II. THE PUZZLE

Before turning to the puzzle raised by disgorgement damages for breach of contract, let me define some terms. In what follows, I call any remedy that awards to a plaintiff a sum of money that is measured by reference to gains realized by the defendant a gain-based remedy.Footnote ¹ Consequently, both restitution and disgorgement—I distinguish between the two below—count as gain-based remedies.

Second, by restitution I mean a gain-based remedy that looks to both the defendant's gain as well as the plaintiff's loss. Thus, in cases where restitution is appropriate, a defendant is made to give something back to the plaintiff. This giving back may be intended to rectify, for example, the defendant's unjust enrichment at the plaintiff's expense.

Third, by disgorgement I have in mind a gain-based remedy that looks only to a defendant's gain, although that gain must be directly traceable to some particular action taken by that defendant, such as the breaching of a contract with the plaintiff.Footnote ² I do not mean to deny that in cases of disgorgement the defendant is made to give something up nor that this something is then given to the plaintiff.Footnote ³ However, since the plaintiff in such a case is not obviously being compensated for any loss suffered by him or her, the remedy is not properly restitutionary in nature. In restitution, the defendant must give something back to the plaintiff; in disgorgement, the defendant is merely required to give something up. I suggest below that restitution and disgorgement thus defined cannot always be so easily distinguished in cases of breach of contract, at least not from the perspective of corrective justice; but at this point I propose to work with this familiar terminology.

I turn now to the puzzle raised by disgorgement damages for theories of contract law that are based on principles of corrective justice. I begin with an overview of corrective justice, with which I assume a certain amount of familiarity.

Briefly, theories of corrective justice find their genesis in Aristotle's Nicomachean Ethics.Footnote ⁴. There Aristotle said that corrective justice is concerned solely with “rectification in transactions” between individuals.Footnote ⁵ According to Aristotle:

I am glossing over a number of important issues here: what it means to do injustice, what it means to suffer harm, and what it means to look to differences in the harm inflicted. What I am focusing on instead is the remedial aspect of corrective justice, according to which “the remedy corrects the injustice suffered by the plaintiff at the defendant's hand.”Footnote ⁷ I do not propose to consider in any detail exactly what the plaintiff loses, or what the defendant gains, in correctively unjust transactions. These are hard questions, and I have no very good suggestions about how best to answer them.Footnote ⁸ The important thing to keep in mind for present purposes is that according to corrective justice, wrongs and remedies are correlatively structured: what the defendant gives up by way of remedy must be the very thing that makes the plaintiff whole and so must be the very thing that rectifies the wrong the plaintiff has suffered at the defendant's hand.Footnote ⁹

The law of contract damages, however, presents problems for this basic remedial idea. According to the standard rule, the goal of damages for breach of contract is to put the complaining party in the position she would have been in had the contract been performed. As Lord Atkinson said in Wertheim v. Chicoutimi Pulp Co.:

Or as Justice Estey remarked in Asamera Oil Corp. Ltd. v. Sea Oil and General Corp. et al.:

Or again, as Section 1–305(a) of the Uniform Commercial Code states, “The remedies provided by [the Uniform Commercial Code] must be liberally administered to the end that the aggrieved party may be put in as good a position as if the other party had fully performed [the contract].”Footnote ¹² Damages awarded according to this principle have come to be known as expectation damages, and the interest they protect the expectation interest.Footnote ¹³

As scholars have noted, however, expectation damages are curious. For example, in “The Reliance Interest in Contract Damages”Footnote ¹⁴ Lon Fuller and William Perdue famously argue that the expectation principle cannot be justified by principles internal to the law of contract but must instead be found in considerations having to do with policy and efficiency. As they put it there:

Fuller and Perdue purport to identify a puzzle. The puzzle is this: if contract damages are designed to compensate the promisee for her loss, then expectation damages appear to be anomalous. This is because they seem to give to the plaintiff something she never had, and in so doing, impose on the defendant a positive duty to ameliorate the plaintiff's position, which as a positive duty is not typical of private law.Footnote ¹⁶ Thus, on a natural reading of Fuller and Perdue, the problem with expectation damages is that they remedy without compensating. Now, I do not mean to suggest that we ought to accept this analysis of the nature of expectation damages; as I argue below, it seems to me that there is a way of understanding expectation damages that is entirely consistent with the idea that they are compensatory in nature. What I do want to point out, however, is that for reasons similar to those that have led some to question the coherence of expectation damages, theorists attracted to accounts of private law based on principles of corrective justice may find disgorgement damages for breach of contract puzzling as well.Footnote ¹⁷

Disgorgement damages are sometimes available as a remedy for breach of contract.Footnote ¹⁸ Although a general principle is difficult to state precisely, the Draft Restatement (Third) of Restitution and Unjust Enrichment §39(1) (Tentative Draft No. 4, 2005) suggests that:

What the Restatement calls “liability in restitution with disgorgement of profit” I am simply calling “disgorgement.”Footnote ²⁰ I return to the issue of what might justify such awards below.

Disgorgement damages require the promisor to give to the promisee an amount equal to the gain realized by the promisor as a result of her breach of contract. Superficially, disgorgement looks similar to restitution: both strip the promisor of a gain and both award that gain to the promisee who has suffered a loss. But as I indicate above, this cannot be quite right. This is because restitution requires the promisor to give back to the promisee something to which the promisee has (or had) some sort of antecedent right or claim.Footnote ²¹ But in disgorgement, it seems that the promisee has no right to the promisor's gain, although the law is sometimes prepared to award to the promisee the value of the promisor's gain.

In general, a plaintiff will be awarded damages only if she has suffered a loss. But damages based on disgorgement seem to constitute an exception to this general rule.Footnote ²² For in disgorgement, the defendant is required to do two things: first, to give up a gain; and second, to give up that gain to the plaintiff, even though there may be no corresponding loss on the part of the plaintiff.Footnote ²³ The problem is that while disgorgement requires that a transaction between the plaintiff and the defendant occur and that the defendant's gain be linked to something the defendant did with respect to the plaintiff, it is not clear that the thing given up by the defendant is something to which the plaintiff has any sort of right. Recall that in order for something to be a corrective justice remedy, it must be something to which the plaintiff has some sort of normative entitlement: it must rectify the wrong suffered by the plaintiff at the defendant's hand. But as Fuller and Perdue argue with respect to expectation damages, in ordinary contractual cases such a normative entitlement is dubious. And a similar argument can be made with respect to disgorgement damages, since they, too, seem to remedy without compensating. This suggests that like expectation damages, the remedy of disgorgement for breach of contract is similarly problematic from the perspective of corrective justice.

And indeed, this has been the traditional view of the common law. A particularly clear example of this can be found in Tito v. Waddell (No. 2).Footnote ²⁴ There the defendant mining company made an agreement with the plaintiffs, who were inhabitants of Ocean Island, to replant the island once it had completed its mining operations there. When the defendant failed to replant the island, the plaintiffs sued for breach of contract. Because, however, the plaintiffs were no longer living on the island, they could not establish any loss as a result of the breach of contract. Moreover, the difference in value between the island planted and the island unplanted was insignificant. The plaintiffs asked for damages equal to the amount of money that the defendant had saved in failing to replant the island as promised. The Court denied this request. In his reasons, Vice-Chancellor Megarry said the following:

III. RECONCILING DISGORGEMENT AND CORRECTIVE JUSTICE

To recap: the primary goal of private law damages is to compensate an injured plaintiff for her loss. Consequently, if a defendant breaches a contract with a plaintiff, the plaintiff is entitled, so far as it can be done with money, to be put in the position she would have been in had the contract been performed. This typically results in an award of damages based on the plaintiff's expectation interest. In some cases, however, courts have been prepared to award disgorgement damages for breach of contract instead.Footnote ²⁶ In such situations, the defendant is required to give up by way of damages an amount equal to the gain she has realized by her contractual breach, even when there is no corresponding loss on the part of the plaintiff. This is part of what makes the remedy of disgorgement damages for breach of contract puzzling from the perspective of corrective justice. For again, an award of disgorgement damages can be justified only if it undoes a wrong suffered by the plaintiff at the defendant's hand. But what wrong might such an award be undoing? This question is at the core of the puzzle presented by disgorgement damages for breach of contract. As I argue below, one way to approach the wrong in question is to adopt a particular conception of the right to contractual performance, the so-called transfer or ownership theory of contractual performance. And my argument is that a more nuanced understanding of what gets transferred at the time of contract formation may also provide us with an answer to the puzzle identified above.

With this in mind, I would like to turn to the idea that in cases of contractual breach, the plaintiff has been deprived of something to which she has an entitlement or right. This, I think, is an idea that is worth taking seriously.Footnote ²⁷ In explaining expectation damages, for example, Peter Jaffey says that:

The important idea here is that expectation damages make sense only on the assumption that the plaintiff had a right or entitlement to the defendant's contractual performance. Making sense of this idea of contractual performance is, I think, the key to resolving the puzzle with which we began.

What is meant by “contractual performance”? The phrase admits of several interpretations. On the one hand, in saying that the plaintiff has a right to contractual performance, we might mean that the plaintiff has a right to the thing promised, a right that is in rem or proprietary in nature, as against the whole world.Footnote ²⁹ Alternatively, we might mean that the plaintiff has a right to the performance of the promise, a right that is personal in nature, as against the defendant.Footnote ³⁰ Thus, suppose A contracts with B for X. Then let us say that the object or thing promised or contracted for is X. And let us say that the action promised or contracted for is B's providing A with X. Similarly, where A contracts with B for some Xs, let us say that the objects contracted for are some Xs and that the action contracted for is B's providing A with some Xs. I introduce this terminology in order to be able to talk about the promisee having a right to the promisor's doing something, that is, the action contracted for, and to be able to distinguish that situation from the promisee's having a right to the object contracted for. (If you have reservations about this distinction, not to worry; I consider the distinction again below.)

In the meantime, however, let me try to forestall a possible objection. It might be objected that while this way of thinking about contractual performance makes sense in the context of contracts involving the sale of goods, there are many contracts that are not sales at all and so, a fortiori, are not sales of goods: contracts for employment; contracts for the carriage of people or goods; contracts, such as insurance contracts, involving risks; and money-lending and other financial contracts. However, while this observation is certainly true, it does not affect the more general point that there is a conceptual distinction to be drawn between the object and the action contracted for. In non–sale of good contracts this distinction is difficult to make out, since in such cases it is plausible to suppose there is only an action contracted for: the promisor's doing or performing a certain action.Footnote ³¹ But in other situations, the object/action distinction is capable of being drawn. So this observation does not, it seems to me, affect the general point I wish to make.

Now, one way to make sense of the idea that there is a distinction between kinds of contractual performance is to argue that there are two fundamentally different ways in which an individual can come to acquire rights of ownership in something.Footnote ³² According to the first way of acquiring such rights, an individual acquires ownership immediately by virtue of coming to control or possess the object in question.Footnote ³³ Peter Benson dubs this “first occupancy.”Footnote ³⁴ This manner of acquisition is characteristic of property.

According to the second way of acquiring rights of ownership, such rights are acquired derivatively by way of transfer. Thus, in contract, the promisee acquires ownership rights by virtue of having those rights transferred to her by the promisor. On this view, the acquisition of contractual rights is “derivative in the sense that it is acquisition from, and with the participation of, the owner, and the object acquired is acquired by one in the condition of being owned by the other.”Footnote ³⁵ These rights are clearly in personam in nature, since they hold only against the promisor. But they are also genuine incidents of ownership: the promisee has the right, at the time performance is due, to possess, use, and alienate the object promised. So, says Benson, “both personal and real rights are taken as rights of ownership. Their difference lies in how ownership is acquired and as against whom it operates.”Footnote ³⁶

Benson's idea, as I understand it, is this: contract gives rise to (personal) rights against the promisor, while property generates (real) rights against the whole world. But this is not to say that the rights generated by contract are insubstantial or that they do not include rights of ownership. Rather, to call a right contractual is to say two things: first, that it was acquired via transfer; and second, that it holds only against the transferor.Footnote ³⁷ So, as Benson says, “[w]hat makes rights in personam as opposed to in rem is just the fact that the operative facts giving rise to the right are transactional.”Footnote ³⁸ By calling the operative facts giving rise to the right “transactional” Benson means that the right in question arises from the interaction between two individuals. The contrast here is with rights that arise from first occupancy, that is, with rights that arise from the actions of a single individual considered in isolation. This suggests that the real distinction between rights in personam and rights in rem is not in the first instance constitutive—having to do with their intrinsic nature or with the sort of rights they are—but is instead etiological or historical. In other words, the distinction between proprietary and contractual rights has to do with how a given right is acquired and not so much with what the right is to or whom the right is against.Footnote ³⁹

So suppose that Alice contracts with Bert for some widgets. According to Benson, this contract effects a transfer: Bert, who is the owner of the widgets, transfers to Alice certain rights to Bert's contractual performance. But in what, exactly, does such contractual performance consist? There are two possibilities. On the one hand, it is natural to suppose that the contractual performance to which Alice is entitled is the action contracted for, namely Bert's delivering some widgets to Alice. Thus, where there are different ways of satisfying the demand for contractual performance (by delivering this group of widgets, or that group of widgets, or some other group of widgets), the promisee is only entitled to the promisor's performing a certain kind of action. Call this sort of contractual performance a generic performance.

On the other hand, where there is only one way of satisfying the demand for contractual performance, then the promisee is entitled to the thing promised. Thus, if Bert promises to provide Alice with a particular widget W, then it is natural to think that Alice has an ownership right to W, that is, the object promised. And so, if Bert fails to provide Alice with W and in doing so realizes a profit or a gain, that profit or gain belongs to Alice since it flows from Alice's ownership rights in W. Call this sort of contractual performance a particular performance.

In short, one way to interpret Benson's argument is as follows: the expression “contractual performance” can refer to two distinct things. Where the thing contracted for is not unique, the “contractual performance” to which the promisee is entitled refers to the promisor's performing a certain kind of action; this is characteristic of generic performance. Where the thing contracted for is unique, the “contractual performance” to which the promisee is entitled refers to the object promised; and this is characteristic of particular performance. From this it follows that where the object promised is unique and is not transferred to the promisee at the agreed time of performance, the promisor is using as her own what rightfully belongs to the promisee. The promisee is therefore entitled to any gains that the promisor realizes as a result of that breach. This is because those gains belong to the promisee as a matter of right—they are, as it might be said, incidents of ownership.

IV. WEINRIB'S OBJECTION

If the distinction between a personal right to the action contracted for and a real or proprietary right to the thing contracted for is defensible, then we have a way of resolving our puzzle. For if a promisee has a proprietary right to the thing contracted for, then she has the exclusive authority to determine the purposes to which the object is to be put both at and after the time of contractual performance. From this it seems to follow that any profit realized by the promisor as a result of her breach is something to which the promisee is normatively entitled.

This is an attractive argument. Still, it is only as good as the claim, first, that there is such a thing as a proprietary right to the thing contracted for, and second, that contractual agreements for unique objects—which are an instance of what I have been calling particular performances—reflect such an antecedent right. This is the focus of Ernest Weinrib's criticism of disgorgement damages from the perspective of corrective justice.

In “Punishment and Disgorgement as Contract Remedies,” Weinrib returns to an account of private law found in Kant's Metaphysics of Morals.Footnote ⁴⁰ There Kant introduces a distinction between agents who are capable of exercising the power of choice and external objects of choice. According to Kant, external objects of choice are fundamentally different from self-determining agents. Kant says that the expression “an object is external to me” can mean either “that it is an object merely distinct from me (the subject) or else that it is also to be found in another location. . . in space or time.”Footnote ⁴¹ According to Kant, moreover, such external objects are the very things “on which agents can exercise their self-determining capacity and accordingly make into the subject matter of rights.”Footnote ⁴² Kant identifies three kinds of external objects, but for our purposes only one is relevant, and that is “another's choice to perform a specific deed.”Footnote ⁴³ Kant sums this up in the following passage:

Now, Kant does not deny that we can come to possess external corporeal objects. But he insists that we do not do so simply by entering into a contractual agreement with another person for such objects. A contract generates only a right to the promisor's choice of action. Consequently, on Kant's view, the promisee does not have a proprietary entitlement to anything; at best she has a personal right to the promisor's contractual performance.

Applying this Kantian approach to contractual performance, Weinrib concludes that disgorgement is incompatible with principles of corrective justice. Because a contract generates only a personal claim to the promisor's contractual performance, there is no link between contractual entitlement and proprietary right. And because such a link is required in order for the remedy of disgorgement to make sense from the perspective of corrective justice, there can be no disgorgement for breach of contract.

A natural objection to this is that the possibility of particular or specific performance shows that a promisee can have a right to the thing contracted for. Weinrib disagrees. As he says:

The key idea here is that because rights are prior to remedies, an award of specific performance cannot transform a nonproprietary interest into a proprietary one. Thus we cannot argue that if a certain sort of remedy has been awarded, a certain sort right is in play. Granted, if the promisee has a proprietary entitlement to the object contracted for, then an award of specific performance appropriately reflects that right. But from this it does not follow that if an award of specific performance is granted, then the promisee has a prior proprietary entitlement to the object contracted for. To argue in this fashion would be to affirm the consequent of the first conditional.

The Kantian approach to contract formation is a version of what has become known as the transfer theory.Footnote ⁴⁶ According to this view, what is transferred at contract formation is a right to somebody else's future choice or performance, or what Kant calls “an active obligation on the freedom and means of the other.”Footnote ⁴⁷ And I can acquire such a right “only if I can assert that I am in possession of the other's choice (to determine him to perform it) even though the time for his performing it is still to come.”Footnote ⁴⁸ In other words, Kant's idea is that at contract formation the promisee comes into possession of something, namely the promisor's promise of future performance, and is thereby presently enriched; for the promise becomes part of the promisee's goods and belongings.

This is an attractive and powerful view.Footnote ⁴⁹ But it has its problems. Perhaps the most vexing problem is that it is not clear that the contracting parties are in fact capable of doing what the transfer theory requires them to do. In the words of Stephen Smith, the problem is that “the rights that transfer theories suppose are transferred by contracts do not exist prior to the makings of contracts.”Footnote ⁵⁰ According to this objection, a promisor is in no position to transfer to the promisee a right to the promisor's choice to perform some future action at the time of contract formation because the promisor has no such right in the present. The contract brings the right into existence; the right does not generate the contract. But this seems to me to be mistaken. In the absence of any constraints, I am free to do whatever I want. By promising that I will paint your house next Tuesday, however, I am limiting my freedom; in Kant's language, in doing so I might be said to incur an obligation with respect to my freedom and means. The ability to limit my freedom in this way is surely something that is properly mine, since that ability is constitutive of what it means to be an autonomous individual. But from this it follows that when I agree to paint your house, I am transferring to you a limit or obligation on my freedom that arises out of my ability to set my own ends. And in accepting that transfer, you come to acquire a right to my doing something, namely, painting your house.

V. MEETING WEINRIB'S CHALLENGE

Weinrib, in effect, offers a challenge: either show how a promisee can acquire a right to the thing promised at the time of contract formation, in which case disgorgement makes sense from the perspective of corrective justice, or accept the conclusion that the promisee can have a right only to the action contracted for, in which case disgorgement—understood as a corrective justice remedy—is misguided. Weinrib's assumption seems to be that this disjunction exhausts the space of possibilities and that disgorgement for breach of contract can make sense only if the promisee has a right to the thing contracted for. But this assumption is open to dispute.

As shown above, one way to meet this challenge is to introduce, as Benson does, a distinction between two senses of “contractual performance.”Footnote ⁵¹ But this will hardly convince Weinrib, who denies that “contractual performance” is ambiguous in such a manner.Footnote ⁵² For again, on Weinrib's broadly Kantian view, the only thing acquired at contract formation is the right to another's performance or choice. So let us accept for the sake of argument that the expression “contractual performance” always and everywhere refers to the promisor's choice to do a certain thing. Let us agree, in other words, that no distinction can be drawn between the object or thing contracted for and the action contracted for. Does it follow that disgorgement cannot be an appropriate remedy for breach of contract from the perspective of corrective justice? I do not see that it does.Footnote ⁵³ Let me explain.

I begin with an uncontroversial case. If Alice contracts with Bert for a generic action—if, for example, Bert agrees to provide Alice with some widgets—then Bert will perform the action contracted for by delivering some widgets to Alice. The fact that Alice has contracted for an action that is generic means that there are many different ways in which Bert can perform the contract.Footnote ⁵⁴ Consequently, although Alice has a right against Bert that Bert deliver some widgets to her, she does not have a right against Bert that Bert not deliver some widgets to somebody else. In contracting with Bert to ensure that a certain state of affairs obtain, in other words, Alice has not contracted with Bert to ensure that another state of affairs not obtain.

Or again, if Alice and Bert agree that Bert will deliver some cows to Alice in exchange for fifty dollars, it does not follow that Alice and Bert have agreed that Bert will not deliver some cows to Charlie. So if, in breach of his obligation to deliver some cows to Alice, Bert instead delivers some cows to Charlie, and in so doing, realizes a profit, Alice cannot claim that the gains thereby realized belong to her. Why? Because she had no antecedent claim to that particular action.

On the other hand, suppose that Bert agrees to deliver some specific object to Alice. Then Alice has contracted for a particular action, and the performance in question is a particular performance. Thus, if Alice contracts with Bert for some particular action, not only does Alice have a right against Bert that Bert perform that action—in this case, delivering the object in question to Alice—but Alice also has a right against Bert that Bert not perform that action with respect to somebody other than Alice. The first promise brings into existence a second promise. In contracting with Bert to ensure that a specific state of affairs obtain, Alice has also, in effect, contracted with Bert to ensure that another state of affairs does not obtain.

To make the example slightly more concrete: if X and Y agree that Y will deliver Bessie the cow to X in exchange for fifty dollars, and if X and Y agree that ownership will not pass until delivery, then X and Y have implicitly agreed that Y will not deliver Bessie the cow to Z. Thus, if Y delivers Bessie to Z instead, and in so doing, realizes a profit, X can legitimately complain that the profit properly belongs to him. Why? Not because X had a right to Bessie. For we have already agreed that, consistent with Kant's account of contract formation, what is acquired at contract formation is not a right to a thing but rather a right to another's performance of a certain action. Rather, the explanation for why X can legitimately complain that Y's profit or gain belongs to him is due to the fact that X had an antecedent claim to that particular action. The delivering of Bessie—equivalent to making X the owner of Bessie—was the action X contracted for. And so in performing that action with respect to a third party Z, Y is transferring to Z something that is not hers to transfer.Footnote ⁵⁵

In sum, the problem with Weinrib's argument is his assumption that an entitlement to the action contracted for cannot give rise to the acquisition of a right that is sufficiently fine-grained to justify awarding disgorgement damages in cases of contractual breach. To assume this, however, is to confuse having a right of ownership with having a proprietary right. Weinrib seems to assume that if there is no proprietary right to a thing, there can be no right of ownership “nearby.” But if Alice has a right that Bert contractually perform some particular action A, then, on the current view, Alice has an ownership right in A as well as an ownership right in any action of Bert's that is incompatible with A. Consequently, where A is a particular action and where Bert's doing B is incompatible with his doing A, then Alice is entitled by way of damages to any profits realized by Bert as a result of doing B. Because doing B is something over which Alice can assert a right of ownership, any gains that result from Bert's doing B properly belong to Alice.

I am proceeding on the assumption that the parties to a contract only contract for a particular action or, as Kant would say, for another's choice to perform a specific deed. So let me briefly touch on two potential worries with this assumption. The first worry is that because the performance or action contracted for will be particular just in case the object contracted for is unique, this is nothing but the ambiguity view of “contractual performance” in another guise. But this cannot be correct. For the fact is that the argument presented above does not explicitly rely on the assumption that by entering into a contract, the promisee acquires a proprietary entitlement to the thing contracted for. I do not mean to deny that uniqueness plays a role in the present analysis, but the analysis proceeds entirely in terms of actions contracted for. It is therefore hard to see how Weinrib, for example, could object to the framework within which the foregoing argument is made.

The second objection is that the distinction between actions or performances that are generic and actions that are particular is spurious. I suggested above that an action is generic if there are different ways of performing that action. So where Y agrees to deliver some cows to X, the idea is that this counts as a generic action because Y could meet her contractual obligations in any number of different ways: by delivering to X this group of cows, or that group of cows, or some other group of cows. But perhaps this is a mistake. After all, it might be argued that even with respect to what I am calling particular actions or performances—such as Y's agreeing to deliver Bessie the cow to X—there are any number of different ways in which that contractual requirement could be met: Y could deliver Bessie by car, or by truck, or by train, in the morning or in the afternoon. According to this objection, in other words, because no action is suitably particular in the required sense, no account of disgorgement damages for breach of contract can succeed that hinges on a distinction between particular and generic performances.

This is a legitimate concern. But the thing to focus on is the nature of the action being performed and what that action entails. As I suggest above, on the present view, certain contracts include what might be called implicit or subsidiary promises. Consider again Y's promise to deliver Bessie to X. This promise entails a subsidiary promise not to deliver Bessie to Z. This is because in doing so, Y would be bringing about a situation that would make it impossible for her to meet her contractual obligations to X. Because of the intimate relation between the contract and this subsidiary promise, it follows that X has an ownership interest in the subsidiary promise. And this is what entitles X to disgorgement damages should the contract be breached. By way of comparison, there is doctrine supporting this kind of view in the case of personal services contracts, where negative injunctions are often available,Footnote ⁵⁶ as well as in contracts involving conveyances of real property.Footnote ⁵⁷ If an opera singer agrees to sing at a concert hall on a certain night, then her performance of that personal service contract entails the promise that she will not perform the same service for somebody else. What is characteristic of both personal services contracts and contracts involving real property is that a market substitute for the action contracted for is often unavailable. Thus the fact that a negative injunction may be available in a particular case is an indication that the contract is, in the terminology of the present paper, a contract for an appropriately particular action or performance.

The upshot is that the law of contract must have the resources available to draw a distinction between actions contracted for that are particular and actions contracted for that are generic; otherwise, certain remedial features of contract law become mysterious. Consequently, it cannot, it seems to me, be a particular problem for the account set out above that it appeals to such a distinction. Why, for example, does the law treat contracts for personal services or for real property differently from contracts for ordinary objects or actions? The obvious answer is that the difference has to do with the lack of an appropriate market substitute in the former sorts of cases. But this sort of analysis can be appealed to by the present account as well. Y agrees to sell Bessie to X. Y proceeds to sell Bessie to Z, breaching her contract with X and realizing a profit. Because Y's action will not be an action for which there is an obvious market substitute, it is fair to say that Y's action is a specific one. Consequently, an award of disgorgement damages will not be inappropriate.

But still, why should the particularity, or lack thereof, of the action contracted for make such a crucial remedial difference? I say above that if Alice and Bert enter into a contract for a specific action A and if Bert does B—where doing B is incompatible with doing A—then Alice can demand by way of damages any profits realized by Bert as a result of doing B. This takes care of the case of X, Y, and Bessie. But suppose that Y has twenty-five cows, that Y agrees to sell fifteen cows to X, but that Y then sells twenty cows to Z. By selling twenty cows to Z, Y has also brought about a situation that makes it (practically) impossible for her to meet her contractual obligations to X. And yet, according to the present argument, this is not a case where disgorgement is an appropriate remedy for breach of contract, since the contract was not for any cows in particular.

The particularity of the action contracted for is important because it is only when an action is suitably particular that a promisee can be said to own the promisor's contractual performance. In other words, only particular actions contracted for can give rise to the appropriate normative entitlement. This may seem to produce anomalous results. For example, it may be clear to both parties to a contract that a promise to deliver nonspecific goods to the promisee will prevent the promisor from other performances. Perhaps the promisor's agreement to provide some steel to the promisee will prevent the promisor from participating in a larger project, one that would require all of the promisor's steel-making capacity. Performing the first contract does not logically preclude performing the different contract, but practically it does, and this is known to both parties. Still, on the present analysis, disgorgement would not be available should the promisor breach the first contract with the promisee. The reason is that in this sort of case there is no performance that the promisee can be said to own. Again, the contract is for some steel, but no steel in particular, and this is insufficient to give rise to the sort of normative entitlement that would make disgorgement appropriate.

Again, what emerges from the foregoing is that on pain of incomprehensibility, contract law must be able to distinguish contractual performances that are particular from contractual performances that are merely generic. What the argument of the present paper adds to this distinction is the further claim that when an action or performance contracted for is particular, disgorgement will be available should the contract be breached. To be sure, I have not provided necessary and sufficient conditions for when an action contracted for will count as a particular action, and I doubt very much that such conditions can be articulated in a clear and noncircular manner. What I have suggested is that the sorts of considerations that lead to the availability of negative injunctions or give rise to a remedy of specific performance may be useful in distinguishing actions contracted for that are appropriately particular from actions contracted for that are not.

Before concluding this section, let me touch on one last point. It is often important to distinguish rights of ownership from rights to the acquisition of ownership or obligations to transfer ownership. For example, I might enter into a contract with you according to which, once I pay you a sum of money, I immediately become the owner of certain goods even if those goods remain in your possession. Or I might enter into a contract with you according to which, once I pay you a sum of money, I acquire the right to the ownership of certain goods once I take possession of them. The important point here is that there is a distinction between actual ownership and (mere) rights to acquisition of ownership. However, although such a distinction can be drawn, it seems to me to be tangential to the deeper issue here. For even if I have only a right against you to the acquisition of various rights of ownership, it remains the case that once you transfer the goods that are the object of our contractual agreement to somebody else, I can stand on such rights and demand disgorgement damages. This is not because I owned or had actual possession of the goods. Rather, I am entitled to disgorgement damages because I had a right to the acquisition of the goods and because in transferring them to another person, you misappropriated that right.

The argument presented above rests on a distinction between actions or performances that are generic and actions or performances that are particular. It also relies on a distinction between proprietary rights and what I am calling “rights of ownership.” And I recognize that these distinctions may require more by way of defense than I provide here. My primary aim, however, is not to defend this picture of the nature of contractual performance against every possible objection but simply to show that Weinrib's rejection of the idea that if a promisee and a promisor contract for something unique then the promisee has a proprietary right to the thing contracted for does not automatically lead to the conclusion that disgorgement for breach of contract is unavailable from the standpoint of corrective justice. Other possibilities must be considered.

VI. THREE APPLICATIONS

To recapitulate, I am arguing that even if we ignore the distinction between the object and the action contracted for, sense can still be made of the idea of ownership in contractual performance, and that this idea can serve to justify disgorgement damages in certain cases of breach of contract.

What I would like to do now is briefly review some cases in which such an award has been discussed. I propose to focus on three such cases: the Israeli case of Adras Building Material v. Harlow & Jones;Footnote ⁵⁸ the U.K. case of Attorney General v. Blake;Footnote ⁵⁹ and the Australian case of Hospitality Group Pty Ltd. v. Australian Rugby Union Ltd.Footnote ⁶⁰

In the Israeli case of Adras, the defendant had agreed to sell steel to the plaintiff. When the price of steel spiked, however, the defendant instead sold the steel to a third party for a profit. Because the plaintiff failed to purchase substitute steel at the elevated price before the market receded, no loss was suffered. Nonetheless, the Supreme Court of Israel awarded the plaintiff the gain that the defendant had realized by selling its steel to the third party.

Given the foregoing analysis, it is clear that the decision in Adras is misguided from the perspective of corrective justice. Because the contract was for some steel, but no steel in particular, the contract did not give the plaintiff an ownership right in the defendant's performance. To be sure, by selling steel to a third party, defendant became unable to sell steel to the plaintiff. But forcing the defendant to disgorge his profits is unjustified here. The reason is simple: there is no link, causal or otherwise, between the plaintiff's (hypothetical) lost profits and the action that the plaintiff actually contracted for. Because the plaintiff contracted for a generic action rather than for a particular action, it is improper to argue that the action that the defendant performed with respect to the third party was the very action contracted for. It could not be, since no particular action was contracted for at all.

In Blake, George Blake, a former employee of the British intelligence service and a spy, breached his contract of employment with the Crown by publishing his memoirs. Although the contents of the memoirs were no longer confidential at the time they were published, and although Blake was not a fiduciary of the Crown, the House of Lords concluded that the Crown was entitled to the money owed to Blake by his publisher. Here the issue is more complicated than it was in Adras. A proprietary analysis will not do, since it is hard to see what possible object or thing could have been contracted for. So the only option is to argue that the Crown had a right of ownership in Blake's choice to perform or not perform a particular action. Here is such an argument: Blake's employment contract with the Crown required that he not publish his memoirs. This constitutes a form of negative covenant: Blake agreed that he would refrain from performing a certain action. By so agreeing, Blake transferred to the Crown rights of ownership in the action that consisted in his being able to publish his memoirs; as a result, that action was no longer one in which he had ownership rights. Consequently, in publishing his memoirs, Blake performed the very action in which the Crown had ownership rights. The preceding analysis therefore entails that the Crown was entitled to the profits realized by Blake as a result of his contractual breach.Footnote ⁶¹

A third illustrative case is Hospitality Group. There the appellant Hospitality Group had sold “hospitality packages” to customers interested in attending various rugby matches in Australia. Hospitality Group, having no relationship with the plaintiff Australian Rugby Union (ARU), purchased tickets from a third party that had itself purchased tickets directly from ARU, and then Hospitality Group sold those tickets to its customers as part of its hospitality packages. These tickets contained a condition that they were not to be resold for a profit or used for any other commercial activity and that the bearer of a ticket could be denied entrance to the event if the ticket had been resold in contravention of the condition. The plaintiff ARU argued, first, that the defendant was bound by the contractual condition found on the tickets, and second, that by reselling the tickets, the defendant had breached its contract with ARU. ARU further argued that it was entitled to the profits realized by the defendant from its resale of the tickets. The defendant argued that because there was no privity of contract between it and ARU, it could not be held liable for breach of contract.

The Federal Court of Australia held that the appellant was subject to the no-resale condition, that it had breached that condition by reselling tickets as part of its hospitality packages, but that disgorgement was not an available remedy. The court explicitly declined to follow Blake and instead endorsed the view that because damages for breach of contract are always compensatory, disgorgement for breach of contract is never available. On the present analysis, however, this is arguably a case in which disgorgement should have been available. If we agree, as seems plausible, that Hospitality Group accepted the conditions set out on the tickets, it follows that the defendant had a contractual relationship with the plaintiff. But the conditions there set out implied an implicit or subsidiary promise that the ticket holder would not perform a certain action, namely, resell the tickets for a commercial purpose. That leads to the conclusion that ARU had an ownership right in Hospitality Group's actions and that when Hospitality Group resold the tickets, ARU had a right to the profits acquired thereby. On the present analysis the remedy of disgorgement should therefore be available for Hospitality Group's breach of contract.

VII. FURTHER OBJECTIONS AND REPLIES

There are several residual objections that could be raised to the account set out above. First, there is the complaint that the account rests on a tenuous conception of what is acquired at contract formation. Second, there is the complaint that the account turns disgorgement damages into expectation damages. And third, there is the complaint that the account does not accurately represent the purpose that disgorgement damages play in other parts of private law and so cannot be appropriately generalized.

Let me begin with the first complaint. Can it be said that the account sketched above rests on a mistaken concept of what is acquired at contract formation? It is certainly true that the argument set out above owes much (too much?) to Kant's conception of contractual performance. Still, three things can be said in its favor. First, although I do not argue that we must think of contract formation and performance in Kantian terms, it remains an attractive account of what is acquired at contract formation and is therefore worth considering carefully. Second, because Weinrib appeals to the Kantian conception of contract formation, and because I am arguing that Weinrib's worries about the incompatibility of disgorgement damages with corrective justice are misplaced, it is appropriate to rely on the Kantian conception of contract formation in making that argument. And third, because my goal is to show how corrective justice and disgorgement for breach of contract can coexist, it is surely acceptable to do so by adopting a particular account of what is acquired at contract formation. Perhaps, as noted at the outset, my conclusion would be better expressed conditionally: if one adopts a Kantian conception of what is acquired at contract formation, then one can reconcile disgorgement for breach of contract with principles of corrective justice. All the same, it is a conclusion that is worth taking seriously.

The second complaint is that the present account turns disgorgement damages into a form of compensation damages. By way of example, take a case where the promisor breaches his contract with a promisee and thereby realizes a profit that properly belongs to the promisee. Had the promisor not breached the contract, the profits (or perhaps more properly, the right to the profits) would have been the promisee's. So in requiring the promisor to disgorge his profits, the law is doing nothing more than putting the promisee in the position she would have been in had the contract been performed. In other words, just as with expectation damages, on the present account, the promisee is getting nothing more than what she was entitled to get and is therefore being compensated for what she has lost.

I am inclined to accept this conclusion with one important proviso. On the present account, disgorgement damages should be no more puzzling than expectation damages. Just as expectation damages serve to put the complaining party in the position she would have been in had the contract been performed, disgorgement damages do nothing more than give to a disappointed promisee what she was entitled to in the first place. They do not give her anything more; rather, they serve to compensate her for what she has been deprived of by way of the promisor's contractual breach.

The proviso I have in mind has to do with the meaning of “compensation.” I suggested above that disgorgement damages serve to compensate, since they give to a disappointed promisee what she would have received had the contract been performed. But care must be taken. This is because “compensation” means different things to different people. On some views, many damage awards ought to be viewed as compensatory on the grounds that they are remedies for taking away the plaintiff's right to bargain.Footnote ⁶² But in other situations, things are less clear.

Consider a case in which a defendant breaches her noncompetition agreement with her former employer and realizes a ten-thousand-dollar profit as a result. It may well be that had she not breached her noncompetition agreement, her former employer would have got some but not all of that business, in which case the defendant's gain would be greater than the plaintiff's loss. Nonetheless, some will say that awarding the plaintiff ten thousand dollars in damages is not so much disgorgement of gains as handing the plaintiff the value of the right that the defendant misappropriated, even though the award exceeds the plaintiff's loss. And perhaps such an award of damages can be thought of as being compensatory. Still, even if this is correct, this is surely not compensation in the sense of compensation for loss suffered. And there are some who would argue that such a remedy should not be thought of as being compensatory at all. For example, Robert Stevens argues that such an award might be better thought of as being substitutive for a right.Footnote ⁶³ And substitutive damages of that sort seem distinct both from damages that compensate plaintiffs for losses suffered and from damages that strip defendants of gains realized as a result of breach of contract.

The upshot of the foregoing, therefore, is that so long as it is clear what is meant by “compensation,” nothing stands in the way of viewing disgorgement damages as a form of compensatory damages. Again, this is because disgorgement damages seek to put the disappointed promisee in the position she would have been in had she in fact received what she was promised and so was entitled to at the time of contract formation.

The third objection proceeds from the observation that disgorgement damages are awarded in cases where there has not been a contractual breach, as in cases of breach of fiduciary duty. According to this objection, the problem with the current proposal is that it fails to portray accurately the more general role played by the remedy of disgorgement in other parts of the law. I am tempted to say in response that my interest has been in disgorgement for breach of contract, not disgorgement in general, and thus that it is unfair to complain that I have failed to do something that I never set out to do. But still, there is something to this complaint, since one would like an account of disgorgement damages that is applicable not only to cases of breach of contract but to other cases as well. All the same, it seems to me that very idea underlying why disgorgement is an appropriate remedy for breach of contract—namely that the promisee has an ownership right in the promisor's action—also applies to cases of breach of fiduciary duty. That is to say, the reason the fiduciary must give up any profits earned as a result of his breach of his fiduciary obligations is because, to the extent that the fiduciary treated as his own something the beneficial title to which properly belonged to the plaintiff, the plaintiff can legitimately complain that any profits thereby realized were hers: she had a right or entitlement to them. The underlying explanation is the same in both cases.