The Reliance Interest in Contract Damages: 1L. L. Fuller [] and William R. Perdue, Jr. []- The Purposes Pursued in Awarding Contract Damages - Why Should the aw e!er Protect the "#pectation $nterest% - The Di!ergence o& 'easure and 'oti!e and the Pro(lem o& 'i#ed 'oti!es - The )elation (etween the )eliance $nterest and the other Contract $nterests - Should the "#pectation $nterest Set the imit o& )eco!ery% - The Pro(lem o& *!erlapping $tems o& Damage - The )eliance $nterest andHadley v. Baxendale - The )eliance $nterest in the )estatement o& ContractsThe proposition that legal rules can (e understood only with re&erence to the purposes they ser!e would today scarcely (e regarded as an e#citing truth+ The notion that law e#ists as a means to anend has (een commonplace &or at least hal& a century+ There is, howe!er, no -usti&ication &or assuming, (ecause this attitude has now achie!ed respecta(ility, and e!en triteness, that it en-oys a per!asi!e application in practice+ Certainly there are e!en today &ew legal treatises o& which it may (e said that the author has throughout clearly de&ined the purposes which his de&initions and distinctions ser!e+ We are still all too willing to em(race the conceit that it is possi(le to manipulatelegal concepts without the orientation which comes &rom the simple in.uiry/ toward what end is thisacti!ity directed% 0iet1sche2s o(ser!ation, that the most common stupidity consists in &orgetting what one is trying to do, retains a discom&orting rele!ance to legal science+ $n no &ield is this more true than in that o& damages+ $n the assessment o& damages the law tends to (e concei!ed, not as a purposi!e ordering o& human a&&airs, (ut as a 3ind o& -uristic mensuration+ The language o& the decisions sounds in terms not o& command (ut o& disco!ery+ Wemeasure the extent o& the in-ury4 we determine whether it was caused (y the de&endant2s act4 we ascertain whether the plainti&& has included the same item o& damage twice in his complaint+ *ne un&amiliar with the unstated premises which language o& this sort conceals might almost (e led to suppose that )ochester produces some ingenious instrument (y which these calculations are accomplished+$t is, as a matter o& &act, clear that the things which the law o& damages purports to 5measure5 and 5determine5 - the 5in-uries5, 5items o& damage5, 5causal connections5, etc+ - are in considera(le partits own creations, and that the process o& 5measuring5 and 5determining5 them is really a part o& the process o& creating them+ This is o(!ious when courts wor3 on the periphery o& e#isting doctrine, (ut it is no less true o& &undamental and esta(lished principles+ 6or e#ample, one &re.uently &inds the 5normal5 rule o& contract damages 7which awards to the promisee the !alue o& the e#pectancy, 5the lost pro&it58 treated as a mere corollary o& a more &undamental principle, that the purpose o& granting damages is to ma3e 5compensation5 &or in-ury+[9] [page 52] :et in this case we 5compensate5 the plainti&& (y gi!ing him something he ne!er had+ This seems on the &ace o& things a .ueer 3ind o& 5compensation5+ We can, to (e sure, ma3e the term 5compensation5 seem appropriate (y saying that the de&endant2s (reach 5depri!ed5 the plainti&& o& the e#pectancy+ ;ut this is in essence only a metaphorical statement o& the e&&ect o& the legal rule+ $n actuality the loss which the plainti&& su&&ers 7depri!ation o& the e#pectancy8 is not a datum o& nature (ut the re&lection o& a normati!e order+ $t appears as a 5loss5 only (y re&erence to an unstated ought. Conse.uently, when the law gauges damages (y the !alue o& the promised per&ormance it is not merely measuring a .uantum, (ut is see3ing an end, howe!er !aguely concei!ed this end may (e+$t is &or this reason that it is impossi(le to separate the law o& contract damages &rom the larger (ody o& moti!es and policies which constitutes the general law o& contracts+ $t is, un&ortunately &or the simplicity o& our su(-ect, impossi(le to assume that the purposi!e and policy-directed element o& contract law has (een e#hausted in the rules which de&ine contract and (reach+ $& this were possi(le the law o& contract damages would indeed (e simple, and we would ha!e (ut one measure o& reco!ery &or all contracts+ *& course, this is not the case+ What considerations in&luence the setting up o& di&&erent measures o& reco!ery &or di&&erent 3inds o& contracts% What &actors e#plain the rather numerous e#ceptions to the normal rule which measures damages (y the !alue o& the e#pectancy% $t is clear that these .uestions cannot (e answered without an in.uiryinto the reasons which underlie 7or may underlie8 the en&orcement o& promises generally+$n our own discussion we shall attempt &irst an analysis o& the purposes which may (e pursued in awarding contract damages or in 5en&orcing5 contracts generally4 then we shall attempt to in.uire to what e#tent, and under what circumstances, these purposes ha!e &ound e#pressions in the decisions and doctrinal discussions+ As the title suggests, the primary emphasis will (e on what wecall 5the reliance interest5 as a possi(le measure o& reco!ery in suits &or (reach o& contract+ The Purposes Pursued in Awarding Contract Damages $t is con!enient to distinguish three principal purposes which may (e pursued in awarding contract damages+ These purposes, and the situations in which they (ecome appropriate, may (e stated (rie&ly as &ollows/ First, the plainti&& has in reliance on the promise o& the de&endant con&erred some !alue on the de&endant+ The de&endant &ails to per&orm his promise+ The court may &orce the de&endant to disgorge the !alue he recei!ed &rom the plainti&&+ [page 5] The o(-ect here may (e termed the pre!ention o& gain (y the de&aulting promisor at the e#pense o& the promisee4 more (rie&ly, the pre!ention o& un-ust enrichment+ The interest protected may (e called the restitution interest. 6or our present purposes it is .uite immaterial how the suit in such a case (e classi&ied, whether as contractual or .uasi-contractual, whether as a suit to en&orce the contract or as a suit (ased upon a rescission o& the contract+ These .uestions relate to the superstructure o& the law, not to the (asic policies with which we are concerned+Secondly, the plainti&& has in reliance on the promise o& the de&endant changed his position+ 6or e#ample, the (uyer under a contract &or the sale o& land has incurred e#pense in the in!estigation o& the seller2s title, or has neglected the opportunity to enter other contracts+ We may award damages to the plainti&& &or the purpose o& undoing the harm which his reliance on the de&endant2s promise has caused him+ *ur o(-ect is to put him in as good a position as he was in (e&ore the promise was made+ The interest protected in this case may (e called the reliance interest.Thirdly, without insisting on reliance (y the promisee or enrichment o& the promisor, we may see3 to gi!e the promisee the !alue o& the e#pectancy which the promise created+ We may in a suit &or speci&ic per&ormance actually compel the de&endant to render the promised per&ormance to the plainti&&, or, in a suit &or damages, we may ma3e the de&endant pay the money !alue o& this per&ormance+ $)A)D, 'A0F" ""'"0TA$)" D" D)*$T )*'A$0 7Dth ed+ 9E=E8 @BC+ *& course (oth in "ngland and in )ome there was a gradual e#pansion o& the relie& granted, so that in time a direct (ene&it to the promisor ceased to (e essential+ 9E+ D$A'*0D, P)$'$T$H" AW 79E?A8 ?E9-@@A, Spea3ing o& ;a(ylonian and Assyrian law he writes, 5There are no transactions which are made (inding (y the mere &act o& agreement without the trans&er o& property+ That type o& commercial transaction has not yet (een reached4 law compensates &or loss, and until there are middlemen, and mar3et prices that &luctuate &rom day to day, there will (e no purely e#ecutory agreement to purchase and sell on a &uture date, nor can there (e pecuniary loss (y &ailure, to per&orm such an agreement+5 /d. at @GE+ =G+ A ardner, 4n /n#uiry into the rinciles o$ the La( o$ ,ontracts79E?=8 @B i!en, 99E Ala+ @@, =@ So+ C?E 79DED84 6ontaine !+ ;a#ley, EG >a+ @9B, 9C S+"+ 9G9A 79DE=84 0o(le !+ Ames '&g+ Co+, 99= 'ass+ @E= 79DC?84 'ount Pleasant Sta(le Co+ !+ Stein(erg, =?D 'ass+ ABC, 9?9 0+"+ =EA 79E=984 $rwin !+ Worcester Paper ;o# Co+, =@B 'ass+ @A?, 9@9 0+"+ =DB 79E=?84 *tis !+ Ooont1, CG 'o+ 9D? 79DCE84 "S 79E?A8 I 9@9+ A?+ 5Thus, in ray !+ Wa(ash )y+ Co+, ==G 'o+ App+ CC?, =CC S+W+ B@ 79E=A84 Security Sto!e R '&g+ Co+ !+ American )y+ "#press Co+, ==C 'o+ App+ 9CA, A9 S+W+ 7=d8 AC= 79E?=84 TDa!is R 'a-or !+ Cincinnati, a+ CDG+ 79DD=84 Crutcher R Co+ !+ "lliott, 9? Oy+ aw )ep+ AE= 79DE=84 'oorhead !+ 'inneapolis Seed Co+, 9?E 'inn+ 99, 9BA 0+W+ @D@ 79E9C84und.uist !+ Jennison, BB 'ont+ A9B, =9@ Pac+ BC 79E=?84 )eiger !+ Worth Co+, 9=C 0+C+ =?G, ?C S+"+ =9C 79EGG8+ The only re&erence to the seed warranty cases in the )"STAT"'"0T is in the &ourth illustration to I ??l, which indicates that the purchaser can reco!er the lost pro&it 5i& his e!idence gi!es a su&&icient (asis &or estimating5 it+ 0othing is said a(out what happens when the e!idence does not su&&ice &or this purpose+ BA+ Schnierow !+ ;outagy, ?? Cal+ App+ ??B, 9B@ Pac+ 99?= 79E9C84 Douglas !+ >uardian $A C*D" 79E??8 which reads, 5Any necessary e#pense which one o& the two contracting parties incurs in complying with the contract may (e reco!ered as damages+5 $n ;utler !+ 'oore, BD >a+ CDG, CD? 79DD=8, a case in which the plainti&& had (ought seed &or his own use, the court said, 5+++ i& the seed were worthless, the measure o& damages would (e the purchase money with interest and any exense incurred in comlying (ith the contract a&ter the same was entered into, such as the hauling o$ the seed, rearing the lands $or lanting, so(ing, and rolling said seed. +++5 7$talics ours+8 Surely here was an o(-ect lesson &or those who dra&ted I ???S $& courtse!er de!elop toward the )"STAT"'"0T the same treacherous de&erence they display toward codes, we may perhaps e#pect to see I ??? tortured in a similar manner+ Section ???, howe!er, presents an o(stacle to -udicial ingenuity which is lac3ing in the >eorgia Code, in the &orm o& a limitation o& reco!ery (y 5the &ull contract price5+ $t is di&&icult to imagine how the relie& granted in Butler v. 2oore would ha!e (een possi(le with such a limitation+ BC+ Comment a. See also the cases cited in note AB sura. BD+ Paola >as Co+ !+ Paola >lass Co+, AB Oan+ B9@, @@ Pac+ B=9 79DEB8, a case in which the de&endant (y &ailing to per&orm its contract to supply gas rendered !ain large e#penditures (y the plainti&& &or a glass &actory, ser!es twice as an illustration in the )"STAT"'"0T+ See I ?=E, the si#th illustration4 and I ??9, the si#th illustration to su(section 798+ $n (oth illustrations the discussion hinges entirely on the pro(lem o& pro!ing the pro&its e#pected to (e deri!ed &rom the operations o& the &actory, whereas in the actual case, e#pected pro&its were re-ected as too con-ectural and reim(ursement was granted &or the costs in!ol!ed in esta(lishing the &actory+ 0eedless to say, +as v. +lass does not reappear as an illustration to I ???+ BE+ 9EG F+S+ A@G 79EG?8, discussed sura p+ D?+ CG+ /d. at A@A+ C9+ T+ )aymond CC 79BB@8, discussed sura p+ CC+ C=+ BE 'd+ 9EE, 9@ Atl+ @B@ 79DDD8+ $t should (e noted that so &ar as restitution is concerned the )"STAT"'"0T ma3es e#press pro!ision &or cases o& this type+ I ?@C7987(8+ C?+ Title 5Damages5 in 9C C+ J. I 9=B, and D )+ C+ + I AB4 ? W$$ST*0, C*0T)ACTS 79E=G8 I 9?@94 B PA>", C*0T)ACTS 7=d ed+ 9E==8 I ?=GD+ Pace &aw %chool Institute o/ International Commercial &aw - ast updated July E, =GG? >o to Data(ase Directory UU >o to ;i(liography UU >o to Annotated Te#t o& Art+ C@ C$S> CommentsVContri(utions