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1 Martín Hevia∗ I. Introduction in 1936, Contract Law Scholarship

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1 Martín Hevia∗ I. Introduction in 1936, Contract Law Scholarship 1 This is a rough draft version of April, 2009. Do not quote without permission. Comments may be sent to [email protected] ©2009 Martín Hevia. FULLER, FRIED AND THE NATURE OF CONTRACTUAL RIGHTS AND REMEDIES Martín Hevia∗ I. Introduction In 1936, contract law scholarship experienced a major revolution: in their seminal Yale Law Journal piece, “The Reliance Interest in Contract Damages,” Lon L. Fuller and William R. Perdue, Jr. develop a classic argument against the understanding of contractual rights and duties developed by will theorists of contract that had prevailed in the 19th century. That article has become a classic not only in contract scholarship but in ‘general’ legal scholarship as well.1 In that piece, Fuller and Perdue challenge the rationale for the common law standard rule of awarding expectation damages for the breach of a contract. For them, if private law is understood in terms of corrective justice, then it is not clear why the expectation remedy is taken to be a compensatory measure. In their view, the expectation measure has to be explained in terms of independent social goals that the remedy is supposed to serve. Thus, Morton Horwitz explains that “Fuller and Perdue’s famous 1936 article on contract damages demonstrated that awarding damages for breach of contract could not be deduced from the “logic” of contract or from the will of the parties, but was a state-imposed sanction determined by the choice among policies.”2 This account of contractual damages has been extremely influential, to the extent that it has shaped the way in which contract law courses in common law jurisdictions have been taught for a long time.3 Those courses usually start with a distinction between the different types of contractual remedies that Fuller and Perdue advanced in that seminal article. Furthermore, although most contract law courses in common law jurisdictions are based on cases, against this norm, “The Reliance Interest in Contract Damages” is one of the only law journal articles that is always included in their bibliography. Fuller and Perdue were not alone. Their attack was contemporary to the legal realist critique of contract and property.4 For instance, in 1930, a leading jurist of that time and an influential contract theorist, Arthur Corbin, had argued that it is irrelevant whether judges subsume the rights of the parties to an agreement within contractual ∗ Escuela de Derecho, Universidad Torcuato Di Tella; SJD, Faculty of Law, University of Toronto. This paper is based on Chapter V of my doctoral dissertation, Separate Persons Acting Together – A Theory of Contract Law. 1 (1936) 46 Yale Law Journal 52, 373. 2 Morton J. Horwitz, ´The History of the Public/Private Distinction´ (1982) 130 University of Pennsylvania Law Review 1423. 3 For this point, see Richard Craswell, ´Against Fuller and Perdue´ (2000) 67 University of Chicago Law Review 99. In that essay, Craswell discusses their understanding of contractual remedies, though he does so on grounds that are different from those I use in this paper. Craswell wants to show that their account of contractual remedies is no longer useful to understand the remedies that courts are currently awarding in cases of breach of contract. 4 For an excellent reconstruction of the realist critique, see Peer Zumbansen, ´The Law of Society: Governance Through Contract´ [forthcoming in the Indiana Journal of Global Legal Studies]. 2 rights, as rights that arise out of the reliance by the promisee on the promisor’s actions, or whatever. For him, the way in which rights are classified is completely irrelevant. What really matters, so Corbin would say, is that in the end, the plaintiff has a right as against the defendant, that is, a right that the promisee can enforce in the courts.5 Corbin seems to be expressing skepticism about the exercise of classifying obligations. This skepticism was not unusual. In a similar vein, years before, in The Common Law, Oliver Wendell Holmes had claimed that “the life of the law has not been logic: it has been experience.”6 Decades after, the realists were followed by scholars like Grant Gilmore and Patrick Atiyah, who became famous for their attempt to show that the distinction between contract and tort is absurd.7 After years of attack, at the very beginning of the 1980s, contract was revitalized by Charles Fried´s Contract as Promise8. Just as the piece by Fuller and Perdue had changed contract theory in the 30s, arguably, the landscape of contract scholarship was changed by Fried’s contribution. Until today, all contract scholars, even those who approach contracts from a Law and Economics perspective, feel compelled to address Fried’s arguments. Fried’s main claim is that contracts are like promises. Thus, breaking a contract is like breaking a promise: when the promisor breaches, he is violating the autonomy of the promisee and treating her as a mere means to the promisor´s aims. 9 Perhaps with the economic analysis of contract law , I take “The Reliance Interest 5 Corbin wrote that “[t]he definition and classification of such fundamental terms as right and duty depend upon results reached, and not upon formalities of the procedure used in reaching them.” See Arthur L. Corbin, ´Contracts for the Benefit of Third Persons´ (1930) 46 Law Quarterly Review 12, 16. 6 O. W. Holmes, The Common Law [1881] (Boston: Little Brown, 1963) 1. 7 In his The Death of Contract, a work that has now become a classic in the literature about contract, Grant Gilmore comes out very explicitly, as the title of his book suggests, against the contract-tort dichotomy, which he regards as an absurd dichotomy that started in the 19th century: “Speaking descriptively, we might say that what is happening is that ‘contract’ is being reabsorbed into the mainstream of ‘tort.’ Until the general theory of contract was hurriedly run up late in the nineteenth century, tort had always been our residual category of civil liability. As the contract rules dissolve, it is becoming so again. It should be pointed out that the theory of tort into which contract is being reabsorbed is itself a much more expansive theory of liability than was the theory of tort from which contract was artificially separated a hundred years ago.” See Grant Gilmore, The Death of Contract (Columbus: Ohio State Press, 1974) 87, cited in Peter Birks, ´Definition and Division: A Reflection on Institutes 3.13´, in Peter Birks (ed), The Classification of Obligations (Oxford: Oxford University Press, 1997) 1, 22. On its part, Patrick Atiyah’s The Rise and Fall of Freedom of Contract (Oxford: Oxford University Press, 1979) argues for a redesign of the map in a way that would include benefit-based and reliance-based obligations. Atiyah argues that only in the nineteenth century did the conceptual apparatus that distinguishes between contract and tort came up: “What I do wish to discuss is the conceptual framework of contract and its place in the law of obligations as a whole. I want to suggest that, despite the increasing attacks on freedom of contract, and the increasing divide between Contract and Tort, the conceptual apparatus which still dominates legal thinking on these issues is the apparatus of the nineteenth century. It goes, indeed, far beyond the law itself. Our very processes of thought, our language in political, moral, or philosophical debate, is still dominated by this nineteenth century heritage, to an extent which I venture to suggest, is rarely appreciated. I want to suggest that this conceptual apparatus is not based on any objective truths, it does not derive from any eternal verities.” See Atiyah, Essays on Contract (Oxford: Oxford University Press, 1986) 10, 11 [Essays]. 8 Charles Fried, Contract As Promise – A Theory of Contractual Obligation (Cambridge, Mass.: Harvard University Press, 1981). 9 For a classic account, see Richard Posner, Economic Analysys of Law 7th ed. (New York: Aspen Law & Business, 2007). For a more recent account, see Louis Kaplow and Steven Shavell, Fairness Versus Welfare (Cambridge, Mass.: Harvard University Press, 2002). 3 in Contract Damages” and Contract as Promise to be two of the main contributions to contract theory in the last hundred years. My aim in this paper is to reflect upon them critically. I want to suggest that, as theories of contract law, both fail because they cannot account for a fundamental feature of contractual relations. I will argue that, although for different reasons, neither Fuller and Perdue nor Fried can properly account for the transactional nature of contract rights and remedies. The paper is organized as follows. First, I will concentrate in Fuller and Perdue’s idea that from the perspective of corrective justice the expectation remedy cannot be justified. Against that view, I’ll argue that, if a contract gives the plaintiff an entitlement against the defendant, then the expectation remedy makes sense. Section III focuses on my critique to Contract As Promise. In particular, I discuss Fried's idea that contracts are a special case of promises. I argue that his account cannot explain the sense in which contractual rights and duties are personal and correlative. Finally, Section IV offers a brief conclusion. 10 II. AGAINST FULLER AND PERDUE Fuller and Perdue famously distinguished between three different types of remedies for breach of contract, each of which has the purpose of protecting a particular interest.11 1. If the plaintiff has in reliance on a promise made by the defendant conferred some value to the latter, who fails to perform his or her promise, the law prevents the unjust enrichment of the defendant by giving back to the plaintiff what he gave to the defendant.
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