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Contract Remedies and Inalienable Rights*

  • Randy E. Barnett (a1)
Extract

I. Introduction

Two kinds of remedies have traditionally been employed for breach of contract: legal relief and equitable relief. Legal relief normally takes the form of money damages. Equitable relief normally consists either of specific performance or an injunction – that is, the party in breach may be ordered to perform an act or to refrain from performing an act. In this article I will use a “consent theory of contract” to assess the choice between money damages and specific performance. According to such a theory, contractual obligation is dependent on more fundamental entitlements of the parties and arises as a result of the parties' consent to transfer alienable rights.

My thesis will be that the normal rule favoring money damages should be replaced with one that presumptively favors specific performance unless the parties have consented to money damages instead. The principal obstacle to such an approach is the reluctance of courts to specifically enforce contracts for personal services. The philosophical distinction between alienable and inalienable rights bolsters this historical reticence, since a right to personal services may be seen as inalienable.

I will then explain why, if the subject matter of a contract for personal services is properly confined to an alienable right to money damages for failure to perform, specific enforcement of such contracts is no longer problematic. Finally, I shall consider whether the subject matter of contracts for corporate services is properly confined to money damages like contracts for personal services, or whether performance of corporate services can be made the subject of a valid rights transfer and judicially compelled in the same manner as contracts for external resources.

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1 Legal relief was relief available in “courts of law.” Equitable relief was extraordinary relief originally available from the King, then from the King's Chancellor, and finally from the Chancery courts or “courts of equity.” See Dobbs, Dan B., Handbook on the Law of Remedies (St. Paul, MN: West Pub. Co., 1973), pp. 2434 (describing the historical development of courts of equity and the distinction between legal and equitable relief); Farnsworth, E. Allan, Contracts (Boston: Little, Brown & Co., 1982), pp. 818824 (same). These were not, however, the only court systems that coexisted in England. See Berman, Harold, Law and Revolution (Cambridge, MA: Harvard U. Press, 1984), p. 10 (stressing the importance of competing courts to the Western legal tradition).

2 The historical picture is not quite this clear-cut. For one thing, medieval English common law courts may not have had as strong a preference for money damages as is commonly assumed. See Pollock, Frederick and Maitland, Frederic, The History of English Law, Vol. II (London: Cambridge Univ. Press, 2d ed., 1898), p. 595 (“[E]ven when the source of the action is in our eyes a contractual obligation, the law tries its best to give specific relief.”) For another, during most of the medieval period, the effective remedy for breach of most contracts in the common law court was enforcement of a penal bond. See generally, Simpson, A. W. B., A History of the Common Law of Contract (Oxford: Oxford Univ. Press, 1975), pp. 88125. Thus, every sort of obligation could be reduced to a monetary one or a “debt” by the party in breach. Beginning in 1283, a debtor's liability to pay could be enforced by imprisonment; see Simpson, p. 87.

3 A variety of different contractual remedies have traditionally been available – for example, replevin, reformation, recission, cancellation, or specific restitution. See D. Dobbs, Handbook, pp. 1–3; E. Farnsworth, Contracts, pp. 815–816. Damages, specific performance, and injunctions, however, are the types of remedies most commonly used to enforce a contract. In contrast, recission and cancellation are used to avoid enforcement of a contract and reformation is used to change the terms of a contract.

4 See Barnett, Randy E., “A Consent Theory of Contract,” Columbia Law Review, vol. 86 (1986), pp. 269321.

5 Two excellent articles describe in some detail and critically assess the present law governing this subject. See Kronman, Anthony, “Specific Performance,” University of Chicago Law Review, vol. 45 (1978), pp. 351382; Schwartz, Alan, “The Case for Specific Performance,” Yale Law Journal, vol. 89 (1979), pp. 271306.

6 But see Schwartz, “The Case for Specific Performance,” pp. 292–296 (disputing the claim that specific performance decrees generally and unavoidably create administrative problems).

7 Partly for this reason courts have been somewhat receptive to imposing injunctions on parties in breach. “Instead of ordering that the act be done, as a court would in granting specific performance, the court orders forbearance from inconsistent action.” E. Farnsworth, Contracts, p. 824. For example, a person who promised to work for another might be barred from obtaining alternative employment elsewhere. In the analysis that follows, I shall not separately consider such orders. If a contract itself specifies that the party in breach should refrain from performing a given act — as it did in the famous injunction case of Lumley v. Wagner, 1 DeG. M. & G. 604, 42 Eng. Rep. 687 (Ch. 1852) — then an injunction is a form of specific performance. If there is no such term (either expressed or implied-in-fact) in the agreement then there is no consensual basis for such relief.

8 Kronman, “Specific Performance,” p. 372. See also Schwartz, “The Case for Specific Performance,” pp. 296–298 (discussing specific performance and liberty).

9 See E. Farnsworth, Contracts, p. 838 (specific performance “may be refused on the ground that, though the act or forbearance that would be compelled is not against public policy, the use of compulsion to require that act or forbearance is against public policy.”) A “public policy” rationale usually obscures rather than illuminates the true reasons for a judicial decision. While the involuntary nature of court-ordered labor or “servitude” is obvious, it is less clear exactly why such an order is unjustified when the commitment being enforced was originally consensual. In Part III, the philosophical distinction between alienable and inalienable rights will be employed to provide support for this longstanding judicial sentiment.

10 See Schwarz, “The Case for Specific Performance,” pp. 284–291 (explaining the alleged problem with such ex post negotiations and questioning its significance).

11 The phrase “costs of error” refers to “enforcing contracts that should not be enforced and … not enforcing contracts that should be enforced.” Epstein, Richard A., “Unconscionability: A Critical Reappraisal,” Journal of Law and Economics, vol. 18 (1975), p. 300. Such errors of judgment are an inevitable product of using general rules of conduct, burdens of proof, and fallible factfinding. For example, by requiring more evidence that a contract existed before granting relief, fewer “false” contracts will be erroneously enforced. At the same time, however, more “true” contracts will erroneously go unenforced. Conversely, by making the burden of proof less stringent, fewer “true” contracts will erroneously go unenforced and more “false” contracts will erroneously be enforced. See generally, Sher, George, “Right Violations and Injustices: Can We Always Avoid Trade-offs?Ethics, vol. 94 (1984), pp. 212224.

12 See Schwartz, “The Case for Specific Performance,” p. 276: “[I]n many cases damages actually are undercompensatory.”

13 See ibid., p. 294. (When efficiency gains of specific performance are included in an analysis of its costs, “it is impossible to say whether these gains would exceed the increase in administrative and judicial opportunity costs that the availability of specific performance would engender.”)

14 See, e. g., ibid.

15 ibid., p. 291. “[E]xpanding the availability of specific performance would produce certain efficiency gains: it would minimize the inefficiencies of undercompensation, reduce the need for liquidated damage clauses, minimize strategic behavior, and save the costs of litigating complex damage issues.”

16 See, e. g., De Rivafinoli v. Corsetti, 4 Paige Ch. (N. Y.) 264, 270 (1833) (“… a bird that can sing and will not sing must be made to sing.”)

17 See Barnett, Randy E., “Pursuing Justice in a Free Society: Power v. Liberty,” Criminal Justice Ethics, vol. 4 (Summer/Fall, 1985), pp. 5072 (discussing the possible basis and scope of a property rights conception of entitlements); and “Contract Scholarship and the Reemergence of Legal Philosophy” (book review), Harvard Law Review, vol. 97 (1984), pp. 1223–1245 (attempting to place recent interest in entitlement theories in a historical context).

18 In contrast, the object of a contract is the purpose of the contract, what the parties hope to accomplish by entering into a contract.

19 A more extended discussion of this conception of contractual obligation can be found in Barnett, “A Consent Theory of Contract.”

20 Two other ways of expressing this concept of contractual obligation are “a manifestation of an intention to be legally bound” or “a manifestation of an intention to create legal relations.” Such expressions, while useful, do not stress the entitlements–dependent nature of contractual relations. Note also that there are certain instances where a consent theory would favor subjective assent over a manifestation of assent. See Barnett, “A Consent Theory,” pp. 307–309.

21 While I use the standard terms “promisor” and “promisee” in the text, a consent theory is inapposite to a promise theory of contract. Compare the alternative definitions of consent, supra note 17, which speak of “legally bound” and “legal relations” with the definition of a promise found in the Restatement (Second) of Contracts (St. Paul, MN: American Law Institute Pub., 1981), §2(1): “A promise is a manifestation of intention to act or refrain from acting in a specified way, so made as to justify a promisee in understanding that a commitment has been made.” And the authors of the Restatement deny that a manifested commitment to be legally bound is essential to a contract. See Restatement, §21: “Neither the real nor apparent intention that a promise be legally binding is essential to the formation of a contract … ” Thus, a consent theory is distinct from most discussions of contract that emphasize the moral duty to keep one's promises; see Barnett, “A Consent Theory,” pp. 304–305.

22 Once a contract has been performed, the legal system has come to favor those who purchased goods in “good faith” over the original title holder. This issue is somewhat distinct from whether the purchaser can enforce such an agreement when the promisor fails to perform and, as such, is beyond the scope of this essay.

23 A purely promise-based theory would have difficulty explaining the source of such a distinction.

24 Much of the recent legal literature was stimulated by Calabresi, Guido and Douglas, A. Melamed's seminal article, “Property Rules, Liability Rules, and Inalienability: One View of the Cathedral,” Harvard Law Review, vol. 85 (1972), pp. 10891128.

25 McConnell, Terrance, “The Nature and Basis of Inalienable Rights,” Law and Philosophy, vol. 3 (1984), p. 43 (emphasis in original).

26 ibid., p. 28. See also Feinberg, Joel, Rights, Justice and the Bounds of Liberty (Princeton, NJ: Princeton Univ. Press, 1980), pp. 240242; and Meyers, Diane T., Inalienable Rights: A Defense (New York: Columbia Univ. Press, 1985), pp. 1315.

27 See Meyers, Inalienable Rights, p. 14.

28 McConnell, “The Nature and Basis,” p. 28 (emphasis in original).

29 See Kuflik, Arthur, “The Inalienability of Autonomy,” Philosophy and Public Affairs, vol. 13 (1984), p. 286 (if the original agreement “is valid, then the autonomy–abdicating agent has no right to object, let alone to refuse.”)

30 I thank George Smith for first suggesting to me this analysis and example.

31 Cf. Rousseau, Jean-Jacques, The Social Contract and Discourses, trans. Cole, G. D. H. (New York: J. M. Dent & Sons Ltd., 1973), p. 170:

To renounce liberty is to renounce being a man, to surrender the rights of humanity and even its duties … Such a renunciation is incompatible with man's nature; to remove all liberty from his will is to remove all morality from his acts.

32 See Nozick, Robert, Anarchy, State and Utopia (New York: Basic Books, 1974), p. 199 (“Individual rights are co-possible; each person may exercise his rights as he chooses.”); Steiner, Hillel, “The Structure of a Set of Compossible Rights,” Journal of Philosophy, vol. 74 (1977), pp. 767775 (arguing that compossibility is a logical requirement of a system of rights); Barnett, “Pursuing Justice,” p. 58 (adding functional concerns to Steiner's logical analysis).

33 It might be argued that the analysis in the text does not describe inalienable rights — that is, rights a person has that cannot be transferred to another by consent — but, instead, describes actions that A may not perform because neither A nor his master B has the right to so act in the first place. In other words, A need not violate C's rights because neither A nor B have the right to violate the rights of another. This is true, but to recast the example in this way is to omit the issue unavoidably raised by the hypothetical agreement: Is A's right to control his own person and respect C's rights — a right that A indisputably starts with — a right that can be transferred? The analysis in the text suggests that the answer to this question is no. Notwithstanding any agreement he may have made to B, A is still under a duty to respect C's rights. A cannot, therefore, alienate such complete control of his future actions to anyone.

34 Arthur Kuflik offers these examples to undercut this type of argument for inalienability; “The Inalienability of Autonomy,” p. 281 (“This suggests that the impropriety of an autonomy–abdicating agreement has more to do with the impropriety of autonomy–abdication itself than with some general fact that we have no right to make commitments we know we will be unable to keep.”). But arguments based on impropriety and one based on the impossibility of such agreements are not mutually exclusive. Kuflik's examples only show that this reason for inalienability is limited to those commitments to alienate the future control over one's person which are not made possible by mind–altering drugs, brainwashing techniques, or psychosurgery.

35 Similarly, a promise to undergo a dependency–inducing procedure would be an unenforceable attempt to transfer an inalienable right: the right to control whether or not to submit to the operation. But third parties might have no right to forcibly interfere with someone who voluntarily undergoes such a procedure. (The claim, for example, that members of religious “cults” may rightfully be kidnapped and “deprogramed” is properly controversial.) A person who voluntarily submitted to such a procedure (assuming that such a procedure actually worked) might be committing a nonfatal kind of “suicide” (zombicide?) and the “master” or guardian would then become legally responsible for his ward.

36 It may be revealing that the law governing employment relations used to be called the law of “master–servant.”

37 See Nicholas, Barry, French Law of Contract (London: Butterworth & Co., 1982), p. 149 (the French Code “adopts the traditional classification into (a) donner, (b) faire ou ne pas faire. It is important to note that donner in the technical legal sense means neither to make a gift nor to deliver (livrer), but to convey, to pass ownership or some other real right.”); Treitel, Guenter H., “Remedies for Breach of Contract,” Arthur von, Mehren, ed., International Encyclopedia of Comparative Law (Paris: J. C. B. Mohr, 1976), vol. 7, p. 13 (in French law, the “obligation to do or not to do is contrasted … with the obligation de donner or to transfer property”).

38 Transferring ownership in animals may be seen as presenting a special difficulty. Cannot animals refuse the orders of the new master? But the problem of control here is less than meets the eye. The second owner gets no more control and hence no more rights than those held by the original owner. Suppose the promisor attempted to transfer the right to a horse that would cuddle up with you in bed. Unless the first owner actually possessed such a horse, the right to this kind of horse could not pass. While the failure to tender this kind of horse would not alone constitute a breach of contract, the possibility of an action for fraud or breach of warranty remains. In contrast, the issue of inalienable human rights concerns the rights an individual retains despite the fact that consent to transfer these rights may have been expressed. Therefore, the truly analogous problem with animals is whether or not sentient animals themselves have rights — inalienable or otherwise — in the first place, an issue that is well beyond the scope of this essay.

39 It will not do to argue that such a right to control is transferable because a putative master can obtain legal enforcement of the agreement. Such a claim would be a non sequitur in an entitlement theory. According to entitlements theories, we do not have rights because our claims are in fact enforced — the view of legal positivism — but, rather, our claims ought to be enforced only because we can demonstrate that we have rights. Nor would a claim for damages for breach of a contract to perform services in the future necessarily entail that a right to the services themselves had been alienated. Rather, as will be discussed below, such a claim could be as well accounted for by saying that it is the right to the money — an indisputably alienable right — that had been transferred (conditioned on the nonperformance of the services).

40 If A retains his right to resist B, then A will be acting both rightfully and wrongfully should he resist B. Such a conflict of rights is barred by the compossibility feature of an entitlements theory. See supra note 32 and accompanying text.

41 True, as above, A can voluntarily submit to procedures which would eliminate his ability to resist (although it is very hard to imagine the value to a master of a slave who had lost the power to physically resist violence). The harder question would then be, in the unlikely event that A's ability to resist had been alienated, can others rightfully go to A's defense? This issue would perhaps be best governed by principles of guardianship. See Kuflik, “The Inalienability of Autonomy,” p. 275 (“[T]o say (hat autonomy cannot be alienated is not to deny that one human being can be legitimately subject to the guardianship of another.”); Barnett, “Pursuing Justice,” p. 69, note 17 (briefly discussing the concept of guardianship in a Liberty Approach).

42 But the analysis just presented is not as far-reaching as some might at first imagine. It neither stems from nor supports a view that the only rights we have are those which we are able to assert — that ”might makes right.” The analysis of inalienability in the text claims only to describe a feature of those rights which we (arguably) have: some of these rights may be alienated or transferred, others of them may not. What rights we have and how we come to have them is another story requiring additional analysis. See Barnett, “Pursuing Justice.” I thank Emilio Pacheco for bringing this issue to my attention.

43 Veatch, Henry B. offers an account of rights based on self-regarding duties in Human Rights: Fact or Fancy (Baton Rouge: Louisiana State Univ. Press, 1985).

44 Such a principle would provide a property rights basis for some limited form of “bankruptcy” laws. See White, Lawrence H., ”Bankruptcy as an Economic Intervention,”Journal of Libertarian Studies, vol. 1 (1977), p. 287, note 27 (“Perhaps some distinction among the debtor's assets in terms of alienability can be made according to a standard of subsistence … ”).

45 Veatch,Human Rights, p. 114.

46 See Mill, John Stuart, On Liberty (Indianapolis: Library of Liberal Arts, 1956), p. 125 (A person, “by selling himself for a slave … defeats, in his own case, the very purpose which is the justification of allowing him to dispose of himself.”).

47 Cf. ibid., p. 125 (“[T]here are perhaps no contracts or engagements, except those that relate to money or money's worth, of which one can venture to say that there ought to be no liberty whatsoever of retraction.”). Extreme situations warranting different treatment can always be hypothesized. For example, may a pilot be forcibly compelled to complete a journey he has contracted to fly and be prevented from parachuting out of a plane? The endangerment involved in the example, however, introduces a tortious element. The better analogy would be to ask whether a pilot who safely lands a plane short of completing a designated route can be compelled to finish the trip.

48 See Kronman, Anthony, “Paternalism and the Law of Contracts,” Yale Law Journal, vol. 92 (1983), pp. 774776 (attempting to show that paternalist restrictions in contract law are well-accepted and permissible).

49 An argument for inalienable rights is not paternalist simply because advocates of such rights argue that restrictions on (everyone's) options are, on balance, best (for everyone). First, such a universal argument for inalienable rights denies everyone the same option and therefore does not put advocates into any type of parental stance towards others. Second, all rights — not just inalienable ones — can be advocated on the grounds that individuals be permitted die liberty that rights provide because such liberty is “good” for them. See Barnett, “Pursuing Justice,” pp. 50–72. And any compossible system of rights restricts somebody's options — one may not act so as to violate the rights of another. If it is not paternalist to advocate these restraints on the ground that they are good or necessary for rights-holders and nonrights-holders alike, dien it is not paternalistic to argue in the same manner for restrictions on the alienability of certain of these rights.

50 In assessing a different argument for inalienability than that presented here, Calabresi and Melamed, “Property Rules,” p. 1113, make a similar observation:

This type of limitation is not in any real sense paternalism.… It merely allows the individual to choose what is best in the long run rather than in the short run, even though that choice entails giving up some short run freedom of choice.

51 See Kronman, “Paternalism,” p. 768 (“[I]f fraud is widespread, if it can be concealed with sufficient ease, and if the victims of the fraud typically lack the resources to prosecute their legal claims, lowering the proof requirement may not be enough. A more radical solution … is to give the victims an inalienable entitlement they cannot waive and therefore cannot be fraudulendy induced to abandon.”); McConnell, ”The Nature and Basis,” pp. 53–54 (“[T]he policy in question is one that could easily be abused, thereby resulting in harm to nonconsenting parties.”).

52 See Alexander, Larry, “Pursuing the Good — Indirectly,” Ethics, vol. 95 (1985), pp. 315332; Gray, John, “Indirect Utility and Fundamental Rights,” Social Philosophy & Policy, vol. 1 (Spring 1984), pp. 7391.

53 Richard Epstein has stressed the importance of epistemic problems of administration for the formulation of common law rules. See, e.g., Richard Epstein, “Unconscionability,” pp. 300–303; “The Social Consequences of Common Law Rules,” Harvard Lam Review, vol. 95 (1982), pp. 1748–1749. See also Sher, “Rights Violations.”

54 For example, we transfer rights to some things in exchange for rights to other things we value more highly; and we make gifts because the good life entails acting charitably towards others. See Epstein, Richard A., “Why Restrain Alienation,” Columbia Law Review, vol. 85 (1985), pp. 971972 (discussing reasons why alienation is permitted).

55 As was suggested above (supra note 44 and accompanying text) attempts to alienate rights to such a quantity of external resources that there would not be enough left for the transferor to survive are not enforceable. In other words, at some minimum quantity, normally alienable rights to external resources become inalienable.

56 Other reasons for inalienability of otherwise alienable external property have been suggested, but space constraints prevent me from considering them here. See, e.g., Rose-Ackerman, Susan, “Inalienability and die Theory of Property Rights,” Columbia Law Review, vol. 85 (1985), pp. 931969; Epstein, “Why Restrain Alienation,” pp. 973–990.

57 This essay does not exhaust the subject of inalienable rights, nor that of the proper choice of contract remedies. Contracts to provide employment, for example, do not easily fit into any of the three categories of contracts discussed in this paper. Determining whether such a contract may permissibly be specifically enforced might turn out to require a more extended discussion of inalienable rights.

58 This category corresponds to the category of contracts to give(donner) in French law; see supra note 37 and accompanying text. Consistent with the analysis in the text, French law grants specific performance as a matter of right. See B. Nicholas,French Law, p. 211; Treitel, “Remedies,” p. 13.

59 It is arguable that, in some cases, sellers might be permitted to show why buyers should not get the thing contracted for. For example, if a fungible replacement good is easily available to the buyer on the market, but performance would be an extreme hardship on the seller, then where the contract is silent on the form of relief, the seller might be liable only for money damages. Where these circumstances can be shown to exist, and in the absence of an express clause, it may no longer be safe to presume that sellers would have consented to specific relief. In contrast with the traditional rule, however, the burden of proof is placed on the appropriate party — the party in breach. But see Schwartz, “The Case for Specific Performance,” p. 289, note 52 (arguing against the recognition of such a defense on the grounds that it is unnecessary in practice, costly to administer, and unpredictable in application). Nonetheless, Schwartz does favor a very limited defense to specific performance based on administrative difficulty: “Although such cases are rare, courts should have the power to deny specific performance where necessary.”ibid., p. 305.

60 Dawson, John, “Specific Performance in France and Germany,”Michigan Law Review, vol. 57 (1959), p. 532. The common law apparently once granted a comparable right of replevin to buyers of goods, but this right was conceived of as arising from property law, not contract law; see Kessler, Friedrich and Gilmore, Grant, Contracts: Cases and Materials, 2d ed. (Boston, MA: Little, Brown & Co., 1970), p. 1000 (describing this “twin set of remedies” as “one of the curiosities of sales law as it developed in the nineteenth century”).

61 While courts are generally willing to enforce limitation of damages provisions, at present they do not generally recognize the parties' right to expressly agree to a specific performance remedy in their contract. See Macneil, Ian R., “Power of Contract and Agreed Remedies,” Cornell Law Quarterly, vol 47 (1962), pp. 495528 (describing the various limitations on the enforcement of agreed remedies); Anthony Kronman, “Specific Performance,” pp. 369–376 (describing present law and favoring the enforcement of such clauses). Perhaps courts would be more respectful of such clauses, if it became clearer why a specific performance clause in a contract for personal services would not be enforceable.

62 Holmes, Justice O. W. Jr., suggested this approach as a general rule of contract remedies in The Common Law (Boston: Little, Brown & Co., 1881), p. 301:

The only universal consequence of a legally binding promise is, that the law makes the promisor pay damages if the promised event does not come to pass.

While this passage is both famous and often criticized, it has been noted that Holmes did not assert that money damages were the exclusive form relief for all breaches, only that it was the only remedy that was always or generally available. See Howe, Mark Dewolfe, Justice Oliver Wendell Holmes: The Proving Years (Cambridge, MA: Harvard Univ. Press, 1963), pp. 233237.

63 French Civil Code, art. 1142 as it appears in Nicholas, French Lam, p. 210. Of course, any such award would be limited by the quantitative constraints placed on the alienation of external resources discussed supra note 44.

64 What the contract specifies might influence which measure of money damages is used. For an explanation of the various possible measures of contract damages, see Cooter, Robert And Eisenberg, Melvin Aron, “Damages for Breach of Contract,” California Law Review, vol. 73 (1985), pp. 14321465; Fuller, Lon L. and Perdue, William R. Jr., “The Reliance Interest in Contract Damages,” Yale Law Journal, vol. 46 (1936), pp. 5296.

65 Schwartz, ”The Case for Specific Performance,” p. 298.

66 Cf. Cheung, Steven N. S., “The Structure of a Contract and the Theory of a Non-Exclusive Resource,” Journal of Lam and Economics, vol. 13 (1970), p. 50 (“Combining resources of several owners for production involves partial or outright transfers of property rights through a contract.”).

67 The provider of “corporate services” is by definition a firm. When the service provider is an individual, rather than a firm, this is a contract for personal services for which only money damages for breach of contract should be obtained.

68 Service providers might arguably be permitted to oppose a request for specific performance by showing that the services they provide are readily available elsewhere and performance is for some reason an extreme hardship. But, as with contracts for external resources, the recognition of such a defense would be controversial. See supra note 59.

69 It may well be that the best rule for corporate services contracts when both parties are firms is the traditional one: the victim of the breach has a right to money damages, but may obtain specific performance if it can show that damages are inadequate. Assuming that money damage awards are less costly to administer and comply with, the traditional rule might best reflect the intentions of the parties when (a) the parties and trade custom are silent on the issue of remedies, and (b) both parties are firms and therefore are presumably aware of the background legal rule. Kronman and Schwartz sharply disagree with each other about what, if any, general inference of the parties' intentions can be derived from an analysis of their ex ante interests. Compare Kronman, “Specific Performance,” pp. 365–369 (“There is… some basis for believing the uniqueness test reflects the typical solution that contracting parties would arrange for themselves in light of their ex ante interests.”), with Schwartz, “The Case for Specific Performance,” pp. 279–284 (criticizing Kronman's analysis and rejecting his conclusion). The incentive effects of the legal rule are less significant here than when the recipient of corporate services is an individual, because both parties are sophisticated enough to bargain for a clause which deviates from the legal background if they wish a different remedy. This assumes, however, that such a clause will be enforced, which may not be true at present. See supra note 61.

70 Even an express clause in a form contract can serve to give the recipient of services notice of the remedy in the event of a breach: see Douglas G. Baird and Robert Weisberg, “Rules, Standards, and the Battle of the Forms: A Reassessment of §2–207,” Virginia Law Review, vol. 68 (1982), pp. 1217–1262 (discussing the value of form contracts and ways to resolve disputes when the forms used by contracting parties conflict).

* I wish to thank the following people for their most helpful comments on an earlier draft: Larry Alexander, Stuart Deutsch, Richard Epstein, David Gerber, R. H. Helmholz, Marty Malin, Emilio Pacheco, Ellen Frankel Paul, and Christopher Wonnell. Financial support for this research was provided by the Marshall D. Ewell Research Fund of I.I.T. Chicago-Kent College of Law.

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