What is the formula for expectation damages?

• A. Expectation Damages = loss in value + other loss - cost avoided - loss avoided.
• B. Expectation Damages = actual costs minus savings.
• C. Expectation Damages = value of performance.
• D. Expectation Damages = legal fees plus penalties.

Answer: (A)

Expectation damages are meant to put the harmed party in the position they would have been in if the contract had been performed. The formula sums the harm caused by the breach and then subtracts the savings the non-breaching party enjoys because the contract wasn’t performed.

Break it down into four parts. Loss in value measures how much the promised performance would have been worth versus what was actually received—the drop in value from breach. Other losses cover additional harms such as incidental and consequential damages that flow from the breach. Cost avoided are costs the harmed party does not have to pay because the contract isn’t performed (for example, materials or labor they would have had to expend). Loss avoided are savings from not having to incur other expected costs or losses that would have occurred if performance had taken place.

Put together, expectation damages = loss in value + other losses − cost avoided − loss avoided. This captures both the harm from the breach and the savings resulting from not performing.

Other formulas that focus only on the value of performance, or on actual costs minus savings, don’t account for the offsetting savings and the broader range of damages that expectation damages are designed to cover.