[MUSIC] Most contracts courses in US law schools, actually begin the semester at the end of the contract, with damages for breach of contract. Although this usually strikes students as unnecessarily confusing, there are good reasons for it. Namely that remedies for breach of contract, encapsulate the distinctive properties of contract. In order to hold parties liable period, we're going to need to know that they assented, and what they assented to. The court is going to want to know what the deal is, because we want to make sure we're holding people to the right contract. And only by knowing what the deal was, do we know how to compensate for the deal's failure. So, let's start with an example to help illustrate one of the central rules of American contract law, which is the rule of expectation damages. This is the case of Hawkins vs McGee. George Hawkins, got an electrical burn on his right hand as a child. And the result was that he had a scar, noticeable enough to trouble him and his parents. Their family doctor, Edward McGee, noticed the scar while treating George's younger brother for pneumonia, and evidently got very excited, because while in Europe during the first World War, he had seen successful skin grafts, and thought George was a perfect test case. So, for a few years, he would periodically offer the Hawkins' that he could fix George's hand, and that he could graph skin from George's chest, onto his hand, and create 100% perfect hand. Well, to give you a sense of how things turned out, the case is colloquially known as the Hairy Hand case. So, whether, because it was a bad idea at the outset, or because the doctor couldn't execute the surgery skillfully, George Hawkins wound up with a disfigured and disabled right hand. Okay, so we have a contract. George Hawkins promised to pay money, and Dr. McGee promised him a perfect hand. Then we have a breach of contract. George Hawkins paid the money, but Dr. McGee gave him a deformed hand. So, how do we compensate George Hawkins? Well, Dr. McGee argues that he should be made to give George's money back, and compensate him for any harm done. Let's pause for a minute, and change the hypothetical. Let's say for a minute, that George was going over to Dr. McGee's house for dinner, and the doctor accidentally slammed George's hand in the door, causing George significant pain and disfigurement. Well now, Dr. McGee has to compensate George for sure, right? With the goal being to put George back in the position he was before the doctor injured him. Okay, so what's different about these cases? The contract case, and the hand in the door case? What's different is the relevant counterfactual. A counterfactual is just the state of the world that we're comparing the current situation to. The counterfactual in the hand in the door case, is that George's hand doesn't get slammed. The counterfactual in the surgery case, is that the surgery doesn't fail, and George gets a brand new hand. What Dr. McGee wanted, was to pay George the difference between the hand he ended up with, something horrifying, and the hand he had before, something uncomfortable. But Dr. McGee voluntarily entered into a contract, to give George a perfect hand. So, the court says, what we want to do here, is to put George in the position he would have been in, if the contract had been performed, which means paying him the difference between his current horrifying hand, and a perfect hand, and that's going to be a much bigger number. In contract, the remedy of expectation damages is the default remedy. And it puts the non-breaching party, like George, in the position he would have been in, had the contract been performed. What surprises many students of contract though, is not necessarily that damage is measured, but the preference for damages over specific performance. Specific performance means making the parties do what they said they were going to do. With the exception of real property transfers, so land sales, American contract doctrine severely restricts the ability of the parties to actually get the thing they wanted from the deal. So, on the one hand, American courts are very focused on getting the number right, making sure that the damages award reflects exactly the amount of commitment, that the parties actually intended. But we don't hold parties to their actual promises, perhaps underscoring again, that what we're doing here is enforcing economic exchange. Where it's reasonable to think that the benefit can be easily expressed in dollars, rather than enforcing promises. Indeed, in American courts, the idea that expectation damages provide the right incentives to the parties, has been highly infl, influential. The notion that some breaches are actually efficient, that they leave the breacher better off, than he was in the contract, and the non-breaching party no worse off, than she was under the contract. This has influenced the normative attitude of courts, toward breach, toward a view that breaching and paying expectation damages, is essentially a morally neutral choice. This is in keeping, I think, with the traje, trajectory of American contract law, beginning with the Industrial Revolution, with the realization that executory contracts, contracts for stuff you're going to do later, are economic tools, financial instruments. This insight leads me finally, to the modern challenge, in which this financial tool increasingly mediates the relationships between consumers and firms. So, I'd like to use my last few words here, to flag for you, what's perhaps the most important modern challenge to contract doctrine. And that's the phenomenon of unread fine print. In the United States, there are many contracts that are not the object of the common law of contract. Insurance contracts are regulated separately. Employment contracts are part of labor law. Securities contracts are regulated by Article nine of the Uniform Commercial Code. But other countries have taken a different, or at least additional approach to taxonomizing contracts, based not so much on what the contract is, so much as who the parties are. Other countries have included form contracts as a separately regulated area of contract. So, let's just step back a minute. In a general matter, we can think about contracts as belonging to three categories. The first is contracts between individuals. The deal that I make with someone who's selling a used car on Craigslist. The agreement between Dr. McGee and George Hawkins. The sale of a house from one homeowner to another, or an uncle's promise to pay his nephew not to be a wastrel. These deals are sort of the easiest ones to fit into a contract paradigm, because we have actual people who negotiate and draft an agreement. And since these are humans with cognition, we know what it means, when we talk about their motivations and their intentions. The problem, is that these are the deals for which contract doctrine is arguably the least relevant. Because these are the deals least likely to be resolved by courts, for lots of reasons. First, these deals are just few on the ground. Unless you're Warren Buffet, I just don't think you're drafting that many contracts. The financial stakes in these contracts are quite low typically, meaning that the costs of bringing an action is often going to swamp the expected value of lit, lit, litigation. And in the meantime, the social and psychological stakes of deals between individuals, can often be quite high, so that parties often prefer to figure things out informally in a way that's the least destructive to their relationships, to their standings in the community. Some scholars would argue that American contract law, really isn't made for these cases anyhow. What it's really about is commercial deals. And indeed, this should resonate with my description of development of modern contract law, in the context of the Industrial Revolution. When we have two commercial actors, whether its a farmer and a bodega, or Apple and Google making a deal, we have a nice robust role for contract doctrine. Because we're going to be talking about parties who are represented by counsel, meaning that they, they're going to know what the rules are. I'm talking about deals that are big enough, that the prospect of legal enforcement has real effects on how the parties draft and then perform their deals. Gets a little bit trickier, to talk about things like a meeting of the minds, when the actors are entities rather than humans. But there are always humans involved, of course. So, it's just a matter of locating the re, the relevant humans. And also we can rely on doctrines like objective assent, to make clear and easier, how we understand what it means to, for example, agree. So, now for the third category of contract, the category that most of us have the most experience with, and that's contracts between individuals and firms. In other words, the form contracts that you have with AT&T and Comcast, and iTunes, Facebook, Vanguard, Chase, and Visa, et cetera. These are take it or leave it deals, between consumers and companies. And by a simple head count, these account for the vast majority of contracts active at any given moment. But these contracts pose real challenges for contract doctrine, and the consequences of how we deal with these challenges are increasingly serious, as consumer contracts are increasingly central to how individuals participate in American economic life. The normal ways that we talk about negotiation and promise, and assent, they fit only uneasily, in a form contracts context, where everyone acknowledges that only the drafting party, only the company, knows what's in the terms, because most consumers don't read them. Other jurisdictions, including civil law countries as well as the UK, have taken legislative action to constrain the content of form contracts. But American courts, and legislatures tend to view substantive restrictions on contract terms as sort of overly paternalistic. Preferring to let the market weed out unfavorable or unfair terms. As we watch this area unfold over time, we'll see, both how the norms and patterns of everyday commercial interactions push contract law to adapt, but also how increasing contractualization, affects the American economic and social discourse. [MUSIC]
