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FOUNDATIONAL PRINCIPLES
OF CONTRACT LAW
ii
FOUNDATIONAL
PRINCIPLES OF
CONTRACT LAW
Melvin A. Eisenberg
Stephen M. Sheppard
Series Editor
1
Foundational Principles of Contract Law. Melvin A. Eisenberg.
© Melvin A. Eisenberg 2018. Published 2018 by Oxford University Press.
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1
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Melvin A. Eisenberg is the Jesse H. Choper Professor of Law Emeritus at the University of
California, Berkeley (Berkeley Law).
After graduating from Harvard Law School summa cum laude, Eisenberg was with the
New York firm of Kaye Scholer Fierman Hays & Handler. He also served as assistant counsel to
the President’s commission on the assassination of President Kennedy (Warren Commission)
and as assistant corporations counsel of New York City. He joined the Boalt faculty in 1966.
Eisenberg is the author of The Nature of the Common Law (1991) and The Structure of the
Corporation (1997) and has published casebooks on contracts and corporations. He was Chief
Reporter of the American Law Institute’s Principles of Corporate Governance, an Adviser to
the Institute’s Restatement Third of Agency, Restatement of Restitution and Unjust Enrichment,
and a member of the American Bar Association’s Corporate Law Committee. He is presently
an Adviser to the Institute’s Restatement of Consumer Contracts. From 1991 to 1993 he held
the American Law Institute’s Justice R. Ami Cutter Chair. He was a Visiting Professor of Law at
Harvard Law School in 1969, at the University of Tokyo in 1992, and at Columbia Law School
from 1998 to 2009. He is a Fellow of the American Academy of Arts and Sciences and has been
a Guggenheim Fellow and a Fulbright Senior Scholar. He holds honorary Doctor of Law degrees
from Cologne University and the University of Milan
In 1984 Eisenberg delivered the Cooley Lectures at the University of Michigan. He has also
given lectures at a number of universities in the United States, Germany, Italy, England, Canada,
Australia, New Zealand and Japan. In 1990 he was awarded the UC Berkeley Distinguished
Teaching Award.
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1. Th
e Objective and Coverage of this Book; Doctrinal and
Social Propositions; Social and Critical Morality;
Terminology; and the Tenor of the Footnote Apparatus 3
3. F
our Underlying Principles of Contract Law and the
Foundational Contract-Law Standard 21
PART TWO • T
HE ENFORCEABILITY OF PROMISES
xi
xi
PART THREE • M
ORAL ELEMENTS IN CONTRACT LAW
8. Donative Promises 97
PART FOUR • B
EHAVIORAL ECONOMICS
AND CONTRACT LAW
PART FIVE • T
HE ROLE OF FAULT
IN CONTRACT LAW
20. O
ther Limitations on Expectation Damages: Litigation
Costs, the Time Value of Forgone Gains, and the Risk
of the Promisor’s Insolvency 255
22. C
ritiques of the Expectation Measure, and Alternative
Damage Regimes 269
24. Th
e Specific-Performance Principle: Actual and Virtual
Specific Performance 295
PART NINE • T
HE ROLE OF RESTITUTION
IN CONTRACT LAW
25. The Role of Restitution in Contract Law (with Mark Gergen) 319
PART TEN • T
HE DISGORGEMENT INTEREST
IN CONTRACT LAW
PART ELEVEN • T
HE ELEMENTS OF A CONTRACT
27. Th
e Elements of a Contract: Expressions, Implications,
Usages, Course of Dealing, Course of Performance,
Context and Purpose 367
xvi
PART SIXTEEN • M
ISTAKE, DISCLOSURE,
AND UNEXPECTED CIRCUMSTANCES
45. Th
e Effects of Unexpected Circumstances—Impossibility,
Impracticability, and Frustration 625
PART SEVENTEEN • P
ROBLEMS OF PERFORMANCE
50. A
ugmented Sanctions: Material Breach, Total Breach, and
Opportunistic Breach; Cure; Suspension and Termination 687
PART EIGHTEEN • T
HE PRINCIPLE OF GOOD FAITH
IN CONTRACT LAW
52. Th
e Principle of Good Faith in Contract Law
(with Mark Gergen) 707
PART TWENTY-O NE • T
HIRD-PARTY BENEFICIARIES
1. Th
e Objective and Coverage of this Book; Doctrinal
and Social Propositions; Social and Critical Morality;
Terminology; and the Tenor of the Footnote Apparatus 3
xvii
xvi
F. Williston 6
G. Corbin 7
H. Commodity 7
I. Expression 7
J. Pronouns 7
III. The Tenor of the Footnote Apparatus 7
I. Formalist Theories 9
A. Creating New Exceptions 11
B. Reconstruing 12
C. Transformation 13
D. Overruling 14
E. The Status of Formalism 15
II. Interpretive Theories 15
III. Normative Theories 17
PART TWO • T
HE ENFORCEABILITY OF PROMISES
PART THREE • M
ORAL ELEMENTS IN CONTRACT LAW
I. Introduction 69
II. The Role of Markets 71
III. The Role of Moral Fault 72
IV. Specific Unconscionability Norms 73
A. Distress 73
B. Price-Gouging 78
C. Transactional Incapacity 79
D. Unfair Persuasion 82
E. Unfair Surprise 84
F. Sales at Above-Market Prices and the Exploitation of
Price-Ignorance 85
1. One-Off Sellers 85
2. Door-to-Door Sellers 87
3. Extension of Credit 89
G. Substantive Unconscionability 89
H. Two Statutes 95
8. Donative Promises 97
PART FOUR • B
EHAVIORAL ECONOMICS
AND CONTRACT LAW
I. Introduction 159
A. Invariance 160
II. Bounded Rationality 162
III. Irrational Disposition: Unrealistic Optimism 163
IV. Defective Capability 165
A. Availability 166
B. Representativeness 167
xxi
PART FIVE • T
HE ROLE OF FAULT
IN CONTRACT LAW
13. Th
e Building Blocks of Formulas to Measure Expectation
Damages; the Indifference Principle 179
14. F
ormulas for Measuring Expectation Damages for Breach
of a Contract for the Sale of Goods 189
15. F
ormulas for Measuring Expectation Damages for Breach
of a Contract to Provide Services 201
I. Introduction 239
II. The Hadley Principle and General Principles of Law 241
III. The Modern Arguments for the Hadley Principle 244
IV. An Alternative Regime to the Hadley Principle 250
A. Contractual Allocations of Losses 250
B. Proximate Cause 251
C. Nature of the Break 252
D. Limitations on Disproportionate Damages 253
V. Conclusion 254
I. Introduction 257
xxi
22. C
ritiques of the Expectation Measure, and Alternative
Damage Regimes 269
I. Introduction 269
II. Enforcement-Error Regimes 269
A. Background 269
B. The Subjective Beliefs of Promisors 270
C. Objective Probabilities and Evidence about Subjective
Probabilities 271
D. The Elusiveness of Objective Probabilities, and of Objective
Evidence about Subjective Probabilities, in Contracts Cases 272
E. Other Administrative Concerns Raised by
Enforcement-Error Regimes 273
xvi
III. Regimes That Take into Account the Secrecy Interest 274
IV. Regimes That Have the Goal of Promoting Efficient Search 277
V. Conclusion 279
I. Th
ree Reasons in Favor of a Regime of Routine
Specific Performance 296
A. The Indifference Principle 296
B. The Bargain Principle 297
C. Informational Effects 297
II. Reasons against a Regime of Routine Specific Performance 298
A. The Enforcement Process 298
1. Social Norms 298
2. The Risk of Error 299
B. The Problem of Jury Trial 299
C. The Problem of Mitigation 300
D. Suits by a Seller 302
E. The Problem of Opportunism 302
III. The Specific Performance Principle 304
IV. A
pplication of the Specific Performance Principle
to Important Types of Contracts 306
A. Contracts for the Sale of Goods 306
1. Seller’s Breach of a Contract for the Sale of Goods 306
a. Homogeneous Goods to be Delivered in the Near Future 306
b. Long-Term Supply Contracts 307
c. Goods Not Readily Available in the Market 308
xv
PART NINE • T
HE ROLE OF RESTITUTION
IN CONTRACT LAW
25. The Role of Restitution in Contract Law (with Mark Gergen) 319
PART TEN • T
HE DISGORGEMENT INTEREST
IN CONTRACT LAW
I. Introduction 335
II. The Disgorgement Interest outside Contract Law 337
III. The Puzzle of Restatement Second 339
IV. Efficiency Arguments against Disgorgement 342
V. W
hy Contract Law Should and Does Protect the
Disgorgement Interest 343
xvi
VI. C
ases in Which the Promisee Has Bargained for the
Promisor’s Gain from Breach 345
VII. Disgorgement in Lieu of Specific Performance 349
VIII. Disgorgement as a Surrogate for Expectation Damages 349
IX. Bargains Designed to Serve Interests Other than Profitmaking 350
X. Externalities 353
XI. Disgorgement of Costs Saved by Breach 354
A. Skimped Services 354
B. Diminished Value 355
XII. The Causation Arguments against Disgorgement in
Contract Law 356
A. Cause in Fact 356
B. Joint Cause; Apportionment 358
C. Remote Cause; Tracing 359
XIII. Why Don’t We See More Disgorgement in Contract Law? 360
XIV. The Problem of Apportionment 361
XV. Conclusion 363
PART ELEVEN • T
HE ELEMENTS OF A CONTRACT
I. Expressions 367
II. Implications 367
III. Usages 368
IV. Course of Dealing 369
V. Course of Performance 369
VI. Context and Purpose 370
A. Context 370
B. Purpose 370
xxvi
I. Contextualism 373
II. Literalism 380
A. The Plain-Meaning Rule 380
III. Extreme Literalism 385
I. Lapse 457
A. The General Rule 457
B. The Conversation Rule 458
C. Failure to Notify an Offeree That His Acceptance Is Too Late 460
II. Revocation of Offers for Bilateral Contracts 460
III. Exceptions to the Firm-Offer Rule 464
A. Nominal Consideration 464
B. Effect of Writing 464
C. Auctions 465
D. Reliance 465
IV. Revocation of Offers for Unilateral Contracts 466
V. “Indirect Revocation” 470
VI. The Withdrawal of General Offers 472
VII. Death or Incapacity 474
VIII. Rejection, Counter-offer, and Qualified Acceptance 477
A. Rejection 477
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Ghâficky, Al, the regicide, 335 note, 340
Ghâlib, his song at Câdesîya, 168
Ghassân, Beni, 69, 87, 202
Ghatafân, Beni, 23, 25, 27
Ghauth, Beni, 24
Ghâzies, 382
Ghimâs (Câdesîya), 168, 171
Ghîzeh, 243
Ghôr, 97, 150, 152, 205
Ghûta, 144
Gilead, 141
Greeks, in Egypt, 242
Gregory, 299
Habîb, 394
Hadhramaut, 21, 56
Hafîr, 72
Hajjâj, 445
Hakam ibn Jabala, 333
Hakîm ibn Hizâm, 340
Hâma, 199
Hamadan, 256, 257
Hamza, 44
Hâni, 435
Hanîfa, Beni, 38 et seq., 44, 45, 48
Hanifite, the, Aly’s wife, 89
Hantzala, 337
Hantzala, Beni, 30
Haphsa, widow of Mahomet, 2, 231, 307, 353
Haram, at Jerusalem, 209
Haram, in Hejâz, 263
Harîr, or Night of Clangour (Câdesîya), 168, 173
Harôra, 389
Harrân, 217
Hasan, 65, 350, 359, 394, 414;
becomes Caliph, 418;
abdicates, 419, 422, 442
Hâshim, Beni, 227
Hâshim ibn Otba, 153, 172, 179 et seq.;
killed at Siffîn, 382
Hassân ibn Thâbit, 202, 343
Haurân, 205
Hawâb, dogs of, 354
Hawâzin, Beni, 26, 27
Hebron, 97
Hegira, 1;
era established, 271
Hejer, 47, 50
Heliopolis, 241, 242
Heraclius, 67, 97, 201;
death of, 243
Hims, 198, 216
Himyar, 51;
troops, 146
Hind, daughter of Nómân, 265
Hindia, western branch of Euphrates, 70, 135, 175
Hind, wife of Abu Sofiân, 237, 277
Hîra, 49, 68, 76, 78;
capitulates, 79 et seq., 85, 127, 161, 164;
reoccupied, 178
Hît, 190, 199
Hobâb, 4
Hodeibía, 226, 386
Hodzeifa, 18, 51, 307
Hodzeil, 85, 90
Holwân, 190, 249, 256
Horcus, 90
Horcûs, 251
Hormuz, 72, 112
Hormuzân, 166, 250, 252, 254;
murder of, 293
Honey-bee, part of the Lord’s host, 257
Horr, 436 et seq.
Hosein, 65, 394, 414, 434;
march to Kûfa, 435 et seq.;
death, 440
Hotem, 48, 49
Houries, 105
Lackît, 51
Lady’s Castle, the, 73
Lakhmite dynasty, 69, 78
Laodicea, 199
Leila, 34, 36, 41;
Abu Bekr’s son enamoured of her, 272
Lesser Pilgrimage, 329
Levant, 298
Lydda, 206
Nablûs, 206
Nahr Shîr, 84, 179
Nâila, Othmân’s wife, 315, 339;
her fingers hung up at Damascus, 342, 348
Najaf, 79;
Sea of, 135, 161, 414
Najrân, 53, 55;
Christians of, 223
Namârick, 128
Namr, Beni, 31, 134, 137, 190
Narsa, 127
Naval enterprise, 264, 300
Nefûd, desert, 101
Negus of Abyssinia, 223
Nehâvend, 266;
battle of, 257, 278
Nestorians, 49
Night of Clangour (Câdesîya), 168, 173
Nile, 241, 242, 245;
Omar’s letter to, 246
Nisibîn, 216, 217
Nóeim ibn Mocarrin, 258
Nojeir, 57, 64
Nokheila, 401
Nómân ibn Mocarrin, 14, 251, 252, 256;
his death, 257;
Nómân, Prince of Hîra, 79
Noseir, 86
Nubians, 242
Rabadza, 13, 16
Rabia, 21
Rajjâl, 39, 41
Rama (Arimathea), 206
Ramh, 206
Râm Hormuz, 249, 251
Ramleh, 206, 211
Readers of Corân, 45, 231, 381
‘Refugees,’ 5, 32, 126, 227
Regicides attack Medîna, 329;
return with document bearing Othmân’s seal, 331
Register (Dewân) of Arab race, 229
Rei, captured, 258
Retribution, law of, 202
Ricca, 216, 377
Ring of Mahomet, 314
‘River of Blood,’ 76
Roha, 199, 216, 217
Roman army, 90, 92, 104, 190;
and fleet, 215
Roman empire, 66
Rustem, 126, 155, 163;
forebodings of, 165;
killed, 174
Veiled prophet, 52
Veil, the, 265, 458
Victory, Service of, 82
Villains’ Road, the, 53
Volcano near Medîna, 263
Voluptuousness, 273
Wacûsa, 98
Wâdi al Cora, 10, 94
Wahshi, 43
Walaja, battle of, 75
Wâsit, 447
‘Waterer of the two Holy Places’ (Abbâs), 233
Welîd ibn Ocba, 87, 93, 94, 303;
deposed for inebriety, 304, 394
Welîd the Caliph, 447
White Palace of Medâin, 180
Widows of Mahomet, 59, 225, 278
Windmill, 279
Wine forbidden, as a bath, 219;
intemperance in, 273
Women, Moslem, fight, 138;
and children give coup de grâce to wounded enemies, 175;
influence of captive, 273
Yabna, 206
Yála, 347
Year, Mussulman, viii
‘Year of Ashes,’ 232
Yemâma, 21, 38 et seq.;
battle of, 41
Yemen, 18, 21, 55, 56
Yenbó, 245
Yerbóa, Beni, 30 et seq.
Yermûk, 98
Yezdegird, 127, 155;
deputation to, at Medâin, 162, 251, 255, 258;
his death, 259, 297
Yezîd, 95, 97, 108, 198, 207, 218, 276
Yezîd ibn Cays, 388
Yezîd, son of Muâvia, declared heir apparent, 429;
becomes Caliph, 433, 434, 443, 446