Quantification of Contractual Damages: Have we moved on from Fuller and Perdue?

• Date: 01 January 2014
• Author: Alan Bunbury

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Quantication of Contractual Damages:

Have we Moved on from Fuller and Perdue?

ALAN BUNBURY

Introduction

Of the many issues and problems which arise for discussion within the

law of contract, it would seem that the question of remedies—their most

appropriate form and, in the case of damages, their quantum—attracts

particular attention from legal writers. Many extensive and highly regarded

judicial and academic commentaries have come to inform the debate on

how best to enforce contracts when breach occurs. There are, it is suggested,

two principal reasons for this emphasis on contractual remedies. The rst

is that the question of how to enforce contractual obligations prompts the

deeper question of why courts enforce such obligations in the rst place.

This reects “[t]he proposition that legal rules can be understood only

with reference to the purposes they serve.”1 The second is that, from the

perspective of contracting parties, the question of remedies is the most

important question—indeed, in most cases it could be seen as the only

important question—to litigants. Plaintiffs take cases, for the most part, to

obtain remedies for wrongs that they perceive as having been committed

against them. Securing an adequate remedy is the plaintiff’s primary

concern, while the defendant will seek to protect his interests by denying

that the plaintiff is entitled to a remedy or arguing that the least expensive

remedy is the most appropriate.

It is clear, then, why the area of contractual remedies would attract so

much commentary and debate. However, another factor in the proliferation

of debate on this topic is the lack of any clear conceptual framework

capable of uniting and reconciling the case law in this area. In the last 150

years, numerous aberrations have developed to the traditional rule, set out

in Robinson v Harman, that in enforcing a contract the court shall seek to

put the plaintiff, so far as is possible, in the position he would have been in

had the contract been performed properly.2 Several valiant attempts have

been made to rationalise and reconcile these different and often conicting

judicial trends. However, conceptualising a coherent theoretical framework

for the enforcement of contracts is difcult at best and many differences of

opinion have arisen between those who have attempted to do so. Different

1 Lon Fuller and William Perdue, “The Reliance Interest in Contract Damages” (1936–

37) 46 Yale Law Journal 52 (Part 1) & 373 (Part 2), p.52

2 (1848) 1 Exch. 850, p.855

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academic commentators have advanced different and often mutually

exclusive descriptive and normative theories of contractual enforcement.

Furthermore, though all common law jurisdictions share many of the same

legal traditions and principles, some of the fundamental rules relating to

the remedies available for breach of contract have been developed and

interpreted differently in different jurisdictions—indeed, even within some

jurisdictions there are signs of judicial schisms.

The aim of this article is to review and critically analyse these attempts

to rationalise the law of contract, with a view to producing a clearer picture

of why courts decide the way they do and of the more general underlying

principles of law which guide developments in this area. First, we will

examine the traditional legal rules in this area as they have developed

over the past couple of centuries. We will also examine some of the most

inuential academic literature that has dealt with this topic, particularly

Lon Fuller and William Perdue’s famous article, “The Reliance Interest in

Contract Damages,”3 which is one of the most cited articles in modern legal

history and has come to heavily inuence the terminology employed by

academics and judges alike. We will then examine a number of alternative

views of contractual remedies, reviewing literature which criticises Fuller

and Perdue’s treatise and advances theories which attempt to better explain

the behaviour of the courts and the principles underlying the enforcement of

contracts. As part of our examination of these alternative theories, we will

look at the treatment by the courts of the remedy of specic performance

and how it ts into the model proposed by these theories. Finally, we will

test the ability of the theories we have reviewed to explain and reconcile

judicial decisions by undertaking a case study of an area where the

behaviour of the courts has proved difcult to rationalise; namely, the

scenario wherein a party breaches a contract and thereby makes a prot

even after compensating the innocent party for the breach. Our aim will be

to discern which theory, if any, the courts appear to apply in their treatment

of these cases, and the extent to which their behaviour in these cases can be

reconciled with their behaviour in more “standard” cases.

The Traditional Model

The cardinal rule of contractual damages, what has come to be known as

the expectation rule, can be traced back to the 1848 case of Robinson v

Harman.4 In that case, Parke B famously said: “the rule of the common law

is, that where a party sustains a loss by reason of a breach of contract, he is,

so far as money can do it, to be placed in the same situation, with respect to

damages, as if the contract had been performed.”5

3 Fuller and Perdue, supra note 1

4 (1848) 1 Ex. 850; 154 E.R. 363

5 Ibid, p.855

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