Expectation damages and their calculation
Expectation damages put the non-breaching party in the position they would have occupied if the contract had been performed as agreed. The formula is the benefit of the bargain minus any costs avoided by non-performance. If a contractor was hired to build a house for 500,000 dollars but breached, and the house was never built, expectation damages equal the cost to hire another contractor to complete the work, minus any savings from terminating the first contract.
Expectation damages are the primary remedy because they preserve the bargain's value. However, they are capped by foreseeability: the breaching party is liable only for damages that were reasonably foreseeable at the time the contract was formed. A seller who breaches a delivery contract is liable for the buyer's lost profit if profit was discussed, but not for the buyer's lost opportunity to bid on an entirely separate deal.
Reliance, restitution, and alternative remedies
Reliance damages compensate the non-breaching party for expenditures made in reliance on the contract's performance. If a contractor incurs costs preparing materials and hiring workers in preparation for the job, those costs are recoverable as reliance damages even if the contractor cannot prove expectation damages. Reliance damages are often smaller than expectation damages but serve a purpose in cases where the benefit of the bargain is speculative.
Restitution damages restore ill-gotten gains the breaching party received from the non-breaching party. If a party paid a deposit or advance that was never earned, restitution recovers that payment. Equitable remedies like specific performance compel the breaching party to perform the contract as written rather than pay damages, applied when damages are inadequate, such as in real estate sales where the property is unique. Injunctions prevent the breaching party from a competing or prohibited action.