Contract Law and the Second-Person Standpoint: Why Efficiency-Maximization Principles Can Neither Explain Nor Justify the Expectation Damages Remedy

Abstract

The law and economics movement has sometimes been thought of as providing a particularly robust and penetrating account of a number of private law doctrines. This fact has, in turn, sometimes encouraged the view that the deep principles that govern our private legal relations with one another may be decidedly consequentialist in nature, and may admit of no place for considerations like fairness or justice (even if those considerations legitimately constrain much more of public law). One of the subtle, if sometimes unnoticed, legacies of the law and economics movement has thus been to shift the burden of persuasion onto those who would argue that fairness considerations represent anything other than alien intrusions into the basic subject matter of private law.

In this article, I begin to challenge this conception by focusing on one of the law and economics movement's most touted private law successes - namely, its account of the expectation damages remedy in terms of efficient breach. I argue that, upon closer scrutiny, there are important features of this remedy that can neither be explained nor justified in terms of efficiency maximization. These same features can, however, be accounted for from a contractualist perspective, rooted in Darwall's recent work on the second-person standpoint. I then continue by developing a more extensive, contractualist account of contract remedies, which account is - I argue - more robust than current economic accounts. Importantly, this form of contractualism would ultimately endorse, rather than undermine, many of the fairness considerations that are reflected in present contract law doctrine.

Although the arguments in this article focus on contract law doctrine, I argue that the arguments themselves illustrate a much broader challenge to the economic project of accounting for private law. I say this because the arguments depend upon showing that private law obligations (which include contractual obligations, but are not exhausted by them) have robust and pervasive features that resist economic explanation. Properly construed, the arguments should thus suggest that the law and economics movement cannot, in effect, account for the very features of private legal obligations that make them "obligations".

Keywords: efficiency, economics, expectation damages, contract, market, efficient breach, second person, contractualism, social contract, public, private, remedies, welfare, jurisprudence, philosophy, darwall