The correspondence of contract and promise

Columbia Law Review

Volumn 109, Issue 7, 2009, Pages 1603-1649

  Kraus, Jody S ^a  

^a NONE

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EID: 70849134262     PISSN: 00101958     EISSN: None     Source Type: Journal    
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References (188)

1. Charles Fried, Contract as Promise 1 (1981) [hereinafter Fried, Contract as Promise] ("The promise principle, which in this book I argue is the moral basis of contract law, is that principle by which persons may impose on themselves obligations where none existed before.");
2. id. at 40 (stating thesis that contract is "grounded in the primitive moral institution of promising").
3. "The regime of contract law, which respects the dispositions individuals make of their rights, carries to its natural conclusion the liberal premise that individuals have rights. And the will theory of contract, which sees contractual obligations as essentially selfimposed, is a fair implication of liberal individualism."
4. Id. at 2.
5. See, e.g., Dori Kimel, From Promise to Contract: Toward a Liberal Theory of Contract 89-115 (2003) (using correspondence account to raise moral objection to alleged divergence, but offering response to defeat objection);
6. Seana Shiffrin, The Divergence of Contract and Promise, 120 Harv. L. Rev. 708 (2007) [hereinafter Shiffrin, Divergence]. Shiffrin's critique has sparked a debate among legal scholars and philosophers.
7. For responses to Shiffrin's article, see Jeffrey M. Lipshaw, Objectivity and Subjectivity in Contract Law: A Copernican Response to Professor Shiffrin, 21 Can. J.L. & Jurisprudence 399 (2008);
8. Michael G. Pratt, Contract: Not Promise, 35 Fla. St. U. L. Rev. 801 (2008) [hereinafter Pratt, Contract: Not Promise];
9. Charles Fried, The Convergence of Contract and Promise, 120 Harv. L. Rev. F. 1 (2007), at http://www.harvardlawreview.org/ forum/issues/120/jan07/cfried. pdf (on file with the Columbia Law Review);
10. Barbara H. Fried, What's Morality Got to Do with It?, 120 Harv. L. Rev. F. 53 (2007), at http:// www.harvardlawreview.org/forum/issues/120/jan07/bfried. pdf (on file with the Columbia Law Review);
11. Liam Murphy, Contract and Promise, 120 Harv. L. Rev. F. 10 (2007), at http:/ /www.harvardlawreview.org/forum/issues/120/jan07/lmurphy.pdf (on file with the Columbia Law Review);
12. see also Brian H. Bix, Contract Rights and Remethes, and the Divergence Between Law and Morality, 21 Ratio Juris 194-95 (2008) (claiming that wide jurisdictional variance of contract remethes establishes "central difference between promises in morality and enforceable agreements in law").
13. Notably, Fried himself does not take exception to the expectation damage default remedy, instead maintaining that "[i]f I make a promise to you, I should do as I promise; and if I fail to keep my promise, it is fair that I should be made to hand over the equivalent of the promised performance." Fried, Contract as Promise, supra note 1, at 17. Other scholars disagree, arguing that Fried should endorse expectancy only if specific performance is not possible.
14. See, e.g., Kimel, supra note 3, at 95-96;
15. Peter Benson, The Idea of a Public Basis of Justification for Contract, 33 Osgoode Hall L.J. 273, 291-93 (1995);
16. Thomas M. Scanlon, Promises and Contracts, in The Theory of Contract Law: New Essays 86, 92 (Peter Benson ed., 2001).
17. See Restatement (Second) of Contracts §344(a) & cmt. a (1981) ("Ordinarily, when a court concludes that there has been a breach of contract, it enforces the broken promise by protecting the expectation that the injured party had when he made the contract. . . . The interest protected in this way is called the 'expectation interest.'");
18. E. Allan Farnsworth, Farnsworth on Contracts §12.1, at 149-50 (3d ed. 2004) (discussing expectation damages as ordinary remedy for contract breach). Indeed, the expectation damages default rule led Oliver Wendell Holmes, Jr., to claim famously that the legal duty to keep a contract is "a prediction that you must pay damages if you do not keep it,-and nothing else."
19. Oliver Wendell Holmes, Jr., The Path of the Law, 10 Harv. L. Rev. 457, 462 (1897) [hereinafter Holmes, Path of the Law]. Holmes also famously claimed that "[t]he 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."
20. Oliver Wendell Holmes, Jr., The Common Law 301 (Little Brown 1963) (1881). If Holmes is right, then contract law converts the promissory obligation to do X into the contractual duty to do X or pay damages.
21. See, e.g., Douglas Laycock, The Death of the Irreparable Injury Rule 245-64 (1991) (discussing views of Holmes and Posner on efficient breach, and analyzing theory from economic and normative perspectives);
22. W. David Slawson, Binding Promises 122 (1996);
23. John H. Barton, The Economic Basis of Damages for Breach of Contract, 1 J. Legal Stud. 277, 291 (1972) (noting that "[c]ompletion of a contract according to its terms is often not optimal" and hypothesizing that at times "simplicity and certainty are more valuable than allocative perfection" (emphasis omitted));
24. Robert L. Birmingham, Breach of Contract, Damage Measures, and Economic Efficiency, 24 Rutgers L. Rev. 273, 284-85 (1969) (arguing it would be socially desirable to encourage "[repudiation of obligations . . . where the promisor is able to profit from his default" after paying expectation damages);
25. Richard R.W. Brooks, The Efficient Performance Hypothesis, 116 Yale L.J. 568, 570-73 (2006) (discussing benefits of allocative efficiency promoted by efficient breach theory, and suggesting modified "efficient performance" theory);
26. Richard Craswell, Contract Remedies, Renegotiation, and the Theory of Efficient Breach, 61 S. Cal. L. Rev. 629, 636-38 (1988) [hereinafter Craswell, Contract Remedies] (discussing efficient breach in light of goal of contract damages-to give compensation);
27. Daniel Friedmann, The Efficient Breach Fallacy, 18 J. Legal Stud. 1, 4 (1989) (arguing that "[t]he essence of the theory is 'efficiency'" and pointing out that "[i]t is not explained why opportunistic breaches should be discouraged even if they are efficient");
28. Daniel Friedmann, The Performance Interest in Contract Damages, 111 L.Q. Rev. 628, 628, 632 (1995) (pointing out that idea of restitution interest has become widespread in American legal discourse);
29. Ian R. Macneil, Efficient Breach of Contract: Circles in the Sky, 68 Va. L. Rev. 947, 947-950 (1982) (noting that "[t]he doctrine of efficient breach is enshrined in the bible of law and economics" and suggesting ways to strengthen it).
30. For a response to Brooks, see Jody S. Kraus, A Critique of the Efficient Performance Hypothesis, 116 Yale L.J. Pocket Part 423 (2007), at http://www.thepocketpart.org/2007/07/23/kraus.html (on file with the Columbia Law Review) (arguing that Brooks's theory is supported by unmotivated moral objections, and is likely to be less efficient than expectation damages).
31. For Brooks's response, see Richard R.W. Brooks, What Efficiency Demands: The Efficient Performance Hypothesis Defended, 117 Yale L.J. Pocket Part 14 (2007), at http://www. thepocketpart.org/2007/07/24/brooks.html (on file with the Columbia Law Review).
32. These include the bar on punitive damages, the liquidated damages doctrine, the mitigation doctrine, the foreseeability doctrine governing consequential damages, the consideration doctrine, and promissory estoppel. See infra Part II (analyzing claims of perceived divergence with respect to these doctrines).
33. For Shiffrin, contract law violates three requirements of moral agency: First, what legal rules directly require agents to do or to refrain from doing should not, as a general matter, be inconsistent with leading a life of at least minimal moral virtue- Second, the law and its rationale should be transparent and accessible to the moral agent Moreover, their acceptance by the agent should be compatible with her developing and maintaining moral virtue- Third, the culture and practices facilitated by law should be compatible with a culture that supports morally virtuous character. Even supposing that law is not responsible for and should not aim to enforce virtuous character and interpersonal moral norms, the legal system should not be incompatible with or present serious obstacles to leading a decent moral life.
34. Shiffrin, Divergence, supra note 3, at 718-719
35. Fried finds correspondence between contract and promise, however, only by literally defining contract as the body of law that enforces promises. For Fried, any alleged divergence between a contract doctrine and promise requires reclassification of that doctrine under noncontract law, even if the doctrine is widely regarded as a core component of contract law. For example, Fried jettisons the doctrine of consideration entirely. See, e.g., Fried, Contract as Promise, supra note 1, at 28-39 ("My conclusion is ... that the doctrine of consideration offers no coherent alternative basis for the force of contracts, while still treating promise as necessary to it.").
36. Fried also reclassifies as part of tort law any contractual liability predicated on objective intention or reliance: Another of the classical law's evasions of the inevitability of using noncontractual principles to resolve failures of agreement is recourse to the so-called objective standard of interpretation. In the face of a claim of divergent intentions, the court imagines that it is respecting the will of the parties by asking what somebody else, say the ordinary person, would have intended by such words of agreement. This . . . palpably involves imposing an external standard on the parties. [This approach has] its origin in nonpromissory standards of justice . . . . Fried, Contract as Promise, supra note 1, at 61. At first glance the distinction between promissory obligation and obligation based on reliance may seem too thin to notice, but indeed large theoretical and practical matters turn on that distinction. To enforce a promise as such is to make a defendant render a performance (or its money equivalent) just because he has promised that very thing. The reliance view, by contrast, focuses on an injury suffered by the plaintiff and asks if the defendant is somehow sufficiendy responsible for that injury that he should be made to pay compensation.
37. Id. at 4;
38. see also Jody S. Kraus, Philosophy of Contract Law, in The Oxford Handbook of Jurisprudence and Philosophy of Law 687, 703-732 (Jules Coleman & Scott Shapiro eds., 2002) [hereinafter Kraus, Philosophy of Contract Law] ("Fried's principal motivation is to support his normative claim that contract law is morally justified because it legally enforces the moral obligation to keep promises.").
39. Fried concedes that contract law imposes liability for merely objective promises. See Fried, Contract as Promise, supra note 1, at 61 (citing Oliver Wendell Holmes, Jr., The Common Law 230 (M. Howe ed., Harvard Univ. Press 1963) (1881);
40. Samuel Williston, A Treatise on the Law of Contract §94, at 339 (Walter H.E. Jaeger ed., Mt. Kisco 1957) (1936) (asserting that contractual intent is objective). But he claims that because liability based solely on objective intent is grounded on nonpromissory principles, it is not genuinely contractual. See infra note 36.
41. Feinberg takes the metaphor seriously: "The politically independent state is said to be sovereign over its own territory. Personal autonomy similarly involves the idea of having a domain or territory in which the self is sovereign." 3 Joel Feinberg, The Moral Limits of the Criminal Law: Harm to Self 52 (1986).
42. Feinberg invokes the personal sovereignty conception of autonomy as a normative basis for limiting the exercise of political coercion, rather than as an independent principle of morality. Yet if personal sovereignty provides a normativer/ compelling ground for limiting political coercion, it must also constitute a fundamental value in any plausible overall theory of morality.
43. See generally id. at 52-97.
44. Id. at 68 (emphasis omitted). Similarly, Feinberg states that "[t]he kernel of the idea of autonomy is the right to make choices and decisions . [T]he most basic autonomy- right is the right to decide how one is to live one's life." Id. at 54. As Joseph Raz describes it: The ruling idea behind the ideal of personal autonomy is that people should make their own lives. The autonomous person is a (part) author of his own life. The ideal of personal autonomy is the vision of people controlling, to some degree, their own destiny, fashioning it through successive decisions throughout their lives. Autonomy is an ideal of self-creation. Joseph Raz, The Morality of Freedom 369-70 (1986) [hereinafter Raz, Morality of Freedom]. The personal sovereignty conception of autonomy itself is neutral on the question of how morality determines what moral agents ought to do, all things considered. Of course, there is a rich body of literature exploring competing conceptions of personal autonomy and debating their role in moral theory. See, e.g., Nomy Arpaly, Unprincipled Virtue 117-48 (2003).
45. See John Rawls, Political Liberalism 19 (1993) (arguing that individuals have capacity for conception of the good, which is capacity "to form, to revise, and rationally pursue a conception of one's rational advantage or good"). Similarly, Rawls famously held that moral persons properly "regard themselves as self-authenticating sources of valid claims."
46. Id. at 32.
47. See infra notes 23-26 (discussing distinction between moral duty and moral obligation).
48. These ends can be self-regarding or other-regarding. See infra note 35 and accompanying text.
49. Note that despite Fried's insistence that contract law is justified because it enforces promissory obligations, he nevertheless concedes that contract law cannot justifiably enforce promises intended not to be legally enforceable. See infra note 21.
50. See, e.g., Shiffrin's discussion of contract law and morality: If contract law ran parallel to morality, then contract law would-as the norms of promises do-require that promisors keep their promises as opposed merely to paying off their promises. The only difference is that it would require this as a legal, and not merely a moral, matter. Contract law, however, diverges from morality in this respect. Contract law's dominant remedy is not specific performance but expectation damages. Shiffrin, Divergence, supra note 3, at 722-723 But see Kimel, supra note 3, at 89 (discussing "the apparent discord between the view that the core contractual right and obligation are performance, and the remedial rights that are in practice recognised").
51. See supra notes 1-2 and accompanying text.
52. See supra note 8.
53. The most obvious political theory is legal moralism, which holds that the state is justified in enforcing morality generally. See, e.g., Patrick Devlin, The Enforcement of Morals 12-13, 59 (1965) (arguing State may "legislate against immorality" to protect against disintegration that occurs "when no common morality is observed" and "[t]he law needs moral support and in return it must be prepared to support public morality"). However, there are well- known objections to legal moralism.
54. See, e.g., H.L.A. Hart, Law, Liberty, and Morality 50-52 (1962) (arguing Devlin wrongly assumes "that a society is identical with its morality as that is at any given moment of its history, so that a change in its morality is tantamount to the destruction of society");
55. Ronald Dworkin, Lord Devlin and the Enforcement of Morals, 75 Yale LJ. 986, 992 (1966) ("[Devlin's] argument involves an intellectual sleight of hand."). Given these objections, strong correspondence accounts might rely on other political theories that provide a deeper and more limited justification for state enforcement of morality, such as corrective justice theories or Lockean/ libertarian theories.
56. For a discussion of corrective justice theories, see generally Jules L. Coleman, The Practice of Principle 3-63 (2001) (discussing "the relationship between tort law and our redistributive institutions, and between the principles of corrective and distributive justice").
57. For a discussion of Lockean/libertarian theory, see generally A. John Simmons, On the Edge of Anarchy 5 (1993) (discussing Locke's idea of "political relationship .. . [as] a particular kind of moral relationship among free persons, based in consent and consisting of a certain mutuality of rights and obligations");
58. A. John Simmons, Political Philosophy 89-94 (2008) (explaining how Robert Nozick's libertarian theory builds on John Locke's political theory).
59. Fried's theory has the structure of a strong correspondence theory because he takes contract law to be justified on the grounds that it enforces promises. By that reasoning, contract law should enforce even promises intended not to be legally enforceable. But in a footnote, Fried explicidy concedes that the law should not enforce a promise that is intended not to be legally enforceable. Fried, Contract as Promise, supra note 1, at 38 n.* ("[G]iven the consensual basis of contract as promise, the parties should in principle be free to exclude legal enforcement so long as this is not a fraudulent device to trap the unwary."). Fried neither acknowledges the apparent inconsistency of his position nor explains the grounds for carving out this exception to his strong correspondence account.
60. Strong correspondence accounts presuppose that the existence and content of the moral duties enforced by tort and criminal law necessarily are determined, as a conceptual matter, prior to the legal liability that attached to them. In this respect, these correspondence views seem to have a structure that resembles the well-known correspondence theories of truth. See, e.g., George Edward Moore, Some Main Problems of Philosophy 270-87 (1953) (arguing that beliefs are true when and only when they "correspond to a fact");
61. Bertrand Russell, The Problems of Philosophy 128-29 (Oxford Univ. Press 1959) (1912) (arguing that correspondence between beliefs and objects of those beliefs "ensures truth, and its absence entails falsehood").
62. For a discussion of correspondence theories of truth, see generally Marian David, The Correspondence Theory of Truth, in The Stanford Encyclopedia of Philosophy (Edward N. Zalta ed., 2002), at http://plato.starďord.edu/ entries/truth-correspondence/#l (on file with the Columbia Law Review).
63. However, some philosophers explicidy deny that any theory that justifies legal liability on the ground that it enforces moral duties must treat those moral duties as conceptually determined prior to the attachment of legal liability. Although Jules Coleman's corrective justice account of tort law claims that tort law can be explained and justified on the ground that it enforces a certain class of moral duties, he denies that the full content of those duties is determined, as a conceptual matter, before legal liability attaches to them. Instead, he argues that tort law itself necessarily assigns additional content to the moral duties it enforces in the course of their adjudication. For Coleman's view, see Coleman, supra note 20, at 32 (arguing that "corrective justice is an account of the second-order duty of repair" incurred when someone has wronged another to whom he owes duty of care, but in itself does not provide full account of all first-order duties protected in tort law).
64. For my argument against Coleman's view, see Jody S. Kraus, Transparency and Determinacy in Common Law Adjudication: A Philosophical Defense of Explanatory Economic Analysis, 93 Va. L. Rev. 287, 313-20 (2007) (arguing that Coleman's corrective justice theory "leaves the central concepts of tort law largely indeterminate").
65. For example, Fried's contract as promise view holds that contract law can be explained and justified on the ground that it legally enforces individual moral responsibilities. In particular, his view holds that contract law enforces the moral obligation to keep a promise, which itself is grounded in respect for individual autonomy. Fried, Contract as Promise, supra note 1, at 16 ("The obligation to keep a promise is grounded... in respect for individual autonomy and in trust."). Fried argues that contract law, by definition, enforces promises. He therefore concludes that any doctrine that fails to enforce a promise, or imposes nonpromissory liability, is either erroneous law or noncontract law.
66. See Kraus, Philosophy of Contract Law, supra note 9, at 706 ("Fried's claim is that all and only those cases decided on the basis of a doctrine supportable by the promise principle qualify as genuine contracts cases. If they can't be supported by the promise principle, they are either defensible as non-contract cases, or indefensible because incoherent."); infra notes 30, 36-37 and accompanying text
67. See H.L.A. Hart, Legal and Moral Obligation, in Essays in Moral Philosophy 82, 101-03 (A.I. Melden ed., 1958) (stating obligations are "deliberately created" and moral duties "are not conceived of as truly created by the deliberate choice of the individual");
68. see also A. John Simmons, Moral Principles and Political Obligations 11-16 (1979) (stating that term duty is used "independent of any institutional setting or special role" and that "[a]n obligation is a moral requirement generated by the performance of some voluntary act (or omission)");
69. R.B. Brandt, The Concepts of Obligation and Duty, 73 Mind 374, 375 (1964) ("[According to Hart, w]hat distinguishes obligations from duties is that 'they may be voluntarily incurred or created' (whereas duties arise from position, status, role), and that 'they are owed to special persons (who have rights).'").
70. More generally, moral duties provide "content-dependent" reasons for action, while obligations provide "content-independent" reasons for action. The distinction originates with H.L.A. Hart, who explains that "content-independence" is a term used to differentiate the notion of obligation from the general notion of what morally 'ought' to be done. Content-independence of commands lies in the fact that a commander may issue many different commands to the same or to different people and the actions commanded may have nothing in common, yet in the case of all of them the commander intends his expressions of intention to be taken as a reason for doing them. It is therefore intended to function as a reason independendy of the nature or character of the actions to be done. In this of course it differs strikingly from the standard paradigmatic cases of reasons for action where between the reason and the action there is a connection of content there the reason may be some valued or desired consequence to which the action is a means,... or it may be some circumstance given which the action functions as a means to such a desired consequence (my reason for shutting the window was that I felt cold).
71. H.L.A. Hart, Essays on Bentham 254-55 (1982) [hereinafter Hart, Essays on Bentham];
72. see also Leslie Green, The Authority of the State 41-51 (1988) ("When we keep promises, . we often feel that the force of reasons on which we act does not wholly depend on the content of the specific promise . . . which was made.");
73. Raz, Morality of Freedom, supra note 12, at 35 ("A reason is content-independent if there is no direct connection between the reason and the action for which it is a reason.").
74. See, e.g., Michael Pratt, Promises, Contracts and Voluntary Obligations, 26 Law & Phil. 531, 533 (2007) ("An obligation is voluntary in the voluntarist sense if and only if it rests for its validity on the intention of the obligor to acquire it, which intention counts as a positive reason in favor of its imposition.");
75. Joseph Raz, Promises and Obligations, in Law, Morality and Society: Essays in Honour of H.L.A. Hart 210, 218 (P.M.S. Hacker & J. Raz eds., 1977) ("Promises are voluntary obligations not because promising is an intentional action, but because it is the communication of an intention to undertake an obligation . To promise is, on this conception, to communicate an intention to undertake by the very act of communication an obligation to perform a certain action.").
76. But see supra note 21.
77. Indeed, philosophers have long held that obligations are distinguished from duties by virtue of content-independence. Their content is provided only by the exercise of the will of the individuals who incur them. See supra notes 24-25 and accompanying text Of course, this is not to say that morality imposes no constraints on the content of obligations that individuals may undertake. As H.L.A. Hart explained, moral duties limit the range of content individuals are morally permitted to undertake: Since we may promise to do very many different sorts of actions in no way related to each other, the giving of a promise regarded as a reason for doing the action promised has also the feature of content-independence. This is true even though the range of possible actions which one may validly promise to do is not unlimited and does not include grossly immoral actions or those intended to be harmful to the promisee. Hart, Essays on Bentham, supra note 25, at 255. Moreover, there may be some analytic limits on the extent to which individuals can exercise control over their obligations. For example, in order to undertake an obligation, an individual must subject himself to some requirement Thus, an illusory promise is no promise at all. Similarly, on P.F. Strawson's view of morality, a promisor might well lack the capacity to disclaim, so to speak, moral liability for the reactive attitudes, such as resentment, to which immoral conduct necessarily gives rise.
78. See P.F. Strawson, Freedom and Resentment, in Freedom and Resentment and Other Essays 1, 6-13 (1974) (discussing circumstances surrounding resentment).
79. In addition, morality might impose substantive constraints on the content of voluntary obligations that derive from its core principles. For example, a moral theory grounded in the personal sovereignty conception of autonomy might not countenance the voluntary forfeiture of powers or liberties that the theory treats as necessary conditions for moral agency. Thus, it might be impossible, according to such a moral theory, to voluntarily enslave oneself to another. The point, however, is that a moral theory grounded in the personal sovereignty conception of autonomy must justify any limitation it imposes on the content of the voluntary obligations moral agents can assume by arguing from the principle of personal sovereignty-the same conception of autonomy that explains the value of the category of moral obligation itself. My claim is that such theories cannot, without risking internal inconsistency, refuse to respect a promisor's intention not to subject himself to legal liability for a promissory obligation he undertakes.
80. Under the law of conditions in the First Restatement of Contracts, the promise would be subject to a condition subsequent. A condition subsequent is a condition that extinguishes a duty, which in this case would occur when the promisee seeks legal enforcement of the promise and would thereby constitute a fact that extinguishes the promissory duty (i.e., obligation). Restatement of Contracts §250 (1932). Under the Second Restatement, the promisee's seeking to enforce the promise would constitute the occurrence of an event that terminates the promisor's duty (i.e., obligation). Restatement (Second) of Contracts §230 (1981).
81. Note that individuals could also avoid legal liability for promissory moral obligations by conditioning them on the nonexistence of a law making them legally enforceable. However, this condition would disable individuals from subjecting themselves to a promissory moral obligation that persists irrespective of the state of the law. If a law making all promissory obligations enforceable is in effect at the time they make such a conditional promise, the law will constitute an event whose occurrence prevents the promissory obligation from taking moral effect. The promisor will not be bound by a promissory obligation until the law ceases to exist If the promise is made before a law making all promissory obligations enforceable is in effect, then the promisor will be bound by the promissory obligation unless and until such a law is in effect, at which time the promissory obligation will no longer be binding on the promisor. While such a conditional promise indeed does protect the promisor from the risk of being held legally liable for the promise, it does so only by preventing him from subjecting himself to a promissory obligation that necessarily binds him from the moment he makes the promise until the moment he performs the promise. Thus, the possibility that individuals can condition their promises on the nonexistence of laws making them legally enforceable does not explain how strong correspondence accounts of contract can be reconciled with ~the personal sovereignty foundation on which their justification ultimately must rely. If the only way to avoid legal responsibility for one's promises is to make them conditional on their not being legally enforceable, then the freedom of individuals to bind themselves as they see fit would be held hostage to the contingency of whether laws legally enforcing those promises are in effect. Indeed, even the risk that such laws might come into effect would contradict the personal sovereignty foundation of correspondence accounts of contract by impermissibly constricting the range of promissory moral obligations individuals can incur.
82. Restatement (Second) of Contracts §2(1).
83. See supra note 10 (discussing Fried's view of objective theory of intent);
84. see also Fried's discussion of presumed intent: [I]n contract law there is a vaguely marked boundary between interpreting what was agreed to and interpolating terms to which the parties in all probability would have agreed but did not The further courts are from the boundary between interpretation and interpolation, the further they are from the moral basis of the promise principle and the more palpably are they imposing an agreement. So as we move further from actual intention the standard of presumed intention tends to merge into the other substantive standards used to solve the problems caused by a failure in the agreement. Fried, Contract as Promise, supra note 1, at 60-61.
85. There are, however, credible interpretations of classical deontological moral theory, as well as contemporary deontological accounts of contract, that deny that contractual liability must be traced to subjective intent. See, e.g., Peter Benson, Absolute Right and the Possibility of a Nondistributive Conception of Contract Hegel and Contemporary Contract Theory, 10 Cardozo L. Rev. 1077, 1098-1099 (1989) (arguing subjective intent may change as one changes one's mind, and therefore should not impose duty to perform);
86. see also Scanlon, supra note 4, at 96 n.13 (leaving aside question of whether individual can incur genuine promissory responsibility by unintentionally giving another person "good reason to believe" he has made a promise);
87. id. at 104 n.23 (contemplating idea that objective intent might instead give rise to tort-like responsibility for reliance damages).
88. Thus, even Fried agrees that unlike silent vows, promises are by their nature and purpose relational: They take moral effect if and when they are both communicated to and accepted by the promisee. [W] hat is [the] additional element that transforms a vow or a commitment to oneself into a promise to another? . . . The case of the vow shows that a promise is something essentially communicated to someone-to the promisee . . . . A promise is relational; it invokes trust, and so its communication is essential. . . . [A] further necessary condition of promissory obligation [is] that the promise be accepted. The need for acceptance shows the moral relation of promising to be voluntary on both sides.
89. Fried, Contract as Promise, supra note 1, at 42-43.
90. By providing an individual with assurance that she will receive the promised performance, a bargained-for promise can induce the promisee to assist the promisor in pursuing his self-regarding ends, and a gift promise can induce a prospective gift recipient to beneficially rely on the prospective gift, thereby promoting the promisor's other-regarding ends by maximizing the benefit his gift confers on the recipient.
91. If accurate lie detection technology existed, or sound empirical psychology demonstrated that certain kinds of voluntary conduct were highly correlated with truthtelling, then promisors could use that technology or undertake such conduct in order to assure their promisees that they subjectively intended the apparent promises they made to them. As use of such technology or knowledge became widely dispersed, they would, in effect, eliminate the practical difference between subjective and objective promises.
92. For ease of exposition, I will use the term "apparent promisee" to refer to an individual who is justified in believing that another has made a promise to her based on that person's manifestation of an intention to make a promise, the term "apparent promisor" to refer to the person who manifests such an intention, and the term "apparent promise" to refer to the manifestation of that intention. A "merely objective promise," therefore, is one made by an apparent promisor to an apparent promisee without the subjective intent to promise.
93. Fried equivocates on the precise nature of the compensation that negligent promisors must pay to their apparent promisees. For example, Fried claims that the actual basis of liability for purely objective promises is revealed by the law's resolution of unilateral mistake cases in which one party failed to take due care: [A] s between the two parties the one who had acted reasonably and in the ordinary course should not have his expectations disappointed. He should not be disappointed because . . . if a loss is inevitable and both parties are innocent, the careless man should not be able to cast that loss on the prudent . [This reason] may be referred to consideration of fairness or to the encouragement of due care. Fried, Contract as Promise, supra note 1, at 62. Here, Fried appears to hold that the party who carelessly made a unilateral mistake should be held to the contract he did not intend to make-the innocent party should not have his "expectations" disappointed. But Fried makes clear that he believes the basis of liability in this case is necessarily noncontractual: "The futile attempt to bring these cases under the promise principle only plays into the hands of those who see nonpromissory principles of fairness at work throughout the law of contract." Id. at 63. But if the liability is noncontractual and grounded in the negligent party's failure to use due care, the appropriate remedy would be reliance damages, not expectation damages. Indeed, Fried states that "it is my contention that mistake [cases] ... are a species of accident too-contractual accident."
94. Id. at 65. If, as Fried suggests, only subjective intent can create contractual liability, then it follows that liability for a merely objective promise imposed on the basis of the apparent promisor's failure to use due care is a species of tort liability, which triggers a duty to compensate for wrongful losses, not lost expectancy.
95. Fried would treat such cases like mistake cases, in which "nonpromissory principles of fairness" apply. Id. at 63.
96. See infra Part II.
97. This would be true unless the promisor objectively promised by accident and without fault. See supra text accompanying note 39.
98. Indeed, Fried himself makes much the same argument in defense of his claim that breach of contract should trigger a duty to pay expectation rather than reliance damages: To bind me to do no more than to reimburse your reliance is to excuse me to that extent from the obligation I undertook. If your reliance is less than your expectation . . ., then to that extent a reliance standard excuses me from the very obligation I undertook and so weakens the force of an obligation I chose to assume. Since by hypothesis I chose to assume the obligation in its stronger form (that is, to render the performance promised) . . . , the reliance rule indeed precludes me from incurring the very obligation I chose to undertake at the time of promising. Fried, Contract as Promise, supra note 1, at 19.
99. David Owens rejects the view that individuals can incur a promissory obligation by making an unintentional promise. But the example on which he relies to make his point establishes only that individuals who accidentally and nonnegligendy make objective promises cannot incur a genuine promissory obligation: A and B are currendy participating in a marriage ceremony, but A is under the false impression that his old flame B is kindly standing in for his true love C at a rehearsal and that the real marriage to C will take place the next day. Suppose diere is no doubt diat A was under this misapprehension. Is he now under at least a moral obligation to B that should prevent him from marrying C the next day? A has certainly behaved in a way that could reasonably be taken to express an intention to bind himself to B, yet surely A is not obliged to forgo marriage with C. This is especially obvious where there has been no negligence on A's part.
100. David Owens, A Simple Theory of Promising, 115 Phil. Rev. 51, 60 (2006) (citing Elizabeth Anscombe, Ethics, Religion and Politics 11 (1981)).
101. On the personal sovereignty account, if A's belief was formed negligendy but B's was not, A would be subject to (the moral equivalent of) a genuine promissory obligation. (I argue below, however, that this conclusion does not entail that A would be morally required to forgo marrying C, as Owens supposes. Rather, by marrying C, A would violate his obligation to B, which would give rise to whatever remedial moral rights attach to the violation of A's obligation. See infra Part I.C. Further argument is required to establish that this remedial moral right would impose a correlative moral duty on A to forgo marrying C-a version of "injunctive" moral relief.) However, as Owens presents it, the example presents a case in which neither A's nor B's beliefs were negligendy formed: A has the objectively reasonable but mistaken belief that B understands she is a mere stand-in at a rehearsal, and B has the objectively reasonably but mistaken belief that A is actually marrying her (and is presumably making the promises required to accomplish that act). Under these circumstances, the personal sovereignty account, like Owens's account, would not impose promissory liability on A. Rather, such a "no fault" accident case would be resolved by the principles governing nonnegligent accidents contained within the comprehensive moral theory that includes but extends beyond the personal sovereignty account Notably, contract law follows suit, refusing to impose contractual liability for such objective promises and instead treating such cases as accidents that void the promises ab initio on the ground of mutual mistake.
102. See, e.g., Raffles v. Wichelhaus, (1864) 159 Eng. Rep. 375 (Exch.) (holding that no contract was formed due to contracting parties' mutual mistake that they were referring to same ship named "Peerless" when they were in fact referring to two different ships with that name);
103. Restatement (Second) of Contracts §152 (1981) (summarizing when mistake makes contract voidable). Any losses are then apportioned according to noncontract doctrines. 44. For two versions of such an approach, see generally Coleman, supra note 20, at 7-12 (explaining and endorsing "inferential role semantics");
104. Benjamin C. Zipursky, Pragmatic Conceptualism, 6 Legal Theory 457 (2000) (explaining and endorsing "pragmatic conceptualism").
105. Although Michael Pratt denies the conceptual possibility of subjectively unintended promissory obligations, he acknowledges the force of the argument for holding that individuals who make objective promises are subject to the same moral consequences of making a subjective promise: It may be that, having conveyed to you an intention to obligate myself to do X without actually possessing that intention, I become subject to the same moral requirement (to do X, say) as if I had in fact made a promise. It may be appropriate, in other words, that I be treated as if I promised despite the fact that I did not do so. An important function of the practice of promising is to provide an easy solution to small coordination problems by enabling people to provide others with reliable assurances about the future. To serve this purpose, the practice must permit one to rely on what, by outward appearances, is a promise. Reasons of this sort might plausibly provide moral grounds for requiring of me precisely what morality would require of me had I actually made a promise.
106. Pratt, Contract: Not Promise, supra note 3, at 815.
107. Two salient exceptions include the extensive philosophical literatures on the moral theory of punishment and the political theory of reparations for historical wrongs. For a discussion of the moral theory of punishment, see generally Hugo Adam Bedau, Punishment, pt 3, in The Stanford Encyclopedia of Philosophy (Edward N. ZaIta, 2003), at http://plato.stanford.edU/entries/ punishment/#3 (on file with the Columbia Law Review).
108. For a discussion of the political theory of reparations for historical wrongs, see generally Tamar Meisels, Territorial Rights (2d ed. 2009);
109. Reparations (Jon Miller & Rahul Kamar eds., 2007);
110. Jeremy Waldron, Setdement, Return, and the Supersession Thesis, 5 Theoretical Inq. L. 237 (2004);
111. Jeremy Waldron, Superseding Historic Injustice, 103 Ethics 4 (1992).
112. As we have seen, this objection presupposes a correspondence account of contract law. Otherwise, the alleged failure of contract law to enforce A's promissory obligation would not count as an objection to using expectation damages as the default remedy in contract. See supra text accompanying note 9.
113. Consider Dori Kimel's puzzlement over Fried's argument for expectation damages: [W] hen [Fried] writes that '[i]f I make a promise to you, I should do as I promise; and if I fail to keep my promise, it is fair that I should be made to hand over the equivalent of the promised performance,' his narrative only begs the question why not drop the 'equivalent of bit; and when he commends expectation damages for giving the victim of a breach . . . 'the benefit of his bargain,' specific performance springs to mind as something which, when applicable, could surely achieve this very aim more simply, more direcdy, and more accurately. After all, specific performance is the remedy that aims at granting the innocent party precisely what she bargained for, whereas expectation damages merely aim at compensating her, albeit fully, for not receiving what she bargained for. At best, ... it is a second best
114. Kimel, supra note 3, at 95.
115. In addition, once a promise has been breached, it is conceptually impossible to perform the promised act. If the time for performance has expired, specific performance cannot be understood as an equivalent to performance of the promise, but rather at most constitutes performance of the act promised. If breach is by way of anticipatory repudiation, then the repudiation breaches an implied duty not to state an unequivocal intention not to perform. Subsequent performance of the act promised still cannot qualify as performance of the promise, since its performance required nonrepudiation. Thus, specific performance does not make the promisor perform the promise, but at best makes him perform the promised act. It therefore does not correspond to the moral duty the promisor violated, which required the promisor to perform the promised act by a certain time and without repudiating before that time expired.
116. See supra Part IA for a discussion of the relationship between legal duties and first-order promissory obligations, and the argument that promissory morality would forbid the enforcement of promises intended not to be legally enforceable.
117. As noted earlier, on Strawson's view of the nature of moral discourse, it follows (from the fact that the promisor committed a moral wrong) that it is morally appropriate for the promisee to express condemnation and resentment toward the breacher and for the breacher to express regret and to apologize to the promisee. See supra note 28.
118. Of course, individual will here is to be construed objectively. See supra Part LB.
119. Shiffrin appears to reject this claim: One might attempt to recharacterize the divergent contract rules that I identify instead as rules that inform the content of what is promised between contractors. ... I doubt that one may alter by declaration or by agreement the moral significance of a broken promise . A promise may make a nonobligatory action obligatory, but only because the object of the obligation is within the promisor's power in the first place . By contrast, the power to alter the significance and appropriateness of others' reactions to a broken obligation is not within the power of the promisor. It does not seem to be the sort of thing that could be altered by consent or made part of the content of the promise. In response to another's wrong, we have the elective power to forgive, but forgiveness involves, among other things, recognition of a past wrong . Shiffrin, Divergence, supra note 3, at 727-29. Shiffrin's argument conflates two kinds of "moral significance" of broken promises. The first is the appropriateness of the promisee's reaction and the promisee's right to withhold or grant forgiveness. The second is the remedial moral duty that attaches to a promissory obligation. Perhaps, on a Strawsonian view, it is a conceptual or conventional truth that the concept of breach entails the moral right to grant or withhold forgiveness and to feel and express condemnation and contempt for the promisor. See generally Strawson, supra note 28. If so, then aggrieved promisors cannot alter the moral legitimacy of an aggrieved promisee's reactions to suffering the moral wrong of breach. That promisors lack that power, however, has no bearing on my argument that the promisor necessarily has the power to completely determine the content of the remedial moral duty that binds him upon breach.
120. The proviso accommodates the exception to promissory responsibility for merely objective promises made by accident. See supra note 43 and accompanying text
121. One exception is the so-called "information forcing" or "penalty" default rule. See Barry E. Adler, The Questionable Ascent of Hadley v. Baxendale, 51 Stan. L. Rev. 1547, 1549 (1999) (describing information
122. Ian Ayres & Robert Gertner, Filling Gaps in Incomplete Contracts: An Economic Theory of Default Rules, 99 Yale LJ. 87, 91 (1989) (explaining penalty defaults are "purposefully set at what the parties would not want-in order to encourage the parties to reveal information to each other or third parties");
123. Ian Ayres & Robert Gertner, Strategic Contractual Inefficiency and the Optimal Choice of Legal Rules, 101 Yale LJ. 729, 735-36 (1992) (noting penalty default serves as "counterexample to those who would argue that default rules should simply replicate the contracts that a majority of parties would make in the absence of transaction costs");
124. Charles J. Goetz & Robert E. Scott, The Limits of Expanded Choice: An Analysis of the Interactions Between Express and Implied Contract Terms, 73 CaI. L. Rev. 261, 263-64 (1985) (discussing interplay between default and privately negotiated rules);
125. Jason Scott Johnston, Strategic Bargaining and the Economic Theory of Contract Default Rules, 100 Yale LJ. 615, 616 (1990) (describing penalty default as forcing "revelation of information which the revealing party might generally wish not to reveal").
126. There is, however, some doubt about whether any existent default rules actually qualify as penalty defaults. See generally Eric A. Posner, There Are No Penalty Default Rules in Contract Law, 33 FIa. St. U. L. Rev. 563 (2006).
127. However, any penalty default that turns out to be economically justified on the ground that it reduces informational barriers would also enjoy the support of an autonomy-based moral theory. In addition to penalty default rules, there are also paternalistic default rules-typically designed to protect consumers-that deliberately impute nonmajoritarian terms into contracts. In some cases the terms are mandatory. In others, they are so-called "legal information forcing" rules designed to force sophisticated commercial parties to make consumers aware of their contractual rights and duties. If their purported justifications are sound, all of these alternative default rules would likely be supported by an autonomybased moral theory of promising.
128. See supra notes 10, 32 & 38.
129. Fried does argue, however, that a promissory obligation does not bind until it is accepted by the promisee, which requires the promisor to communicate it Fried, Contract as Promise, supra note 1, at 40-43. Yet he also claims that any moral responsibility that conflicts with a subjectively intended moral responsibility, or fails to correspond to one, is by definition not a promissory obligation.
130. Kraus, Philosophy of Contract Law, supra note 9, at 703-706 (outlining Fried's contract theory).
131. See Kraus, Philosophy of Contract Law, supra note 9, at 717-730 (drawing distinction between interpretation and interpolation in contract law as necessitating resolution in contract law and noncontract law, respectively, based on subjective intention of parties).
132. See supra Part I.B.
133. In addition, on average, individuals intending idiosyncratic terms might be more likely to be aware of their idiosyncrasy and thus to manifest their idiosyncratic intentions clearly.
134. See, e.g., supra notes 10, 32 & 38;
135. see also Kraus, Philosophy of Contract Law, supra note 9, at 717-730 ("Fried's theory clearly requires that contractual obligation be based on shared subjective intentions, and therefore rejects the objective theory of contract because it imposes contractual liability in the absence of such intentions.").
136. For a general discussion and overview of the literature, see Benjamin E. Hermalin et al., Contract Law, in The Handbook of Law and Economics 3, 99-127 (A. Mitchell Polinsky & Steven Shavell eds., 2007);
137. Craswell, Contract Remethes, supra note 6;
138. Richard Craswell, Instrumental Theories of Compensation, 40 San Diego L. Rev. 1135 (2003);
139. Paul Mahoney, Contract Remedies: General, in 3 Encyclopedia of Law and Economics §4600, at 117 (Boudewijn Bouckaert & Gerrit De Geest eds., 2000).
140. See generally Robert Cooter & Thomas Ulen, Law & Economics 245-279 (5th ed. 2007).
141. Thus, contract law's refusal to enforce an express penalty damages clause (in excess of expectation damages) clearly fails to enforce the parties' moral obligations. See infra text accompanying notes 71-78 (analyzing punitive and liquidated damages).
142. See Holmes, Patii of the Law, supra note 5, at 462 ("The duty to keep a contract at common law means a prediction that you must pay damages if you do not keep it,-and nothing else.").
143. Indeed, economic analysts often fail even to note that the efficient breach hypothesis might be interpreted as approving immoral conduct The classic texts explaining the theory of efficient breach have no discussion of the possible tension between the law's facilitation of efficient breaches and the immorality of breaking a promise. See, e.g., Cooter & Ulen, supra note 62, at 208-12 (discussing efficient breach but explicidy limiting analysis to promisors whose "concern with breach may not go beyond his or her liability") ;
144. Richard A. Posner, Economic Analysis of Law 118-22 (7th ed. 2007) (explaining efficient breach, "which from an economic standpoint is the same case as that of an involuntary breach"). Steven Shavell recendy defended a variation on the economic account of the theory of efficient breach.
145. See Steven Shavell, Is Breach of Contract Immoral?, 56 Emory LJ. 439 (2006) [hereinafter Shavell, Is Breach Immoral?].
146. Shavell claims that promisors should not break their promises because doing so is immoral, but that truly efficient breaches of contract are often not immoral: If damages tend to be fully compensatory, we could say . . . breach tends to be moral, as breach should occur if and only if contracting parties would have allowed nonperformance had they addressed in their contracts the contingencies that engendered breach. But if damages are not really compensatory, breach might be immoral.
147. Id. at 450.
148. In his view, most breaches occur when the express promise underlying the contract is underspecified. In those cases, he argues, promissory morality fills the gap by imposing on the promisor the term to which he and his promisee would have agreed had they specified an express term governing the gap. That term, he argues, would always permit the promisor to breach (not perform) and pay (fully compensatory) expectation damages: [W] hen the measure of damages equals the expectation measure, sellers will be led to commit breach if and only if the cost of performance exceeds the value of performance to buyers. But this is exacdy when a seller would have been excused from performing in an explicit complete contract. Accordingly, breach should not be characterized as immoral under our assumptions.
149. Id. at 449. Thus, by allowing promisors to breach and pay expectation damages under these circumstances, contract law is not endorsing the immoral act of breaking a promise.
150. For criticism of Shavell's view, see Seana Shiffrin, Could Breach of Contract Be Immoral?, 107 Mich. L. Rev. 1551 (2009) [hereinafter Shiffrin, Immoral] (arguing Shavell's position is unjustified and promise to perform morally does not mean promise to perform or pay).
151. For Shavell's reply, see Steven Shavell, Why Breach of Contract May Not Be Immoral Given the Incompleteness of Contracts, 107 Mich. L. Rev. 1569 (2009) (explaining breach as function of contract's incompleteness as to all contingencies).
152. For an overview of the economic analysis of the role of legal and non-legal (or relational) norms in contract design, see generally Jody S. Kraus & Robert E. Scott, Contract Design and the Structure of Contractual Intent, 84 N.Y.U. L. Rev. 1023, 1029-31, 1058-1062 (2009).
153. There is a modest but growing empirical literature on the question of individuals' attitudes toward breach of contract See, e.g., David Baumer & Patricia Marschall, Willful Breach of Contract for the Sale of Goods: Can the Bane of Business Be an Economic Bonanza?, 65 Temp. L. Rev. 159, 171-72 (1992) (analyzing results of survey presenting business community's reaction to deliberate breach);
154. Shavell, Is Breach Immoral?, supra note 65, at 452-55 (presenting empirical study confirming Shavell's contention that individuals are less likely to view breach as immoral if parties would have agreed to allow promisor to breach and pay expectation damages under circumstances in which breach in fact occurred);
155. Tess Wilkinson-Ryan & Jonathan Baron, Moral Judgment and Moral Heuristics in Breach of Contract, 6 J. Empirical Legal Stud. 405, 405 (2009) (summarizing empirical study suggesting that "people are quite sensitive to the moral dimensions of a breach of contract, especially the perceived intentions of the breacher");
156. Daphna Lewinsohn-Zamir, Beyond the Bottom Line: The Complexity of Outcome Assessment 28 (Aug. 2009) (unpublished manuscript, on file with the Columbia Law Review) (reporting results of empirical study demonstrating that "the outcome of receiving expectation damages was still regarded as significandy worse than the outcome of voluntary performance of the contract").
157. Shiffrin, Divergence, supra note 3, at 728.
158. Shiffrin in fact acknowledges the moral permissibility of alternative promises. See id. at 722 ("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."). In another article, Shiffrin states that she is "not suggesting that parties could never permissibly and explicidy make an agreement to 'perform or pay.' Rather, there is reason to resist 'perform or pay' as the default interpretation of all promises that do not explicidy rule it out."
159. Shiffrin, Immoral, supra note 65, at 1568.
160. For relevant empirical literature on the question of individuals' attitudes toward breach of contract, see supra note 67.
161. See Farnsworth, supra note 5, §12.8, at 194-96 ("[A] court will not ordinarily award damages that are described as 'punitive,' intended to punish the party in breach . Punitive damages may, however, be awarded in tort actions, and a number of courts have awarded them for a breach of contract that is in some respect tortious." (citing Restatement (Second) of Torts §908 (1979))).
162. Shiffrin, Divergence, supra note 3, at 723-724
163. See supra text accompanying notes 63-69.
164. Again, Shiffrin is right that forcing a suit in bad faidi would be morally wrong even on the alternative promise view. But, short of violations such as diose under Rule 11 of the Federal Rules of Civil Procedure, courts are hardly in a position to determine the difference between good and bad faith litigation. Further, as I have explained above, it is doubtful that litigating in good faith violates a moral obligation to keep a promise intended to be legally enforceable, even when the promisor loses the case. See supra notes 68-69 and accompanying text Notably, when courts do find litigation to be in bad faith, monetary sanctions are sometimes awarded. See, e.g., Chambers v. NASCO, Inc., 501 U.S. 32, 35 (1991) (affirming imposition of sanctions for party's bad faith conduct);
165. Barnes v. Dalton, 158 F.3d 1212, 1214-15 (llthOr. 1998) (affirming award of sanctions by district court for finding of bad faith).
166. See generally Gregory P.Joseph, Sanctions: The Federal Law of Litigation Abuse §§27-28 (4th ed. 2008) (discussing bad faith as prerequisite for imposition of sanctions and reviewing types of sanctions). Similarly, if a promisor refuses to pay a judgment, the law of judicial contempt imposes seriously condemnatory penalties, including jail time.
167. See, e.g., Am. Oil Co. v. Suhonen, 248 N.W.2d 702, 702 (Mich. Ct App. 1976) (approving court order threateningjail time for noncompliance);
168. State ex rel. Daly v. Snyder, 72 P.3d 780, 783 (Wash. Ct App. 2003) ("We hold that the court's authority to use contempt proceedings against recalcitrant child support obligors . . . includes incarceration.").
169. When courts believe promisors are intentionally flouting their moral and legal obligations, they do not hesitate to impose sanctions that unequivocally express disapproval. But as I argue below, such sanctions may conflict with, rather than conform to, the moral norms governing promise. See supra notes 68-69 and accompanying text.
170. The U.C.C, describes the prohibition as follows: Damages for breach by either party may be liquidated in the agreement but only at an amount which is reasonable in the light of the anticipated or actual harm caused by the breach, the difficulties of proof of loss, and the inconvenience or nonfeasibility of otherwise obtaining an adequate remedy. A term fixing unreasonably large liquidated damages is void as a penalty. U.C.C. §2-718(1) (2003).
171. Shiffrin, Divergence, supra note 3, at 726.
172. Compare ADP-Fin. Computer Servs. v. First Nat'l Bank, 703 F.2d 1261,1264 (llth Cir. 1983) (finding it was not parties' intent to treat "monthly minimum charge" clause as "liquidated damages provision" but simply as "the price to be paid for ADP's services"), and In re Cmty. Med. Ctr., 623 F.2d 864, 867 (3d Qr. 1980) (finding "only reasonable interpretation" of "minimum payment provision" was as "alternative contract" rather than liquidated damages clause), with Allen v. Smith, 114 CaI. Rptr. 2d 898, 903-04 (Ct App. 2002) (finding that "[i]n the absence of a reasonable relationship between the liquidated damages and the actual damages the parties could have contemplated for breach," such clause constitutes impermissible penalty);
173. see also Chandler v. Doran Co., 267 P.2d 907, 910 (Wash. 1954) ("The difficulty lies in determining whether or not the contract pleaded contains a true alternative promise.");
174. Restatement (Second) of Contracts §356 cmt c (1981) (stating that parties may create alternative performances in good faith but that courts "will look to the substance of the agreement to determine whether" provision is permissible alternative promise or impermissible penalty provision);
175. Samuel Williston, The Law of Contracts §781, at 1488-90 (1st ed. 1920) (providing intent-based test to distinguish alternative promises from liquidated damages).
176. As I noted above, however, morality certainly permits the parties to make the failure to perform the promised act a breach, which remains morally wrong even after the promisor pays the liquidated damages.
177. Shiffrin, Divergence, supra note 3, at 724-725
178. Technically, the promisee is not subject to a duty to mitigate. Rather, the promisor can raise failure to mitigate as a defense against an action to recover compensation for losses the promisee reasonably could have avoided. See Farnsworth, supra note 5, §12.12, at 231 (claiming it is "misleading" to say that "the injured party is under a 'duty' to ... mitigate damages" because "the injured party incurs no liability to the party in breach by failing to take such steps [but] is simply precluded from recovering damages for loss [sic] that it could have avoided" (citation omitted)). I will nonetheless follow common practice and refer loosely to the avoidable loss doctrine and "the duty to mitigate."
179. Again, however, the duty to mitigate does not actually require the promisee to mitigate, as Shiffrin's critique implies (only a promise from the promisee can impose a moral obligation on the promisee), but instead provides her with an incentive to mitigate by denying her right to compensation for losses incurred because of her failure to mitigate.
180. Shiffrin states: [U]nder the Hadley rule, promisors are liable only for those consequential damages that could reasonably have been foreseen at the time of the contract's formation. From a moral perspective, this is quite strange. If one is bound to perform but without excuse voluntarily elects to breach one's duty, a case could be made that the promisor should be liable for all consequential damages. If foreseeability should limit this liability at all, what would matter morally is what was foreseeable at the time of breach rather than at the time of formation. Whereas the former reflects the idea that breach is a wrong for which the promisor must take responsibility, the latter fits better with the idea that the contract merely sets a price for potential promissory breach. The law thereby fails to use its distinctive powers and modes of expression to mark the judgment that breach is impermissible as opposed to merely subject to a price.
181. Shiffrin, Divergence, supra note 3, at 724 (citations omitted).
182. Shiffrin, Divergence, supra note 3, at 728, 736-37.
183. The Restatement defines consideration as "a performance or a return promise" that is "bargained for." Restatement (Second) of Contracts §71(1) (1981). It further provides that a "performance or return promise is bargained for if it is sought by die promisor in exchange for his promise and is given by the promisee in exchange for that promise."
184. Id. §71(2).
185. As the Restatement explains: A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise. The remedy granted for breach may be limited as justice requires. Restatement (Second) of Contracts §90(1).
186. See, e.g., Robert E. Scott & Jody S. Kraus, Contract Law and Theory 172-75 (4th ed. 2007) (arguing consideration and promissory estoppel doctrines provide "a good proxy for determining whether the promisee could have reasonably believed that the promisor intended his promise to be legally binding");
187. Randy Barnett, A Consent Theory of Contract, 86 Colum. L. Rev. 269, 319 (1986) (describing "consent theory" as one where "[contractual enforcement... will usually reflect the will of the parties");
188. see also Charles Goetz & Robert E. Scott, Enforcing Promises, 89 Yale LJ. 1261, 1301-09 (1980) (arguing that nonreciprocal promises should not be legally enforced unless they are made in a reciprocal context in which parties would benefit from legal enforcement).