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< ABSTRACT > Reliance Interest Joon-Ho Kim Under the Korean Civil Law section 535 s the negligence on the creation of contract, when a contract is void, the law provides the party who relies that the contract is valid with remedy based on reliance measure to the extent of the expectation damages. Therefore, I disagree with the opinion that there is no difference between the expectation interests and the reliance interests, because it is contradictory to our governing law, the Korean Civil Law section 535. Similarly, there is another opinion, which says even though the expectation interests and the reliance interests are different interests in contract, it is not useful to distinguish those two contract interests, because reliance interests are presumed to include expectation interests. I disagree with this opinion either, because it overlooks the point that those two interests are designed to protect different interests of the injured parties. At least in cases where Korean Civil Law section 535 has applied, the expectation interests and the reliance interests are presumed to be distinguished, and the amount of damages may be computed in a different way. As a consequence, the purpose of reliance damages is to place the nonbreaching party in the position she would have been in had the contract never been formed, if the injured party have known the arrangements are void. The limit on amount of reliance recovery is to the extent of the expectant interests. In a meanwhile, damages based on the reliance interests have been mentioned in other contractual issues, besides Korean Civil Law section 535; including compensatory damages for cancellation of contract, damages for security interests, restitution damages, damages for expenses, which the party in reliance on the contract has spent, damages for misrepresentation and rescission, reliance interests for specific performance. In these contractual damage measures, however, they may not be awarded based on the measure of reliance damages. They are only in common with the term of reliance, where each of those damages mentioned above has identified the term reliance differently from the reliance interests. (1) Compensatory damages are to protect the injured party s expectation interests, when breach of contract has been occurred. (2) A remedy based on secured interests differs from reliance damages, with - 34 -
respect that it has limitations on the grant. (3) When contract is cancelled, damages for expenses, considerations, or its value, which the nonbreaching party conferred in reliance that contract may be performed should be deemed different from compensatory damages with the respects of their own purposes. In accordance with these facts, a different contract remedy, not a remedy based on the compensatory interests, may be used. When expenses conferred by a nonbreaching party in reliance on the contract, he would probably have presumed that what he has rendered would be restored by the expectation interests, in which the contract has been performed. There are two issues. First of all, restitution and the expectation damages have different purposes on providing a party with remedies; restitution put the nonbreaching party where he would have been in had the contract never been formed, while the expectation damages place the injured party in a position as good as the one he would have held had the other party performed. Therefore restitution damages are inconsistent with the remedy of the expectation damages, so that those two remedies cannot be sought together at the same time. In other words, a party will be allowed to seek only one of them, because these two damages are inconsistent to be sought. Second of all, with respect to restitution damages, its amount of remedy may be granted to the extent of limits on expectation interests. Otherwise it causes unjust enrichment when, in case of nonperformance, the nonbreaching party has conferred a benefit by rendering expenses, in which the other party are originally responsible for the payment. (4) For reliance damages to be recoverable, damages should be operated by the law. Therefore, reliance damages may not be awarded in the event of cancellation for mistake, with the interpretation of law. (5) In matters of reliance interests as an interest of breach of contract, the amount of damages may be determined by the measures of direct damages and indirect damages. Therefore it is nothing to do with the reliance interests to be payable to the extent of the expectation interests. Key Words : Expectation Interest, Reliance Interest, Reliance, Monetary Damages, Restitution, Compensatory Damages, Expectation Damages, Negligence on the creation of Contract - 35 -