Promissory Autonomy, Imperfect Courts, and the Immorality of the Expectation Damages Default
Publication Date:August 03, 2012
Charles Fried’s Contract as Promise articulated a liberal theory of contract based on the normative ideal that contract law should respect individual freedom and autonomy to make binding commitments. The touchstone of contractual analysis from this perspective is the intent of the promisor. This essay revisits the justification under this promissory theory for expectation (compensatory) damages, in light of two observations: (a) judicial determinations are costly and prone to error and (b) parties have various motivations for promising beyond promoting reliance and collaboration (notably, credit and insurance). In light of this heterogeneity, the essay suggests that fully compensatory, expectation damages may be preferred by no more than a plurality of contracting parties. In addition, the legitimacy given to expectation damages under various moral theories, such as the promissory principle, as well as the instrumental doctrine of efficient breach, in fact increase the cost of opting out and undermine the promissory autonomy they are thought to vindicate. In passing, the essay also takes issue with the categorical distinction that Professor Fried, and other moral theorists, draw between contractual conditions and contract remedies, particularly damages. Damages, whether judicially measured or liquidated by contract, should be viewed as substitute for conditions. Thus, if the parties are morally free to condition their promises, they should also be free to set their own level of damages or to let the court impose them by default.