I. INTRODUCTION
In “The Path of the Law,” Justice Holmes, seeking to wash mysticism about rights and duties in a “cynical acid,” famously wrote: “The duty to keep a contract at common law means a prediction that you must pay damages if you do not keep it—and nothing else.”Footnote 1 Economic theorists of contract law have embraced and extended Holmes's view. They have defended the idea that the contractual obligation is disjunctive—that it is an obligation either to perform or to pay damages.Footnote 2 However, most contract law scholars reject the disjunctive understanding of the contractual obligation as both morally indefensible and wrong as a matter of settled doctrine.Footnote 3 They argue that the promisee has a right to performance and that this is true both normatively and descriptively. Normatively, some say that contract law enforces or at least tracks the moral obligation to keep one's promises.Footnote 4 Others say that through contract the promisee acquires a right to the promisor's deedFootnote 5 or to the thing promised.Footnote 6 Descriptively, they say that a disjunctive obligation cannot be reconciled with several settled doctrines of contract law, namely, the availability of specific performance, the tort of inducing breach of contract, the doctrine of impossibility, the rule against preexisting duty consideration, and the availability of nominal damages for breach of contract.Footnote 7
In this essay, I argue that the common law contractual obligation is indeed disjunctive, but not for the reasons given by Holmes or by the economists who have followed in his footsteps.Footnote 8 Against its moral critics, I argue that the disjunctive understanding of the contractual obligation, far from being the amoral heresy it is widely believed to be, is required and morally justified by a right-based understanding of contract law. Against its doctrinal critics, I argue that the disjunctive understanding provides the most satisfactory interpretation of the contract remedy and can be reconciled with all the doctrines that others take to be decisive arguments against it.
II. WHAT DOES THE REMEDY FOR BREACH TELL US ABOUT THE CONTRACTUAL OBLIGATION?
For Holmes, the disjunctive view of the contractual obligation followed from a straightforward interpretation of the contract remedy. The ordinary remedy for breach of contract is not an order to perform but rather an award of expectation damages: “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.”Footnote 9 And so Holmes, who thought law should be understood from the perspective of the bad man for whom sanctions are prices, concluded that the contractual duty is nothing more than a duty to pay damages for a failure to perform.
But we cannot, of course, reason directly from the remedy for breach of an obligation to a conception of the obligation itself.Footnote 10 It obviously does not follow from the fact that the penalty for speeding is a ticket for $100 that the driver's obligation is to “obey the speed limit or pay $100”; the driver's obligation is to obey the speed limit and the ticket is a sanction for failure to do so, not an alternate way of fulfilling the obligation. The punishment for theft is imprisonment, but the obligation is not either to refrain from taking another's property or go to jail; the obligation is to refrain from taking another's property, and jail is the punishment for, not merely the price of, breach.
Although we cannot reason directly from the remedy to the obligation, however, there are features of the contract remedy that give us reason to think that contractual obligation in particular is disjunctive—that it is an obligation to perform or pay—and that the bare failure to perform is therefore not a wrong.Footnote 11 Put simply, we do not treat a failure to perform a contract the way we treat other acts we regard as wrongful. For example, whereas injury to body or property is a tort if committed carelessly but a crime if committed intentionally, an intentional breach of contract is not by itself a crime.Footnote 12 Furthermore, in tort law, punitive damages are permitted in addition to compensatory damages in cases where the defendant has calculated that she can profit by violating the plaintiff's right even taking into account the compensatory damages that will have to be paid for the violation;Footnote 13 in other words, in tort law, punitive damages prevent the defendant from treating compensatory damages as the price of violating the plaintiff's right. By contrast, intentional and profit-driven breaches of contract do not trigger punitive damages.Footnote 14 As a general rule, contract law draws no distinctions between intentional and unintentional breaches. And whereas the wrongful use of another's property is remedied by a disgorgement of profits, the one who breaches a contract is, in general, permitted to keep any profits or savings that result from breach.Footnote 15
Moreover, it is a striking feature of the contract remedy that a court does not order performance even when performance is possible.Footnote 16 This clearly distinguishes the contract remedy from the tort remedy. In negligence, for example, if the plaintiff has made out her claim, it is too late for the court to order the defendant to perform her primary duty to take care not to cause harm; the causation of harm is an element of the tort and once harm has been caused, the only thing the court can do is order compensation. In cases of breach of contract, however, performance of the contract will frequently be possible. I may agree to sell you my copy of David Copperfield and then change my mind. Although performance is possible, a court will order me to pay you damages—only if you can't find the book for the same price somewhere else—not hand over the book. If you take the book, this will be understood as theft, not self-help. In cases of anticipatory breach, one party declares to the other her intention to breach the contract. Performance may yet be possible; breach is merely anticipated.Footnote 17 Nevertheless, the remedy for anticipatory breach is damages, not an order to restrain breach.Footnote 18 This again contrasts with tort law, where the quia timet injunction allows a court to order the defendant to cease her activity if the plaintiff can show that harm to her is imminent.Footnote 19
If the contractual obligation were an obligation to perform, we would expect that where performance is possible, the court would order it; and we would expect that where breach is anticipated, the court would restrain it. On the prevalent view of the contractual obligation (that it is an obligation to perform), courts, in treating damages as the presumptive remedy for breach, must be understood as incoherently choosing a second-best remedy when the best is available. Not only that. If it is true that the contractual obligation is to perform, a court that orders damages when performance is possible thereby authorizes a legal wrong.
We can make sense of all these features of the legal response to breach of contract, however, if the contractual obligation is disjunctive. Intentional breaches of contract are not crimes and do not warrant punitive damages because the bare failure to perform is not a wrong. The one who doesn't perform is entitled to keep the profits or savings from nonperformance and a court will not, as a general matter, order performance, restrain an anticipated breach, or regard a taking as self-help, because the plaintiff has no right to performance. The plaintiff's right is to performance or to the monetary sum that puts her in as good a position as she would have been in had the contract been performed.Footnote 20
The response to these arguments from those who believe that the plaintiff has a right to performance takes three main forms. The first response argues that, notwithstanding judicial pronouncements to the contrary, an order of specific performance is an ordinary contract remedy. The second argues that damages, properly understood, vindicate the right to performance. The third argues that although the plaintiff has a right to performance, that right is overridden by other considerations that favor an award of damages. I'll consider these responses in turn, examining whether or not they constitute plausible interpretations of contract doctrine.
It is sometimes argued that although judges say that damages are the presumptive remedy in contract and that specific performance is exceptional, this is not true as a matter of practice. The most common action in contract is the action for an agreed sum—that is, for debt—and the remedy for this action is an order to pay the agreed sum.Footnote 21 The claim for payment of an agreed sum does not appear to be a claim for damages, at least as damages are usually understood, for the claim does not depend on showing loss and there is no requirement of mitigation.Footnote 22 If A and B agree that B will pay $500,000 for the construction of a house and A constructs the house but receives no payment, A is entitled to the agreed sum of $500,000, in other words, to exactly what she was promised. The contractual remedy for the failure to pay an agreed sum is thus often referred to as a performance remedy because it looks just like specific performance; it's a remedy that directs the defendant to do what she promised to do.Footnote 23 Moreover, the order to pay the agreed sum is the standard remedy for breach of a contract to pay an agreed sum, available to the plaintiff as a matter of right.Footnote 24 And since debt is the action with “the greatest practical weight in the affairs of daily life,”Footnote 25 the order to pay the agreed sum is used to show that the common law, as a matter of practice, frequently recognizes and vindicates the plaintiff's right to contractual performance.
However, the foregoing argument rests on a confusion between the origin of the action for debt and its modern form. When a person was owed a debt, he had a remedy in law long before the law of contract was born.Footnote 26 Historically, the source of the defendant's duty to repay a debt was not found in any promise to repay. Rather, it lay in the fact that he had the plaintiff's property;Footnote 27 the creditor was treated as the owner of the money that was owed.Footnote 28 When the source of the defendant's duty to pay was proprietary rather than promissory, the remedy was proprietary as well: it was a straightforward return to the plaintiff of what was his.
The action for debt was eventually submerged in the law of contract, and the law of debt has become, as A.V. Levontin puts it, “contractualized,”Footnote 29 so that debt obligations are most often treated as arising from the promise to pay an agreed sum. Accordingly, the question for us is whether the original remedy—the order to pay the sum due—that was historically conceived as proprietary can nevertheless now be understood as an instance of contract law's normal remedy of expectation damages. I think that it can.
In the case where A builds a house for B on B's property in exchange for a promise to pay $500,000 and B doesn't pay, A need not demonstrate loss because the loss is necessarily equal to the agreed-to sum: A has spent time, money, and effort building a house that is in B's possession and hasn't been paid for it. A can't sell the house to someone else and the labor obviously can't be recovered, so there is no yardstick by which to measure loss beyond the contract price. Similarly, there is no requirement of mitigation, not because A has a right to B's performance, but because, once the house is built on B's property, mitigation is impossible. Again, because mitigation is impossible, the damages are measured by the sum agreed to. That is the amount needed to accomplish what the expectation remedy is supposed to accomplish: putting A in the financial position she would have been in had the contract been performed.
The foregoing analysis explains why the order to pay the sum due depends on property having passed from the seller to the buyer.Footnote 30 It is significant that if we change the facts so that A builds B a prefabricated house in A's factory in exchange for a promise to pay $500,000 and B refuses to take delivery and pay the money, A's remedy will depend on showing loss and the possibility of mitigation. That is because the house is still in A's possession and so it remains a question what she has lost by the breach. If she can resell it at the same price or higher, she hasn't lost anything and the damages she recovers will be merely nominal. The action for the agreed sum, though once conceived as a proprietary action with a proprietary remedy, is now conceived as an action in contract and its remedy is the expectation measure of damages.Footnote 31 Its availability to the plaintiff as a matter of course thus does not refute the settled principle of contract law, which is that expectation damages are the usual remedy and specific performance the exception.
Peter Benson has a different response to the argument that contract damages do not vindicate the plaintiff's right to performance. When it comes to the remedy for contract breach, Benson argues, the fundamental questions are these: “[W]hat is the promised performance and which remedy ensures that the plaintiff receives this and not something else?”Footnote 32 Sometimes, a reasonable interpretation of the contract is that the plaintiff is promised something generic. For example, suppose a salesperson at a car dealership promises a customer a brand-new 2021 Toyota Camry. A reasonable interpretation of this contract may be that it is a promise of any brand-new 2021 Toyota Camry. If the dealership breaches this contract, a damage award ensures that the customer receives the very thing she was promised if it represents the amount of money over the contract price that she needs to buy a brand-new 2021 Toyota Camry from any other dealership. On the other hand, sometimes a reasonable interpretation of the contract is that the plaintiff is promised something unique. Suppose A agrees to sell to B, a collector of celebrity-owned vehicles, the 2016 Porsche previously owned by Jerry Seinfeld. If A breaches this contract, only a remedy of specific performance will ensure that B receives the very thing promised. Since it is the law that the plaintiff will receive damages where the good promised is generic and specific performance where the good promised is unique, Benson concludes that both expectation damages and specific performance vindicate the plaintiff's right to receive the very thing promised.Footnote 33
Suppose, however, that A agrees to sell to B her own gently used 2005 Toyota Camry. It is implausible to interpret this as a promise of a generic good. It's not a promise of any 2005 Toyota Camry; it's a promise of this car. But although the promised good is particularized, it's not unique; in other words, there are other cars on the market that would reasonably be viewed as substitutes. Nevertheless, if the contract remedy vindicates the plaintiff's right to receive the very thing promised, we would expect this to be a case for specific performance, since damages would force the plaintiff to be satisfied with a reasonable substitute for what was promised. And yet, in contracts for goods that are particularized but not unique—for example, plot 105 in subdivision X or a set of chairs being sold at auction—courts will order damages for breach, not specific performance.Footnote 34 Benson does not consider this in-between category of goods that are neither unique nor generic. Yet in cases involving such goods, the damage award cannot plausibly be understood as vindicating the plaintiff's right to receive “the very thing” she was promised; on the contrary, that is precisely what the damage award appears to deny.
I turn now to the third type of response to the arguments made above, which is that although the plaintiff has a right to performance of the contract, other considerations favor an award of damages. It is, of course, often the case that after breach, performance is no longer possible, and some have suggested that this difficulty is so widespread that it explains why courts default to damage awards rather than orders to perform.Footnote 35 Others have argued that although the plaintiff is entitled to performance, the burden of court supervision explains why damages are nevertheless the normal remedy.Footnote 36 Still others argue that the plaintiff's entitlement to performance is balanced against the defendant's right to liberty, and that balance favors damages over specific performance.Footnote 37
None of these explanations constitute plausible interpretations of the law. If the plaintiff had a right to performance that could be overridden by other considerations, we would expect that performance would be the default remedy and that damages would be awarded only upon the defendant showing that performance was not possible, or would require too much court supervision, or infringe the defendant's liberty in some significant way.Footnote 38 Yet there is no such burden on the defendant. On the contrary, the burden is on the plaintiff to show why the court should depart from the normal remedy of damages.
The only plausible interpretation of the contract remedy is that the plaintiff does not have a right to performance. Her right is either to performance or to be put in the financial position she would have been in had the contract been performed. This is not merely a prediction of what courts will do as a matter of fact. Rather, it is a statement of the contract remedy that coheres best with contract doctrine as a whole. Most importantly, the argument for the disjunctive obligation does not derive obligation from remedy in a way that would turn all legal sanctions into prices. This is the concern that animates much of the criticism of the disjunctive understanding of the contractual obligation. For example, John Finnis poses this question: If the contractual duty is a duty to perform or pay, then “what is this ‘duty to pay’? Is it only a duty either to pay or to submit to the sheriff or bailiff when he comes to enforce payment by seizing one's goods? And is the ‘duty to submit’ only the duty to either submit or accept liability for assault and/or contempt of court?”Footnote 39
But the disjunctive understanding of the contractual obligation need not lead us to the implausible conclusion that all legal obligations are disjunctive and that sanctions stipulate alternate ways of fulfilling our duties. As I have tried to show, the disjunctive understanding is specific to contract law. It is the only interpretation of the defendant's contractual duty that renders it correlative to the right that the contract law remedy actually vindicates.Footnote 40 This conclusion arises from features of the remedy that are unique to contract law: its general exclusion of punitive damages or gain-based measures of compensation, its indifference to the distinction between intentional and unintentional breaches (and the criminal law's not treating intentional breach as a crime), its general refusal to order performance or restrain breach even when the good is particularized and performance is possible, and its failure to treat a performance remedy as the default position. The legal remedy for nonperformance is indifferent to the plaintiff's interest in performance. This suggests that, from the perspective of contract law, nonperformance is not a legal wrong. The question now is whether this position can be normatively justified.
III. A MORAL DEFENSE OF THE DISJUNCTIVE OBLIGATION
It is generally assumed that a disjunctive understanding of the contractual obligation is morally indefensible. For many, the reason for this assumption is that contracts frequently involve promises, and it is generally thought that it is a fundamental principle of interpersonal morality that promises should be kept.Footnote 41 It is true that contracts frequently involve promises,Footnote 42 but it is not hard to show that contract law is indifferent to promissory morality. As a matter of interpersonal morality, promises are thought to be binding regardless of whether they are reciprocal; and they are frequently thought not to be binding if they are retracted, perhaps with a good reason and an apology, before the promisee relies on them. In contract law, by contrast, promises are binding only if supported by valid consideration, that is, only if they are paid for; and they are enforceable whether or not the promisee has relied on the promise to her detriment and whether or not the promisor is sincerely apologetic and has a good reason for changing her mind. So, a disjunctive contractual obligation at odds with promissory obligation would not be anomalous. It would constitute only one more instance of a divergence between promissory morality and contract law that seems to be systematic. Moreover, a divergence between contractual and promissory obligation is morally indefensible only if promissory morality is the sole morality against which contract law can be measured. Others have shown that it is not. Contract law is intelligible as a moral enterprise, but that enterprise is governed not by the morality of promise, but by the morality of right.Footnote 43 I'll argue that the morality of right requires a disjunctive contractual obligation.
On a right-based view of contract law, where there is an offer, acceptance, and consideration,Footnote 44 the promisee acquires a right and the promisor falls under a corresponding obligation.Footnote 45 The fundamental question for a right-based understanding of contract is therefore this: What right does the promisee acquire at contract formation? The answer is not obvious. The two most systematic philosophers of private law, Kant and Hegel, disagreed about the nature of the right acquired at contract formation. Kant argued as follows.Footnote 46
Since it is only the causality of another's choice with respect to a performance he has promised me, what I acquire directly by a contract is not an external thing but rather his deed, by which that thing is brought under my control so that I make it mine. By contract I therefore acquire another's promise (not what is promised).Footnote 47
According to Kant, at contract formation, the promisee acquires a right, not to a material thing, but to the promisor's “deed.” The promisee thus acquires a right over a person—a right that the promisor perform what was promised. But Kant, like Hegel, offered an account of private law that is based on a fundamental distinction between persons and things and on the central idea that whereas things can be owned, persons cannot be.Footnote 48 Yet Kant's understanding of contract law allows each party to acquire control over the other's will, to acquire a right that the other act in a particular way for her benefit. It is precisely on the basis of the distinction between persons and things that Hegel denied that it is possible to acquire such a right.Footnote 49 The ownership right acquired through contract must be a right to a thing rather than a right to a person's action, Hegel argued, because only things can be owned. On this point, contract law agrees with Hegel. The personal service contract is not just presumptively but categorically incapable of specific enforcement. Once we see that the right acquired at contract formation must be a right to a thing, it is natural to think that it must be a right to the material thing bargained for—to the house, or book, or widget.Footnote 50 But Hegel thought that such a right is also inconsistent with the distinction between persons and things.
In The Philosophy of Right, Hegel argued that any thing, any object, is only potentially mine, not necessarily mine.Footnote 51 On Hegel's account, the connection between a human being and an object is contingent because of the free agency of human beings.Footnote 52 Free agency is the human individual's capacity for distancing itself from any particular content its will may have. It lies in the individual's capacity for distinguishing between its self and its needs, desires, and impulses, hence for detaching itself from any particular thing it might be driven by need or desire to acquire. Freedom means that there is no need or desire that I cannot in principle reject; therefore, there is no material object of desire that I cannot in principle renounce.Footnote 53 In short, freedom is (inter alia) a human possibility for independence from things.
However, Hegel argued that this possibility for the agent's independence from things is initially contradicted by the natural individual's obvious dependence on a material world for the fulfillment of its needs. It is in the act of taking control of some material object that the agent demonstrates that the object is subservient to her rather than her to it—that it is something merely available for her use according to her needs and ends.Footnote 54 But for the relation between a person and a thing to be a relation of mastery of, rather than dependence on, the thing, it must continue to reflect the detachment from things that constitutes the agent's freedom. Thus, for Hegel, the right of alienation—the right to divest oneself of property rights in a particular thing—is an essential feature of ownership. In the act of alienation, the individual shows that what she chooses in one moment she may forsake in another, and so she reveals her independence of any particular thing she might choose to acquire.
This brings us, however, to another contradiction. It now seems that freedom requires both ownership of and detachment from material things; and whereas ownership requires taking control, detachment requires letting go. For Hegel, the solution to this problem is contract. In the immediate exchange of, for example, this loaf of bread for that bottle of wine, I simultaneously acquire and alienate property; as Hegel wrote, in contract, each “ceases to be an owner and yet is and remains one.”Footnote 55 Yet, as an immediate exchange of material things, contract is only a partial solution to the problem. Although I demonstrate my independence of this particular material thing in the exchange, I have not demonstrated my independence of material things as such, since all I have done is exchange one material thing for another.
We can resolve this problem, however, if we understand contract, not merely as an exchange of material things, but as an agreement as to the material things’ exchange value. The exchange of bread for wine is an agreement that, as between the parties to the contract, the value of the bread is equal to the value of the wine. In the exchange, the owner of the loaf of bread is recognized as the owner of its value (the bottle of wine) and the owner of the bottle of wine is recognized as the owner of its value (the loaf of bread). Through contract, therefore, the parties become, not merely owners of yet another material thing, but owners of their property's exchange value.Footnote 56 Exchange value is a measure of worth that abstracts from the particular qualities of various material objects and allows for their comparison; the abstraction from material thing to its exchange value provides a perspective from which all objects may be viewed as fungible all-purpose means. Value is thus what a free agent detached from the objects of choice can own.Footnote 57
The abstraction from the material thing to its value that is implicit in the immediate exchange of things is explicit in the executory contract. Here, the parties exchange not material things in the present, but promises to do things in the future: A promises B that in three months’ time, she will pay B $100,000 for possession of B's cottage. What B acquires in the present is not a material thing, but a guarantee of her property's value ($100,000); and what A acquires in the present is not a material thing but a guarantee of what her $100,000 can buy (a cottage).Footnote 58 The executory contract thus confers an ownership right to the agreed-upon exchange value of one's property against the one who promised to guarantee it. Before the executory contract, the parties are owners of material objects; at the moment of contract formation, they are the owners of their property's abstract exchange value. Thus, the parties to an executory contract are owners completely detached from the material things they own.
I have argued that when seen from the perspective of the free agent detached from material objects, contract is the parties’ mutual guarantee of their property's exchange value. It is a mutual guarantee that “the value of this equals the value of that.” But the guarantee that “the value of this equals the value of that” can be fulfilled in one of two ways: either by handing over “this” or by handing over “the value of this,” in other words, its monetary equivalent.Footnote 59 If what the parties acquire at contract is the guarantee of their ownership of an agreed-upon value, the payment of value respects ownership no less than performance. The contractual obligation is thus disjunctive. “Breach” means a factual (not legally wrongful) failure to hand over “this,” making the breaching party liable to give the plaintiff the agreed-upon value of what was promised.Footnote 60 So, for example, if A promises to deliver a dining room set and B promises to pay $5,000, the agreement means that A owns $5,000 and B owns $5,000 worth of dining furniture. If A fails to deliver the material goods, the agreement that B owns $5,000 worth of material goods is equally fulfilled if A pays to B the difference between the contract price of the material goods and the amount it will cost B to buy those material goods in the market. In either case, A will have fulfilled her guarantee of what B's money can buy. This is precisely what the expectation measure of damages requires, and it is importantly indifferent as to whether or not B actually goes out into the market to buy a substitute for the goods that were promised. That is because the expectation remedy abstracts from the relationship between the person and the material thing and vindicates the plaintiff's ownership of the agreed-upon exchange value of her property. It is the remedy for breach that treats the plaintiff as a free agent—owner of, and yet detached from, the material thing that is owned.Footnote 61
Many have argued that parties typically enter contracts in order to secure performance and that it is implausible to interpret them as bargaining for a disjunctive obligation.Footnote 62 If true, this observation would be a powerful argument against a justification for the disjunctive obligation resting on the empirical claim that parties are either indifferent between performance and payment or that they implicitly agree to a “perform or pay” term. But it is no argument against the moral justification for the disjunctive obligation I have offered. That justification speaks about the view the law must take of human beings and their contractual agreements if it is to respect them as free agents independent of the material things they own; and since the remedy for breach comes from the law, that remedy must be appropriate to individuals conceived in this way. My thesis is not an empirical claim about, and so cannot be rebutted by empirical evidence of, what human beings typically want when they contract; for when it comes to remedies, what they want is beside the point. Thus, a court will order a remedy of damages even if a contract explicitly stipulates that the remedy for breach is performance.Footnote 63
It might be said that the disjunctive conception of the contractual obligation strips contract law of its normativity since it seems to suggest that the promisee lacks the right to demand that the contract be kept and that the promisor remains at liberty to choose whether or not to abide by the contract. And if the disjunctive conception of the obligation denies that contracts must be kept, then it cannot be a theory of contractual obligation.Footnote 64 But the account I have elaborated above does not deny that contracts must be kept. That account shows how contractual obligation must be understood if it is to be consistent with treating human beings as free agents distinguished from, and independent of, the objects of their choice. It says that law must understand contracts as the parties’ mutual guarantee of one another's ownership of their properties’ exchange value. On that understanding of what a contract is, contracts must be kept. The mutual guarantees of value must be fulfilled, but they can always be fulfilled in one of two ways: either by handing over the material thing or by paying its value.
IV. DOCTRINAL OBJECTIONS
A. Specific Performance
The most obvious objection to what I have said thus far is that it cannot account for the fact that courts sometimes respond to a breach of contract with an award of specific performance, an equitable remedy that requires the defendant to hand over the very thing promised.Footnote 65 In response to this objection, Holmes said simply: “I hardly think it advisable to shape general theory from the exception.”Footnote 66 That's true, of course, but the exception must nevertheless be explained and explained in a way that reconciles the exception with the rule. In what follows, I offer a theory of specific performance as an exceptional supplement to the common law rule that the remedy for breach is damages.
The common law's view of the contingent relationship between persons and things is true in the sense that there is no object of choice that a free agent could not in principle renounce. But although there is no particular thing that is “necessarily mine,” it is nevertheless possible for a human agent to form deliberative and autonomous attachments to things—a home, a collection, a career, for example—that fit into an overall life plan. Whereas the common law conceives freedom negatively as a freedom from all attachments, equity conceives freedom as positive—as the capacity to form and live according to self-authored plans. While the common law presumes that all attachments are renounceable, equity recognizes that although any material object could be renounced, material objects may nevertheless become bound up with projects and plans in ways that make otherwise ordinary things unique for the individual, hence unamenable to substitution; and projects and plans are the way freedom is realized in a concrete life. In its remedy of specific performance, equity thus recognizes that the loss of a deliberative attachment—of a material object that has become unique because bound up with a free agent's thought-out projects and plans—is a setback to the free agent's positive freedom.Footnote 67
So understood, the equitable remedy of specific performance does not disturb the central claim of this paper, which is that, as a rule, the contractual obligation is to perform or pay. Specific performance, on this account, is not owed until a court determines that the relationship between the plaintiff and the object of the contract is not the relationship of indifference assumed by the common law of contracts. The defendant's obligation to specifically perform follows from the court's determination that in the particular case, the plaintiff's attachment to the thing bargained for has the normative significance that equity recognizes—that it is a deliberative attachment and part of a life plan—and is therefore an attachment a court can recognize consistently with respect for the agent's freedom.
Two features of the specific performance remedy support this account of its normative significance. The first is the fact that specific performance is a discretionary remedy, a remedy the plaintiff is not entitled to as of right.Footnote 68 This does not mean that the court's decision is not governed by precedent or principles.Footnote 69 When we say that equitable remedies are discretionary, we mean that courts, in deciding whether or not to award them, may attend to considerations beyond the immediate interaction between plaintiff and defendant; these considerations do not definitively settle the matter one way or the other, but provide a reason for a particular outcome that must be weighed against other reasons.Footnote 70 I have suggested, for example, that the court must attend to whether the object of the contract is, for the plaintiff, a deliberative attachment. But out of equal concern for the realized freedom of both contracting parties, the court must also ask whether or not an order of specific performance would cause hardship to the defendant.Footnote 71 The fact that the court may attend to considerations that lie beyond the parties’ contractual agreement suggests that, in awarding specific performance, the court is doing something more than giving effect to the plaintiff's rights vis-à-vis the defendant. It is giving effect to what is required of it—the court—as a public institution whose authority depends on its equal concern for the realized freedom of both parties.Footnote 72
A second feature of the remedy of specific performance suggests that the defendant's duty to perform derives from her duty to obey the court rather than from the plaintiff's rights under the contract. Whereas rulings at common law historically took the form of impersonal declarations of the plaintiff's rights against the defendant—“it is this day adjudged that the plaintiff shall recover $100 from the defendant”—the equitable remedy of specific performance historically took the form of a court order directed personally at the defendant—“the defendant is ordered to give the cow Daisy to the plaintiff.”Footnote 73 As Spry has argued, this difference is not merely linguistic but normative; it reflects the difference between a judgment that is declaratory of the parties’ legal rights vis-à-vis one another and an order that is expressive of what justice requires of the court in the particular case.Footnote 74 Relatedly, the defendant's failure to obey an order of specific performance is, as Stephen Smith says, understood as an affront to the court's authority and is thus contempt of court punishable by imprisonment.Footnote 75 As the discretionary and personal nature of the order suggests, specific performance reflects the court's determination of what its own concern for the plaintiff's and defendant's autonomy requires in the particular case. Its exceptional availability is therefore no counterargument to the claim that the contractual obligation, the obligation generated by the parties’ agreement, is an obligation either to perform or pay.
One further point may be made here. Stephen Smith has suggested that specific performance is an anomalous equitable doctrine in the following sense. As a general rule, equitable doctrines prevent the defendant from doing what she, as a matter of common law, is entitled to do. As Joseph Story wrote: “The whole system of Equity Jurisprudence proceeds upon the ground that a party, having a legal right, shall not be permitted to avail himself of it for the purposes of injustice, or fraud, or oppression.”Footnote 76 For example, unconscionability prevents the plaintiff from insisting on a contract that the common law regards as valid and enforceable; proprietary estoppel prevents the defendant from evicting the plaintiff from her property in circumstances where the common law says that eviction is a lawful exercise of her property rights; the trust, by recognizing a beneficial interest in the cestui que trust, prevents the common law titleholder from exercising the full ownership rights that the common law says she has. But, says Smith, specific performance doesn't follow this pattern, because it vindicates the plaintiff's right to performance and that is a right that the common law recognizes as well.Footnote 77
But of course, specific performance looks anomalous only from the perspective of one who assumes that the plaintiff has a common law right to performance; from that perspective, equity and the common law appear, anomalously, to view the contractual entitlements and obligations in the same way. But if, as I have argued, the defendant is, at common law, obligated only to either perform or pay, then specific performance fits the equitable pattern: it restrains the exercise of a legal right. Whereas the common law says that the defendant is entitled to choose payment over performance, equity will, under certain circumstances, prevent the defendant from exercising this option and require performance. The exceptional availability of an equitable remedy of specific performance for breach of contract is therefore not only not a counterargument to the disjunctive character of the common law contractual obligation; it is an argument in its favor.
B. The Tort of Inducing Breach of Contract
In his correspondence with Holmes, Pollock wrote: “if the obligation is, as you maintain, only alternative, how can it be wrong to procure a man to break his contract, which would then be only procuring him to fix his lawful election in one way rather than another?”Footnote 78 Pollock's argument has been repeated by many and the existence of the tort of inducing breach of contract is now taken to be a decisive argument against the disjunctive understanding of the contractual obligation.Footnote 79 I will argue that it is not.
The tort of inducing breach applies to circumstances that have the following structure. B and C have a contractual agreement. A persuades B to breach that agreement, thereby causing economic harm to C. The tort of inducing breach allows C to sue A for damages. It cannot be denied that the existence of this tort appears to pose a serious problem for a disjunctive view of the contractual obligation. It is natural to think that because the law says it is wrong for A to induce B to do X, it is therefore also an independent wrong for B to do X. One of the reasons this inference appears intuitively correct is that it seems to mirror the structure of accessory liability: because it is wrong for B to do X, it is wrong for A to be an accessory with B in doing X. It could not be wrong for A to be an accessory in doing X if it was not independently wrong to do X. But although the tort of inducing breach of contract may, at first blush, look like a case of accessory liability, it isn't.Footnote 80
As others have pointed out, if A induces B to trespass on C's land, accessory liability works by attributing the wrongful act to both parties—to the one who induced the act and the one who committed it. Once the wrongful act is attributed to both parties, they are jointly liable for it.Footnote 81 But the reason A and B can be held jointly liable for the trespass is that property rights are in rem: A and B both owe a duty to C to keep off her land. On the other hand, when A induces B to breach her contract with C, only B owes a contractual duty to C. For example, in Lumley v. Gye,Footnote 82 in which Gye induced Joanna Wagner to breach her contract with Lumley and sing at his opera house instead, only Wagner owed Lumley a contractual duty to sing. How could Gye be jointly liable for breach of an obligation he did not have?Footnote 83 Whatever obligation Gye had, it was not the same as Wagner's, and so the tort of inducing breach cannot be a case of accessory liability.
For the mere existence of the tort of inducing breach to be a counterargument to the disjunctive obligation thesis, it must be true that, as a matter of logic, if it is wrong to induce an act then the act must be independently wrongful. But is that true? The tort of intimidation suggests that it is not. The tort of intimidation makes it a wrong against C for A to threaten B with harm unless B withdraws his custom from C's business.Footnote 84 But it is, of course, not independently wrong for B to withdraw his custom from C's business. The tort of conspiracy is another example. Quinn v. LeathemFootnote 85 involved a dispute between the defendants, who were trade union officials, and the plaintiff, who was a butcher, about the plaintiff's employment of workers who refused to join the union. The defendants approached the plaintiff's main customer and told him that unless he stopped purchasing meat from the plaintiff, his employees would leave his employment. The customer did stop purchasing from the plaintiff and the plaintiff successfully sued the defendants for the economic loss that resulted. Although it was plainly not unlawful for the customer to choose to purchase his meat elsewhere, the House of Lords found that it is legally wrong to combine merely for the purpose of injuring another. So, it was wrong for the defendants to combine to induce the customer to withdraw his custom even though the withdrawal was not an independent wrong.
In the cases of intimidation and conspiracy, the reason that makes inducing the act wrong does not make the act independently wrongful.Footnote 86 I do not think it is a coincidence that the tort of inducing breach of contract is part of a family of torts—the economic torts—that includes intimidation and conspiracy. The fact that these torts make it wrong to induce an act that is not independently wrong is unusual. It raises a puzzling and controversial question about what makes the inducement wrongful, a question that is beyond the scope of this essay. For the purposes of this essay, the central point is the following one: the fact that the law makes it wrong for A to induce B to breach her contract with C tells us nothing about whether it is independently wrongful for B to breach her contract with C—just as the fact that the law makes it wrong for A to conspire with another to induce B to withdraw her custom from C tells us nothing about whether it is independently wrongful for B to withdraw her custom. The mere existence of the tort of inducing breach of contract is thus no argument against the disjunctive conception of contractual obligation. Everything turns on the question of why inducing breach of contract is wrong, and the claim that inducing breach is wrong because the plaintiff has a right to performance simply assumes what needs to be established.
Although the mere existence of the tort of inducing breach does not undermine the disjunctive conception of the contractual obligation, there is a popular account of the tort that does—if it is true. This account says that the tort of inducing breach, like, for example, the tort of conversion, protects a proprietary right and the proprietary right it protects is the plaintiff's right to contractual performance. On this view, the tort of inducing breach of contract allows the plaintiff to sue the defendant for usurping the performance to which she alone is entitled.Footnote 87 This account coheres with the view that the plaintiff is entitled to performance, but it cannot be the true account of the tort for at least two reasons.
First, the defendant may be liable for inducing breach without acquiring the promised performance. For example, a union official seeking to punish a supplier who employs nonunion workers may persuade manufacturers to breach their supply contracts with that supplier. Although this satisfies the requirements of the tort,Footnote 88 we could not plausibly describe the union official as taking for himself something that properly belongs to the supplier (the union official does not fulfill the manufacturers’ supply requirements).Footnote 89 Second, the proprietary explanation of the tort of inducing breach cannot account for the fact that the tort requires the plaintiff to show that she has suffered harm. Trespass and conversion are proprietary torts; the gist of these torts is that the defendant has usurped the plaintiff's right of exclusive control over her property. Because the usurpation of another's right of exclusive control is wrong regardless of whether it causes material harm,Footnote 90 these torts are actionable per se. If the wrong at issue in the tort of inducing breach is the usurpation of the plaintiff's right of exclusive control over the contractual performance, then it too should be actionable regardless of harm. But it is not. Liability requires inducing a breach that causes economic harm to the plaintiff.Footnote 91 In short, usurpation of the contractual performance is neither necessary nor sufficient for liability in tort. The wrong of inducing breach is therefore not the wrong of usurping the plaintiff's property right in the contractual performance.Footnote 92 That conclusion should not be surprising because, as I have argued, the plaintiff has no such right.
C. Impossibility
It is sometimes said that when events occurring after contract formation make performance impossible, impossibility of performance is a valid defense to a claim of breach of contract. Robert Stevens says that this doctrine demonstrates the existence of a contractual right to performance because “it is never, or almost never, impossible to pay a sum of money by way of damages.”Footnote 93 As Stevens suggests, a doctrine that discharges the contractual obligation when performance is impossible may seem inexplicable if the obligation is disjunctive, because, for example, the destruction of the promised music hall by fire or the sinking of the promised ship at sea doesn't make it impossible for the promisor to perform the alternate obligation, which is to pay. So, the argument goes, discharge for impossibility shows that the contractual obligation cannot be disjunctive. However, the doctrine of impossibility, properly understood, presents no challenge to the disjunctive obligation.
In Taylor v. Caldwell,Footnote 94 the leading case on the effect of impossibility on contract, Caldwell, the owner of Surrey Gardens and Music Hall, entered a contract with Taylor for the use of the hall for music concerts. After the agreement was concluded but before the date of the first concert, the hall burned down. Taylor brought an action for breach of contract against Caldwell. Lord Blackburn held that Caldwell was discharged from his contractual obligation to provide the hall because the “specified thing” contracted for had perished and framed his judgment in terms of an implied condition:
[W]here, from the nature of the contract, it appears that the parties must from the beginning have known that it could not be fulfilled unless when the time for the fulfilment of the contract arrived some particular specified thing continued to exist, so that, when entering into the contract, they must have contemplated such continuing existence as the foundation of what was to be done; there, in the absence of any express or implied warranty that the thing shall exist, the contract is not to be construed as a positive contract, but as subject to an implied condition that the parties shall be excused in case, before breach, performance becomes impossible from the perishing of the thing without default of the contractor.Footnote 95
There are two important observations to make about Lord Blackburn's judgment. The first is that the reason for the discharge of the obligation in Taylor is not that performance became impossible. As one would expect if the contractual obligation is disjunctive, Lord Blackburn was clear that impossibility of performance is not by itself a reason for discharge: “There seems no doubt that where there is a positive contract to do a thing, not in itself unlawful, the contractor must perform it or pay damages for not doing it, although in consequence of unforeseen accidents, the performance of his contract has become unexpectedly burdensome or even impossible.”Footnote 96
The second observation is that the reason for the discharge of the obligation is that, as a matter of contractual interpretation, the parties implicitly agreed that the existence of the contractual obligation was conditional on the persistence of a certain state of affairs. In Taylor, the contractual obligation was implicitly conditional on the continued existence of the music hall. However, the focus on contractual interpretation and the implied condition means that there is nothing special about the fact that the unanticipated change of circumstance made performance impossible. For example, in Krell v. Henry,Footnote 97 Henry leased from Krell a flat along the Pall Mall in order to watch the processions for the scheduled coronation of King Edward VII. When the coronation was canceled due to the King's illness, Henry refused to pay for the flat and Krell sued. This was not a case of impossibility; Henry's obligation was to pay for the flat and that remained perfectly possible. Nevertheless, the court relied on the judgment in Taylor to argue that, under the circumstances, it was an implied condition of the contract that the coronation procession would take place. When the implied condition failed, the parties were discharged of their obligations.
The key point for our purposes is that the doctrine of impossibility is, and has always been, a doctrine of reasonably implied conditions. The fact that performance has become impossible does no independent work. Unless “possibility” is an implied condition, impossibility does not discharge the parties of their obligations. Moreover, circumstances falling short of impossibility—circumstances that merely defeat the contractual purpose—may also discharge the parties of their obligations if the nonexistence of those circumstances may reasonably be understood as a contractual condition.
It is common to say that impossibility of performance excuses the parties from their contractual obligations, suggesting that the doctrine of impossibility specifies the nature of the contractual obligation as an obligation to perform. The central point of the above discussion is that that is a mistake. As Lord Buckmaster argued: “There is no phrase more frequently misused than the statement that impossibility of performance excuses breach of contract . . . indeed, if it were necessary to express the law in a sentence, it would be more exact to say that precisely the opposite was the real rule.”Footnote 98 The correct statement of the law relating to impossibility is that if, from an objective point of view, the parties implicitly agreed that the contract was conditional on the possibility of performance, then the existence of the contractual obligation is conditional on that possibility. If the condition fails, the obligation does not arise.
This understanding of the significance of impossibility is drawn directly from Lord Blackburn's judgment in Taylor and is shared by many.Footnote 99 What hasn't been noticed is that, on this understanding of impossibility, the doctrine poses no challenge to a disjunctive contractual obligation. The doctrine of impossibility, understood as a doctrine of reasonably implied conditions, is not about the nature of the contractual obligation, but only about the conditions under which the obligation arises. The contractual obligation is to perform or pay, but it may be the case that the proper interpretation of the parties’ agreement is that the contractual obligation—the obligation to perform or pay—is conditional on the persistence of a certain state of affairs.
D. The Rule Against Preexisting Duty Consideration
Consider the following fact situation. An architect refused to hand over the plans for building a brewery as required by his contractual agreement after he found out that the brewing company was going to buy its refrigeration equipment from one of the architect's competitors. The brewing company urgently needed the brewery to be built and so it offered the architect more money in the hope of persuading him to perform. The architect accepted the offer of more money and turned over the plans. When he tried to collect the additional sum he was promised, however, the brewing company refused to pay it and he sued. The court found that he could not recover the additional money he was promised because the brewing company's promise to pay more money was unsupported by consideration. In exchange for more money, the architect promised to perform, but that is what he was already obligated to do—it was his preexisting duty—under the original contract.Footnote 100
Critics of the disjunctive understanding of the contract obligation say that the rule against the validity of preexisting duty consideration is inexplicable if the promisor's obligation is only to perform or pay.Footnote 101 As Douglas Baird puts it, “if he [the architect] had a right to refuse to perform, then he could ask to be paid for not exercising his right of refusal.”Footnote 102 In other words, if there is a right to refuse to perform, then giving up the right of refusal could be fresh consideration for the offer of more money. The fact that courts say that there is no fresh consideration in a case like this suggests that the contractual obligation is not disjunctive; the architect's obligation is to perform, which is why the second promise to perform is not fresh consideration.Footnote 103
This argument misunderstands what it means to say that the law regards the contractual obligation as disjunctive. It means that, from a legal point of view, every promise to perform is to be understood as a promise either to perform or else pay to put the other party in the financial position she would have been in had the contract been performed. The architect's first contractual promise was a promise either to perform or pay and so, from the law's point of view, was his second promise. Even if the architect says “this time I'm promising that I will actually perform,” from a legal point of view, that is still nothing more than a promise to perform or pay and is no different from the first contractual promise. This is perfectly consistent with a body of law that awards the expectation measure of damages even if the parties explicitly stipulate that breach will trigger a performance remedy. From a legal point of view, a promise to perform—however explicit or emphatic—is always a promise to perform or pay. So, since the architect was not bound to perform his second promise either, that promise could not be fresh consideration for the money promised him. The rule against preexisting duty consideration is thus not a counterexample to the disjunctive obligation.
E. Nominal Damages
The final doctrinal objection to the disjunctive obligation is the availability of nominal damages for breach of contract in cases where the contract has been breached but the plaintiff has suffered no loss.Footnote 104 In tort law, nominal damages signal the presence of a rights violation in cases where the plaintiff has suffered no loss. So, for example, a harmless trespass to the plaintiff's property is actionable and entitles the plaintiff to nominal damages, signaling that although she has not caused harm, the defendant has nevertheless wronged the plaintiff by entering her property without her permission. It might be thought that nominal damages play the same role in contract law.Footnote 105 If this is correct, it threatens the disjunctive conception of the obligation, because it means that the defendant's bare failure to perform constitutes a violation of the plaintiff's rights.Footnote 106 I'll now argue that although there is a certain sense in which nominal damages play the same role in contract and tort, there is an important sense in which they do not.
Nominal damages are symbolic. They say something about the normative relationship between the plaintiff and the defendant in a case where there is no factual loss that needs to be cured. This is true of nominal damages in both contract law and tort law. But since the normative context is different in contract and in tort, we shouldn't be surprised if nominal damages signify a different normative relationship in these different contexts.
The Second Restatement of Contracts provides the following illustration of a case where nominal damages would be awarded for breach of contract. A contracts to sell B 1,000 shares of stock in Corporation X for $10 a share to be delivered on June 1. A breaches the contract, refusing to deliver the stock on that date. B sues A for breach of contract, but at trial it is established that, on June 1, B could have gone into the market and purchased 1,000 shares of stock in Corporation X for $10 a share. B will be entitled only to nominal damages.Footnote 107
Of course, those committed to the view that the plaintiff has a right to performance will say that in this case, nominal damages function the same way they do in tort and signify that there has been a rights violation although there has been no loss. But as I have shown throughout this essay, that interpretation is at odds with numerous features of the contract remedy that suggest that the bare failure to perform is not a wrong. Moreover, a different interpretation of the nominal damage award—one consistent with the disjunctive conception—is available.
In the illustration provided by the Second Restatement, if there were no nominal damage award, the result in this case would look identical to the case where the court determined that the agreement to transfer 1,000 shares for $10 a share was unenforceable—for example, because the offer to sell shares at that price was revoked before the plaintiff accepted it. But the illustration is importantly different from a case where there is no enforceable agreement. What we have in the illustration is not the absence of an enforceable agreement but rather an agreement whose enforcement does not require a monetary payment from defendant to plaintiff. If we interpret the contract as a mutual guarantee of the parties’ ownership of their properties’ agreed-upon value, that guarantee has, in the illustration, been fulfilled despite the defendant's nonperformance. The defendant guaranteed that the plaintiff's $10,000 was worth 1,000 shares in Corporation X on June 1, and that was true without the need for any monetary payment from the defendant to the plaintiff, since the plaintiff could have gone into the market on June 1 and purchased 1,000 shares with her $10,000. In other words, on the date performance was due, the plaintiff was already in the financial position she would have been in had the contract been performed. At trial, the plaintiff therefore already has all that she is contractually entitled to.
Then why, one might ask, does the court award anything? Why does it award nominal damages rather than no damages? It does so because there is a difference between saying that the plaintiff has all that she is entitled to and saying that the plaintiff is not entitled to anything. That is the difference that nominal damages in contract law signify. Nominal damages reflect the normative difference between a court's determination that the plaintiff has no contractual entitlement vis-à-vis the defendant (because, for example, there is no contract) and a court's determination that the plaintiff is entitled to the enforcement of the defendant's contractual guarantee, but the guarantee is, under the circumstances, fulfilled without a monetary payment. In the contractual context, nominal damages signify that the plaintiff is entitled to what she was promised (the guarantee of her property's exchange value) but that she already has what was promised (her property has the exchange value that the defendant guaranteed). This understanding of nominal damages in contract law—as signifying the presence of a right rather than the presence of right violation—coheres with the disjunctive understanding of the contractual obligation. It underscores the fact that the disjunctive obligation is not a permission to violate a contract; it is rather an understanding, based on the independence of persons from things, of what it means to honor a contract.
V. CONCLUSION
The disjunctive theory of the contractual obligation is almost universally rejected by theorists who regard contract law as a moral rather than a purely economic enterprise. These theorists assume that the only possible justification for a disjunctive obligation in contract comes from Holmes's bad man theory of law or from the economic analysis of law and that anyone who seeks a moral justification for legal coercion must regard the plaintiff as having a right to performance. Against the disjunctive obligation's moral critics, I have argued that the disjunctive obligation can be justified on moral grounds. I have argued that from a perspective that regards human beings as free agents capable of choice and therefore independent of material objects, the contracting parties must be understood as agreeing to mutually guarantee one another's ownership of a certain value. This guarantee can be fulfilled either by handing over what was promised or by making up the difference between the market value and the contract value. The plaintiff's contractual right is therefore disjunctive—it is a right that the defendant perform or pay. The disjunctive understanding of the plaintiff's entitlement thus makes expectation damages, the standard remedy for breach of contract, intelligible as a vindication of the plaintiff's contractual right. I have shown, moreover, that the disjunctive obligation can be reconciled with all the doctrines that others take to be decisive arguments against it—with the exceptional availability of an equitable remedy of specific performance, the tort of inducing breach of contract, the doctrine of impossibility, the rule against preexisting duty consideration, and the availability of nominal damages for breach of contract.
