10.0.1.1 Remedies Introduction | rauvinj | November 27, 2012

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10.0.1.1 Remedies Introduction

Original Creator: Kessler, Gilmore & Kronman Current Version: rauvinj
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We all believe that people have an obligation to keep their promises. Sometimes, of course, the failure to keep a promise may be excused: If I agree to accompany you on a walk but break our date when my grandmother becomes ill and has to be rushed to the hospital, no blame attaches to my actions. Here, we are inclined to say, my general duty of promise-keeping is overridden by a conflicting and superior obligation and it is not wrong of me to stand you up (although I certainly owe you an explanation). But when a person's failure to keep his promise is unexcused (suppose that I break our date, without warning, because I prefer to stay home and read the newspaper instead), the person to whom the promise was made is justified in feeling that his trust has been abused, and may have anyone of a number of reactions ranging from mild disappointment to moral disgust. He may also feel that the promisor's faithlessness has hurt him in a material sense — perhaps, in reliance on my promise to meet you for a walk, you have turned down an offer to see a film with someone else or left work early and lost an hour's pay.

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In general, however serious its consequences, a broken promise gives the promisee a "right" to appeal to the promisor's own conscience (which presumably reflects the moral sentiment of the community) and to insist upon fair "compensation" typically, an apology or some equivalent gesture of contrition. The right to make such an appeal is a form of moral coercion, and ordinary experience suggests that its power is far from insignificant. If a promise happens also to be a contract, however, its breach creates a legal as well as a moral claim; this is, in fact, the very thing that marks contracts out as a distinctive class of promises. The unexcused breach of a contractual obligation gives the promisee the right to enlist the aid of the state and its coercive apparatus in the protection or vindication of his interests, and where this right is missing there is no contractual liability on the part of the promisor (however compelling his moral responsibilities may be).

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The relationship between a person's contract rights and his moral entitlements has been a subject of much controversy, as the passages from Holmes and Harriman suggest. Suppose that A makes a legally enforceable promise to B which he then fails to keep for no other reason than that he would prefer to spend his time or resources in some other way. If, for purely fortuitous reasons, B suffers no financial loss (or is even placed in a better position than he would have been had A kept his promise), no legal action for damages will lie against the faithless promisor. Many will say, however, that A's breach ought still to be condemned from an ethical point of view, and that the lucky fact no one was hurt does not excuse A from moral responsibility for his misbehavior.

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The inclination to blame A will be even stronger if he has benefitted from his breach, although B has not been harmed. To this one may reply (in the spirit of Holmes) that every contract is a promise in the alternative to do a certain thing or else compensate the promisee for any harm he suffers if the thing remains undone — and that compliance with either requirement constitutes performance of the contract and satisfies the promisor's moral obligations. The Holmesian view has always had its adherents, but it seems never to have fully overcome the resistance of common sense, which stubbornly insists that moral blame (unlike legal liability) is not entirely a function of the consequences of an action but depends, as well, upon the motives and intentions of the actor.

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If a breach of contract can be morally blameworthy even though the promisee has no legal claim for damages, the reverse also seems true (indeed, if anything, more obviously so). Imagine that a promisor is prevented from performing through no fault of his own; if he has assumed the risk of his own nonperformance, he must make compensation to the promisee, however blameless he appears from a moral point of view. But though we may be tempted to conclude that in cases of this sort there is legal liability unaccompanied by moral blame, closer reflection suggests that this is not actually the case; a promisor who without fault is unable to perform breaches his legal duty to the promisee only if he refuses to make the appropriate compensatory payment, and it is just at the point of refusal that he may be said to violate a moral duty as well. If we assume, with Holmes, that a contract is a promise cast in the alternative, it follows that every legally actionable claim for damages will be premised upon behavior that is also subject to moral blame, since a claim for damages can arise only if the promisor fails to keep one or the other of his two commitments. It may be morally wrong to break a contract even though no damages result; but where the promisee does in fact have a legal claim for damages he will always have a moral claim as well.

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Economists, who tend to associate themselves with the Holmesian view of contractual obligation, are fond of saying that contract law is "amoral,"[4] by which they mean that even a promisor who deliberately violates his agreement for purely self-interested reasons will not be subject to legal sanctions so long as the other party is compensated for any harm he suffers as a result. This is true, of course, but it does not follow that a promisor who violates his legal duty — either to perform or to pay damages — is free of moral blame. Nor, more importantly, does it follow that a promisor who escapes legal liability (either through good fortune, like the seller in the Acme Mills case, or by paying compensation to the promisee) also, for that reason alone, avoids moral criticism. There are, perhaps, good reasons for opposing a rule that would have required the seller in Acme Mills to share his profit with the buyer (a rule of this sort might impede the movement of goods to their highest-valuing users, increase transaction costs, and reduce the overall wealth of society though it should be stressed that each of these claims is controversial); but was it morally defensible for the seller to take risks with the buyer's welfare and then retain the full benefits of the resale for himself, rather than offering to divide his profits with the buyer in some fashion? Contract law is "amoral" because it does not reach this question, not because it answers the question affirmatively.

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In the sections that follow, we will survey the wide range of remedial devices to be found in our law of contracts, consider the limitations that restrict their availability and condition their use, and reflect on the reasons for the often chilly reception accorded private efforts to supplement or replace existing legal remedies with different ones. We begin with specific performance, often described as an extraordinary remedy, and yet the one most likely, it would seem, to fully protect the promisee's expectations. The doctrine of specific performance immediately prompts two questions: Why is this remedy ever available? And supposing it should be available in some cases, why not in all? The materials collected in the following section explore these two related issues.

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In Section 3 we turn to the broad topic of money damages, or what one writer has called "substitutional" relief.[5] Where there is an existing market for the goods or services that are the subject of the contract, how arc money damages to be measured? How far is the promisor required to go in compensating for the harm caused by his breach? And what happens when a contract we would normally expect to be mutually advantageous turns out not to be so, and the party on the "winning" side inexplicably breaches? In the upside-down world of the "losing" contract, how should we apply our standard rules for measuring damages, rules which have been constructed upon entirely different assumptions? These and a number of related issues are treated in Section 3.

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Section 4 deals with the general problem of private remedies and the power of the parties to create for themselves an enforceable remedial scheme. We begin with arbitration agreements, and then examine, in some detail, the time-honored distinction between legitimate liquidated damage provisions and illicit penalties. The section ends with a brief look at a related topic — the (increasingly restricted) freedom of sellers and lessors to reduce their warranty liability by means of contractual disclaimers, especially in consumer transactions. This is one of the many points in the chapter where the familiar boundary between tort and contract blurs into a hazy continuum.

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The final section of the chapter deals with two related subjects — anticipatory repudiation and mitigation of damages. When a promise is repudiated well in advance of the time set for its performance, special problems may arise in measuring the promisee's damages, and the promisor will almost certainly want his innocent partner to make alternative arrangements so that the losses caused by the breach can be kept to a minimum. It may seem unfair to require the victim of a wrongful act to take affirmative steps for the benefit of the wrongdoer, but the mitigation rules that limit the recovery of even the most blameless promisee are perhaps more consistent with moral principle than they first appear. As you reflect on this issue, you may find it useful to return to the Acme Mills case and to reconsider the subject of contract remedies from the point of our departure.

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[4] For an example of an implicitly amoral treatment of contract law, see R. Posner, Economic Analysis of Law (1972) §3.8.

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[5] Farnsworth, Legal Remedies for Breach of Contract. 70 Colum. L. Rev. 1145 (1970).

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February 15, 2015

10.0.1.1 Remedies Introduction

10.0.1.1 Remedies Introduction

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