§ 38 and the Lost Doctrine of Failure of Consideration

Abstract

I examine one section of the Restatement of Restitution and Unjust Enrichment, § 38, which deals with the confusing and contentious interrelation between restitution and contract. § 38 contains two distinct remedies; the Reporter, Andrew Kull, has argued that they are both remedies for breach of contract. If he is right, the remedies do not belong in this Restatement: they belong in contract texts and Restatements. He is half right. One of the remedies, reliance damages, serves as a proxy for expectation damages; it is a remedy for breach of contract. The other remedy, 'performance damages,' is better classified as extra-contractual. To explain why the Restatement got this wrong, I trace the reception of the concept of 'failure of consideration' in the United States from the nineteenth century. The concept was used but never properly understood, and was ultimately rejected as an explanatory tool. Without a proper conceptual framework, the claim -- now called 'performance damages' -- was hard to understand or classify; because it is often factually connected with claims for breach of contract, it ended up there.