Chapter 11-2 Benefit-of-the-Bargain Damages

• Jurisdiction: United States

11-2 Benefit-of-the-Bargain Damages

A party's "expectation interest" is his interest in having the benefit of his bargain, and attempts to put the wronged party in an equivalent position to that he would have enjoyed without the breach of the contract or reliance on a fraudulent misrepresentation.⁵ The measure of damages is typically stated as the difference between the value as represented and the value received.⁶

Benefit-of-the-bargain damages are available for breach of contract and for fraudulent inducement of an enforceable agreement but not for fraud that induces a non-binding contract.⁷ When the fraud that does not induce an enforceable contract, out-of-pocket damages rather than benefit-of-the-bargain damages should be submitted.⁸

The expectancy value may have been expressly stated between the parties such as where the defendant promised delivery of property with a stated value. In this situation, the measure of damage is straightforward: the difference between the value as represented and the value received.⁹ The amount paid for the business opportunity is irrelevant to the calculation unless the amount paid is a factor in determining the net value represented. A party cannot both retain all the benefits of the transaction (i.e., recover on a benefit-of-the-bargain theory) and escape all of the obligations (i.e., simultaneously recover all out-of-pocket costs incurred to obtain the bargain).¹⁰

Where the business transactions does not expressly state the value to be received, the plaintiff must plead and prove the value of the lost opportunity, often using the lost profit measure of damages. Although theoretically this measure of damages still seeks to assess the difference between the value as represented and the value received, the value "as represented" must be assessed indirectly, from an estimation of likely profits rather than from a directly-stated dollar amount.

This lost profit measure of damages may qualify as either direct damages or as consequential damages. When the anticipated profits are the direct subject of the transaction, the failure of the transaction due to breach of contract or fraud will naturally and necessarily result in lost profits, constituting direct damages.¹¹ Conversely, the plaintiff may foreseeably have engaged in the transaction to generate profits in other business pursuits, with a reasonable expectancy of achieving those profits. The loss of those profits in other transactions will not be direct damages, but...