Contract remedies serve to protect three different interests: an expectation interest, a reliance interest, and a restitution interest. A promisee will have at least one of these interests and may have two or all three.

An expectation interest is the benefit for which the promisee bargained; the remedy is to put him in a position as good as that which he would have been in had the contract been performed.

A reliance interest is the loss suffered by relying on the contract and taking actions consistent with the expectation that the other party will abide by it; the remedy is reimbursement that restores the promisee to his position before the contract was made.

A restitution interest is that which restores to the promisee any benefit he conferred on the promisor: the remedy is return or repayment of the benefit conferred by the promise.

Consider a scenario where a landowner repudiates an executory contract with a builder to construct a garage on her property for $100,000. The builder has not yet started the work. When the project was completed, the builder had anticipated a $10,000 profit (in other words, the garage would have cost $90,000 to build). In a lawsuit against the landowner for breach of contract, what remedies can the builder expect to recover? It is unlikely that a court would order that the garage be constructed anyway, so instead the court will look to the builder’s three possible interests. Since the builder has not yet started his work, he has given the owner nothing, and therefore has no restitution interest. Nor has he any reliance interest, since we are assuming that he has not paid out any money for supplies, hired a work crew, or advanced money to subcontractors. But he anticipated a profit, and so he has an expectation interest of $10,000.

Let’s change the scenario to include that the builder had already dug out the foundation and poured concrete, at a cost of $15,000, when the landowner repudiated the contract. His expectation interest has become $25,000 (the difference between $100,000 and $75,000, the money he will save by not having to finish the job). His reliance interest is $15,000, because this is the amount he has already spent. He may also have a restitution interest, depending on how much the foundation of the house is worth to the owner. (The value could be more or less than the sum of money actually expended to produce the foundation; for example, the builder might have had to pay his subcontractors for a greater share of the job than they had completed, and those sums therefore would not be reflected in the worth of the foundation.)

Normally, the promisee will choose which of the three interests to pursue. This is called election of remedies. Election of remedies in contract law refers to the principle that allows a party who has been wronged in a contract to choose among different available legal remedies or courses of action to address the breach. Once a party elects a particular remedy and pursues it, they generally cannot change their mind and pursue a different remedy for the same breach of contract. As is to be expected, the choice hinges on the circumstances of the case, his feelings, and the amount at stake.

Check your Understanding