

Here are some examples illustrating the expectation interest:

• Scenario: Custom Software Development

  A small business contracts with a software developer to create a custom inventory management system for $50,000, which is expected to save the business $10,000 per year in operational costs. The developer breaches the contract halfway through the project, having received $25,000, and the partially completed software is unusable. To complete the system, the business must hire a new developer for an additional $35,000.

  Explanation: The business's expectation was to have a fully functional inventory system for $50,000 that would generate $10,000 in annual savings. Due to the breach, they paid $25,000 to the first developer and now must pay $35,000 to a second, totaling $60,000 for the system. The expectation interest would aim to recover the additional $10,000 ($60,000 total cost - $50,000 original contract price) they had to spend to get the system completed, plus potentially any lost savings during the delay caused by the breach. This puts them in the position they would have been in had the original contract been performed for $50,000.

• Scenario: Agricultural Supply Agreement

  A farmer contracts to sell 500 bushels of organic corn to a specialty food distributor for $10 per bushel, with delivery scheduled for harvest time. The distributor has already secured buyers for this corn at a price that would yield a $2,000 profit after processing and transportation costs. However, the farmer breaches the contract and sells the corn to another buyer at a higher price.

  Explanation: The distributor's expectation was to receive the 500 bushels of corn and, subsequently, make a $2,000 profit from its resale. Because the farmer breached, the distributor lost this anticipated profit. Damages based on the expectation interest would entitle the distributor to recover the $2,000 in lost profit, thereby placing them in the financial position they would have achieved had the farmer delivered the corn as promised.

• Scenario: Event Venue Rental

  A couple books a wedding venue for their reception, paying a $5,000 deposit on a total cost of $15,000. Two months before the wedding, the venue unexpectedly cancels their booking due to double-booking. The couple is forced to find a new venue last minute, which costs them $20,000 for a comparable space and services.

  Explanation: The couple's expectation was to have their wedding reception at the original venue for $15,000. Due to the venue's breach, they had to pay $20,000 for an alternative. Their expectation interest would allow them to recover the $5,000 deposit they paid, plus the additional $5,000 ($20,000 new cost - $15,000 original cost) they had to spend to secure a comparable venue. This compensation aims to ensure they ultimately pay no more than the original contract price for their wedding reception.