Remedies - Reliance and restitution interests

Learning Outcomes

This article examines reliance and restitution as alternative measures of contract damages. It details the circumstances under which these remedies are awarded, how they are calculated, and their relationship to expectation damages. After reading this article, you will be able to differentiate between reliance and restitution interests, identify when each measure is appropriate, and calculate the corresponding damage awards for MBE-style questions.

MBE Syllabus

For the MBE, you are required to understand alternatives to expectation damages when a contract has been breached or is otherwise unenforceable. This includes:

  • Understanding the purpose and calculation of reliance damages.
  • Understanding the purpose and calculation of restitutionary damages, including quasi-contract.
  • Distinguishing between reliance, restitution, and expectation interests.
  • Identifying situations where reliance or restitution may be awarded (e.g., breach, promissory estoppel, unenforceable contracts).
  • Recognizing limitations on these damage measures.

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

  1. Reliance damages aim to put the non-breaching party in the position they would have been in:
    1. Had the contract been fully performed.
    2. Had the contract never been formed.
    3. Had the breach not occurred, considering lost profits.
    4. By disgorging the breaching party's profits.
  2. Restitution is typically measured by:
    1. The plaintiff's out-of-pocket expenditures.
    2. The value of the benefit conferred upon the defendant.
    3. The plaintiff's lost profits.
    4. The difference between the contract price and market value.
  3. In which scenario might restitution be the only available remedy?
    1. A valid contract breached after partial performance by the non-breaching party.
    2. A contract rendered unenforceable by the Statute of Frauds where one party conferred a benefit.
    3. A losing contract where the plaintiff's expectation damages would be zero or negative.
    4. Both (b) and (c).

Introduction

When a contract is breached or is otherwise unenforceable, the primary goal of contract damages is typically to protect the non-breaching party's expectation interest – to put them in the position they would have occupied had the contract been fully performed. However, expectation damages may be difficult to prove with certainty, or other policy considerations might make alternative damage measures more appropriate. Two such alternative measures focus on the plaintiff's reliance interest and the restitution interest. Reliance damages seek to compensate the plaintiff for expenses incurred in reliance on the contract, while restitution aims to prevent unjust enrichment by forcing the defendant to return the value of benefits conferred upon them.

Reliance Damages

Reliance damages are designed to put the non-breaching party in the position they would have been in had the contract never been formed. Instead of giving the plaintiff the expected benefit of the bargain, reliance damages allow recovery of expenditures made in preparation for performance or in actual performance.

Key Term: Reliance Damages A measure of contract damages aiming to restore the non-breaching party to the position they occupied before the contract was made, by compensating for expenditures made in reliance on the contract.

When Awarded

Reliance damages may be sought when expectation damages are too speculative or uncertain to calculate. This often occurs with new business ventures where lost profits are difficult to prove. Reliance damages can also be awarded in cases based on promissory estoppel, where a promise is enforced because the promisee detrimentally relied on it, even without traditional consideration.

Calculation

Reliance damages typically include out-of-pocket expenses incurred by the non-breaching party after the contract was formed in preparation for, or during, performance.

  • Limitation: Reliance damages cannot exceed the full contract price. If the defendant can prove with reasonable certainty that the plaintiff would have suffered a loss had the contract been fully performed (a "losing contract"), the reliance recovery is reduced by the amount of that expected loss. The plaintiff cannot use reliance damages to escape the consequences of a bad bargain.

Worked Example 1.1

Builder contracts with Owner to construct a unique, experimental building for 500,000.Builderspends500,000. Builder spends 100,000 on specialized materials and site preparation. Owner then repudiates the contract before construction begins. Builder cannot prove with reasonable certainty what profit, if any, they would have made. What is Builder's likely recovery based on reliance?

Answer: Builder can likely recover 100,000inreliancedamages.Theserepresenttheexpendituresmadeinrelianceonthecontract.Sinceexpectationdamages(lostprofits)aretoospeculative,relianceprovidesanalternativemeasure.IfOwnercouldproveBuilderwouldhavelost100,000 in reliance damages. These represent the expenditures made in reliance on the contract. Since expectation damages (lost profits) are too speculative, reliance provides an alternative measure. If Owner could prove Builder would have lost 50,000 on the completed project, Builder's reliance recovery would be reduced to 50,000(50,000 (100,000 expenses - $50,000 expected loss).

Restitution Damages

Restitution aims to prevent unjust enrichment. When one party confers a benefit upon another, restitution allows the conferring party to recover the value of the benefit conferred. It is measured by the reasonable value of the benefit received by the defendant, not by the plaintiff's loss or expenditure.

Key Term: Restitution A remedy designed to prevent unjust enrichment by requiring a party to return the value of a benefit conferred upon them by another party.

When Awarded (Restitution Damages)

Restitutionary recovery can arise in various situations:

  1. Breach of Contract: When one party materially breaches, the non-breaching party may elect to rescind the contract and recover restitution for any benefit conferred on the breaching party through part performance or reliance. Restitution may be available even if the non-breaching party would have had negative expectation damages (a losing contract).
    • Limitation: If the non-breaching party has fully performed and the only remaining obligation is payment of a definite sum by the breaching party, the non-breaching party is limited to recovering that sum (expectation damages), not restitution.
  2. Unenforceable Contracts: Where a contract is unenforceable (e.g., due to Statute of Frauds, impossibility, incapacity, illegality), a party who has conferred a benefit may recover its value in restitution.
  3. No Contract (Quasi-Contract): Where there is no enforceable contract, but one party has been unjustly enriched by receiving a benefit from another under circumstances making it unfair to retain the benefit without payment (e.g., emergency services), a court may imply a promise to pay the reasonable value of the benefit. This is often termed recovery in "quasi-contract" or "implied-in-law contract."

Key Term: Quasi-Contract (Implied-in-Law Contract) An obligation imposed by law to prevent unjust enrichment in situations where there is no actual enforceable contract, allowing recovery of the reasonable value of a benefit conferred.

Calculation (Restitution Damages)

Restitution is measured by the reasonable value of the benefit conferred upon the defendant. This can be measured by:

  • The reasonable cost to the defendant of obtaining the benefit from another source (market value).
  • The extent to which the defendant's property has been increased in value or their interests advanced.

Worked Example 1.2

Painter orally agrees to paint Owner's house for 5,000.TheagreementcannotbeperformedwithinoneyearandisthusunenforceableundertheStatuteofFrauds.Paintercompleteshalfthework,conferringabenefitreasonablyvaluedat5,000. The agreement cannot be performed within one year and is thus unenforceable under the Statute of Frauds. Painter completes half the work, conferring a benefit reasonably valued at 2,500 on Owner, before Owner repudiates the agreement. Can Painter recover? If so, how much?

Answer: Yes, Painter can recover in restitution (quasi-contract). Although the contract is unenforceable under the Statute of Frauds, Painter conferred a benefit on Owner through part performance. Painter is entitled to recover the reasonable value of the benefit conferred, which is $2,500.

Key Point Checklist

This article has covered the following key knowledge points:

  • Reliance damages aim to restore the plaintiff to their pre-contract position.
  • Restitution damages aim to prevent unjust enrichment by disgorging benefits conferred.
  • Reliance is measured by the plaintiff's expenditures in reliance on the contract.
  • Restitution is measured by the reasonable value of the benefit conferred on the defendant.
  • Reliance may be limited by the contract price and expected losses on a losing contract.
  • Restitution is available for breach of contract (unless plaintiff fully performed), unenforceable contracts, and in quasi-contract situations.
  • Quasi-contract allows recovery for benefits conferred without an enforceable contract to prevent unjust enrichment.

Key Terms and Concepts

  • Reliance Damages
  • Restitution
  • Quasi-Contract (Implied-in-Law Contract)
The answers, solutions, explanations, and written content provided on this page represent PastPaperHero's interpretation of academic material and potential responses to given questions. These are not guaranteed to be the only correct or definitive answers or explanations. Alternative valid responses, interpretations, or approaches may exist. If you believe any content is incorrect, outdated, or could be improved, please get in touch with us and we will review and make necessary amendments if we deem it appropriate. As per our terms and conditions, PastPaperHero shall not be held liable or responsible for any consequences arising. This includes, but is not limited to, incorrect answers in assignments, exams, or any form of testing administered by educational institutions or examination boards, as well as any misunderstandings or misapplications of concepts explained in our written content. Users are responsible for verifying that the methods, procedures, and explanations presented align with those taught in their respective educational settings and with current academic standards. While we strive to provide high-quality, accurate, and up-to-date content, PastPaperHero does not guarantee the completeness or accuracy of our written explanations, nor any specific outcomes in academic understanding or testing, whether formal or informal.
No resources available.

Job & Test Prep on a Budget

Compare PastPaperHero's subscription offering to the wider market

PastPaperHero
Monthly Plan
$10
AdaptiBar
One-time Fee
$395
Assessment Day
One-time Fee
$20-39
BarPrepHero
One-time Fee
$299
Job Test Prep
One-time Fee
$90-350
Quimbee
One-time Fee
$1,199

Note the above prices are approximate and based on prices listed on the respective websites as of May 2025. Prices may vary based on location, currency exchange rates, and other factors.

Get unlimited access to thousands of practice questions, flashcards, and detailed explanations. Save over 90% compared to one-time courses while maintaining the flexibility to learn at your own pace.

All-in-one Learning Platform

Everything you need to master your assessments and job tests in one place

  • Comprehensive Content

    Access thousands of fully explained questions and cases across multiple subjects

  • Visual Learning

    Understand complex concepts with intuitive diagrams and flowcharts

  • Focused Practice

    Prepare for assessments with targeted practice materials and expert guidance

  • Personalized Learning

    Track your progress and focus on areas where you need improvement

  • Affordable Access

    Get quality educational resources at a fraction of traditional costs

Tell Us What You Think

Help us improve our resources by sharing your experience

Pleased to share that I have successfully passed the SQE1 exam on 1st attempt. With SQE2 exempted, I’m now one step closer to getting enrolled as a Solicitor of England and Wales! Would like to thank my seniors, colleagues, mentors and friends for all the support during this grueling journey. This is one of the most difficult bar exams in the world to undertake, especially alongside a full time job! So happy to help out any aspirant who may be reading this message! I had prepared from the University of Law SQE Manuals and the AI powered MCQ bank from PastPaperHero.

Saptarshi Chatterjee

Saptarshi Chatterjee

Senior Associate at Trilegal