Remedies for Breach of Contract

§18.2 THE BASIC GOAL OF REMEDIES FOR BREACH: ENFORCEMENT OF THE EXPECTATION INTEREST

§18.2.1 The Nature of the Expectation Interest

A valid and enforceable contract justifies a future expectation by each of the parties. They are both entitled to expect that the other will honor the contractual promise made and will perform as undertaken. If one of the parties fails to do so, thereby breaching the contract, the expectations of the other have been disappointed. Therefore, the fundamental goal of the remedy for breach is to cure that disappointment by giving the victim of the breach exactly what was promised and justifiably expected under the contract. This starkly contrasts contract damages from those for tort: While tort damages seek to compensate for something lost—to restore the victim to the pre-injury position, contract damages aim at compensating for something that was not gained—what the plaintiff should have had. This goal of enforcing contractual expectations is the beacon that guides contract remedies. The principle is described in a number of alternative ways, all of which have essentially the same meaning: Sometimes it is said that the goal is to protect the plaintiff’s expectation interest; sometimes it is described as giving the plaintiff the benefit of her bargain; and sometimes it is said that the purpose of contract remedies is to place the victim of breach in the position that she would have been in had no breach occurred. This goal of damages applies both at the common law and under the UCC, which codifies it in §1.305.

  A party’s expectation interest is the value of the performance to her, based on the purpose of the contract, as gleaned from its wording and the circumstances surrounding the contract’s formation. However, even though the expectation interest is based on the contractual expectations of the particular party aggrieved by the breach, it is not determined on the purely subjective criterion of her privately held, subjective belief about what she would derive from the contract. Contracts are interpreted objectively, and compensation for breach is determined on the basis of objective evidence of loss. Therefore, a party’s compensable expectations must be in accordance with what a reasonable person in her position would have expected as the benefit of the transaction, given the language used by the parties to express their agreement, and the circumstances surrounding it.