Expectation Damages

Expectation damages protect the creditor’s interest in performance. The creditor is put in the position its assets would have been in had the contract been duly performed.

Scope

• Actual loss: Reduction in assets, e.g. the price difference of buying replacement goods at a higher price elsewhere (cover purchase)
• Lost profit: Earnings that would have been made had the contract been performed, e.g. profit on products to be made from undelivered raw materials
• Delay losses and other losses connected with performance

When Claimed

• In debtor’s default, the creditor may waive performance immediately and claim the loss from non-performance, i.e. expectation damages (TCO Article 125(2)); see Default.
• General damages for breach of contract (TCO Article 112)
• Culpable impossibility

Difference from Reliance Damages

Reliance damages are calculated by reference to the position had the contract never been made and cover costs incurred in reliance on it. Expectation damages protect the performance interest and are usually higher. A creditor who rescinds claims reliance damages; one who keeps the contract alive but waives performance claims expectation damages. The two cannot be claimed together.

Proof and Limits

The creditor proves the existence and amount of loss. For lost profit, past sales data, market conditions and expert evidence matter. Contractual exclusions of indirect loss and lost profit are valid within the limits on exclusion of liability. Where a contractual penalty is agreed, it can be claimed without proof of loss.