The Net Expectation Interest in Contract Damages

In their 1936 article, The Reliance Interest in Contract Damages: 1, Professor Lon Fuller and William Perdue, Jr., developed a theory of contract damages based on the "reliance" interest - the interest in recovery of costs incurred in reliance on another's promise. Despite its age, that article is still highly regarded and widely cited. Despite its influence, Fuller and Perdue's theory of contract damages is not a helpful description of contemporary damage rules. This article is a systematic attempt to debunk each of Fuller and Perdue's arguments and simultaneously to support a new conceptualization of contract damages. Because Fuller and Perdue's work has been so influential, this article tracks the precise approach of Fuller and Perdue while turning each of their arguments on its head. Because the structure of their argument was so critical to its influence, this article presents a point-by-point rebuttal that follows the same structure they used. The result is a theory of damages and a system for calculating damages that is easier to understand, easier to implement, and truer to contemporary contract law. Finally, this article compares the workability of the damage rules contained in the Restatement (Second) of Contracts, which are based on "loss in value," with a surplus-based approach, concluding with a description of the four straightforward, conceptual steps involved in an accounting for damages based on lost surplus