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Published online by Cambridge University Press: 20 August 2019
This paper enters the dispute over the proper interpretation of the expectation measure of damages in contract law. Should damages be measured by the plaintiff’s financial loss or by the cost of acquiring a substitute performance (“cost of cure”)? I begin by presenting a moral (as opposed to an economic or a pragmatic) justification for the traditional contract principle that a plaintiff has a right to compensation for the financial loss flowing from breach but no right to performance. I do so by showing that implicit in the principle that the plaintiff has a right to compensation for financial loss alone is a conception of moral agency as a capacity for detachment from things. Through an exploration of Henry James’ novel The Ambassadors, I try to show what is valuable in that conception, although I argue that it is, in the end, incomplete. Then I consider the self-authorship conception of moral agency implicit in the moralist’s proposal to replace the financial loss remedy with a right to performance or to compensation for the cost of securing a substitute performance. Again, through a reading of James’ novel, I try to show what is valuable in this conception although I argue that it too is incomplete. I suggest that the conceptions of moral agency respectively implicit in the financial loss and cost of cure remedies are constituent parts of a complete conception. Once we see this, we arrive at a moral justification for a contract law which treats compensation for financial loss as the normal rule but exceptionally allows for a remedy that aims at securing performance.
I wish to thank Alan Brudner, Andrew Botterell, Chris Essert, Jason Neyers, Dan Priel, Zoë Sinel, Simon Stern, Stephen Smith, as well as the anonymous reviewer at the Canadian Journal of Law & Jurisprudence for very helpful comments on earlier drafts of this paper.
1. See, generally, Sally Wertheim v Chicoutimi Pulp Co (1910), [1911] AC 301 (PC).
2. Parke B held in Robinson v Harman (1848) 1 Exch 850 at 855: “The rule of the common law is, that where a party sustains loss by reason of a breach of contract, he is, so far as money can do it, to be placed in the same situation, with respect to damages, as if the contract had been performed.”
3. See the speech of Lord Hoffmann in Co-operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd (1997), [1998] AC 1 and SM Waddams, The Law of Contracts, 6th ed (Canada Law Book, 2010) at 502.
4. In British Westinghouse Electric and Manufacturing Co Ltd v Underground Electric Railways Co of London Ltd [1912] AC 673 at 689 Viscount Haldane LC said: “…he who has proved a breach of a bargain to supply what he contracted to get is to be placed, as far as money can do it, in as good a situation as if the contract had been performed. The fundamental basis is thus compensation for pecuniary loss naturally flowing from the breach …”. Lord Lloyd recognized this as the traditional position in Ruxley Electronics and Construction Ltd v Forsyth [1996] AC 344 at 366: “Lord Haldane [in British Westinghouse] does not say that the plaintiff is always to be placed in the same situation physically as if the contract had been performed, but in as good a situation financially…”.
5. See, generally, Daniel Markovits & Alan Schwartz, “The Myth of Efficient Breach: New Defenses of the Expectation Interest” (2011) 97:8 Va L Rev 1939; Steven Shavell, “Specific Performance Versus Damages for Breach of Contract: An Economic Analysis” (2006) 84:4 Tex L Rev 831.
6. An apparent exception is Stephen Smith’s “Performance, Punishment, and the Nature of Contractual Obligation” (1997) 60:3 Mod L Rev 360. Smith argues that damages are preferable to specific performance because the constant threat of court-ordered performance will make people perform their contracts for the wrong reasons—they will perform under threat of coercion rather than out of an acknowledged special bond with their contracting partner. But Smith’s argument for preferring damages to specific performance depends on the assumption that “specific performance and damages are equally effective in terms of remedying the harm of breach” (at 371). However, there can be little doubt that in most cases, specific performance—because it places plaintiffs in the empirical position they would have been in had the defendant performed—is much more effective than damages in remedying the harm of breach. The challenge for a moral defense of damages is to explain why it is nonetheless justified as the ordinary remedy.
7. See, e.g., Judith L Maute, “Peevyhouse v. Garland Coal & Mining Co. Revisited: The Ballad of Willie and Lucille” (1995) 89:4 Nw UL Rev 1341 at 1430; Ewan McKendrick, “Breach of Contract and the Meaning of Loss” (1999) 52:1 Current Leg Probs 37 at 41; Ewan McKendrick, “The Common Law at Work: The Saga of Alfred McAlpine Construction Ltd v Panatown Ltd” (2003) 3:2 OUCLJ 145 at 172; Peter Linzer, “On the Amorality of Contract Remedies—Efficiency, Equity, and the Second Restatement” (1981) 81:1 Columbia L Rev 111 at 117-18.
8. See, e.g., Charlie Webb, “Performance and Compensation: An Analysis of Contract Damages and Contractual Obligation” (2006) 26:1 Oxford J Legal Stud 41; Charlie Webb, “Justifying Damages” in Jason W Neyers, Richard Bronaugh & Stephen GA Pitel, eds, Exploring Contract Law (Hart, 2009) 139; Brian Coote, “Contract Damages, Ruxley, and the Performance Interest” (1997) 56:3 Cambridge LJ 537 at 542; Ewan McKendrick, “The Common Law at Work”, supra note 7 at 147; Stephen A Smith, “Substitutionary Damages” in Charles EF Rickett, ed, Justifying Private Law Remedies (Hart, 2008) 93; Robert Stevens, “Damages and the Right to Performance: A Golden Victory or Not?” in Jason W Neyers, Richard Bronaugh & Stephen GA Pitel, eds, Exploring Contract Law (Hart, 2009) 171; Tareq Al-Tawil, “Damages for Breach of Contract: Compensation, Cost of Cure and Vindication” (2014) 34:2 Adel L Rev 351 at 356.
9. James, Henry, The Art of the Novel: Critical Prefaces (Charles Scribner’s Sons, 1937) at 45Google Scholar.
10. Ibid at 53 and 62.
11. Ibid at 62.
12. Ibid at 34.
13. Ibid at 13.
14. Many others have found that James’ novels constitute particularly subtle and insightful explorations of moral problems. See, for example, Frederick A Olafson, “Moral Relationships in the Fiction of Henry James” (1988) 98 Ethics 294 at 298; Martha C Nussbaum, Love’s Knowledge: Essays on Philosophy and Literature (Oxford University Press, 1992); Cora Diamond, “Henry James, Moral Philosophers, Moralism” (1997) 18:3 Henry James Rev 243; Robert B Pippin, Henry James and Modern Moral Life (Cambridge University Press, 2000).
15. The term “performance interest” was first introduced by Daniel Friedmann in “The Performance Interest in Contract Damages” (1995) 111:4 Law Q Rev 628, but the distinction between the performance interest and the compensation interest comes from more recent scholarship. See supra note 8.
16. See Charles Fried, Contract as Promise: A Theory of Contractual Obligation (Harvard University Press, 1981) at 17; Linzer, supra note 7.
17. As Dori Kimel argues, this is what makes Fried’s endorsement of the expectation measure of damages so puzzling. See Dori Kimel, From Promise to Contract: Towards a Liberal Theory of Contract (Hart, 2003) at 95. See also Coote, supra note 8 at 559 (arguing that the pacta sunt servanda principle supports protection of the performance interest); Linzer, supra note 7 at 138-39 (arguing that “one should stand by one’s word,” and the default contract remedy should therefore be specific performance); Curtis Bridgeman, “Corrective Justice in Contract Law: Is there a Case for Punitive Damages?” (2003) 56:1 Vand L Rev 237 at 261. Stevens also suggests that the right to performance is connected to the morality of promise-keeping in Stevens, supra note 8 at 171, 198.
18. See, e.g., Linzer, supra note 7 at 131. Kimel argues that although specific performance ought to be the standard remedy, the harm principle demands that if the defendant can redress the breach equally well by paying damages, the court should adopt the measure least intrusive of the defendant’s liberty. See Kimel, supra note 18 at 104. See also McKendrick, “The Common Law at Work”, supra note 7 at 172; Al-Tawil, supra note 8 at 367.
19. Webb, “Performance and Compensation,” supra note 8 at 58-60; Webb, “Justifying Damages,” supra note 8 at 144-49; Al-Tawil, supra note 8 at 366; Coote, supra note 8 at 542; Smith, supra note 8 at 100; David Winterton, Money Awards in Contract Law (Hart, 2015) at 174-76.
20. See Maute, supra note 7 at 1430; McKendrick, “Breach of Contract”, supra note 7 at 41; McKendrick, “The Common Law at Work”, supra note 7 at 172; Linzer, supra note 7 at 111, 117.
21. See McKendrick, “Breach of Contract”, supra note 7 at 41; Catherine Mitchell, “Promise, Performance and Damages for Breach of Contract” (2003) 2:2 J Obligations & Remedies 67.
22. See Maute, supra note 7 at 1431; Coote, supra note 8 at 560; Robin West, Caring for Justice (New York University Press, 1997) at 54-55; Mitchell, supra note 22 at 68.
23. See Linzer, supra note 7 at 131 (arguing that the court should attend to the plaintiff’s “idiosyncratic interests”).
24. See McKendrick, “Breach of Contract”, supra note 7 at 39; Melvin A Eisenberg, “Actual and Virtual Specific Performance, the Theory of Efficient Breach, and the Indifference Principle in Contract Law” (2005) 93:4 Cal L Rev 975; Carol Chomsky, “Of Spoil Pits and Swimming Pools: Reconsidering the Measure of Damages for Construction Contracts” (1991) 75:5 Minn L Rev 1445 at 1496.
25. Fried, supra note 17 at 17.
26. Peter Benson also suggests that damages vindicate the performance interest. According to Benson, damages and specific performance are just two different ways of giving the promisee what was promised. Damages accomplish this objective where the thing promised is not particularized; specific performance accomplishes this objective where the thing promised is particularized. If A promises to deliver to B 10 widgets and then breaches, since the promise is to deliver any 10 widgets, a damage award that allows B to buy 10 widgets in the market for the contract price will give B what was promised. On the other hand, if A promises B this painting, only specific performance can give B what was promised. See Peter Benson, “The Unity of Contract Law” in Peter Benson, ed, The Theory of Contract Law: New Essays (Cambridge University Press, 2001) 118 at 134-35. This account, however, is at odds with the law. Courts will order damages even when the thing promised is particularized, with the result that the promisee does not receive what was promised. We see this in all cases of personal service, but also in cases involving goods. In Cohen v Roche, [1927] 1 KB 169, although the contract was for a particular set of chairs, the promisee’s interest in the chairs was financial, and the court ordered damages rather than specific performance. Semelhago v Paramadevan, [1996] 2 SCR 415 suggests that damages are the appropriate remedy for breach of a contract to sell a particular piece of land so long as there is some reasonable substitute on the market. Of course, giving plaintiffs the money to buy a substitute is not the same thing as giving them the very thing promised.
27. Peevyhouse v Garland Coal & Mining Company, 382 P.2d 109 (Okla 1962) [Peevyhouse].
28. Jacob & Youngs, Inc v Kent, 129 NE 889 (NY 1921) [Jacob & Youngs].
29. See, e.g., Chomsky, supra note 25 at 1477; Linzer, supra note 7 at 117; West, supra note 23 at 53-54; Maute, supra note 7; Richard S Wirtz, “Cost of Performance or Difference in Value?” (2008) 59:1 Case W Res L Rev 61; Bridgeman, supra note 18 at 266; Gregory Klass, “The Rules of the Game and the Morality of Efficient Breach” (2017) 29:1 Yale JL & Human 71 at 107; “Professor Barrow’s Peevyhouse Lecture” (1977-1978) 1 J Comm & Ent L xlvii.
30. See, e.g., Chomsky, supra note 25 at 1447; Nili Cohen, “Distributive Justice in the Enforcement of Contracts” in Jurgen F Baur, ed, Festschrift für Gunther Kühne (Verlag Recht und Wirtschaft, 2009) 971 at 993; Linzer, supra note 7 at 135; E Allan Farnsworth, “Legal Remedies for Breach of Contract” (1970) 70:7 Colum L Rev 1145 at 1173; Eisenberg, supra note 25 at 1027; Wirtz, supra note 30 at 81.
31. It might be argued that the two cases can be distinguished in the following straightforward way. In Peevyhouse, the mining company knew that the Peevyhouses wanted the land repaired; in Jacob & Youngs, the builder reasonably believed that Reading referred to quality of pipe and so did not reasonably know that Kent wanted the very thing promised in the contract. As I will later argue, this is a part of a full answer derived from a theory of contract remedies, but it is not itself the full answer for the following reason. The argument in the simple form just presented amounts to the claim that the Peevyhouses are entitled to cost of cure damages because that was an implied term of their agreement while Kent is not entitled to cost of cure damages because that was not an implied term of his agreement. But this wrongly assumes that the parties to the contract may authoritatively determine—implicitly or explicitly—the remedy for breach. The courts’ treatment of penalty clauses shows that the remedy for breach comes from the law, not the parties. Further, the parties cannot contractually determine the remedy for breach as a matter of logic. A contractual term specifying the remedy for breach is itself a term that may be breached, and then the question for the court remains: what is the proper remedy? Thus, if Kent had included in the contract a term making clear that Reading pipe meant Reading pipe and that a breach of that term would entitle him to the money to cure the defect, this would not resolve the legal question of whether Kent was entitled to that remedy. In fact, Kent did include a contractual provision stating that defective work was to be replaced and Justice Cardozo nevertheless refused that remedy. Ultimately, the remedy for breach comes from the law, not from the parties. For the view that the answer to the remedy problem lies in the terms of the contract, see Jerry L Calhoon, “Remedies—The Measure of Damages for Breach of a Contract to Restore the Premises” (1969) 21:4 Baylor L Rev 568 and Todd D Rakoff, “Implied Terms: Of ‘Default Rules’ and ‘Situation Sense’” in Jack Beatson & Daniel Friedmann, eds, Good Faith and Fault in Contract Law (Oxford University Press, 1995) 191 at 207-09.
32. Henry James, The Ambassadors: A Norton Critical Edition, edited by SP Rosenbaum (WW Norton & Company, 1964). References to the novel will be cited parenthetically in the text.
33. Martha Nussbaum takes a similar view of the significance of Mrs. Newsome’s character. See Nussbaum, supra note 15 at 176-80.
34. The conception of moral agency presented here is a familiar one. It finds its most carefully worked out exposition in Immanuel Kant, The Metaphysics of Morals, edited and translated by Mary Gregor (Cambridge University Press, 1991) and in the First Part of GWF Hegel, Philosophy of Right, translated by TM Knox (Oxford University Press, 1967). For Hegel, however, this conception of moral agency is incomplete.
35. For a parallel discussion of the relationship between the free agent and the world, see Michael J Sandel, Liberalism and the Limits of Justice, 2nd ed (Cambridge University Press, 1998) at 54-56.
36. See Hegel, supra note 35 at para 5 and 35; for an elaboration of the significance of this conception of the person for private law, see Alan Brudner, The Unity of the Common Law, 2nd ed with Jennifer M Nadler (Oxford University Press, 2013). See also Peter Benson, “The Basis of Corrective Justice and its Relation to Distributive Justice” (1991-1992) 77:2 Iowa L Rev 515 at 555; Ernest J Weinrib, The Idea of Private Law (Harvard University Press, 1995) at 81, 97.
37. In Liberalizing Contracts: Nineteenth Century Promises Through Literature, Law and History (Routledge, 2018), Anat Rosenberg shows, through an analysis of agency in Gaskell’s Ruth and Dickens’ Bleak House, that the novelists treat abstraction as a matter of empirical isolation—they present us with characters that lack family ties, friends, a sense of institutional belonging, or meaningful work. If this is what abstraction means, then there is nothing in it that anyone could value, and so Rosenberg persuasively reads Ruth and Bleak House as recoiling from abstraction. But James, I argue, treats abstraction as a conceptual rather than an empirical possibility—the possibility of distinguishing, in thought, between a self and its attachments. There is, as I think James shows us, value in this conceptual possibility and so James’ novel cannot be characterized as a simple recoiling from abstraction. In Poetic Justice: The Literary Imagination and Public Life (Beacon Press, 1995), Martha Nussbuam argues that the realist novel’s commitment to concrete particulars is itself a critique of the abstract conception of the person. Without disputing this reading of the realist novel in general, I argue that James’ novel presents a more complicated picture, in which the abstract conception of agency is preserved as part of a whole rather than jettisoned. That there may nevertheless be a tension between the realist novel’s commitment to particulars and the abstract conception of moral agency is symbolized by the fact that Mrs. Newsome, whose conception of moral agency is abstract, never makes a concrete appearance in James’ novel.
38. Others have shown that the shape of 19th century contract law, including the contract remedy, has a historical explanation. See, for example, Morton J Horwitz, The Transformation of American Law 1780-1860 (Harvard University Press, 1977) at 160-210. But the historical explanation does not answer the separate question of whether the contract law that developed in the 19th century has a normative justification, and it is that question that I address in this article.
39. Kant writes: “in this reciprocal relation of choice no account at all is taken of the matter of choice, that is, of the end each has in mind with the object he wants; it is not asked, for example, whether someone who buys goods from me for his own commercial use will gain by the transaction or not. All that is in question is the form in the relation of choice on the part of both…”. See Kant, supra note 35 at 56. And Brudner writes: “Where Ernest promises Michael that he will deliver 10 widgets @ $100 and Michael promises Ernest that he will pay him $1,000 on the delivery of ten widgets, formal right construes the agreement as one between detached (object-independent) persons to exchange values: $1,000 in currency for $1,000 in widgets.” Brudner, supra note 37 at 192. Benson argues that the relationship between promisor and promisee “wholly consists in their mutual recognition of one other as each having a capacity for ownership” and that the thing transferred from one party to the other must be conceived “in abstraction from the thing’s particular qualitative features, and not at all in terms of its specific usefulness in relation to individual needs.” Benson, supra note 37 at 593, 595.
40. Seana Valentine Shiffrin, “The Divergence of Contract and Promise” (2007) 120:3 Harv L Rev 708 at 712.
41. Ibid at 714.
42. Ibid.
43. Shiffrin says that we can explain and justify the resentment one feels in this situation if we see that the breaching party has usurped the non-breaching party’s right to decide for him or herself how to spend the day by treating the non-breaching party’s time as if it were his or her own. With this argument, Shiffrin recasts the homeowner’s subjective annoyance as a rights violation. But of course, this is an exaggeration—as Shiffrin admits. Everyone must make their own decisions about the nature and extent of their reliance on a promise. Parties may spend money in reliance on a promise, or they may simply clear their schedules for a day. These decisions are their own, and they reflect their own plans and priorities rather than an improper usurpation by another. See Seana Shiffrin, “Could Breach of Contract Be Immoral?” (2009) 107:8 Mich L Rev 1551 at 1564.
44. These arguments are well known. Sandel, supra note 36 at 161-65 argues that the self is at least partly constituted by its ends and that agency is a process of self-discovery rather than self-creation; MacIntyre argues that the self is embedded in communal roles that constitute its moral starting point in Alasdair MacIntyre, After Virtue (University of Notre Dame Press, 1981). The idea that the abstract conception of the moral agent fails as a description of human beings is also central to feminist thought. See, for example, Seyla Benhabib, Situating the Self: Gender, Community and Postmodernism in Contemporary Ethics (New York: Routledge, 1992) at 152; Ngaire Naffine, Law’s Meaning of Life: Philosophy, Religion, Darwin and the Legal Person (Hart, 2009); Robin West, “Jurisprudence and Gender” (1988) 55:1 U Chicago L Rev 1 at 2; Jennifer Nedelsky, “Reconceiving Autonomy: Sources, Thoughts and Possibilities” (1989) 1 Yale JL & Feminism 7; Jennifer Nedelsky, Law’s Relations: A Relational Theory of Self, Autonomy, and Law (Oxford University Press, 2011) at 19-30.
45. James, supra note 9 at 314.
46. Falcke v Grey (1859) 4 Drew 651 at 658.
47. Shiffrin, supra note 41; see also Webb, “Justifying Damages,” supra note 8 at 139; Kimel, supra note 18 at 99-100, 108; Winterton, supra note 20 at 181.
48. Shiffrin, supra note 41 at 722.
49. Webb, “Performance and Compensation,” supra note 8 at 57.
50. Webb writes: “…the measure, and indeed the very existence, of a loss follow from and will be determined by our preferences and objectives. Because these vary from person to person, loss is necessarily personal or subjective.” See Webb, “Justifying Damages,” supra note 8 at 160.
51. See Maute, supra note 7 at 1388; Linzer, supra note 7 at 131.
52. See Maute, supra note 7 at 1341.
53. See Richard Danzig, The Capability Problem in Contract Law: Further Readings on Well-Known Cases (Foundation Press, 1978) at 120.
54. See Thomas Nagel, The View from Nowhere (Oxford University Press, 1986) at 4.
55. See, e.g., Friedmann, supra note 16 at 629; Al-Tawil, supra note 8 at 372; Ralph M Cunnington, “The Inadequacy of Damages as a Remedy for Breach of Contract” in Charles EF Rickett, ed, Justifying Private Law Remedies (Hart, 2008) 115 at 133-34.
56. See, generally, Daphna Lewinsohn-Zamir, “Can’t Buy Me Love: Monetary versus In-Kind Remedies” (2013) U Ill L Rev 151.
57. See Maute, supra note 7 at 1356.
58. See, e.g., Webb, “Justifying Damages,” supra note 8 at 160 (arguing that compensation for loss ought to be based on the plaintiff’s subjective preferences, tastes, and goals); Eisenberg, supra note 25 at 1028 (arguing that the question at hand should be “promisee-centered”).
59. See, e.g., Smith, supra note 8 at 104; Al-Tawil, supra note 8 at 369; Chomsky, supra note 25 at 1499.
60. It might be thought that the answer to this question is the full answer to whether cost of performance ought to be awarded and that we need not bother asking whether the thing bargained for figured importantly in the plaintiff’s life plan. But this suggestion assumes that the parties to a contract can determine the remedy for breach, an assumption I criticized in footnote 31. What determines whether and when cost of performance is an appropriate remedy is a persuasive theory of the contract remedy, not the parties, and that theory also determines the relevance of what the defendant reasonably knew. According to the theory I have proposed, a court’s concern for self-authorship justifies cost of performance, but this remedy cannot come at the expense of the defendant’s abstract freedom of choice that is the precondition of self-authorship. This is the only relevance of what the defendant reasonably knew.
61. See Maute, supra note 7 at 1358, 1365.
62. See Danzig, supra note 54 at 120.
63. Ibid at 121.