Restitutionary disgorgement as a moral compass for breach of contract

University of Cincinnati Law Review

Volumn 77, Issue 3, 2009, Pages 991-1026

  Roberts, Caprice L ^a,b  

^a Faculty of Research and Development   (Japan)

^b WEST VIRGINIA UNIVERSITY   (United States)

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EID: 68949117928     PISSN: 00096881     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Review

References (164)

1. Oliver Wendell Holmes, Jr., The Path of the Law, 10 HARV. L. REV. 457,462 (1897).
2. Robin West, Three Positivisms, 78 B.U. L. REV. 791, 811 (1998).
3. RESTATEMENT (THIRD) OF RESTITUTION AND UNJUST ENRICHMENT § 39 (Tentative Draft No. 4, 2005).
4. For the purposes of this Article, deterrence encompasses general and specific deterrence. Thus, the deterrence goal fosters remedies that may deter the offending party specifically and the public generally from engaging in certain undesirable conduct.
5. This Article intends a general conception of punishment that includes instances in which society penalizes a person for particular conduct. Punishment systems may stem from a variety of theories of criminal justice, including utilitarianism (perceived pain of punishment outweighs the possible pleasure of the criminal reward), retributivism (the placement of blame and punishment on one whose behavior deserves it), or expressivism (the expression of society's condemnation for disapproved conduct). See generally Heidi M. Hurd & Michael S. Moore, 2004 Stanford Law Review Symposium: Punishment and Its Purposes-Punishing Hatred and Prejudice, 56 STAN. L. REV. 1081 (2004).
6. Retributive theory endorses a "just desserts" justification in which those deserving of punishment for culpable conduct receive it. See JOSHUA DRESSLER, UNDERSTANDING CRIMINAL LAW 16 (4th ed. 2006) (citing generally regarding retributivism IMMANUEL KANT, THE METAPHYSICAL ELEMENTS OF JUSTICE (J. Ladd translation 1965), and IMMANUEL KANT, THE PHILOSOPHY OF LAW (W. Hastie trans., 1887)).
7. See, e.g., Gertz v. Robert Welch, Inc., 418 U.S. 323, 350 (1974) (asserting that punitive damages "are private fines levied by civil juries to punish reprehensible conduct..."). Tort law permits punitive damages for certain egregious behavior; such damages serve the functions of specific and general deterrence. See Dan Dobbs, Ending Punishment in "Punitive " Damages: Deterrence-Measured Remedies, 40 ALA. L. REV. 831, 844-45 (1988).
8. Typical goals of American contract law include compensating a non-breaching party for the benefit of the bargain or losses sustained rather than punishing and deterring wrongdoing.
9. See, e.g., Charles J. Goetz & Robert E. Scolt, Liquidated Damages, Penalties and the Just Compensation Principle: Some Notes on an Enforcement Model and a Theory of Efficient Breach, 77 COLUM. L. REV. 554, 558 (1977) ("The modem law of contract damages is based on the premise that a contractual obligation is not necessarily an obligation to perform, but rather an obligation to choose between performance and compensatory damages.") (citing, inter alia, E. Allan Farnsworth, Legal Remedies for Breach of Contract, 70 COLUM. L. REV. 1145, 1147 (1970); Holmes, supra note 1,462).
10. Holmes, supra note 1, at 462.
11. The "amoral" perspective of contract law is neither universal nor without its critics. See, e.g. Peter Linzer, On the Amorality of Contract Remedies-Efficiency, Equity, and the Second Restatement, 81 COLUM. L. REV. 111, 138-39 (1981) (advocating widespread enforcement of specific performance as a contract remedy in order to shift away from the "amoral approach of Holmes" and the Restatement (Second) of Contracts and towards the view "that one should stand by one's word" while still advancing "predictability, economic efficiency, and fairness");
12. Seana Valentine Shiffrin, The Divergence of Contract and Promise, 120 HARV. L. REV. 708, 719-22, 749 (2007) (examining the divergence between contract law and morality and advancing "a more positive theory of contract that would treat the conditions of moral agency and the culture of promising in a more complementary way"). Contract law is not wholly amoral. For example, the Uniform Commercial Code ("U.C.C.") includes morally infused provisions such as the duty of good faith and fair dealing, U.C.C. §1-304, and the common law contains promissory estoppel with its emphasis on avoiding injustice, RESTATEMENT (SECOND) OF CONTRACTS § 90 (1981). Even with respect to core principles of contract law, moral notions are visible. Specific performance honors keeping promises, and further availability of specific performance "would not give promisees an incentive to exploit breaching promisors."
13. Alan Schwartz, The Case for Specific Performance, 89 YALE L.J. 271, 271 (1979) (arguing that specific performance should be available on request because it would better meet the goals of compensation and expectancy). This remedy, however, is not the law's default; rather, it remains available only in extraordinary circumstances. One may view contract law's expectancy damage principle-benefit of the bargain-as based on moral intuitions about the need to make injured parties whole. Accordingly, common sense morality may blend with economic efficiency to drive contract doctrine. Section 39, however, instills a morality framing that is a departure from the existing landscape because it authorizes disgorgement to deter, and perhaps punish, breach; its moral position favors keeping promises and curtailing conscious wrongdoing.
14. RESTATEMENT (THIRD) OF RESTITUTION AND UNJUST ENRICHMENT §39.
15. Id. § 39(1).
16. AYN RAND, The Objectivist Ethics, in THE VIRTUE OF SELFISHNESS (1964).
17. MSN, Encarta Dictionary: English (North America) (2008), http://encarta.msn.com/dictiona ry-1861635198/opportunistic.html.
18. RESTATEMENT (THIRD) OF RESTITUTION AND UNJUST ENRICHMENT §39 cmt. b, at 7.
19. Id. § 39(2).
20. Andrew KuIl, Disgorgement for Breach, the "Restitution Interest," and the Restatement of Contracts, 79 TEX. L. REV. 2021, 2021 (2001). Professor KuIl poses the disgorgement question as the lead to Part I entitled "The Problem" and then differentiates two forms the disgorgement remedy might take: (i) treating "profitable and opportunistic breach of contract" as an "analogy of the claim in restitution for the profits of intentional tort or infringement" in order to provide the contract "plaintiff the benefits realized by defendant as the result of the breach[,]" and (ii) disgorging, at plaintiff's election, "the benefits realized by the defendant as the result of the plaintiff's performance" from a defendant who causes a material, but not necessarily profitable or opportunistic, breach of contract. Id. at 2021-22. He notes that the first form of disgorgement is "[t]he more familiar proposition in the academic literature[,]" while the second form is "[t]he distinct and more urgent proposition of some recently decided cases." Id. It is the first form-not the second-that Professor KuIl selectively puts forth in the new Restatement as section 39. Although the first form "might indeed give the plaintiff more than he lost," Professor KuIl rejects enshrining the second form as it goes further "because the breach in question need be neither profitable nor opportunistic; and because the remedy proposes to strip the defendant, not merely of profits resulting from the breach, but of all benefits traceable to the plaintiffs performance." Id. at 2023.
21. RESTATEMENT (THIRD) OF RESTITUTION AND UNJUST ENRICHMENT § Reporter's Introductory Memorandum, at xv.
22. KuIl, supra note 18, at 2052.
23. Id.
24. RESTATEMENT OF THE LAW OF RESTITUTION ( 1937).
25. Recognizing the danger of treading where others have toiled for decades, this Article seeks to raise questions from a fresh perspective.
26. With all the necessary caveats, the author believes this captures the introductory remarks of Professor Gergen from the Restitution-New Restatement Panel at the AALS Annual Meeting (Jan. 3, 2007). Professor Gergen also discussed the notion that the disgorgement remedy for conscious wrongdoing is a "Biblical remedy."
27. See Holmes, supra note 1. Professor Shiffrin laments the absence of morality from contract law and emphasizes the counter position of the moral stance: "[A] promisor is morally expected to keep her promise through performance. Absent the consent of the promisee, the moral requirement would not be satisfied if the promisor merely supplied the financial equivalent of what was promised." Shiffrin, supra note 11, at 722.
28. As drafted, section 39's clunky, mechanical framework, however, may foster uncertainty and thus inefficient litigation. For example, section 39 includes two cumbersome subsections outlining an inadequacy requirement for the remedy. RESTATEMENT (THIRD) OF RESTITUTION AND UNJUST ENRICHMENT §§ 39(2)(c)(i)-(ii) (Tentative Draft No. 4, 2005). Section 39 also authorizes judicial discretion in denying the remedy in the event of disgorgement resulting in "an inappropriate windfall to the promisee, or would otherwise be inequitable in a particular case." Id. § 39(4)(b). This subsection will generate formidable counterarguments on behalf of the breaching party.
29. See infra Part IV.B. (exploring efficient breach theory and the potential tensions with restitutionary disgorgement).
30. Alternative nonmonetary remedies may exist that would further deterrence goals; these might include disclosure requirements regarding past breaches, loss of licensure, and bans from certain trades. These creative remedies are more common in the tort arena where both deterrence and punishment are conventional goals.
31. See infra Part IV.B. (exploring the efficient breach theory and its potential dismantling in light of section 39's inconsistent rationale).
32. For a provocative argument that corrective justice theory may explain the existing structure of contract law despite contract law's lack of interest in the wrongfulness of breach, see generally Curtis Bridgeman, Reconciling Strict Liability with Corrective Justice in Contract Law, 75 FORDHAM L. REV. 3013 (2007).
33. RESTATEMENT OF THE LAW OF RESTITUTION (1937).
34. RESTATEMENT (THIRD) OF RESTITUTION AND UNJUST ENRICHMENT (Tentative Draft No. 4, 2005).
35. Members of the American Law Institute decided to abandon the Second Restatement project.
36. Andrew KuIl, Rationalizing Restitution, 83 CAL. L. REV. 1191, 1191 -92 (1995).
37. RESTATEMENT (THIRD) OF RESTITUTION AND UNJUST ENRICHMENT § 39.
38. Andrew KuIl, Remarks at the AALS Annual Meeting: Restitution-New Restatement Panel (Jan. 3,2007).
39. L.L. Fuller & William R. Perdue, Jr., The Reliance Interest in Contract Damages: 1, 46 YALE L.J. 52, 56 (1936) (noting that the "'restitution interest,' involving a combination of unjust impoverishment with unjust gain, presents the strongest case for relief if our goal is Aristotle's justice where we keep "an equilibrium of goods among members of society").
40. Modern unjust enrichment grounds itself in Lord Mansfield's reliance on "natural justice" and "equity" to require a defendant to refund plaintiffs money. Moses v. Macferlan, (1760) 2 Burr. 1005, 1008, 97 Eng. Rep. 676 (K.B.). Efforts to characterize unjust enrichment often include words of caveat and expanse such as "indefinable," "imprecise," "defies formulation," "creative," "injustice," and "fairness." See, e.g., GEORGE E. PALMER, 1 THE LAW OF RESTITUTION 5, 44 (1978).
41. See RESTATEMENT (THIRD) OF RESTITUTION AND UNJUST ENRICHMENT § 39(1) (limiting restitutionary disgorgement for opportunistic breach "to the profit realized by the defaulting promisor as a result of the breach").
42. See DAN B. DOBBS, DOBBS LAW OF REMEDIES: DAMAGES-EQUITY-RESTITUTION §4.1(2), at 557 (2d ed. 1993);
43. see also Doug Rendleman, When Is Enrichment Unjust? Restitution Visits an Onyx Bathroom, 36 LOY. L.A. L. REV. 991, 997 (2003) ("Dawson thought that unjust enrichment standing alone enabled a court to become a dangerous roving commission; wandering, perhaps intoxicated by the heady brew of its rhetoric, off the end of the dock..." (expounding upon JOHN P. DAWSON, UNJUST ENRICHMENT: A COMPARATIVE ANALYSIS 150-51 (1951))).
44. Rendleman, supra note 40, at 1002-03 (emphasis added) (noting further that "[a] court should not award a plaintiff restitution without examining restitution's effect on other substantive doctrines that decline liability").
45. RESTATEMENT (THIRD) OF RESTITUTION AND UNJUST ENRICHMENT § 39 Reporter's Introductory Memorandum, at xv.
46. See generally John D. McCamus, Disgorgement for Breach of Contract: A Comparative Perspective, 36 LOY. L.A. L. REV. 943 (2003);
47. Caprice L. Roberts, A Commonwealth of Perspective on Restitutionary Disgorgement for Breach of Contract, 65 WASH. & LEE L. REV. 945 (2008) (exploring lessons from the Commonwealth's experience for the American disgorgement project).
48. See, e.g., THE LAW COMMISSION, AGGRAVATED, EXEMPLARY AND RESTITUTIONARY DAMAGES, REPORT No. 247, at 43 (1997) (approving disgorgement for any civil wrong only where defendant's actions show "a 'deliberate and outrageous disregard of the plaintiffs rights'"); Gareth Jones, The Recovery of Benefits Gained from a Breach of Contract, 99 L.Q.R. 443, 459 (1983) (endorsing broadly gain-based damages for breach of contract); Robert J. Sharpe & S. M. Waddams, Damages for Lost Opportunity to Bargain, 2 O.J.L.S 290 (1982); Lionel D. Smith, Disgorgement of the Profits of Breach of Contract: Property, Contract and "Efficient Breach," 24 CAN. BUS. L.J. 121 (1994) (arguing that disgorgement should not be denied to contract plaintiffs given its widespread availability in other areas of law). See also Sam Doyle & David Wright, Restitutionary Damages-The Unnecessary Remedy?, 25 MEL. U. L. REV. 1, 4-6 (2001) (detailing case and scholarly range of treatments for gain-based contract relief).
49. The watershed example in England is Attorney General v. Blake, (2001) 1 A.C. 268 (H.L.). In America, some support stems from Laurin v. DeCarolis Constr. Co., Inc., 363 N.E.2d 675, 678 (Mass. 1977) (approving an award of the fair market value of gravel that defendant, in a "deliberate and wilful breach of contract," wrongfully removed). Given the lack of precedent prior to Blake, Professor Robert Stevens argues that the rationale for disgorgement is nonexistent and that the Restatement view is a common misreading of the cases. See JAMES EDELMAN, GAIN-BASED DAMAGES: CONTRACT, TORT, EQUITY AND INTELLECTUAL PROPERTY 149 (2002);
50. Mitchell Mclnnes, Disgorgement for Breach of Contract: The Search for a Principled Relationship, in UNJUST ENRICHMENT & THE LAW OF CONTRACT 225, 241 (E.J.H. Schrage ed., 2001); Hanoch Dagan, Restitutionary Damages for Breach of Contract: An Exercise in Private Law Theory, in 1 THEORETICAL INQUIRIES IN LAW 115, 115 (2000);
51. Robert Stevens, Damages and the Right to Performance: A Golden Victory or Not (forthcoming 2008) (manuscript on file with author) (demonstrating how Blake's disgorgement remedy was an invention lacking precedent and advocating that a gain-based remedy has support in compensatory principles). For more narrow support of disgorgement for breach of contract, see for example Peter Benson, Disgorgement for Breach of Contract and Corrective Justice: An Analysis in Outline, in UNDERSTANDING UNJUST ENRICHMENT 310-30 (Jason W. Neyers et al. eds., 2004). For opposition to disgorgement based on disgorgement's inconsistence with the "internal coherence" of contract law within a corrective justice model, see Ernest J. Weinrib, Punishment and Disgorgement as Contract Remedies, 78 CHI.-KENT L. REV. 55,103 (2003).
52. RESTATEMENT (THIRD) OF RESTITUTION AND UNJUST ENRICHMENT § 39 cmt. d, at 11.
53. Id. Reporter's Note a, at 29.
54. Id. (citing e.g., LORD GOFF & GARETH JONES, THE LAW OF RESTITUTION 515-26 (6th ed. 2002)); HANOCH DAGAN, THE LAW AND ETHICS OF RESTITUTION 260-82 (2004);
55. PETER D. MADDAUGH & JOHN D. MCCAMUS, THE LAW OF RESTITUTION 753-74 (2d ed. 2004); PALMER, supra note 38, § 4.9; Peter Birks, Restitutionary Damages for Breach of Contract: Snepp and the Fusion of Law and Equity, LLOYD'S MAR. & COM. L.Q. 421 (1987);
56. John P. Dawson, Restitution or Damages?, 20 OHIO ST. L.J. 175, 186-89 (1959); E. Allan Famsworth, Your Loss or My Gain? The Dilemma of the Disgorgement Principle in Breach of Contract, 94 YALE L.J. 1339 (1985)).
57. RESTATEMENT (THIRD) OF RESTITUTION AND UNJUST ENRICHMENT § 39 cmt. a, at 4.
58. Id.
59. Id. cmt. d, at 11.
60. Id. cmt. a, at 5.
61. Id. (noting further that "[r]estitution exceeding the claimant's loss is authorized nowhere else in Chapter 4, though it is a distinguishing feature of the rules stated in Chapter 5"-"Restitution for Wrongs," including tort and other breach of duty claims). It is an open question as to whether permitting restitution that exceeds plaintiffs loss in a contractual setting will create a broader convergence between contract law and tort law.
62. Id.
63. Id. (emphasis added). Although American contract law generally prohibits the award of punitive damages, scholars have argued for extended availability of punitive damages in contract law for willful breaches. See, e.g., William S. Dodge, The Case for Punitive Damages in Contracts, 48 DUKE L.J. 629 (1999) (reasoning that economic theory supports punitive damages for breach of contract); Curtis Bridgeman, Note, Corrective Justice in Contract Law: Is There a Case for Punitive Damages?, 56 VAND. L. REV. 237, 260-69 (2003) (appealing to Kantian moral theory for an extension of punitive damages for willful breaches of contract).
64. See, e.g., MICHAEL S. MOORE, PLACING BLAME: A GENERAL THEORY OF THE CRIMINAL LAW 91 (1997) ("Retributivism is a very straightforward theory of punishment: We are justified in punishing because... offenders deserve it.").
65. Holmes, supra note 1.
66. Mills v. Wyman, 20 Mass. (3 Pick.) 207, 210 (1825) ("What a man ought to do, generally he ought to be made to do, whether he promise or refuse. But the law of society has left most of such obligations to the interior forum, as the tribunal of conscience has been aptly called.").
67. R. W. Byrom, Do Damages Depend on the Same Principles Throughout the Law of Tort and Contract?, 6 U. QUEENSLAND L.J. 118, 120-22, 125 (1968) (contrasting contract's Hadley v Baxendale foreseeability limitation on the quantum of harm from breach with tort where "damages are recoverable in full or not at all [and] not limited by reference to reasonable quantum"); see also DOUG RENDLEMAN, REMEDIES: CASES & MATERIALS 530-53 (7th ed. 2006) (exploring and comparing the underlying principles and goals of tort and contract doctrine).
68. See Curtis Bridgeman, Default Rules, Penalty Default Rules, and New Formalism, 33 FL. ST. U. L. REV. 683 (2006) (describing how new formalists like Alan Schwartz and Robert Scott have argued that few, if any, default rules actually exist in contract law, notwithstanding conventional wisdom).
69. This phenomenon finds some support in Professor Kull's assessment that "[a]lthough case authority for the particular Illustrations [for section 39's application] is reasonably extensive, courts and commentators have hesitated to formulate a rule-seemingly at variance with basic assumptions about liability in contract-that would generalize the outcomes they represent." RESTATEMENT (THIRD) OF RESTITUTION AND UNJUST ENRICHMENT § 39 Reporter's Note a, at 29 (Tentative Draft No. 4, 2005) (emphasis added).
70. With appropriate apologies to WILLIAM SHAKESPEARE, HAMLET, act 3, sc. 2.
71. RESTATEMENT (THIRD) OF RESTITUTION AND UNJUST ENRICHMENT §39 cmt. g, at 21.
72. Id.
73. At the AALS 2006 annual meeting, Professor Kull discussed section 39's disgorgement under "legal restitution," and the remedy would yield money damages. The inadequacy test historically applies exclusively in the context of equitable remedies such as specific performance and injunctions. It is unclear how Professor Kull's analogy to injunction or specific performance and his borrowing of the "inadequacy test" in order to limit disgorgements application to profitable contractual breaches may affect the determination of whether the relief is legal or equitable and thus whether a right to a jury exists.
74. DOUGLAS LAYCOCK, THE DEATH OF THE IRREPARABLE INJURY RULE 37 (1991) (cited and adopted by Professor Kull, RESTATEMENT (THIRD) OF RESTITUTION AND UNJUST ENRICHMENT §39 Reporter's Note c, at 30).
75. Warran v. Century Bankcorporation, Inc., 741 P.2d 846, 852 (1987) ("The remedy in restitution rests on the ancient principles of disgorgement. Beneath the cloak of restitution lies the dagger that compels the conscious wrongdoer to 'disgorge' his gains.").
76. RESTATEMENT (THIRD) OF RESTITUTION AND UNJUST ENRICHMENT §39 cmt. f, at 20.
77. Id. Yet, in the proposed Comment i on "efficient breach," language connotes a punishment element, for example, "precisely the conduct that the law of restitution condemns" and "§39 does not automatically punish an efficient breach with a disgorgement remedy, however, because of the requirement that the breach be opportunistic." Id. cmt. i, at 26 (emphasis added). See also infra Part IV.B. (discussing section 39's effect on the efficient breach model). Is it possible that the disgorgement remedy will deter and punish opportunistic breach, but not be deemed a punitive award because, among other reasons, the jury would not be assessing a number out of the air in order to punish the defendant for her outrageous conduct? I would suggest rethinking the adjectives used to describe any remedial goals of disgorgement for contractual breach.
78. Laurin v. DeCarolis Constr. Co., Inc., 363 N.E.2d 675, 679 (1977) (discussed in conjunction with Illustration 2 by Professor Kull, RESTATEMENT (THIRD) OF RESTITUTION AND UNJUST ENRICHMENT §39 Reporter's Note e, at 31).
79. Punitive functions in American law exist primarily in tort and criminal law. Japan cabins punitive damages further by limiting application to only criminal law.
80. McDougald v. Garber, 536 N.E.2d 372, 378 (1989) ("The fundamental distinction between punitive and compensatory damages is that the former exceed the amount necessary to replace what the plaintiff lost...") (citation omitted).
81. See RESTATEMENT (THIRD) OF RESTITUTION AND UNJUST ENRICHMENT §39 cmt. b, at 8 (noting the remedy seeks to "frustrate conscious wrongdoers"). According to Professor KuIl, the restitutionary disgorgement remedy also seeks "to reinforce the stability of the contract itself, enhancing the ability of the parties to negotiate for contractual performance that may not be easily valued in money [and thereby] expand the range of transactions for which parties may effectively bargain." Id.
82. This Article seeks to stimulate open debate. If serious concerns arise about any punitive nature of the disgorgement remedy for profitable contractual breaches, a future article would need to address the significant potential implications. In fairness, the Court's due process jurisprudence regarding punitive damages has received a mixed scholarly reception. For a nice capsulization of citations of competing scholarly treatments, see Michael P. Allen, The Supreme Court, Punitive Damages and State Sovereignty, 13 GEO. MASON L. REV. 1, 3-4 n.7 (2004). See also Caprice L. Roberts, Ratios, (Ir)rationality & Civil Rights Punitive Awards, 39 AKRON L. REV. 1019 (2006) (critiquing one prong of the Court's due process "guideposts"-the ratio of compensatory harm to punitive damages-in terms of its inconsistent application in the federal civil rights context). For a recent case example demonstrating a flawed extension of Supreme Court punitive damage precedent, see for example, Arpin v. United States, 521 F.3d 769 (7th Cir. 2008) (Posner, J.) (misapplying the ratio guidepost to loss of consortium damage award, which is itself, a compensatory rather than punitive award).
83. RESTATEMENT (THIRD) OF RESTITUTION AND UNJUST ENRICHMENT §39 cmt. b, at 7 (emphasis added). Does this remedy open the door to claimants seeking a punitive award in addition to the disgorgement remedy for opportunistic breach?
84. See infra Part IV.B. (comparing rationales underlying restitutionary disgorgement with efficient breach justifications).
85. See VILFREDO PARETO, MANUAL OF POLITICAL ECONOMY 451 (Ann S. Schweir & Alfred N. Page eds., Ann S. Schweir trans., Augustus M. Kelley Pubs. 1971) (1905);
86. RICHARD A. POSNER, ECONOMIC ANALYSIS OF LAW §l.2, at 13 (3d ed. 1986).
87. See, e.g., Goetz & Scott, supra note 9, at 558.
88. Weinrib, supra note 45, at 73. In the face of increasing openness to disgorgement for contract breach in Canada, England, and Israel, Professor Weinrib does not advocate the utilization of disgorgement; rather, he expresses concern that the disgorgement remedy will disturb the "law's internal coherence" by injecting punishment of "malevolent conduct," which has not been a component of traditional contract law. Id. at 103.
89. Id. at 73.
90. Id. at 74.
91. Id.
92. Robin Bradley Kar, Contract Law and the Second-Person Standpoint: Why Efficiency Maximization Principles Can Neither Explain Nor Justify the Expectation Damages Remedy, 40 LOY. L.A. L. REV. 977, 982 (2007).
93. See Donald J. Boudreaux, Law and Economics, in THE ELGAR COMPANION TO AUSTRIAN ECONOMICS 267 (Peter J. Boettke ed., 1994) (opining that legal scholars pen literature critiquing economic analysis of law in an effort to "protect their intellectual turf from trespass by economists").
94. See, e.g., Linzer, supra note 11, at 112-13; Shiffrin, supra note 11, at 722.
95. Linzer, supra note 11, at 116 n.18 ("Even in the commercial setting, efficiency analysis may offer false guidance because of the law's failure to compensate a victim of breach for all his transaction costs.").
96. Casebook treatment demonstrates that teaching interest exists. See, e.g., RENDLEMAN, supra note 59, at 599-604 (exploring "efficient-opportunistic breach," outlining arguments for and against efficient breach, and ultimately querying whether wealth maximization sufficiently justifies breach given that counter ethical commitments may exist).
97. See, e.g., Richard Craswell, Contract Remedies, Renegotiation, and the Theory of Efficient Breach, 61 S. CAL. L. REV. 629 (1988);
98. Daniel A. Farber, Reassessing the Economic Efficiency of Compensatory Damages for Breach of Contract, 66 VA. L. REV. 1443 (1980);
99. James Gordley, A Perennial Misstep: From Cajetan to Fuller and Purdue to "Efficient Breach, " in ISSUES IN LEGAL SCHOLARSHIP SYMPOSIUM: FULLER AND PURDUE (2001), available at http://www.bepress.com/ils/issl/art4/.
100. See, e.g., Kar, supra note 83, at 1009 (maintaining that "the law and economics movement cannot account for the very features of private law obligations that make them private obligations" and advocating abandoning the law and economics conception in favor of a position that "takes more seriously the second-personal aspects [such as agent-centered and relational features] of our private legal interactions with one another"). But cf. Alan Schwartz & Robert E. Scott, Contract Theory and the Limits of Contract Law, 113 YALE L.J. 541, 543 (2003) ("Contract law has neither a complete descriptive theory, explaining what the law is, nor a complete normative theory, explaining what the law should be.").
101. See, e.g., Patricia H. Marschall, Willfulness: A Crucial Factor in Choosing Remedies for Breach of Contract',24 ARIZ. L. REV. 733 (1982) (advocating that individuals ought to keep promises).
102. See, e.g., Goetz & Scott, supra note 9, at 558.
103. Schwartz & Scott, supra note 89, at 549-56 (justifying an efficient theory of contract law and defending the goal of "welfare- maximization norm as applied to the contracts of sophisticated actors").
104. Eastern S.S. Lines, Inc. v. United States, 112 F. Supp. 167, 176 (Ct. Cl. 1953) (permitting the promisor to breach efficiently by paying money damages and maintaining a profit). See also N. Ind. Pub. Serv. Co. v. Carbon County Coal Co., 799 F.2d 265, 279-80 (7th Cir. 1986) (Posner, J.) (exploring a seller's efficient breach).
105. W. DAVID SLAWSON, BINDING PROMISES 122 (1996) (noting further that contract law should not countenance punitive damages because breaching parties "have done nothing wrong if they pay full compensation").
106. CHARLES FRIED, CONTRACT AS PROMISE: A THEORY OF CONTRACTUAL OBLIGATION 2 (1981). As Professor Fried eloquently articulates, What is a promise, that by my words I should make wrong what before was morally indifferent? A promise is a communication-usually verbal; it says something. But how can my saying something put a moral charge on a choice that before was morally neutral? Well, by my misleading you, or by lying. Is lying not the very paradigm of doing wrong by speaking? But this won't do, for a promise puts the moral charge on a potential act the wrong is done later, when the promise is not kept-while a lie is a wrong committed at the time of its utterance. Both wrongs abuse trust, but in different ways. When I speak I commit myself to the truth of my utterance, but when I promise I commit myself to act, later. Id. at 9 (emphasis added and omitted).
107. See, e.g.. Mills v. Wyman, 20 Mass. (3 Pick.) 207 (Mass. 1825). But see Webb v. McGowin, 168 So. 196, 197 (Ala. Ct. App. 1935) (enforcing the promise on the theory of the promisor having received a "material benefit").
108. See Weinrib, supra note 45, at 80 ("The nature of the required performance is defined by the contract between the parties and has no juridical existence independent of their relationship. The contract imposes an obligation to perform, that is, to do or abstain from doing a particular act, which is personal to the promisor. Although the promisor can act inconsistently with the contractual obligation and breach it, the breach is not an alienation. The relationship of entitlement and obligation as between the parties remains intact.").
109. See Shiffrin, supra note 11, at 722 (noting that the moral requirement to keep one's promise through performance remains even if the promisor pays expectancy damages). A proponent of efficient breach theory might argue that advancing social welfare and optimizing resource allocation are moral ends and should trump the moral intuition to keep one's word. See, e.g., BOUDREAUX, supra note 84, at 268-69 (advocating efficiency and wealth maximization as moral qualities).
110. Boudreaux, supra note 84, at 267 ("Is it not plausible that two parties to a potential contract both prefer, ex ante, that the law allows one or both of the parties to breach and pay damages?").
111. Holmes, supra note 1, at 462. Professor Gilmore elaborates on Justice Holmes's reasoning regarding limiting liability in contract law versus tort: Liability, although absolute-at least in theory-was nevertheless, to be severely limited. The equitable remedy of specific performance was to be avoided so far as possible-no doubt we would all be better off if Lord Coke's views had prevailed in the seventeenth century and the equitable remedy had never developed at all. Money damages for breach of contract were to be "compensatory," never punitive; the contract-breaker's motivation, Holmes explained, makes no legal difference whatever and indeed every man has a right "to break his contract if he chooses"-that is, a right to elect to pay damages instead of performing his contractual obligation. Therefore the wicked contract-breaker should pay no more in damages than the innocent and the pure in heart. The "compensatory" damages, which were theoretically recoverable, turned out to be a good deal less than enough to compensate the victim for the losses which in fact he might have suffered. Damages in contract, it was pointed out, were one thing and damages in tort another; the contract-breaker was not to be held responsible, as the tortfeasor was, for all the consequences of his actions. GRANT GILMORE, THE DEATH OF CONTRACTS 14-15 (1974).
112. See id. at 17. Regarding contract law's purposefully circumscribed stance on liability, Professor Gilmore forcefully maintains that The theory [of contract law] seems to have been dedicated to the proposition that, ideally, no one should be liable to anyone for anything. Since the ideal was not attainable, the compromise solution was to restrict liability within the narrowest possible limits. Within those limits, however, liability was to be absolute: as Holmes put it, "The only universal consequence of a legally binding promise is, that the law makes the promisor pay damages if the promised event does not come to pass." Id. at 14 (footnotes omitted).
113. RESTATEMENT (THIRD) OF RESTITUTION AND UNJUST ENRICHMENT §39 cmt. a, at 5-6 (Tentative Draft No. 4,2005) (emphasizing further that Holmes's "observation is most accurate in those transactional contexts where damages can be calculated with relative
114. Of course, this sentiment echoes more generally the positivist tradition. "Legal positivists from John Austin to Holmes (and Holmes's alter ego, John Gray) to Hans Kelsen to H.L.A. Hart have, despite their differences, treated the separation of law and morals as the defining characteristic of positivism." Albert W. Alschuler, The Descending Trail: Holmes' Path of the Law One Hundred Years Later, 49 FLA. L. REV. 353, 380-81 (1997). In Alschuler's biography of Holmes, Law without Values: The Life, Work, and Legacy of Justice Holmes, he attacks Holmes's most famous essay, The Path of the Law. See also Mathias Reimann, Horrible Holmes, 100 MICH. L. REV. 1676, 1679 (2002) ("The whole piece is full of ill-considered and implausible statements, and Alschuler finds virtually nothing to be said in its favor."). Alschuler notes: "We have walked Holmes's path and have lost our way." ALBERT W. ALSCHULER, LAW WITHOUT VALUES: THE LIFE, WORK, AND LEGACY OF JUSTICE HOLMES 187 (2000). Professor Reimann believes that Professor Alschuler's book critique of Holmes serves as a "valuable reminder" that "if American legal culture continues to revere a Nietzchean nihilist, a power-addicted war enthusiast, and an emotional cripple without sympathy for the underdog, it is flirting with moral bankruptcy." Reimann, supra, at 1689. But cf. Patrick J. Kelley, A Critical Analysis of Holmes's Theory of Contract, 75 NOTRE DAME L. REV. 1681, 1691 (2000) ("Holmes's general theory of civil and criminal liability was evolutionary.").
115. "If you commit a contract, you are liable to pay a compensatory sum unless the promised event comes to pass, and that is all the difference" between the remedy for contract and tort liability. Holmes, supra note 1, at 462. According to Professor Grant Gilmore, "Holmes sharply distinguished between contract and tort-vastly expanding the domain of contract at the expense of tort." Grant Gilmore, Some Reflections on Oliver Wendell Holmes, Jr., 2 GREEN BAG 2D 379, 389 (1999).
116. See, e.g., JOHN P. DAWSON, WILLIAM BURNETT HARVEY & STANLEY D. HENDERSON, CONTRACTS: CASES & COMMENT 35-37 (8th ed. 2003). Notably, the new edition diminishes Justice Holmes's excerpt and includes some qualification: "Holmes captures in this passage the idea that someone who breaks a legally enforceable promise is, in the usual case, obliged only to pay compensation. Holmes, however, offers no justification for the rule, identifies no qualifications or exceptions, and does not explain what it means 'to pay a compensatory sum.'" JOHN P. DAWSON, WILLIAM BURNETT HARVEY, STANLEY D. HENDERSON, & DOUGLAS G. BAIRD, CONTRACTS: CASES & COMMENT 1 (9th ed. 2008).
117. West, supra note 2, at 810 (emphasis added).
118. Id.
119. Breach may entail both moral and legal consequence, and, through enforcement, the law of contract may reaffirm freedom. See FRIED, supra note 95, at 132 ("The law of contracts, just because it is rooted in promise and so in right and wrong, is a ramifying system of moral judgments working out the entailments of a few primitive principles-primitive principles that determine the terms on which free men and women may stand apart or combine with each other. These are indeed the laws of freedom.").
120. West, supra note 2, at 810. This free choice model is not without controversy. See Joseph M. Perillo, Misreading Oliver Wendell Holmes on Efficient Breach and Tortious Interference, 68 FORDHAM L. REV. 1085, 1087 (2000) (arguing that the proper interpretation of Holmes's view is one where "breach of a contract was as much an offense against the law-a legal wrong-as a tort, not the free choice that the misinterpreters of Holmes believe he advocated"). Significant questions remain regarding the proper interpretation of Holmes. Regardless of the exact contours of Holmes's intended meaning, canons of legal scholarship and conclusions purportedly flowing from the Holmesian choice model premise have permeated contract legal doctrine.
121. See Acme Mills & Elevator Co. v. Johnson, 133 S.W. 784 (Ky. 1911).
122. Id.
123. The phrases "quasi-contract" and "contract-implied-in- law" are fraught with peril, yet their use persists in contract law. See RENDLEMAN, supra note 59, at 400-01.
124. Interestingly, Justice Holmes noted that -[flor the rational study of the law the black-letter man may be the man of the present, but the man of the future is the man of statistics and the master of economics.'" Martha Minow, The Path as Prologue, 110 HARV. L. REV. 1023, 1024 n.l (1997) (quoting Holmes's writings). Professor Minow writes in a hypothetical memorandum to Justice Holmes that many members of the law and economics movement, beginning in the 1960s, "avidly claim your work as their inspiration, and with good reason." Id. at 1024. According to Professor Gary Minda, Judge Posner views Holmes as "the first serious legal scholar to attempt to overcome the predicaments of legal modernism... in getting legal thinkers to shift their attention from Langdell's theory of 'law as a science.'" Gary Minda, One Hundred Years of Modern Legal Thought: From Langdell and Holmes to Posner and Schlag, 28 IND. L. REV. 353, 377 (1995).
125. West supra note 2, at 810-11. It may not be a zero-sum game to all. Reflecting on Holmes s famous essay, Judge Posner offered: "Law in the recognizable sense, the sense that will eventually be superseded, is continuous with morality. It enforces a subset of moral duties that is determined by considerations of feasibility and by the cost and efficacy of alternative methods for securing compliance. So it enforces some but not all promises.... Still, law is saturated with moral terms." Richard A. Posner, The Path of the Law after One Hundred Years: The Path Away from the Law, 110 HARV. L. REV. 1039, 1040 (1997).
126. West, supra note 2, at 812.
127. Id. at 811.
128. Id. at 812.
129. Id.
130. Id.
131. Id.
132. Detachment is neither attainable nor universally suggested, but students express that the study of contract law-its hierarchy, its doctrines, its professors, its casebooks-often devalues consideration of what the legal consequences "ought" to be unless rooted in concerns like economics, certainty, or predictability. Promissory estoppel includes a direct appeal to "justice" and comes close to promoting "keeping one's word" except that the remedy is limited to only so far as justice requires ordinarily, expectancy or reliance damages. RESTATEMENT (SECOND) OF CONTRACTS, supra note 11, § 39. It does so based on the reasonable reliance created. Further, professors and judges often lament students' and lawyers' attraction to the doctrine.
133. See, e.g., Goetz & Scott, supra note 9, at 558 (stating that efficient breach "induces a result superior to performance, since one party receives the same benefits as performance while the other is able to do even better").
134. See generally Sidney W. DeLong, The Efficiency of a Disgorgement as a Remedy for Breach of Contract, 22 IND. L. REV. 737 (1989) (providing a careful treatment of die potential efficiency of certain disgorgement remedies for breach of contract and suggesting that a narrow disgorgement might be able to achieve theoretical efficiency). Professor DeLong notes that a broad disgorgement remedy for breach of contract generally conflicts with cost avoidance goals. Id. at 751, 775. He opines that theoretical efficiency might be possible when, for example, a defendant withholds damages and a narrow disgorgement remedy permits recovery for the breaching party's benefit from withholding payment of damages as prejudgment interest. Id. at 755-60. Professor DeLong analyzes Colorado's statutory disgorgement remedy for calculating prejudgment interest and laments judicial "mutation in breach of contract cases" in which courts have "forced defendants to disgorge the benefits that they have realized by reallocating performance resources rather than the benefits they have realized by withholding the damages payments." Id. at 761. He concludes that the significant problems of calculating benefits, as demonstrated by Colorado's unwarranted extension of the remedy, cast doubt on disgorgement's utility in contract law. Id. at 775.
135. RESTATEMENT (THIRD) OF RESTITUTION AND UNJUST ENRICHMENT § 39 cmt. i, at 25 (Tentative Draft No. 4, 2005).
136. DOUGLAS LAYCOCK, MODERN AMERICAN REMEDIES 389 (3d ed. 2002) [hereinafter LAYCOCK, REMEDIES].
137. RESTATEMENT (THIRD) OF RESTITUTION AND UNJUST ENRICHMENT § 39 cmt. i, at 26.
138. Id.
139. Id.
140. Id. (emphasis added).
141. See DeLong, supra note 123, at 751 (suggesting that "disgorgement can be more efficient than expectation damages when the promisor's inability to recover the full amount of expectation loss creates incentives for the promisor to engage in certain types of inefficient, opportunistic behavior").
142. RESTATEMENT (THIRD) OF RESTITUTION AND UNJUST ENRICHMENT § 39 cmt. g, at 21.
143. Id. § 39(3) ("A breach is 'profitable' when it results in gains to the defaulting promisor (net of potential liability in damages) greater than the promisor would have realized from performance of the contract.").
144. Id. cmt. g, at 21. His formulization would exclude the earlier wheat hypothetical, supra Part IV.A., even though the breach would be "deliberate" and "profitable." Under section 39 properly construed, the restitutionary disgorgement remedy would be unavailable assuming a viable market substitute exists because then the buyer's entitlement will be adequately protected by the ordinary damage remedy.
145. Id. cmt. g, at 22.
146. Id. cmt. g, illus. 13, at 23-24 (emphasis added).
147. Id. cmt. i, at 26.
148. Id. § 39(2)(c)(i)-(ii)
149. Id.
150. Possibly if the plaintiff had rejected the nonconforming goods, the plaintiff could have used the $10,000 plus the contract amount the plaintiff was willing to pay to obtain a substitute transaction. Under this view, the compensatory remedy is hypothetically, but not actually, adequate.
151. Id., cmt. g, at 22.
152. For creation and articulation of the least cost avoider doctrine, see, for example, GUIDO CALABRESI, THE COSTS OF ACCIDENTS: A LEGAL AND ECONOMIC ANALYSIS 138-52 (1970); Guido Calabresi, Optimal Deterrence and Accidents, 84 YALE L.J. 656, 666-67 (1975); Guido Calabresi & Jon T. Hirschoff, Toward a Test for Strict Liability in Torts, 81 YALE L. J. 1055, 1070 (1972).
153. LAYCOCK, supra note 125, at 392.
154. Id. (quoting POSNER, supra note 77, § 4.8, at 130-31) (emphasis added).
155. Id.
156. Id.
157. See FRIED, supra note 95, at 10 ("But where is the injustice if I honestly intend to keep my promise at the time of making it, and later change my mind? If we feel I owe you recompense in that case too, it cannot be because of the benefit I have obtained through my promise.... If I owe you a duty to return that benefit it must be because of the promise. It is the promise that makes my enrichment at your expense unjust, and not the enrichment that makes the promise binding. And thus neither the statement of intention nor the benefit explains why, if at all, a promise does any moral work.").
158. Section 39's rationale raises potential implications that may require further line-drawing with respect to the non-breaching party as well. To what extent should we impose obligations on the nonbreaching party? The non-breaching party has a duty to mitigate damages, which has economic, as well as self-help, justifications. See Caprice L. Roberts, Restitutionary Disgorgement for Opportunistic Breach of Contract and Mitigation of Damages, 42 LOY. L.A. L. REV. 131 (2008) (maintaining that mitigation principles should serve as a prerequisite for seeking restitutionary disgorgement relief), available at http://papers.ssrn.com/sol3/papers. cfm7abstract-id=1152303. If read as an effort to enforce moral norms about promising, would section 39 impose any additional obligations on me non-breaching party? More precisely, through the lens of morality, why not ask whether, in certain circumstances, the non-breaching party should have a legal obligation to revisit the fit of the contractual bargain for both parties and consider releasing the other party or renegotiating the now 'unfair' terms in light of changes of circumstance. In some bargains, parties negotiate up front and calibrate risks for the long term. In other scenarios, one party may become dissatisfied with how the bargain unfolds in light of unforeseen, or not fully appreciated, circumstances. Disgorgement for opportunistic breach shines a moral light on the breaching party. This light may well shine beyond its intended target.
159. LAYCOCK, supra note 125, at 392.
160. Id.
161. Daniel Friedmann, The Efficient Breach Fallacy, 18 J. LEGAL STUD. 1, 3-4 (1989).
162. See, e.g., Linzer, supra note 11, at 118-21 (criticizing the economic assumption regarding a hypothetical world in which transaction costs do not exist). Cf. Ian R. Macneil, Efficient Breach of Contract: Circles in the Sky, 68 VA. L. REV. 947, 954 n.28 (1982).
163. See, e.g., Friedmann, supra note 150, at 13-18 (questioning the plausibility of the efficient breach model given its amoral perspective).
164. To some extent, courts use this proxy in cases where Professor Kull would not intend that section 39 apply. See, e.g., Roth v. Speck, 126 A.2d 153 (D.C. 1956) (awarding the employer the profit differential earned by the breaching employee from the new employer, effectively stripping the monetary benefit, and eliminating the potential for an efficient breach).