Expectation Damages, the Objective Theory of Contracts, and the 'Hairy Hand' Case: A Proposed Modification to the Effect of Two Classical Contract Law Axioms in Cases Involving Contractual Misunderstandings

Abstract

When established legal doctrine is applied to the facts of a case and the result appears unjust, a modification of or exception to the legal doctrine should be considered. A review of the facts of contract law's most famous “expectation damages” case-Hawkins v. McGee-shows that the court's application of established doctrine resulted in an unjust decision. A review of the trial transcript in Hawkins has uncovered that the facts were likely different from those commonly portrayed, and the case likely involved a misunderstanding between Dr. McGee and George Hawkins with respect to what Dr. McGee was promising. This raises the question whether the general rule of basing expectation damages on an objective interpretation of the breached promise should be modified in such a situation. This Article takes the position that such an exception should be created. In a situation in which the parties attach materially different meanings to the terms of a contract, the appropriate measure of damages for breach should be either an amount designed to put the injured party in the position he or she would have been in had the promise been kept, based on the breaching party's intended meaning of the promise, or an amount to protect the injured party's reliance interest (whichever is greater).

Keywords: Contract law, expectation damages, objective theory of contracts, Hairy Hand, misunderstanding, damages

JEL Classification: K12, K40