Remedies - Reliance and restitution interests

Learning Outcomes

This article examines reliance and restitution interests as alternative measures of contract damages for MBE-style questions, including:

• Distinguishing expectation, reliance, and restitution interests, and articulating the policy goals each remedy protects on a contracts essay or multiple-choice question.
• Identifying fact patterns in which reliance or restitution, rather than expectation, is the main measure of recovery, such as new businesses, promissory estoppel, unenforceable agreements, quasi-contract, and losing contracts.
• Determining whether a claimant should elect reliance or restitution, or pursue expectation instead, and recognizing when restitution may be available to both breaching and non‑breaching parties.
• Applying doctrinal limits on recovery—mitigation, foreseeability, certainty, and the losing‑contract deduction—when computing reliance damages and preventing double counting.
• Calculating restitution based on the defendant’s unjust enrichment, distinguishing it from the plaintiff’s expenditures, and assessing whether recovery is capped by the contract price or may exceed it.
• Evaluating exam fact patterns involving partial performance, emergency or unrequested benefits, and officious intermeddlers to decide whether quasi‑contract or quantum meruit relief is appropriate.
• Translating these rules into clear numerical outcomes by setting up recovery formulas and comparing potential awards across expectation, reliance, and restitution to determine the best remedy.

MBE Syllabus

For the MBE, you are required to understand alternatives to expectation damages when a contract has been breached or is otherwise unenforceable, with a focus on the following syllabus points:

• 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 (e.g., losing contracts, mitigation, certainty, and officious intermeddlers).

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).
4. Which statement about reliance damages is most accurate?
   1. They are always available in addition to full expectation damages.
   2. They may be reduced if the defendant proves the contract would have produced a net loss.
   3. They are never available in actions based on promissory estoppel.
   4. They are measured solely by the defendant’s gain from the transaction.

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.

Key Term: Expectation Damages
The standard measure of contract damages that aims to put the non-breaching party in the position they would have been in had the contract been fully performed, typically including lost profits and incidental losses, minus any savings or benefits from nonperformance.

Expectation damages are not always workable. They may be:

• Too speculative (e.g., projected profits of a brand-new business).
• Difficult to prove with reasonable certainty.
• Inappropriate for policy reasons (e.g., promissory estoppel where no formal contract exists).

In those situations, courts often turn to two alternative interests:

• The reliance interest – reimbursing the plaintiff’s reasonable expenditures made in reliance on the contract.
• The restitution interest – preventing unjust enrichment by forcing the defendant to return the value of benefits received.

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.

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.

Key Term: Unjust Enrichment
A situation in which one party has received and retained a benefit under circumstances that make it unfair for them to keep that benefit without paying for its value.

Sometimes there is not even an enforceable contract, yet one party has clearly benefited at the expense of another. In such situations courts may imply an obligation to pay, even though no true agreement was formed.

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.

Key Term: Quantum Meruit
A restitutionary claim for the reasonable value of services rendered, typically used where there is no enforceable contract or where a contract is rescinded.

Another recurring exam context is promissory estoppel: a promise that is enforceable because the promisee reasonably and foreseeably relied on it, even though traditional consideration is absent.

Key Term: Promissory Estoppel
A doctrine allowing enforcement of a promise when the promisor reasonably expects reliance, the promisee does in fact rely to their detriment, and enforcement (usually by awarding reliance-type damages) is necessary to avoid injustice.

The MBE frequently tests your ability to:

• Recognize which interest is being protected in a fact pattern.
• Decide whether expectation, reliance, or restitution is the best available measure.
• Apply the limitations that keep these interests from overcompensating or undercompensating the plaintiff.

A helpful comparison:

The rest of this article focuses on reliance and restitution in detail.

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 reimburse expenditures made in preparation for performance or in performance itself.

When Awarded

Reliance damages may be sought whenever expectation damages are unavailable, impractical, or undesirable. Common MBE-tested situations include:

• Expectation damages too speculative

  • Especially with new business ventures where lost profits are difficult to prove with reasonable certainty.
  • When the plaintiff cannot show that profits were more likely than not.

• Promissory estoppel cases

  • The plaintiff reasonably and foreseeably relied on a promise that lacks consideration or fails for some other contract-formation defect (e.g., no signed writing under the Statute of Frauds).
  • Courts often protect the reliance interest rather than granting full expectation, though in some jurisdictions expectation may be allowed “as justice requires.”

• Plaintiff elects reliance instead of expectation

  • A plaintiff who is unsure they can prove lost profits may choose to claim reliance damages instead.
  • The plaintiff cannot recover both expectation and reliance for the same injury.

• Part performance on a losing contract

  • If a contract would have produced a net loss, expectation damages might be zero or negative.
  • Reliance may still be available, but it is subject to a key limitation discussed below.

Key Term: Losing Contract
A contract under which the performing party would have incurred a net loss (their costs would have exceeded the contract price) had the contract been fully performed.

Calculation

Reliance damages typically include:

• Out-of-pocket expenses incurred after contract formation in preparation for or in performance of the contract (e.g., materials purchased, labor costs, marketing expenses, reasonable overhead tied specifically to the contract).
• In promissory estoppel cases, reasonable expenditures made in reliance on the promise, which may predate formal contract formation.

Key limits and adjustments:

• Mitigation – The plaintiff cannot recover costs that reasonably could have been avoided after the breach.
• Foreseeability – Expenditures recoverable must have been reasonably foreseeable to the breaching party at the time of the promise or contract.
• Certainty – Reliance expenditures must be proved with reasonable certainty (e.g., invoices, timesheets).
• No double counting – If some expenditures have already been recouped (e.g., by salvage value of materials), the recovery must be reduced accordingly.

The Losing Contract Limitation

A central MBE point: reliance damages cannot be used to escape a losing bargain.

If the defendant proves with reasonable certainty that the plaintiff would have suffered a net loss had the contract been fully performed, the reliance recovery is reduced by that expected loss. In formula form:

• Maximum reliance recovery = Reliance expenditures – Expected loss on the contract.

If the expected loss is equal to or greater than the expenditures, the reliance recovery may be reduced to zero.

The burden is on the defendant to show the contract would have been losing. If the defendant fails to carry that burden, the plaintiff can recover full reliance expenditures even if profits cannot be proved.

Worked Example 1.1

Builder contracts with Owner to construct a unique, experimental building for $500,000. 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 $100,000 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 ($100,000 expenses – $50,000 expected loss).

Worked Example 1.3 – Losing Contract

Caterer contracts to provide food for a conference for a fixed price of $20,000. Before the conference, Caterer spends $18,000 on ingredients and labor. Reliable evidence shows that completing performance would have cost Caterer an additional $7,000, meaning total costs of $25,000 for a $20,000 price (a $5,000 loss). The conference organizer wrongfully cancels the contract after Caterer has spent the $18,000. Caterer sues for reliance.

Answer:
Caterer’s reliance expenditures are $18,000, but the contract is a losing one: full performance would have produced a $5,000 net loss. The organizer can use this to limit reliance damages. Maximum reliance recovery is $18,000 – $5,000 = $13,000. Caterer cannot use reliance damages to convert a $5,000 losing bargain into a profitable one.

Reliance in Promissory Estoppel

In promissory estoppel cases, the court is not enforcing a full contract but is enforcing a promise because of reliance. The remedial focus is naturally on the reliance interest:

• The usual measure is the amount necessary to avoid injustice, often the plaintiff’s reliance expenditures.
• Some courts may award expectation damages if that is necessary and not disproportionate, but the MBE tends to emphasize reliance as the normal measure.

Worked Example 1.4 – Promissory Estoppel

Employer promises Applicant a 2‑year job at $80,000 per year. In reliance, Applicant quits her current job and spends $5,000 relocating. Before her start date, Employer rescinds the offer. Applicant quickly finds a new job at the same salary she had before but cannot recover the relocation costs from her new employer. Expectation damages would be hard to justify because Applicant’s future earnings are uncertain.

Answer:
Under promissory estoppel, Applicant can recover her reliance damages – the $5,000 reasonably spent in reliance on the promise. This restores her to her pre-promise position and avoids injustice without granting speculative future wages.

Restitution Damages

Restitution focuses on reversing unjust enrichment, not on the plaintiff’s loss. When one party confers a benefit on another, restitution allows the conferring party to recover the value of that benefit, even if the contract is unenforceable or even if there is no contract at all.

Restitution may be available:

• As an alternative to expectation damages in a contract case.
• When the contract is unenforceable (e.g., Statute of Frauds, incapacity).
• When there is no contract but the defendant has been unjustly enriched (quasi-contract).

When Awarded (Restitution Damages)

1. Non-breaching party in a valid contract

   • If the other party materially breaches, the non-breaching party may choose to:

     • Affirm the contract and seek expectation damages, or
     • Treat the contract as terminated and seek restitution for any benefit conferred on the breaching party through part performance or reliance.

   • Restitution in this setting can, in many jurisdictions, exceed the contract price if the benefit conferred is worth more than the contract would have paid.

   • 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 measured by the value of performance.

2. Breaching party’s restitution

   A breaching party is not automatically barred from restitution. To avoid unjust enrichment of the non-breaching party, a breaching party who has rendered part performance may:

   • Recover the reasonable value of the benefit conferred on the other party, minus any damages caused by the breach.
   • Recovery is generally capped at the contract price so that the breaching party does not recover more than they could have earned under the contract.

3. Unenforceable contracts

   Where a contract is unenforceable (for example, due to the Statute of Frauds, incapacity, illegality, or discharge by impossibility), a party who has conferred a benefit may recover its value in restitution:

   • The defendant’s enrichment is measured independently of the invalid contract.
   • The court is not enforcing the contract terms, only ensuring fair compensation for benefits actually received.

4. No contract (Quasi-Contract)

   Where there is no enforceable contract, but one party has been unjustly enriched, the law may imply a promise to pay:

   • Common examples:
     • Emergency medical treatment provided to an unconscious patient.
     • Mistaken improvement of another’s property where the owner knowingly accepts and benefits from the work.
   • Officious intermeddlers (those who thrust benefits on others without justification) cannot recover in restitution.

Worked Example 1.2

Painter orally agrees to paint Owner's house for $5,000. 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.

Calculation (Restitution Damages)

Restitution is measured by the reasonable value of the benefit conferred upon the defendant, not by the plaintiff’s costs. This can be measured by:

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

In many cases, the plaintiff’s expenditures and the defendant’s benefit will be similar, but they are conceptually distinct:

• If the plaintiff’s costs were wasteful or excessive, recovery is limited to the objective value of the benefit to the defendant.
• If the defendant’s benefit is greater than the plaintiff’s costs, the plaintiff may be able to recover that higher amount.

Worked Example 1.5 – Restitution vs. Expectation

Owner hires Contractor to build a wall for $30,000. After Contractor has completed work worth $20,000 (measured by the increase in Owner’s property value), Owner wrongfully refuses to pay and prevents further work. Contractor sues and proves that completing performance would have cost $26,000 (yielding a $4,000 profit).

Answer:
Contractor can choose expectation ($4,000 profit plus any incidental loss) or restitution. Restitution would allow Contractor to recover the value of the benefit conferred: $20,000. In this scenario, restitution is more generous than expectation. Because Owner materially breached before full performance, and Contractor elects to treat the contract as ended, many courts permit Contractor to recover the full $20,000 in restitution, even though this exceeds the profit the contract would have yielded.

Worked Example 1.6 – Breaching Party’s Restitution

Suppose in the prior example that Contractor, not Owner, is in breach: Contractor walks off the job after completing work valued at $20,000, leaving Owner to hire another builder who spends $15,000 to finish the wall. Contractor sues Owner in restitution for the benefit conferred.

Answer:
Contractor’s performance conferred a $20,000 benefit, but Owner incurred $15,000 in extra costs due to Contractor’s breach. To avoid unjust enrichment, Contractor may recover the benefit minus the loss caused: $20,000 – $15,000 = $5,000, subject to the cap of the $30,000 contract price. This prevents Owner from getting a $5,000 windfall and prevents Contractor from profiting beyond the contract.

Quasi-Contract and Emergency Services

Restitution is especially important in non-contract situations where immediate action is required:

• A doctor who treats an unconscious accident victim can recover the reasonable value of services in quantum meruit.
• A neighbor who, without request, paints your house because they think it needs it is an officious intermeddler and cannot recover.

The key question is always: Would it be unjust for the defendant to retain the benefit without paying?

Key Point Checklist

This article has covered the following key knowledge points:

• Expectation damages protect the benefit of the bargain; reliance and restitution are alternative measures used when expectation is unavailable, speculative, or inappropriate.
• Reliance damages aim to restore the plaintiff to their pre-contract position by reimbursing expenditures made in reasonable reliance on the contract or promise.
• Reliance is measured by the plaintiff's reasonable, foreseeable, and provable expenditures; mitigation and certainty limits apply.
• Reliance damages cannot be used to escape a losing contract: the defendant can reduce reliance recovery by proving the contract would have produced a net loss.
• Restitution damages aim to prevent unjust enrichment by disgorging benefits conferred on the defendant, regardless of the plaintiff’s actual loss.
• Restitution is measured by the reasonable value of the benefit to the defendant, which may differ from the plaintiff’s expenditures.
• Restitution is available:
  • As an alternative to expectation for a non-breaching party (especially after partial performance).
  • To a breaching party to prevent a windfall to the other side, subject to limits (including a cap at the contract price).
  • For unenforceable contracts (e.g., Statute of Frauds, incapacity) and in pure quasi-contract situations.
• A party cannot recover both expectation and reliance for the same loss, and recovery in reliance or restitution may, in some circumstances, exceed the contract price for a non-breaching party.
• Promissory estoppel usually leads to reliance-based recovery, though some courts may grant expectation damages “as justice requires.”
• Officious intermeddlers cannot obtain restitution; emergency and necessary services, reasonably rendered without the opportunity for bargaining, often support restitution in quantum meruit.

Key Terms and Concepts

• Expectation Damages
• Reliance Damages
• Restitution
• Quasi-Contract (Implied-in-Law Contract)
• Quantum Meruit
• Promissory Estoppel
• Unjust Enrichment
• Losing Contract