Bentham House Annual Conference 2013
The Philosophical Foundations of Contract Law
||Does Distributive Injustice Matter to Contract?
Legal economists and legal philosophers tend to agree that contract law is not an appropriate means by which to advance distributive justice. Any attempt to incorporate claims of distributive justice into contract faces three problems. First, it can be arbitrary to impose the burden of redistribution on a party to contract when the underlying injustice is systemic. Second, the disadvantaged party has consented to the terms of the agreement, and these terms might exhaust obligations between the parties with respect to the transaction. Third, any attempt to correct distributions through contract adjudication may be futile, or worse, counter-productive.
A few liberal theorists, economists, and critical legal scholars have attempted to rebut one or more of these serious challenges to the significance of distributive questions to contract. Their arguments and others show that background distributions inform the content of private obligations, even in the context of agreement. The terms on which individuals are free to contract depend - descriptively, morally and legally - on the socio-economic positions of the parties. Both the threshold of consent that renders obligation 'voluntary' as well as the particular normative and legal consequences that follow from consent likewise depend on background social facts. Objections to distributive considerations in contract that rest on the institutional advantages of redistributive taxation sometimes exaggerate those advantages, but are in any case highly contingent on other social facts.
||Contract Is Not Promise; Contract Is Consent
In the 1980s, Charles Fried was right to focus on what was missing from both the "death of contract" and "law and economics" approaches to contract law: the internal morality of contract. But he focused on the wrong morality. Rather than embodying the morality of promise-keeping, the enforcement of contracts can best be explained and justified as a product of the parties' consent to be legally bound. In this essay, I observe that, in Contract as Promise, Fried himself admits that the "promise principle" cannot explain or justify two features that are at the core of contract law: the objective theory of assent and the content of most "gap fillers" or default rules of contract law. After summarizing how consent to contract accounts for both of these features, I explain that, whereas the morality of promise-keeping is best considered within the realm of ethics or "private" morality, legally enforcing the consent of the parties is a requirement of justice or "public" morality.
||Merchant Law in a Modern Economy
Drawing on empirical evidence from the Middle Ages to the present and theoretical arguments developed by neo-formalist scholars over the past decade, this Essay explores the uneasy fit between the jurisprudence of the Uniform Commercial Code and its Machinery for adjusting to change, and the needs of a modern outsourced economy. It concludes that when the effects of the Code on multi-agent firms dealing with other multi-agent firms are taken into account, it becomes clear that to support trade in the modern economy mere amendments to Article 2 will not suffice; commercial law must be rethought from the ground up.
||The Nature of Vitiating Factors
Voluntariness is central to the imposition of contractual liability. To what extent should we expect the vitiating factors or defences to be shaped by the positive arguments in favour of legally recognising and enforcing contracts in the first place? That is, do they simply negate the voluntariness condition of contractual liability? Or, do they reflect other values that qualify the value of voluntariness? If the latter, what are they and how can they be justified?
||The Ambitions of Contract as Promise Thirty Years On
When Contract As Promise was published in 1981 the regnant comprehensive views of the subject were the standard doctrinal account, as for instance the Restatement (Second), that roughly equated contract with promise and so aligned it with individualistic and free market principles, and a critical reaction to this view that rejected, even mocked the standard view and assimilated contract to the congeries of legal institutions subjecting-for good or ill-human behavior to social control. The signal works of that reaction at that time were Grant Gilmore, The Death of Contract and Patrick Atiyah, The Rise and Fall of Freedom Of Contract. Contract As Promise was an attempt to provide a comprehensive theory of contract law, rooted in individualistic, classical liberal premises. The presiding genius of the work was Kant. Specific doctrines that did not fit this template were explained (away) as anomalies, as inevitable intrusions from adjacent areas of law or as just plain mistakes. Since that time the critical (or Critical Legal Studies) approach to the subject-as to most other subjects-has more or less disappeared from the scene and the regnant theoretical approach, richly elaborated in and around contract law, is the economic analysis of law. This essay first, notes the striking congruence between contract as promise and the economic analysis of contract law; second, seeks to explain that congruence as well as the divergence between the two accounts; and third, considers the validity and the utility of seeking to impose a template of political morality on as multifarious and practical a subject as contract law.
||Economic Foundations of Contract Law
Since at least the time of Lord Mansfield, it has been a commonplace to view the law of contracts as an important tool for facilitating and regulating economic activity. But in order fully to understand this basic function, it is not possible to treat the law as an autonomous system. Rather, it is necessary to understand the substance of the human activity that contract law aims to govern, and the meaning of the promises and other communications that arise out of that activity. The economic approach to contract proposes to use the tools and methods of economics as the means toward such understanding.
This paper discusses the role of economic analysis in explaining, justifying, and critiquing the law of contracts and its effects on private exchange. It will discuss both positive issues (e.g., what motivates the practices regulated by contract law; what effect does law have on contracting behavior) and normative ones (e.g., is the law properly designed in light of such effects; to what extent should interpretation of legal rules and the design of legal institutions be based on economic as opposed to non-economic considerations; what implications the economic approach has for our talking and thinking about contract law). Finally, it will discuss whether an economic approach to contract law can be squared with other traditional or philosophical paradigms, and to the extent it cannot, how such inconsistency might be dealt with.
||Promise, Contract, Personal Autonomy, and the Freedom to Change One's Mind
Is it possible that, in a world without promise, people would be just as likely, or perhaps even more likely, to be autonomous? The paper takes issue with a mainstream view in contemporary literature on promise (and, similarly, contract) – a view by which the capacity to promise enhances personal autonomy, and can thus be explained and justified by reference to its value. The challenge to the mainstream view is animated by way of noting the possible autonomy-related value of a change of mind, and takes the shape of exploring some (perceived) qualities of promises that may be thought to render that practice exceptionally hostile to a change of mind – in particular, that promissory obligations are strict liability, that broken promises carry (often equally onerous) reparative obligations in their wake, and that the power of the promisee over the promisor appears to be ungoverned by any binding norms. Having set up – and ultimately dismissed – that challenge, the paper concludes with some related observations concerning promise, contract, and the relationship between the two.
||Efficient Breach is Dead; Long Live Efficient Breach
The theory of efficient breach is the best known, and the most controversial, product of nearly half a century of economic analysis of contract law. In its simplest form, which is the one that dominates the legal imagination, the theory argues that expectation damages are good because they allow, even encourage, a party to breach when performance becomes inefficient, thereby increasing social welfare. Many noneconomists assume the theory is well supported by principles of neoclassical economics. Thus critics commonly focus on the theory's moral failings, or on problems with the neoclassical approach more generally. But today no economic thinker defends the simple theory of efficient breach. Forty years of scholarship has established that even from the streamlined perspective of neoclassical economics, the simple theory simplifies too much. Expectation damages do not sufficiently deter some types of opportunistic breach. When a contract does become inefficient, other remedies can do as good or better a job of allowing parties to avoid performance. If expectation damages do provide efficient performance incentives, they might create inefficient incentives elsewhere in the transaction. And an exclusive focus on incentives ignores other welfare-enhancing functions remedies can serve, such as risk allocation and signaling. Many noneconomic critics of efficient breach criticize a theory that no economist would defend.
All this notwithstanding, contract theorists should pay attention to efficient breach. Most importantly, a revised theory of efficient breach demonstrates how remedies that apply at the end of a transaction can affect the terms chosen at its birth. In many transactions the remedy is likely to affect the price, complicating arguments about its fairness. Many parties are likely to prefer efficient remedies, posing a challenge to remedial theories that ignore efficiency altogether. And economic analysis suggest mechanisms lawmakers can use to delegate remedial choice to the parties while still giving weight to socially preferred remedies. Theorists who make principled arguments for one or another remedy should attend to economic analyses of remedial design, including the idea of efficient breach, which cast new light on these distinctive features of contract law.
|Jody Kraus and Robert Scott
||Virtue Ethics and Pluralism in Contract Theory
Theories that rely exclusively on either the value of autonomy or efficiency have dominated the last several decades of contracts scholarship. The contest between these kinds of contract theory mirrors the traditional divide in moral theory between deontic and consequentialist theories. In both cases, the contested theories are grounded in a single value. Recent scholarship in contract theory, however, rejects single-valued theories in favor of alternatives that take multiple values into account. This trend parallels the revival of virtue ethics in moral theory, which rejects deontic and consequentialist theories in favor of theories that take multiple virtues into account in determining the requirements of morality. Although pluralistic approaches to contract are not new, only recently have scholars developed and presented them as bona fide theoretical competitors to the extensively elaborated autonomy and efficiency theories that have dominated the field. Yet pluralistic contract theories have struggled to provide their theoretical foundations and defend their practical relevance. In this contribution, we argue that the theoretical foundations of virtue ethics provide the most promising source for constructing a defense of pluralistic contract theory. But we show that even if, contrary to our judgment, those foundations provide adequate support for virtue ethics, they fail to do so for pluralistic contract theories because they fail to satisfy a criterion of adequacy that applies to legal, but not moral theories - namely, that the exercise of political coercion must be publicly justified by the giving of public reasons. Even if moral judgments ultimately can be explained and justified only by non-public reasons, as we believe virtue ethics must claim, legal judgments must, to the greatest extent possible, be explained and justified by public reasons. In our view, the best defense of pluralistic contract theories must rest on the same kind of foundation that underwrites virtue ethics. But because that foundation ultimately rests legal decisions on non-public reason, it fails to explain how legal decisions generally, and contract decisions in particular, can provide the public justification necessary to justify the threat of political coercion that inheres in every legal decision.
|George Letsas and Prince Saprai
||Mitigation, Fairness and Contract Law
In recent times, there has been a growing consensus that the mitigation doctrine is incompatible with promissory morality, and is yet another example of the divergence of contract and promise. This has led some to reject the claim that contracts are promises, while others hold onto that claim but reject the mitigation doctrine as morally indefensible. In this paper, we argue that this divergence is merely apparent and not real. We justify the mitigation doctrine by appeal to first-order moral principles that mitigate the responsibility of a promise-breaker for loss caused by his breach in cases where that loss could have been easily avoided by the promisee. In those contexts, we argue that it is unfair for the promisee to blame the promisor for the loss caused or claim compensation from him.
||Pedestrian Good Faith and the Constitution of Contract
The duty of good faith in performance is not a separate undertaking of the parties to a contract but rather an approach towards whatever undertakings the parties have adopted. Good faith thus goes to contract obligation's form rather than its substance. Good faith is, fundamentally, an attitude of respect for the contract relation, an acknowledgement of contractual solidarity. To display good faith in contract performance is simply to recognize the authority of the contract and hence the authority of one's counterparty to insist on performance according to the contract's terms. To reject good faith is, in effect, to deny the contractual obligation to which good faith attaches. Good faith establishes a mandatory duty because it constitutes contract obligation.
The duty of good faith in contract performance is thus a private analog - as between the contracting parties - of the public duty to obey that attaches (defeasibly, of course) to every law and arises among citizens generally. The analogy to the duty to obey the law reveals something important about good faith. The duty to obey the law is not a duty to act in accordance with justice or natural law; rather, it attaches to positive law. Similarly, the duty of good faith in performance is not a duty to coordinate optimally; rather good faith attaches to the positive contract - to the contract that was actually agreed (and not an ideal alternative). Natural justice has long tempted political thinkers towards skepticism concerning the authority of merely positive law. Similarly, rational idealisation associated with utopian good faith tempts theorists of private law, especially those writing in the economic tradition, to reform the positive terms of actual contracts. But although dominant (economic) theories cast good faith in such utopian terms, as perfecting contracts along the lines parties ideally would have struck, the better view makes good faith a pedestrian ideal.
Good faith also takes the measure of contractual solidarity. Good faith allows contracting parties to remain as self-interested, as much at arm's length, and as free within the contract as they were without it, except that they must accept, as a side-constraint, that the best interpretation of what they agreed to in contracting binds them to limit their self-interest. This again has an analogy in public law, this time in the liberty that is nurtured by a duty to obey the positive law and that a duty to obey natural law would place under threat. Contractual solidarity, so understood, is not lesser than but rather different from more intimate, natural-law-like fiduciary forms of solidarity. Indeed, good faith underwrites a distinctive, intrinsically valuable relation among the parties at all, only in respect of its connection to their actual, positive intentions. This is another sense in which good faith's pedestrianism enhances rather than diminishes its moral character.
||The Practice of Promise and Contract
This paper defends an instrumental justification for the institution of contract law, in the following sense. The most basic reason to have contract law is to make possible socially beneficial transactions that otherwise would not occur. The paper thus rejects corrective justice accounts of contract (whether grounded in promisees' expectation or reliance interests) and the idea that the point of contract law is to enforce the moral obligations of promisors or sanction their breach. A strong connection between contract and promise is nonetheless defended. For want of space, the paper assumes a practice-based account of the morality of promise defended elsewhere. The role of contract law is to support that practice and encourage its use, as well as to provide more detail to its requirements. The upshot is that where there are clear rules in the practice of promise, contract law should have the same rules. To take the most important example, if the point of contract law is to support the practice of promise, we would expect that the consequence of breach of contract should be a court order that the promisor perform, or at least pay the money value of performance. This is what we do find. Suggestions that there is no compelling rationale for this convergence on performance or expectation remedies are mistaken. Other contract rules are discussed, including the limitation of damages for avoidable loss in the common law, to illustrate the limits of the constraints the practice of promise puts on the rules of contract law.
||Is a Promise the Transfer of a Right?
From the Natural Lawyers of the seventeenth century down to the present day, many moral philosophers and legal theorists have maintained that a valid promise involves the transfer of a piece of normative property, namely a right, from the promisor to the promisee. In this paper David Owens will assess the merits of this theory and distinguish it from the idea that a promise places the promisor under the authority of the promisee and thereby serves a normative interest of the promisee's.
||Promises, Agreements, and Contracts
Whilst both species of voluntary obligations, there is a robust and important distinction between promises and agreements, or so James Penner will contend. He will also contend that promises are much more unusual than they are normally thought to be, and furthermore, they typically arise in 'pathological' situations where intimate relationships are breaking down in one way or another. Agreements, by contrast, are ubiquitous and generally non-pathological: agreements are an important and beneficial technique of communal or collective practical reason. Finally, he will contend that these considerations lead us to reject the idea that the power to enter into agreements is dependent upon a convention.
|Margaret Jane Radin
||An Analytical Framework for Legal Evaluation of Boilerplate
Boilerplate - the fine-print terms and conditions that we become subject to when we click 'I agree' online, rent an apartment, enter an employment contract, sign up for a cell phone carrier, or buy travel tickets - pervades all aspects of our modern lives. Legal evaluation of boilerplate has often been a rubber stamp relying on 'freedom of contract'. When courts occasionally disallow a boilerplate term or set of terms, they most often rely on the doctrine of unconscionability and the notion of 'expectation' (that is, whether the court thinks the term should have been reasonably expected by the recipient). Unconscionability tends to be an inadequate doctrine for evaluating mass-market boilerplate, because case-by-case evaluation does not reach the fact that mass-market boilerplate can replace the law of the state with the 'law' of the firm. For various reasons, 'expectation' is an unsatisfactory way to evaluate boilerplate, but perhaps chief among such reasons is the normative ambiguity between what we 'expect' because we have a right to it (normative 'expectation') and what we 'expect' because empirically that is what the marketplace looks like (positive 'expectation').
To improve legal evaluation of boilerplate, I offer a different analytical framework, one that takes into account the nature of the rights affected, the quality of the recipient's consent, and the social dissemination of a boilerplate rights-deletion scheme (that is, the extent of the use of a terms or set of terms). The analytical framework offered takes into account that some rights may be market-inalienable, in which case they may not be divested by means of boilerplate or otherwise, and some purported contracts may clearly lack consent, in which case that purported contract cannot operate to divest rights, whether by boilerplate or otherwise. It is important to realise that there are many cases in the grey middle-ground; divested rights that are important but not fully market-inalienable, consent that is dubious but not obviously lacking. Such cases form perhaps the major proportion of mass-market boilerplate. To improve legal evaluation of such cases, the analytical framework offered takes into account the continuum representing varying degrees of partial market-inalienability and the continuum representing varying degrees of dubiousness of consent. The analytical framework also takes into account the mass-market nature of some boilerplate terms or sets of terms, both with regard to evaluation of enforceability and with regard to the nature of appropriate remedies.
||Is there a Reason to Keep a Promise?
In previous writing Joseph Raz argued that it is a mistake to approach the case for the normative standing of promises by focusing exclusively on the consequences of keeping or breaking them. As he argued, and will repeat in the proposed chapter, the case rests on the desirability or value of people having the power to promise, or not to promise as they wish. It is an autonomy-based argument. This is key to the content-independent character of the duty to keep promises. This very feature of the duty to keep promises presents a problem: If all promises derive from one value, all justified by it regardless of their content and circumstances, does it not follow that in some way there is one and the same reason to keep all promises, i.e. respecting the autonomy value that underpins them all? Even though this hypothesis is consistent with the existence of secondary context dependent reasons for keeping this or that promise, so that the final reasons for keeping various promises varies, the hypothesis is implausible, not least because the supposed core and identical reason for keeping all promises does not exist. This paper explores the puzzle and offers a solution that is consistent with the content independent character of promises, and that allows that the reasons for keeping them need not share the same basic reason.
||The Relationship Between Rights and Remedies in the Law of Contract
As the title suggests, the paper will discuss, in a general way, the nature of the relationship between rights and remedies in contract law. Stephen will focus in particular on the question of what the kinds of remedies that are available in contract cases tell us about the nature of primary contractual rights.
||What is a promise? What is a contract?
Promises and contract are both actions in the world for which the doer is responsible. They cannot be made simply by an act of will, nor does our lack of any intent to make such a promise or contract mean that we have not done so. Once we have understood the phenomena that require explanation it will be seen that some of the standards attempts to either justify or criticise the law of contract as it is are mistaken.
||Contract, Promise and Objectivity
What does the objective approach taken to contract formation and interpretation tell us about the basis of contractual obligation? Some explain the rule as serving an evidential function, making it easier for courts to determine what is promised and owed. Others see the law's priority of the appearance over the reality of intention as incompatible with a promissory understanding of contract. But it is likely that a similar objective approach applies to promissory (moral) obligations. So the question becomes: how might we account for this moral principle of promissory objectivity? Does this follow simply from the objectivity of meaning and communication, such that promissory and contractual obligation cannot but be objectively determined? This paper will explore what objectivity tells us about the basis of promissory obligations and about the rational distinctiveness of contract law.