ContractsProf Blog

Editor: Jeremy Telman
Valparaiso University Law School

Monday, June 29, 2020

Hoffman and Hwang on The Social Cost of Contracts

Professors David Hoffman and Cathy Hwang have posted a new article, The Social Cost of Contracts, which argues that the current pandemic may pose certain special problems for contract law:

Sometimes, private parties’ performance of their contracts greatly increases the negative externalities borne by the public, in ways no one contemplated when the contract was formed. In the past, when the public’s share of the burden has increased dramatically, particularly in the case of disease, courts have sometimes declined to enforce contracts as written. Instead, courts have reformed contracts to ensure that the burden borne by society is acceptable. The coronavirus pandemic is another moment when ordinary contracts may become extraordinarily risky for the public. Gatherings—which some contractng parties have not canceled due to a fear of lost deposits, for instance—have caused clusters of viral spread in many communities. Now infamous examples include a corporate conference in Massachusetts a funeral and subsequent birthday party in Chicago, a church service in a suburb of Seoul, and a choir practice in Washington state, which have all been identified as events that caused widespread disease. Contracts for future performance—like the residential housing agreements signed by many college students today—would bring people together into close proximity and could spread disease.

This Essay makes two contributions to the literature. The first is theoretical. Building on literature in contracts, contract design, and other fields, it shows how the public participates in private contracting. It focuses particularly on the final gatekeeping function of courts, which usually enforce—but can reform—contracts.

The second contribution is practical. In extraordinary times, courts sometimes do not enforce contracts as written, in an effort to protect public health. Instead, courts turn to half-loaf and compromise solutions, including contract reformation and more equitable damage remedies. When deciding whether to perform contracts—or to hold counterparties to performance— parties should realize that previous courts can and have embraced compromise, rather than rote enforcement. Newly dominant modes of dispute resolution make such solutions more likely than ever.

The article is full of interesting cases and examples and – unusual for a law review article – fun to read!  With references to Dave Sedaris, how could it not be fun?

I think the authors are spot on at least if this case is any indication, although I think that the “social cost” calculus will change as the situation (public health and economic) evolves.

https://lawprofessors.typepad.com/contractsprof_blog/2020/06/hoffman-and-hwang-on-the-social-cost-of-contracts.html

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