The expectation remedy and the promissory basis of contract.

• Author: Markovits, Daniel
• Position: 'Contract as Promise' at 30: The Future of Contract Theory

1. CONTRACT AS PROMISE

   Charles Fried's Contract as Promise stands as a model of principled legal argument. It took a single, integrating thought--that a promise lies at the heart of every contract--and then reconstructed broad swaths of doctrine as elaborations of that thought.

   the book's argument is all the more impressive because the promissory ideal in whose name it seeks to unify contract law is not straightforward. on the contrary, grounding contract in promise highlights two of contract law's most distinctive yet least understood features: that the law establishes liability strictly, rather than based on fault; and that it creates forward-looking rather than the usual backward-looking entitlements, entitlements to be made better off rather than to secure the status quo ante. These features of promissory obligation have long been considered mysterious by a chain of thinkers whose pedigree goes back at least to David Hume and, in the law, to Lon Fuller and William Perdue. (1)

   Fried understood the unusualness of promissory obligation and hence the shaky foundation that emphasizing promise places beneath contract law. He thus began Contract as Promise by addressing the problem of establishing the ground of promise head on, in two separate ways.

   One line of Fried's argument emphasized the connection between forward-looking, strict liability in contract and the dignity of the promisor. "[H]olding people to their obligations," Fried wrote, "is a way of taking them seriously and thus of giving the concept of sincerity itself serious content." (2) He further argued, on "a more abstract level," that "respect for others as free and rational requires taking seriously their capacity to determine their own values." (3) To respect someone is to allow her to fix her obligations, according to the content that she gives them--her "will binding itself--and not according to the costs that establishing those obligations may impose on others. (4) Promise and contract are commensurate to the dignity of persons--to their reasoned freedom--precisely in respect of reaching beyond the ordinary, fault-based morality of harm.

   This line of argument carries an echo of Nietzsche's remark that "[t]o breed an animal that is permitted to promise--isn't this precisely the paradoxical task nature has set for itself with regard to man? isn't this the true problem of man?" (5) It also bears all the burdens associated with succeeding at this "paradoxical task." To observe that it would be useful to a person to possess the capacity to promise, or indeed that it would imbue her with a dignity that creatures without this power lack, is not yet to establish that persons actually possess such promissory capacity. The normative power associated with promissory capacity--the will's power to bind itself directly and unmediatedly, without invoking the ordinary morality of fault and harm--is odd indeed. A promissory obligation is a kind of reason, and reasons (one might think) track values. Thus, the normative power of promising involves a capacity to generate value simply by intending it into existence. Perhaps it is not a capacity that ordinary, mortal persons generally possess. Indeed, it has been suggested, for example by Hume, that such a generative capacity is the distinctive marker of divinity, which is why Hume thought promissory obligation quite as mysterious as transubstantiation. (6) Nietzsche, aware of all this, remarked that a person who possesses promissory capacity holds "his kick in readiness for the frail dogs who promise although they are not permitted to do so." (7) one worries that we are all, in this respect, frail dogs.

   Contract as Promise never seriously took up the questions that a dignity-based contract law raises. Although Fried seemed to believe that persons possess the dignity associated with the normative power to promise, and may have been right to think so, the best reading of the text pursues a quite different account of the foundations of promise and thus also of contract.

   This second line of the argument in Contract as Promise emphasized that promissory fidelity follows from the relationship that promises establish between promisors and promisees. Fried wrote that promise is "the device that gives trust its sharpest, most palpable form." (8) The foundation of promissory trust, for Fried, is that promises put in the hands of the promisee a "new power to accomplish his will," namely, by putting the promisor's "future performance into [the promisee's] hands." (9) Fried observed that trust is such a "remarkable" thing that, although we encounter it as a "tool," we "in the end ... pursue it for its own sake; we prefer doing things cooperatively when we might have relied on fear or interest or worked alone." (10)

   The turn to trust attempts to give promissory obligation, and thus contract as well, a more solid foundation. (11) But trust is, itself, a notoriously slippery phenomenon and can display a wide variety of forms, three of which are worth identifying in particular. The weakest, or thinnest, of the three varieties arises where one person relies on the credible representations of another and takes actions that expose her to harm if the representations are false. The strongest, or thickest, variety arises where one person trusts another to be generally well-motivated towards her, in the sense pursuing her interests even against his own. One might say, in such a case, that she entrusts herself to him. A third variety of trust arises when one person forms expectations regarding the future based on another's representations, so that she exposes herself to disappointment if he is unfaithful with respect to her expectations. This variety of trust falls between the other two. It is thicker than trust associated merely with reliance because it invokes the idea that the trusted party will be faithful to forward-looking expectations and not just that he will avoid causing backward-looking harm. It is thinner than trust in another's motivations because it invokes only the idea that the trusted party will be faithful to his word and not that he will faithfully promote the trusting party's interests.

   These three varieties of trust map naturally onto three forms of moral and legal obligation.

   The thinnest form of trust--trust connected to reliance--involves the moral and legal ideas associated with tort law. Where trust is based on the statements of another, the thin form of trust invokes the various misrepresentation torts. There are several such torts, and their elements vary. Nevertheless, they share a basic structure: the misrepresentation torts announce fault-based standards of care; (12) they emphasize (and indeed generally require) that misrepresentations cause harm, generally in the form of reliance costs, in order to count as tortious; (13) and they adopt backward-looking rather than forward-looking remedies that reject the goal of vindicating the expectations that tortious statements engender and, instead, aspire only to undo the harms that the misrepresentations cause--that is, to compensate for lost reliance. (14)

   The thickest form of trust--connected to faith in another person's other-regarding motives--invokes the moral and legal ideas associated with fiduciary law. This body of law again possesses a distinctive structure: fiduciary law announces a standard of conduct that requires not just care but also loyalty; (15) it imposes on fiduciaries a duty not just to avoid harming or disappointing the principal but also to avoid benefiting themselves through actions taken on the principal's behalf; (16) and it adopts remedies that aspire to undo a disloyal fiduciary's gains by ordering that those gains be disgorged to the betrayed beneficiary. (17)

   Finally, the intermediate form of trust--connected to expectations that another person will faithfully execute her promises--invokes the moral and legal ideas associated with contract. Contract law once again possesses a distinctive legal structure, which falls between the structures of tort law and fiduciary law: contract law requires promisors not merely to display due care for their promisees but rather strictly to honor their promises. The law, however, constrains its requirement of fidelity to the four corners of the contractual promise, and it rejects any broader requirement that promisors display benevolence toward promisees. Rather, although the law emphasizes the promisee's interest in avoiding not just harm but also disappointment, it also denies that promisees have any legitimate interest in respect of the promisor's enrichment in connection with the promised performance. Contract remedies vindicate the expectations that breaches disappoint, but they (traditionally) do not require breaching promisors to disgorge any gains from their breaches.

   Contract so conceived stands on insecure moral and legal ground, caught in the squeeze between two doctrinally simpler and more morally well-grounded legal constellations. This position leaves contract at risk of being swallowed up when an expansionist mood comes over one of its doctrinal neighbors.

   When Fried wrote Contract as Promise, tort law presented just such an expansionist threat. Substantial scholars, in their most serious work, were suggesting that contractual obligation should not exceed the general obligation not to harm--applied to the special case of harm by misrepresentation. (18) They also argued that contract law, properly understood, did not establish any duties that might not be equally well described and better grounded in tort law. (19) This "tortification" of contract law focused on contract remedies to argue that a disappointed promisee's recovery should be limited to his lost reliance (that is, to the remedy that tort law would award). Lawyers have known, since Fuller and Perdue, that a promisee's reliance includes gains from alternative contracts forgone on account of the arrangement made...