Why Expectation Damages for Breach of Contract Must Be the Norm: A Refutation of the Fuller and Perdue "Three Interests" Thesis

I. Introduction . . . . . 840 II. The Principal Institutions in a Modern Market Economy in Which Contracts Are Used . . . . . 843 A. The Institution of the Economic Market: Contracts as Bargains . . . . . 843 B. The Institution of Credit and Finance: Contracts as Property . . . . . 845 III. Meeting the Institutions' Needs . . . . . 846 A. Providing a Remedy for Every Breach . . . . . 846 B. Making Contracts Enforceable as Soon as They Are Made . . . . . 847 C. Compensating the Injured Party for What He Has Lost . . . . . 848 1. Damages Under the Expectation Measure . . . . . 848 2. Damages Under the Reliance Measure . . . . . 849 a. The Shortfall . . . . . 849 b. Attempts to Prove this Shortfall Is Unimportant or Does Not Exist . . . . . 850 3. Damages Under the Restitution Measure . . . . . 852 a. The Restitution Measure in Theory . . . . . 852 b. The Restitution Measure in Practice . . . . . 853 c. A Suggestion for Reducing the Unfairness and Arbitrariness of the Restitution Measure in Practice . . . . . 854 D. Providing the Right Incentives for Decisions Whether to Breach . . . . . 855 E. The Legitimate Uses of the Restitution and Reliance Measures in Contract Law . . . . . 856 IV. The "Three Interests" Thesis of Fuller and Perdue . . . . . 857 A. Ignoring Context . . . . . 858 B. Using an Inappropriate Concept of Justice . . . . . 858 C. Describing the Institutional Approach as Circular . . . . . 859 D. Asserting that Contracts Have Present Value Only Because the Law Enforces Them . . . . . 860 E. Identifying the General Enforceability of Promises as the Legal Basis for the Credit System . . . . . 861 F. Asserting That Expectation Damages Are Generally Easier to Prove Than Reliance Damages . . . . . 861 V . Conclusion . . . . . 862 Appendix: Excerpts from L. L. Fuller & William R. Perdue, Jr., The Reliance Interest in Contract Damages: 1 . . . . . 863