Mitigation Principles in Contracts: Promisee's Actions and Promisor's Liability, Slides of Contract Law

Download Mitigation Principles in Contracts: Promisee's Actions and Promisor's Liability and more Slides Contract Law in PDF only on Docsity!   1   Mitigation, Fairness and Contract Law George Letsas and Prince Saprai* A Mitigation and Loss Sharing 1 Failure to Act Consider the following case: I. A promises B to drive him to the airport but he fails to turn up. Few would deny that A has breached a moral duty owed to B, and that A has secondary obligations towards B as a result of that breach. At the very least, A has a duty to apologize and to express regret. This is so whether or not B suffers loss as a result of the breach. But now let’s assume that the promisee has suffered loss: II. A promises B to drive him to the airport but he fails to turn up. B misses his flight, which costs him £1,000. Do A’s secondary obligations include the duty to cover the promisee’s loss? Again, few would deny that, other things being equal, A is responsible for B’s loss. But what if things are not equal? Consider this case: III. A promises B to drive him to the airport but he fails to turn up. B can take a £50 cab to the airport and make the flight. However, he chooses to do nothing and he misses the flight, which costs him £1,000. Is A responsible for the whole of B’s loss in this case? It seems far less clear that he is, because B could have easily made his flight by taking the cab. Let’s stipulate that it makes no difference to B whether A drives him or whether he takes a cab. What seems to be important here is that the promisee can easily bring about the same state of affairs that A was under a promissory obligation to bring about. Had he done so, he would also have avoided the loss that would have occurred if he did nothing. This can be shown by contrasting III with cases where it is difficult for the promisee to bring about the promised state of affairs. Consider the following case:                                                                                                                 *  Drafts of this paper were presented to The Philosophical Foundations of Contract Law conference at UCL (2013), and to the UCL Private Law Group Workshop (2014). Thank you to participants on both of these occasions for invaluable feedback. Special thanks to Rob Chambers, Andrew Dyson, Dori Kimel, Greg Klass, Daniel Markovits, Ben Mcfarlane, Charles Mitchell, Paul Mitchell, James Penner, Solène Rowan, Irit Samet and James Shirley for their comments. We also thank Lord Lawrence Collins, Riz Mokal and Seana Shiffrin for discussing some of the issues that this chapter raises with us. The usual caveat applies.     2   IV. A promises B to drive him to the airport but he fails to turn up. B can only get a cab by doing a two-hour-walk (he lives in a remote location). He chooses to do nothing and he misses the flight, which costs him £1,000. Here it is clear that A does have to cover the cost of the flight. Although B could have brought about the same state of affairs that A promised, doing so would have been burdensome for B. It would have required him to undertake a two-hour-walk. Moreover, we would not take a different view if the cost of the flight were to be substantially higher (say £10,000). The two-hour-walk would not become less burdensome, the higher the cost of the flight. A two-hour-walk is an unreasonable means of bringing about the promised state of affairs regardless of the size of the loss that would be avoided. By unreasonable we simply mean that this is not an alternative that most people would expect to take, given the nature of the promised performance and the effect that taking the alternative would normally have on people’s plans. Even if the promisee were a marathon runner, for whom a two-hour-walk is a piece of cake, it would still count as a burden since it is not a substitute that most people would expect to use for getting to the airport. Our notion of burdensomeness is, therefore, agent-neutral.1 This suggests that the operative principle here is not efficiency, since efficiency would require comparing the cost of walking, which we should quantify, with the cost of alternatives, including the alternative in which the promisee does nothing and suffers loss. Efficiency would require the promisee to walk, if walking was the most cost-effective option, or would impose the cost of any losses on him if he chose not to walk. Still, there will be cases where the alternative way of securing performance is not at all burdensome, but its cost exceeds the cost of the losses that would otherwise flow from the breach. Consider this case: V. A promises B to drive him to the airport but he fails to turn up. The only way B could have made the flight was by hiring a £10,000 helicopter to take him to the airport. B chooses to do nothing, and misses the flight which costs him £1,000. Here, the existence of an alternative way to secure performance whose cost exceeds the cost of the losses that flow from the breach, does not affect the responsibility of the promisor. So, the size of the loss appears to have some relevance for determining the responsibility of the promisor. Cases I-V support the following mitigation principle: MP1: When a promise is broken, AND (1) there is an alternative way to secure the state affairs promised by the promisor, AND (2) it does not matter to the promisee whether the promisor or someone else performs, AND (3) the                                                                                                                 1 Our approach may be conceived of as majoritarian in nature, appealing to whether the majority of people similarly situated would regard the alternative to be burdensome. Majoritarianism is often used to justify default rules in contract law. We are however not committed to standard normative justifications offered in favor of majoritarianism, such as that majoritarianism is a rule of thumb for maximizing efficiency.   5   IX. A promises B to drive him to the airport but he fails to turn up. The only way B could make the flight is by hiring a £10,000 helicopter to take him to the airport. B chooses to hire the helicopter and catches the flight on time. Had he missed the flight he would have suffered a loss of £1,000. It is clear here that A’s responsibility for the loss caused is mitigated. The promisor is not responsible for the entire cost of the course of action that the promisee took in order to secure the promised performance when the cost of that action exceeds the loss that would otherwise have been caused by breach. This case suggests the following mitigation principle: MP3: When a promise is broken, AND (1) the promisee successfully takes action to bring about the state of affairs that would have obtained had the promise been performed, AND (2) the cost of the course of action taken by the promisee exceeds the loss that would have occurred had the promisee done nothing, THEN the promisor is not responsible for covering the whole cost of the losses that flow from his breach. A similar principle exists in cases where the promisee can no longer secure the promised state of affairs, but instead takes action to avoid the loss that would otherwise be caused by breach, but the cost of that action exceeds the loss that would have occurred had the promisee done nothing. This is another type of pure loss avoidance case. Again, we will not go into the detail of these cases here. Let’s go back to cases where B does successfully take action to secure the promised state of affairs. We have seen that in these cases, A’s responsibility for the loss caused by his breach of promise is mitigated if principle MP2 or MP3 applies. However, in cases like VIII and IX should A be responsible for at least some of the loss caused to B? It seems fair that he should be. This leads to a second loss-sharing principle: LS2: When MP2 or MP3 apply, the promisor shares some responsibility for the loss caused by the broken promise with the promisee. 3 Summary The MP and LS principles above tell us that when a promise is broken and loss caused to the promisee, responsibility for that loss is shared by the promisor and the promisee in three types of case. First, cases where the promisee fails to take some easily available course of action that would have secured the promised state of affairs. Second, where the promisee does successfully take action to bring about the promised state of affairs, but there was a cheaper and easily available alternative course of action that could have been taken to secure that state of affairs. Third, when the promisee does successfully take action to bring about the promised state of affairs, but the costs of that action exceed the loss that would have occurred had the promisee not acted.   6   So far this is all at the level of systematizing our intuitions about particular cases of breach of promise. What justifies having those intuitions and the principles to which they lead? We turn to this question in the next section. B Justification: Altruism vs. Fairness In MP1, the promisee takes no action to bring about the promised state of affairs, even though he could have done so easily. According to MP1, the existence of easily available alternatives is relevant for determining the responsibility of the promisor for losses caused by his breach. MP1 however is silent on whether the promisee has a duty to take the easily available alternative. All that MP1 says is that if the promisee fails to take the easily available alternative, then the promisor’s responsibility for the promisee’s losses is mitigated. Now, one way to try and justify MP1 is to argue that the promisee has a moral duty to take the easily available alternative, and that breach of that duty mitigates the responsibility of the promisor. This is the view taken by Charles Fried. For Fried, the moral foundation of that duty lies in the idea of altruism: the promisee’s position is analogous to that of a Good Samaritan; there is a relation of trust between the promisor and the promisee which makes ‘the two parties neighbors rather than strangers’.3 Fried argues that when such relations of trust hold, they give rise to duties to save the other party ‘from serious loss when the actor can do so with little trouble, risk of loss, or harm to himself’.4 The logic of Fried’s argument seeks to justify MP1 in two steps. First, it postulates a duty on the part of the promisee to act in order to reduce a loss for which, it is assumed, the promisor is pro tanto responsible. Second, it argues that the breach of that duty has the normative effect of mitigating the remedial responsibility of the promisor. Though the promisor remains responsible for the losses caused by not performing his promissory obligation, his responsibility is now outweighed, qualified or cancelled by the fact that the promisee failed to act as a Good Samaritan. Let’s start by granting, arguendo, that the promisee has a duty of altruism to help the promisor by reducing the losses caused by the breach of his promissory obligation. So, let’s assume that at t1, when A fails to turn up to drive B to the airport, B ought (in the sense of has a mandatory reason to) take a cab with a view to reduce the losses for which A is pro tanto responsible. At t2, the promisee has sat back and done nothing, breaching his duty to help the promisor and allowing losses to accumulate. How would the promisee’s breach of his duty to help the promisor have the normative effect of altering the promisor’s responsibility for the losses caused by non- performance? The normative explanation would, we think, run as follows. Upon breaching his duty to help the promisor, the promisee would be under an obligation to do ‘the next best thing’.5 This normally involves putting the person to whom one                                                                                                                 3 Charles Fried, The Convergence of Contract and Promise, 120 HARV. L. REV. F. 1, 8 (2007). 4 Id. at 7-8. 5 For the explanation why see Joseph Raz, Personal Practical Conflicts, in PRACTICAL CONFLICTS: NEW PHILOSOPHICAL ESSAYS 172 (Peter Baumann and Monika Betzler eds., 2004); and John Gardner, What is Tort Law for? Part 1. The Place of Corrective Justice, 30 LAW & PHILOSOPHY 1 (2011).   7   owes the obligation into the position he would have been in had one not breached. In this case, had B not breached his duty to help A, i.e., had B taken a cab to make his flight, A would be responsible for the much smaller loss (£50), than the one he is now responsible for (£1,000). In order to put A in the position he would have been in had B complied with his duty of altruism, B would need to make it the case that A is responsible for £50 rather than £1000. B can achieve this by exercising a normative power: he can waive the claim he has against B for missing the flight (a loss for which A remains responsible). So, B’s secondary obligation would require him to waive his claim against A for the amount of £950. According to the argument from the duty of altruism, the promisor is pro tanto responsible for the loss caused by his breach of promise but, at the same time, he has a valid moral claim that the promisee waive his right to hold the promisor responsible for the difference between the actual loss and the one that would have occurred had the promisee complied with his duty of altruism. Both the promisor and the promisee are wrongdoers. By combining the secondary obligations they owe to each other, in virtue of their wrongdoing, we can conclude that the promisor’s responsibility for the actual loss suffered is diminished and shared with the promisee, which is what MP1 and LS1 require. Moreover, the argument from the duty of altruism tells us exactly how the promisor and the promisee are to share the losses: the promisor’s share of responsibility consists in the loss that would have arisen had the promisee complied with his duty of altruism. The rest of the losses stay with the promisee, as he is responsible for them. The duty of altruism, if true, provides normative support for MP1 and LS1. It also provides normative support for MP2 and LS2, i.e., for cases where the promisee took action to bring about the promised state of affairs. Where there was an alternative course of action that the promisee could have taken to bring about the same state of affairs which was cheaper than the course taken, easily available, and not more costly than doing nothing, then the promisee is under an altruistic duty to take it. The promisee should avoid taking courses of action that needlessly impose costs on the promisor. If, in these circumstances, the promisee fails to take the cheaper alternative he is then under a duty to waive the responsibility of the promisor for the losses that accrue as a result of the promisee not taking the cheaper route. The promisor’s responsibility is limited to the loss that would have arisen had the promisee taken the cheaper course of action. Finally, MP3 and LS2 would be explained as follows. When the cost of the only available action to secure the promised state of affairs exceeds the cost of inaction, the promisee has a duty of altruism not to do anything and to suffer the smaller loss. When the promisee fails to do so, taking the action that results in a loss whose cost is greater than inaction (in example IX by taking a helicopter), then he has a duty to waive his claim against the promisor by that amount which represents the loss that he could have avoided by not taking any action. The promisor’s overall responsibility is then limited to the loss that would have arisen had the promisee taken no action at all. This is because the promisee having failed to comply with his altruistic duty, is now required to do the next best thing which is waive his claim to the losses that arose as a result of his failure to comply with that duty. Many philosophers have challenged the claim that a duty of altruism exists in this context. Why should the promisee be under a duty to help the promisor by waiving the claim he has against him as a victim of his wrongdoing? Normally, altruistic   10   choice. It simply bars a claim on the promisee’s part and extinguishes part of the promisor’s responsibility for losses caused following his breach. It’s not the case that the promisee assists the promisor in any way, as the altruism-based approach suggests. This is because the cost of the choice not taken is not, from a normative standpoint, a loss for which the promisor is even pro tanto responsible. The promisor’s position is therefore no better off if the promisee chooses action over inaction in a case like III. It is not that the promisor would be worse off if the promisee failed to take action, since if he were to do so, then the promisor would not be responsible for the loss resulting from inaction. Hence, the promisee’s inaction is not a failure to assist the promisor, nor is his taking the easily available alternative a helping hand towards him. In a way, the promisee could not help the promisor even if he wanted to. If fairness is the correct normative explanation of MP1-MP3, and LS1- LS2 then mitigation has nothing to do with assistance. We should also note here that if fairness is the correct explanation of mitigation, then the subject matter of the mitigation is the promisor’s responsibility, rather than the losses caused by his breach. According to the fairness-based account, what gets mitigated when the promisee takes the easily available alternative is the promisor’s responsibility for breaching his promise, rather than the losses caused as a result of the breach. The normative explanation based on fairness has the same structure as arguments justifying estoppel. So, to use a common example, I see you building a house on my land, mistakenly thinking that the land is your own, and instead of informing you of your mistake I allow you to continue building. Although I had no duty to inform you of your mistake, it would be unfair for me to rely on my right over the land in order to benefit from what you built, say by acquiring property rights over it. Property lawyers would say that I’m estopped from relying on my property rights against you or that by not informing you I waived those rights. These are alternative ways of making the same point, namely that my failure to inform you changes our moral profiles and extinguishes rights that I would otherwise have had against you and creates new ones.12 C Advantages of the Fairness-Based Approach There are three advantages to the fairness-based explanation of mitigation. First, it explains the intuition that when a promise is broken in a case like III above, the                                                                                                                                                                                                                                                                                                                               which the test for whether the promisee’s conduct is an intervening cause is whether his conduct is fully voluntary. But it would be a mistake to argue that the promisor is not responsible because the promisee has caused the relevant loss. In our view, this gets matters backwards. Whether the promisee’s failure to act constitutes an intervening cause in this sense depends on the prior question of whether it is fair for the promisee to share losses with the promisor. Causation here tracks responsibility, not the other way around. 12 The argument does not rely on the property owner deriving any kind of benefit from his silence. The relevant normative concern here is not unjust enrichment. For an example in law of a successful estoppel claim even in the absence of such benefit, see Jackson v. Cator, [1800] 5 Ves. 688, which involved an owner remaining silent out of spite. Loughborough L.C. asked rhetorically ‘Is it not just as competent to the Court to prevent an injury arising from mere spite as to prevent him from doing it in order to put money in his pocket?’ Id. at 691. Thank you to Ben Mcfarlane for the reference.   11   promisee is under no obligation to take the cab and make the flight. The promisee chose not to travel, even though he could easily have done so, and therefore is barred from claiming the cost of his choice from the promise-breaker. So, by failing to take easily available alternative courses of action, the promisee does not breach a duty and hence has nothing to regret or apologize for. By contrast, on Fried’s view, the promisee would have reasons to feel regret and to make an apology even when he complies with his secondary obligation to waive his claim against the promisor. This is because he ought not to have allowed the losses to accumulate in the first place. A second advantage of the fairness-based account is that it doesn’t presuppose any special duties between the promisor and the promisee. It therefore avoids all of the objections against Fried’s account that promises do not create any special relationships between the promisor and the promisee. All that the principle of fairness requires is that promisees not claim compensation from the promisor for losses that they could have easily avoided. It’s therefore compatible with many competing accounts of the nature of promissory obligation, and doesn’t presuppose the view that promising creates, either contingently or intrinsically, close relationships of the kind that trigger duties of assistance. A third advantage of this normative explanation is that it can justify mitigation in non- promissory contexts. Mitigation and loss sharing principles seem to apply in these contexts. Consider for example moral wrongs other than breach of promise. If you negligently injure me, and I choose not to treat my injuries even though it was easy for me to do so, then it is unfair for me to blame you for the resulting harm and seek to recover the cost from you. Here it would make no sense to argue that I have a duty of altruism towards you to reduce the extent of the harm you caused me. Though I do have a strong reason to reduce the harm you caused me, this is not because by doing so I comply with a duty I have to assist you. Duties of assistance arise only when there is a special or close relationship between the parties, and unlike promising, one could not even begin to argue that there is a special relationship of this kind between the negligent injurer and his victim. It is interesting, though of course not in itself an argument in favor of fairness, that mitigation in tort law works no differently than in contract law.13 Finally, we should also like to point out that the explanation from fairness, if true, forms part of promissory morality broadly conceived. Few, if any, would equate promissory morality with the single principle that promises ought to be kept other things being equal.14 Such equation would give an incomplete account of promissory morality given that the promise principle interacts with a multiplicity of other moral principles, for example, principles against exploitation, undue influence, unreasonable reliance, and so on. Fairness is a foundational value that is pro tanto relevant each and every time a promise is made and, in the context of mitigation, it changes the moral position of the parties. The application of the principle of fairness doesn’t presuppose any institutional background (for example, the existence of the state or courts). Nor is                                                                                                                 13 McAuley v. London Transport Executive, [1957] 2 Lloyd’s Rep. 500 (Eng.) (worker’s injury to hand resulting from employer’s negligence, but worker’s unreasonable failure to get medical treatment meant that employer not responsible for loss that could have been avoided. Worker could have avoided loss of earnings from point when injured hand would have recovered from medical intervention). 14 It is a common misreading of Fried to think that he held this view. See Fried, Convergence, supra note 3, at 7.   12   it limited to a practical concern about how to shift losses caused by a breach of promise. Recall, that the principle of fairness also requires the promisee not to blame the promisor for losses that he could easily have avoided. In sum, unlike the duty of altruism, the structure of the explanation from fairness is one that applies to all cases where there are secondary obligations arising out of the breach of a primary obligation. It qualifies or cancels part of the wrongdoer’s responsibility for the loss caused by his breach. Unlike the duty of altruism, it construes cases of failure to avoid losses as a choice on the part of the innocent party rather than as a breach of a duty. In that respect, it offers a more direct normative justification for principles MP1-MP3 and LS1-LS2, than the duty of altruism. What we aim to do now is show that, by and large, contract law satisfies these mitigation and loss sharing principles. D Contract Law The mitigation and loss sharing principles that we find in morality are also present in the common law mitigation doctrine. When a contract is broken, the legal responsibility of the promisor for any loss caused by his breach is mitigated in two types of case. First, there are those cases that Andrew Burrows describes as cases of ‘unreasonable inaction’. These are cases where the promisee is precluded from recovering any losses from the promisor that the promisee ‘could reasonably have avoided but has failed to avoid’.15 Secondly, there are cases where the claimant takes ‘unreasonable action’ in avoiding losses caused by a breach of promise. The claimant cannot recover for expenses unreasonably incurred. According to the common law doctrine, the promisor’s responsibility for loss is limited to the losses that the promisee would have suffered had the promisee taken reasonable action to bring about the state of affairs that would have obtained had the contract been performed. Burrows, as well as the other leading contract lawyers,16 says that whether reasonable steps should have been taken ‘depends on the particular facts in question’.17 When lawyers say that this determination is a matter of fact, we are unclear about what exactly this means. If it means that it is an extra-legal or purely factual question, and that no underlying legal principle determines whether or not the promisor’s responsibility for loss in cases of this type is mitigated, then we disagree. If, on the other hand, the claim is that there is an underlying legal principle, but that we have to look at the facts of a particular case to determine whether the conditions for the                                                                                                                 15 ANDREW BURROWS, REMEDIES FOR TORTS AND BREACH OF CONTRACT 122 (3d ed. 2004). Burrows cites for this proposition Viscount Haldane L.C.’s classic statement of the principle in British Westinghouse Elec. v. Underground Elec. Ry. Co. of London., [1912] A.C. 673. The law said Haldane ‘… imposes on a plaintiff the duty of taking all reasonable steps to mitigate the loss consequent on the breach and debars him from claiming any part of the damage which is due to his neglect to take such steps.’ Id. at 689. 16 See, e.g., MINDY CHEN-WISHART, CONTRACT LAW 510 (4th ed. 2012); and EWAN MCKENDRICK, CONTRACT LAW: TEXT, CASES, AND MATERIALS 895 (5th ed. 2012). 17BURROWS, REMEDIES, supra note 15, at 123.   15   else; in either case the test being whether it is reasonable to refuse it or not in the circumstances of each case.27 This is the same principle that underpinned the decision in Payzu. The key issue was whether it was reasonable to expect the claimant to accept the revised terms offered. Blain J repeated the point made by Scrutton L.J. in Payzu that re-negotiation with the defendant may be much more of a burden in the context of an employment contract: [P]ersonal factors clearly are more likely to be of weight or are likely to be of greater weight in cases of personal services than in (for want of a better word) what I call soulless cases of sale of goods contracts where money may often be the only important factor.28 On the facts, Blain J. decided that it was not unreasonable for the claimant to refuse the offer. Key to this finding was that the new job offered by the defendant to the claimant was a significant step-down from the position the employee had occupied, and that relations between the parties had broken down to such an extent that it was unclear how they could now work together. It is clear from the decision, that requiring the claimant to accept the offer would have imposed a significant burden on him. 2 Unreasonable Action Remember, that when considering the moral position we claimed that the promisor’s responsibility for the loss caused by his breach of promise is shared in cases where the promisee successfully takes action after breach to bring about the promised state of affairs, but the promisee could have taken an alternative course of action to obtain that same state affairs which was easily available and cheaper than the course of action actually taken by the promisee. This principle, or to be more accurate combination of principles MP2 and LS2, we believe, explains the decisions reached in the contract cases where the promisee takes action to secure the promised state of affairs. The common law rule is that the promisee cannot recover expenses that were unreasonably incurred, and the promisor’s liability is capped at the loss that would have arisen had the promisee acted reasonably in bringing about the promised state of affairs. The MP2 principle identified earlier determines when the courts find the promisee’s action in these legal cases unreasonable. Take, for example, the case of The Borag,29 where the claimant ship owners took out a very high interest rate loan in order to secure the release of a ship wrongfully detained, because of a breach of contract by the ship managers. Lord Templeman L.J. in his judgment, said on the issue of mitigation that the ship managers were not liable to cover the expenses associated with the high interest loan, because the ship owners had easily available to them cheaper alternative ways of securing the release of the ship:                                                                                                                 27 Id. at 115. 28 Id. at 118. 29 [1981] 1 W.L.R. 274 (Eng.).   16   [T]he owners could and should have adopted a form of mitigation which was reasonable either by refusing to pay the interest charges to their bankers or by seeking a guarantee elsewhere or by some other available form of securing the release of the vessel more cheaply.30 This is a clear application of the MP2 principle that we find in morality. Given the existence of easily available and cheaper alternative methods for securing the performance, the promise breaker is not responsible for covering the entire loss caused by the breach, and it is unfair for the promisee to claim damages for that loss from the promise-breaker. The same or very similar principles are applied in cases where the promisee’s actions either to secure the promised performance or, where that is no longer possible, to avoid the losses caused by the promisor’s breach and held to be reasonable. So, for example, in Britvic Soft Drinks Ltd. v Messer U.K. Ltd.,31 ingredients contaminated with benzene, which is carcinogenic, were supplied to a soft drinks manufacturer. It was no longer possible to secure the promised performance, and instead the manufacturer took action to reduce the consequential loss caused by the breach. In other words, this was what we described earlier as a pure loss avoidance case. 32 Even though the levels of benzene in the ingredients did not pose a risk to health, the Court of Appeal decided that the manufacturer acted reasonably in destroying and withdrawing products that contained those ingredients, because that was the only way to preserve its commercial reputation. The supplier was responsible for covering the costs incurred by the manufacturer.33 There was no easily available and cheaper alternative course of action that the manufacturer could have taken to preserve its commercial reputation, and, therefore, the courts refused to mitigate the responsibility of the supplier for the loss caused, and it was fair for the manufacturer to claim damages for that loss from the supplier. Recall that we said earlier that in cases where a promise is broken and the promisee successfully takes action to secure the state of affairs that would have obtained had the promise been performed, there is a separate moral principle which we called MP3 which mitigates the responsibility of the promisor for the loss caused where the costs of the action taken exceed the loss that would have occurred had the promisee not taken any action to bring about the state of affairs. LS2 also applies in this type of case and requires loss sharing. According to Treitel’s The Law of Contract the common law mitigation doctrine contains a similar principle. Treitel formulates the principle in the following terms: ‘he [the promisee] should not… spend more on                                                                                                                 30 Id. at 285. 31 [2002] 1 Lloyd’s Rep. 20 (Eng.). 32 Strictly speaking, therefore, this is not a case where MP2 would apply, because MP2 involves cases where the promisee takes action to bring about the promised state of affairs. However, as we said in section A(2) above, a similar principle to MP2 applies to cover cases of action taken to reduce or avoid consequential loss. As with MP2, central to whether the promisor’s responsibility is mitigated in these pure loss avoidance cases is whether there was an easily available and cheaper alternative course of action that the promisee could have taken. The main difference is that the promisee’s action in these pure loss avoidance cases relates to avoiding or reducing loss, rather than securing substitute performance. 33 Britvic Soft Drinks Ltd. v Messer U.K. Ltd. [2002] 1 Lloyd’s Rep. 20 [114] (Eng.).   17   curing a defect in performance than the subject matter without the defect would be worth’.34 The principle was applied in Grant v. Dawkins and Others.35 The case concerned a contract for the sale of a house free from incumbrances. However, the house was subject to two mortgages. The purchaser wanted specific performance, and an order to allow him to pay off the mortgages and claim as damages any loss that exceeded the purchase price. Goff J. granted the order but said that the damages recoverable to the extent that they could not be compensated by the purchase price of the house were capped by the value of the house.36 This is a clear application of the MP3 and LS2 principles. Responsibility for loss caused by the broken promise is shared when the promisee takes action to secure the promised state of affairs, in this case the costs of discharging the mortgages, the costs of which exceed the loss that would have been suffered by the promisee had the promisee done nothing, in this case that loss is represented by the value of the house. It was unfair, in these circumstances, for the purchaser to claim the entire cost of discharging the mortgages from the vendor. Another example of the application of these principles is the tort case Darbishire v. Warran.37 The defendant negligently damaged the claimant’s car. The claimant had the car repaired and claimed the costs of repair which were £192 (minus an £80 insurance payout that he had received) and the costs of a hire car which he used while his car was being repaired as damages from the defendant. However, the costs of repairing the car exceeded the market value of the car, which was £85. The Court of Appeal declined to award the claimant the cost of repairs on the basis that ‘the cost of repairs greatly exceeds the value in the market of the damaged article’.38 Instead, the market value of the car and the costs of the hire car capped the sum that could be recovered. Responsibility for the loss caused by the defendant’s negligence was shared between the parties. There may be cases where due to the unique nature of the good it may be reasonable to incur the cost of securing the promised performance, even though it exceeds the market value of the good. So, for example, the cost of repairing a car was awarded in O’Grady v. Westminster Scaffolding Ltd., even though they massively exceeded the market value of the car.39 The reason was that the car in that case was unique. Before the crash that led to the car being damaged the claimant spent £300-400 per annum maintaining the car, and he had replaced the engine three times, put in new coachwork, and among other things carried out work on the wheels, the hood and the steering column. The decision in this case is compatible with the moral principle MP3. According to that principle, the costs incurred by the promisee in securing the promised performance, should not exceed the loss that would be suffered if the promisee took no action. In a case like O’Grady, the loss that the claimant would have suffered had he not repaired the car would have been huge given the unique nature of the car. Therefore, even though the cost of repairs exceeded the market value of the car, they did not exceed the loss that the claimant would have suffered had he not                                                                                                                 34 EDWIN PEEL, TREITEL: THE LAW OF CONTRACT 1064-1065 (13th ed. 2011). 35 [1973] 1 W.L.R. 1406 (Eng.). 36 Id. at 1411. 37 [1963] 1 W.L.R. 1067 (Eng.). 38 Id. at 1071. 39 [1962] 2 Lloyd’s Rep. 238 (Eng.).   20   no legal liability attaches when this ‘duty’ is breached.45 It follows that it cannot be assumed that the question of whether the doctrine of mitigation diverges from morality turns exclusively on whether the duty to avoid losses is morally defensible. Another possibility is that the law’s position is morally defensible, without assuming the existence of a duty on the part of the promisee to avoid losses, let alone a duty based on altruism. Second, the fairness-based account renders redundant Shiffrin’s complaint that the mitigation doctrine is morally perverse. The basis of this complaint is that the promisee is under a legal duty to assist the person who has wronged him, which in moral terms is indefensible. As we argued earlier, under the fairness-based account, there is no moral duty of assistance on the part of the promisee. The promisee is morally free to sit back and not to seek alternatives. All that he is prevented from doing is to claim damages for losses he could have easily avoided. In fact, according to the fairness-based account, the promisee is unable to help the promisor even if he wanted to. If it is true that the promisor is not morally responsible for losses that the promisee could have easily avoided, then by avoiding them the promisee helps no one but himself. Third, Shiffrin takes Fried to task for proliferating the circumstances in which altruistic duties to assist arise. On her view, such duties are exceptional and depend on a number of factors that go beyond the mere existence of a promise. But this complaint has no bite against the fairness-based account, which does not presuppose the existence of a special relationship between the promisor and the promisee, let alone one in which duties to assist necessarily obtain. In sum, none of Shiffrin’s objections cut against the fairness-based justification of the doctrine of mitigation. Even if she is right to dismiss altruism as a morally defensible account of the mitigation doctrine, we should not assume that altruism is the only candidate justification. Moreover, we have shown that the principle of fairness not only supports principles of mitigation of the promisor’s responsibility and loss sharing at the moral level, but also explains existing doctrines and cases that would otherwise appear morally problematic. The claim that the mitigation doctrine diverges from what inter-personal morality would require is also made by those who claim that contract law is not based on the morality of promising. So, for example, Dori Kimel has claimed, making arguments that are similar to Shiffrin’s, that Fried’s altruism-focused account of the mitigation doctrine is defective. First, Kimel argues that the promissory relation alone cannot explain the existence of these kinds of duties, because in the promissory context they only arise when other relational facts obtain, for example, when the parties are friends.46 The mitigation doctrine is, however, as we saw earlier, insensitive to the presence of these facts, i.e., responsibility for loss caused by the promise-breaker may be mitigated even if the only way that the parties are connected is by the promise.                                                                                                                 45 See, e.g., JACK BEATSON, ANDREW BURROWS & JOHN CARTWRIGHT, ANSON’S LAW OF CONTRACT 555 (29th ed. 2010); CHEN-WISHART, supra note 16, at 509; PEEL, supra note 34, at 1062; STEVENS, supra note 8, at 170. 46 Kimel argues that these facts do typically obtain in the promissory context, because promises are usually made in the context of on-going relationships. DORI KIMEL, FROM PROMISE TO CONTRACT: TOWARDS A LIBERAL THEORY OF CONTRACT 110 (2003).   21   Second, Kimel argues, following Atiyah, that given that altruism has a limited role in contract law, it looks incongruous that when it does make an appearance it requires the promisee to render assistance to the promisor who has wronged him.47 Kimel’s critique of Fried’s account of mitigation suggests that there is divergence between promissory morality (broadly conceived, to include other inter-personal moral principles, that interact with the promise principle) and the mitigation doctrine. However, Kimel thinks that the mitigation doctrine may nevertheless be justified. The doctrine is justified in law by the harm principle which requires the courts to refrain ‘… from the imposition of a certain remedial duty where this could not be justified as the least demanding or restrictive way of preventing or redressing a given harm’.48 Kimel’s argument is that imposing responsibility for the entire loss on the breaching party, is an ‘… unnecessary and excessive interference with this party’s freedom…’ in circumstances where the harm caused by the breach can be easily avoided by the innocent party.49 We are not going to evaluate Kimel’s own account of the mitigation doctrine here. Instead, we just want to point out that the suggestion that there is divergence between law and promissory morality here, presupposes Fried’s claim that the candidate moral justification for the mitigation doctrine is the duty of altruism. Kimel’s objections, like Shiffrin’s, that the duty of altruism cannot explain mitigation in law, have no force against our fairness-based account of the mitigation doctrine. First, our account does not require there to be a special relationship like that of friendship between the promisor and the promisee. It is sufficient for the promisee’s claim to damages to be barred that he had an opportunity to easily avoid the loss. Secondly, the fairness-based account involves no incongruity. The promisee, as we have argued, is under no duty to assist the promise-breaker, but rather is blocked on the basis of fairness from claiming loss that he could easily have avoided.50 Therefore, although the objections made by Shiffrin and Kimel to the altruism- focused justification of the mitigation doctrine may well be sound, they are insufficient to establish that there is any divergence between the law and promissory morality. In particular, those objections have no bite against the fairness-based account of the mitigation doctrine that we defend here. That account, we believe, establishes that contract doctrine is morally defensible at the level of first-order moral principles. One can justify the doctrine of mitigation without appealing to considerations that apply uniquely in the context of institutional action or the taking of coercive measures.51 This is another way of saying that there is no divergence                                                                                                                 47 Id. at 110-111, citing PATRICK S. ATIYAH, ESSAYS ON CONTRACT 124 (1986). 48 Id. at 111. 49 Id. 50 It may be that Kimel’s account is compatible with our own. However, his account is distinct. Kimel relies on an aspect of political morality, to do with liberal constraints on state coercion, to justify the doctrine. We claim that an appeal to political morality is unnecessary to justify the doctrine, and that it can be justified on the grounds of what inter-personal morality requires alone. Kimel seems, at least in the promissory context, to deny this. See id. at 110. 51 Fried in his chapter for this volume is tempted now by an institutional justification for the mitigation doctrine based on considerations relating to justice and the rule of law. He claims that mitigation can be explained by reasons to minimize judicial intervention (such as cost and availability of resources). Fried says: ‘The objective theory advocated by Barnett, like the regime of default rules, the   22   between what promissory morality (broadly conceived) requires and what contract law enforces. We should end with a brief comment about the divergence/convergence debate, which has taken center-stage in contract theory in the past decade. The doctrine of mitigation, just like, for example, the doctrine of expectation damages, punitive damages, the rule against penalty clauses, and the consideration doctrine, appears to contradict the claim that the promise principle is the foundation of contract. In response to the perceived contradiction, contract theorists have reacted either by rejecting these doctrines as morally unjustifiable (like Seana Shiffrin in relation to remedies,52 and Charles Fried in his early work with respect to the consideration doctrine),53 or by rejecting the view that contracts are promises (like James Penner,54 Randy Barnett,55 and Dori Kimel).56 We find both of these reactions too quick. What the fairness-based account of mitigation can teach us is that seemingly divergent doctrines of contract law can be justified if one considers the interaction between the promise principle and other moral principles, at the level of first-order moral reasoning. We ought to consider the interaction between the promise principle and other first-order moral principles without assuming that the promise principle has any special role to play in that interaction.57 F Conclusion In conclusion, we have argued that the principles MP1-MP3 and LS1-LS2 that we identified in the first section of this chapter are morally defensible on the grounds of fairness. Fairness requires that the promisor is no longer responsible for losses that the promisee could have easily avoided. We have also argued that these principles justify contract doctrine and case law, and that there is therefore no divergence between promissory morality (broadly conceived) and contract law. The argument that the mitigation doctrine diverges from morality has focused on the claim, famously made by Fried, that the point of mitigation is to get the promisee to assist the promise- breaker on the grounds of altruism. We have offered an alternative justification of the mitigation and loss sharing principles, based on the principle of fairness. This alternative account does not depend on the claim that the promisee has a duty of altruism to assist the promisor, and avoids the objections made to the altruism-based explanation of the mitigation doctrine. If successful, our account dissolves the apparent divergence between the mitigation doctrine and promissory morality, at the level of first-order moral reasoning.                                                                                                                                                                                                                                                                                                                               requirement of mitigation and much else, are practical necessities if the government is to become involved in enforcing agreements at all’. Charles Fried, The Ambitions of Contract as Promise, in PHILOSOPHICAL FOUNDATIONS OF CONTRACT LAW__, [MS at 18] (Gregory Klass, George Letsas & Prince Saprai eds., 2014). 52 Shiffrin, supra note 42. 53 Fried, supra note 6, at ch. 3. 54 James E. Penner, Voluntary Obligations and the Scope of the Law of Contract, 2 LEGAL THEORY 325 (1996). 55 Randy E. Barnett, A Consent Theory of Contract, 86 COLUM. L. REV. 269 (1986). 56 Kimel, supra note 46. 57 As we argue in our paper Contract Law Without Foundations (unpublished manuscript) (on file with authors).