A. The Normative Principles of Corrective Justice

Corrective justice’s theory of the normative structure of private law interprets that practice as governing the norms of rightful interaction applicable between parties to a private transaction and as concerned with the rectification of transactional injustice.^{Footnote 24} It regards the parties as under a relation of equality that consists in each party having what is rightfully his. The relation is disrupted, thereby producing injustice, when there is a departure from this baseline of equality in that one party has too much or too little relative to the other, such as when one party realizes a gain and the other a corresponding loss.^{Footnote 25} Private law remedies rectify this injustice and re-establish the initial equality by simultaneously depriving one party of the gain and using it to replenish the other party’s deficiency.^{Footnote 26} Injustice is corrected when “the plaintiff recovers precisely what the defendant is made to suffer.”^{Footnote 27}

The correlativity of a private law remedy indicates that it rectifies an injustice because the injustice itself is correlatively structured.^{Footnote 28} Plaintiff and defendant are “connected as doer and sufferer of the same injustice”; what the defendant has done and what the plaintiff has suffered are “active and passive poles of the same injustice, so that what the defendant has done counts as an injustice only because of what the plaintiff has suffered, and vice versa.”^{Footnote 29} A remedy reverses the polarity of the injustice by making the defendant, initially the perpetrator of the injustice, the sufferer of the remedy. It treats the parties as correlatively situated because the injustice that it corrects is the same from both parties’ perspectives.

Private law expresses the parties’ correlativity through the concepts of the plaintiff’s right and the defendant’s correlative duty to not infringe that right. It regards the reasons that justify protecting the plaintiff’s right as the same as those that justify the existence of the plaintiff’s duty:

Thus, on a corrective justice theory of the normative structure of private law, a private law remedy corrects an injustice that the defendant perpetrated in breaching a duty to not violate the plaintiff’s right. The remedy transfers from the defendant to the plaintiff something to which the plaintiff had a right where the defendant’s possession of that thing is unjust. In these circumstances, there is “justificatory continuity”^{Footnote 31} between the transfer brought about by the remedy and both the content of the plaintiff’s right and the correlative object of the defendant’s duty. The correlativity that a private law remedy presupposes “is present only when the [defendant’s] gain represents something to which the [plaintiff] had a right of which he or she was deprived by the [defendant’s] wrongful conduct.”^{Footnote 32}

We can reach this same conclusion by taking a different route favoured by other corrective justice theorists. The normative structure of private law includes the ascription in civil proceedings of primary rights to plaintiffs—the familiar rights of contract, tort, property, unjust enrichment, and fiduciary law—that correlate with defendants’ primary duties to not interfere with those rights.^{Footnote 33} If the plaintiff proves a breach of his primary right and the defendant’s failure to discharge a correlative primary obligation, the defendant becomes liable for having committed a private law injustice. A remedial court order imposes on the defendant a liability to respond to the plaintiff’s grievance in the form of a secondary duty to transfer any gains accrued as a result of the breach to the plaintiff. This duty itself correlates with the plaintiff’s secondary right to have any loss occasioned by the breach restored through receipt of the defendant’s gain.^{Footnote 34} But this secondary right is simply the plaintiff’s primary right to the benefit accrued to the defendant in another guise.^{Footnote 35} The right survives its own violation and transforms into a right to redress.^{Footnote 36} The defendant’s secondary duty to redress reflects the reasons justifying his primary duty to refrain from infringing the plaintiff’s primary right because it derives from the continuing normative force of the primary right.^{Footnote 37} The secondary duty is “a rational echo” of the primary duty because, although the primary duty was not satisfied, the reasons for its recognition persist and “call for satisfaction in some other way.”^{Footnote 38} Hence, corrective justice regards a remedy as restoring to the plaintiff “something to which the plaintiff has some sort of normative entitlement.”^{Footnote 39} It corrects a wrong committed by the defendant by requiring him to redress the plaintiff’s right after having breached it by giving to the plaintiff what the plaintiff had a right to all along.

I pause here to observe that, at least for Weinrib, and for those who subscribe to his version of corrective justice, it is a crucial desideratum for a corrective justice account of a private law remedy such as disgorgement that the remedy is consistent with contemporary private law jurisprudence and doctrine. The general aim of a corrective justice theory of private law is to elucidate the abstract normative presuppositions indigenous to or immanent in private law, conceived as a coherent and systematic normative practice. It aspires to expound the internal structure of private law as it is actually practiced to “understand the law in its own terms”; it takes private law doctrine “at face value” to explain “the ways in which participants in a sophisticated legal system reason within the concepts that it provides.”^{Footnote 40} It is, therefore, necessary for a corrective justice account of a private law remedy to cohere with private law doctrine because it intends to explicate normative principles of private interaction that are specifically juridical in that they are seen as normatively grounding the decided cases that shape the actual practice of private law. As Weinrib writes:

That it is a desideratum of a corrective justice account of a private law remedy that it coheres with contemporary private law doctrine will be important to understanding both the critical and constructive arguments presented later in this paper.

B. The Nature of Contractual Right

If a remedy must restore to the plaintiff something to which the plaintiff had a right, a right that the defendant infringed by gaining that thing, it is not immediately obvious how standard contract remedies, which give to the plaintiff something that he would have received had the contract been performed, are consistent with corrective justice. Standard contract remedies do not appear to compensate the plaintiff for a loss of a right because the object transferred under the contract is not something to which the plaintiff had a right prior to the defendant’s failed performance. The defendant owns the object until the promised time of performance. The plaintiff has only an expectation of receiving it until that time, not a present right to it acquired at the time of contract formation. Thus, it appears that the standard loss-based measure of contract damages treats a plaintiff as entitled to the value of the object of a contract even though he is not its owner.^{Footnote 42}

To resolve this difficulty, Weinrib, Benson, and Botterell adopt a Kantian conception of contractual right. This conception characterizes contractual rights as a form of ownership that turns on the distinction between in personam and in rem rights.^{Footnote 43} Contractual right, like property rights, is a form of ownership in the sense that it “entails a right against and exclusive of another to possess, to determine the use of, and to alienate an object that is external to the person.”^{Footnote 44} It is an in personam right distinct from an in rem right, such as a property right, in virtue of its distinctive mode of acquisition.

According to Kant,^{Footnote 45} property rights and contractual rights are acquired rights—as opposed to one’s innate right of freedom and bodily integrity—that enable one to own something that is external to one’s self. A person acquires a property right by coming into first occupancy of an object that is in the initial condition of being unowned. The person unilaterally and without anyone else’s consent acquires an entitlement to the object against all other persons.^{Footnote 46} By contrast, contractual rights do not give persons rights to external objects at the time of contract formation. The promisee later comes into possession of the object transferred under the contract only at the time of performance, until which time the object is in the initial condition of being owned by the promisor. Hence, the eventual acquisition of the object is derivative and bilateral in that it is made possible only by the consent of the promisor. Contractual right is therefore a right against only the promisor to have the promisor perform a specific act to provide the promisee with the object of the contract at some future time, only at which time the promisor acquires a property right to that object as against the world. The promisee acquires a right to “another’s choice to perform a specific deed”^{Footnote 47} and comes to own it. His ownership entails his exclusive authority to possess, determine the use of, and alienate it, when the promisor simultaneously alienates his own right to choose whether to perform that deed.^{Footnote 48}

At the time of contract formation, a person acquires, not a right to the promised object that is proprietary and in rem in nature, but “an exclusive ownership right as against the defendant with respect to the latter’s promised performance.”^{Footnote 49} Thus, a defendant’s breaching the contract by failing to perform is a breach of duty because it deprives the plaintiff of something to which the plaintiff acquired a prior right. A contract remedy measured by reference to the plaintiff’s loss of this right—i.e., according to the value of the defendant’s promised act—corrects the defendant’s wrongful breach of duty by giving back to the plaintiff something to which the plaintiff had a prior right. The Kantian conception of the nature of contractual right as a right not to a thing but to another’s act resolves the difficulty of explaining how contract damages that aim to compensate for a lost expectation are consistent with corrective justice.^{Footnote 50}

C. The Puzzle of Disgorgement for Breach of Contract

The foregoing reconciliation of loss-based remedies for breach of contract and corrective justice generates a puzzle for reconciling the gain-based remedy of disgorgement of profits with corrective justice. To see why, we need to understand how corrective justice explains gain-based remedies for other private law wrongs, such as torts or trespass, as correcting a defendant’s violation of a plaintiff’s right and as restoring the plaintiff’s loss by requiring the defendant to give back to the plaintiff something to which the plaintiff had an antecedent right.

The Kantian conception of contract regards contractual rights as in personam rather than in rem. But it regards both proprietary and contractual rights as entailing “exclusive authority to determine the purposes to which the object of the right is put.”^{Footnote 51} If a person has a property right to an object, he is entitled to possess the object and determine its use and alienation in virtue of her ownership. Crucially, she is also entitled to any profits that accrue from the object’s disposition; “the profits are the owner’s as surely as the object that produced them.”^{Footnote 52} All others are under a correlative private law duty to not receive this profit. If someone other than the owner converts and sells the object for profit, or trespasses on it to conduct a profitable venture, a remedial court order to disgorge those profits corrects an injustice perpetrated by the defendant. By profiting, the defendant infringed the plaintiff’s proprietary right. A disgorgement remedy responds to that infringement by giving back to the owner “the value of the defendant’s usurpation of the plaintiff’s exclusive authority to determine the uses to which his or her property is put.”^{Footnote 53}

It might be thought that the same analysis applies where a promisor contracts to sell an object to a promisee, but, instead of delivering the object, fails to do so and sells the object to a third party at a profit. But what right of the promisee does the promisor infringe by, not only failing to deliver the object and exposing himself to damages measured by the promisee’s loss, but also selling the object at a profit? It is unclear how the promisee could have had a right to the gain accruing to the promisor through the sale of the object to the third party or how the promisor had a duty to not profit from the sale of the object. The profit “cannot be construed as in any way belonging to the plaintiff.”^{Footnote 54} It is, therefore, puzzling how a remedy of disgorging these profits can be consistent with corrective justice by compensating for the defendant’s deprivation of a prior right to the profits held by the plaintiff.^{Footnote 55}

The puzzle could be resolved if, at the time of contract formation, a promisee acquires a property right to the object of a contract from the promisor, including a right to the profits from the object’s alienation. The promisor’s availing himself of those profits by selling the object to a third party and breaching the contract would therefore constitute a breach of a private law duty to not interfere with the promisee’s antecedent right to the profits. A disgorgement remedy requiring the promisor to give those profits back to the promisee would give to the promisee what the promisee had a right all along. But we cannot accept this line of argument. To show how loss-based expectation damages for breach of contract are consistent with corrective justice, we must posit that at the time of contract formation a promisee acquires a right to the promisor’s performance of delivering the subject matter of the contract, not a proprietary right to the subject matter of the contract itself, which the promisee acquires only at the time of delivery, and a fortiori not a proprietary right to the proceeds from the subject matter’s alienation.

Weinrib concludes from this puzzle that disgorgement for breach of contract is inconsistent with corrective justice. If the property rights, and rights to profit from property, of a plaintiff are not violated when a defendant profits from breach of contract by selling the promised object at a gain, the defendant’s gain is not something acquired in breach of a duty to not interfere with a correlative right of the plaintiff. Disgorgement of the gain thus does not “render unto to the promisee what was the promisee’s.”^{Footnote 56}

A. Benson’s Attempted Reconciliation

Benson begins by emphasizing that, as a right of ownership, a promisee’s contractual right against the promisor gives the promisee a right to possess, use, or alienate the promisor’s performance of a specific act. The right is exercised at the time of performance, before which the promisee has the “authority to determine what is done with” the act, an authority that the promisor usurps by failing to perform.^{Footnote 57} Benson then introduces a factual distinction between contracts that give the promisee a right to what Botterell refers to as “generic performance” and those that give the promisee a right to “particular performance.”^{Footnote 58}

In contracts for particular performance, but not in contracts for generic performance, the subject matter of the contract is a unique object for which no market substitute is available.^{Footnote 59} For example, if a plaintiff P and a defendant D contract for D to deliver some 10 widgets to P, the contract is for generic performance. D has a contractual duty to act so as to provide P with any 10 widgets (this or that group of widgets, or some other group), not any unique widget. P’s correlative contractual right is that D so act. By contrast, if P and D contract for D to deliver a unique widget w to P, the contract is for particular performance. D has a contractual duty to act so as to provide w, and not just any widget, to P. P’s correlative contractual right is that D so act.

Suppose that P and D contract for the sale of 10 widgets. Benson holds that P acquires the generic performance of act ϕⁱ—“Deliver some 10 widgets.” D has a correlative duty to ϕⁱ in that by failing to ϕⁱ D withholds from P something that P owns. If D violates this duty, P can, as corrective justice requires, obtain a remedy measured by the value of what P lost, namely, the value of the act ϕⁱ. But nothing changes depending on whether D violated his contractual duty by simply failing to ϕⁱ for no reason or by failing to ϕⁱ in order to sell the 10 widgets stored for delivery to P to a third party at a profit. P’s right to ϕⁱ contained no right to the delivery of any particular 10 widgets such that D’s failure to deliver those particular 10 widgets by not ϕⁱ-ing constituted a violation of a duty to provide any particular widgets to P. Because the failure to deliver any particular 10 widgets is not as such an act contrary to ϕⁱ that deprives P of something that P owns through the contract, D’s sale of the widgets to a third party is not “a misappropriation of anything coming under the plaintiff’s exclusive rights as against the defendant.”^{Footnote 60}

Now, suppose that P and D contract for the sale of widget w. P acquires the particular performance of act ϕⁱⁱ—“Deliver widget w.” Benson holds that ϕⁱⁱ exhibits greater determinacy than ϕⁱ because it contains a specification for the delivery of a unique object w.^{Footnote 61} D has a correlative duty to ϕⁱⁱ such that D’s failure to ϕⁱⁱ withholds from P something over which P has exclusive authority. But, unlike ϕⁱ, ϕⁱⁱ includes delivery of w to P. This entails that D is no longer able to sell w to a third party without breaching a contractual duty owed to P. For Benson, D’s sale of w to a third party at a profit constitutes a wrong to P because “[t]the act of selling to the third party is identical to the act which has already been transferred to the plaintiff,” and the sale “represents a misappropriation by the defendant of what belongs exclusively to the plaintiff.”^{Footnote 62}

Benson concludes that in cases where a plaintiff acquires a right to the defendant’s particular performance due to the uniqueness of the object of the contract, the plaintiff acquires a right to the profits that might accrue to the defendant when the defendant breaches the contract to sell the object to a third party. Hence, disgorgement of those profits is reconcilable with corrective justice because it gives back to the plaintiff something to which the plaintiff acquired a right at the time of contract formation.

B. Critique of Benson’s Attempt

I do not think that Benson’s reconciliation can be sustained. In assessing the attempt, it is key to keep in mind that on a Kantian conception a contractual right is a right of ownership entitling the owner to possession, use, and disposition, including an entitlement to the profits derived from disposition. Suppose that at contract formation a promisee acquires a right to the promisor’s performance of a specific act. It follows that, in contracts for particular performance involving delivery by the promisor of a unique object, the promisor’s breach of the contract to sell that object to a third party and obtain a profit amounts to a breach of the promisee’s contractual right—which a disgorgement remedy corrects by giving those profits back to the promisee—if and only if the promisor profits from the disposition of an act over which the promisee has exclusive ownership. The required sort of disposition will exist if and only if the act disposed of by the promisor to obtain a profit is, as Benson states, identical to the act of the promisor over which the promisee acquired ownership at the time the parties formed their contract for particular performance.

Benson argues that the identity of the act disposed of by the breaching promisor and the act acquired by the promisee is attributable to the two acts’ identical objects.^{Footnote 63} Weinrib comments on this argument as follows:

These are relatively terse remarks. But I think that, once they are more thoroughly fleshed out and clarified, they can form the basis of a decisive objection to Benson’s position.^{Footnote 65}

Let us call the act of a promisor that is acquired by a promisee at the time of forming a contract for particular performance ϕⁱⁱ. And let us call the act of the promisor that the promisor alienates by profitably selling the object of that contract ϕⁱⁱⁱ. The promisee is entitled to the profits derived from the alienation of ϕⁱⁱ. Thus, for the promisor’s sale of the object to the third party to constitute a usurpation of the promisee’s ownership over ϕⁱⁱ so as to entitle him to the profits derived from the alienation of ϕⁱⁱⁱ, ϕⁱⁱ must be identical to ϕⁱⁱⁱ. Benson claims that ϕⁱⁱ and ϕⁱⁱⁱ are identical in virtue of their identical objects. Thus, he specifies both acts as follows: “Deliver object o.” But this mode of specification is not defensible.

First, while it may be justifiable to focus on the object to be delivered when specifying ϕⁱⁱ and ϕⁱⁱⁱ,^{Footnote 66} privileging such a focus at the expense of all other considerations is incongruous with the Kantian conception of contractual right, according to which all that a promisee acquires at contract formation is an act. Second, for ϕⁱⁱ and ϕⁱⁱⁱ to be truly identical, they must each mandate particular performances. Benson’s view is that ϕⁱⁱ must mandate particular performance. But it is only sufficient and not necessary for ϕⁱⁱⁱ to do so. A promisor who contracts to sell a unique object to a promisee need not also contract to sell that same unique object to a third party in order to sell that object to a third party at a profit; he need only contract to sell to the third party a generic object that falls in the same class of objects resembling the unique object and pick that unique object out of the class to sell. Third, Benson gives no justification for why the locations and times of performance for ϕⁱⁱ and ϕⁱⁱⁱ are not included in the acts’ specifications. If they are included, they must be identical for Benson’s argument to succeed. But they need not be for a promisor to profitably sell to a third party the unique object that he initially promised to sell to the promisee.

Most importantly, Benson’s specification of ϕⁱⁱ and ϕⁱⁱⁱ does not include the recipients of the objects delivered by these acts. This is problematic because through contract a person acquires an object only in the condition of it being owned by another person and hence acquires it only with the consent of the other. The creation of a contractual relationship between two persons “could only be consistent with the freedom of those persons if both of them participate in its creation.”^{Footnote 67} The fundamentally bilateral normative character of contractual acquisition, reflected in the doctrinal requirements of offer and acceptance, consensus ad item,^{Footnote 68} and privity,^{Footnote 69} suggests that one of the most important constraints on specifying ϕⁱⁱ and ϕⁱⁱⁱ is the specification of the deliveror and deliveree of the acts’ performances. Taking this constraint seriously yields the following reading of ϕⁱⁱ and ϕⁱⁱⁱ, respectively: “D delivers object o to P” and “D delivers object o to X”, where “D” and “P” are the defendant and plaintiff and “X” is a third party. The constraint of specifying the deliveror and deliveree of the object transferred by the performances of ϕⁱⁱ and ϕⁱⁱⁱ annihilates the identity of the two acts.

Hence, the profit flowing from promisor’s disposition of ϕⁱⁱⁱ to a third party cannot be seen as owned by the promisee. Although the promisee has a right to the profit flowing from the disposition of ϕⁱⁱ, and although the disposition of ϕⁱⁱⁱ to a third party is inconsistent with the performance of ϕⁱⁱ, ϕⁱⁱ and ϕⁱⁱⁱ cannot be seen as identical. What a defendant in an action for disgorgement for breach of contract sells for profit to a third party is not the particular performance of the defendant’s specific act of delivering a unique object to the plaintiff. The third party does not acquire a right that the defendant performs this act of delivery to the plaintiff or the defendant’s contractual duty to perform this act for the plaintiff. But this is the only act which the plaintiff has ownership of, and the only profits to which the plaintiff has an entitlement are those flowing from the disposition of this act. Therefore, the defendant’s breach of contract “is not an alienation of something that the promisee owned.”^{Footnote 70}

We are led to reject Benson’s attempted reconciliation of corrective justice with disgorgement for breach of contract. Let us move on now to consider Botterell’s attempt.

C. Botterell’s Attempted Reconciliation

Botterell’s attempt can be seen as a response to the problems facing Benson’s attempt. He adopts the distinction between contracts for generic performance, which give the promisee a contractual right to promisor’s act ϕⁱ, “D delivers some objects to P”, and contracts for particular performance for delivery of a unique object, which give the promisee a contractual right to promisor’s act ϕⁱⁱ, “D delivers object o to P.” We have seen that, in cases of particular performance where the promisor breaches the contract in order to sell the object to be delivered to a third party at a profit, disgorgement of those profits and their transfer back to the promisee is explicable by corrective justice if and only if, in so doing, the promisor alienates an act to which the promisee has an ownership right, including ownership of the profits accruing from its alienation, such that disgorgement of those profits restores to the promisor’s something that was rightfully his. Benson’s strategy is to argue that the act that the promisor alienates in such circumstances, ϕⁱⁱⁱ, is something to which the promisee has a right because ϕⁱⁱ is identical to ϕⁱⁱⁱ. Botterell’s strategy is to acknowledge the distinctness of ϕⁱⁱ and ϕⁱⁱⁱ but to argue that, at contract formation, the promisee acquires ϕⁱⁱⁱ as an implication of his acquisition of ϕⁱⁱ.

For Botterell, ϕⁱⁱⁱ is sufficiently “nearby”^{Footnote 71} to ϕⁱⁱ to give the promisor a right to ϕⁱⁱⁱ in virtue of his acquisition of ϕⁱⁱ from the promisee at the time of forming the contract for particular performance of delivery of a unique object o. Suppose that ϕⁱⁱⁱ is interpreted as “D delivers object o to X.” The promisor’s performance of this act is incompatible with ϕⁱⁱ because the performance of ϕⁱⁱⁱ makes the performance of ϕⁱⁱ impossible. Botterell argues that at contract formation, when the promisee acquires a contractual right to the promisor’s performance of a specific act ϕⁱⁱ, an “implicit” or “subsidiary” promise by the promisor arises as a kind of negative covenant that the promisee will not perform an act that is incompatible with ϕⁱⁱ.^{Footnote 72} So, the implicit promise is that the promisee consents to not ϕⁱⁱⁱ. The connection between ϕⁱⁱ and this implicit promise establishes for the promisee, at the time of contract formation, a contractual right to the promisor’s performance of ϕⁱⁱⁱ such that the promisor has exclusive authority over the possession, use, and disposition of ϕⁱⁱⁱ as the owner of ϕⁱⁱⁱ.^{Footnote 73} Thus, if the promisor alienates ϕⁱⁱⁱ to a third party and realizes a profit, he “transfers something that was not [his] to transfer” and the promisee “can legitimately complain that the profit belongs to him.”^{Footnote 74}

D. Critique of Botterell’s Attempt

There are two difficulties with Botterell’s attempted reconciliation of disgorgement for breach of contract with corrective justice. The first is conceptual and the second has to do with the attempt’s fit with contemporary private law doctrine. I discuss each in turn.

A. Preliminary Remarks

On a corrective justice account of disgorgement for breach of contract by analogy with fiduciary remedies, a contractual relationship must be construed as distinct from any fiduciary-like relationship arising between the contracting parties, yet still influencing that relationship. The rights and duties created by the fiduciary-like relationship are separate from the parties’ contractual rights and duties, even if the violation of the plaintiff’s contractual right can amount to a violation of his separate right to the defendant’s loyal exercise of discretionary power.

Fiduciary rights and duties arise when a fiduciary relationship exists. A fiduciary relationship is a distinctive kind of legal relationship. So is a contractual relationship. A person’s acquisition of contractual rights is normatively justified by the bilateral consent of the parties to the relationship. When a person incurs a contractual obligation to perform a specific act, he does so only because he consents to perform that act. He puts himself under the obligation. The requirement to perform is not a limitation but an expression of his freedom because it derives from his consent.^{Footnote 133}

By contrast, a fiduciary relationship is based on the relative status of the parties to the relationship. It is asymmetrical and unequal. When the beneficiary invests legal capacity in the fiduciary and acquires a right to the fiduciary’s discretionary power, the fiduciary holds a position of dominance over a beneficiary, whose practical interests’ advancement depends on and is vulnerable to the fiduciary’s discretion. The fiduciary’s authority to exercise discretion in relation to the beneficiary’s interests is an authority to judge whether and how this discretion should be exercised. It follows, contrary to what some have argued,^{Footnote 134} that fiduciary relationships are not justified by the consent of the beneficiary. After investing legal capacity in the fiduciary, the beneficiary cannot consent to the manner in which the fiduciary exercises discretionary power because the exercise of this power is dependent on the fiduciary’s judgment. Arthur Ripstein writes that “the beneficiary is not in a position to consent or decline to consent,” and that “the inherent inequality or vulnerability of the relationship makes consent necessarily problematic.”^{Footnote 135} In short, whereas the bilateral normativity of contractual relationships is marked by the parties’ consensual independence, that of fiduciary relationships is marked by the parties’ interdependence.

Fiduciary relationships can be, and frequently are, created by contract, and the parties can consent ex ante to adjust the terms of fiduciary rights and duties. But the normative justification of fiduciary relationships is not reducible to consent or capable of being understood in terms of contract. For one thing, it is not necessary for a fiduciary relationship to be founded on consent—the parent-child fiduciary relationship provides an example.^{Footnote 136} More fundamentally, once a person invests legal capacity in another, even by contract or consent, the bilateral norms implicated in the parties’ interaction change, are imposed objectively by law, and outrun the parties’ voluntary expressions of their wills.

The nature of contractual obligation presupposes the independence of the parties, who interact at arm’s length and mutually disinterestedly.^{Footnote 137} When a person consents to put himself under a contractual obligation, his obligation expresses his freedom in that it constrains him to behave only as he dictated ex ante at contract formation. He need not go any further than performing the specific act that he consented to perform (subject only to a requirement of good faith performance^{Footnote 138}). Other than looking to the terms of the specific act he initially consented to perform as a self-imposed limit on the pursuit of his own interests, the promisor need not altruistically promote the interests of the promisee as they develop ex post. Because contractual obligations are fixed ex ante by consent at contract formation in this way, the parties, as Daniel Markovits observes, “engage each other only through the medium and on the terms of their contracts,” and a promisor “takes her promisee’s intentions, as expressed in the contract, at face value. She need not … engage her promisee in any other respect, including altruistically, in respect of her ex post beliefs about his interests.”^{Footnote 139}

A promisee’s investment of his legal capacity in the promisor, even if by consent, alters the promisor’s duties in giving the promisor discretionary power to affect the promisee’s practical interests. The parties now interact, not simply through the medium of a contract, but through their interdependence. The promisee—now a beneficiary—is vulnerable to and dependent on the promisor’s—now the fiduciary’s—exercise of discretionary power in respect of his practical interests. The fiduciary’s duty is now to exercise his discretion in way that avoids bringing himself into a conflict of interest. His pursuit of others’ interests is not now limited only by the ex ante consensual terms of his contract with the beneficiary, but also by the ex post and variable interests of the beneficiary, which he cannot now ignore and must take into account. The fiduciary must take an open-ended initiative in pursuing the interests of the beneficiary as a surrogate for the legal capacity of the beneficiary and exercise discretion, not in a self-interested or disinterested fashion, but in an other-regarding fashion that is shaped by the beneficiary’s interests. The open-endedness of the fiduciary’s mandate requires him to judge how to he must sometimes go further than what is consented to ex ante in any contract to secure the beneficiary’s ex post interests. He must make his determination independently of the beneficiary’s consent, subject not to the will expressed in the contract but to the legal regime regulating fiduciaries and enforceable by courts.^{Footnote 140}

A corrective justice account of disgorgement for breach of contract by analogy to fiduciary remedies must preserve the irreducibility of the fiduciary-like relationships it posits to those contractual relationships with which they overlap. Fiduciary and contractual relationships must be treated as distinctive, yet interrelated. The former are consent-based while latter are status-based.

B. Developing the Account

Two questions must now be answered. First, how can a contract sometimes give rise to a distinct fiduciary-like relationship between plaintiff and defendant and impart to the plaintiff a right to the defendant’s loyal exercise of discretionary power? Second, how can a profitable breach of the contract constitute a breach of this right of the plaintiff such that disgorgement of profits restores to the plaintiff something that he had an antecedent right to?

To soften the reader, at the outset I note that the cohabitation or overlapping of a contractual and a fiduciary-like relationship is not a phenomenon that is foreign to private law. It is a familiar feature of employment contracts. Employment contracts are created voluntarily by employer and employee. But, unlike contracts for services, they incorporate a certain amount of indefiniteness in that the employee consents to open-endedly perform a set of tasks for and receive direction from the employer in exchange for wages.^{Footnote 141} The employee incurs a duty of loyalty to act in the best interests of the employer in carrying out his job responsibilities that the employee breaches by, for example, appropriating the employer’s confidential trade secrets learned in the course of work and using them to assist a competitor’s business.^{Footnote 142} He also incurs a duty to obey reasonable orders issued by the employer.^{Footnote 143} The control exerted over the employee by the employer entails that the employee sometimes acts as a surrogate for the employer’s legal capacity, such as when he enters into contracts on behalf of the employer or commits a tort for which the employer is held vicariously liable.^{Footnote 144} The economic dependence of the employee on the employer also imposes on the employer a duty to give reasonable notice of termination of the employment contract and a duty of good faith in the manner of termination.^{Footnote 145} These features of employment contracts indicate that they are characterized by the cohabitation of a consensual relationship and elements of a kind of status relationship between the parties.

In general, a fiduciary-like relationship is superimposed over a contractual relationship between promisor and promisee in cases where the factual circumstances gathered together and encompassed by the parties’ transaction, including the subject matter of the contract and the specific acts acquired by the parties, are such as to bring into existence, in addition to contractual rights and obligations, the definitive and structural properties of fiduciary relationships identified by Miller. In such cases, the promisor’s exercise of discretionary power has the potential to affect the promisee’s practical interests. The promisor’s authority to do this displaces the parties’ ex ante independence in that the promisee becomes dependent on and vulnerable to the promisor’s exercise of discretion ex post.

An example is where the facts encompassed by the parties’ transaction include the promisor’s receipt of confidential information of the promisee such that the promisor’s discretionary power to disclose that information can set back the promisee’s practical interests. For example, as in Blake and in other employment contracts, the promisor may exchange services for wages and, in the course of his service, gain access to confidential information. Or, the promisee may share confidential information, such as architectural blueprints or the location of valuable resources, with the promisor as part of a joint business venture.^{Footnote 146} In these cases, the discretionary power of the promisor to disclose the confidential information would adversely affect the promisee’s interests, such as his interests in competitive or financial advantage (or, where the promisee is a government entity as in Blake, the public interest). Therefore, under Miller’s principles, a kind of status relationship characterized by the promisee’s dependence and vulnerability to the promisor’s discretionary power comes to cohabit with the parties’ consent-based contractual relationship.

To be sure, in many ordinary contractual relationships, the promisor’s failure to perform the act he consented to perform can set back the practical interests of the promisee. The promisee then becomes vulnerable to and dependent on the promisor’s choice to perform his contractual duty. This will occur, of course, only if completion of the relevant transaction is beneficial to the promisee. However, setting this point aside, it does not follow from the possibility of any breach of contract setting back a party’s practical interests that every contract gives rise to an overlapping status relationship that requires the promisor to adjust his pursuit of his own interests to safeguard the promisee’s ex post interests. In ordinary contractual relationships, the promisee may have the factual ability to choose whether to advance the promisee’s practical interests by performing his contractual duty. But he lacks the rightful power to exercise discretion over whether to do so. Indeed, he is rightfully constrained to perform the act he consented to perform. By his consent he puts himself under a juridical obligation to perform that act. Hence, the definitive and structural properties of fiduciary relationships identified by Miller do not materialize.

A status relationship comes to be superimposed over the parties’ consent-based contractual relationship only where it can be said that the promisor has the rightful power, rather than a mere factual ability, to exercise discretion in a manner that affects the promisee’s practical interests. This power exists only where the objective circumstances are such that, irrespective of what the parties consented to, the private law regime sees fit to impose on the promisor a duty of loyalty to exercise this discretionary power in the promisee’s best interests in virtue of the promisee’s investment of legal capacity in the promisor. In these special contractual relationships where the promisor’s discretionary power can affect the promisee’s interests, the promisee’s legal capacity—a tool used to advance the promisee’s interests—is invested in the promisor. Because the promisee has a right to and ownership of his legal capacity, he retains a right to it when it is invested in the promisor in the form of the promisor’s discretionary power to affect the promisee’s interests. He thus has a right, added to his contractual right, that the promisor exercise discretion loyally and not in conflict with the promisee’s interests. This right correlates with the promisor’s duty to avoid disloyal conflicts of interest. It adds to but outruns his ex ante-consented-to contractual duty to perform the act alienated through the contract and requires him to tailor his exercise of discretion in accordance with the promisee’s ex post interests.

Now, there is an important caveat to note. The kind of status relationship superimposed over but distinct from the parties’ contractual relationship on the account of disgorgement for breach of contract developed here is, as suggested by the Lord Nicholls and Lord Steyn in Blake, not a fully-fledged fiduciary relationship, but “akin to” or “closely analogous to” a fiduciary relationship. This is because the scope of the promisor’s duty of loyalty is circumscribed by the factual circumstances encompassed by the parties’ transaction, and, more precisely, the particular practical interests of the promisee that are potentially affected by the promisor’s exercise of discretionary power as defined by those circumstances. The duty owes its existence to the status of interdependence and vulnerability set up by the facts immediately surrounding the contract, which include but are not exhausted by the contractual obligations the parties consensually impose on themselves ex ante. The contract brings together facts that establish the interests that the promisor must loyally avoid coming into conflict with. It is only these interests to which the promisor must adjust his ex post exercise of discretion to in order to avoid a conflict of interest.

To illustrate, consider the contract discussed above involving the transfer of confidential information about the location of a valuable resource between promisor and promisee as part of a joint venture. The promisor’s duty of loyalty arising out of the facts of this contractual relationship is circumscribed. It requires avoiding conflict with only those practical interests of the promisee, such as the interest in financial gain from the joint venture, that are implicated in the facts encompassed by the contract. The promisor need not, pursuant to this specific duty of loyalty, avoid conflicts with the promisee’s interest in, say, competent litigation in a civil proceeding, as he would if he were the promisee’s solicitor and therefore a fully-fledged fiduciary.^{Footnote 147}

So, on the account of disgorgement for breach of contract developed here, the facts immediately surrounding the contractual relationship between the promisor and promisee anchor the right to the promisor’s loyal exercise of discretionary power that the promisee acquires in cases where a kind of status relationship additionally obtains between the parties. That status relationship cohabiting with the contract, therefore, does not rise to the level of a fully-fledged fiduciary relationship. A fiduciary relationship, as we have seen, does not necessarily arise out of a contractual relationship between fiduciary and beneficiary. Rather, it requires the fiduciary to exercise discretion in relation to the beneficiary’s ex post interests in a more open-ended way that is defined by the totality of the facts constituting the parties’ interdependence and vulnerability, including those facts not gathered together by any contract.

Consider an example of a contractual agreement that creates a status relationship between the parties that does amount to a fiduciary relationship, such as a contract for the transfer of antibiotics from doctor to patient. The fiduciary doctor’s duty of loyalty requires him to avoid conflict with the beneficiary patient’s interest in receiving medical services by, say, giving the patient drugs from whose distribution the doctor receives profit from a pharmaceutical company. But this duty is not circumscribed by the facts of the parties’ contract for the transfer of drugs. It requires the doctor to avoid conflicting with other interests of the patient that are defined by the totality of facts constituting the parties’ interdependence and vulnerability without regard to the contract. Thus, the doctor breaches the fiduciary duty of loyalty (while committing criminal and other private law wrongs) by sexually exploiting the patient.^{Footnote 148}

Let us now turn to the second question—concerning how the promisor’s breach of contract in order to receive profit from a third party constitutes a breach of the promisee’s right to the promisor’s loyal exercise of discretionary power. It must be emphasized that, on the account of disgorgement for breach of contract developed here, a contractual relationship with which a fiduciary-like relationship overlaps is distinct from but influences the fiduciary-like relationship because its normative character is grounded in consent rather than status. Through it, the promisee acquires the promisor’s performance of a specific act, which the promisor consensually alienates. He does not acquire a contractual right to the promisor’s open-ended exercise of discretion. It is only through the concurrent status relationship that the promisee invests his legal capacity in the promisor and acquires a right to the promisor’s discretionary power. Hence, the account developed here contrasts with Benson’s and Botterell’s accounts of disgorgement for breach of contract. Benson and Botterell maintain that disgorgement is appropriate in cases of contracts for particular performance where the promisor profits from the alienation of something that the promisee owns as part of the promisee’s contractual rights.

Yet, on the account developed here, profitable breach of a contract that is concurrent with but distinct from a fiduciary-like relationship can cause a breach of the duty of loyalty entailed by the latter relationship. The contractual breach, to use a phrase coined by Birks, can function as a “causative event”^{Footnote 149} of the breach of duties entailed by the concurrent fiduciary-like relationship on this account. But it does not at the same time function as the normative wrong that the latter breach represents and that the private law remedy of disgorgement corrects. The relevant normative wrong instead consists in a breach of a concurrent duty of loyalty. This breach stems from the investment of legal capacity in the promisor by the promisee that gives the promisee ownership of the promisor’s discretionary power. In turn, it constitutes a causative event that gives rise to the central reason for imposing liability to the promisee on the promisor.^{Footnote 150} In this respect, a profitable breach of contract can give rise to liability to disgorge those profits even though it does so only by causing a profitable breach of the terms of an overlapping status-based relationship.

Thus, just as the movement of a puppeteer’s hand can pull strings to cause movement in a marionette puppet without the puppeteer being identical to the puppet, the promisor’s failure to perform the act that he has a contractual duty to perform, in violation of the promisee’s correlative contractual right to that act’s performance, in order to gain a profit from a third party can cause the promisor to come into conflict with the practical interests of the promisee as defined by the facts encompassed by the parties’ contractual relationship. Recall that it is these interests, as argued above, that are affected by the promisor’s exercise of discretionary power. They define the scope of the promisor’s fiduciary-like duty to exercise discretion loyally and without conflict with others’ interests, including the promisor’s own interests.

Because the concurrent status relationship between the parties invests the promisee’s legal capacity in the promisor, the promisee acquires an ownership right to the promisor’s discretionary power. The promisor misappropriates this right, and he treats it as his own to use to pursue his own interests, when he enters into a conflict with the promisee’s interests by failing to perform the act acquired by the promisor through the parties’ contractual relationship in order to pursue his own interest in profit. The promisee had a right to the profits as surely as he had ownership of his own legal capacity when substituted with the promisor’s discretionary power. The promisor violates this right by receiving the profits in his capacity as a surrogate for the promisee’s legal capacity through the exercise of his discretion in conflict with the promisee’s interests. A court order in a civil proceeding that requires the promisor to give the profits back to the promisee therefore restores to the promisee something to which he had a prior right that was infringed by the promisor, as is mandated by the normative principles of corrective justice.

This completes the development of the corrective justice account of disgorgement for breach of contract by analogy to fiduciary remedies. Before concluding, it may prove helpful to illustrate the account using an example.

Suppose that a plaintiff and a defendant enter into a contractual relationship whereby the plaintiff agrees to share confidential architectural blueprints with the defendant as part of a joint venture. Suppose also that the plaintiff acquires a right to the defendant’s performance of the specific act of constructing a building to be used to operate the joint venture. The defendant’s power to exercise discretion as to whether to disclose the blueprints to a competitor can set back the plaintiff’s interest in financial gain from the joint venture. It creates a status relationship between the parties, with the plaintiff now vulnerable to and dependent on the defendant’s exercise of discretionary power, that cohabits with their contractual relationship. Suppose that the defendant breaches the contract by failing to perform the act of construction in order to save on expenditures and sell the blueprints to the plaintiff’s competitor and gain a profit. Corrective justice stipulates that this infringement of the plaintiff’s contractual right entitles him to the value of the defendant’s performance.

However, concurrent with this liability to pay expectation damages, the defendant has put his own interest in profit into conflict with the plaintiff’s interest in financial gain or competitive advantage from the joint venture. The fiduciary-like relationship overlapping with the parties’ contractual relationship invests the plaintiff’s legal capacity to pursue his financial and competitive interests in the defendant and gives the plaintiff an ownership right to the defendant’s loyal exercise of discretionary power in matters affecting these particular interests of the plaintiff. It also gave him a right to the profits accruing from the exercise of this power in conflict with these interests. The defendant had a correlative duty to avoid coming into conflict with the plaintiff’s financial and competitive interests, as those interests are defined by the factual circumstances encompassed and gathered together by the parties’ contract, and profiting as a result. The defendant’s failure to perform his contractual obligation therefore caused him to violate this duty and the plaintiff’s correlative right. Corrective justice stipulates that the defendant must disgorge the profits he received and restore them to the plaintiff. This remedy corrects the defendant’s violation of the plaintiff’s right to the profits and gives back something to which the plaintiff had a right to all along.