Expectation Damages and Contract Theory Revisited
Stanford Law School
August 16, 2006
Stanford Public Law Working Paper No. 925980
Stanford Law and Economics Olin Working Paper No. 325
Autonomy-based theories of contract law hold (roughly) that people should be free, over some range, to choose the commitments that they make; and that promises are binding on a party precisely because they represent that party's voluntary choice. In 1989, I argued that these theories had no implications for contract law's choice of default rules, including its remedies for breach. Recently, however, various scholars have challenged this thesis by arguing that autonomy-based theories do require (or rule out) some default remedies.
This paper responds to several of those arguments - in particular, to those offered by Dori Kimel, Jody Kraus (reconstructing an argument of Charles Fried's) and Daniel Markovits, among others. In brief, Kimel's argument asserts that expectation damages best protects the entitlement that was transferred by an enforceable contract - but if the parties' contract is silent as to remedies, the actual application of this principle requires a default rule to interpret the contract itself, to decide what entitlement has actually been transferred. As a result, Kimel's argument justifies expectation damages only in a purely formal sense: a sense that allows any amount of damages to be called expectation damages, depending on how we interpret the underlying contract. The arguments of Kraus and Markovits, by contrast, assert that some obligations backed by remedies other than expectation damages should be classified as obligations in tort rather than in contract. But these, too, are merely claims about the labeling or classification of obligations, which do not speak to the question of which obligation should be adopted as the law's default rule in cases where the parties are silent.
Number of Pages in PDF File: 56
Keywords: contracts, remedies, autonomy, expectation
JEL Classification: K12
Date posted: August 23, 2006
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