Expectation Damages

Expectation damages are the default measure of compensatory damages for breach of contract in most common-law jurisdictions. The aim, often called the "benefit of the bargain" principle, is to protect the promisee's expectation interest — the value they reasonably anticipated receiving from full performance. This contrasts with reliance damages, which restore the claimant to their pre-contract position, and restitution damages, which strip the breaching party of unjust gains.

The classic English articulation comes from Robinson v Harman (1848), where Baron Parke stated that the injured party should be placed, "so far as money can do it," in the same situation as if the contract had been performed. In the United States, the rule is codified in the Restatement (Second) of Contracts §347, which computes expectation damages as the loss in value to the injured party, plus any incidental or consequential loss, minus any cost or loss avoided by the breach.

Several doctrines limit recovery:

• Foreseeability, established in Hadley v Baxendale (1854), bars consequential losses that were not within the reasonable contemplation of the parties at contract formation.
• Certainty requires damages to be proven with reasonable precision, often a hurdle for lost profits of new businesses.
• Mitigation obliges the claimant to take reasonable steps to reduce loss, as in British Westinghouse v Underground Electric Railways (1912).
• Causation demands the loss flow from the breach itself.

Expectation damages are central to commercial litigation and arbitration, including under the UN Convention on Contracts for the International Sale of Goods (CISG), whose Article 74 adopts a substantially similar measure for international sales disputes. For policy researchers, the doctrine matters because it shapes incentives around efficient breach — the idea that a party may rationally breach if expected gains exceed the damages owed.