Indeed, orthodox theories observe, tort law proper retains basic principles that demur to encroach directly or generally on contract. Orthodox views thus insist that the harm-based theory of contract is in a difficult bind. But contractual promises, taken alone, seem capable of justifying contractual reliance or expectations only insofar as they obligate. To be sure, modern contract law does not require that contracting parties in fact posses such intentions to obligate in their own particular minds but only that they act and speak in ways that would make a reasonable interlocutor conclude that they possess intentions to obligate. Specifically, the law refuses to impute to potential traders a general intent to make efficient, or fair, or otherwise optimal contracts and then to imply contracts based on that intent.
Similarly, a promisee confronted with breach must take all reasonable steps to protect her contractual expectations herself or risk being denied her full expectation remedy, under the doctrine that requires victims of breach to mitigate their damages. Genealogical thinkers as different as Patrick Atiyah and Margaret Jane Radin wondered why the law should be especially solicitous of coordination through private exchange or of the promise-based contractual obligation through which market economies manage such exchange see, e. In particular, good faith forbids the exercise of discretion during performance designed to recapture a benefit allocated to a counterparty at formation Burton 1980: 373. Broken agreements impose burdens on disappointed promisees: the burdens take the form of costs including opportunity costs incurred in reliance on a promised performance that never occurs and disappointments associated with expectations raised by a promise but never vindicated. Not every lost reliance or disappointed expectation constitutes a harm that tort-like duties require avoiding. These doctrinal developments were matched by several substantial theoretical innovations that sought to recharacterize contract as reliance-based and thus in effect a special case of tort. The critics believe that a morally better relation would require contracting parties to display some measure of affirmative other regard towards each other, on the model of fiduciary loyalty.
A contractual obligation, that is, does not just come into being in connection with a choice but is, rather, itself chosen—directly intended into existence. §2-302 generated an apprehension, including in Gilmore 1974 and Fried 1981 , that lawmakers were codifying the relevant public norms and legal morality, at least for consumer contracts and possibly beyond. His teaching and writing focus on contract law, tort law, the theory of private law, and theories of justice. The theory of contracts Melvin A. Indeed, the reliance is among the points behind the promise. Beatson 1995: 267 Once again, a fiduciary whose beneficiary asks her to walk a mile with him must, if circumstances develop to require it, walk with him twain; but a contractual promisor must walk only the mile, and only along the path, that she promised.
A few early cases toyed with suggestions that substantively unfair terms might in themselves and without more render a contract unconscionable. Scion Breckenridge Managing Member, L. To begin with, the distance between contractual strict liability for promises on the one hand and, on the other, tort-like duties of reasonable care in respect of representations concerning future conduct should not be overstated. Views that seek to maintain the distinction between contract and fiduciary obligation emphasize that this regime will not leave promisor behavior undisturbed. Orthodox approaches to contract thus insist that this program abandons the most basic presupposition from which the study of contract law as the law of agreements ordinarily departs. And even the requirement of privity—that contractual obligation arises only directly among the parties to a promise and not towards third parties who rely on promises—has been relaxed.
These observations invite a simple restatement of the orthodox account of contract: where the allocation of discretion and control associated with the efficient performance remedy really is optimal, there will be no separate legal entities to begin with and hence no contracts. This is inscribed in legal doctrine, in the principles that contracts are created through offer, acceptance, and consideration. And even where fiduciary relations arise in connection with and perhaps through choices, the obligations themselves do not arise at the pleasure of the choices of the parties who owe them. Loyalty requires a fiduciary to adjust open-endedly to the interests of her beneficiary as circumstances develop ex post. Orthodox theories of contract seek to defend the view that contract is quintessentially chosen obligation against encroachment from fiduciary law also. Many lawyer economists just what share varies with the times believe that placing promise at the center of contract fits this bill.
The leading contemporary exponent of this harm-based and thus tort-like theory of contractual obligation is T. And insofar as firms by assumption are owned by perfectly diversified shareholders, who thus possess equal interests in both sides of all commercial transactions, the program can ignore both distributive and corrective justice. Nor is this approach—which recognizes that contracts establish obligations unsupported by reliance or associated tort norms—limited to the warranty context. Peter Benson, Cambridge University Press, 2001 and The Oxford Handbook of Jurisprudence. Scholars writing in a principally economic vein have thus observed that the efficiency of the expectation remedy—and in particular the optimal incentives associated with efficient breach—might be replicated by properly administered supracompensatory remedies also Brooks 2006.
Fiduciary paternalism can have real value, especially where beneficiaries reasonably mistrust their own judgment. Once again both doctrinal and theoretical considerations figure in the defense. By relying on the performance even before it is provided, the promisee increases its value to him: a buyer of cement, for example, increases its value by investing in gravel to mix with the cement and skilled workers to build with it. This necessarily imports a measure of paternalism into every fiduciary relation. The legal norms associated with orthodox contract law—the expectation remedy, the practice of efficient breach, and more generally self-interest side-constrained by good faith respect for the contractual settlement—may thus be cast as constitutive of economic coordination by contract.
The attention has come from both economically and philosophically minded commentators. This doctrine reflects the fact that contracting parties will include a duty of reasonable mitigation in their agreements ex ante, in order to maximize the expected contractual surplus available for them to share. The substantive duties that fiduciary relations involve, that is, are not cabined by the original intentions of the parties but instead reflect mandatory duties of fiduciary loyalty. Philosophers, moreover, have produced several elaborations of the will theory of contracts that the orthodox approach invites. It is thus, fundamentally, an attitude of respect for the contract relation, and the measure of good faith is the contract itself. The expectation remedy, by definition, provides the promisee with the same value as performance would have done—no less, but also no more.
Contracts thus include implied agreements that promisors may require their promisees to reduce the losses associated with even self-interested breaches. This obligation amounts to a requirement that promisors display greater benevolence for their promisees in respect of unallocated gains within the contract than they were required to display in negotiations concerning these gains without the contract. Orthodox approaches thus cast contract as better than fiduciary law—morally better—for sustaining coordination at arm-length among independent traders, who wish to benefit from joint projects with others, and indeed to share the gains from these projects with their counterparties, without assuming responsibility for their counterparties and all-the-while retaining rights to ongoing control over their own lives. Benson is to be congratulated on assembling such an excellent collection. To answer these challenges, orthodox accounts of contract must vindicate—both in doctrine and in theory—the distinctive and unmediated role of intentions in creating and fixing contractual obligations. And the remedies it recommends for example, the damage awards contemplated in the law of torts are limited to the compensation necessary to restore the status quo ante.