The Value of a Promise: A Utilitarian Approach to Contract Law Remedies
68 Pages Posted: 18 Feb 2008 Last revised: 31 Mar 2010
Date Written: March 29, 2010
This Article critically examines the applicability of law and economics, or wealth maximization theory, to contract law by examining this theory from within the consequentialist framework of utilitarianism. Roughly speaking, wealth maximization theory is a consequentialist theory of justice holding that those actions that increase wealth are just and should be allowed, whereas those actions that decrease wealth are unjust and should be forbidden. This theory has been used not only to support such controversial doctrines as efficient breach, but also to inform the way that many scholars and judges think about remedies for the breach of contract. Although the growth and acceptance of wealth maximization theory has been rapid since it was first formalized several decades ago, it is by no means uncontroversial, having been subject to constant attack since its inception from many who, operating outside of consequentialism, have criticized the normative foundations upon which wealth maximization theory rests, expressing their dismay over a theory that encourages the breaking of a solemn oath in the name of efficiency. Until now, however, previous scholarship has not critically examined this theory from within the consequentialist framework to see whether it, in fact, actually maximizes wealth. This Article provides that approach.
Unlike other scholarship in this area, this Article does not challenge the normative foundations upon which wealth maximization theory rests, but rather argues that, on its own terms, this theory fails to maximize wealth within contract law. This is because wealth maximization theory is a fundamentally utilitarian theory that depends upon, and derives its legitimacy from, the utilitarian concept of value. Notably however, wealth maximization theory often prevents value from being maximized in the name of wealth. This insight has profound implications, suggesting not only that the continued application of this theory to contract law ought to be seriously questioned, but also that the way both consequentialists and nonconsequentialists think about remedies in contract law may need to be rethought. Indeed, this insight may even help reconcile these divergent theories within contract law because, as this Article suggests, the best way to achieve the consequentialist end of utility maximization is often through the nonconsequentialist means of contract enforcement, including the enforcement of liquidated damages clauses and specific performance.
Keywords: Contracts, Jurisprudence, Legal Theory, Remedies
JEL Classification: K00, K12
Suggested Citation: Suggested Citation