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An equitable approach to mitigation in contract Maharaj, Krishneel 2020

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AN EQUITABLE APPROACH TO MITIGATION IN CONTRACT by  KRISHNEEL MAHARAJ LL.B. / B.Com., The University of Auckland, 2008 LL.M., The University of British Columbia, 2012 A DISSERTATION SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF DOCTOR OF PHILOSOPHY in THE FACULTY OF GRADUATE AND POSTDOCTORAL STUDIES (Law) THE UNIVERSITY OF BRITISH COLUMBIA (Vancouver) September 2020 © Krishneel Maharaj, 2020Examining Committee: The following individuals certify that they have read, and recommend to the Faculty of Graduate and Postdoctoral Studies for acceptance, the dissertation entitled: An Equitable Approach to Mitigation in Contractsubmitted by Krishneel Maharaj in partial fulfillment of the requirements forthe degree of Doctor of Philosophyin LawBruce MacDougall, Associate Dean Academic Affairs, Peter A. Allard School of LawSupervisor Shannon O’Byrne, Professor, Faculty of Law, University of AlbertaSupervisory Committee Member Joost Blom, Professor Emeritus, Peter A. Allard School of LawSupervisory Committee MemberDennis Pavlich, Professor, Peter A. Allard School of LawUniversity ExaminerRalph Winter, Professor, Sauder School of BusinessUniversity ExamineriiABSTRACT  This dissertation considers the scope and content of the doctrine of mitigation (“Mitigation”) as it applies to damages for breach of contract, and aims to accomplish two overarching goals.  The first goal is to confront and dispel a number of misunderstandings about Mitigation that appear frequently in jurisprudence on the topic, and academic commentary on the subject.  The second goal is to establish a new model for understanding Mitigation that establishes what the doctrine is in substance, and how, why, and when it will or will not (or should/should not) apply to any given claim for contract damages.  The author accomplishes the first objective by examining each of these prominent misunderstandings and unpacking the inaccuracy or incoherence in each of them.  The author obtains the second objective by setting out answers to each of the four key concerns or questions identified (i.e., what, how, why and when). The answers provided to these key questions are derived from a survey of the leading decisions on Mitigation generally accepted as being authoritative in Canada, the United Kingdom, New Zealand, and Australia.  The answers provided to “what” and “why” are the most jurisprudentially novel of the four, and arguably the most important. The author’s explanation of “what” Mitigation is posits that it is effectively an equitable doctrine, and ought to be understood in these terms.  The author’s explanation as to “why” the doctrine applies follows from this classification, and asserts that Mitigation exists to promote or ensure the realization of contract’s overarching purpose when damages are assessed for breach.  These two answers are supported by the leading case law surveyed by the author, and they are also further buttressed by an analysis of the underpinnings of contract and its purpose in Chapter I, and an historical theoretical account of the role of equity as a necessary supplement to the common law in Chapter II. iiiLAY SUMMARY  This dissertation explains a key aspect of the law that regulates how courts award damages for breach of contract.  This aspect is called the doctrine of mitigation (“Mitigation”), and it is important because it can lead to the court reducing the award to nil in certain circumstances, or substantially increasing the award in other circumstances.  This dissertation explains how Mitigation works and when it will increase or decrease an award of damages by examining leading court decisions that provide guidance on what courts actually do when applying Mitigation.  What courts actually do when applying the doctrine often differs from what they say they are doing.  The dissertation aims to explain this difference, and to provide a superior explanation for the behaviour of courts when they apply this doctrine in practice.   ivPREFACE This dissertation is the original, unpublished, independent work of the sole author, Krishneel Maharaj. vTABLE OF CONTENTS Abstract.………………………………………………………………………………………iii Lay Summary…………………………………………………………………………………iv Preface..………………………………………………………………………………………..v Table of Contents.…………………………………………………………………………….vi Acknowledgements.…………………………………………………………………………..xi Dedication..…………………………………………………………………………………..xii Introduction..…………………………………………………………………………………..1 CHAPTER I CONTRACT THEORY……………………………………………………4 I. Introduction…………………………………………………………………..4 II. What are the theories anyway?……………………………………………….5 A. What is the Will Theory of contract?…………………………………..5 1. Putting the “I” in Will……………………………………………6 2. The Importance of Promising……………………………………8 B. What is the Reliance Theory of contract?……………………………..9 C. What is the Efficiency Theory of contract?………………………..…10 III. Why efficiency?…………………………………………………………….13 A. The incompatibility of the Will Theory………………………………14 B. The incompatibility of the Reliance Theory………………………….21 C. The compatibility of the Efficiency Theory…………………………..25 1. The historic connection of contract and economics……………26 2. Efficiency is often honoured in the breach……………………..28 3. Efficiency is particularly apt to explain Mitigation…………….31 IV. Thus, the law is economic…………………………………………………..33 CHAPTER II  EQUITY………………………………………………………………….35 I. Introduction…………………………………………………………………35 II. What is equity in Anglo-Canadian law?…………………………………….35 A. Origin of the Court of Chancery……………………………………..35 B. The status of equity today……………………………………………42 
!viIII. Equity according to Aristotle………………………………………………45 A. Under or over inclusion – the impetus for equity……………………45 B. Practicalities of the problem…………………………………………49 C. Residual power a necessary response………………………………..54 IV. Conclusion…………………………………………………………………57 CHAPTER III    MISUNDERSTANDINGS ABOUT MITIGATION…………………..58 I.  Introduction……………………………………………………………….58 A. Mitigation is not confined to contract……………………………….58 II. Mitigation is not only concerned with loss………………………………..61 A. Existence of an impression………………………………………….61 B. Oversimplification of loss…………………………………………..61 1. To lose versus to lose out……………………………………..62 2. Direct versus consequential…………………………………..64 3. Accrued versus realized………………………………………66 C. Mitigation is about more than loss alone……………………………69 1. What benefits can the plaintiff rightfully extract from the defendant?…………………………………………………….69 2. Whether a subsequent gain by the plaintiff ought to be held to the defendant’s credit……………………………………………..74 3. What losses or costs ought to be recoverable from a defendant, particularly when these may run afoul of the rule of remoteness?……………………………………………………81 D. Mitigation is quite evidently more about allocation than avoidance…88 III. Mitigation is not really a rule……………………………………………….89 A. The rule as stated is wrong…………………………………………..91 1. Mitigation cannot be a duty because no one has a right………91 2. There is no positive obligation to act………………………….94 3. Mitigation is a two-way street…………………………………96 B. What remains is not a rule…………………………………………..107 !vii1. Mitigation is more discretionary than it is mandatory……….108 i. Two wrongs do not make a right……………………….111 ii. A right to rights undoes all wrong……………………..116 iii. There is neither rhyme nor reason from which to distill a rule……………………………………………………..122 2. No single thread explains the difference between consequent and collateral ……………………………………………………..128 i. The asset theory………………………………………..129 ii. When “but for” is but a suggestion…………………….138 iii. All in a day’s work, or is it?……………………………151 3. Conclusion on the idea that Mitigation is in anyway a rule….157 IV. Mitigation is not causation, nor is it remoteness………………………….158 A. More far-fetched than far out: Mitigation as Remoteness………….160 1. The remoteness rationale…………………………………….160 2. Reasonable is relative………………………………………..161 3. The consequences of consequences cannot be foreseen……..164 4. Remoteness irrelevant with respect to gain allocation………169 B. Causes matter less than whose cause is best……………………….172 1. What is meant by cause in the context of Mitigation………..173 2. Causation inconclusive………………………………………175 3. Agency undermines the application of causation……………185 V. Conclusion………………………………………………………………..189 CHAPTER IV     A NEW MODE FOR MITIGATION IN CONTRACT……………190 I. Introduction………………………………………………………………190 II. What did we learn from Chapter III?…………………………………….190 A. Key inaccuracies in the established principle………………………191 1. No Right/No Duty……………………………………………191 2. Not remotely remoteness……………………………………..193 3. (Be)cause we said so………………………………………….194 !viii4. Avoiding the obvious………………………………………..195 III. What does it apply to, what is it really?………………………………….195 IV. How does it apply?……………………………………………………….202 A. How does contract intersect with the law of damages?…………….204 B. How does Mitigation affect the intersection of contract and damages?……………………………………207 1. The first rule of damages in contract…………………………207 a. Expectation or overcompensation……………………..208 b. Expectation without foundation……………………….210 2. The second most important rule in contract………………….216 a. Remote, but right anyway ……………………………..219 b. Unremote, but not right………………………………..222 V. Why does it apply?……………………………………………………….223 A. Relief from penalties……………………………………………….224 B. Unconscientious bargains…………………………………………..227 C. Set-off………………………………………………………………230 D. Equitable Estoppel………………………………………………….235 E. Conclusion on equitable doctrines………………………………….238 VI. When does it apply?………………………………………………………239 A. What is the nature of the loss sued for?…………………………….240 1. Loss is accrued or accruing, but not yet realized…………….241 a. Accrued compensatory loss/damage…………………..241 i. Has the plaintiff acted, or have they been bettered by subsequent events?……………………………….242 ii. Has the plaintiff’s inaction allowed greater loss to accrue than might have otherwise been the case?..255 b. Accrued consequential loss/damage……………………277 i. Has the plaintiff acted?……………………………279 !ixa. Has the plaintiff’s action made matters worse?…………………………………..279 b. Has the plaintiff benefited from their action, or have they been bettered by subsequent events?……………………………………..303 ii. Has the plaintiff’s inaction allowed greater loss to accrue than might have otherwise been the case?..313 2. Loss is incurred or realized…………………………………..319 a. Loss or cost incurred to remediate……………………..319 b. Loss or cost incurred to replace benefit lost……………324 VII. Overview…………………………………………………………………..332 Conclusion …………………………………………………………………………………335 Bibliography ……………………………………………………………………………….338!xACKNOWLEDGMENTS 
I wish to thank the University of British Columbia, the Peter A. Allard School of Law, and their many staff for their support, and the opportunity to pursue my doctoral work.  I also wish to thank the members of my supervisory committee including Professor Joost Blom, Professor Shannon O’Byrne, and my supervisor, Professor Bruce MacDougall, for their time, their patience, and their unfailing support over many years.  I am more grateful to them than I can say.  xiDEDICATION For the many friends, family, and mentors without whom I could not have come so far nor done so much.  xiiINTRODUCTION  Mitigation has been with us since at least Staniforth v. Lyall decided in 1830, which makes it almost a quarter century older than remoteness as handed down in Hadley.  Despite the doctrine’s age and endurance though, the mitigation doctrine (hereafter “Mitigation”) appears to have attracted much less attention than its younger peer.  This has led to a degree of confusion and inconsistency in the jurisprudence on the topic as courts across the Commonwealth have been largely left to muddle through.  The goal of this dissertation is to remedy this situation by establishing a new framework for understanding Mitigation as it applies in contract.  The proposed framework starts from the premise that Mitigation is an equitable doctrine that intervenes in the assessment of damages for breach of contract to promote the realization of contract’s underlying purpose.  The dissertation builds to this conclusion over the course of four chapters.  An explanation as to how each chapter supports this ultimate end is as follows.  The first chapter considers contract’s underlying purpose and the arguments for and against the three most prominent theories of “promissory liability” that purport to explain the underlying rationale of contract and contract enforcement.  These theories are the will/promise theory, the reliance theory, and the economic efficiency theory.  The three are held up against the accepted rules of contract enforcement and more recent and controversial developments in contractual “good faith”.  A single theory is then selected on the basis of best fit with these developments and compatibility with the apparent long-term philosophical direction of contract.  The theory I have selected on this basis is economic efficiency.  The purpose of this exercise is to establish the underlying rationale for contract as an institution. I acknowledge that this may appear to be an odd tangent at first, but a teleological approach to explaining Mitigation’s interaction with contract could not work without it.  In short, one cannot explain the end that equity is attempting to fulfill by intervening in the ordinary operation of common law rules without having some sense as to what the end sought by the common law in the particular jurisprudential context is supposed to be.   !1 The second chapter engages with equity and makes the case for understanding equity as a necessary response to the challenges created by a rules-based order, such as the common law, and as distinct from the common law in its methods and operation.  The intention behind this chapter is twofold.  The first is to lay the groundwork for the analysis in the final chapter that explains why Mitigation is effectively equitable despite its common law pedigree.   And the second is to reaffirm that the characterization of any doctrine as equitable as opposed to common law is a distinction with a difference.  Canadian equity jurisprudence and scholarship have been allowed to grow moribund in many respects.  As such, even though it may go without saying elsewhere in the Commonwealth, it is necessary to establish that equity is an essential and distinct aspect of Anglo-Canadian law if I am to achieve my overarching objective.    The third chapter reaches the subject of Mitigation itself and aims to raze the ramshackle structure of received wisdom on Mitigation in order to clear the way for the new framework put forward in the following chapter.  To achieve this end, a series of notions about the doctrine’s operation are unpacked and exposed as specious or incorrect.  These notions include the generally accepted definition of the doctrine from British Westinghouse v. London Underground Electric Railway, and the logical foundations of the doctrine, which have been explained varyingly in terms of either causation or remoteness.     The final chapter brings matters to a head and sets out in four broad sections my explanation as to what Mitigation is, why it applies, how it applies, and most importantly when it applies.  Of these questions it is the last that is most important for understanding Mitigation in practice.  It is also the longest section because Mitigation’s application varies according to the circumstances, and the equities of the case.  The answers provided to these and other questions in this chapter are derived from a survey of the leading cases.  I obviously do not necessarily agree with the reasons provided by the courts in question.  But, one must remember that a case’s ratio and a court’s reasons are not necessarily one and the same.  A ratio is a bridge between the facts and the result, and oftentimes the best candidate will be the reasons provided by the court itself.  It is not always thus, however, and in putting !2forward my own explanation I only intend to lay bare the intuitions that underpin the result, even if these conflict with the court’s own articulate major premise.     !3CHAPTER I  CONTRACT THEORY I. Introduction  I take a teleological approach  to answer the what, how, why, and when of 1Mitigation’s application in the law of contract, which is the ultimate end of this dissertation. My intention is to explain Mitigation as an equitable doctrine/defence that intervenes at the point of intersection between the law of contract and the law of damages, or the point of translation from primary rights into secondary rights in contract — not to interfere, but instead, as with all else in equity, to fulfill.  However, in order to establish that Mitigation acts to further or promote the purposes of contract, one must a priori establish the identity of that particular purpose.  In other words, one must establish the “why” of contract before one can in turn establish the what, how, why and when of Mitigation, or at least that is so if one is seeking to establish positive or normative consistency with the larger institution.  Thus, in this chapter I consider the three leading theories that contend for supremacy in contract theory, and make the case for accepting the theory of economic efficiency, or wealth maximization, as the most apt for understanding contract today and thus the most apt for defining the parameters of Mitigation.    An approach that attempts to support and conform to an overarching objective or purpose.  In this case, and 1approach that attempts answer these essential questions in a manner that is consistent with ultimate objective of contract as an institution; See teleological, adj. (Oxford University Press) (“Relating to a goal, end, or final cause; dealing with or invoking the concepts of purpose or design, esp. in relation to the natural or physical world; of, relating to, characterized by, or involving teleology.”).!4II. What are the theories anyway?  Though others exist, the three theories that garner the most support and most viably vie to be accepted as the theory of promissory liability in the common law of contract are as follows:  2A. The will or promise theory of contract (hereafter the “Will Theory”); B. The detrimental reliance theory of contract (hereafter the “Reliance Theory”); and C. The theory of wealth maximization or economic analysis of contract (hereafter the “Efficiency Theory”).   Each of the above theories has both its proponents and its detractors, as well as strengths and weaknesses in their respective claims to providing an apt positive and normative account of what contract is and what it should be.  This has led to the literature being caught in something of a three-way tie.  That this is unsatisfactory in theoretical terms is likely obvious.  That it makes a task such as mine to explain Mitigation in teleological terms and to divine a direction for its development in practice difficult if not impossible, is perhaps less so.  This will however become clear in section III below, where I will demonstrate the practical significance of theoretical difference and make the case for accepting the Efficiency Theory as best for Mitigation, and the most accurate explanation for contract overall.  Of course, I must first outline each of the three before any critique or comparison is possible, which I will proceed to do below. A. What is the Will Theory of contract?  What the Will Theory of contract is, or what it means, to some extent depends upon who is asked, or to which source one goes, and this in part accounts for the different monikers by which the school of thought is known.  By this I am referring to the differing  Stephen A Smith, Contract theory (Oxford: Oxford University Press, 2004) at 43–46, 103–164, 387-431 2(when introducing contract theory generally Smith's division is (1) promissory theories (2) reliance theories, and (3) transfer theories.  Smith himself admits that the last is not well known, and in subsequent chapters, including chapter 4 (normative justifications for contract) and chapter 11 (remedies) it is efficiency theories that are discussed most heavily along with (1) and (2).  As such, it appears that efficiency is the more appropriate choice to round out the third spot).!5use of the terms “promise” or “will” as the key descriptors.   My obvious preference is 3“will”, as it is the older designation going back to Von Savigny and Pothier,  but irrespective 4of the particular nomenclature used, it is apparent that the school of thought as it has developed in the common law world across time and place is for all its differences nonetheless uniform in its prescription that a contractual promise is to be enforced as an end in and of itself.   That is to say that the contractual promise is not to be enforced as a mere 5means to an end, and thus not only to the extent necessary to obtain whatever other end may be in view.   Where accounts of the theory may differ is in their explanation for the 6underlying reason for such strict adherence to absolute enforcement according to the letter of the promise.  I will explain each perspective below, but note at the outset that the implications of either understanding are ultimately indistinguishable, or at least it appears to be so for our purposes.  1. Putting the “I” in Will  According to those within the school who emphasize the importance of the “will” of the parties involved, contractual promises are and ought to be enforced because they must be if we are to give effect and due respect to the will of the persons contracting.   What is more, 7if contractual promises are enforced to give effect to the will of a party promising, then the effect a contractual promise is given must reflect the capacity of the person acting, meaning  Martin Hogg, Promises and contract law: comparative perspectives (Cambridge: Cambridge University Press, 32011) at 86–93; Charles Fried, Contract as Promise, 2nd ed (Oxford: Oxford University Press, 2015); Smith, supra note 2 at 43–44. Morris R Cohen, “The Basis of Contract” (1933) 46:4 Harvard Law Review 553–592 at 575.4 Krish Maharaj, “Good for Everyone or Not Good at All: Clarity and Commitment in Contractual Good 5Faith” (2020) 96 SCLR (2d) 107–121 at 130.  PS Atiyah, “The Liberal Theory of Contract” in Essays on Contract (Oxford: Oxford University Press, 1990) 6121 at 123 (“The Liberal finds the entitlement of the promisee to the full value of the promised performance – the right to expectations damages – to be a natural corollary of basing the law on the promise principle.”). Hogg, supra note 3 at 86–93.7!6that where absolute promises are made, they must accordingly be enforced absolutely.   To 8do otherwise would be to undermine or disrespect the autonomy of the party acting, by implicitly curtailing their ability to act by diminishing the effect of their actions.    To make the point above another way, one can also say that Will theorists view the act of making a contractual promise or contracting as important because it is an act of will on the part of the individual(s) involved.   It is the exercise of a legal right, a freedom, an ability or 9capacity, an expression of one’s faculty for choice or of one’s agency.  And such acts by free people seised of such power are accordingly said to be of such absolute effect, as noted above, precisely because it is a necessary corollary of the power’s existence to enforce its expression to the same degree as the degree of power the individual is said to possess.   In 10other words, respect for the capacity imposes responsibility by necessity because one is not truly free to choose if there is not corresponding consequence for choice.  Choice is not meaningful if it is without consequence, i.e., if nothing changes as a result, or less meaningful to the extent that things change less fully than the choice itself otherwise demands.  As we will see, the approach reflected in either of the alternative accounts above, as well as that of the promise-minded members of the school, leads to the high-water mark of enforcement, and in some respects appears incompatible with the body of doctrine they purportedly describe.   This incompatibility appears difficult to avoid however, given that an 11emphasis on respect for contractual capacity imposes responsibility on contracting parties by necessity because parties cannot be truly free to act or choose, if there is not corresponding  Ibid at 334 (“One would expect a high regard for promise in any legal system to be reflected both in a ready 8availability of remedies designed to secure actual enforcement of what has been promised (whether the performance promised was an act or forbearance from an act) as well as in substitutionary remedies which reflect, so far as is possible in substitutionary form, the so-called ‘performance interest’ of the parties (as defined below). If, however, enforcement of performance is an exceptional remedy, or if substitutionary remedies do not achieve the equivalent of enforcement but protect instead some other interest of the promisee, doubts must be raised as to whether a high regard for the value of promise is a hallmark of the system in question."); Smith, supra note 2 at 412–413. Cohen, supra note 4 at 575; Hogg, supra note 3 at 86–87.9 Atiyah, supra note 6 at 123.10 Smith, supra note 2 at 412–414, 418–426; Seana Valentine Shiffrin, “The Divergence of Contract and 11Promise” (2007) 120:3 Harvard Law Review 708–753; Hogg, supra note 3 at 86–88, 376–382.!7consequence for choice.    In other words, the less effect a promise is given compared to the 12intention of the promisor, the less effectual the promise, and the less truly efficacious the party’s supposed capacity to promise must be.   Thus, a standard that requires less than full 13enforcement cannot stand with the Will Theory, and the Will Theory cannot stand less than full enforcement, for the individual will cannot be both supreme and subordinate at the same time.   2. The Importance of Promising   In contrast with those who ground the imperative to enforce contracts on their character as an act of will, those who emphasize promissory character of contractual promises ground their imperative in the need to respect the institution of “promising”.   This 14justification for enforcing contractual promises struggles to distinguish these from promises simpliciter, even though it would appear to be an obvious necessity if the view of contract as promise is to recognize and accurately account in positive terms for the reality that not all promises prompt enforcement.   Nonetheless, proponents of the view hold that the 15enforcement of contract is a necessary incident of an institution whose utility is derived from the fact that it creates commitments that are mandatory, even if it cannot always usefully  Morton J Horwitz, “The Historical Foundations of Modern Contract Law” (1974) 87:5 Harvard Law Review 12917–956 at 953-954 (Evidence of such an absolute view can be seen in America after the general triumph there of the will theory over older equitable conceptions of contract.). Max Radin, “Contract Obligation and the Human Will” (1943) 43:5 Columbia Law Review 575–585 at 576 13(Radin remarks when summarizing the demands of the Will Theory: "Men ought to be bound only when they deliberately chose to be and to the extent that they chose"). Fried, supra note 3 at 17 ("But since a contract is first of all a promise, the contract must be kept because a 14promise must be kept... To summarize: There exists a convention that defines the practice of promising and its entailments. This convention provides a way that a person may create expectations in others. By virtue of the basic Kantian principles of trust and respect, it is wrong to invoke that convention in order to make a promise, and then to break it."). Wallace K Lightsey, “A Critique of the Promise Model of Contract” (1984) 26:1 Wm & Mary L Rev 45–74 at 1546; Fried, supra note 3 at 35 (Fried's premise that contracts ought to be enforced because they are promises runs into difficulty when it comes to restrictions on enforceability, and he appears to concede that some restrictions are needed.   However, if that is so, then one must conclude that a contract is not enforceable merely because it is a promise.  It must be something other, something more than that.).!8distinguish between those commitments that are mandatory and those that are not.   No 16doubt this justification may smack of circularity with respect to the subset of promises that fall within contract, but the tautology that contractual commitments are of value because they are enforceable and must be enforced in order to have value leads to the same conclusion as the emphasis on “will” explained above because effect and meaning pair and reflect in much the same way under this perspective.  One need only replace “an act of will” with “a promise” in order to conclude the sentence “a contract is enforced and enforceable according to its terms because it is…” under this branch of the school as opposed to the former described above. B. What is the Reliance Theory of contract?  The Reliance Theory of contract began indirectly with Fuller & Perdue’s “The Reliance Interest in Contract Damages”, one of the most seminal articles in the history of not only contract, but all of private law.  This was an article so apparently insightful that it spurred the rise of this school of thought on promissory liability, even though, in its own terms, the article was only directed at questions of remedy rather than reasons for recognizing the creation of rights in contract in the first place.   Perhaps it is unsurprising 17that Fuller & Perdue’s insight would have such an effect, though, given that it seems that their piece was the first (at least in modern times)  to recognize the unarticulated notion 18latent in the authorities that the law may recognize an interest in our contractually-agreed expectations precisely because they can be expected, even wanted, to form the basis upon  Lightsey, supra note 15 at 46; Joseph Raz, “Book Review: Promises in Morality and Law” (1981) 95:4 16Harvard Law Review 916–938 at 933 ("The purpose of contract law should be not to enforce promises, but to protect both the practice of undertaking voluntary obligations and the individuals who rely on that practice. One enforces a promise by making the promisor perform it, or failing that, by putting the promisee in a position as similar as possible to that he would have occupied had the promisor respected the promise. One protects the practice of undertaking voluntary obligations by preventing its erosion by making good any harm caused by its use or abuse."). LL Fuller & William R Jr Perdue, “The Reliance Interest in Contract Damages: 1” (1936) 46:1 Yale L J 52–1796. Smith, supra note 2 at 78 (Reliance theories are said to have a long historical pedigree).18!9which we will carry out further acts.   No doubt, this may seem somewhat obvious once 19said, but it is clear that this insight was an essential pre-condition to the development of the Reliance Theory, or perhaps will be clear once I explicitly state what the theory actually is. In short, the Reliance Theory posits that contracts are and ought to be enforced in order to protect the interests of parties who have relied on any given contractual promise, and by necessary implication as a corollary of that motivation, that contracts are and should be enforced only as far as is necessary to leave a disappointed promisee no worse off for having so relied.   20 The latter point about the extent of reliance is a key distinction between the Reliance and Will Theories of contract, and prima facie suggests that the Reliance Theory will not permit windfalls whereas the Will Theory will.   However, in practice it is arguably difficult 21to split the difference between the doctrines on this basis because to rely is understood in the sense of change of position, which includes not only costs/detriments incurred but also opportunities foregone.   The idea of “opportunity” includes any alternative a promisee 22would have had to obtain the same gain.  Although, as we will see, despite the apparent convergence on this point, there is still considerable distance between these theories, and more importantly between them and the doctrine they purport to describe. C. What is the Efficiency Theory of contract?   The Efficiency Theory posits that the underlying purpose of contract (and contract law) is to promote the realization of “surpluses from trade”, and that this end provides both  Fuller & Perdue, “Reliance Interest in Contract Damages”, supra note 17 at 61-62 ("It may be said that there 19is not only a policy in favor of preventing and undoing the harms resulting from reliance, but also a policy in favor of promoting and facilitating reliance on business agreements."; PS Atiyah, Promises, Morals, and Law (Oxford: Oxford University Press, 1983) at 1–8. Fuller & Perdue, “Reliance Interest in Contract Damages”, supra note 17 at 56 ("On the other hand, the 20promisee who has actually relied on the promise, even though he may not thereby have enriched the promisor, certainly presents a more pressing case for relief than the promisee who merely demands satisfaction for his disappointment in not getting what was promised him."). Atiyah, supra note 6 at 121–125; Smith, supra note 2 at 413–417.21 Fuller & Perdue, “Reliance Interest in Contract Damages”, supra note 17 at 54, 60–61; Smith, supra note 2 at 22415–417.!10normative direction and an apt positive account of the forces shaping contract’s rules.   To 23grasp this putative explanation requires some exposition of its definitions and its key assumptions.   The place to start is contract’s alleged object — i.e., “surplus” — itself.   Of course, the term itself is not exotic and its common meaning of excess over and above some other quantity is not hard to grasp, but it raises the question: surplus of what?  And there is the rub, so to speak, because that which contract allegedly seeks to maxi