The default remedy is money, not performance
When one party breaches a contract, the law's usual response is not to force performance but to award money damages. And the default measure of those damages is the expectation interest: the goal is to put the non-breaching party in the position they would have occupied had the contract been fully performed — the "benefit of the bargain."
Three measures dominate a 1L Contracts exam — expectation, reliance, and restitution. They protect different interests and produce different numbers, so the first job on any remedies question is to identify which interest the plaintiff is asking the court to protect.
Expectation damages: the benefit of the bargain
Expectation damages aim to give the non-breaching party the value they expected from full performance. This is the default measure, and the Restatement (Second) of Contracts § 347 gives the standard formula.
The formula: loss in value (the difference between what was promised and what was received) plus any other loss, such as incidental and consequential damages, minus any cost avoided and minus any loss avoided because of the breach. The "minus" terms matter — a plaintiff who saved money by not having to perform, or who resold goods elsewhere, does not get to ignore those savings.
Example: a builder agrees to construct a deck for $10,000 and walks off after the owner has paid nothing; the owner hires a replacement who finishes the same work for $12,000. The owner's expectation damages are $2,000 — the extra cost of getting the bargained-for performance.
Reliance damages: back to square one
Reliance damages put the plaintiff in the position they would have been in had the contract never been made, by reimbursing expenditures made in reasonable reliance on the promise. Restatement (Second) § 349 supplies this measure.
Reliance is the fallback when expectation damages are too speculative to calculate — for instance, when lost profits cannot be proven with reasonable certainty. It is also the standard remedy in promissory-estoppel cases, where there may be no bargained-for exchange to value. The plaintiff recovers what they spent, not what they hoped to gain.
Restitution: undo the unjust enrichment
Restitution focuses on the defendant, not the plaintiff: it requires the breaching party to give back the value of any benefit the plaintiff conferred on them, to prevent unjust enrichment. Restatement (Second) §§ 370–371 govern.
Restitution can be the most valuable measure when the plaintiff conferred a benefit worth more than the contract price, because it is measured by the benefit to the defendant rather than the contract rate. It is the natural remedy when a plaintiff rescinds the contract, and in limited circumstances even a breaching party may recover in restitution for benefits conferred beyond their own damages.
The three measures, side by side
| Measure | Goal | Whose position / benefit |
|---|---|---|
| Expectation | As if the contract were performed | Plaintiff's expected gain (benefit of the bargain) |
| Reliance | As if the contract were never made | Plaintiff's out-of-pocket expenditures |
| Restitution | Prevent unjust enrichment | Benefit the plaintiff conferred on the defendant |
The limits: foreseeability, certainty, and mitigation
Expectation damages are capped by three doctrines that show up on nearly every exam. The first is foreseeability, from Hadley v. Baxendale (1854): consequential damages are recoverable only if they were a foreseeable result of the breach at the time the contract was made — either arising naturally from the breach or within the contemplation of both parties. Unusual losses the breaching party had no reason to anticipate are not recoverable.
The second is certainty: damages, and especially lost profits, must be proven with reasonable certainty rather than left to speculation. A brand-new business with no track record often struggles to meet this bar.
The third is mitigation, or avoidability: a non-breaching party cannot recover for losses it could have reasonably avoided. A wrongfully discharged employee must make reasonable efforts to find comparable work; a builder told to stop must not keep building to run up the bill (Rockingham County v. Luten Bridge Co.). The plaintiff need not take unreasonable steps, but unreasonable inaction reduces the award.
A note on liquidated damages
Parties can agree in advance on a damages figure — a liquidated-damages clause. Courts enforce such a clause if, at the time of contracting, it was a reasonable forecast of anticipated harm and the actual harm was difficult to estimate.
If the stipulated sum is really a penalty designed to punish breach rather than to estimate loss, courts refuse to enforce it. The line between a valid liquidated-damages clause and an unenforceable penalty is a recurring exam issue.
Common mistake: confusing reliance with restitution
Students routinely blur reliance and restitution because both can apply when expectation is unavailable. The distinction is whose money you are measuring. Reliance looks at what the plaintiff spent — wasted expenditures, whether or not the defendant benefited. Restitution looks at what the defendant gained — the value of the benefit the plaintiff conferred.
The other frequent error is forgetting mitigation. Even a clear breach does not entitle the plaintiff to losses they could reasonably have avoided, so always ask what the non-breaching party did, or failed to do, after the breach.
Frequently asked questions
Which measure of damages is the default?
Expectation damages are the default. The law generally tries to give the non-breaching party the benefit of the bargain — the position they would have been in had the contract been performed.
When would a plaintiff choose reliance over expectation?
When expectation damages are too uncertain to prove — often because lost profits are speculative — or in promissory-estoppel cases where there is no bargained-for exchange to value. Reliance reimburses what the plaintiff spent in reliance on the promise.
What does Hadley v. Baxendale stand for?
It established the foreseeability limit on consequential damages: a breaching party is liable only for losses that arise naturally from the breach or that both parties had reason to foresee at the time of contracting.
Does the duty to mitigate require accepting any replacement?
No. The non-breaching party must take only reasonable steps to avoid loss — for example, seeking comparable (not inferior or demeaning) employment. Damages are reduced by losses that reasonable efforts would have avoided, not by losses that were genuinely unavoidable.
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