6
Contractual remedies
The field of remedies provides fertile ground for analysing whether legal systems have a high regard for the promises made by parties to a contract, or indeed the promises made by a unilateral promisor (the same remedies generally being available for such promises), or whether instead what is sought is the achievement of goals other than promissory ones.
One would expect a high regard for promise in any legal system to be reflected both in a ready availability of remedies designed to secure actual enforcement of what has been promised (whether the performance promised was an act or forbearance from an act) as well as in substitutionary remedies which reflect, so far as is possible in substitutionary form, the so-called ‘performance interest’ of the parties (as defined below). If, however, enforcement of performance is an exceptional remedy, or if substitutionary remedies do not achieve the equivalent of enforcement but protect instead some other interest of the promisee, doubts must be raised as to whether a high regard for the value of promise is a hallmark of the system in question.
The issue of what requires to occur before remedies may be claimed for breach of promise also deserves attention. In Common law and mixed legal systems, it is generally the case that any failure to comply strictly with the terms of a promise will trigger the availability of the remedy of damages, but termination is confined to cases where deviation from the promise has been substantial. By contrast, in German law, for instance, fault requires to be present before damages are available, yet the right to terminate is not tied to the severity of breach. Systems can appear to give out mixed messages regarding the value accorded to promises, something which is discussed further below in relation to specific remedies.
1. The ‘interests’ protected by remedies
There are a number of so-called ‘interests’ protected in the law of obligations, and these interests may conceivably be protected through various
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judicial remedies, notably specific performance, damages and restitution following termination. Though it is possible to frame definitions of such interests purely in relation to breach of contract (as, for instance, Fuller and Perdue did in their seminal article1 on contractual damages), it is suggested that it makes more sense to attempt to define the relevant interests in a way which allows them to be used across the field of obligations. That being the case, the following three interests are suggested as the fundamental interests of parties protected in the law of obligations:2
(1)performance interest: the interest B has in having its position improved through an expected performance to be rendered by A. Such an expected performance might be due either under a contract or a unilateral promise, but should not be applicable in the case of a tort/ delict. The performance interest is the primary interest protected by contract, though the other two interests defined below are protected in many systems in some contractual circumstances. The term performance interest is preferable to ‘expectation interest’, as expectation is a term which can conceivably be used to describe any of the various interests protected in the law, because, for instance, a party may ‘expect’ to receive the gains made by another through an unjustified enrichment (the restitutionary interest), or may ‘expect’ to be restored to the position it was in before harm was culpably done to it (the restoration interest). Given then that the term ‘expectation’ may cause confusion, ‘performance interest’ is suggested as the preferable term. It is the performance interest which most clearly embodies the values and goals of promising, given that a promise is an obligation which embodies a duty of performance in favour of another. The extent to which any legal system’s rules concerning remedies are therefore geared, as far as possible, towards support of the performance interest will justify a description of it as pro-promissory or not, as the case may be.
(2)restoration (or status quo ante) interest: the interest B has in being restored to the position it was in prior to loss caused by the conduct of A. This is the primary interest protected by tort/delict and negotiorum gestio, as well as being a secondary interest protected in some cases of breach of contract.3 Note that the interest so defined is wider than the
1Fuller and Perdue, ‘The Reliance Interest in Contract Damages’.
2The scheme suggested here is one which I previously set out in Obligations, paras. 1.34–9.
3This interest is of particular relevance to the discussion in this chapter of damages claims for wasted contractual expenditure.
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so-called ‘reliance interest’ coined by Fuller and Perdue, which they defined as being concerned only with losses suffered through change of position in reliance on a promise.4 The terms ‘reliance interest’ and ‘reliance damages’, quite therefore apart from describing a narrower field than that encompassed by the concept of ‘restoration interest’ suggested here, are also apt to confuse: given that we can be said to be entitled to ‘rely’ on performance occurring under a contract, the idea of reliance could therefore be argued to encompass the protection of an expected performance, but that would lead to confusion with the performance interest. The term ‘reliance interest’ is thus best avoided.
(3)restitutionary (or disgorgement) interest: the interest B has in gains made by A. This is the interest usually protected by unjustified enrichment, either through restitution of property in the hands of B to A or in a monetary award reflecting gains made by A at B’s expense. The interest may also, very exceptionally, be protected under contract, though not every system permits gains made by A to be claimed following termination or other failure of contract.
The above suggested names and definitions of the relevant interests protected by the law of obligations differ from those suggested previously by others. Fuller and Perdue, as noted earlier, suggested their own scheme with the US Common law in mind, but did so solely for the purposes of analysing contract damages. In German law, it is common to distinguish the ‘negative’ (or ‘reliance’) interest (often conceived along the lines of Fuller and Perdue’s concept) from the ‘positive’ (or ‘expectation’) interest, the restitutionary interest (not protected in German contract law), and also an ‘interest in the integrity of one’s rights’ (Integritätsinteresse), violation of which entitles the aggrieved party to be ‘put into a position in which he would now have been had the violation of the interest not occurred’.5 This interest appears very similar to the restoration interest as defined here, as it seeks to put a party into the position it would have been in had violation of its interest(s) not occurred. Indeed, examples sometimes given of types of loss it might protect against – for instance, personal injury caused by defective goods, or losses caused by poor performance of services to other property owned by the party suffering the breach6 – are things that would naturally seem to fall under the restoration interest. Only if the ‘reliance interest’ is defined as purely concerning damages suffered in reliance on
4 See Fuller and Perdue, ‘The Reliance Interest in Contract Damages’, p. 53. 5 Markesinis et al., German Law of Contract, p. 469. 6 Ibid., p. 471.