Contracts Law In Action

Expectation versus Reliance Interests

In expectation interest, (hypo at p. 149) can we hold the seller responsible for buyer’s hiring the workers for the original contract ($100 per worker by 2 workers = $200) under incidental and consequential damages UCC § 2-712 , 2-715?  Intuitively, I would think to get the buyer where he would have been had the contract performed, he should be reimbursed for the costs he spent in anticipation of the original contract, but that justification sounds too much like the reliance interest.

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Remember, these are “interests” and are not mutually exclusive. You can suffer both a loss of expectations and a loss of trust when a relationship ends (and the breaching party may be unjustly enriched).  If you describe the costs as those spent in anticipation of the original contract, you are describing the reliance interest.  If you describe the costs as those necessary to be reimbursed in order to put the non-breaching party in the position they would have been had the contract been fulfilled, you are describing these costs as damages necessary to protect the expectation interest.  Same costs, different arguments.

The loss of $200, the waste of the initial salary,  is either seen as a loss that the seller had reason to know (since someone has to load and unload) (and the amount was reasonable) or an expense reasonably incurred in receipt of goods rightfully rejected (interpreting rejection to include failure to deliver) and hence an incidental expense as defined by 2-715(1).

In this hypo, Expectation includes restitution and some of reliance (not the first set of laborers) and more.  Reliance includes restitution (the downpayment) and more.  Restitution doesn’t include damages suffered by plaintiff (expectation interests and either of the payments to the laborers).

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Expectation Interests – read only if you like math

I was worried that the three different ways that I tried to calculate (my intuitive way, the way that is presented in the book, and the way a classmate showed me) expectation interest resulted in three different results.

EI = (what he would have had with no breach) – (what he has now)
EI = (contract price) – (cost of completion)
EI = (contract price) – (cost of completion) – (money saved)
Your first and third formulas don’t work.  The first needs to be redone to deduct money saved.  The third formula double counts because the money saved in not completing (in a winning contract) is included in the cost of completion.

Take the 100k building, which costs 90k to complete.  His expectation is 10k.  At least two ways to get that (assuming it is a winning contract and the investment has been efficient). Deduct from 100k what he has invested and further deduct what he has saved by not having to finish the contract or deduct from  100 k what it costs to complete.  Both ways deduct from the contract price what it would cost for the building to be complete.

If you want to play with formulas, the math is easy: Let KP = contract Price E = expectation interest, and BC(building cost) = AI(already invested) + CC(cost of completion).
so
E = KP – BC = (that is the “profit”, what he gets at end minus what he has to expend to get it), from this, we get
E = KP – (AI+CC) (BC is composed of what is already expended plus what must be expended to finish the job)
(1) KP = KP + BC = E+ (AI + CC)
KP – AI = E + CC
If you award the contract price (where he would have been) – AI (where he is now) that yields CC+E, so you need to deduct CC (expenses saved in not completing) from the award.

(2)
(When E is positive, and only then, you can distribute across the parenthesis)
E = KP – BC
E = KP – AI – CC
E = KP – CC – AI
If you award the contractor KP – CC, this equals KP-CC-AI (as the AI has already been spent)