I wrote this paper in 1975 in law school for an independent study course with the intention of later publishing it as a law review article. I wrote two other papers for independent study and got those published in law reviews. This even though this was my best paper of the three. My professor had given me an A+ and urged me to get it published ASAP. One problem was that i was too ambitious and tried to get it published in places like the Stanford Law Review. (I had attended Stanford as an undergraduate.) They made a mistake in rejecting it!
Here are the citations to the other two law review articles: "The Law of the Domicile with Greater Compensation Rule," 17 California Western Law Review 26 (1980); "The Crime of Criminal Sentencing Based on Rehabilitation," 11 Golden Gate University Law Review 533 (1981).
© 2025 by Louis Lopez.
All rights reserved. It is allowed to reproduce and distribute copies of this article PROVIDED that (1) full credit is given to the author Louis Lopez, (2) it is copied exactly as found here without any alterations to the wording and (3) no more than $20 is charged for each copy.
THE GOAL OF
CONTRACT REMEDIES:
EXPECTATION V. RELIANCE
Louis Lopez
1
Examination of cases, statutory provisions, and scholarly work relating to contract remedies shows that the expectation theory has been on the wane for some time. Nevertheless, it continues to be proclaimed, as the normal rule for the awarding of contract damages.1 Under the expectation theory of contract remedies, the attempt is made to come as close as possible to fulfilling the expectations of the parties. The standard is to put the injured party in as good a position as he would have had if the contract had been fully performed.2 A close reading of the cases will show a clear reluctance to follow this general rule in many instances, and a tendency to focus on loss to the injured party or the benefit conferred upon the breaching party.3 These two concerns are the basis for the other two theories of remedies for breach of contract--reliance and restitution.4
The expectation theory is closely allied with other contractual concepts--all of which gained prominence in Anglo-American contract law at approximately the same time. Two important associated concepts are (1) the will theory of contract formation5 and (2) the doctrine of caveat emptor.6 These concepts gained popularity because of the prevailing social ideas and economic trends of the time.7 The rise of a market economy at the turn of the 19th century and the perceived needs of the systems and methods
2
of commercial exchange that arose in that period brought the desire for greater strictness in the enforcement of contracts even if it often allowed unjust results.8
Clearly then, varied doctrinal ammunition was needed in order to help courts enforce contracts more easily. While the expectation theory was employed in assessing damages,9 the will theory was its necessary complement related to the formation of contract. The will theory postulated that the extent of contractual obligation was solely determined by the desires of the contracting parties. Courts under this concept could not look at the underlying fairness of the bargain, but were compelled to look only at the original desires of the parties at the time of the making of the contract.10 To bolster this approach, the doctrines of caveat emptor, freedom of contract,11 and duty to read were created.
In recent years, the expectation theory and its associated concepts have not been applied as unwaveringly as before, and courts have been less reluctant to look at the underlying fairness of either the bargain or the damage award. This is consistent with the move--in the 20th century--away from the ideas of laissez faire economics and social Darwinism.
It is the purpose of this paper to urge the replacement of the expectation theory by the reliance theory as the normal rule of contract remedies. Specifically, it will be urged that Uniform Commercial Code Section 1-106 be amended as
3
well as the Restatement of Contracts Section 329 (1932). Specifically, the reliance theory says that, after a breach of contract the parties are to be placed in the position they had before the contract was made.12
The reliance theory, rather than the restitution theory, will be considered as an alternative to the expectation theory for two reasons. One reason for this emphasis upon reliance theory is that restitution theory is more closely related to specific situations of a quasi-contractual nature.13 Another reason is that most cases providing relief under the restitution theory would provide the same relief under the reliance theory. This is because usually the loss to the injured party is equal to the amount which he has conferred upon the breaching party.14
A look will be taken at the historical significance of the expectation theory in order to point out that it is a standard of relatively recent vintage and consequently is not one which bears--as might be supposed--the imprimatur of long established custom. Then an account will be given of various reasons for replacing the expectation theory with the reliance approach. These reasons fall under four major areas of inquiry. These are the (1) conceptual, (2) philosophical, (3) social, and (4) economic.
4
I. HISTORICAL SIGNIFICANCE
Although it may seem that the expectation theory has enjoyed long life, this is far from true. It has not always been the case that contracting parties were required to keep their contractual promises by having to satisfy each other's expectations. A good reason that the expectation theory was not always in use is that contract law, as it is known today, simply did not exist.15 It has been claimed by historians that modern contract law marks its beginning with the decision in Strangborough v. Warner16 made in 1588.17 This assumption has recently been brought into question.
Morton Horwitz has made a very convincing argument that equitable doctrines of contract damages were widely prevalent through the eighteenth century.18 In 1789, for instance, the Connecticut Supreme Court of Errors denied recovery of expectation damages on a contract of stock speculation on the ground that it would be usurious.19 It was not until the 1800's that the rule of expectation damages gained any substantial recognition.20
In the Middle Ages, the notion of a just price and the prohibitions against usury on moral and religious grounds were widely accepted.21 The slow decline of these ideas came with the increase of commercial enterprise, beginning in the fifteenth and sixteenth centuries.22 Nevertheless, moral considerations continued to enjoy wide adherence up to the
5
nineteenth century.23 In the eighteenth century, contract law was characterized by proprietary and equitable conceptions of contractual exchange,24 the wide discretion of juries in setting damage awards,25 and the continued practice by businessmen to resort to their own methods for settling disputes.26
A contract was perceived in large part as a device for transferring title to property. Possession of the goods actually contracted for was the sole object of interest, and thus there was no conception of damage remedies for breach of contract.27 Powell, who wrote the first English treatise on contract, pointed out that the remedy for failure to deliver stock under an executory contract was that of specific performance.28 There was little importance placed upon the idea that completion of a bargain could bring any deserving benefit beyond the value of the object to be exchanged by the contract. The case of Flureau v. Thornhill29 dealt with the question of expectation damages and flatly rejected any award on that theory. The plaintiff had leased a house from the defendant who later found that he was unable to deliver good title. The defendant offered to return the plaintiff's deposit with interest and costs, but the plaintiff sued for the loss of the good bargain. The court rejected such a claim. Chief Justice DeGrey
6
commented, "I do not think that the purchaser can be entitled to any damages for the fancied goodness of the bargain, which he supposes he has lost."30
An equitable conception of contract before the 19th century allowed inspection of contract terms and obligations by courts as well as juries. Inadequacy of consideration was an acceptable standard to be used by equity courts in deciding whether to grant specific performance.31 As late as 1824, it was noted in a New York case:32
It is asserted by elementary writers that the
power of enforcing agreements specifically will
not be exercised but to subserve the cause of
justice; and that whenever the bargain is a hard
one, bordering on oppression; where there has
not been perfect fairness; where any facts have
been concealed which should have been disclosed;
or where any unfair advantage has been taken;
in those cases Equity will not decree a specific
performance, but leave the party to his remedy
at law. (Reeve's Dom. Rel. 386. Newland on
Contr. 223,4.)33
In cases at law, it is evident from various American decisions that juries were allowed to make "an equitable and conscientious interpretation of the agreement of the parties."34 Juries were given great freedom in assessing damages and their verdicts were rarely overturned.35 On the question of damages, it was considered that the members
7
of the jury who resided in the same community as the litigants were best qualified in assessing the proper award. This equitable approach to contract remedies was eventually discarded with the coming of an economy characterized to a much larger degree by a large volume of trade, by the division of labor, and by the emergence of a middle class composed, to a great degree of small entrepreneurs.36 It was clear that, if commercial enterprise was to develop quickly enough to help build international empires and conquer vast continents, business agreements could not be allowed to be easily overturned because of ethical notions concerning fairness in bargains.37 Likewise, in the case of the labor relation between employer and employee, it was necessary to depend to a great degree upon contract.38 With more people depending upon commercial trade for a livelihood, it was apparently felt that contractual agreements should not be easily avoided or modified.39 A good deal of reliance was placed upon these agreements since considerable loss could come from the failure of the other party to meet its end of the bargain.
Loss came to mean not only actual damage to property already owned but also profit prevented from failure to deliver or accept goods,40 to repair essential machinery,41 or to perform other necessary acts.
8
Such profit was, in many cases, the essential bread and butter of the small businessman who had to depend on a steady volume of trade in order to continue a new business. Unlike the farmer who had been the typical individual for several centuries, the businessman and all those who depended upon him--including his family, employees, and business associates--had a much more critical dependence upon the stability of commercial transactions. Thus it was not enough to give restitution to a seller, for example. He often had to receive the full expectation of his bargain or it might have meant eventual disaster. The prohibition against awards for lost profits was soon abandoned.42 This prohibition had perhaps rested on the claim that lost profits were too uncertain to determine adequately;43 however, in more and more cases, courts were somehow able to reach a sufficient degree of certainty.
The expectation theory now came into vogue in order to protect future interests in sales, goods, and services. It was apparently believed that protection of the reliance interest was not enough to ensure commercial certainty. The perceived need to enforce contracts to the full measure of the original agreement was also reflected in the newly created doctrine of caveat emptor,44 by which the buyer of goods was presumed to be sufficiently knowledgeable, intelligent, and free from coercion to be able to make a correct decision to contract.
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9
This upheaval in the early 19th century of economic processes and customs was influenced, and in turn exerted an influence, upon the social and economic philosophies of the day.45 In the social sphere, it was believed that individual freedom was to be strived for and that governmental interference with such freedom was to be avoided. The counterpart in economic theory was that each individual should he allowed to follow his economic self-interest and that this would bring the greatest benefit not only to himself but to society as a whole.46 It was only natural then that the individual should not only be encouraged but protected in his quest for economic well-being. Business ability and sagacity were, to be rewarded rather than impeded. If a man came away with a very good bargain, he was not to be penalized based on abstract notions of morality. The harsh realities of life required that a person should be self-reliant and aggressive in the protection of his interests. Furthermore, the economic self-interest formula was unassailable even on moral grounds since it worked for the total benefit of society and such a result was to be admired under the newly formulated utilitarian ideas of Jeremy Bentham.47
The market--the indicator of the subjective desires and expectations of its participants--rather than the members
'
10
of the community sitting on juries--came to be the arbiter of fairness. It was not long, however, before the pendulum started to swing the other way, and it was realized that some social limitations on the making of contracts had to be designed.48 The dominance of contract made and controlled by private parties started to decline toward the end of the nineteenth century. As Hurst said: "The years 1800-1875 were, then, above all else, the years of contract in our law."49
After 1875 growing disillusionment with unbridled individualism became evident. This change in attitude among many people was caused by several factors--among them the economic depressions of the time, the public discontent with corporate amalgamation such as that of the Standard Oil Trust, and the often oppressive and dangerous working conditions in an industrialized society.
The Sherman Act was passed in 1890 to restrict the types of agreements that could be made between companies, and state legislatures gradually began to pass labor legislation involving child labor, maximum hours, and minimum wages. Eventually, insurance agreements and interest rates became closely supervised; regulated industries came on the scene.50 Freedom of contract came to be significantly abridged and the will theory lost much of its originally unchallenged acceptance.51 As Friedrich Kessler observed,
11
"With the decline of the free enterprise system due to the innate trend of competitive capitalism towards monopoly, the meaning of contract has changed radically."52 More recently, the subject of unconscionability has gained new prominence through inclusion of Section 2-302 in the Uniform Commercial Code. Apart from extensive legislation in the twentieth century restricting freedom of contract,53 court decisions have been much less adamant in protecting the expectations of contracting parties54 and have made more flexible application of the old doctrines of caveat emptor55 and duty to read.56
In the following sections, several aspects of the law of contracts will be considered to see whether continued adherence to the expectation rule of contract remedies is truly necessary and beneficial.
II. CONCEPTUAL CLARITY
It has become more and more clear that the subjects of tort and contract have much in common. There are so many similarities between tort and contract that after examination of the nature and objectives of the two areas of law it is necessary to ask why contract is not treated and taught as a subtopic of tort--even if it must be considered as a very special one imbued with certain distinct peculiarities. It will be helpful to examine the
'
12
affinity between tort and contract and then to consider the benefit that could come from classifying contract as tort.
Upon examination, the real reason for the presently separate classification of tort and contract can only be the lingering impulse to apply the expectation rule in contract remedies. The objective served by expectation theory clearly goes beyond the tort goal of compensation only for true loss. This section will point out specific similarities of tort and contract in both objectives and approach. This will hopefully show the artificiality of maintaining a distinction between the two areas.
It will be seen that contract is just as concerned with true compensation as is tort. The difference is that contract law is aberrational in its insistence upon satisfying expectations beyond the point of compensation. The previous section discussed the origins of the emphasis on expectation. Later sections of this paper will give several reasons for no longer adhering to that standard and for following reliance theory in its place.
In the present context, the importance of adoption of the reliance rule is that it would remove the last significant barrier to the conceptual unity of tort and contract and
'
13
would adopt for contract remedies the same goal found in tort remedies--compensation for actual loss.
Attempts to define tort57 and contract58 present difficulties which indicate that problems of definition stem from the insistence upon maintaining a division between the two areas. Prosser defines tort as the
[body] of law which is directed toward the
compensation of individuals, rather than the public,
for losses which they have suffered in respect of
all their legally recognized interests, rather than
one interest only, where the law considers that
compensation is required.59
Prosser mentions the protection of all "legally recognized interests, rather than the protection of one interest only" in order to exclude contract from tort. This is because he views contract law as protecting "a single, limited interest, that of having promises of others performed."60 Assuming for a moment that Prosser's characterization of contract is correct, it must be pointed out that there are many specific types of torts which only protect a single, limited interest. For example, the tort of defamation only protects the single limited interest of preserving one's reputation. Invasion of privacy also involves only a limited interest.
14
Going back to Presser's definition of contract, it is clear that it is not an accurate one since it is not true that the law assures that all promises will be performed. There are many promises which are either not important enough or not appropriate for the law to consider.61 If A promises to B that he will give him $100,000 because he has been such a true and dear friend and then fails to keep the promise, B has no action against A unless he can prove that he has suffered substantial harm by relying upon the promise. To say that B had his heart set on receiving and spending the money, or that it was inconsiderate and even immoral for A to break his promise is not enough. It must be shown that B has suffered a loss that was to be expected as a result of the promise.62 Compensation in such cases makes a contract damage action sound very much like a tort.
Warren Seavey's criticism of Winfield's attempt to define tort is very instructive. Winfield defined tort by saying: "Tortious liability arises from the breach of a duty primarily fixed by the law; such duty is toward persons generally, and its breach is redressible by an action for unliquidated damages."63 In regard to the phrase "a duty primarily fixed by law," Seavey commented:64
15
All legal obligations are imposed by law, contract
as well as tort obligations. But it is said that
one is liable upon a contract only because he has
agreed to be. Not at all. He is liable because he
has voluntarily made a manifestation to which the
law attaches, with or without his intent, certain
consequences. The older conception of contracts
involved a meeting of minds; the newer objective
theory of legal consequences, following a
manifestation, brings it back very closely to the
original tort conception from which it sprang.
Tort liability is ordinarily the consequence of
voluntary action; it is difficult to think of
situations where duties are imposed upon one who
has not acted. It is probable that if one is
placed in the middle of a road while asleep, he
is under a duty, upon awakening, to use care to
remove himself lest he cause injury to others;
liability may be imposed upon an heir for damage
caused by his realty before he is aware of
ownership. But, excepting such rare cases, tort
obligations are assumed in the same sense that
contractual obligations are assumed. One is
ordinarily guilty of negligence only to those
near where one goes or conducts operations; one
can be guilty of deceit only if he voluntarily
enters upon a transaction; one cannot be guilty
of defamation if he refrains from communication
with others. Moreover; in large branches of what
would commonly be regarded as the law of Torts,
one's liability is modified in accordance with
the understanding of the parties.65
In regard to Winfield's point that the duty involved was one "towards persons generally," Seavey pointed out that
16
[L]iability for negligence extends only to those
likely to be affected by negligent conduct. It is
true that these may be unknown or unknowable persons;
yet the range of liability is limited to certain
persons. The tort duty may be stated generally as
a duty not to interfere with chattels of others, or
it may be stated specifically as a duty towards the
possessor of a particular chattel not to interfere
with it or be careless in respect to it. On the other
hand, it is possible to make an offer to an indefinite
number of persons and have it accepted without knowing
who those accepting are. The typical case is that of
advertisements to the public. The case is "on all
fours" with that involving tort liability if we assume
that the court finds a manifestation of an intent to
make an offer to contract, although the advertiser
has no such intent. The same can be said of situations
resulting in quasi-contractual liability.66
As claimed before, difficulty of definition in tort and contract comes primarily from efforts to find a distinction between the two areas which simply are not there. If it could be seen that the differences are mainly those of approach and terminology, problems of definition could be resolved by freely including breach of contract as a type of tort. It could be realized, furthermore, that contract law is interested in having the promises of others performed only because it is ultimately concerned with preventing and compensating harm caused by the failure to perform promises.
From a historical standpoint, it is interesting to note that contract was at one time treated much like a tort.67 In
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the 14th century, actions which would today be called contract were classified under the heading of trespass on the case. The distinctive feature of such cases was that an undertaking, called an "assumpsit," by the defendant was alleged. One such case is the Humber Ferry Case68 in which the defendant undertook to transport a horse across a river. The horse drowned when the boat sank because it had been overloaded.
Another approach to a breach of promise was to treat it as a "deceit" of the promises--which was considered a tort.69 Gradually, the scope of assumpsit was widened. In the 16th century, it came to cover not only malfeasance, but in addition nonfeasance.70
Developments in the last twenty years in both tort and contract law have shown growing sensitivity to the urgent need to provide compensation to victims of injury. This need to provide compensation seems to have become the paramount concern.71 This has been accomplished by abrogating old doctrines, such as privity of contract, which stood in the way.72 New and imaginative approaches have been fashioned. Tort law has expanded to include what has come to be called strict liability.73 Contract law has created the theory of implied warranty in the sale of goods.74 These developments have resulted in a new area of
18
law called products liability.75
On a more general level, this convergence of tort and contract in the provision of adequate compensation has demonstrated the need to keep constantly in mind the objectives of the law. To deny compensation to an innocent party, on the basis of doctrines founded on false or untested economic assertions and on theories with questionable moral foundation, not only creates injustice but brings disrespect for law.
In tort, the requirement that a buyer of a defective product prove negligence on the part of the product manufacturer was eventually recognized as an unfair burden which in most cases was impossible to overcome. It came to be recognized that regardless of negligence the manufacturer had a certain duty to the buyer of its products.76 This duty was incurred by the simple act of placing those products for sale to the general public.77 To put it another way, the emphasis was shifted from consideration of the precise degree of culpability of the tortfeasor to the reasonable need for compensation of the tort victim. As Justice Traynor phrased it in Greenman v. Yuba Power Products, Inc.:78
The purpose of [strict] liability is to insure that
the costs of injuries resulting from defective products
are borne by the manufacturers that put such products
on the market rather than by the injured persons who
are powerless to protect themselves.79
19
In the area of contract, the requirement of privity, which allowed suit to be brought only by one of the parties to the original contract, has been gradually relaxed to include subsequent purchasers of goods who never dealt directly with the original manufacturer.80 Consideration of the motives behind the doctrines of contract law, which in the 19th century provided for various important differences between tort and contract, shows that such sharp distinctions need not have ever been maintained. Contract rules such as the rule of privity and the rule that a seller or manufacturer could easily make a disclaimer about features of his product were followed for the sake of limiting the liability of growing industries.81 It was deemed necessary to keep businesses as free as possible from the burden of having to compensate injuries to ultimate users of products. This was done in order to encourage rapid economic development and to avoid the possibility of financial ruin for businesses faced with the possibility of having to pay damages to large numbers of persons.82 While such a social attitude may be understandable from the standpoint of the needs of the times, it is not clear that it was an indispensable social policy. It can certainly be argued that it would have been preferable in terms of overall social justice to forego a
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high pace of economic growth in order to allow for the compensation of victims of industrial mishap and unfair commercial practices.
At any rate, if such an approach was needed one hundred years ago, it is far from clear that it is as important today. Compensation for harm to consumers is not an overpowering burden on companies which often enjoy a high volume of sales and can afford to pay for adequate insurance coverage.83 In this century, it has become much more widely accepted to view the contractual relationship as affecting various social relationships and institutions and not merely the immediate parties to the contract.84
It has become more acceptable to subject contractual obligation to closer scrutiny, even though it is still recognized as essentially a private agreement between parties. The will theory has given way to a more objective approach which concentrates more on the outward manifestations of contracting parties.85 This has allowed for greater importance to be placed upon moral norms and for consideration of the effects of contractual agreements upon society as a whole.
The requirement of privity was able to fluorish in a time when the will theory of contract obligation was popular.86 The abandonment of this requirement and the adoption of the notion of implied warranty theory shows a much more ready inclination by both the legislatures and the courts to in
21
effect imply agreements between parties who have not in any way dealt directly with each other. The language in contract cases such as Henningsen v, Bloomfield Motors, Inc.87 which have found defendants liable has been that of implied warranty. Express agreements and denials by the parties (especially manufacturers) have been downplayed in importance. The manufacturer has been assumed to extend an implied warranty to ultimate users. In Henningsen, Mr. Henningsen gave his wife a new Plymouth as a present. Ten days after the car was delivered, Mrs. Henningsen was badly injured when the steering mechanism failed. The New Jersey Supreme Court held that both Bloomfield Motors and Chrysler Corporation should be held liable to Mrs. Henningsen, although the only actual contracts were one between Chrysler and Bloomfield and one between Bloomfield Motors and Mr. Henningsen. Simply by selling cars for use by the public, Chrysler was allowing users such as Mrs. Henningsen to rely on its apparent knowledge and craftsmanship. Similarly, Bloomfield Motors was representing, by implication, that its merchandise was safe. Both manufacturer and dealer were denied any escape through the devices of privity and the disclaimer of warranty.88
The tendency then has been to transcend the technical requirements and peculiarities of tort and contract for the sake of providing compensation where it is needed and
22
deserved. Contract cases dealing with implied warranty issues have placed relatively little importance on the express agreements and expectations of the parties. Instead, there has been a clear emphasis on the legal supervision of contract obligations for the sake of preventing unfairness.89 Conceptually, the result has been to negate the traditional distinction made between tort and contract that "the duties in the former are primarily fixed by the law, while in the latter they are fixed by the parties themselves."90
It might be argued that, apart from products liability cases, contract law continues to emphasize the agreements and expectations of the contracting parties. Contract does not involve consideration of the culpability of the breaching party in the way that tort focuses on the negligence of a tortfeasor.91 Therefore, contract is still distinguishable from tort.
This argument can be answered by pointing out that culpability is not discussed in contract cases because culpability is deemed to exist by the very nature of a breach of contract. The making of a contractual promise followed by a breach of that promise can ordinarily be assumed to cause injury or loss to the non-breaching party. Once it is established that (1) a promise was made and (2) that the promise was breached, a finding of culpability is made. This culpability is analogous to negligence in tort,92
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although the cases do not speak in terms of culpability. In tort, a person is negligent whenever he commits an injurious act which a reasonable person would not commit. In contract, a reasonable person would not commit a breach of contract because he knows that a breach is likely to produce injury or loss.
An illustration will help to show that there is little practical difference between culpability in tort and culpability in contract. Suppose A tosses a burning cigarette onto B's farm and causes 10 bushels of tomatoes to be burned. Under tort theory A is liable for the value of the tomatoes based on his negligence.
Suppose, instead, that A had contracted with B to buy 10 bushels of tomatoes on August 1. A breaches the contract, and all the tomatoes spoil before B is able to find another buyer. A is liable for the value of all the tomatoes.93 His responsibility to B lies in the conjunction of his promise and his subsequent failure to keep it. Neither act by itself need be negligent, but both acts together combine to create what might be called "contract negligence." A will not be able to resort to excusing conditions as easily as he could in the case of a tort.94 This is because, by his promise, he tacitly agreed to assume a certain duty of care for B because of the risk he induced B to undergo by contracting with him. Once a breach occurs, a finding of
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contract negligence is pretty much automatic. The language that has been used may not be the same as that used in tort, but the underlying approach is the same.
This similar approach is evidenced by the fact that contract law contains excusing conditions, although these are more narrow and less readily applied than in tort.95 Contract liability is not as inflexible as may sometimes appear. The defenses of mistake96 and impossibility97 are clearly recognized in contract law. The comment to Section 2-615 of the Uniform Commercial Code states, "Increased cost alone does not excuse performance unless the rise in cost is due to some unforeseen contingency which alters the essential nature of the performance."
The relation of contract to tort can also be viewed in the following manner. Under tort theory, a person, A, has a standard duty of care toward others such as B. Whenever A makes a contract with B, he in effect agrees to assume a higher duty of care toward B within the context of the contract. This higher duty is supplemental to his ordinary tort duty of care. The difference is mainly one in degree, rather than in kind. On the other side of the coin, there is the type of agreement which can lower A's ordinary duty of care. This agreement between A and B is called "assumption of the risk" on the part of B. By express or
25
implied agreement, B can assure A that he will not hold him responsible for harm.
The different levels of liability in tort and in contract can be viewed as part of a spectrum of responsibility for harm. At one end, A is left with no duty to B whenever B agrees to assume any risk. The intermediate range is the ordinary level of tort liability. At the other end, A has a higher duty when he makes a contract with B because by doing so he has caused B to rely upon his promise. This higher duty exists in the case of a bilateral contract in which B gives A consideration, as well as in situations involving a unilateral promise in which no consideration is given.
The case in which no consideration is given by a promisee falls under the relatively new doctrine of promissory estoppel.98 This contract doctrine is another good illustration of the strong similarity between tort and contract. Again, as in tort, the emphasis is upon compensation for the person harmed, rather than upon any technical requirements relating to contract formation, consideration, or mutuality.99
Suppose A is B's uncle and B owns a farm.100 A promises that he will give B money so that B can grow tomatoes on his farm. A makes this grant purely out of the kindness of
26
heart. B spends his own money to grow tomatoes, expecting to be reimbursed by A. He grows 10 bushels of tomatoes and is unable to sell them. A reneges on his promise to B.
Using the doctrine of promissory estoppel, a court could find that A should pay B for his loss on the reasoning that B was relying on the promise and would not have otherwise incurred a loss. The fact that A's promise had been completely gratuitous and that there had been no consideration for the promise would not affect the outcome. For this reason, a case involving promissory estoppel often sounds more like a tort problem than a contract problem.101
Promissory estoppel bears a strong resemblance to the particular tort of misrepresentation. Misrepresentation is a manifestation of falsehood through words or conduct which leads another person to establish a false belief which works to his detriment.102 Misrepresentation is common to many different types of tortious conduct, but "in the great majority of cases which have come before the court the misrepresentations have been made in the course of a bargaining transaction between the parties."103 Misrepresentation does not actually involve the making of a promise in the sense that the word "promise" is ordinarily used to indicate that the promisor will undertake to perform a certain future act. But it can involve an
27
assurance akin to a promise that all will go well.104 An example would be that of a store owner who hired a man to clean his windows and assured him that it would be safe to stand on a wooden case in order to clean the windows. Relying upon this assurance, the cleaning man used the wooden case which broke and caused him injuries.105
Under the reliance theory of contract damages, the assessment of damage is the same as that in tort because the measurement of damages is based upon loss. It is the expectation theory which can lead to a different result. For this reason, the expectation theory is the main obstacle to the classification of contract as tort. The classification of contract as tort may seem like a purely academic point. The benefit of such classification may only be to make life easier for first year law students, but the benefit would probably go beyond that. For one thing, there would be less of a problem in deciding the proper statute of limitations.106 Up to now, the choice of the proper statute of limitations has turned on whether an action was characterized as tort or contract.107 Erasing the conceptual distinction between tort and breach of contract could lead to a single, more manageable statute of limitations. Or it could lead to the application of several possible statutes of limitation one of which would be chosen in each case, depending upon specific facts and considerations rather
28
than upon conceptual labels.
Conceptual simplicity helps to make things tidy and more manageable. While this may not always have a good outcome because of oversimplification and rigid application, it can often help by casting out antiquated doctrines which impede a proper perspective of underlying social needs and realities.108 An excellent example in which, for a long time, conceptual confusion and over concern with rules and form obstructed compensation is the previously discussed field of products liability.109
Of course, the desire for conceptual clarity may not in itself be sufficient reason for abrogating the expectation theory. Additional support for abrogation can be found after philosophical examination of the expectation theory.
III. PHILOSOPHICAL OBJECTIVES
In the study of the basis for contract remedies, three major philosophical concerns come into the picture. These philosophical objectives include concern for (1) the enforcement of promises,(2) the prevention of unconscionable bargains, and (3) individual freedom from governmental interference. Unfortunately, these three goals can come into conflict. The expectation theory and the reliance theory present different approaches to achieving
29
a balance between these three interests. Expectation theory goes much farther in the enforcement of promises,110 but in doing this it condones unconscionable bargains more readily. Reliance theory has the opposite emphasis. It is more adaptable for use against unconscionable bargains partly because it does not place as great an emphasis on enforcing promises.111 The expectation theory reputedly allows less interference with individual freedom since it is closely connected with the idea of freedom of contract.112 It is open to question whether this is in reality an accurate assessment.
A. The Enforcement of Promises
The enforcement of promises is important partly because moral disapproval of the breaking of promises is a long recognized fact in human society. Few people can calmly tolerate others who renege on their commitments.113 The breaking of promises can cause the loss of time, money, and trust as well as bring great disappointment, anguish, and heartbreak. Yet, in spite of their important effects, there are many types of promises which are not enforced by legal institutions.114 Suppose A makes a completely gratuitous promise to B that he will give him a car, without demanding any money or favor in return and then breaks it. The promise does not cause B to do anything to his detriment. A will not be compelled by the courts to come through on his promise.
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Although it would be admitted by everyone that for A to make such a promise and then to break it would not be very good of him, it is still considered to be a matter of private morality whether certain promises--in fact the great majority of promises--are kept. Another example of a promise which is certainly considered to be of great value and importance--at least by the promisee--is that of the promise of marriage. Yet, breach of promise of marriage is not recognized in many states.115
There does exist a definite class of promises that is deemed worthy enough to be given protection by the courts. Most enforceable promises are those made as part of an exchange or bargain between two parties in a commercial setting.116 In Anglo-American law, the mark that is used to distinguish these mutual agreements is that of consideration.117 Consideration is the detriment suffered by the promisee as an inducement to a bargain.118 Courts usually deem it necessary to find sufficient consideration in an agreement in order to call it a contract worthy of enforcement.119
Another type of promise which is enforcible is that which comes under the doctrine of promissory estoppel.120 These promises are not made as part of a bargain, but they are enforced because the promisee, as a result of his reliance on the promise, changes his position to a more detrimental one.
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Reliance theory encourages the keeping of enforcible promises by insuring promisees that they will be compensated for any injury that they might suffer through the breach of a contract. In the event that no injury is suffered, reliance theory has no interest in seeing that promises per se are kept.121 Expectation theory, on the other hand, insists that the expectations of the parties still be met even if breach is made immediately after the contract is made.122 There is also a definite moralistic flavor in the expectation approach. Justice Holmes recognized this tendency to "punish" one who breaches a contract when he said:
Nowhere is the confusion between legal and moral ideas
more manifest than in the law of contract . . . .
If you commit a tort, you are liable to pay a
compensatory sum. If you commit a contract, you are
liable to pay a compensatory sum unless the promised
event comes to pass. But such a mode of looking at the
matter stinks in the nostrils of those who think it
advantageous to get as much ethics into the law as
they can.123
Consider the following example. S agrees to sell 100 cockatoos to B at $40 each. The market price at the time of delivery is $50 for each bird. S repudiates, but immediately buys 100 cockatoos at $45 each and the market price stays the same.
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Under the reliance theory, B would not recover any damages from S because he has experienced no loss. It is true that he was not able to make as good a deal as he expected, but he was still able to end up with a good bargain. Had the market price gone up between the time of delivery and the time at which B was able to buy from another seller, then B might have an action for damages. This would be the case if the market price had risen to $60, and B were unable to find a seller whose price was less than this new market price. If this were the case, B could say that he had suffered a loss in reliance upon the contract with S because otherwise he might have been able to find another seller who would have sold to him before the market price rose from $50. Instead, he was forced to buy later at $60 and suffered a loss of $10 on each cockatoo.
Under the expectation theory, B could recover damages even if he were able to buy cockatoos at $45 each--$5 below the market price. B would be considered to have "lost" something--even though he never really had anything but a promise from B. B could not be said to have lost any money out of his pocket, and it is clear that he would be able to make a profit on resale, especially after the market price rose. Yet, expectation theory would require that B receive the exact profit margin he would have enjoyed had the contract not been breached.124
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It is for this reason that expectation theory goes beyond reliance theory in enforcing promises and that expectation theory can be more readily used merely for the sake of enforcing contractual promises. To put it another way, it can be said that there are two elements or components in a contract. One of these may be called the detrimental element and the other the promissory element. The detrimental element consists of that portion of a damage award which compensates for true loss to the promisee. The promissory element consists of that portion of a damage award which goes beyond compensation and gives the promisee the full measure of his expectancy. In the example of the sale of the cockatoos, if B is forced to buy at $60 per bird, the detrimental element is protected when B receives $10 in damages (the difference between eventual buying price and market price) for each bird. The promissory element, in addition to the detrimental element, is protected if instead B receives $20 in damages (the difference between eventual buying price and contract price).
The expectation theory has not been followed by various cases, the most important one of which is Illinois Central Railroad Co. v. Crail.125 A railroad was supposed to deliver approximately $9,000 pounds of coal to a coal dealer. On arrival, there was a shortage of approximately 5,000
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pounds. The coal dealer was able to buy the amount of coal that had not arrived from another source at a wholesale price. No sales were lost by the original shortage. Yet, the coal dealer sued the railroad seeking to recover the retail price of the 5,000 pounds of coal that had not been delivered. The Court held, in an opinion written by Justice Holmes, that the coal dealer could only recover the wholesale value of the coal not delivered on the ground that this amount was sufficient to replace the coal dealer's "actual loss."126
The Court, in essence, said that the requirement that the expectations of the parties be satisfied would not be followed, although it did not speak in terms of expectation. To satisfy the full expectation of the coal dealer would be unnecessary and unwarranted since a lesser award would suffice to replace any loss. The Court rejected the plaintiff's argument that convenience and necessity required award of the retail price on the ground that it should not be used whenever a more accurate means of damage assessment is available.127
The protection of the promissory element--offered by the expectation theory--seems inconsistent with the general policy against the enforcement of unilateral promises which create no harm to the promisee. It results in overcompensation where less compensation would be adequate '
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to repair any damage done. It also forces A to insure that B get the full benefit of the good bargain he expected. Since this goes beyond compensation for loss, it sounds much the same as forcing a promiser to complete a gratuitous promise, even though the promisee suffered no loss. It would seem that the same arguments which are used against the enforcement of promises in general should prevent the protection of the promissory element in a contract. One of the arguments against the enforcement of all promises is that the law should not become involved in requiring people to keep all their promises because this would necessitate excessive interference into private affairs. Also a promisee should be aware that many promises cannot be relied upon because of the variable nature of the human will.128 Another argument is that a promisee should not expect to profit from a gratuitous offer even after the once generous promisor changes his mind.
By analogy, in a contract, the breachee who has lost out on a good bargain should not expect to gain the full benefit of a contract had it been performed. It seems that an individual who gives someone a good bargain should be allowed to retract his generosity and be held liable only in the event of true loss to the other party. In general, it is not clear that promises made in a contractual setting
36
deserve any more protection than they would receive otherwise. The argument that, in general, promise keeping should be left to individual judgment and moral rules is just as valid as applied to the purely promissory element of a contract.
B. The Prevention of Unconscionable Bargains
The second area of philosophical concern is the prevention of unconscionable bargains. This principle is founded upon ideas of distributive justice. Distributive justice involves the distribution of benefits and wealth in society.129 The law is involved with questions of distributive justice at many points. The criminal law is used to discourage the outright appropriation of another person's property through theft, because it is believed that the distribution of wealth through such means is unjust. The remedy known as restitution is concerned with properly rewarding that person who has conferred benefit upon another--even though the one receiving the benefit may not have been in any way responsible for such a misallocation of benefit.
Apart from the legal concern in the restoration of property taken or benefit passed on, there has been a clear, though unsteady, drive toward economic equality during the last two centuries. Some of the devices which have been used in
37
achieving a more equal distribution of income have been the antitrust laws, a progressive income tax structure, and social programs such as welfare. Many have been opposed to ideas of equality and have preferred to follow ideologies such as social Darwinism which teach that it is just to allow individuals free rein in gaining power and wealth because this works to the long range advantage of society.130 Nevertheless, there has long been the strong undercurrent of feeling that the "little "man" should not be treated unfairly by those who are in the position to take advantage of him.131 This feeling is reflected in contract law through the idea of the unconscionable bargain and judicial consideration, in many cases, of the inequality of the bargaining parties.132
The expectation theory can more easily condone unconscionable bargains.133 A fundamental assumption of the expectation theory is that individuals are equal in bargaining power.134 This assumption is necessary if one is to believe that, in the event of breach, the parties should be put in the position they would have enjoyed had the contract been fully performed. The presumption of bargaining equality is a difficult obstacle to overcome by one claiming that he has been victimized by an unconscionable contract. Under the reliance theory, however, this obstacle is not so difficult to overcome. An unconscionable bargain can be avoided by detection of a clear disparity between contract price and market price. It would seem that evidence of substantial disparity would be
38
sufficient to show a lack of mutuality that should be avoided.135
A concrete situation will help to illustrate the difference. S sells C, a sophisticated consumer, a refrigerator for $900, although it cost him only $3OO. No duress, fraud, or deception as to quality is involved. C, however, later finds out the cost of the refrigerator to S and decides not to pay the full price of $900.
A judge who believes in the expectation theory would probably be inclined to require C to pay the full amount, since that is what the parties originally agreed. He could maintain that C was in a position to inquire or investigate as to the cost of the refrigerator. On the other hand, a judge who believes that reliance should be the rule would simply seek to protect S for any loss suffered in the bargain. Without any need to mention the word "unconscionability" could allow C to pay only the $3OO S paid for the refrigerator plus additional costs and a reasonable profit. In this way, reliance theory offers built-in protection against oppression. By compensating a contracting party only for his loss, rather than granting him the full gain he would have made through a possibly unconscionable bargain, reliance theory provides a ready means for avoiding injustice.136
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The facts of the preceding example are based on the facts in Jones v. Star Credit Corp.,137 and are very similar to the figures in the sale of a refrigerator-freezer in Frosti-fresh Corp. v. Reynoso.138 In those cases, the total prices were $1,234.80 and $1,145.88, respectively, after addition of credit charges, insurance, and sales tax. In neither case was fraud an issue. In the Frosti-fresh case there was some discussion of sales pressure and a language barrier, but it was recognized that the pleadings of the buyer-defendant had not alleged fraud.139
In both cases the contracts were found to be unconscionable under UCC Section 2-302. The basis of the unconscionability was clearly the disparity between cost and price. In Jones, Judge Wachtler said, "No doubt, the mathematical disparity between $3OO, which presumably includes a reasonable profit margin, and $900 which is exorbitant on its face, carries the greatest weight."140 In deciding upon the adequate measure of recovery for the seller, Judge Wachtler applied the reliance rule in saying, "Having already [been] paid more than $600 toward the purchase of this $300 freezer unit, it is apparent that the [seller] has already been amply compensated."141
One critic of the use of unconscionability as defined in Section 2-302 suggests that the formulation is too vague and abstract.142
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In the place of the present provision, Professor Leff would draft "either a flat-percentage or a 'grossly-too-much' provision."143
There are problems, however, with either of these avenues of approach. To set a flat-percentage rate would go against the spirit
of the UCC which is to allow for flexibility in interpretation and application. This approach was clearly intended by the drafters and can be seen in their inclusion of various provisions containing general terms such as "good faith"144 and "commercial reasonableness."145 Section 1-102 of the Code reads:
(1) This Act shall be liberally construed and applied
to promote its underlying purposes and policies.
The advantage of this "open-ended" drafting approach is to allow for due consideration of the particular factual situation before the court at any one time, as well as to allow for growth and development in the law.146 A flat-percentage provision could prove inadequate in some cases or insufficient in others.
At the same time, it is hard to see how a "grossly-too-much" provision would serve to avoid the problem of poor judicial analysis which worries Professor Leff. The "excessive price" provision which he proposes would give no more guidance than the present section.
On the other hand, amendment of Section 1-106 to replace the expectation rule found there by the reliance rule would
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provide better guidelines for judges and would complement the unconscionability provision in Section 2-302. While providing a clearer, more applicable guide for judges, the reliance rule would also give the open-ended flexibility which is so desirable in a commercial statute. Adoption of the reliance rule as the normal rule for remedies would not mean that the expectation rule would have to be discarded altogether. Allowance could be made for use of the expectation rule in those situations in which the difference in the award under the two rules would be small or difficult to measure. This exception to the general rule would be desirable for the sake of ease of administration.147
An example of the way Section 1-106 could be amended to reflect these considerations is the following:
Section l-106. Remedies to Be Liberally Administered.
(l) The remedies provided by this Act shall be
liberally administered to the end that the aggrieved
party may be put in the position he had before the
contract was made. Neither consequential nor special
nor penal damages may be had except as specifically
provided in this Act or by other rule of law.
(2) The rule that the aggrieved party be put in as
good a position as if the other party had fully
performed may be used if there is little difference
in result from application of the rule in
Subsection (1).
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(3) [Present Subsection 2].
Adoption of the reliance rule would better serve one of the purposes mentioned in Comment 1--namely, that "compensatory damages are limited to compensation."
C. Individual Freedom from Government Interference.
The third concern--individual freedom from government interference--was an ideal espoused by most of the American revolution- aries, such as Thomas Jefferson,148 and by those liberal social thinkers who influenced them. In contract law, this ideal came to be reflected in the phrase: freedom of contract. These ideas later became formidable obstacles to anyone wanting to place public governmental limitations upon what was considered an area to be left to private autonomy.149 Courts often refrained from considering any questions about the underlying fairness or the social consequences of the enforcement of contracts. Emphasis on the freedom of the contracting parties exerted a strong influence upon the courts to use the expectation theory in awarding damages, since protection of the expectations of the parties was naturally the theory most consistent with the freedom of contract.150
The emphasis upon individual freedom was, unfortunately, a one-sided one. It concentrated only on the formation of contract.
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Great freedom was to be allowed in making a contract, but once the contract was signed, it was a different matter. A party no longer had very much freedom if he wanted to breach a contract that he found to be oppressive or unfair in price. Yet,it would seem that concern for individual freedom would require freedom of breach, especially under oppressive circumstances, just as well as freedom of contract.
Expectation theory restricts individual freedom more than does reliance theory because it often requires the breaching party to pay more in damages than he would have to pay under the reliance theory. This can be seen in the illustration of the refrigerator sale used above.151 The breaching party cannot feel free to breach because, if he does, he must pay the price originally demanded by the other party, even if this price is an excessive one. His freedom of action is severely restricted once the contract is made, even if he has good reason to breach.
Reliance theory allows breach more readily because it does not emphasize exact adherence to the original terms of a contract in order to assess damages. It only requires that the breaching party place the other party in the position he would have had before the contract was made.152 If the non-breaching party suffers little or no loss from breach, the breacher can feel more free to avoid the contract. This
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freedom can be useful for reasons other than the avoidance of unconscionable contracts. It can be used, for instance, whenever a buyer no longer needs the goods which he has contracted to buy. It would be much more beneficial for him to breach the contract and pay the seller only for his loss. This result would not seem to create any great injustice for the seller. On the other hand, if he feels he must continue with the contract, he will have goods on his hands for which he has no use.153
Freedom of breach has been allowed in situations in which courts have refused to provide for the contractual expectation of the breachee because giving him the cost to complete would be out of proportion to the benefit that is to be gained. The classic case of this kind is Jacob & Youngs, Inc, v, Kent.154
A contractor built a home in which the contract with the buyer specified that all wrought-iron pipe in the plumbing had to be
manufactured in Reading. As it turned out, the contractor failed to comply with the condition and instead installed pipe of a different manufacturer but of the same quality, appearance, and value. The only difference was in the name of the manufacturer. The buyer insisted on Reading pipe. The New York Court of Appeals in an opinion written by Judge Cardozo, held that the contractor was not obligated
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to install Reading pipe because that would involve demolition of much of the building at great expense to the contractor. Instead, only the difference in value between Reading pipe and the installed pipe was allowed. Apparently, the court decided to ignore the dissent's belief that "what [the buyer's] reason was for requiring this kind of pipe is of no importance."155 Cardozo declared that considerations of "equity and fairness" were more important.
The idea that government should not interfere in private contractual agreements has also suffered from one-sided application. While government has not interfered in the formation of contract to any great extent, it most certainly intervenes in private affairs whenever the courts are asked to enforce contracts. It seems that if government interference were truly to be avoided, the courts would interfere neither in the formation nor in the enforcement of contracts.156 Otherwise, government intervention in the enforcement of contracts without consideration of the fairness of the terms, not only condones but supports unconscionable dealing and exploitative practices. If courts are going to lend their power in the enforcement of contract, then they should be able to pass judgment upon the fairness of those contracts. To use judicial power in enforcing contracts by blindly following the expectations of the parties leaves the door open for use of the courts
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by opportunistic sellers and creditors seeking to protect unconscionable bargains.
On the other hand, if government is to insist upon allowing complete freedom in the making of contracts, then to be consistent, it should refuse to interfere in the case of breach, except to insure compensation for real loss. Government would refuse to prohibit the making of unconscionable bargains, but at the same time, it would leave an exploiting party to its own devices, within legal means, in getting the other party to comply with its agreement under the contract.
S who sold the refrigerator to C157 would be allowed to sell merchandise at exorbitant prices, but he would not be given judicial aid in the event that C decided not to pay the full price. A court would only intervene to the extent necessary to insure that S recovered his costs and a fair profit.158
IV. SOCIO-ECONOMIC EFFECTS
A. The Fear of Commercial Anarchy
It is feared that abrogation of the expectation theory would create commercial anarchy because it would greatly encourage the breaching of contractual agreements.159 This view is apparently based upon the belief that only if party expectations are satisfied will individuals feel that they
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can be properly protected from harmful breach and thus be encouraged to enter into contracts.
This fear does not seem well-founded and can be dispelled by a closer look at contractual realities. In the first place, in a large number of cases, the expectation theory and the reliance theory will give the same result. This will be true whenever contract price equals market price.160 S agrees to sell 100 cockatoos to B at the market price of $50 and then repudiates. The market price then goes up to $60, and B can't buy at less than $60. Under either theory, B would receive $1,000 in damages (100 x $10).
Another point is that individuals are not particularly afraid a promise made to them will not be kept, but rather, they are afraid of the harm that might occur to them as a result of that broken promise. Consequently, it would seem that people would feel free to make contracts easily, as long as they could be assured that they would be safeguarded from harm. It is probably true the failure to perform most contracts brings a harmful effect to one or more persons relying on the contract. If the breaching party is aware that he is liable for all reasonable harm occurring as a result of breach, he will have to think twice before he breaches. It would seem then that the compensation for breach provided by the reliance theory
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would be a sufficient deterrent to the widespread breach of contract.
It must also be pointed out that there is relatively little dependence upon judicial means in order to secure contract performance.161 Litigation is an expensive means of settling disputes and is employed only when all other avenues of approach have been tried. One deterrent to breaking contracts is that each merchant wants to keep in good terms with other merchants with whom he has dea1t or with whom he hopes to deal for a long time. Each merchant wants to keep a reputation for honesty and dependability. Even in the event of breach, a merchant does not hurry to court to recover lost profits on that one particular contract. This is because any loss on a single contract is often insignificant in view of the fact that business transactions have progressed smoothly perhaps for many years.162
A department store plans a large sale and requests a dress manufacturer to ship 1,000 dresses for the sale. The dresses are not shipped in time for the sale, and the store loses out on the money it would have made on the sale of the dresses. Rather than sue for lost profits, the store simply keeps the dresses or perhaps ships them back if it is no longer interested in selling them. The manufacturer's error is forgiven and forgotten--especially if it was a rare failure.
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At the same time, if the manufacturer were to claim that the dresses had been delivered on time but that they had been mislaid by the store's warehousemen, he would probably also refrain from suit. He would accept the dresses back and forget the affair for the sake of good business relations in the future.163 In the event that this late shipment were to flare up into an open dispute, the parties would probably then try to settle the matter through arbitration before going to court.164
B. Oligopoly and Contract Remedies
From an economic standpoint, abandonment of the expectation theory in favor of the reliance theory would counteract some of the ill effects that come from a system characterized by oligopoly and imperfect competition. Expectation theory, by seeking to enforce contracts under the terms in which they were made, protects excess profits which are the product of a market characterized by imperfect competition.165
Economists have devised the model of perfect competition in order to analyze the relation between price and cost. This model is an ideal one which is not to be found in the real world, although the agricultural market closely approximates it. Under perfect competition, there are a large number of sellers--none of whom are able to control'
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the price of the product. With such widespread competition, a seller cannot expect to stay in business if he raises his price above that of other sellers. If he does this, customers will not buy from him but will naturally prefer to do business with his competitors. As a result, the price of each item is always exactly equal to its cost and sellers are not able to make large profits. Instead, they keep for themselves only that part of the cost which is attributable to the labor they expend in the production of the items. In this way, no one is able to get rich since he is unable to corner a significant portion of the market. This happens because any increase in consumer demand will cause an increased entry of sellers into the market to meet the increased demand.166 This ultimately prevents inequities in the distribution of income.167
Another benefit that comes from keeping price equal to cost is that the consumption desires of people are more accurately related whenever the price stays equal to cost.168 At higher prices society gets along with less of the product not because it wouldn't like more but because the price is set artificially high.
In the model of perfect competition, profits are a function only of the actual labor put into the production of an item by the seller. As one moves away from perfect competition, profits are more of a function of the competitive advantage
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of the seller.169 In a monopoly (one seller), the entrepreneur can command a high price because he has no competition. He would have to expend no more labor than if he were operating under perfect competition, and yet he would reap a much higher reward. Under an oligopoly (a few sellers), he would not be able to command as high a price as in a monopoly, but he would still be able to make an excessive gain.170
While it is now recognized that an economy operating under perfect competition is impossible to attain, various measures have been taken by governments to reduce the income inequities that arise as a result of true market conditions. Government programs such as Social Security, unemployment compensation, and welfare are intended to aid those in the lower income brackets. A progressive income tax is used to reduce the net income of those in the higher brackets.
In the realm of contract, awards of damages for loss of excess profits which are the product of an oligopolistic market are possible through the employment of the expectation theory. Through reliance theory, payment for such profits can be avoided, since excess profits represent an amount in excess of any actual losses and reasonable income on the part of the seller. Use of the reliance rule would go along with the statement made by Professor Dawson
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that "the recapture of profit made through breach of contract has been brushed aside as an objective of our remedial system."171 While it may be too difficult to cure the market system of its anti-competitive features, it may at least be possible to use the reliance rule as an aid in preventing monopolistic and oligopolistic sellers from amassing wealth merely through the use of their more advantageous positions.172
C. Aesthetic Considerations
Finally, a justifiable objection can be made that the reliance theory could come to be used in such a way that only losses of a strictly financial sort would be compensated. Any losses to the breachee of a sentimental or aesthetic nature, for instance, would be ignored. Since this could very well happen, the concept of reliance should, be extended to protect concerns of a non-financial nature which are significant. In such situations, a breacher would be forced to pay the cost of performance or replacement instead of allowing him only to compensate for financial loss measured in terms of market value.173
SUMMARY
The expectation theory should be replaced by the reliance theory as the general rule for contract remedies. Reliance
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theory seeks to place the parties after a breach of contract in the position they held before the contract was made.
The expectation theory does not enjoy the mark of historical acceptance that one may be led to believe. It is only in the 19th century that it came to receive wide recognition. Before then, courts and juries did not feel as bound by the idea that contractual obligations were strictly binding regardless of their nature. Courts were much more willing to look at the underlying fairness of a contract.
Replacement of the expectation theory by the reliance theory would lead to many beneficial results. A more justifiable emphasis could be placed upon compensation for actual harm or for services rendered. This would be in contrast to the present approach which often awards damages for the speculative "loss" involved whenever a party is unable to reap the benefit of an advantageous bargain that it expected to complete. This new approach would finally erase already hazy boundaries between contract and tort. Contract would be classified as a type of tort in which the promise made by a party would serve to determine the existence as well as the extent of his liability.
Reliance theory best accommodates the important philosophical and ethical principles involved in the law of
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contract. Expectation theory places a greater emphasis on the enforcement of contractual promises, but in doing so it leaves the way open for the enforcement of unconscionable contracts. Reliance theory does not concern itself with the keeping of promises for the sake of moral rectitude or legal constancy, but rather looks first to see whether the breaking of a promise would create an injury which would bring harm if the breaching party were not forced to make reparation. Reliance promotes greater justice in denying the enforcement of an unconscionable contract where such denial would not result in loss to the party seeking enforcement.
Reliance theory works against the use of governmental authority in the enforcement of unconscionable bargains and in the protection of excessive and unjustified profit margins.
The fear that only the expectation theory can preserve the stability of contract law is ill-founded. The protection of the reliance interests of contracting parties would be just as effective in accomplishing this goal. The knowledge that, after a breach of contract, a breaching party must compensate the other party for losses suffered as a result of the breach would seem to be an adequate deterrent to the wholesale breach of contractual agreements. This is especially true since most breaches of contract would bring
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at least some loss to the non-breaching party. Furthermore, the stability of contract in transactions between businesses, does not depend so much on the threat of court suit as much as it depends upon good relations with fellow merchants.
The reliance theory has the advantage that it helps to counteract some of the effects that stem from an economy characterized by various oligopolistic and monopolistic markets. Under conditions of imperfect competition, a seller can often command a position of significant advantage and obtain a contract price well above the true market value of an item. Under the reliance theory, transactions based on such an advantage are not condoned as they are under expectation theory, since the failure to make a large profit cannot be considered a loss.
Section 1-106(1) or the Uniform Commercial Code and Section 329 of the Restatement of Contracts should be amended to show adoption of the reliance rule as the normal rule of contract remedies.
FOOTNOTES
1
1. D. DOBBS, REMEDIES 786 (1973); J. CALAMARI & PERILLO, CONTRACTS 327 (1970). Earlier discussions of the expectation rule are found in C. McCORMICK, LAW OF DAMAGES 560-562 (1935); 11 S. WILLISTON, LAW OF CONTRACTS § 1338 (3rd ed. 1968); 5 A. CORBIN, CORBIN ON CONTRACTS § 992 (1964).
2. RESTATEMENT OF CONTRACTS § 329 (1932) [hereinafter cited as RESTATEMENT]; UNIFORM COMMERCIAL CODE 81-106 [hereinafter cited as UCC]. See note 1 supra.
3. This observation was first made in the now famous article, Fuller & Perdue, The Reliance Interest in Contract Damages (pts. l&2), 46 YALE L.J. 52, 373 (1936). In the article, several cases are mentioned and discussed which "show, we believe, that the contractual reliance interest receives a much wider (though often covert) recognition in the decisions than it does in the textbooks," id. at 413.
A large number of cases can be cited, some decided in the 19th century, where courts refused to satisfy the contract expectations based on inadequacy of price or on the claim that the contracts "shocked the conscience." See discussion and cases cited in Dawson, Economic Duress--An Essay in Perspective, 45 MICH. L. REV. 253, 276-282 (1947).
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4. For a discussion of reliance and restitution see D. DOBBS, supra note 1 at 787-795. A casebook treatment can be found in J. JACKSON, CONTRACT LAW l1l-118, 218-271 (1973).
5. An account of the emergence of the will theory of contract is given in Horwitz, The Historical Foundations of Modern Contract Law, 87 HARV. L. REV. 917 (1974).
6. The doctrine was first announced in America in Laidlaw v. Organ, 15 U.S. (2 Wheat.) 178 (1817). In the opinion, Chief Justice Marshall wrote that a party was not obligated to communicate a fact that was exclusively within his knowledge. Id. at 195. One commentator attacked the case, believing that it was fraudulent to conceal "any fact . . . necessarily and materially affecting the common estimate which fixes the present market value of the thing sold . . . ." G. VERPLANCK, AN ESSAY ON THE DOCTRINE OF CONTRACTS: BEING AN INQUIRY HOW CONTRACTS ARE AFFECTED IN LAW AND MORALS 28-29 (1825). For a full historical discussion, see Hamilton, The Ancient Maxim of Caveat Emptor, 40 YALE L.J. 1133 (1931).
7. See generally K. POLANYI, THE GREAT TRANSFORMATION: THE POLITICAL AND ECONOMIC ORIGINS OF OUR TIME 115 (Beacon Press ed. 1957).
8. "[A] man is obliged in conscience to perform a contract which he has entered into, although it be a hard
3
one . . . ." J. POWELL, ESSAY UPON THE LAW OF CONTRACTS AND AGREEMENTS 229 (1790).
9. The expectation theory gained ground partly as a means for judges to control juries in damage awards. C. McCORMICK, LAW OF DAMAGES 562-563 (1935).
10. "[I]t is the consent of the parties alone, that fixes the just price or any thing, without reference to the nature of things themselves, or to their intrinsic value ... ." 1 J. POWELL, supra note 8.
11. Williston, Freedom of Contract, 6 CORN. L.Q. 365, 366-369 (1921); J. HURST, LAW AND THE CONDITIONS OF FREEDOM IN THE NINETEENTH CENTURY UNITED STATES (1956).
12. 5 A. CORBIN, supra note 1 at § 996; Fuller & Perdue, supra note 3 at 54. Fuller and Perdue seem to come very close to deciding that there is no adequate justification for retaining the expectation rule, but after rejecting three possible reasons, they accept two others. By protecting the expectancy, it is assumed that (1) harm caused by reliance is compensated through a rule that is easy to apply and (2) business agreements are confidently acted upon. Id. at 60-65. As to the latter point, the authors feel that business agreements would be discouraged if reliance were used as the normal rule because reliance is both difficult to prove and to measure. But problems of
'
4
proof in business contexts can be avoided by the observation that the very fact that a bargain is made is sufficient to occasion reliance. No further specific proof would be necessary beside the showing that agreement had been made. In regard to measurement, it is true that in most cases the reliance rule and the expectation rule will provide little or no difference and either rule can be applied without quarrel. Hence, businessmen can confidently rely on their agreements. The difference in the rules, however, is brought out in the case of unconscionable bargains. Discussion of this will come below. See text accompanying note 131 infra.
As to explanation (1), the authors state:
If we take into account "gains prevented" by
reliance, that is, losses involved in foregoing
the opportunity to enter other contracts, the
notion that the rule protecting the expectancy
is adopted as the most effective means of
compensating for detrimental reliance seems not
at all far-fetched. Physicians with an extensive
practice often charge their patients the full
office call fee for broken appointments. Such a
charge looks on the face of things like a claim
to a promised fee; it seems to be based on the
"expectation interest." Yet the physician making
the charge will quite justifiably regard it as
compensation for the loss of the opportunity to
gain a similar fee from a different patient. This
foregoing of other opportunities is involved to
some extent in entering most contracts, and the
5
impossibility of subjecting this type of reliance
to any kind of measurement may justify a categorical
rule granting the value of the expectancy as the
most effective way of compensating for such losses.
Id. at 60.
Based on the illustration given, the justification for a categorical rule of expectation is fine. Most contracts are similar to the physician's contract in the example, but suppose that the facts were a little different. Suppose that (l) the physician makes an appointment on his day off and (2) he has his office in his home so that he is not put out of his way to any great extent. In this case, will the physician be justified in charging such a high fee, and doesn't the expectation theory go beyond the extent necessary to compensate for any loss? Furthermore, it doesn't seem that difficulty in measuring reliance damages in general should prevent an attempt to make a measurement in cases where there is a blatant discrepancy between expectation and reliance.
l3. Restitution has a wider, more difficult meaning than that used in connection with breach of contract. It is involved in other actions such as tort. It is more clearly meant to prevent unjust enrichment of the defendant at the expense of the plaintiff, although the defendant may have never done anything, such as making a promise, to cause the
'
6
plaintiff any loss. See D. DOBBS, supra note 1 at 222-227; RESTATEMENT ON RESTITUTION §1 (1937).
14. If . . . . the gain involved in the restitution
interest results from and is identical with
the plaintiff's loss through reliance, then
the restitution is merely a special case of
the reliance interest; all of the cases coming
under the restitution interest will be covered
by the reliance interest, and the reliance
interest will be broader than the restitution
interest only to the extent that it includes
cases where the plaintiff relied on the
defendant's promise without enriching the
defendant.
Fuller & Perdue, supra note 3 at 55.
15. Plucknett writes that "in the Anglo-Saxon period a law of contract would have been a luxury." T. PLUCKNETT, A CONCISE HISTORY OF THE COMMON LAW 628 (5th ed. 1956). By the 14th century, the only contracts that were recognized were those enforcible by an action of debt. The field of contract was characterized by "extreme poverty and narrowness." Id. at 635. See also C. FIFOOT, HISTORY AND SOURCES OF THE COMMON LAW: TORT AND CONTRACT 217-394 (1949).
16. 4 Leon. 3, 74 Eng. Rep. 686 (Q.B. 1588). "A promise against a promise will maintain an action upon the case." Id.
17. T. PLUCKNETT, supra note 15 at 644; C. FIFOOT, supra note 15 at 399-400.
'
7
18. Horwitz, supra note 5 at 919-936.
19. Fitch v. Hamlin (Conn. Sup. Ct. Err. 1789), reported in 1 Z. SWIFT, A SYSTEM OF THE LAWS OF THE STATE OF CONNECTICUT 410-412 (1796).
20. Horwitz, supra note 5 at 946-947. See also Gilmore, Legal Realism: Its Cause and Cure, 70 YALE L.J. 1037, 104-0 (1961).
21. "The medieval writer scanned the facts to see what, given such and such conditions, was right and just .... [and] stressed his preoccupation with justice and equity .... " B. DEMPSEY, INTEREST AND USURY 1 (1943). See also R. TAWNEY, RELIGION AND THE RISE OF CAPITALISM (1926) and Salin, Usury, 15 ENCYC. SOC. SCIENCES 193 (1934); Note, Unconscionable Contract Provisions; A History of Unenforceability from Roman Law to the UCC, 42 TULANE L. REV. 193 (1967).
22. C. FIFOOT, supra note 15 at 295.
23. Horwitz, supra note 5 at 920.
24. Id. at 919-921.
25. Id. at 925; C. McCORMICK, supra note 9 at 562.
26. Horwitz, supra note 5 at 927. See also T. PLUCKNETT, supra note 15 at 657-660.
27. Horwitz, supra note 5 at 918, 920; 2 J. KENT, COMMENTARIES ON AMERICAN LAW *449-557 (1827).
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8
28. 2 J. POWELL, supra note 8 at 232-233.
29. 2 Black W. 1078, 96 Eng. Rep. 635 (C.P. 1776).
30. Id.
31. Horwitz, supra note 5 at 923-927.
32. Seymour v. Delancey, 3 Cow. 445 (N.Y. 1824).
33. Id. at 505.
34. Wharton v. Morris, l Dall. 125, 126 (Pa. 1795).
35. Horwitz, supra note 5 at 925.
36. F. KESSLER & G. GILMORE, CONTRACTS 2-3 (1970). See also Hofstadter, What Happened to the Antitrust Movement? reprinted in THE BUSINESS ESTABLISHMENT (E. Cheit ed. 1964).
37. "In an industrial and commercial society, where wealth is largely made up of promises, the interest of society as a whole demands protection of the interest of the individual promisee." F. KESSLER & G. GILMORE, supra note 36 at 3.
38. The movement of the progressive societies has been
uniform in one respect. Through all its course it
has been distinguished by the gradual dissolution
of family dependency, and the growth of individual
obligation in its place ... . [w]e may say that the
movement of the progressive societies has hitherto
been a movement from Status to Contract.
H. MAINE, ANCIENT LAW 163-165 (1864).
39. Adam Smith apparently felt quite strongly about the importance of satisfying contractual promises. He said, "The foundation of contract is the reasonable expectation,
'
9
which the person who promises raises in the person to whom he binds himself; of which the satisfaction may be extorted by force." A. SMITH, LECTURES ON JUSTICE, POLICE, REVENUE AND ARMS 7 (Canaan ed. 1896).
40. One of the first English cases was Gainsford v. Carroll, 2 B.&.C. 624, 107 Eng. Rep. 516 (K.B. 1828)(bacon). In America the first case was Shepherd v. Hampton 16 U.S. (J Wheat.) 200 (1818)(cotton). Both cases measured the damages by the difference between the contract price and the market price at the time of delivery.
41. Hadley v. Baxendale, 9 Ex. 341, 156 Eng. Rep. 145 (1824).
42. C. McCORMICK, supra note 9 at 97.
43. Id. at 97-99.
44. See note 6 supra.
45. [A] system of free contract did not recommend
itself solely for reasons of sheer expediency
and utilitarianism; it was deeply rooted in the
moral sentiments of the period in which it found
strongest expression. The dominant current belief
inspiring nineteenth century industrial society
--an open society--was the deep-felt conviction
that individual and cooperative action should be
left unrestrained in family, church, and market
and that such a system of laissez-faire would not
lessen the freedom and dignity of the individual,
but would secure the highest possible social
justice.
F. KESSLER & G. GILMORE, supra note 36 at 4.
10
46. A. SMITH, WEALTH OF NATIONS 423 (Canaan ed. 1937).
47. Bentham's ideas on ethics and on the best way to bring happiness are found in A FRAGMENT ON GOVERNMENT (1776; F. Montague ed. 1891) and AN INTRODUCTION TO THE PRINCIPLES OF MORALS AND LEGISLATION (1780; Hafner 1948).
48. Some have pointed out that freedom of contract has never been given unqualified allegiance. Pound, Liberty of Contract, 18 YALE L.J. 454, 482 (1909); Williston, Freedom of Contract, supra note 11 at 373. Public policy, for instance, has always been a device for refusing to enforce contracts.
49. J. HURST, supra note 11 at 18.
50. F. KESSLER & G. GILMORE, supra note 36 at 9-12.
51. Id. at 12.
52. Kessler, Contracts of Adhesion--Some Thoughts About Freedom of Contract, 43 COLUM. L. REV. 629, 640 (1943).
53. Legislation has been passed on working conditions, collective bargaining, child labor, antitrust; and insurance. F. KESSLER & G. GILMORE, supra note 36 at 9-12.
54. See the compilation of cases in the Fuller & Perdue article, supra note 3 at 88-92, 377, 381-401.
11
55. Generally, these cases are those that have fallen under UCC §§ 2-314, 2-315. For cases falling under these sections, see 1 UNIFORM LAWS ANNOTATED §§ 2-314, 2-315 (1975). Caveat emptor was not recognized in the UNIFORM SALES ACT § 15(2) provided:
Where the goods are bought by description from
a seller who deals in goods of that description
(whether he be the grower or manufacturer or not),
there is an implied warranty that the goods shall
be of a merchantable quality.
As a result of these developments, a New Jersey court has said that caveat emptor "is very nearly abolished" in regard to personal property. Levy v. C. Young Construction Co., 46 N.J. Super. 293, 296, 134 A.2d 717, 719 (App. Div. 1957), aff'd on other grounds, 26 N.J. 330, 139 A.2d 738 (1958). With regard to realty it hasn't been as good, but Sullivan v. Ulrich, 326 Mich. 218, 40 N.W.2d 126 (1949). See also, Bearman, Caveat Emptor in Sales of Realty--Recent Assaults Upon the Rule, 14 VAND. L. REV. 541 (1961).
56. See cases cited in Calamari, Duty to Read--A Changing Concept, 43 FORDHAM L. REV. 341, 343-347, notes 12-31 (1974).
57. Never did a Name so obstruct a true understanding
of the Thing. To such a plight has it brought us
that a favorite-mode of defining a Tort is to
declare that it is not a Contract. As if a man
were to define Chemistry by pointing out that it
is not Physics or Mathematics.
12
1 J. WIGMORE, SELECT CASES ON THE LAW OF TORTS vii (1912). For an extensive discussion of various attempts to define torts and the resulting problems, see W. PROSSER, LAW OF TORTS 1-5 (4th ed. 1971).
58. For discussions of contract definition problems see l A. CORBIN, supra note 1 at § 3; J. CALAMARI & J. PERILLO, supra note l at 1-3. The standard definition is stated: "A contract is a promise or set of promises for the breach of which the law gives a remedy, or the performance of which the 1aw in some way recognizes a duty!" RESTATEMENT § l; 1 S. WILLISTON, supra note l at § 1. The problem with the definition is that it is at best a vague description. It gives the reader no idea what promises will be provided a remedy by the law and no insight into the reasons for the legal control of certain promises.
59. W. PROSSER, LAW OF TORTS 6 (4th ed. 1971).
60. Id. at 5.
61. Purely gratuitous promises are not enforced. Usually the doctrine of consideration is used to prevent awards of damages in such situations. See 1 A. CORBIN, supra note 1 at § 110. Courts have refused to enforce promises even though judgment for the plaintiff would have been just
13
compensation for a previous favor. Two cases are Manwill v. Oyler, 11 Utah 2d 433, 361 P. 2d 177 (196l)(promise to repay debts paid on defendant's behalf); Davis & Co. v. Morgan, 117 Ga. 504, 43 S.E. 732 (1903)(promise to pay additional salary if employee remained).
62. This situation falls under the doctrine of promissory estoppel. The best known formulation is found in RESTATEMENT 190:
A promise which the promisor should reasonably
expect to induce action or forbearance of a
definite and substantial character on the part
of the promisee and which does induce such action
or forbearance is binding if injustice can be
avoided only by enforcement of the promise.
Three cases which are well-known illustrations of the doctrine are Ricketts v. Scothorn, 57 Neb. 51, 77 N.W. 365 (1898); Allegheny College. v. National Chautauqua County Bank of Jamestown, 246 N.Y. 369, l5 N.E. 173, 57 A.L.R. 980 (1927); Drennan v. Star Paving Co., 51 Cal. 2d 409, 333 P.2d 757 (1958)(promise made in a commercial context).
63. P. WINFIELD, THE PROVINCE OF THE LAW OF TORT 32 (1931).
64. Seavey, Book Review, 45 HARV. L. REV. 209 (1931).
65. Id. at 209-210.
66. Id. at 210.
67. T. PLUCKNETT, supra note 15 at 637; Farnsworth, The
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14
Past of Promise: An Historical Introduction to Contract, 69 COLUM. L. REV. 576, 594 (1969). See also Milsom, Reason in the Development of the Common Law, 81 L.Q. REV. 496 (1965); C. FIFOOT, supra note 15; S. MILSOM, HISTORICAL FOUNDATIONS OF THE COMMON LAW 279-282 (1969). For an extended discussion of the historical and conceptual interrelation of tort and contract see Chapter 16, Tort and Contract of W. PROSSER, supra note 59 at 613. For further comparisons see Prosser, The Borderland of Tort and Contract in W. PROSSER, SELECTED TOPICS ON THE LAW OF TORTS 380 (1954); Guest, Tort or Contract? 3 U. MALAYA L. REV. 191 (19 ); Poulton, Tort or Contract, 82 L.Q. REV. 346 (1966); Note, 27 SO. CAL. L. REV. 216 (1954); Thornton, The Elastic Concept of Tort and Contract As Applied by the Courts, 14 BROOK. L. REV. 196 (1948).
68. Y.B. 22 Ass. f. 94, pl. 41 (1348).
69. T. PLUCKNETT, supra note 15 at 637.
70. Id. at 639.
71. Indeed, it has long been proclaimed as the primary concern. "The principle most often voiced, so much so that it may be taken as the norm for modern American law, is 'compensation' or 'indemnity.'" Wright, The Law of Remedies as a Social Institution, 18 U. DET. L.J 376, 377 (1955). [T]he basic principle underlying common law remedies [is that] they shall afford only compensation for the injury
'
15
suffered." Illinois Central R. Co. v. Crail, 281 U.S. 57, 63 (1930). See also 11 S. WILLISTON, supra note 1 at § 1338.
72. See, e.g., UCC § 2-318 (1962). The 1962 Code did not cover third parties outside the family. The 1972 Code, however, contains three alternatives. Alternative A is the same as the 1962 provision. Alternatives B and C are similar and provide for protection of persons outside the family. Alternative B reads:
A seller's warranty whether express or implied
extends to any natural person who may reasonably
be expected to use, consume or be affected by the
goods and who is injured in person by breach of
warranty. A seller may not exclude or limit the
operation of this section.
The first case denying privity as a defense is McPherson v. Buick,
217 N.Y. 382, 111 N.E. 1050 (1916).
73. W. PROSSER, 656-658; RESTATEMENT (SECOND) OF TORTS § 402A (1965).
74. UCC §§ 2-314, 2-315; UNIFORM SALES ACT § 15(2); Race v. Krum, 222 N.Y. 410, 118 N.E. 853, 1918F. L.R.A. 1172 (1918); Ryan v. Progressive Stores, 255 N.Y. 388, 175 N.E. 105, 74 A.L.R. 339 (1931).
75. F. KESSLER & G. GILMORE, supra note 36 at 71. See
16
generally, D. NOEL & J. PHILLIPS, PRODUCTS LIABILITY IN A NUTSHELL (1974); L. FRUMER & M. FRIEDMAN, PRODUCTS LIABILITY (1975); W. PROSSER, supra note 59 at 641-682.
76. See W. PROSSER, supra note 59 at 642; D. NOEL & J. PHILLIPS, supra note 75 at 67.
77. McPherson v. Buick, 217 N.Y. 382, 391, 111 N.E. 1050, 1058 (1916) ("[Buick] knew ... that the car would be used by persons other than the buyer."); W. PROSSER, supra note 59 at 643. See also Bohlen, Liability of Manufacturers to Persons Other than Their Immediate Vendees, 45 L.Q. REV. 343 (1929).
78. 59 Cal. 2d 57, 27 Cal. Rptr. 697, 377 P.2d 897 (1963).
79. Id. 59 Cal. 2d at 61, 27 Cal. Rptr. at 701, 377 P.2d at 901. See also Prosser, Strict Liability to the Consumer, 69 YALE L.J. 1099, 1124-1134.
80. The requirement of privity was first circumvented in McPherson v. Buick, supra note 77. That case demonstrated the often artificial requirements in finding liability in contract which stand in the way of compensation. Judge Cardozo wrote:
We have put aside the notion that the duty to
safeguard life and limb, when the consequences
of negligence may be foreseen, grows out of
contract and nothing else. We have put the source
of the obligation where it ought to be. We have
put its source in the law.
'
17
217 N.Y. 382, 390, 111 N.E. 1050, 1056 (1916). The trend was continued by cases using strict liability in tort as well as contract theory, Jacob E. Decker & Sons, Inc. v. Capps, 139 Tex. 609, 164 S.W.2d 828 (1942); Henningsen v. Bloomfield Motors, Inc., 32 N.J. 358, 161 A.2d 69 (1960); Continental Copper & Steel Indus. v. E.C. "Red" Cornelius, Inc., 104 So.2d 40 (Fla. Ct. App. 1958) (allowing recovery for purely economic loss).
81. See W. PROSSER, supra note 59 at 642; Winterbottom v. Wright, 10 M. & W. 109, 152 Eng. Rep. 402 (Ex. 1842).
82. "[The] common law, as general rule, throws a strong arm of protection around the manufacturer, warding off claims of third persons, not direct purchasers for injury sustained ... ."
Simmons v. Hardin, 75 Ga. App. 420, 425, 73 S.E.2d 553, 557 (1948).
83. [T]he risk of injury can be insured by the
manufacturer and distributed among the public
as a cost of doing business. It is to the
public interest to discourage the marketing of
products having defects that are a menace to
the public.
Escola v. Coca Cola Bottling Co., 24 Cal. 2d 453, 462, 150 P.2d 436, 441 (1944)(Traynor, J., concurring).
84. In opposition to the individualistic theory of
contract, we place what we designate as the
social theory of contract: contract is
established and maintained for social purposes.
All contracts find their logical origin in the
social welfare and in this they find the
grounds for their maintenance.
18
2 R. ELY, PROPERTY AND CONTRACT IN THEIR RELATIONS TO THE DISTRIBUTION OF WEALTH 615 (1914).
85. As Learned Hand put it:
A contract has, strictly speaking, nothing to
do with the personal, or individual, intent of
the parties. A contract is an obligation attached
by mere force of law to certain acts of the parties,
usually words, which ordinarily accompany and
represent a known intent. If, however, it were
proved by twenty bishops that either party, when
he used the words, intended something else than
the usual meaning which the law imposes on them,
he would still be held, unless there were some
mutual mistake.
Hotchkiss v. National City Bank of N.Y., 200 F. 287, 293 (S.D. N. Y. 1911).
86. See note 49 supra and accompanying text. Winterbottom v. Wright was decided in 1842.
87. 32 N.J. 358, 161 A.2d 69 (1960).
88. See UCC § 2-316 which imposes limitations on disclaimers of warranties. § 2-316(2) requires that disclaimers of implied warranties be conspicuous. Important cases holding disclaimers invalid are Henningsen v. Bloomfield Motors, Inc., 32 N.J. 358,
'
19
161 A.2d 69 (1960); Velez v. Craine & Clark Lumber Corp., 33 N.Y.2d 117, 350 N.Y.S.2d 617, 305 N.E.2d 750 (1973)(disclaimer not effective against remote parties); Vandermark v. Ford Motor Co., 61 Cal. 2d 256, 37 Cal. Rptr. 896, 891 P.2d 168 (1964)(disclaimer of strict tort liability); Dessert Seed Co. v. Drew Farmers Supply Inc., 248 Ark. 858, 454 S.W.2d 307 (1970)(disclaimer of liability for negligence).
89. 32 N.J. 358, 372, 161 A.2d 69, 83 (1960).
90. P. WINFIELD, supra note 63 at 40.
91. Corbin states that damages for breach of contract are limited to those injuries that the defendant had reason to foresee when the contract was made, while damages in tort can extend to injuries that he did not foresee at all, 5 A. CORBIN, supra note 1 at § 1019. Corbin then states that, since reason to foresee does not mean that the specific injury had to be foreseen, "the difference between the two rules is, therefore, not so great as might be supposed." Id. at n. 59.
It is also true that tort obligations do not always extend farther in range than contract obligations. It is said that tort obligations extend farther because contract obligations reach only specific individuals (those named in the contract) and are limited to those reasonably within the contemplation of the defendant when the contract was made, McCormick, The Contemplation Rule as a Limitation
'
20
Upon Damages for Breach of Contract, 19 MINN. L. REV. 497 (1935), reprinted in C. McCORMICK, supra note 1 at 560. It must however be pointed out that while this may be true of most torts, it is not true of certain others such as defamation. Defamation is restricted to approximately the same range as is breach of contract.
It may thus be too much to say that foreseeability of consequences marks tort and contract into two distinct areas of law. It may be more accurate to say that contract is a tort, like defamation, different from most torts in that it is restrictive in its scope of liability.
92. Specifically, it can be compared to the doctrine of res ipsa loquitur which allows the use of circumstantial evidence in the proof of negligence. See W. PROSSER, supra note 59 at 39. Similarly, breach of contract by one shown to be a party can be regarded as a finding of culpability through circumstantial evidence.
93. In this example, it is assumed that the price is equal to the value and thus the case would be covered by UCC § 2-709(1)(a) which awards the price for lost or damaged goods.
94. He could be found free from liability under negligence but this would not free him from his contract obligation.
21
95. Objective impossibility rather than personal impossibility is recognized, J. CALAMARI & J. PERILLO, supra note 1 at 315.
96. RESTATEMENT § 71.
97. Impossibility has gone a long way since the time when it was not allowed as a defense at all. Taylor v. Caldwell, 122 Eng. Rep. 309 (K.B. 1863) was the first case to allow this defense. The test has slowly been relaxed. RESTATEMENT § 454 speaks in terms of impracticability. Most courts have not followed its approach with any eagerness, but see Mineral Park Land Co. v. Howard, 172 Cal. 289, 156 P. 458 (1916).
98. See note 62 supra; J. CALAMARI & J. PERILLO, supra note l at 171. A formulation of the doctrine which will allow easier application to a wider type of cases can be found in the tentative draft to the RESTATEMENT (SECOND) OF CONTRACTS:
A promise which the promisor should reasonably
expect to induce action or forbearance on the
part of the promisee or a third person and which
does induce such action or forbearance is binding
if injustice can be avoided only by enforcement
of the promise. The remedy granted for breach may
be limited as justice requires.
RESTATEMENT {SECOND) OF CONTRACTS § 90 (Tent. Draft Nos, 1-7, 1973). Perhaps the most significant change is the deletion of the phrase designating action or forbearance
22
"of a definite and substantial character" from the RESTATEMENT § 90, supra note 62.
99. For an analysis of possible problems of confusion between promissory estoppel, which is concerned with preventing unjust results, and principles of consideration, see Henderson, Promissory Estoppel and Traditional Contract Doctrine, 78 YALE L.J. 343, 386 (1969).
100. See text preceding note 93.
101. A case in which the plaintiff recovered after only negotiations had taken place without any final agreement is that of Hoffman v. Red Owl Stores, 26 Wis. 683, 13 N.W.2d 267 (1965), reprinted in J. JACKSON, supra note 4 at 705 under the heading, Contract or Tort?
102. This is a very general and perhaps misleading definition since there are really three different types of misrepresentation or deceit: intentional, negligent, and innocent, see W. PROSSER, supra note 59 at 684-685. The definition, however, is adequate for our purposes.
103. Id. at 684.
104. Skillings v. Allen, 143 Minn. 323, 173 N.W. 663 (1919); Washington & Berkeley Bridge Co. v. Pennsylvania Steel Co., 226 F. 169 (4th Cir. 1915); Volz v. Goodykoontz, 112 Va. 853, 72 S.E. 730 (1911).
23
105. Virginia Dare Stores v. Schuman, 175 Md. 287, 1 A.2d 897 (1938). A debate has developed over proposed Section 524A of the RESTATEMENT (SECOND) OF TORTS (Tent. Draft No. 3, 1958) which would allow an alternative "restitutionary" measure of damages to a complaining buyer, Hill, Breach of Contract as Tort, 74 COLUM. L. REV. 40 (1974). Section 524A reads as follows:
524A. Misrepresentation in Sale, Rental or
Exchange Transactions.
(1) One who, in a sale, rental or exchange
transaction with another, makes a misrepresentation
of a material fact for the purpose of inducing the
other to act or to refrain from action in reliance
upon it, is subject to liability to the other for
the harm caused by his justifiable reliance upon
the misrepresentation, even though it is made
without knowledge of its falsity or negligence.
(2) If such a misrepresentation is made without
knowledge of it's falsity or negligence, the
damages recoverable for it are limited to the
difference between the value of what the other has
parted with and the value of what he has received
in the transaction.
Professor Hill expresses a justifiable concern that the approach proposed in Section 524A could cause a disregard for contractual devices for limiting damages, such as use of the parole evidence rule, disclaimers, and specific
24
agreements limiting liability, Hill, Damages for Innocent Misrepresentation, 73 COLUM. L. REV. 679, 681 (1973); Hill, supra this note at 43. While Professor Hill is correct in pointing out these important and very specific problems, he does seem to exaggerate the danger in intermingling tort and contract principles. He expresses the fear that "if the demand for a 'restitutionary' recovery, as distinct from a 'contract' recovery, justifies resort to tort principles in the case of a breach of a promissory representation, the same result would seem to be indicated in any contract dispute," id. at 44.
He does not, however, consider the benefits that could come from combining tort and contract approaches. See F. KESSLER & G. GILMORE, supra note 36 at 70-71. Instead, too great an emphasis is placed upon conceptual categories which can act as obstructions and cloud view of the proper remedies and defenses which the law should provide.
106. A good illustration and discussion of the problem can be found in Mendel v. Pittsburgh Plate Glass Co., 25 N.Y.2d 340, 253 N.E.2d 207, 305 N.Y.S.2d 490 (1969), questioned Rivera v. Berkeley Super Wash, Inc., 44 A.D.2d 316, 322-325, 354 N.Y.S.2d 654, 658-660 (1974). In Mendel, a woman, who was injured by a glass door, was barred from recovery by a contract statute of limitations but would not have
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25
been barred by the applicable tort statute of limitations.
107. At this point, it might be pointed out that, at one time at least, in New York a breach of warranty was considered as a tort. The New York Court of Appeals in Goldberg v. Kollsman Instrument Corp. said: "A breach of warranty, it is now clear, is not only a violation of the sales contract out of which the warranty arises but is a tortious wrong suable by a noncontracting party." 12 N.Y.2d 432, 436, 191 N.E.2d 81, 85, 240 N.Y.S.2d 592, 594 (1963).
108. Roscoe Pound warned in Mechanical Jurisprudence, 8 COLUM. L. REV. 605, 606 (1908):
Law has the practical function of adjusting
everyday relations so as to meet current ideas of
fair play. It must not become so completely
artificial that the public is 1ed to regard it as
wholly arbitrary. No institution can stand upon
such a basis today.
The use of wider principles which interconnect and illuminate fresh solutions to problems should be resorted to whenever possible.
A legal system that works with general principles
has powerful instruments . . . A generalized
jurisprudence enlarges the law's control over the
diversity of legal situations. It is like fishing
with large nets instead of with single lines.
'
26
Cohen, The Place of Logic in the Law, 29 HARV. L. REV. 622, 625 (1916). See also Llewellyn's discussion of paper rules and real behavior in Llewellyn, A Realistic Jurisprudence--The Next Step," 30 COLUM. L. REV. 431 (1930).
109. See text to notes 75-90 supra.
110. See notes 8, 39 supra. It is only logical, that if the parties are to be placed in the position they would have had if the contract had been performed, courts must require the promised performance or its equivalent. Fuller & Perdue mention the expectation theory's capacity for strict enforcement of promises and label this the "psychological" justification for enforcement, supra note 3 at 57.
111. The reliance theory is concerned with reparation after breach.
112. [I]f there is one thing which more than
another public policy requires, it is that
men of full age and competent understanding
shall have the utmost liberty of contracting,
and that their contracts entered into freely
and voluntarily shall be held sacred and
shall be enforced by Courts of Justice.
27
Printing and Numerical Registering Co. v. Sampson, L.R. 19 Eq. 462, 465 (1875).
113. Why should promises be enforced?
The simplest answer is that of the intuitionists,
namely, that promises are sacred per se, that
there is something inherently despicable about
not keeping a promise, and that a properly
organized society should not tolerate this. This
may also be said to be the common man's theory.
Cohen, The Basis of Contract, 46 HARV. L. REV. 553, 571, reprinted as M. COHEN, LAW AND THE SOCIAL ORDER 88-89 (1933).
114. Id. at 91. "No legal system devised by man has ever been reckless enough to make all promises enforceable," Farnsworth, supra note 67 at 591.
115. See 12 AM. JUR.2d § 18.
116. The word "commercial" is being used here in a general sense relating to any exchanges between parties of money or property and not just in cases where one party is in business.
117. Farnsworth, supra note 67 at 598~599. See also Ames, The History of Assumpsit, 2 HARV. L. REV. 1, 53 (1888).
118. J. CALAMARI & J. PERILLO, supra note l at 105.
119. The consideration paid, however, need not be very much. See, e.g., Haigh v. Brooks, 113 Eng. Rep. 119 (K.B. 1839)(a piece of paper was sufficient consideration).
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28
120. See note 62 supra and accompanying text.
121. Fuller & Perdue, supra note 3 at 56. It should also be pointed out that the meaning of reliance to be used here is not the narrow one often given or implied by textbooks as one which is related only to promissory estoppel. See e.g., J. JACKSON, supra note 4 at 693. Instead, the wider meaning often involved in cases of quasi-contract and which is to be applied even in cases involving bargains is being used. See text accompanying notes 13, 14 supra.
122. Id. at 60.
123. Holmes, Path of the Law, 10 HARV. L. REV. 457, 462 (1897).
124. Fuller & Perdue made the observation that "we 'compensate' the plaintiff by giving him something he never had. This seems on the face of things a queer kind of 'compensation.'" Supra note 3 at 53.
125. 281 U.S. 57 (1930).
126. Id. at 65.
127. Id. at 64-65. This is one of the arguments advanced by Fuller & Perdue for keeping the expectation rule as the normal rule, supra note 3 at 61.
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128. It is indeed very doubtful whether there
are many who would prefer to live in an
entirely rigid world in which one would
be obliged to keep all one's promises ... .
Many of us indeed would shudder at the
idea of being bound by every promise, no
matter how foolish, without any chance of
letting increased wisdom undo past
foolishness. Certainly, some freedom to
change one's mind is necessary for free
intercourse between those who lack
omniscience.
M. COHEN, supra note 113 at 90-91.
129. Cahn, Justice, 8 INT'L ENCYC. OF THE SOC. SCIENCES 341, 344 (1968). The idea originates with Aristotle, Nicomachean Ethics, BASIC WORKS OF ARISTOTLE 1013 (R. McKeon ed. 1941).
130. A. SMITH, THE WEALTH OF NATIONS 423 (Canaan ed. 1939).
131. This spirit was often expressed by President Andrew Jackson, see Jackson, Bank Veto Message (1832) reprinted in MILESTONES TO AMERICAN LIBERTY: THE FOUNDATIONS OF THE REPUBLIC (M. Meltzer ed. 1961).
l32. See Note, Unconscionable Contract Provisions: A History of Unenforceability from Roman Law to the UCC, 42 TULANE L. REV. 19) (1967); Dawson, Economic Exchange and the Fair Exchange in French and German Law, 11 TULANE L. REV. 345 (1937); Dawson, Economic Duress--An Essay in Perspective, 45 MICH. L. REV. 253 (1947); J. JACKSON, supra note 4 at 932-933.
133. This is done not through explicit reference to expectation but through insistence that the parties were
30
free to contract and cannot later seek to avoid their obligations because the price was excessive or the terms were harsh.
A good example of this reasoning can be found in Eyre v. Potter, 56 U.S. (15 How.) 42 (1853). There it was found that a 70-year old woman had sold her rights in her deceased husband's estate to his son for
$1,000 and annuity payments of $600 for the rest of her life. Her interest in the estate was approximately $40,000. The widow claimed that the son had taken unfair advantage of her at a time when she was weak and was ignorant of her rights. The Supreme Court, through Justice Daniel, found that the consideration given was adequate saying, "The value of a thing is what it will produce, and it admits of no precise standard." Id. at 60. The court supported its decision by pointing out that there were motives for the widow to want to sell her rights at such a price. One consideration was that she had great affection for the son and his wife who was her granddaughter. Another motive was that she wanted to be relieved of the responsibility of managing the estate. Id.
For other cases enforcing harsh bargains, see Willard v. Tayloe, 75 (8 Wall.) 557 (1869); U.S. v. Bethlehem Steel Corp., 315 U.S. 289 (1942); Embola v. Tuppela, 127 Wash. 285, 220 P. 789 (1923); Union Central Relief Ass'n v.
31
Thomas, 213 Ala. 666, 106 So. 133 (1925).
134. See Baltimore & Ohio Railway v. Voight, 176 U.S. 498, 505 (1899)("[T]he usual and most important function of courts of justice is rather to maintain and enforce contracts, than to enable parties thereto to escape from their obligation on the pretext of public policy ... . "); Twin City Pipe Line Co. v. Harding Glass Co., 283 U.S. 353 (1930); Aerial Lumber Co. v. U.S., 239 F.2d 906, 907 (9th Cir. 1956)("A contract has a binding force base upon the fact that it evidences a meeting of two parties in good faith.")
135. Requirement that the disparity be significant would avoid frivolous claims which would be time-consuming and hard to evaluate. It is those types of claims seeking precise mutuality of consideration which courts are correct in enforcing according to party expectations. Within certain bounds, parties must be held to the terms in their contracts. It is in the extreme or clear cases of unequal exchange where there must be a closer scrutiny.
136. It should be pointed out that the awarding of damages for contracts of an aleatory nature is more adequately accomplished through the expectation rule than the reliance
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rule. Contracts of an aleatory nature include contracts for the sale of stock. This exception to the reliance rule is justified on account of the clearly speculative nature of aleatory contracts in which the parties risk incurring losses with the hope of receiving copious gains. It must be remembered that expectation damages were first recognized in contracts involving stock speculation, Horwitz, supra note 5 at 937. The unfortunate development was that eventually the making of any contract, apparently came to be seen as a speculative venture. It is precisely this view of contract that has led to harsh, mechanical application of the expectation rule in those cases where reliance would have been the more adequate standard to apply.
137. 59 Misc.2d 189, 298 N.Y.S.2d 264 (Sup. Ct., Nassau Co. 1969).
138. 52 Misc.2d 26, 274 N.Y.S.2d 757 (Sup. Ct., Nassau Co.
1967), rev'd on other grounds, 54 Misc.2d 119, 281 N.Y.S.2d 964 (2d Dep't, App. Term 1967).
139. Id. 52 Misc.2d at 27, 274 N.Y.S.2d at 759.
140. 59 Misc.2d 189, 192, 298 N.Y.S.2d 264, 266. Other cases holding bargains unconscionable based on excessive price are American Home Improvement, Inc. v. McIver, 105 N.H. 435, 201 A.2d 886, 14 A.L.R3d 324 (1964); Matter of State of New York v. ITM, Inc., 52 Misc.2d 39, 275 N.Y.S.2d
33
303 (1967); Toker v. Perl, 103 N.J. Super. 500, 247 A.2d 701 (1968).
141. 59 Misc.2d 189, 193, 298 N.Y.S.2d 264, 268.
142. Leff, Unconscionability and the Code--The Emperor's New Clause, 115 U. PENN. L. REV. 485, 487 (1967).
143. Id. at 549.
144. UCC § 1-203.
145. UCC §§ 1-204, 2-704(2), 2-712(1).
146. UCC § 1-102(2).
147. See Fuller & Perdue, supra note 3 at 60, 63 for the argument that this is an important function of the expectation rule.
148. See l MAIN PROBLEMS IN AMERICAN HISTORY 168 (H. Quint, D. Albertson & M. Cantor, eds. rev. ed. 1968).
149. See, e.g., Lochner v. New York, 198 U.S. 45 (1904); Addair v. United States, 208 U.S. 161 (1907); Coppage v. Kansas, 236 U.S. 1 (1914).
150. See Horwitz, supra note 5 at 936.
151. See text following note 135 supra.
152. See note 12 supra.
153. "To penalize [economic] adjustments through overcompensation of the innocent party is to discourage efficient reallocation of community resources." Birmingham,
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Breach of Contract, Damage Measures, and Economic Efficiency, 24 RUTGERS L. REV. 273, 284 (1970). See also Birmingham, Damage Measures and Economic Rationality: The Geometry of Contract Law, 1969 DUKE L.J. 49 (1969).
154. 230 N.Y. 239, 129 N.E. 889 (1921).
155. Id. 230 N.Y. at 247, 129 N.E. at 889 (McLaughlin, J., dissenting).
156. We do not see why parties in their right mind
should enter into such contracts; but these
parties did, the court has no authority to make
a contract for them, and the contract ... must
be given effect ... .
Union Central Relief Ass'n v. Thomas, 213 Ala. 666, 667, 106 So. 133, 134 (1925).
157. See text following note 135 supra.
158. Of course, the better approach is to restrict freedom of contract to the degree necessary and to frown upon any attempt by the parties to seek to create and enforce unconscionable contracts.
159. Fuller & Perdue, supra note 3 at 61-62. "If the courts of equity were to unravel all these transactions, they would throw every thing into confusion and set afloat the contracts of mankind." Eyre. v. Potter, 56 U.S. (15 How.) 42, 60 (1853).
160. See Fuller & Perdue, supra note 3 at 62.
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161. Mueller, has argued that businesses often do not feel they recover the full value of their expectation. He says:
Businessmen learn this truth early, As a result,
it is nonlegal sanctions, not "the law," that keep
contracts from being breached in most standard
dealings between parties. You will search the cases
in vain for many suits involving institutionalized
relationships; when you do find them, they are apt
to have arisen in bankruptcy. The cases that are to
be found generally involve "one shot" deals--
situations where the breaching party did not fear
loss of goodwill and, in addition, the settlement
offer was too small to be tolerated or feelings were
too aroused to permit settlement on any basis.
Mueller, Contract Remedies: Business Fact and Legal Fantasy, 1967 WISC. L. REV. 831, 836 (1967).
162. One businessman has said, "You can settle any dispute if you keep the lawyers and accountants out of it. They just do not understand the give-and-take needed in business, quoted in Macauley, Non-Contractual Relations in Business, 28 AMER. SOC. REV. 52, 55 (1963).
163. I am indebted for this example to Mr. Ron Cinski, Assistant Manager at Sibley's in Syracuse.
164. See, generally, M. DOMKE, THE LAW AND PRACTICE OF COMMERCIAL ARBITRATION (1968).
165. For a short discussion of the economic and social
36
goals sought in efforts to prevent imperfect competition see C. KAYSEN & D. TURNER, ANTITRUST POLICY 11-12 (1959).
166. E. MANSFIELD, MICROECONOMICS 223-225 (1970); R. ECKAUS, BASIC ECONOMICS 75-76 (1972); J. BAIN, INDUSTRIAL ORGANIZATION 28-30 (1959).
167. C. KAYSEN & D. TURNER, supra note 163 at 11. For papers discussing the current problems of income distribution see ECONOMICS: MAINSTREAM READINGS AND RADICAL CRITIQUES 231-302 (2d ed. D. Mermelstein ed. 1973).
168. C. KAYSEN & D. TURNER, supra note 167.
169. See note 166 supra, especially BAIN.
170. J. BAIN, supra note 166 at 28-30.
171. Dawson, Restitution or Damages? 20 OHIO ST. L.J. 175, 189 (1959).
172. For an argument that breach of contract should be freely allowed in the interest of greater economic efficiency, as long as the plaintiff is adequately compensated, Birmingham, supra note 151. Although Birmingham speaks in terms of protecting the
expectation interest, it is submitted that his thesis can actually be interpreted as an argument in favor of the protection of the
reliance interest and against any protection of the expectation interest over and above compensation for actual
37
economic loss.
173. A good illustration can be constructed from the facts in the case of Groves v. John Wunder, 205 Minn. 163, 286 N.W. 235, 123 A.L.R. 502 (1939). (The Groves decision also serves as a good example of a harsh result that can be brought about by the
expectation rule.) In Groves, the plaintiff leased a tract of land to the defendant for seven years so that the defendant could remove sand and gravel for use in his business. There was a provision in the contract which required the defendant to leave the property at a uniform grade. The defendant breached the contract at the end of the lease. The diminution in value of the tract by failure to return it to a uniform grade was a little over $12,000. The cost to return it to the required uniform grade would have been $60,000. The tract was zoned as heavy industrial property. The court held that the defendant would be liable for the amount of $60,000.
If the property had not been zoned as industrial land but instead had been property adjacent to the plaintiff's home--perhaps within view from his living room--then there would have been good reason for requiring exact adherence to the contract requirements. As this was not the case, the award overcompensated the plaintiff since his real interest in the property was a merely financial one. If the property
38
had been adjacent to his home, he would have had a more personal and aesthetic interest in having the tract restored to its original condition and would have been justified in demanding strict compliance from the defendant, regardless of cost.