Retribution in Contract Law

For the last several centuries, there has been a powerful clash between two very different ways of understanding what contract law and contract remedies ought to accomplish. The older view, which found its most powerful philosophical expression in Kant and has been advanced by modern scholars like Charles Fried, is firmly rooted in the principle of respect for individual autonomy, and holds that parties have an obligation to keep their promises because they have invoked a convention (i.e., contract law) whose very purpose “it is to give grounds — moral grounds — for another to expect the promised performance.” According to this view of contract law, when a party invokes such a convention but nevertheless breaches their contract, not only do they wrong the other party by failing to properly value and respect them as autonomous agents, but their wrong frequently harms the other party as well, thereby creating a normative imbalance between the parties that seems to demand rectification on the ground of corrective justice. It is for this reason that, where such breaches occur, contract law remedies are typically fashioned to restore the equality that existed between the parties prior to the breach by requiring the wrongdoer to “hand over the equivalent of the promised performance,” which is typically measured by an award of expectation damages or, where appropriate, specific performance. By forcing the breaching party to render to the promisee the actual promise owed by way of specific performance, or to pay its equivalent by way of expectation damages, these remedies fit perfectly with Aristotle’s conception of corrective justice, which seeks to restore the balance between the parties by taking from the wrongdoing party, and giving to the injured party, that which rightfully belongs to the latter. Juxtaposed against this older view is a more recent (and largely incompatible) theory about the way in which courts should think about, and therefore award remedies for, contract breaches. Specifically, this newer view, powerfully articulated by Oliver Wendell Holmes Jr. towards the end of the nineteenth century, holds that courts should not focus (primarily, anyway) on enforcing promises to prevent wrongs or to protect party autonomy. Rather, courts should focus on promoting economic efficiency, which is best accomplished by allowing the promisor to choose between performing the contract, on the one hand, or breaching and paying money damages to the injured party, on the other, depending not on which course of action is the most moral, which usually consists in performing one’s obligations, but on which course of action is the most efficient. According to this newer theory, the purpose of a contract is to fashion it in such a way that it encourages parties to perform their duties where such performance is efficient, and to breach their obligations where performance is inefficient. This idea has been picked up by many scholars and judges working within the law and economics tradition, who have suggested that contract remedies should not be primarily concerned with compensation, but with providing the contracting parties with the right economic incentives. This Article argues that, as a descriptive matter, if we are to judge courts by what they actually do, rather than by what many commentators and judges say they do, then each of the previously-described theories of contract law remedies are incomplete at best, and misleading (to both the public and other judges following precedent) at worst. Specifically, this Article will argue that, when one looks at the way in which courts actually decide cases, the wrongfulness of the promisor’s breach plays an important role in a court’s determination of the remedy it ultimately awards. The problem with the two leading theories of contract law remedies is that they fail to take the promisor’s wrongfulness into account, and in doing so, fail to capture something quite surprising (to traditional ways of thinking about contract remedies, anyway) about the way many judges actually think about contract remedies. Indeed, contrary to frequent claims made by courts and commentators alike, this Article argues that the notion of retribution, or punishing promisors more severely for wrongful breaches than for innocent breaches, plays an important role in a court’s calculation of contract damages, though it has been scarcely recognized in the literature. By marshalling evidence from breach of contract cases in which judges are confronted with a choice between awarding two or more different remedies to “compensate” the injured party, this Article argues that the court’s inquiry into the wrongfulness of the promisor’s breach, which traditional contract doctrine maintains courts simply do not (and should not) do, will frequently play an important role in the judge’s choice of remedy, with a larger remedy being awarded in proportion to the degree that the promisor’s actions are deemed “wrongful.” This behavior suggests that judges are not merely trying to compensate injured parties, but that they are trying to punish breaching parties for particularly wrongful breaches. More specifically, the cases seem to show that courts are concerned with the idea of proportional retribution, or with punishing the wrongdoer in proportion to both the wrongfulness of his or her acts, and the damages that are caused to the injured party by such acts. This Article will proceed in three Parts. Part I discusses the ways in which traditional contract law is typically said to be unconcerned with the wrongfulness of the breaching party’s behavior. Part II will discuss the leading theories regarding how contract damages ought to be awarded, paying particular attention to the corrective justice view emphasizing compensation and the law and economics view emphasizing efficiency. At this time, the retributive view will be introduced as an alternative theory by which courts tend to think about contract damages, and will define more clearly what, exactly, is meant by retribution in the context of contract law. Finally, in Part III, this Article will examine a number of contracts cases across several different remedial frontiers to show how courts frequently consider the wrongfulness of the promisor’s breach when determining which “compensatory” remedy to award, which, of course, suggests that what they are really doing is not really compensation at all, but retributively punishing the breaching parties for their wrongful conduct.