"Show Fullposts" is set to "No" removes

In General Options when “Show Fullposts” is set to “No” it removes <p> breaks and does not allow an image to be shown unless added in “Featured Image” even if it is in the <p> that is being shown in the except.

Show Fullposts – yes

<div>
<p>many paragraphs (as formatted in wordpress</p>
<p></p>
<p></p>
<p></p>
</div>

Show Fullposts – no

<div>
<p>one paragraph</p>
</div>

any advice on how to fix this so when “Show Fullposts” is set to “No”, it will not remove the <p> breaks?