Which of the following is the correct formula for expectation damages?

• A. = mitigation - cost avoided + loss avoided
• B. = loss in value + other loss - loss avoided
• C. = actual damages - depreciation
• D. = loss in value + other loss - cost avoided - loss avoided

Answer: (D)

Expectation damages aim to put the non-breaching party in the position they would have been in if the contract had been performed. To calculate them, you start with the value lost from the promised performance (loss in value) and add any other losses caused by the breach (other loss). Then you subtract what the non-breaching party saves because the contract wasn’t performed (cost avoided) and any additional savings resulting from mitigating or reducing losses (loss avoided). Netting these components gives the damages, which is why the correct formula is loss in value plus other loss minus cost avoided minus loss avoided.

This approach reflects that you measure the breach’s harm, then offset it by savings the victim realizes due to not performing or mitigating, rather than relying on depreciation or treating mitigation as a separate monetary item.