The Missing Interest: Restoration of the Contractual Equivalence

Abstract:     
For nearly seventy years, the analysis of contract remedies has been dominated by Fuller and Perdue's classification of the interests protected by remedies: expectation, reliance, and restitution. Fuller and Perdue clarified the complex picture of contract remedies, yet has concomitantly obstructed our view of some of the picture's elements. This Article argues that in many instances courts and legislatures award remedies that do not aim at any of the familiar interests, but rather aim at another interest, unidentified heretofore by legal scholars, namely, restoration of the contractual equivalence, or the restoration interest.

Restoration remedies do not aim to place the injured party in the position she would have been in had the contract been fully performed or had she never made the contract, nor do they aim to put the breaching party in any of these two positions. Rather, they strive to put the injured party in a position similar to the one she would have occupied had the parties made (and performed) a contract in which their obligations were adjusted to the actual performance by the breaching party, while maintaining the contractual equivalence in terms of the agreed value of performance, the chronological relation between their respective obligations, etc. Thus, for example, restoration remedies may put a buyer in a monetary position similar to the one she would have occupied had the contract referred to a smaller amount of goods, to goods of inferior quality, or to delivery at the (belated) time in which the goods were actually delivered.

The Article makes three types of arguments. Analytically, it demonstrates that restoration of the contractual equivalence is a distinctive goal of contract remedies and explores the interrelations between this interest and the familiar ones. Descriptively, a survey of contract doctrines, judicial and legislative, demonstrates that various remedies for partial, defective or delayed performance are best understood as aiming at restoring the contractual equivalence; while attempts to explain them as aiming at any of the other interests are forced and unpersuasive. Normatively, the Article shows that protection of the restoration interest is justified by various theories of contract law, including the will theory, corrective and distributive justice, economic efficiency, and contract as cooperative relationship. Among other things, it is argued that restoration remedies realize the parties' will and provide potentially stronger (and more efficient) incentives to perform, especially when there is a gap between the promisee's subjective valuation of the promisor's performance and its market value. Restoration remedies can sometimes be attained without recourse to the court system, and even when they require a lawsuit the cost of getting them is usually lower than that of other remedies - two important advantages from both distributive and efficiency perspectives. Protection of the restoration interest also promotes the notion of contract as cooperative relationship. The central policy proposal of the Article is to make restoration remedies more systematically and generally available to the injured party in instances of partial and defective performance, as well as for delays in performance.

Keywords: contract remedies, CISG, Will Theory, Distributive Justice, Economic Efficiency, Expectation Interest, Reliance Interest, Restitution Interest

Accepted Paper Series