Which formula correctly represents compensatory damages?

Which formula correctly represents compensatory damages?

• A. = loss in value + other loss - cost avoided - loss avoided
• B. = expectation + consequential + incidental damages - mitigation
• C. = direct damages + indirect damages - mitigation
• D. = actual loss + foreseeable loss - expenses avoided

Answer: (B)

Compensatory damages are meant to put the injured party in the position they would have been in if the contract had been performed. The standard measure adds the value of what was expected (the loss in value of the promised performance) and the additional losses that flow from the breach—namely incidental damages (out-of-pocket costs incurred in dealing with the breach) and consequential damages (losses caused by the breach that were foreseeable given the breach). Then it subtracts costs saved by the injured party through mitigation—the reasonable steps taken to limit damages. So the correct formula sums expectation damages with both incidental and consequential damages, and then subtracts mitigation. This aligns with the idea of fully compensating for the breach while recognizing the duty to mitigate. The other formulations either mix terms loosely (like direct/indirect or loss types not standard in this context) or replace consequential with a different concept (such as foreseeability) or otherwise misstate how mitigation works.

Compensatory damages are meant to put the injured party in the position they would have been in if the contract had been performed. The standard measure adds the value of what was expected (the loss in value of the promised performance) and the additional losses that flow from the breach—namely incidental damages (out-of-pocket costs incurred in dealing with the breach) and consequential damages (losses caused by the breach that were foreseeable given the breach). Then it subtracts costs saved by the injured party through mitigation—the reasonable steps taken to limit damages.

So the correct formula sums expectation damages with both incidental and consequential damages, and then subtracts mitigation. This aligns with the idea of fully compensating for the breach while recognizing the duty to mitigate.

The other formulations either mix terms loosely (like direct/indirect or loss types not standard in this context) or replace consequential with a different concept (such as foreseeability) or otherwise misstate how mitigation works.