⚡ 10-Second Rule
Breach damages give you the value of the deal you were promised, never a punishment bonus.
🧒 ELI-10 Scene
Nora pays Big Sam $200 to shovel her driveway all winter. Sam quits in January. Nora hires Petra, the only other shoveler in town, for $260. Sam owes the $60 gap — that makes Nora whole. But Nora can't just let snow bury her porch and bill Sam for a crushed mailbox. She has to keep her losses small. And Sam never knew Nora ran a bakery from her house. He doesn't owe lost cupcake money he couldn't see coming.
⚖️ Actual Rule
Expectation damages put the injured party in the position full performance would have: under Restatement (Second) of Contracts § 347 (paraphrased), the loss in value of the promised performance, plus incidental and consequential losses, minus any cost or loss avoided because of the breach. Consequential damages are limited by foreseeability under Hadley v. Baxendale, 9 Ex. 341, 156 Eng. Rep. 145 (1854): recoverable damages are those "either arising naturally, i.e., according to the usual course of things, from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it." Damages must also be proved with reasonable certainty (Restatement § 352, paraphrased), and the injured party cannot recover losses it could have avoided with reasonable effort and without undue burden — the mitigation doctrine (Restatement § 350, paraphrased). As an alternative, the injured party may claim reliance damages: expenditures made in reliance on the contract, reduced by any loss the breaching party proves the injured party would have suffered even with full performance (Restatement § 349, paraphrased). Incidental damages cover reasonable costs of responding to the breach, such as arranging a substitute. A liquidated damages clause is enforceable only if the amount is reasonable in light of the anticipated or actual harm and damages were difficult to estimate at formation; an unreasonably large fixed sum is an unenforceable penalty (Restatement § 356 and UCC § 2-718(1), paraphrased). Restitution — recovery of the value of a benefit conferred on the other party — remains available in some cases even where the contract is unenforceable or expectation damages fail.
ELI-10 translation: you get the money the deal promised, trimmed to losses the breaker could foresee, you can prove, and you couldn't avoid.
🔍 Ask These Questions
- What position would full performance have left the victim in? (Count up the value of the promised deal.)
- Were ripple losses foreseeable when the contract was made? (The breaker only owes losses visible at handshake time.)
- Can the victim prove the amount with reasonable certainty? (No prizes for guesswork.)
- Could the victim have avoided part of the loss with reasonable effort? (Losses you let pile up don't count.)
- Is expectation too speculative? Fall back on reliance — money spent on the deal. (Get back what trusting the promise cost you.)
- Is there a liquidated damages clause — reasonable forecast or penalty? (A fair pre-agreed number sticks; a scare-number doesn't.)
⚠️ Bar Trap
Exam language: Foreseeability under Hadley is measured at the time of contracting, not at the time of breach. Examiners plant an extraordinary loss that the breaching party learned about only later — or never — and bait you into awarding it as consequential damages because the breach factually caused it.
ELI-10: Ask what the promise-breaker could see coming on the day of the deal. Surprises revealed afterward are not the breaker's bill to pay.
🧪 Question
A freelance photographer took a professional camera to a repair shop, which promised in a written contract to return it within one week for a $300 fee. The photographer did not mention that she had booked a one-day magazine shoot, scheduled nine days later, that would have paid her a $10,000 fee. Because the shop negligently delayed ordering parts, it returned the camera three weeks late, and the magazine hired a different photographer. The photographer sued the shop for the $10,000 lost fee.
Is the lost fee recoverable?
(A) Yes, because the shop's delay was the actual cause of losing the shoot. (B) Yes, because expectation damages always include profits lost as a result of the breach. (C) No, because the shop had no reason to foresee that loss when the contract was made. (D) No, because lost profits are never recoverable in an action for breach of contract.
Answer: (C). Under Hadley, consequential damages are limited to losses arising in the ordinary course or within both parties' contemplation at the time of contracting; the undisclosed $10,000 booking was neither, so the loss falls outside the shop's liability.
💡 Why the Wrong Answers Are Wrong
- (A) treats causation as sufficient; Hadley's foreseeability limit cuts off even real losses the breacher could not anticipate.
- (B) overstates expectation; lost profits must still clear the foreseeability, certainty, and mitigation limits.
- (D) overcorrects; foreseeable, provable lost profits are routinely recoverable as consequential damages.
- ELI-10: The misconception is billing the breaker for every domino that fell. The breaker pays only for dominoes they could see lined up.
