Academic

Jimenez on Utilitarian Contract Damages

By Lawrence Solum

Marco Jimenez (Stetson University College of Law) has posted The Value of a Promise: A Utilitarian Approach to Remedies for the Breach of Contract on SSRN.  Here is the abstract:

This Article critically examines the applicability of law and economics, or wealth maximization theory, to contract law by examining this theory from within the consequentialist framework of utilitarianism. Roughly speaking, wealth maximization theory is a consequentialist theory of justice holding that those actions that increase wealth are just and should be allowed, whereas those actions that decrease wealth are unjust and should be forbidden. This theory has not only been used to support such controversial doctrines as efficient breach, but has been used to inform the way that many scholars and judges think about remedies for the breach of contract. Although the growth and acceptance of wealth maximization theory has been rapid since it was first formalized several decades ago, it is by no means uncontroversial, having been subject to constant attack since its inception from many who, operating outside of consequentialism, have criticized the normative foundations upon which wealth maximization theory rests, expressing their dismay over a theory that encourages the breaking of a solemn oath in the name of efficiency. Until now, however, no article has critically examined this theory from within consequentialism to see whether it, in fact, actually maximizes wealth. This Article provides that approach.

Unlike other articles in this area, this Article does not challenge the normative foundations upon which wealth maximization theory rests, but rather argues that, on its own terms, this theory fails to maximize wealth within contract law. This is because wealth maximization theory is a fundamentally utilitarian theory that depends upon, and derives its legitimacy from the utilitarian concept of "value." Notably, however, wealth maximization theory often prevents the "value" it seeks to maximize from being maximized in the name of "wealth." This insight has profound implications, suggesting not only that the continued application of this theory to contract law ought to be seriously questioned, but that the way both consequentialists and non-consequentialists think about remedies in contract law may need to be rethought. Indeed, this insight may even help reconcile these divergent theories within contract law because, as the Article suggests, the best way to achieve the consequentialist goal of utility maximization is often through the non-consequentialist means of contract enforcement, including the enforcement of liquidated damages clauses and specific performance.

Full post as published by Legal Theory Blog on February 18, 2008 (boomark / email).