POLICY QUESTION ANSWERS
In modern contract law, courts tend to enforce expectation damages where applicable
to promises supported by consideration, but only reliance damages for claims of promissory
estoppel.
Expectation damages are the compensatory damage that the injured party in a
contract action would have stood to gain had they received the full benefit of the contract.
The usage of expectation damages to enforce promises supported by consideration are
helpful because they empower both sides to both keep promises without worry of losing out
on the consideration given. It encourages people who would otherwise contemplate backing
out of the contract to complete it, by equalizing the monetary consequences for both options.
It is important that the penalties for breaking a promise should be greater than the cost of
completing it through. If a would-be breacher had to pay the equivalent damages for
completing the contract anyway, they would be much more likely to complete the contract,
because backing out of the contract would not only lead to the same result in damages, but
it would also come with the host of other negative effects of breaking a contract, including
things like litigation costs and the harm to their reputation.
Reliance damages are the damages awarded for a breach that seek to return the
plaintiff to the position they were in before they relied on the promises of the breaching
party. While reliance damages are useful to establish a baseline to make sure that an innocent
party is returned to the position they were in prior to the promise, it is a much smaller
penalty to the party breaking the promise and not enough of a deterrent to would-be
breachers of contracts. If the penalty for breaking a promise is lesser than the cost of
completing a contract, it would stand to reason that people would choose to break their
promises more often. This of course would weaken the power of these promises greatly and
make people less likely to contract in general. Thus, while reliance damages might be better
for claims of promissory estoppel, where there is no consideration given back and thus no
reason to enrich the injured party beyond where they were prior to relying on the promise,
for promises backed by consideration it would be better as a matter of public policy to use
expectation damages instead.
Specific damages are when the breaching party is forced to carry out the specific
promise they made. This is not normally allowed for a variety of practical reasons. For one,
per the 13th amendment, it is unconstitutional to force people not convicted of crimes to work.
Also, even in cases where that might not apply, it would likely not be in the best interests of
the injured party for an unwilling breacher to be forced into completing their promise against
their will. Monetary damages are a more objective figure in which the breacher’s bad faith
cannot spoil or ruin the same way that forcing them to carry out a promise might. Such an
effect would punish not just the breaching party but also the innocent one instead of
remedying the situation, particularly if the relationship between the two parties has soured
beyond repair, such as a divorced couple, for example. There is also the overarching effect
where people would be discouraged from contracting in the first place if there is the fear that
they might be forced to carry out these duties even under changing circumstances. The only
exceptions to this policy are in cases regarding irreplaceable or priceless items with
emotional value such as real property, family heirlooms, and other non-fungible items. This
makes sense because awarding monetary damages for things that do not have an agreed
monetary value cannot possibly lead to a ‘fair’ outcome or even just make sense for either
side. In these cases injury can only be remedied by carrying out the performance that was
agreed to in the first place.
Punitive damages are the monetary awards given in cases of tortious behavior that go
beyond just the actual damages relative to the contract. In terms of contract laws, they are
typically not awarded due to a myriad of practical drawbacks. For one, the primary goal of
damage remedies in contracts are to restore or compensate the injured party, not to put them
in a better position than if the contract had simply been performed. For another, contract
laws are not based on fault but on strict liability. Culpability does not play any part in
determining the liability or the remedies for the parties. An exception to this is for bad faith
breaches regarding insurance contracts. Courts have held insurance companies liable in tort
for bad faith breaches, although they very rarely extend it beyond this narrow scope.
QUESTION 2
The distinction between contracts as regularly studied over much of the 19th and
20th centuries and the recent pseudo-contracts that have risen recently in the past few
decades are helpful in many ways. Over the past three decades or so, there has been a
shift in the field of contracts from what was traditionally a focus on an agreement
between two parties into what is more of a unilateral enforcement of one party’s terms
over the other, where ‘agreement’ is not constructively a part of the ‘deal’ that is being
made. Contracts now are thought of as binding documents that don’t need affirmative
agreements from both sides. Common media depictions of contracts include people
absent-mindedly signing random documents and being held liable for whatever lifechanging consequences happened to be in that document. This is representative of the
paradigm shift in contracts. The history of contract law has been a steady and consistent
array of courts holding common sense decision regarding the foundational aspects of
contract formation. Mutual assent and consideration have been the standard necessary,
and courts have always tried to ascertain that both sides entered into the agreement
agreeing to terms and giving up consideration. Back then, the idea of it being the
parties’ duty to read the contract was a reasonable requirement. They were shorter,
more concise, and usually got to the point with respect to the parties’ agreement. In this
era of pseudo-contracts, however, that is rarely the case. Contracts are now extremely
long, almost irrelevant pages full of boilerplate that are imposed upon by the dominant
party, usually a corporation, to the public, who are reasonably not bothering to read
every minute detail. This is especially exasperated in online settings where a physical
signature or even a flip of the pages is not required. All it takes is a simple click on a box
to agree to a contract that you may never see.
Pseudo-contracts should not be enforced in the way that regular contracts are.
They violate the fundamental purpose of contracts and contract law as it appeared and
was regulated by the courts for the first hundred years or so. The enforcement of
contracts as a principle has been to empower promises made by two parties in return
for valuable consideration. In the case of the modern-day boilerplate pseudo-contracts,
there has been no promise made by the signing party, thus enforcing the terms of
whatever was written would not provide any practical use. In fact, enforcing such terms
could lead to almost dystopian consequences, where large corporations can slip in
terms and conditions that would be unfavorable to people and unreasonable to read
through, but because of the ‘duty to read’ would still be a binding part of the contract.
The question remains then, that if these pseudo-contracts and boilerplate terms
shouldn’t be enforced as regular contracts, how should they be treated? Courts should
develop a more mature framework that analyzes these terms in the way they are
actually utilized, i.e. not as a binding embodiment of the parties’ mutual assent and
consideration, but more of a general framework for how the company or website will
act passively. In the thirty years or so since these boilerplate pseudo-contracts became
common, internet usage has become so ubiquitous and widespread that a culture
around internet behavior has formed. The usage of websites and the agreement to these
terms and conditions have, in many respects, created their own understanding of what
it means. Users have agreed to terms and conditions long and often enough that there is
a general agreement among the population of what that entails. Usually, it is
understood to involve giving up some level of privacy/data from the site or company
for along with a reasonable expectation that the user won’t be harmed or adversely
affected in any way. The courts could look to standards like these to determine what
exactly a boilerplate pseudo-contract should include when browsing. It could also be
possible then to take it a step further and just eliminate the need to agree to terms and
conditions in the first place, and have the terms and conditions just be an implied
standard for browsing any website or downloading an app in general.