Contracts: Remedies: Monetary: Expectation Damages

  • NY AlertExpectation damages: A sum that leaves an injured party in as good a position as full performance (benefit of the bargain). It is the usual measure of damages.
    • Common Law Damages
      • I agree to paint House’s house for $10,000. I breach. He pays another painter $13,000 to paint the house. How much can house recover from me for the breach? $3,000. House expected to pay $10,000 but he paid $13,000. I must give him $3,000 back in order to make him whole.
      • Same facts, except that House refuses to pay me after I have started painting his house. I have already spent $5,000. I expected to clear $1,500 in profit. What are my damages? $6,500. My expected profit was $1,500. Instead, I am $5,000 in the hole, so $1,500 + 5,000 = $6,500.
    • Damages under Article 2 (formulas)
      • Buyer’s damages: sellers tend to breach in rising markets, so replacement goods will cost a buyer more. Article 2 makes up the difference: [cover – contract] or [market – contract].
        • B contracts to buy carpeting for $2,500. S does not deliver. The market price for similar carpeting is $2,700. What are B’s damages if B pays $2,800 for the same carpeting? $300. The difference between the cost of the substitute (the cover) and the contract. $2800 – 2500 = $300. The fact that B paid more than the market price is okay as long as B used good faith.
        • Same facts, except that B pays $6,000 for much better carpeting. Can B recover the $3,500 difference between the cover price and the contract price? If not, what are B’s damages? No. B cannot use S’s breach to benefit itself at the seller’s expense. Here, B is limited to the difference between the market price and the contract price ($200)
        • If B does not buy any carpeting at all, he is entitled to $200 (market price – contract price).
        • WRINKLE: If B keeps the goods, even though they are not perfect: B contracts to buy an antique rug for $4,000. B later discovers it’s not antique. B keeps it anyway. The rug is worth $2,000. Had it been antique, it would be worth $7,000. What are B’s damages? $5,000. The difference between the value of goods as promised ($7,000) and the value of goods delivered ($2,000). All you need to do is fulfill B’s expectation. If B makes a good deal, B is entitled to the benefit of the bargain.
      • Seller’s damages: buyers tend to breach in falling markets, so a seller won’t be able to get as much for the goods. Article 2 makes up the shortfall: [contract – resale] or [contract – market]
        • Seller has to use good faith. If S resells in good faith after buyer breach its Contract price – resale.
        • If S does not resell in good faith, or doesn’t resell at all, S gets Contract price – market price.
        • MBE Alert! WRINKLE: Lost Volume seller – who loses profits even though he resells the goods. Where seller has theoretically unlimited supply. It could have had two sales rather than 1. Seller’s damages are its lost profits on the sale, not the contract price.
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