Contract Damages
Contract damages aim to put the non-breaching party in the position they would have been in had the contract been performed, through expectation, reliance, or restitution measures.
Overview
Contract damages are designed to compensate the non-breaching party for losses caused by the breach. The primary goal is to put the injured party in the position they would have been in had the contract been fully performed — this is the expectation interest.
Expectation damages include direct damages (the difference between what was promised and what was received) plus consequential damages (additional losses flowing from the breach) minus costs saved by not having to perform. Hadley v. Baxendale established the foreseeability limitation on consequential damages: damages must either arise naturally from the breach or be within the reasonable contemplation of the parties at the time of contracting.
When expectation damages are uncertain or difficult to prove, courts may award reliance damages — restoring the plaintiff to the position they were in before the contract. Anglia Television v. Reed shows that reliance damages can include pre-contractual expenditures made in preparation for performance.
Restitution damages prevent unjust enrichment by requiring the breaching party to disgorge benefits received. Under United States v. Algernon Blair, the non-breaching party can recover the reasonable value of services rendered even if the contract price would have resulted in a net loss.
The duty to mitigate requires the non-breaching party to take reasonable steps to minimize losses. Parker v. Twentieth Century-Fox established that a wrongfully terminated employee need not accept a "different or inferior" position. Liquidated damages clauses are enforceable if the amount is a reasonable estimate of anticipated harm and actual damages would be difficult to calculate.
Key Takeaway
Expectation damages are the default measure: put the plaintiff where performance would have left them. Consequential damages must be foreseeable under Hadley v. Baxendale.
Exam Tip
Always calculate all three measures (expectation, reliance, restitution) and explain which is most appropriate. Don't forget the Hadley v. Baxendale foreseeability test for consequential damages and the duty to mitigate under Rockingham County v. Luten Bridge.
Landmark Cases (14)
Frequently Asked Questions
What is the difference between expectation, reliance, and restitution damages?
Expectation damages put you where performance would have left you (benefit of the bargain). Reliance damages restore you to your pre-contract position (out-of-pocket expenses). Restitution damages return the value of benefits conferred on the breaching party to prevent unjust enrichment.
What is the Hadley v. Baxendale rule?
Consequential damages are only recoverable if they were foreseeable at the time of contracting — either arising naturally from the breach or within the reasonable contemplation of both parties based on special circumstances communicated at contracting.
What is the duty to mitigate?
The non-breaching party must take reasonable steps to minimize losses after a breach. You cannot recover damages that could have been reasonably avoided. However, you don't have to accept an inferior substitute (Parker v. Twentieth Century-Fox).
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