15.2: Promisee’s Interests Protected by Contract
- Page ID
- 143361
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\(\newcommand{\avec}{\mathbf a}\) \(\newcommand{\bvec}{\mathbf b}\) \(\newcommand{\cvec}{\mathbf c}\) \(\newcommand{\dvec}{\mathbf d}\) \(\newcommand{\dtil}{\widetilde{\mathbf d}}\) \(\newcommand{\evec}{\mathbf e}\) \(\newcommand{\fvec}{\mathbf f}\) \(\newcommand{\nvec}{\mathbf n}\) \(\newcommand{\pvec}{\mathbf p}\) \(\newcommand{\qvec}{\mathbf q}\) \(\newcommand{\svec}{\mathbf s}\) \(\newcommand{\tvec}{\mathbf t}\) \(\newcommand{\uvec}{\mathbf u}\) \(\newcommand{\vvec}{\mathbf v}\) \(\newcommand{\wvec}{\mathbf w}\) \(\newcommand{\xvec}{\mathbf x}\) \(\newcommand{\yvec}{\mathbf y}\) \(\newcommand{\zvec}{\mathbf z}\) \(\newcommand{\rvec}{\mathbf r}\) \(\newcommand{\mvec}{\mathbf m}\) \(\newcommand{\zerovec}{\mathbf 0}\) \(\newcommand{\onevec}{\mathbf 1}\) \(\newcommand{\real}{\mathbb R}\) \(\newcommand{\twovec}[2]{\left[\begin{array}{r}#1 \\ #2 \end{array}\right]}\) \(\newcommand{\ctwovec}[2]{\left[\begin{array}{c}#1 \\ #2 \end{array}\right]}\) \(\newcommand{\threevec}[3]{\left[\begin{array}{r}#1 \\ #2 \\ #3 \end{array}\right]}\) \(\newcommand{\cthreevec}[3]{\left[\begin{array}{c}#1 \\ #2 \\ #3 \end{array}\right]}\) \(\newcommand{\fourvec}[4]{\left[\begin{array}{r}#1 \\ #2 \\ #3 \\ #4 \end{array}\right]}\) \(\newcommand{\cfourvec}[4]{\left[\begin{array}{c}#1 \\ #2 \\ #3 \\ #4 \end{array}\right]}\) \(\newcommand{\fivevec}[5]{\left[\begin{array}{r}#1 \\ #2 \\ #3 \\ #4 \\ #5 \\ \end{array}\right]}\) \(\newcommand{\cfivevec}[5]{\left[\begin{array}{c}#1 \\ #2 \\ #3 \\ #4 \\ #5 \\ \end{array}\right]}\) \(\newcommand{\mattwo}[4]{\left[\begin{array}{rr}#1 \amp #2 \\ #3 \amp #4 \\ \end{array}\right]}\) \(\newcommand{\laspan}[1]{\text{Span}\{#1\}}\) \(\newcommand{\bcal}{\cal B}\) \(\newcommand{\ccal}{\cal C}\) \(\newcommand{\scal}{\cal S}\) \(\newcommand{\wcal}{\cal W}\) \(\newcommand{\ecal}{\cal E}\) \(\newcommand{\coords}[2]{\left\{#1\right\}_{#2}}\) \(\newcommand{\gray}[1]{\color{gray}{#1}}\) \(\newcommand{\lgray}[1]{\color{lightgray}{#1}}\) \(\newcommand{\rank}{\operatorname{rank}}\) \(\newcommand{\row}{\text{Row}}\) \(\newcommand{\col}{\text{Col}}\) \(\renewcommand{\row}{\text{Row}}\) \(\newcommand{\nul}{\text{Nul}}\) \(\newcommand{\var}{\text{Var}}\) \(\newcommand{\corr}{\text{corr}}\) \(\newcommand{\len}[1]{\left|#1\right|}\) \(\newcommand{\bbar}{\overline{\bvec}}\) \(\newcommand{\bhat}{\widehat{\bvec}}\) \(\newcommand{\bperp}{\bvec^\perp}\) \(\newcommand{\xhat}{\widehat{\xvec}}\) \(\newcommand{\vhat}{\widehat{\vvec}}\) \(\newcommand{\uhat}{\widehat{\uvec}}\) \(\newcommand{\what}{\widehat{\wvec}}\) \(\newcommand{\Sighat}{\widehat{\Sigma}}\) \(\newcommand{\lt}{<}\) \(\newcommand{\gt}{>}\) \(\newcommand{\amp}{&}\) \(\definecolor{fillinmathshade}{gray}{0.9}\)LEARNING OBJECTIVE
- Understand that the nonbreaching party to a contract has certain expectations that contract remedies seek to fulfill to make the nonbreaching party whole.
Contract remedies serve to protect three different interests: an expectation interest, a reliance interest, and a restitution interest. A promisee will have one of these and may have two or all three.
Contract remedies are designed to protect three distinct interests: the expectation interest, the reliance interest, and the restitution interest. A promisee may have one, two, or even all three, depending on the circumstances of the breach.
Expectation Interest
The expectation interest reflects the benefit of the bargain—the value the promisee would have received had the contract been fully performed. The goal of the remedy is to place the promisee in as good a position as if performance had occurred.
Reliance Interest
The reliance interest focuses on losses suffered because the promisee reasonably relied on the contract. Remedies restore the promisee to the position they occupied before the agreement, by reimbursing expenditures or commitments made in anticipation of performance.
Restitution Interest
The restitution interest prevents unjust enrichment by requiring the promisor to return any benefit received from the promisee. Unlike expectation or reliance, restitution is less concerned with the promisee’s loss than with the promisor’s gain. Restitution is not inherently an “equitable” interest—it is a substantive right that can be protected through either legal or equitable remedies:
- At law, restitution may take the form of damages measured by the value of benefits conferred (for example, quantum meruit recovery for the reasonable value of services).
- In equity, restitution may be enforced through remedies such as rescission (canceling the contract and restoring the parties to their pre-contract positions), injunctions (to prevent further unjust enrichment or wrongful retention), or restitutionary orders that compel the return of property or benefits. By contrast, specific performance—though an equitable remedy—protects the expectation interest by compelling actual performance of the contract.
Illustrations
1. No Work Performed.
Suppose a landowner repudiates an executory contract with a builder to construct a garage for $100,000. The builder expected a $10,000 profit (since the cost of construction would have been $90,000). Because the builder has not yet begun work, he has:
- No restitution interest (he has conferred nothing),
- No reliance interest (he has incurred no expenses),
- An expectation interest of $10,000 (the lost profit).
The likely remedy: damages of $10,000.
2. Partial Performance.
Now imagine the builder has already excavated and poured a foundation at a cost of $15,000. In this case:
- His expectation interest is $25,000 (the $100,000 contract price minus the $75,000 remaining cost).
- His reliance interest is $15,000 (the money already spent).
- His restitution interest could be the market value of the foundation to the landowner—recoverable either through legal damages or, in appropriate circumstances, through equitable relief such as rescission paired with restitution.
Choosing Among Interests
The promisee typically selects which interest to pursue, guided by the facts of the case, the nature of the remedies available, and the amount at stake. Courts, for their part, seek to enforce remedies in a manner that is fair, efficient, and consistent with contract principles.
In practice:
- Expectation aims to give the benefit of the bargain.
- Reliance aims to undo losses from reasonable reliance.
- Restitution aims to prevent unjust enrichment.
The choice among these interests often determines not only the measure of recovery but also whether the remedy will be legal, equitable, or both.
KEY TAKEAWAY
A nonbreaching party might have one or more interests that the law seeks to realize: expectation, reliance, and restitution.
EXERCISES
- What is the expectation interest? The reliance interest? The restitution interest?
- How are these concepts useful in understanding contract remedies?