§ 2.17 Effect of Delay in the Delivery of an Offer 268 § 1.1 The Main Purpose of Contract Law Is the Realization of Reasonable Expectations Induced by Promises

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The underlying purpose of law and government is human happiness and contentment, to be brought about by the satisfaction of human desires in the highest practicable degree. It has been found that this end can best be attained, in cases where there are conflicting human interests and desires, by establishing a judicial and administrative system that acts with a reasonable degree of uniformity. It is impossible that this uniformity should be absolute and perfect; the judges and other officers who are the agents of society in the process of reconciling interests and in distributing satisfaction of desires are mere human beings, with all of the ordinary human limitations; and the cases arising before these judges and other officers have a diversity that continually increases with the development of our modern civilization.

That portion of the field of law that is classified and described as the law of contracts attempts the realization of reasonable expectations that have been induced by the making of a promise. Doubtless, this is not the only purpose which motivated the creation of the law of contracts; but it is believed to be the main underlying purpose, and it is believed that an understanding of many of the existing rules and a determination of their effectiveness require a lively consciousness of this underlying purpose.

Lately, there has been much commentary on the role of contract law in protecting the reliance interest of promisees, that is, redressing the injury caused by a promisee's conduct in reliance on an unfilled promise.n1 Rarely, however, is there a conflict between the promisee's expectancy and reliance interests. Indeed, as explained in one of the most influential law review articles ever written,n2 one of the chief rationales for protecting the reasonable expectations of promisees is to promote and facilitate reliance on agreements.

The essence of a credit economy lies in the fact that it tends to eliminate the distinction between present and future (promised) goods. Expectations of future values become, for purposes of trade, present values. In a society in which credit has become a significant and pervasive institution, it is inevitable that the expectancy created by an enforceable promise should be regarded as a kind of property, and breach of the promise as an injury to that property. In such a society the breach of a promise works an ''actual'' diminution of the promisee's assets-''actual'' in the sense that it would be so appraised according to modes of thought which enter into the very fiber of our economic system. That the promisee had not ''used'' the property which the promise represents (had not relied on the promise) is as immaterial as the question whether the plaintiff in trespass quare clausum fregit was using his property at the time it was encroached upon. The analogy to ordinary forms of property goes further, for even in a suit for trespass the recovery is really for an expectancy, an expectancy of possible future uses. Where the property expectancy is limited (as where the plaintiff has only an estate for years) the recovery is reduced accordingly. Ordinary property differs from a contract right chiefly in the fact that it lies within the power of more persons to work a direct injury to the expectancy it represents. It is generally only the promisor or some one working through or upon him who is able to injure the contract expectancy in a direct enough manner to make expedient legal intervention.

It may be said that there is 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. As in the case of the stop-light ordinance we are interested not only in preventing collisions but in speeding traffic. Agreements can accomplish little, either for their makers or for society, unless they are made the basis for action. When business agreements are not only made but are also acted on, the division of labor is facilitated, goods find their way to the places where they are most needed, and economic activity is generally stimulated. These advantages would be threatened by any rule which limited legal protection to the reliance interest. Such a rule would in practice tend to discourage reliance. The difficulties in proving reliance and subjecting it to pecuniary measurement are such that the business man knowing, or sensing, that these obstacles stood in the way of judicial relief would hesitate to rely on a promise in any case where the legal sanction was of significance to him. To encourage reliance we must therefore dispense with its proof. For this reason it has been found wise to make recovery on a promise independent of reliance, both in the sense that in some cases the promise is enforced though not relied on (as in the bilateral business agreement) and in the sense that recovery is not limited to the detriment incurred in reliance.

The law does not attempt the realization of every expectation that has been induced by a promise; the expectation must be a reasonable one. Under no system of law that has ever existed are all promises enforceable. The expectation must be one that most people would have; and the promise must be one that most people would perform. This necessarily leads to a complexity in the law, to the construction of the various rules determining the circumstances under which a promise is said to be enforceable and those under which its performance will be excused.

It must not be supposed that contract problems have been solved by the dictum that expectations must be ''reasonable.'' Reasonableness is no more absolute in character than is justice or morality. Like them, it is an expression of customs and mores-the customs and mores that are themselves complex, variable with time and place, inconsistent and contradictory. Nevertheless, the term is useful, giving direction to judicial research, and producing workable results. The reasonably prudent person, reasonable care and diligence, reasonable expectations, are terms that are not to be abandoned, at least until we can demonstrate that others will work better.

Not all promises are enforceable even though the expectations of the promisee and third parties are reasonable. Law is a human institution; and the machinery for its administration is human machinery. This means that there are imperfections and uncertainties and variation and inconsistency. Sometimes a promise will not be enforced by one of the customary remedies, even though another remedy may be granted. Thus, there are cases in which a judgment for damages is obtainable, but a decree for specific performance is not. In other cases a decree for specific performance is obtainable even though the remedy in damages is not. A promise may become unenforceable by reason of the mere passage of time, in accordance with some statute of limitation. This may be the case however reasonable it may be for the promisee still to expect performance.

It cannot truthfully be said that the law operates uniformly with respect to the promises of the rich and the poor, the employer and the employee. Sometimes the rich can escape enforcement by reason of their ability to employ the ablest counsel or to prolong litigation. More often, however, the poor can escape enforcement when the rich can not. Judges as well as juries moderate the operation of the law in favor of the poor as against the rich. In our country, it is the comparatively poor who determine what the law is. As between an employer and his employees, the contract may, as a practical matter, be substantially unenforceable against the latter. Battles have been fought for the system called ''collective bargaining.'' In recent years, with increasing experience, such bargains have become more mutually enforceable and advantageous.

By the foregoing, it is not meant that injustice prevails or that there is no law. For all human kind, justice is relative, not absolute. In spite of the long tradition that ''justice'' is absolute and eternal, the tradition has always been incorrect. Fiat justitia ruat coelum is a phrase impressive mainly because of its being in Latin and not understandable. When the skies begin to fall, Justice removes the blindfold from her eyes and tilts the scales.

The protection of reasonable expectations finds many concrete applications. The following catalog is illustrative and by no means exhaustive. Contract rights are generally assignable; so firm is the protection of the promisee's expectations that such rights are treated as transferable assets.n3 Damages for breach of contract are normally measured by the value of the aggrieved party's reasonable expectations.n4 It has been held that despite technical noncompliance with rules of contract formation, reasonable expectations may be given legal effect where noncompliance has caused no injury.n5 Similarly, the reasonable expectations of the parties will be examined to determine whether a contract has been formed by a course of conduct between the parties.n6 Most importantly, provisions of mass-produced standardized agreements are not automatically given effect if they are at variance with the reasonable expectations of the party who did not prepare the document.n7 Conversely, where a literal-minded reading of a contractual term would give a party more than is reasonably expectable, an interpretation of the contract as a whole may result in the refusal of the court to accept a literal interpretation of the term.n8

Legal Topics:

For related research and practice materials, see the following legal topics:

Contracts LawContract InterpretationGeneral OverviewContracts LawPerformanceGeneral OverviewContracts LawConsiderationEnforcement of PromisesGeneral Overview

FOOTNOTES:

(n1)Footnote 1. See, e.g., Patrick S. Atiyah, Promises, Morals and Law (1981); Grant Gilmore, The Death of Contract (1974).

(n2)Footnote 2. Lon L. Fuller and William R. Perdue, The Reliance Interest in Contract Damages: I, 46 Yale L.J. 52, 59-62 (1936).

(n3)Footnote 3. Discussed at Chs. 47ff below.

(n4)Footnote 4. Discussed in Chs. 55ff below.

(n5)Footnote 5. See, e.g., Adams v. Waddell, 543 P.2d 215 (Alaska 1975) .

(n6)Footnote 6. Brown Brothers Electr. Contractors, Inc. v. Beam Constr. Co., 41 N.Y.2d 397, 393 N.Y.S.2d 350, 361 N.E.2d 999 (1977) .

(n7)Footnote 7. Darner Motor Sales, Inc. v. Universal Underwriters Ins. Co., 140 Ariz. 383, 682 P.2d 388 (1984) ; C & J Fertilizer, Inc. v. Allied Mutual Ins. Co., 227 N.W.2d 169 (Iowa 1975) ; Estrin Constr. Co., Inc. v. Aetna Cas. & Sur. Co., 612 S.W.2d 413 (Mo.App.1981) .

(n8)Footnote 8. Tantleff v. Truscelli, 110 A.D.2d 240, 493 N.Y.S.2d 979 (2d Dept.1985) , aff'd, 69 N.Y.2d 769, 513 N.Y.S.2d 113, 505 N.E.2d 623 .