The Expectation and Reliance Interests in Contract Theory: A Reply to Fuller and Perdue

Despite their differences, modern contract theories share the following basic characteristic: they suppose points of view that fundamentally diverge from the legal standpoint. These non-legal points of view invoke normative ideas, criteria of relevance, and modes of reasoning that are independent of and discontinuous with those of legal analysis, as the latter is reflected in the doctrines and principles of contract law. Contemporary contract theories are unequipped to explain the law in its own terms. Yet, across different jurisdictions and even across developed legal systems on a world scale, the fundamental concepts and larger organization of the law of contract are now, for the first time, mainly settled and similar. This remarkable fact remains unexplained by modern contract theory.

So far as common law contract scholarship is concerned, no single article or work is more responsible for this situation than Fuller and Perdue's article, "The Reliance Interest in Contract Damages". The theoretical importance of their article lies in the fact that they provide an argument which, if correct, shows that this discontinuity between modern contract theory and the traditional legal analysis of contract is necessary. Beginning with the legal standpoint, Fuller and Perdue argue that there is a basic contradiction at the very core of its analysis of contract damages. The difficulty is with the expectation interest, which the law takes to be the central principle of contractual liability. This contradiction, Fuller and Perdue contend, infects the whole of the legal analysis of contract. Accordingly, Fuller and Perdue argue that this traditional legal analysis must be abandoned in favor of a new approach which is framed in terms that are not legal or not "juridical", as I call it. This change necessitates a new definition of contract which rejects the effort to classify obligations into qualitatively different forms of legal relations, such as the distinction between contract and tort.

This Article focuses upon Fuller and Perdue's theoretically crucial claim that the legal analysis of contract damages is intrinsically unsatisfactory and that it must be abandoned as a consequence. After a detailed examination of their argument, it presents a conception of the expectation interest which, it argues, fits with the legal point of view and shows that there need be no contradiction at its core. More particularly, the Article explains how the most important and fundamental difficulties that Fuller and Perdue find with the expectation interest may be answered from within this alternative conception. The Article concludes with a discussion of the issue of the classification of obligations and clarifies the character of the reliance interest as well as its relation to the expectation interest in the theory of contract.