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UCC SALES OF GOODS :  REMEDIES


 

RESTATEMENT (SECOND) OF CONTRACTS

THE RESTATEMENT (SECOND) OF CONTRACTS

copyright by the American Law Institute (1981)

 

 

344. PURPOSES OF REMEDIES

Judicial remedies under the rules stated in this Restatement serve to protect one or more of the following interests of a promisee:

(a) his "expectation interest," which is his interest in having the benefit of his bargain by being put in as good a position as he would have been in had the contract been performed,

(b) his "reliance interest," which is his interest in being reimbursed for loss caused by reliance on the contract by being put in as good a position as he would have been in had the contract not been made, or

(c) his "restitution interest," which is his interest in having restored to him any benefit that he has conferred on the other party.

Comments:

a. Three interests. The law of contract remedies implements the policy in favor of allowing individuals to order their own affairs by making legally enforceable promises. Ordinarily, when a court concludes that there has been a breach of contract, it enforces the broken promise by protecting the expectation that the injured party had when he made the contract. It does this by attempting to put him in as good a position as he would have been in had the contract been performed, that is, had there been no breach. The interest protected in this way is called the "expectation interest." It is sometimes said to give the injured party the "benefit of the bargain."...

The promisee may have changed his position in reliance on the contract by, for example, incurring expenses in preparing to perform, in performing, or in foregoing opportunities to make other contracts. In that case, the court may recognize a claim based on his reliance rather than on his expectation. It does this by attempting to put him back in the position in which he would have been had the contract not been made. The interest protected in this way is called "reliance interest."

Although it may be equal to the expectation interest, it is ordinarily smaller because it does not include the injured party's lost profit.

In some situations a court will recognize yet a third interest and grant relief to prevent unjust enrichment. This may be done if a party has not only changed his own position in reliance on the contract but has also conferred a benefit on the other party by, for example, making a part payment or furnishing services under the contract. The court may then require the other party to disgorge the benefit that he has received by returning it to the party who conferred it. The interest of the claimant protected in this way is called the "restitution interest." Although it may be equal to the expectation or reliance interest, it is ordinarily smaller because it includes neither the injured party's lost profit nor that part of his expenditures in reliance that resulted in no benefit to the other party.

Illustrations:

1. A contracts to build a building for B on B's land for $100,000. B repudiates the contract before either party has done anything in reliance on it. It would have cost A $90,000 to build the building. A has an expectation interest of $10,000, the difference between the $100,000 price and his savings of $90,000 in not having to do the work. Since A has done nothing in reliance, A's reliance interest is zero. Since A has conferred no benefit on B, A's restitution interest is zero.

2. The facts being otherwise as stated in Illustration 1, B does not repudiate until A has spent $60,000 of the $90,000. A has been paid nothing and can salvage nothing from the $60,000 that he has spent. A now has an expectation interest of $70,000, the difference between the $100,000 price and his saving of $30,000 in not having to do the work. A also has a reliance interest of $60,000, the amount that he has spent. If the benefit to B of the partly finished building is $40,000, A has a restitution interest of $40,000.

345. JUDICIAL REMEDIES AVAILABLE

The judicial remedies available for the protection of the interests stated in 344 include a judgment or order

(a) awarding a sum of money due under the contract or as damages,

(b) requiring specific performance of a contract or enjoining its non-performance,

(c) requiring restoration of a specific thing to prevent unjust enrichment,

(d) awarding a sum of money to prevent unjust enrichment,

(e) declaring the rights of the parties, and

(f) enforcing an arbitration award.