Pace University DigitalCommons@Pace Pace Law Faculty Publications School of Law 1-1-1982 The Relationship of Contractual Remedies to Political and Social Status: A Preliminary Inquiry David S. Cohen Pace Law School, [email protected] Follow this and additional works at: http://digitalcommons.pace.edu/lawfaculty Part of the Contracts Commons, and the Legal Remedies Commons Recommended Citation David Cohen, The Relationship of Contractual Remedies to Political and Social Status: A Preliminary Inquiry, 32 U. Toronto L.J. 31 (1982), http://digitalcommons.pace.edu/lawfaculty/428/. This Article is brought to you for free and open access by the School of Law at DigitalCommons@Pace. It has been accepted for inclusion in Pace Law Faculty Publications by an authorized administrator of DigitalCommons@Pace. For more information, please contact [email protected]. David Cohen* THE RELATIONSHIP OF CONTRACTUAL REMEDIES TO POLITICAL AND SOCIAL STATUS: A PRELIMINARY INQUIRY? 'And you see', Trollope makes Archdeacon Grantley say, 'land gives so much more than rent. It gives position and influence and political power, to say nothing about the game." What things 'give' is the very heart of the law of property. And what agreements 'give' is equally at the heart of the law of contract. No legal system could hope to develop at all unless it established rules defining the remedies available to enforce agreements or, put another way, insisting that one 'gets what one has been promised.' However we choose to define the substance of consensual obligations, we must include a reference to enforceability.' An individual who has had his contractual expectations shattered and goes to law in order to obtain compensation or performance premises his claim on the destruction of his perceived wealth, represented by his personal expectation of profit created at the instant of agreement.3 Both parties stand to gain by the exchange through the enjoyment of their respective profits which did not exist prior to the bargain. This loss of expected profit - which inheres in every exchange,4 but which need not necessarily take the form of financial reward - may be protected through a variety of legal and non-legal means; the former include the application of punitive sanctions, the imposition of a specific legal duty on the promisor ordering him to perform, or the imposition of a general legal duty mandating a transfer of money damages, in an amount objectively assessed by public authority. Traditional contract law has shown a well-entrenched predisposition towards the imposition of liability to pay damages, reflecting, one suspects, a philosophy of individualism which, while it provides the foundation for freedom to contract, at the same time nurtures a concomitant freedom to breach.5 Thus even a preliminary inquiry as to the legal consequences of contractual failure reveals that the choices open to an individual to whom a consensual obligation is owed, upon discovering that the promised performance is not forthcoming, are both limited and well established. * Faculty of Law, University of British Columbia t Because of the length of the footnotes to this article, they may be found in a section beginning on page 74. (lg82), 32 UNIVERSITY OF TORONTO LAW JOURNAL 031 0042-022018210 IOO/W~I/$1.2510 0 University of Toronto Press Heinonline -- 32 U. Toronto L.J. 31 1982 He can, in some cases, demand that the promise be performed precisely (leaving aside the issue of temporal dislocation) as agreed - the archetyp- ical suit for delivery of the subject-matter of a contract of sale and the complementary action for the price. More commonly, society may limit contractual redress to a claim for monetary compensation for losses suffered as a consequence of the failure to perf~rm.~Why, one might ask, does society, through the medium of the law, sometimes restrict the choice to a substitutionary damage claim and yet in other cases allow, indeed in some instances compel, the claimant to insist on performance? A number of related theories have been proffered with varying degrees of success as possible analytical foundations for the primacy of damages in the common law of contract. The arguments have ranged from the protection of third-party claims in the case of executory contracts,' tautological reliance on the recognition of equitable interests protected by equitable remedies,' protection of individual liberty,g administrative costs,1° judicial deference," and costs of valuation of market and non-market goods1' to the distributive implications of specific perform- ance with respect to the relative wealth of the contracting parties.'S A recent contribution to this collection of doctrinal and interdiscipli- nary theories, or at least a different way of posing the question, has been offered by Calabresi and Melamed.14 They suggest that one can identify the nature of legal entitlements (or rights) as a consequence of the legal rules - including property rules, liability rules, and inalienability rules - which have evolved to protect and regulate the creation, use, transfera- bility, destruction, and other attributes of entitlements. A right or entitlement, let us say the right to privacy, may be said to be protected by a property rule if we allow appropriation of it by another only after bargaining; the taker must, before he deprives the present possessor of the entitlement of it, negotiate a purchase price. Thus when society protects a property right, it is not simply granting the owner of the right certain privileges with respect to the entitlement; it is actively forcing non-owners to refrain from interfering with the enjoyment of the right by its owner, unless the owner voluntarily consents to the interference. This consent to interference, if it is exacted in return for money, goods, services, or any other thing of value, consists of a bargained exchange whereby property is distributed and allocated among members of society. When we insist on this kind of negotiation we may be said to recognize a property right in the object. Other entitlements (or in other instances, the same entitlement in a different setting) are protected by liability rules, in which case the taker need not negotiate a price but must compensate the owner for the harm occasioned by the taking or interference. The classical examples given of this kind of entitlement are nuisance and negligence, Heinonline -- 32 U. Toronto L.J. 32 1982 CONTRACTUAL REMEDIES AND POLITICAL AND SOCIAL STATUS 33 where, in many instances, because of the numbers of interested parties, the unintentional nature of the taking, or the imbalances in negotiation brought on by free riders and holdouts,'5 the costs of negotiation are prohibitive, foreclosing any realistic attempt at imposing property rules to protect entitlements. Finally, some entitlements, such as the right to life under most circumstances, are protected further by inalienability rules - the owner cannot sell, and the taker cannot lawfully take, with or without bargaining or ex post compensation. In a recent article, Kronman carried this analysis one step further, applying Calabresi and Melamed's thesis to contract entitlements: In contract law, a liability rule permits a promisor to breach his promise provided he compensates the other party by payment of money damages. The fundamental alternative to money damages, in the law of contracts, is specific performance. A promise may be said to be specifically enforceable when the law gives its owner, the promisee, a right to require the actual (or 'specific') performance of the promise. The right to positively enjoin a promise, like the right to negatively enjoin a nuisance, may be viewed as an entitlement protected by a property rule. In both cases, the owner of the right is in a position to force the would-be taker to negotiate a voluntary transfer of the particular entitlement. If the taker acts unilaterally (by simply refusing to perform, or by continuing to pollute), he can be compelled by an injunctive order to honour the owner's entitlement; and if he then refuses to honour the injunction itself, he may be forced to make a payment (not necessarily pecuniary) to the state or the promisee greater than that required to compensate the promisee for this loss.16 Bentham long ago made a similar point: 'Property is nothing but the basis of expectation: the expectation of deriving certain1advantages from a thing, which we are said to possess, in consequence of the relation in which we stand towards it.'' Applying Bentham's thesis to the thing of contract, one can quite readily perceive that contractual expectations are accorded widely diverse treatment in law. There is no doubt that all contractual entitlements are, at least in theory, valuable - the owner can assign the entitlement, receiving an immediate return rather than engaging in the risk and delay inherent in an executory transaction. He may, if a stranger interferes, obtain compensation for inducement of a breach of his con- tract which interferes with his expectations coming to fruition. And if his promisor fails to perform, he can often recover damages to compensate him for his losses. This wealth, however, is not property. It is property only if the law offers him the right to its continued existence, rather than mere compensation for its loss. As I have noted, however, this is not usually the case: 'Expectances are for most purposes not treated as property."8 Heinonline -- 32 U. Toronto L.J. 33 1982 34 UNIVERSITY OF TORONTO LAW JOURNAL Yet Calabresi and Melamed's contentions, with respect to the low cost of negotiation operating as an overriding incentive to the recognition of property rights (ie, the protection of entitlements by property rules), seem particularly apt in the contractual context. As Kronman points out, a priori the parties to the contract know one another, and thus one need not concern oneself with questions of search and identification,'g and many contracts, since they involve only two parties, obviate the difficulties caused by holdouts and free riders.