Contract as Exchange
Most people agree that the institution of contract serves autonomy—or that it should. But how? Philosophical theories of contract link contract and autonomy by way of an appealing intermediate principle, such as the authority of the individual will, promissory morality, or conventions of agreement. However, each of these theories is focused on the mental and verbal acts surrounding contract and is thus at odds with both contract as a social practice and contract law. The theories fail to account for basic features of modern contracting such as anonymity, mass scale, and market determination of contract terms—facts to which both the common law and statutory regulation have long adjusted. The so-called objective theory recommends an outward turn, but it has been reduced to an epistemic constraint that reflects the limits of communication and evidence; it did not achieve the expansion of perspective that it promised.
In this Article, I propose a different approach. “Contract as exchange” emphasizes what people are trying to do when they contract. Contracting parties do not will, promise, or agree for the sake of will, promise, or agreement; their objectives in contract are material. Contract as exchange links autonomy to contract by way of the latter’s capacity to get people what they want from complete strangers using the mechanism of exchange. The institution of contract serves the principle of autonomy but, on this view, its contribution is contingent, not inevitable. Contract succeeds as an institution when all members of the political community can access the market to exchange their entitlements for ones that they prefer, thereby securing the cooperation of others for their own projects while contributing to the projects of others. Contract fails to promote autonomy when people face barriers to access or when their encounters with the market go so badly that their life plans are derailed.
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Introduction
The most basic question in contract theory is why the state should enforce an agreement to buy and sell widgets. Philosophical theories of contract point to the principle of autonomy. In the dominant view, holding the buyer (or seller) to her commitment empowers her by recognizing her power to bind herself through her own will and words. On this view, the promises that the buyer and seller make create a valuable relationship of trust and mutual respect that the state should enable. But this view of contract is at odds with both how people experience contract and how we regulate it. A person usually buys widgets because she needs widgets to do something else. Her purchase is a highly constrained exercise of choice that promotes her ends outside of the immediate transaction. We do not regulate her purchase with the aim of enabling an ethically significant relationship with the seller but rather with the aim of ensuring there is a competitive and safe market for widgets.
While several philosophical theories of contract have illuminated the institution of contract, none has satisfactorily made sense of it. In this Article, I propose “contract as exchange” as a paradigm for thinking about contract that explains what we are doing better than existing theories based on will, promise, or agreement. Contract as exchange builds on the core insight of those earlier theories: The institution of contract bears a special relationship with the principle of autonomy, or the fundamental human aspiration to live life on one’s own terms. But while previous autonomy-oriented theories of contract have focused on the mental or verbal acts through which we enter contract, contract as exchange emphasizes the material exchange achieved by contract. The dominant philosophical approach to contract today is contract as promise; this approach interprets the practice of promising to promote autonomy by enabling choices and valuable relationships. But people do not enter contracts either to make those choices or to enter those relationships; they navigate a limited choice set to get what they need or want from other people. Contract as exchange takes the practice of exchange to promote autonomy by giving people access to markets so we can advance life projects that we could not conceivably pursue without the cooperation of others.
The materialism of contract as exchange helps us resolve a basic tension between the animating principle of modern contract theory[1] and a basic principle of modern contract law. While most theories begin with the principle of autonomy, that principle has not been fully reconciled with the principle of objectivity that is by now well-entrenched in contract law.[2] Needless to say, neither the complex body of law on contract nor the sophisticated literature about it withers under the weight of this tension. We have developed ways to accommodate them to each other. But the methods we rely on are unsatisfactory.
The prima facie tension is this: On the one hand, autonomy talk in contract is usually about vindicating the autonomy of a contracting party by respecting her choice to assume whatever obligations she has chosen. We might understand her decision to contract as an exercise of will, the making of a promise, or a moment of agreement; the critical thing is that she is choosing to do these things, and it is the moral significance of that choice that justifies giving legal effect to it. The choice is morally significant only if it is voluntary, and its voluntariness implies a conscious moment of undertaking.
On the other hand, there is the other contracting party. He is interested in holding the other party to the objective meaning of her words and conduct, and his interest in enforcement does not cleanly link with the first party’s interest in choice. While choice is essentially an internal moment—or at least, its significance for autonomy turns most palpably on the subjective exercise of choice—the other party’s interest in enforcement turns only on what was said and done. Just as autonomy talk tends to neglect the party on the receiving end of obligation, the legal principle of objectivity does not give any weight at all to the internal thought processes that lead a contracting party to assume obligation. It takes no interest in her subjective will, the voluntary character of her undertaking by way of promise, or even whether she and her counterparty were of “one mind” on the content of their agreement. Instead, objectivity demands that we attend to what has happened out in the world.
The tension is apparently resolved by asking how a party’s choice manifested. That is, we do not now ask whether a party really intended to offer or accept but only whether it was reasonable for the other party to think that she did.[3] Asking about intent this way makes it an objective query.
Still, this move is ambiguous between two kinds of evidence that might give someone reason for thinking that the other party has assented: words or deeds that directly indicate a state of mind and words or deeds that speak to whether it would be reasonable to infer intent in a general way given contextual facts. Consider, for example, whether you have reason to think that I accepted your offer to renew my licensing agreement. You might think I accepted your offer to renew because, after you reminded me that it would shortly expire unless it was renewed, I replied “okay”—though this reply is not tantamount to a crystal-clear acceptance of renewal since I might mean only to acknowledge your reminder. Or you might think that I accepted because I continued to use the trademark I had licensed after it would have expired absent renewal.
The principle of autonomy as traditionally understood would push us to “objective” evidence of the former kind, that is, testimony about what a party said, or emails that might evince her understanding of the contract’s terms. But the principle of objectivity fully realized would go much farther than any query into a particular party’s state of mind. It would emphasize context and what would be reasonable behavior to others in light of common knowledge. In this example, it will take into account the common knowledge that I have no right to use your trademark without an active license; that is, it would have been unreasonable for me not to renew if I were going to continue using your trademark.[4] The principle of objectivity pushes us to zoom out rather than zoom in to assess contextual facts that a third party would deem relevant irrespective of whether those facts informed the subjective intent of the party whose assent is at issue. Just as autonomy is best conceived as a nonbinary principle that generates reasons to favor some understandings of contract law over others, so too does the principle of objectivity fail to issue a single directive for contract law but instead gives us reason to prefer some understandings of it over others. It will, among other implications, allow more attention to the social reality within which contractual choices are made. This Article aims to revisit our theoretical commitments in contract theory in order to permit our theoretical lens to zoom out, unobstructed.
Dominant theories of contract remain tightly focused on the internal life of contracting parties. Will theory and closely related transfer theories posit the power of a party to transfer her entitlements through the exercise of will.[5] Contract as promise focuses on the autonomy interest that parties realize by assuming obligations that others recognize as binding.[6] Contract as agreement zeroes in on the intersection of plans between contracting parties, plans that are the object of shared meaning.[7] Each theory locates the normative value of contract in what the practice can do for the individual moral life of contracting parties: Contract empowers the individual by giving legal effect to her will, her normative power of promise, or her capacity for life planning.
Contract as exchange takes a different tack. It understands contract as promoting autonomy for individuals by promoting their choices in a large, anonymous market society like the one we have, not by maximizing the choices that are available with respect to this or that transaction. Maximizing autonomy in the latter sense treats the transaction in isolation; it takes a party’s resources and the market backdrop of the prospective exchange as fixed. By contrast, in contract as exchange, three assumptions about the social backdrop of contract inform how autonomy translates into an institutional mandate for contract law.
First, the large scale of background markets makes it the case that exchange is not random in the way we might expect in smaller settings, just as we expect the mean of a larger sample to be closer to the statistical average (for example, closer to half of one thousand coin tosses will be tails than of ten tosses). In competitive markets where transaction costs are low, sellers are largely price takers, and buyers can expect to pay about the same price for the same good no matter where they buy.[8] When individual buyers pay aberrant prices, we should ask whether these prices reflect high information costs.[9] Large scale has also introduced more extreme negative and positive possibilities than in small markets. On the downside, the scale of markets has made it financially possible to sustain products and services that are devastating for an unlucky few but “worthwhile” for millions of others for whom nothing goes wrong. Without adequate contract protections, the lives of those unlucky few are effectively sacrificed for the benefit of others. On the positive side, the scale of modern markets has made them an important site of participation in national or even transnational communities; access to the market is in fact a prerequisite to full membership in those communities.[10] Market access is also the gateway to a far richer array of social roles than were previously available—an array that should now be available to all people.[11]
The second notable feature of markets is their impersonal quality. Market norms reflect social norms; they do not usually emerge from meaningful personal relationships between individuals.[12] Although contracts are relational in the limited sense that they turn on the kind of relationship that a contract governs, they usually turn on social facts about relationships of that kind (for example, employment relationships between firms and top management or employment relationships between firms and poorly remunerated staff) rather than the idiosyncrasies of personal relationships. We should look to social practices, then, rather than individual histories, to fill out missing terms. While people obviously care about their personal relationships, they do not usually use contract to manage them.
Finally, individual contracts are just the stuffing of the market—that is, they emerge from a mass of potentially millions of other contracts, and they are a marginal addition to that mass. The terms on which any two parties transact turn as much, if not more, on their respective market positions than on any subjective preferences that the parties bring to their deal. The market determines the transaction in all but its details: It provides parties with the motivation for entering specific transactions and sets the terms on which a deal is viable. But contracts take place in markets in another sense as well: They comprise the market. They help determine subsequent transactions by the parties, with each other and with third parties, and they revise the parties’ market standing, sometimes slightly, sometimes dramatically. And because it is a market society, by informing how parties fare in the market, contracts help determine the social roles that those parties may play in society more broadly, including whether they are full participants in the political community. Contract regulation, then, is market regulation, and it should aim to improve the range and quality of the social roles available to its participants.
Choice is not absent from this picture of modern commerce.[13] But choice has a more limited and less mystical role than it is traditionally assigned in contract theory. Parties make choices about whom they will contract with; but that choice is not sui generis. It does not reflect primarily the inner lives of contracting parties, but rather the external constraints to which they are subject. The most important choices people make in the market concern what they will buy and sell, not from whom or on what terms. Although their choices are limited, choice remains highly consequential in this picture. But the consequences are not just those that contracting parties seek out. Contracts typically effect marginal welfare improvement; but when things go wrong, they may be instruments of spiraling misfortune. Contract as exchange attends to the possibility of loss alongside the possibility of gain.
On a theory of contract that locates the principle of autonomy in the formal structure of obligation, nothing that actually happens to people as a result of contractual obligation matters very much. But from the perspective of contract as exchange, to vindicate a contract, it is inadequate merely to give choice legal effect; a contract must serve as a real mechanism of control. Contract law must actively redeem the moral potential of choice as a tool by which individuals exercise agency by ensuring that contract serves the purpose of empowering people to navigate a large, anonymous market. The role of contract law is to realize the potential of market choice as a lever over the course of one’s life. Because that kind of choice is not built into the mechanics of contracting, we cannot take it for granted. Our collective governance choices must make it so.
Contract as exchange has two features that should help us better grasp the moral dynamics of contract. First, contract regulation should aim to facilitate the kinds of choices that people care about in contract—namely, a choice with respect to the goods and services they can afford, not the terms on which those things are purchased. That is, contract as exchange embraces the priority of contract ends over means that most autonomy-based theories now eschew. Second, because the institution of contract is, in contract as exchange, fundamentally an allocative one, it is not essentially a private practice but instead a recognizable part of the basic structure of our society, as the latter was conceived by John Rawls.[14] As the building block for the market, contract must respect participants’ political autonomy even as it promotes their private autonomy by enabling them to pursue private projects.[15] We respect the political autonomy of contracting parties by asking how the institution can be justified to them.[16] This query in turn demands that the institution comply with principles of justice, including distributive justice, that apply to all elements of the basic structure. Contract as exchange therefore draws our attention to the way contract works (or does not) for the least advantaged social groups—those subject to economic constraint or simple misfortune—for whom contract is potentially least useful.
The materialism of contract as exchange might lead a reader to associate it with theories of contract that are not primarily interested in the principle of autonomy.[17] In particular, one might mistake the interest in contract’s economic function with a commitment to wealth maximization. But while material resources are recognized as critical to our life projects, wealth is morally important in contract as exchange only to the extent that wealth is diffuse, thereby empowering all members of the political community to benefit from the power of market exchange. One might instead conflate contract as exchange with the neo-Aristotelian principle of equality of exchange. But the latter principle demands that each party benefits from every transaction.[18] By contrast, contract as exchange conceives of contract as an institution and asks how it serves each member of the community in their lifetime, not on every occasion that they encounter it.
In Part I, I will discuss three major theories of contract, arguing that they have very gradually moved outward from inside the heads of contracting parties but have yet to make the leap to full market-orientation that the principle of objectivity requires. This survey will group scholarship under the headings of contract as an exercise of will, contract as promise, and, finally, contract as agreement. Part II will lay out contract as exchange as an alternative way of thinking about contract in large, anonymous market societies. It ascribes to the institution of contract the aim of securing for all members of the political community market access, profitable exchange, and protection from knock-out blows—so that everyone has the chance to pursue their own life projects. Part III will consider how well contract as exchange fits contract law as we know it and how the theory might inform some ongoing debates.
I. Contract in the Head
In Part I, I describe the three most influential recent philosophical theories of contract: will theory, promissory theory, and more recent efforts to develop a view that we will refer to as agreement theory. Each of these theories was or is influential for good reason; each captures something normatively distinctive and compelling about contract, and the latter two stages improve on the earlier ones. But none of the three moves entirely outside the heads of contracting parties. Each theory regards autonomy only as a feature of the inner lives of moral agents and disregards the public lives of contracting parties as political agents.[19] As a result, they each distort our understanding of what justice requires of contract law.
After describing each theory, I will argue in the last two Sections, respectively, that none can respond fully to the challenge of objectivity, and each is wholly deaf to social claims on the institution of contract. Recognizing its limitations, theorists and regulators took a step back from will theory in the mid-twentieth century. But theory and practice then moved forward in different directions. The scholarly turn to promise and then agreement has proven inadequate to meet the challenges from objectivity and social reality that were already posed almost a century ago.
A. Existing Autonomy-Based Theories
1. Will Theory
Will theory offers a compelling narrative that links the wide berth it claims for the contracting will with the moral principle of autonomy. On this view, the law respects the will of contracting parties by giving legal effect to their free choice to transfer entitlements. If moving out of our physical way allows us to exercise our will with respect to physical movement, removing legal impediments to contract creates a new frontier for our will. It gives our will legal powers that are not natural but socially constructed, a sort of power no less essential for social beings. It is perhaps most essential for a liberal state to forebear from imposing its will at the expense of private will precisely when we are under the state’s thumb.
The will theory of contract is closely related to transfer theories. The latter see the right to contract as essentially derivative from the right to property. Individuals have entitlements in objects, real estate, and their own labor; part of what it means for them to “own” these things is that they may alienate them at will. The right to alienate on terms of their choice flows from their underlying control interest in the asset.[20] On this view, the duty of the state to enforce promises to transfer is just one way in which the state has a duty to protect property.[21]
Both will theory and transfer theory thus tend to support what we popularly refer to as “freedom of contract.” On their face, they make a case for noninterference with private exchange because any restriction either curtails the underlying property interest from which the right to contract is derived or abrogates the power of the will to transfer property.[22]
Will theory has a long history in continental Europe. In the eighteenth century, Immanuel Kant developed a version of will theory known as “the law of continuity” for its ability to explain “derivative acquisition” of property from one person by another.[23] Notwithstanding the influence of his moral theory on contemporary promissory theory,[24] Kant himself did not assign legal significance to the moral act of promise in contract; he focused instead on the transfer that was effectuated by way of promise.[25]
While will theory dominated in Europe, in the United States, common law thinking about contract was pragmatic and pluralist rather than systematic or deductive. Only in the early nineteenth century did American scholars embrace will theory and disavow a loose commitment to substantive justice in exchange.[26] Morton Horwitz associates the rise of will theory with industrialization, arguing that, with the rise of commodity goods, the function of contracts transitioned from transfer of title to protection of future expectations; and because value came to be seen as inherently subjective, substantive justice was regarded as arbitrary.[27] James Gordley, on the other hand, implies that American contract scholars were looking for systematicity for the first time and found it in will theory, however flawed.[28] Gordley emphasizes that will theory was first and foremost an academic romance. It did not necessarily change, at least initially, how cases were decided; only how they were explained.[29] Limits on freedom of contract were not abolished; they merely became puzzling.[30]
American proponents of will theory went farther than their European counterparts in adopting the politics we now associate with will theory: a commitment to “freedom of contract” that entails skepticism about doctrinal developments in case law or statutory regulations that would enforce unintended bargains or excuse bargains freely made.[31] Earlier iterations of will theory had sought primarily to justify contract liability and enforcement as existing practices. But American will theory made new political claims on contract.[32] It rejected state intrusion in contract on substantive grounds but simultaneously demanded state enforcement of terms pronounced by individual will.[33] Under will theory, the law of contract became like the law of estates.[34] Courts recognized property claims based on the directions of the previous owner without applying any substantive criteria of justice.[35]
Some contemporary theorists have offered updated versions of will theory. Andrew Gold argues that contract is best understood as a transfer of property, but the relevant property is not the object transferred but “property in a promisor’s future actions.”[36] Gold’s approach is recognizable as will theory because in familiar fashion it derives contract rights from “principles of just property acquisition recognized in other settings.”[37] The abstraction from property rights in objects (for contracts in goods) and the body (for contracts in services) to rights in future action helps to bring Gold’s theory closer to contemporary accounts focused on promise.[38] However, it does not offer what earlier will theorists also lacked: an account of why the system of property rights on which they theoretically rely must look just as they describe it. In particular, they do not explain why property ownership entails a right to transfer by way of contract as we know it.[39]
As the influential legal scholar Roscoe Pound observed, “[f]or the greater part of a century, American courts strove valiantly but vainly to put the whole law in terms of the will.”[40] They never succeeded. Even in the period when will theory was ascendant, principles of equity, the women’s movement, rules around common carriers and inns, and increasing pressure for labor regulation challenged will theory intellectually and in practice.[41] We will return to their critiques in Part II.B. But first we will study the next liberal theory of contract that arose to carry forward the normative punch of will theory in a fresh and compelling new form.
2. Promise Theory
Will theory claimed a lot for itself: It purported to require not only that contract law give legal effect to the individual will but also that contract serve no other master. Not only did will theory abjure reference to any social objectives that contract might serve, but the theory was also so grounded in the ambitions of the individual will that even the other party to contract was an afterthought. As we have seen, earlier iterations of will theory that preceded its rise in nineteenth-century American legal discourse, as well as the more contemporary version offered by Gold, did not suffer from this narrowness. In the end, will theory asked too much of contract, and American contract theorists largely abandoned it. In its place rose legal realist and social policy-oriented approaches to contract, culminating in the overwhelming tide of legal economics in the late twentieth century.[42]
Then, to save will theory from itself, came a new way of thinking about, or at least a compelling new statement of, the relationship between contract and autonomy. Charles Fried published Contract as Promise in 1981 and almost immediately reinvigorated philosophical inquiry in the field.
Fried and philosophers of contract after him took up the mantle dropped by will theory.[43] They too posited a special relationship between contract and autonomy, and they too claimed that contract empowers individuals by giving legal effect to their choices. But American promise theories of contract made two important additional moves. First, they backed off the claim that the law of contract was determined by their chosen principle (the sanctity of promise), in the way that will theory had claimed that the law of contract was bound to respect the demands of a free will. Promise theorists claimed that contract should promote autonomy, not that its rules were deducible from a promise principle. Second, promise theorists argued that the practice of promise itself serves morally valuable relationships that the law of contract in turn promotes and supports. Compared to the individual mind that dominated will theory, the promise principle looked outward beyond individual agents to encompass their relationships with promisees.
The demotion of autonomy from its role as a compulsory moral rule to a more ambient aspiration received its biggest early boost from Lon Fuller.[44] Duncan Kennedy argues that Fuller converted autonomy from a constraining principle to a guiding principle.[45] Contract law now had to balance the autonomy principle with other legitimate policies.[46] This move immediately made the autonomy principle less threatening to the welfarist and the equitable agenda of modern contract.
The recasting of the relationship between autonomy and contract was not merely strategic, though. Promise theory also offered a more complete story about how and why contract can serve autonomy. It also made sense of the phenomenon that, in fact, individual will has never been given free rein in contract or anywhere else in the law. Will theory in its American incarnation never really explained why autonomy required that legal systems delegate lawmaking authority to private individuals via contract. As discussed above, it posited this delegation as following inexorably from the property interests that people have in the entitlements they trade in contract. But without a naturalistic understanding of property law, this view begged the question of why property ownership entailed particular rules of alienability.
Promise theory offered an alternative justification for enforcing parties’ privately assumed obligations. It looked to the “values served by agreement-making.”[47] The broader range of values served by mutual promise could explain why contract sometimes declines to defer to the dictates of individual will.[48] Although promise theory remained focused on the moral life of the promisor, its interest in the relationship that promises enabled or created brought the promisee into the picture.
Although Fried revived autonomy-based theories of contract, his own attitude on some of these questions is ambiguous. Scholars disagree about the extent to which he accepted that contract might have purposes outside of the promissory principle.[49] Although Fried implies a kind of absolutism by invoking Kant’s categorical imperative to explain the promise principle,[50] Kant himself never relied on any moral duty to keep promises to justify contractual duty.[51] In some moments, Fried sounds like a will theorist, such as when he declares, “The moral force behind contract as promise is autonomy: [T]he parties are bound to their contract because they have chosen to be.”[52] He also implies that parties have no duties to each other outside the ones that they choose to assume in contract.[53]
Still, to this reader of Fried, it is evident that Fried’s approach is less dogmatic than will theory at its height.[54] The very fact that Fried does not attempt to explain central doctrines of contract like consideration and expectation damages implies that he believed other principles were at work. Moreover, while Fried writes of promise as a practice that communicates respect between promisor and promisee (where such respect is morally compulsory), he also describes it as a convention worthy of respect because it maximizes freedom for everyone by allowing a universally recognized mechanism of commitment.[55] The idea of promise as instrumentally useful to autonomy is even more evident in Fried’s claim that the practice is morally valuable because it promotes trust.[56]
In any event, other neo-Kantians writing about contract around the same time as Fried adopted a more clearly instrumental attitude toward promise. Even if breach of promise were a wrong by breach of a categorical duty, the duty to perform a promise no longer stood as a deduction from practical reason. Rather, the duty now hinged in part on the worldly support that a practice of promise provides personal relationships. If breaking a promise is wrong because it undermines the practice of promising, and if contracts consist of promises, breaching a contract is wrong for the same reason. For example, Joseph Raz argues that the “purpose of contract law should be not to enforce promises, but to protect both the practice of undertaking voluntary obligations and the individuals who rely on that practice. . . . One protects the practice of undertaking voluntary obligations by preventing its erosion — by making good any harm caused by its use or abuse.”[57] Raz took the express view that it was not proper for law to enforce voluntary obligations as such.[58]
T.M. Scanlon offers an account of the moral obligation to keep promises that turns on its assurance function.[59] He argues that “the obligation generated by a promise depends on the fact that in making the promise the promisor creates an expectation that the promisee cares about.”[60] The duty to keep promises, on his view, is just an instance of a larger family of obligations not to disappoint expectations that we have led others to form about our own future conduct.[61] This duty reflects the strength of our moral interest in receiving and relying on assurance. By making certain promises legally enforceable, the state enables promisors to provide more effective assurance than their nonlegal promises could offer standing alone “[s]ince the moral motives on which promises rely often fail to move people to keep promises they have made.”[62]
While neither Raz nor Scanlon was conventionalist about promising, they both characterized the practice of promise as a morally valuable one worthy of institutional support. It was natural in this theoretical environment for contract scholars to characterize contract as a legal device by which we support the practice of promise.
Promise theorists like Seana Shiffrin and Daniel Markovits subsequently offered sophisticated accounts of the relationship between promise and contract that more clearly moved contract into a support role with respect to promise and then promise into an instrumental relationship with autonomy.[63] While Shiffrin is clear that “the rules of promissory commitment generally do not demand authentic endorsement or performance for their value,”[64] she argues that contract nevertheless must accommodate the demands that promissory morality places on contracting parties, both to respect their individual moral agency and because “a robust culture of promissory commitment is necessary for a flourishing political society.”[65]
While breaking promises is a moral wrong, Shiffrin also regards making promises as itself an affirmatively valuable act. Promises, on her view, allow parties to “reaffirm their equal moral status and respect for each other under conditions in which possibly divergent present or future interests create vulnerability.”[66] The moral practice of promise thus contributes to the development of morally valuable relationships that manage the damaging possibilities of dependence by giving vulnerable parties claims on their advantageously situated partners. Contract makes public this egalitarian rearrangement of their interests.[67] Shiffrin argues that we have a political interest in supporting “such public declarations of equal status and such good faith efforts to manage diversity and vulnerability morally.”[68] Contract “is not an effort to legalize as much as possible the interpersonal moral regime of promising, but rather to provide support for the political and public values associated with promising.”[69]
Daniel Markovits also offers a theory of contract rooted in the moral value of promise. Promise, and especially contractual promises, in his view, creates a community of recognition and respect. Collaboration between contracting partners is a kind of arms-length cooperation whose value lies in its form.[70] Specifically, the formal requirement of promise that the promisor subordinate her will to the promisee’s ends creates a respectful relation; breach of promissory duty is then a betrayal and estrangement.[71] Markovits analogizes the kind of community created by promise and contract to the thin community that truth-telling creates: Promisor and promisee, like parties to an honest conversation, engage each other on terms that they can both share.[72] Contract law’s main purpose is to sustain such collaborative micro-communities between contracting pairs.[73]
Like Shiffrin, Markovits regards the relationship enabled by promise as morally valuable and thinks that the moral value of contract lies in facilitating those relationships rather than in policing the wrong of breach. Neither Shiffrin nor Markovits claims that contractual relationships generate their own moral imperatives that control the content of legal doctrine. But even though they do not reject rules aimed at regulating distribution as such, they end up in a place, like Fried, that is inimical to an ad hoc appeal to distributive consideration in resolving the obligations of parties under terms that those parties previously adopted.[74] In contract as promise, the central purpose of contract law is supporting the moral practice of promise. Given this commitment, promise theories of contract have little room for considerations that speak to contracting parties’ other moral interests.
3. Agreement Theory
Promise theories take more interest in the promisee than will theory does. But the promisee’s role in promise theory is merely one of acceptance. That is, the promisee (of, for example, a promise to deliver widgets) must “take up” that promise for it to be morally and legally effective. But the fact that the promisee is herself a promisor or undertakes an obligation of her own (for example, a duty to pay for the widgets) is merely incidental in promise theories of contract. The relational value of promise for Fried, as well as Shiffrin and Markovits, does not depend on reciprocity.
Agreement theories of contract respond to this deficit in attention to the bilateral character of contract. Although not ordinarily thought of as a unified school, it is fair to characterize more recent theories of contract that emphasize mutual agreement as “agreement theories.” I will describe them as positing two central elements in contract: shared meaning and a joint plan.
Much more has been written about shared meaning. Friedrich Carl von Savigny was a preeminent continental will theorist who highlighted the significance of shared meaning even under will theory.[75] He observed that it is not enough in contract for a party to commit herself; her understanding of her undertaking must match the understanding of the other party.[76] Moreover, each party must understand the other to have intended to commit herself to that undertaking. Under this theory, both offer and acceptance are commissive rather than descriptive statements.[77]
Robin Bradley Kar and Margaret Jane Radin have recently offered a new, detailed account of shared meaning that draws on the philosophy of language.[78] They argue that “actual agreement with common meaning is central to the normative justification of contract.”[79] This implies that courts interpreting agreements—or indeed, asking whether a contract has been properly formed—should assume that parties have used language cooperatively.[80] Moreover, the meaning of the language that parties use necessarily turns on conversational context.[81] In the context of contract, cooperative norms should lead courts to assume that the language parties have used create “reciprocally conditioned commitments to induce one another’s actions or commitments.”[82] Their specific conclusion is that any contracts unilaterally imposed by corporations fail to meet their standard and should not qualify as contracts at all.[83]
If promise theories aim to solve the mystery of spontaneous obligation, i.e., the phenomenon by which individuals create an obligation out of thin air by communicating an intention to do so, agreement theories focused on shared meaning aim to explain the even deeper magic by which two minds can come to recognize meaning in each other. Shared meaning analysis thus helps us to understand a critical part of what happens in contract: the phenomenon of intersubjective agreement by way of language. But shared meaning theories do not explain why people are bound to the shared meanings they produce. People can share stories. People can share beliefs. The fact that parties mean the same thing by their statement of obligation does not explain why courts should enforce those obligations—even if both parties intended them.
Peter Benson has recently offered an updated transfer theory of contract that attempts to explain the significance of agreement. He describes contractual obligation as a “direct normative relation between two parties [that embodies] reasonable or fair terms of interaction such that, through their mutual assents, one party acquires something that comes under their rights exclusive as against the other party.”[84] Mutual assent is the core of this interaction, though Benson disaggregates it into two distinct elements: “First, in order to transfer ownership, there must be a decision on the part of the owner to part with his or her property.”[85] Second, “[t]he second party must express the will to appropriate the thing as his or her own.”[86] On his view, contractual terms are binding because an ownership interest has been transferred through the meetings of wills. Indeed, the main difference between physical transfer of property and transfer by contract is just that contract inserts a time delay between the moment of acquisition and physical delivery of the property.
Notwithstanding Benson’s reference to “fair terms,” ultimately, on his view, “[t]he only thing that counts is whether the parties can reasonably be viewed as having done the requisite acts of alienation and appropriation.”[87] Because agreement, understood as the combination of an intent to transfer and an intent to assume ownership, is dispositive of contractual validity, breach of the agreed upon terms amounts to interference with the ownership interest conferred through contract. On this theory, whether parties’ actual interests in a transaction are advanced “falls entirely outside the legal analysis of contract.”[88]
For Benson, consideration links the wills of the two parties to contract. The linkage is important to realize transfer, and as far as Benson is concerned, the mutual intention to transfer consummates the exchange. But this view ignores that contractual agreements are quintessentially forward-looking. Contracting parties do not regard executory contracts as completing transfer. Agreement theory needs something to capture the planning feature of contracts.
Nick Sage’s recent theory of agreement as joint planning moves in this direction. Sage proposes that “contractual agreements occur where the parties participate in a contractual enterprise.”[89] He deliberately refrains from filling out what participation entails, allowing that “what amounts to participation in a given case is determined by the character of the relevant enterprise.”[90]
If we regard contracts as joint undertakings by the parties, it may be easier to see both why those undertakings are normatively attractive and why breach of their terms is a wrong that interests the state. If promises create morally valuable relationships of trust, moral equality, and mutual respect, as Fried, Shiffrin and Markovits argue, respectively, then agreements that plan out a course of action may be morally valuable because they allow agents to count on each other and work cooperatively to enact a common plan. Such behavior is valuable to social beings who value connection and cooperation as such. On the other hand, if we emphasize the shared meaning element of agreement theory, perhaps the bare fact of a common understanding is morally valuable on its own, irrespective of whether that understanding pertains to a plan of coordinated action. In that case, we could understand contract law to recognize in agreement a jointly exercised normative power that is valuable in a way that is parallel to but distinct from the normative value of promise, its individual counterpart.
We have not yet seen an account of why agreeing on a joint plan is only sometimes valuable. Sage himself concedes that the idea of agreement does not explain why contract law enforces some agreements but not others.[91]
B. Limitations of Existing Autonomy-Based Theories
1. The Challenge from Objectivity
In this Section, I will show how will theory, promise theory, and agreement theory are each in tension with our commitment to objectivity. While each is capable of accommodating objectivity, they have twisted it, and the result is a more begrudging embrace of objectivity than the impulse to move fully outside the heads of contracting parties should have achieved.
The objective theory displaced the subjective approach to contract over the course of the nineteenth century.[92] Oliver Wendell Holmes most famously made the case for objectivity in the common law; Christopher Langdell had rejected it already.[93] Subjective legal approaches to questions such as offer, acceptance, and interpretation were regarded as inconsistent with the objective of the law to regulate interpersonal conduct and not inner thoughts. By the end of the nineteenth century, the so-called objective theory of contract had come to dominate.[94] In the early twentieth century, Learned Hand wrote in Hotchkiss v. National City Bank of New York that “[a] contract has strictly speaking nothing to do with the personal, or individual, intent of the parties. A contract is an obligation attached by the mere force of law to certain acts of the parties, usually words, which ordinarily accompany and represent a known intent.”[95] Similarly, in Eustis Mining Co. v. Beer, Sondheimer & Co., Hand wrote that “[i]t makes not the least difference whether a promisor actually intends that meaning which the law will impose upon his words.”[96] In 1952, the Uniform Commercial Code adopted the objective approach, cementing its official status.[97] Notwithstanding some ongoing role for actual intent,[98] today “[t]he objective approach has largely prevailed.”[99]
Objectivity in contract means that liability—which turns on contract formation and interpretation—is a function of what people have said and done rather than what they have thought. But objectivity has several ambiguities: Is the objective viewpoint a neutral viewpoint of a disinterested third party, the perspective of a hypothetical person who knows everything that a party knows but does not occupy their biases or preferences? Or is it the perspective of a reasonable person? Or just the median actual person? Perhaps surprisingly, there are no definitive answers to these questions, in large part because in the vast majority of cases we do not need to choose among them, and it is not clear that, among the hard cases, we will always prefer one standard over the others. Part of the reason we do not have a clear resolution to some outstanding questions about objectivity may also be that we do not have a theory of contract that accounts naturally for objectivity to begin with.
Since objectivity usually arises via answers to the questions of whether a contract has been formed and what the terms of the contract are, one natural understanding is that those questions are themselves objective. That is, the answers to those questions could be expected to turn on criteria that are not subjective or idiosyncratic but more generally accessible and applicable. Instead, the most common understanding of these questions is that they demand an inquiry into “objective intent.”[100]
Objective intent is a paradoxical idea: It claims to ignore the parties’ actual mental states while requiring courts to construct a hypothetical intention that a “reasonable” person would have harbored. Such a concept can be made sense of—we have made sense of it, in the sense of giving it a coherent meaning[101]—but we have needed to do so only because will, promise, and agreement theories have directed us to focus so intently and exclusively on party intent that we have had to find a way to ostensibly talk about intent while actually talking about other things. The concept of objective intent has enabled this game by distracting us from the normative force of objectivity, which directs us to zoom out from a single transaction and the subjective purposes behind it, and to then turn around and view the transaction from the outside. So viewed, our single transaction appears more plainly as one trade among many in a large market.
I now turn to the confrontation between will theory and objectivity. One of the basic problems with will theory was that it directed courts to concern themselves only with the inner thoughts of contracting parties, which was obviously beyond what courts could realistically do and at odds with what common intuitions would regard as fair.[102] A subjective approach is easily manipulable through unilateral recordings.[103] Treating actual intent as controlling would disable courts from implying terms even where it is evident that the parties would have intended a term but failed to contemplate the relevant contingency.[104]
Will theorists disagreed among themselves “about what range of alternatives a person must have in order to be free in the sense required by the will theory” and also about what “degree of publicity that a promissory intention must have in order to underwrite an obligation of agreement-keeping.”[105] Meanwhile, courts would hardly inquire into the circumstances of free choice outside the narrow boundaries of duress, and some degree of publicity was literally necessary for the law to take notice of will. The consideration requirement had to be adapted to will theory by de-emphasizing benefit and detriment and emphasizing instead the subjective motivation of exchange.[106] Objective theory ultimately responded to practical problems posed by will theory, and its proponents sometimes argued that it was merely making explicit what judges were doing anyway.[107]
To the extent courts ever adopted will theory, they abandoned it before contract scholars did. But the heirs of will theory did come up with ways of reconciling the legal effect of external events in contract law with the normative control of internal thoughts under their theory. Arguably, an external manifestation of will is a necessary part of the will acting in the world, making evidence of its communication to the other party important to the exercise of will separate from its evidentiary importance to courts.[108] Just as the interpretation of a contractual term depends on one’s background theory of construction, the specification of intention turns on the role it has been assigned by one’s background theory of contract. Objectivity as applied to a contractual term does not always mean the same thing under will theory, but the thrust of will theory is that it requires no more than external evidence of the intention of the party obligated by that term.
The importance of communicating will to the other contracting party took on new life in promise theory. While the other party must be on notice of will under will theory, in promise theory the promisee has a more robust role in the moral life of a promise. While it is coherent to will something without communicating it to anyone, it is not coherent to promise something without promising it to someone. A promise is just the act of assuming an obligation by communicating an intention to assume it to the promisee. A promise is directed to a particular promisee; most people think the promisee must “take up” the promise in order for it to be effective (or distinguishable from a vow). Moreover, while the “other party” merely bears witness to the exercise of will, the whole point of a promise is that it engages the promisee. The formal effect of the promise is to delegate authority over the promisor’s future course of conduct to the promisee. The purpose behind the promise is to effect a change in the relationship between the promisor and promisee, either to affirm their moral equality, as in Shiffrin’s account,[109] or to establish a thin, cooperative, mutually respectful community between them, as in Markovits’s account.[110]
Given the role of the promisee in promise theory, the meaning of a promise must turn on how it is understood by the promisee. Otherwise, the obligation that the promisor intended to assume has not been successfully communicated, which the concept of a promise requires. If the promisee is unaware of the promise or its boundaries, she cannot exercise authority over the relevant conduct of the promisor, and the relationship between the promisor and promisee cannot be moved in the way that the promisor aims. Promise theory thus directs contract theory outside the head of the promisor, but it does not take us far—just somewhere between her head and the head of her promisee.
With agreement theory, we move farther out than that.[111] While Lawrence Solan is critical of objectivity and regards it as an exceptional rule to handle peculiar cases,[112] Kar and Radin use insights from philosophy of language to argue that the meaning of contractual language necessarily turns on conversational context.[113] The relevant implicatures are not just those generated in the course of communication between two parties but more broadly include assumptions and references from the social space they occupy.[114] Thus, Kar and Radin advocate an objectivity that is more robust than what promise theory recommends. In order to understand what parties to contract have agreed with each other, we have to look at the conversational norms against which their communication takes place.
While this move makes contractual intent more coherently objective, it remains wedded to the idea that the object of agreement is controlled by the mutual understanding of the parties—it is just that we need to look at how other people use language in order to decipher the parties’ own understanding of their terms. Objectivity in agreement theory still has as its referent the thoughts of contracting parties, even if it now offers a compelling account of how courts should attempt to reconstruct those thoughts using contract language.[115]
Other contract scholars, though, have cast doubt on the fruit of this effort. They show that once we look at the social context in which language is generated, we may find not meaning but its absence. For example, Stephen Choi, Mitu Gulati, and Robert Scott argue that “a boilerplate term that is reused for decades and without reflection merely because it is part of a standard-form package of terms, can be emptied of any recoverable meaning: [T]his creates a contractual black hole.”[116] Meanwhile, John Coyle and Mark Weidemaier argue that, when parties use language they believed was standard but come to disagree about its meaning, “one cannot seriously describe the court’s interpretive task as a search for the parties’ ex ante intentions.”[117] Such an interpretive exercise is futile “even when the intent is examined objectively rather than subjectively. In such cases, the parties neither had, nor behaved as if they had, any intention with regard to the meaning of the clause or how it would apply to their present dispute.”[118]
In his preliminary sketch of an agreement theory, Sage hints that he may be prepared to walk back even further from an exclusive focus on party intent. He writes that “if we understand a contractual agreement to arise where two parties establish their participation in a common enterprise, there would seem to be no fundamental objection to testing for that participation objectively.”[119] He observes that this approach makes implied contracts uncomplicated.[120] Indeed, once we understand the critical fact for contract formation to be the establishment of an enterprise, even if joint intention is the mechanism by which the enterprise is created in a given case, evidence of intention is not the only evidence available to show the existence of the enterprise—especially when each enterprise is not sui generis but ordinarily conforms to a recognizable type.
One might begin to worry that the farther out from the subjective will of a given contracting party we move, the less voluntary contract is. But the lesson here is the opposite: Contract cannot sensibly turn on subjective intention, and clinging as closely as possible to this false star only deprives us of an alternative normative hook for contractual obligation. Subjective will was not ultimately abandoned merely because it was unworkable but because the theory that directed us to inquire of subjective will itself failed. A subjective approach is therefore not just impracticable, it is unjustified. Similarly, we should decline to regard intention as the constructed object between the minds of promisor and promisee because promise theory does not help us make sense of an essential fact about contract: that both parties assume obligation, not just one, and neither in isolation from the other. The intention-content of a single promise may be located between the giver and receiver of that promise, but the intention-content of a contractual promise necessarily references the reciprocal promise for which it is made.
It is true that once the objective content of contractual obligation references something outside the mind of a contracting party, her obligation is not entirely under her control. But legal liability never is. Different parts of the law aim to tether liability more or less closely to the voluntary conduct of defendants, and contractual obligation is more voluntary than just about any other legal obligation. It is voluntary in that the choices a party makes that result in liability are ones that she can ordinarily expect to have just that result, and which she will ordinarily make with the aim of achieving that result. That is enough to render contract importantly voluntary.[121]
Objectivity does not threaten voluntariness, but it does threaten the insularity that follows from will, promise, and even agreement theory.[122] Each of these theories locates the source of obligation inside the heads of contracting parties. Will theory looks only to a moment of decision. While promise theory looks outside the head of the promisor, it pivots between the heads of promisor and promisee. While agreement theory looks outside of the parties’ heads to gauge what they were thinking, its object remains their thoughts—the nature of the enterprise they contemplated. None of these theories allows that the content of contractual obligation could be shaped by the parties’ joint intentions without strictly determining them. The “enterprise” that the parties undertake has features separate from those they contemplated; features of fairness or functionality, for example, that attach whether those features of the bargain were intended. Objectivity, properly construed, would assess the bargain that the parties made in its entirety, as a reasonable person observing the transaction would.
It is not a coincidence that will theory remained associated with a rejection of state regulation even after it shifted to accommodate objectivity.[123] Indeed, even after the revisions to the picture of normativity offered by promise and agreement theory, “our principal vision of contract law is still one of a neutral facilitator of private volition.”[124] Objectivity, by contrast, implies distance from the perspective of contracting parties.[125] It does not imply, as do theories that put contract in service of private practices that exist outside of the law, distance from the distinct purposes that the state brings to the institution of contract. Objectivity with respect to liability in contract as elsewhere in the law implies that “men are expected to live up to the standard of the reasonably prudent man.”[126] Unlike in other parts of the law, contracting parties choose the bargain that they must execute reasonably. Theories of contract that pivot contract around a mental event cannot explain the demands of reasonableness on the practice of contract; the latter turn on the objective features of the exchange that contract makes possible.
2. The Challenge from Social Reality
Theories of contract that ground contractual obligation in the minds of contracting parties can only pay so much attention to the social context in which those parties are situated. Those theories cannot account for how hierarchical social and economic structures both constrain contract and are produced by contract. In agreement theory, we see theorists interested in how context informs what parties mean when they communicate with each other, and in the nature of the enterprise in which they participate. But agreement theory does not yet have the resources to explain why only some instances of cooperation are contractual—intended to be contractual and in fact legally enforced—while others fall outside the bounds of contract law. Nor does it explain how a contract can be unjust when there has been genuine agreement between the parties, or why we otherwise would decline to enforce a bargain that parties have made where their assent was not defective.
My aim in Part II is to offer a theory of contract that is responsive to important features of the social reality in which contract ordinarily takes place. For now, in this closing Section of our discussion of existing philosophical theories of contract, my purpose is to suggest that those theories collectively fail because they are indifferent on principle to the social reality of contracting.[127] Such oblivion is not politically sustainable, and, indeed, our legal system is not similarly inattentive. I will argue in Part III that it already acknowledges in various ways the social features I will identify in Part II.
Critics of will theory already lodged the essence of my challenge almost a century ago.[128] Although it is unlikely that a theory of contract was a primary engine of our political economy, will theorists’ call for freedom of contract impaired the political will to regulate contracts for people with low social status and low market power, manifesting most dramatically in Lochner v. New York.[129] Critics of an exaggerated concept of freedom of contract cast private law as public and, instead of regarding freedom of contract as a natural right, urged lawyers and judges to instead conceive of it as an instrumental “regime-defining principle of social order” situated between natural rights theory and collectivism—that is, a political choice.[130]
Morris Cohen was a leading critic of will theory and its detrimental effects on contract regulation.[131] He argued that in his contemporary society, it was not possible to “draw a sharp line . . . between those acts which affect one person and no one else and those acts which do affect others . . . . What act of any individual does not affect others?”[132] Because contract is a coercive state institution, its use and operation are fundamentally matters of public policy and must be treated as such by both legislatures developing ex ante regulatory rules and by judges developing rules ex post in the course of adjudication.[133] Will theory presupposed a false idea of the will that denied the social embeddedness of individuals.[134] It was also blunt and reductive in its characterization of the will by positing a false dichotomy between its freedom and determination; in fact, “[a]s a part of the world it is [both] genuinely dependent and determined.”[135] Rather than treating contracts as free-standing products of an insular will, contract law had to regulate contract “as part of a larger world.”[136] For Cohen, the most immediate practical correction to contract theory was to abandon the use of negotiated agreements as the prototype. Cohen advocated a theoretical shift in focus to standardized contracts, parallel to the move that economists had already made to an institutional approach, in recognition of the rise of large corporations with complex internal structures.[137]
Roscoe Pound was another important critic of will theory. He argued that “[w]e must look not only at the interest of the promisor in free exercise of his will, but also at . . . the expectation of the promisee to have the promised advantage—to have what a reasonable promisee would expect as involved in life in civilized society, as created by the acts and conduct of the promisor.”[138] In civilized society, people are not free to use contract to extract freely from others, or to impose serious risks on others— “the general security calls for restraint.”[139] Freedom of contract was not a false ideal, but it had to be “weighed in adjustment of relations in and by political organized society.”[140] Just as Cohen advocated for a reassessment of standard contracts, Pound rejected the privity requirement that he associated with will theory as similarly ill-suited to mass markets.[141]
While promise theory responded to some limitations of will theory, as discussed above, it did not respond to the challenge from social reality. In fact, part of the motivation for Fried’s reexamination of will theory may have been to divorce the challenge of objectivity from the challenge of social reality. Promise theory can explain the normative significance of words and deeds more naturally than will theory; it introduces a measure of objectivity between promisor and promisee while demarcating a boundary around their private communications. It thus appears to respond to the challenge of objectivity but without engaging the full scope of its challenge. A robustly objective perspective stands outside of the promissory relationship, thus linking the challenge from objectivity with the challenge from social reality.
Agreement theory could do better. The shared meaning form of agreement theory is certainly aimed at responding to some aspects of social reality—in particular, mass contract. But shared meaning theory responds to social reality by rejecting it. That is, shared meaning theory inverts the ideal relationship between contract theory and contract practice. Instead of offering a theory of contract that helps us account for contract as we know it, shared meaning theorists like Kar and Radin conclude that most contracts should not be regarded as contractual at all. An approach that insists on mass confusion fails to explain why we think of contracts that lack shared meaning in a certain sense as contractual anyway, and it cannot offer a normative principle by which we can improve the regulation of these agreements to better serve the purposes that we bring to them.
The next powerful challenge to classical contract theory (i.e., will and promise theory) from the perspective of social reality came at almost the same time that Fried launched its revitalization—Patrick Atiyah challenged classical contract theory as incongruous with the modern state. In a move that I will mimic in Part II, he argued that the “doctrine of consideration itself was a reflection of a moral ideal.”[142] But, for Atiyah, the particular purposes that parties bring to contract and their choice to undertake bargains falls out of the normative picture altogether. His is not an autonomy-oriented theory.
Instead, Atiyah argues that
[i]t is because [a person] is bound by an obligation that we generally feel impelled to imply a promise. . . . [T]he source of the obligation cannot lie in the implied promise itself, but must be sought elsewhere . . . often, perhaps always, . . . the conduct itself justifies the creation of the obligation.[143]
That is, contractual obligation is just the obligation that arises out of receiving a benefit from someone else. On his view, the accompanying promise is nothing more than evidence of that obligation.
Atiyah observed that contract law developed in an economic environment entirely unlike the setting of modern contract.[144] Besides mass markets, he also emphasized the rise of the welfare and regulatory state, and later its challenges.[145] The idea of simply delegating all authority over the means by which social resources are allocated to private parties was preposterous in the new age, in his view.[146] We had to think about contract entirely differently, Atiyah argued, and indeed he offered a dramatically different picture. But Atiyah may have thrown out the baby with the bathwater[147]: Others have observed that his view of promises as strictly evidentiary is at odds with our moral intuitions and contractual doctrine.[148] I will propose in the next Section that we can capture the intuitive special relationship between contract and autonomy without being blind to the social reality in which contract is situated.
We have seen that will theory originated before the Industrial Revolution. Since then, contract law has seen a vast expansion in the regulation of transactions that is flatly at odds with will theory and its heirs, promise and agreement theories. By now, contract in the head is anachronistic. The contemporary practice of contract, both the process for formation and the purposes that parties bring to contract, is inconsistent with the picture of contract that existing autonomy theories provide.
Notably, those theories have outlived even the liberalism in which they originated. Liberalism today is not the libertarianism that had its heyday in Lochner v. New York.[149] Scholars of liberalism are nowadays mostly liberal-egalitarians in the tradition of John Rawls that understand liberalism to impose affirmative moral requirements on all major social institutions, requirements that extend beyond the protection of negative liberty to compliance with principles of distributive justice.[150] Liberals, then, have long since come to understand that respecting individual autonomy requires affirmative state action to create the conditions for flourishing. Contract as exchange would help our theory of contract catch up.
II. Contract as Exchange
Contract should and does support exchange because exchange promotes individual agency. In the liberal tradition, we take individuals to have their own life projects, and a just state undertakes to create conditions under which individuals can pursue those projects.[151] Most things we want to do we cannot do on our own. We need resources to sustain ourselves and our families, and then to pursue the projects we have adopted as our own, whether it is taking care of others, enjoying the company of others, pursuing excellence in art or sport, devoting ourselves to religion or literature, experiencing new cultures, or retreating to a life of detachment. To pursue any of these, most of us need to earn money with our labor; we do this by working for other people, doing work that those other people value. (Some people are lucky enough to enjoy what they do; many do not—they work their fingers to the bone, anyway, for the money.) We exchange what we earn for the particular goods and services that help us realize our individual projects, whether those are birthday cakes, plane tickets, museum memberships, or sports equipment. For most people, even the little things we need to live as we want cannot be taken for granted. A lot of our daily effort is dedicated to securing them.
Exactly how contract supports exchange in order to promote agency depends on the institutional environment in which it operates. It depends on how markets are structured, such as whether they are competitive and open to entry. It depends on the distribution of resources, both among consumers and workers, between workers and firms, and among firms. It depends on the costs of transacting in various forms, and who is best able to bear those costs. Contract as exchange directs us to take a hard look at social facts so that the rules of legally enforceable exchange may be crafted to enable market participation and productive bargains.
In Part II, I will first lay out three important features of the social landscape against which modern contract takes place: large scale, anonymity, and market determination of the terms of trade. Contract as exchange is responsive to each in a way that other autonomy-oriented theories of contract are not.
First, the large scale of background markets reflects and reinforces declining transaction costs, reducing the random variation in terms that we might expect in smaller settings.[152] In markets with many competitors and low transaction costs, sellers are largely price takers, and consumers can expect to pay about the same price for the same good regardless of seller.[153] When they do not, we should be suspicious. Similarly, because markets are a complex web, access to the market is not achieved by having literal access to one supplier or buyer: Access implies options. The standard of access is access to the standard offer.
The scale of the market also informs the stakes and dangers of market access. Large-scale markets sustain dangerous goods and services that inflict serious injury on an unlucky few. While firms selling those goods and services should be able to recoup the costs of injury from other sales, they should bear the costs of those injuries in the first instance, or a random set of individuals is left to bear the cost of a risky social product. Similarly, the scale of contemporary markets and the related possibility of securitization make it possible for creditors to distribute or even transfer the risk associated with default-prone debt;[154] while these practices make them more resilient in the event of default, default remains devasting for debtors. Debt relief measures should be updated to reflect risk tolerance by creditors.
Finally, the scale of modern markets has made markets an important site for engagement with the breadth of a political community and not just the smaller geographical unit that we regularly traverse. Scale also makes it possible for the market to sustain a wide range of sub-communities defined by specific interests or hobbies. Access to the market, then, is high-stakes: It is necessary for full participation in the political community, as well as to perform any of the many social roles that are available within it.
Markets are also impersonal. Market norms reflect social norms; they do not emerge from relationships between individuals. Although contracts are relational in the limited sense that they create some kind of relationship, the norms of those relations turn primarily on social facts about other relationships of that kind; for example, an employment relationship between a firm and its top management will depend on similar relationships at other firms and with other members of top management at the same firm, not employment relationships between firms and poorly remunerated personnel or on the personal quirks of the contracting parties (or their lawyers). We should look mostly to social practices, then, rather than individual histories or states of mind, to fill out missing terms. Moreover, while the liberal state ought not, within expansive bounds, take a position on how individual people should relate to each other, it is well within its regulatory mandate to control how commercial “relationships” of different types go. Taking into account the reality of anonymity allows us to recognize contractual relationships as typically commercial rather than personal and therefore as appropriate objects of economic regulation.
Finally, individual contracts are the stuffing of the market. They simultaneously emerge from a large mass of other people’s contracts and add to that mass. The terms on which any two parties transact turn on as much, if not more, their respective market positions as on any subjective preferences that the parties bring to their deal. The market determines the transaction in all but its details: It provides parties with the motivation for entering a specific transaction and sets the terms on which a deal is viable.
After identifying the three features of social reality to which contract as exchange aims to respond, I next detail three important aspects of contract as exchange.
First, choice plays an important role, as it should in any autonomy-oriented theory, but it plays a different role than the one that is familiar from classical contract. The morally significant choices in contract are about the goods and services that individuals seek out, or with which they are prepared to part; not the terms on which they buy or sell them. The goal of contract, for example, should be to enable a real choice between a sweater or a sweatshirt—in a state of the world where either is affordable—not the “choice” to pay either $20 or $30 for any one sweater, or even to buy it “as is” rather than subject to a generous warranty. The latter choices are merely formal; the choice one makes tends to reflect one’s purchasing capacity rather than any important aspect of how one chooses to live. By contrast, what kind of clothes to buy is, for many people, an important expression of personality; being able to make a meaningful choice in this regard is, to that extent, a valued exercise of agency.[155] When people cannot afford any choice, they cannot communicate anything about themselves but their poverty. The more choices that individuals have, the more expressive potential there is in this category of consumption. As elaborated further below, this logic applies outside the consumer context as well, even to bespoke agreements in which we tend to think that parties make meaningful choices about terms.
Second, contract as exchange accepts the demands of moral equality and aims to make contract useful to everyone, not just at the margin of individual transactions but as an institution that we use to allocate social resources. It therefore easily recognizes that the institution of contract is part of the basic structure of society and therefore subject to public justification; it is not a free-floating naturalistic body of law, nor is it a pale shadow of a transcendental morality, the application of which is merely distorted by social facts. In this respect too, contract as exchange is different from traditional theories of contract that regard contract as essentially an instance of some other practice, one whose free-standing principle (e.g., of transfer or promise) either dictates or significantly constrains the rules of contract. Such theories naturally resist distributive claims on contract as outside the internal logic of the institution. Contract as exchange does not.
Finally, contract as exchange focuses on the material value of exchange for individuals; it does not concern itself with either abstract equality of exchange or aggregate wealth except inasmuch as these are logically related to how well contract as exchange serves individual objectives. In this respect too, contract as exchange is, like other autonomy-oriented theories of contract, a liberal theory of contract.
A. Modern Contract
There are three features of modern contract for which existing autonomy-oriented theories fail to adequately account: mass scale, anonymity, and market determination of terms.
1. Scale
The mass scale of modern markets should inform how we use contract to advance individual agency. It is relevant in at least three respects.
First, the scale of modern markets reflects lower search, communication, and transportation costs.[156] It is thus easier to buy and sell with parties at long distances. This contributes to the impersonality of the market, as discussed above, but it also broadens the scope of competition in particular markets. In some but not all markets, this should drive prices closer to competitive pricing, that is, consumers should expect most of the surplus from their purchases as sellers are driven to marginal cost.[157] Moreover, sellers’ costs should vary less because they too have access to substantially overlapping supply markets. Inevitably, this will not always be true: Some sellers will face higher costs (for example, because they lack economies of scale), and, in some markets, this dynamic will be absent altogether. But for those with (for example, digital) access to the full market, it should be easier to access the best prices for a given good or service than it would be in a highly segmented market, where prices may differ substantially between localities or even between firms because of the costs to consumers of surveying prices and transacting at a distance.
In large, more seamless markets, prices above the market norm are less likely to reflect higher costs or idiosyncratic local tastes and more likely to reflect either market power (belying the tentative assumption above of competitive markets) or transaction costs faced by particular groups of consumers.[158] Perhaps those consumers lack information about better sources, or they face some barrier like a limitation in their access to the internet or limited transportation. In the bucolic town markets that seem to inspire classical contract theory, it must have been hard to know whether one was being overcharged for a product when there was only one seller in the square. But it is now easier for regulators to spot pricing outliers and try to identify the market failures, including access failures, that cause them—and to regulate accordingly.
A second consequence of large markets is their capacity to sustain risky goods and services.[159] A product that severely injures one out of every one hundred thousand users is sustainable when there are so many other users from whom the costs of compensation to the injured can be recouped. Similarly, a very large and profitable firm will not shut down because one of its workers is occasionally injured. However, if the burdens of injury are left on the unlucky few who are hurt, they are effectively used for the gain of others.
Contract regulation does not have to deem products that pose any physical danger to be unmarketable, but it should ensure that firms cannot evade an obligation to compensate those whose lives are potentially ruined by accidents. From this perspective, limitations on warranties and liability disclaimers are not exogenous constraints on contract but flow out of the internal logic of contract as an institution.
In a similar vein, the potential to distribute default risks across a large market, especially through securitization, allows creditors to tolerate more risk than in small, insular credit markets.[160] But the legal consequences of default by individual debtors remains onerous.[161] Given the changes in credit practices and its consequences for creditors, debt relief measures should be expanded, both within the context of general bankruptcy and in the context of programs encouraging renegotiation or outright debt forgiveness of particular kinds of loans. Absent such relief, individual debtors bear a disproportionate share of the personal costs associated with an economic model predicated on the large-scale extension of personal debt.
The final implication of large-scale markets concerns its high stakes. Social participation now entails access to the expansive and complex web of buyers and sellers that characterizes modern markets. Those who cannot benefit from the pricing (and other advantageous competitive terms, such as generous return policies) not only lose out relative to better situated consumers with respect to particular transactions but are also shut out of an important dimension of the political community. Markets connect people across long distances and are therefore an important mechanism by which a common culture—albeit not the only culture—is formed across a national market, or even across country borders (especially in regional trade blocs).[162] Access to the market is participation in the community forged or reinforced by that market. In large markets, subcommunities also form that open up social roles beyond those available locally. Large-scale commerce may connect us with others interested in board games, goth make-up, or Portuguese ceramics. The set of subcommunities in a market amounts to a menu of social roles from which everyone should be able to choose.[163]
2. Anonymity
Modern contract is largely anonymous. This is rarely literally true outside of automated, instantaneous transactions akin to vending machine purchases. But it is often the case that the particular identities of parties are not relevant; for example, fixed terms are offered to all consumers and whoever wants to buy can do so. In other cases, terms are offered on the basis of a limited set of characteristics relevant to expected performance (e.g., probability of repayment) and in that sense might be actually personalized.[164] But here too the particular identity of the transactional partner does no work. A party’s identity is effectively disaggregated into the parts that the other party deems relevant, and only those characteristics do work in setting the terms of the transaction; this is true, for example, of certain credit-based transactions.[165] In some transactions, even if the identity of a contracting party is “processed” by the other, it is only inputted onto a document or used electronically; there is no human interaction that could plausibly render the transaction personal.[166] Finally, a large portion of the contracting landscape is occupied by corporate persons. Excluding all of those contracts from the scope of a theory of contract is a tough pill to swallow; it significantly undermines the explanatory and suggestive power of the theory. While there are (almost)[167] always human agents acting on behalf of firms, the “relationships” between firms have primarily economic and political significance. That is just the significance that contract as exchange would assign them.
Separate from the specific problem of corporate contracting, the anonymity of transactions is at odds with promise theory, which aims in substantial part to enable morally valuable relations between contracting partners. The mutual respect we associate with promise is not meaningful when parties do not know who they are dealing with or do not engage the humanity of the other party at all. It looks like people are not contracting to have their humanity affirmed in the particular ways that promise theory contemplates. Contract as exchange takes seriously how contracting parties understand what they are doing.
One might object that not all transactions are anonymous. This is clearly true. But where transactions are not literally anonymous, contract governs their impersonal dimension.[168] For example, although we might expect a manager to be responsive to the personal needs of an employee who needs extra time off, the manager is properly understood as responsive only to the extent the employee’s needs are not already captured by the terms of the governing employment contract. An employee with the legal right to leave does not have to appeal to the manager’s friendship or her empathy. A landlord might allow a tenant to pay rent late, but her flexibility is usually understood by both parties as overriding the legal terms of their relationship; they both understand that being flexible means not holding the tenant to the letter of his legal obligations. The contract itself rarely captures the personal dimension of the relationship between parties.[169] Its purpose may be precisely to subordinate the personal relationship to the logic of material exchange. Where a contract is not anonymous, it allows the parties to proceed as if it were.
3. Market Determination of Terms
It is commonplace that most goods and services are now sold on standardized terms without opportunity for bargaining. While theories that emphasize will, promise, or agreement tend to conjure an anachronistic scene of dickering in the market square over the terms of a proposed bargain, most terms are offered on a take-it-or-leave-it basis without any agent with the authority to negotiate. Standardization in the context of the literature on contracts of adhesion usually refers to standardization of terms offered by a single firm.[170] But perhaps even more important is that terms tend to be standardized across firms. There is some variation, but, if there is variance, it comes in recognizable bundles: For example, a higher price might come with a better warranty, or a lower price might come with slower delivery. But, most significant for the experience of an individual consumer or employee navigating the market, the terms available rarely reflect pricing discretion on the part of individual agents. Firms take their prices from the market and turn around and collectively set prices for others.
Similarly, whether a consumer buys a more “luxurious” bundle of terms or the lowest-cost bundle is also likely to be determined by her position in the market; that is, the resources she has available to spend rather than any preferences reflective of her priorities or world view. Of course, individuals make choices about how they are going to allocate their limited budgets (e.g., whether they are going to spend more of their money on shoes or furniture), and firms choose whether to compete primarily on price or quality. But rarely does their choice of contract terms represent a normatively significant exercise of individual agency. The contours of the bargains people “make” are in fact made for them by the market. They navigate the market to find the goods and services they want at a price they can afford; but the terms available to them are the result of myriad individual transactions and are of no one’s deliberate making.
Markets determine terms even when those terms are negotiated; only the mechanism by which market forces bear on the transaction differs from the mass markets described above. Consider a merger agreement between two firms, each represented by sophisticated counsel. One might be tempted to think either that the firms themselves craft a bargain that reflects the idiosyncratic agendas of their management, or that those firms’ counsel play a fundamentally creative role in designing the transaction. While it is true that the firm’s agenda matters and that lawyers play a creative role, in the vast majority of cases, both of these apparent drivers essentially convey the underlying force of market constraints on the transaction. The “agenda” of a firm within any given industry is set not by the personalities of its management but by the competitive pressures on the firm: the availability of inputs and the demand for its outputs. If a firm plans to divest from one line of business and divert to another, it is rarely because a moral agent has reconsidered her life plan or moved onto another stage of it. The firm alters course because it is moved to do so by the pressures of a market that will not reward ill-spent capital. Similarly, it is not wrong to credit lawyers with searching out the best terms in a high-level deal. But rarely is an entirely new kind of term invented in a corporate transaction. Instead, in a complex deal, transactional attorneys are the hands of the market; at their best, they help firms identify the package of terms that will optimize the bargain between the firms that they represent.[171] The attorneys are fundamentally finding rather than choosing those terms; they are trying to locate the sweet spot, which is harder to find when the bargain is not a cookie-cutter one whose terms have been honed through the trial and error of a thousand like transactions. Even in those rare cases where counsel comes up with a new deal structure, they are responding to market pressures that reward that innovation. Such creativity is not fundamental or personal in the sense that it does not express something innate within or original to the contracting parties.
Although these features of markets are exceedingly familiar, they are surprisingly alien to classical contract theory. The autonomy-oriented theories we have discussed proceed as if people are making all kinds of meaningful choices when they contract with respect to the terms of the contracts themselves. By contrast, contract as exchange proceeds with the premise that people rarely exercise meaningful choice about contract terms. They do, however, choose what to buy and what to sell. It is in these choices that we must locate their agency in contract.[172]
B. Promoting Autonomy Through Exchange
Contract as exchange aims to be responsive to the reality of modern contract as described above. It takes contracts to be impersonal and their terms to be largely determined by background markets. But it takes participation to be essential to membership in the political community and the sine qua non of any meaningful opportunity to pursue self-selected life projects. I now turn to the affirmative features of contract as exchange that render it well-suited to a society like ours.
Contract as exchange highlights the significance of being able to choose what we buy and sell over the non-price terms on which they are bought and sold, and it demands that the legal practice of exchange operate to benefit everyone. While the benefits contemplated are material, the aim of contract as exchange is not to maximize aggregate wealth. But neither does it aim to guarantee that every bargain will go well. Instead, it aims to ensure that the practice at the institutional level serves all its users at the individual level.
This theory of contract is still about respecting and promoting autonomy. But contract as exchange respects political autonomy by aiming to make the institution justifiable to all participants. It aims to promote autonomy by promoting the material conditions for individual flourishing.
1. The Moral Priority of Choosing Ends
It is intuitive that the relationship between contract and autonomy has something to do with choice. The connection is mostly implicit in will and promise theory: We choose how to exercise our will, and similarly, we choose whether, to whom, and what to promise. Those theories are rooted in the value we place on legal recognition of normative powers—the powers that enable us to shape our normative landscape.[173]
This emphasis on choice in contract is embodied in Hanoch Dagan and Michael Heller’s choice theory. Choice theory rightly moves away from the formality of choice in will and promise theory and recognizes the problem that contracting parties in fact have inadequate choices.[174] But the choice set they seek to expand is not the one of primary significance to the practice of contract. In their book developing choice theory, Dagan and Heller seek to increase our choices in contract by recognizing and, in some cases, standardizing a menu of contract types, each of which corresponds to a different way of relating to one’s contract partner. They describe this as “freedom to choose from among contract types.”[175] Types should reflect “the types of relationships people contractually create.”[176] For example, in consumer law, they would allow parties to choose “between purchasing a good with the protections of consumer transaction law or by using sales law.”[177]
There are at least two important problems with this theory; one internal problem leads to another problem of more immediate concern. The internal problem is that it is not clear that we could meaningfully ensure people have genuine access to a selection of contract types absent severe market restrictions preventing those types from being priced differently or from varying on other substantive dimensions. For example, Dagan and Heller would allow workers to choose whether to “relate” to firms as employees or independent contractors.[178] But, presumably, firms themselves have a preference in this regard, and they will offer different compensation packages to workers operating on either model. But once those other terms vary, workers’ choices will be driven by those substantive terms. Most workers do not have the luxury of purchasing a preferred work relationship by forgoing income, insurance benefits, or leave entitlements.[179] Of course, some do, but our regulation of employment contracts should not be centered on their privileged experience.
This reveals the more general problem with choice theory as it was initially presented: It insists on choices that people do not usually care about. Only in the exceptional transaction do people actively contemplate (or wish to actively contemplate) the kind of contractual relationship they are entering. Mostly people want the compensation or the goods and services. They may be interested in terms that allocate risk, for example, but they are generally interested in the allocation because it materially affects their expected payoff from the transaction, not because they want terms that express how they wish to relate to their contractual counterparty. In more recent work, Dagan has described contract more broadly as joint plans that enable parties to pursue their respective projects—a characterization resonant with the one offered here.[180]
Inasmuch as choice theory is about choice of contract type, it suffers from the same deficit that other classic accounts do: None can recognize why some choices are more important than others. In those theories, it is the mere exercise of will or the making of a promise or agreement that has value. Those things do have value, but they are not the value people seek out in contract. In fact, exercises of will and promise-making are much richer outside of contract, where our choices are more meaningful and the personal relations that result are more important to us. In contract, we do not value the undertaking of obligation or agreement for its own sake but instrumentally—not for relational purposes but for obtaining particular goods and services that we must get from others. We do not value all those things equally—we not only value our surgery more than our ballpoint pen, but we value choices with respect to our surgery more than we value choices with respect to our pens. Promise theories cannot explain this except by positing that we value the relationships with some promisees more than others, but in fact this has no bearing on which contractual options we prize most.
By contrast, the lens of exchange emphasizes the material choices we make in contract. The choices we make to spend our limited resources toward some ends rather than others reflect our priorities and aspirations. Consider the ordinary sale of a bicycle. The fact that the exchange takes place at all tells us that the buyer values the bicycle more than the price she pays for it and the seller values the payment more than the bicycle she relinquishes. The exchange reflects the parties’ private valuations to that extent. But in a competitive market, the buyer’s reservation price does not really have to do with how much she personally values the bicycle; it is just the price she would have to pay another seller to get the same good. Likewise, the seller’s reservation price is not idiosyncratic; it is just the amount she can expect someone else to pay. The price they arrive at is not really between their respective reservation prices, but rather, in a competitive market, the equilibrium market price; it does not reflect any meaningful choices by the parties.
The choice that matters most in the bicycle transaction is the choice to buy or sell a bicycle at all. Even that choice will reflect how the market price of that kind of bicycle compares to other bicycles, and the cost of cycling relative to walking, driving, or taking public transportation. But similarly situated people make different choices about how they will go to work and make other related choices that are even more fundamental to the kind of life they will live. The goal of regulating bicycle contracts should primarily be to make them accessible to as many people as possible, that is, to give people the only meaningful choice the potential transaction entails—whether it will occur.
That choice is not trivial. In fact, the totality of our choices about what to buy and sell in the market defines our lives to a significant extent. Those with many resources have more options among which to choose and may identify strongly with the choices that they make. Those with few resources face a constant, exhausting stream of high-risk, unattractive choices about how to make the most (for themselves and for their families) with what they have.[181] For both groups, the ethical value of choice lies in navigating the market over iterative transactions; it is not realized in single transactions.
We might appreciate this by way of a simple example: If someone buys me coffee knowing that I want it but fully expecting that I will reimburse them, their “intervention” does not undermine my interest in controlling how I use my resources to pursue my projects. But if that person begins usurping my agency repeatedly—buying the concert tickets that I said I planned to get (and which I did plan to get) and then buying a sweater that she correctly ascertains that I would want (and in each case, expecting reimbursement), her behavior is creepy. One of the reasons we would not recognize a duty to reimburse is that making those decisions for me—even when they are made just as I would have—is a kind of trespass on my prerogative not only to set my material ends but to pursue them myself; that is, to navigate the marketplace on my own. While I might delegate some of this task to others, if I fully delegate the exercise in navigation to another (and especially if it is not a person with whom I regard myself in a joint project, like a spouse), then I will begin to feel, even if the projects that I endorse are achieved, that it is not I who has achieved them.
Classic accounts of contract are not wrong to locate agency in contractual choices. But they overinvest in the wrong sorts of choices within the institution. Typically, we do not exercise valuable agency in our choice of the transactional terms or in our choice to enter into a “relationship” with any one counterparty over another. The relevant object of choice is how to exchange resources in a way that is best for our life plans. Contract as exchange champions choice in precisely this way.
2. The Demands of Moral Equality
One of the advantages of contract as exchange over alternative theories of contract is that it can make better sense of the demands of moral equality on the institution of contract.
Contract as exchange aims to enable people to get what they want through exchange, but it cannot in any way ensure this result in each transaction. Instead, the theory would have contract law promote agency in exchange at the institutional level in a way that is similar to how promise theories promote the moral value associated with promise. Just as contract does not, even on a promise theory of contract, realize all the values we associate with promise in every contract, not every contract realizes the potential of exchange as a means by which to exercise autonomy. The success or failure of contract in serving the end of individual autonomy must be evaluated at the institutional level in the same way that Seana Shiffrin urged us to evaluate the institution of contract through the lens of how well it supports the moral practice of promise.[182]
Once we understand that contract as exchange is a regulative ideal for the institution of contract rather than a claim about the moral worth of every individual contract, it is easy to see why the demands that the principle of moral equality makes on the basic structure of society apply to the institution of contract. The theory of contract as exchange conceives of the institution of contract in the in the same way that we understand it to function in social reality, i.e., as an allocative institution. Contract is the mechanism by which resources move among people and by which people come to bear the particular constellation of property entitlements that they enjoy. By contrast, in promise theory, contract law is intended to mirror or uphold a social practice—the moral practice of promising—that does not have anything to do with allocation. While promise theory might make some concessions for the ways in which the legal status of contract requires that it depart from promissory morality, Shiffrin in particular has argued that it is detrimental to the moral practice for contract to stray too far.[183]
Theories that contend contract is subject to a morality unrelated to its allocative function naturally resist “distorting” that morality by incorporating distributive considerations. But if contract is an allocative institution, it is a core part of the basic structure of society and must be subject to distributive principles of justice.[184] Contract as exchange helps us see what other autonomy theories of contract have obscured.[185]
Once we see contract as a foundational element of our collective social structure rather than a tool by which we individually manage personal relationships, we can adapt our understanding of what autonomy requires of contract. Instead of relying on moral theories of promise, we look to political theories of justice.[186] While moral autonomy concerns respect for people’s basic human capacities for rationality and reason (and plausibly animates private moral principles like promise), political autonomy demands respect for those same capacities in fellow citizens. It requires, among other things, that public institutions be justifiable to all members of society based on their appeal to those faculties of rationality and reason. Under contract as exchange, then, mutual respect still entails giving appropriate weight to the interests of one’s contracting partner; but rather than relying on any formal understanding of promise to supply the meaning of “appropriate weight,” we can look to theories of distributive justice that illuminate how social institutions actualize the moral demands that citizens can make on each other or what it takes to respect their political autonomy.
Political autonomy requires of contract theory that it justify how the institution of contract allocates material resources in our society. Instead of focusing on what people are thinking and saying, then, we will focus on what people are doing and getting, and how their agreements are the product of and fuel the distribution of material resources. Regulating for contract as exchange means regulating against contract as extraction—the use of liquidity needs of a counterparty to leave that party worse off through low-value purchase of assets that have long-term value—and against contract as exploitation—taking advantage of status and bargaining power that reflects background injustice to secure terms that would be unavailable against a party without those social disadvantages.
Practically speaking, regarding contract as exchange should make us more comfortable with mandatory obligation. Contractual obligations can be understood as mandatory when their enforcement depends on some assessment of how well a class of contract advances the purposes of typical contracting parties or whether we think contracting parties could do better against a different regulatory backdrop.
On this view, autonomy in contract is loosely relational in the sense that it is exercised within the context of bilateral relationships.[187] It is significant that one undertakes commitments to particular others—one must treat them well, and one has claims only on them, not everyone in the market. Interactions leading up to and within contract make up our contact with the market. Our contracting partners are to us the face and hands of the market; they are all we can see of it in a given transaction. The way those interactions or transactions go embodies our interaction with the market.
However, the bilateral feature of contract is in some ways a red herring. Because our objectives in contractual relationships do not engage the personality of the contracting partner, and because the most important terms of our commercial interactions do not grow out of transactional relationships, the morality of those interactions derives from the morality of the market—that is, what is permitted, what is demanded, and how we should collectively aim to interact.[188] This morality is a political morality, and in a liberal society committed to the moral equality of its members, it requires that contract promote autonomy for all its users. Its success in this regard will not turn on the success of every transaction; but it will depend on the good that the institution enables each member of the political community to pursue.
Our liberal-egalitarian commitments generate distinct regulatory principles for each element of the basic structure of society, including contract. The division of labor among these institutional elements consists in serving the same political principles through distinct institutional means, but this requires adapting these high-level principles to the mandate of each institution. Thus, some principle of progressive taxation might govern the law of tax. Some principle of minimum capabilities might animate the social safety net. Contract as exchange is the local principle for the institution of contract that is implied by our liberal-egalitarian commitments.
3. Individuated Materialism
If material resources are essential to the pursuit of most life projects, one might think that promoting individuals’ ability to pursue their life plans amounts to maximizing wealth in our society. Alternatively, if contract as exchange should ensure that every individual profits from their bargain, one might think the theory amounts to the familiar principle of equality of exchange. In this Section, I distinguish contract as exchange from each of these alternatives.
Some scholars take the purpose of contract law to be the promotion of aggregate wealth.[189] Legal economists note that contract tends to allocate resources to the people who value them most, so long as those people are willing and able to pay more than others for those resources.[190] The efficient deployment of social resources thus tends to increase aggregate social wealth. While the appeal of this theory lies in its blunt embrace of a straightforward and “objective” end, Nathan Oman offers an alternative, richer theory of the relationship between wealth and contract: Instead of taking wealth maximization to be a normative end itself, he argues that it promotes other desirable qualities in society and promotes virtues such as tolerance and empathy among citizens.[191]
A liberal state should value the production of wealth because of the benefits that it delivers to individuals. That is because the liberal state is fundamentally a service state—it serves the moral ends of citizens, both by realizing their duties of justice to each other and by enabling the pursuit of their individual conceptions of the good. Wealth is morally significant to the state only insofar as it allows the state to advance that moral mandate.
Material wealth is indeed important to that mandate, but it is the availability of resources to citizens, not the aggregate level of wealth, that counts. John Rawls, in the leading statement of liberal-egalitarian principles, understood mutual respect for the political autonomy of citizens to require conformity with the Difference Principle. That principle requires that inequalities among citizens operate to the advantage of the most disadvantaged social group.[192] While there is a lot of controversy about the merits of the Difference Principle and exactly how it constrains the basic structure,[193] the less controversial intuition is that the basic structure of an ostensibly liberal state must be justifiable to all its members and cannot sacrifice some members of the community to promote the interests of others.[194] At the same time, some amount of inequality should be tolerated if eradicating it would actually hurt those whom it purports to help.
These are the principles that should guide contract as exchange. This means that while the success of the institution is measured by its material impact or its ability to get people what they want so they may pursue their life projects, the material impact itself is not an aggregate measure. Rather, the relevant impact is how well contract serves those whom it serves least well. This group is likely to include those subject to significant economic constraints: those whose limited resources make unavailable most of the choices theoretically available on the market, thus cutting them off from robust participation in the political community and a large swath of the social roles available to others.
The set of persons potentially disadvantaged by contract also includes the unlucky few who suffer physical injury from dangerous goods and services that are profitable in a large market. While contract regulation does not have to foreclose the marketing of such goods and services, it should ensure that those whose lives are potentially ruined by their encounter with the market are compensated well enough that they can regain some measure of control over their lives. This includes a renewed access to the market and the avenues of social participation embedded in it. Concretely, firms should not be able to avoid liability for the injuries they cause.
Contract as exchange shares its interest in the materiality of exchange with another theory of contract: equality of exchange. James Gordley and Hao Jiang are the most sophisticated contemporary advocates for this view. They argue that a fair price is market price.[195] We would expect a contract to deviate from market price only if it imposes an unusual risk on one of the parties.[196] On this view, as under contract as exchange, the voluntariness of contract derives from the party’s choice to enter into the exchange conceived in its totality.[197] But under equality of exchange, if circumstances change such that a contract no longer improves one party’s position and she regrets the exchange, the bargain no longer qualifies as voluntary, and the state should not enforce it unless failure to do so prejudices the other party as a result of his reliance on the deal.[198] Under contract as exchange, voluntariness is fixed at the time of formation; it cannot be undone by regret. It is primarily the circumstances under which contracts are entered that determines whether those agreements are voluntary.
Besides the fragility of voluntariness, equality of exchange has two other key features that distinguish it from contract as exchange. First, unlike contract as exchange, equality of exchange invokes an abstract and controversial idea of equality of objective value. While contract as exchange is predicated on a view of the competitive market in which prices are expected to converge, it does not take this to represent any equality in the value that parties obtain from a transaction. The value that parties obtain is subjective and turns on the gap between the market price (or contract price) and their individual reservation price. It is quite likely that value in the sense of gains from trade is distributed unevenly between the parties in most transactions that occur at market price. The ideal of equality cannot be salvaged by reference to the value of the good or service itself, since there is no reason to think that market price, fluctuating as it does in response to many ephemeral factors, corresponds to any metaphysical notion of inherent value.
The second, more important difference between contract as exchange and equality of exchange is that equality of exchange assesses the benefits of contract too granularly. This is the inverse of the difference between contract as exchange and contract for wealth, as explained above. Contract for wealth applies the principle of wealth maximization at the wrong level—that is, to the state rather than the individual. Equality of exchange also applies the principle that contracts should benefit the parties at the wrong level; but rather than applying it too broadly, it is too narrow. While we ordinarily expect parties to agree to transactions that improve their well-being, contract as exchange does not require that deals be successful in this way (and it does not void transactions ex post because they are not). Instead, it aims to facilitate the pursuit of projects at the citizen-level: Each citizen should be made better off by the institution of contract, but not necessarily in every bargain they make. Rules should be designed to avoid creating or entrenching a class that consistently loses out. But because contract is best understood as an economic institution and not an isolated encounter between two people, it should be evaluated by its performance at the institutional level and not presumed to succeed in every instance.
III. Doctrinal Implications of the Exchange Paradigm
Although contract as exchange is a departure from existing theories about contract, it is not at odds with the contract law that those theories have purported to explain. In fact, in this Part, I will show that contract as exchange fits the central features of our existing body of contract law. If we overcome the residual intuitions associated with contract in the head, we should also be able to improve the way contract empowers individuals to use the market to access the goods and services they want, and to participate in the broad and niche communities for which market access is a functional gateway.
Every first-year law student knows that the two most important requirements of contract are the presence of consideration and offer and acceptance. Existing theories revolve around the voluntariness requirement embodied by the process of offer and acceptance. Contract as exchange also centers the choice of contracting parties to agree to contract. But contract as exchange does a much better job than other autonomy-based theories at explaining the doctrine of consideration.[199] In fact, the consideration doctrine captures the moral significance of exchange that is at the heart of the paradigm here.
On the back end, autonomy-based theories have struggled to account for the standard remedy in contract law, i.e., expectation damages. If will, promise, and agreement theory have anything to say about remedy, it might be that the courts should allow the parties free rein to choose their own. But courts do not do this. Instead, expectation damages are the default remedy and penalty clauses are disallowed.
Finally, at the margins of contract law, existing autonomy theories must contort either the law or their theories to accommodate the doctrine of unconscionability. Either unconscionability turns out to be a procedural doctrine that captures deficiencies in assent, or the notion of autonomy must temporarily expand to encompass the interest against the burdens of unfair contract. Contract as exchange offers a more compelling justification for unconscionability that accounts too for the indeterminate form that the doctrine typically takes.
A. Consideration
None of the dominant autonomy theories make good sense of the consideration requirement. Consideration had no plausible role in will theory: The right to alienate property does not depend on getting something for it, and outside of contract, the exercise of will is used to transfer without consideration.[200] The consideration requirement also appears to contradict the promissory principle, since neither the value of making or keeping promises depends on getting something immediately in return.[201] Agreement theory does not appear to accord consideration any important role either, since presumably parties can agree on terms that do not meet the requirement. Moreover, inasmuch as a party agrees to be enlisted in a project that does not benefit herself, such an agreement may still qualify as an enterprise.
While Peter Benson’s more recent transfer theory might have offered a new way to make sense of consideration, ultimately it too rejects any function for the consideration doctrine beyond making “reasonably clear to each [party] in and through their interaction” that they are effecting a transfer.[202] Consideration links the two acts of alienation and appropriation so it is formally clear that they concern the same objects, but the fact of exchange itself has no independent significance.[203]
Meanwhile, notwithstanding the theoretical indifference, if not hostility, to consideration, common law courts have continued to enforce the doctrine.[204] Contract as exchange helps us understand why. The unique trick of contract is that it enables parties to use what they have to get something they want more. It imagines exchange as the essence of contract, a tool by which to pursue material objectives. The process of offer and acceptance specifies those transactional objectives, but what makes contract distinctive is that those objectives are pursued reciprocally, enabling each party to pursue its separate plans cooperatively through exchange. The consideration requirement orients contract to this purpose and helps limit its domain to match this purpose.
Understanding consideration and the exchange principle that it embodies as central to contract rather than anomalous provides us some direction for answering outstanding questions related to the requirement of exchange. For example, the concept of mutuality withered once courts used the duty of good faith to cure apparent defects in mutuality.[205] But the concept of good faith is a limited tool for imputing mutuality because it operates only in the interstices of express agreement.[206] Since the doctrine of mutuality effectively ensures that a promise that operates as consideration is real rather than illusory, it gives us reason to interpret the duty of good faith more robustly, and to make it harder to get around.[207]
For example, in the context of franchise agreements, there is long-standing disagreement among both scholars and courts about the amount of discretion that franchisors may exercise over their termination rights.[208] Many courts do recognize that the franchisor’s discretion to terminate is bound by good faith, but they also hold that this gap-filling duty cannot cabin discretion that contract language expressly assigns the franchisor.[209] In fact, franchisees understand the discretion to be even more expansive than contractual language provides.[210]
Understanding the consideration requirement to embody a moral principle in contract, rather than a formal proxy for the parties’ own desire for enforceability,[211] gives us reason to interpret contracts to cure the absence of mutuality—just as the court did in Lady Duff-Gordon, but with interpretive steps adequate to the task. That is, courts should construe any ambiguous language that confers discretion against franchisors.[212] They should treat defaults that constrain franchisor discretion as sticky and require clear, standardized language to opt out.[213] And where a renewal agreement is drafted as a market outlier or on terms so onerous to franchisees that they reflect only the franchisees’ absence of choice (as where life savings have already been invested in a franchise that is subject to expiration), courts should find the agreements unenforceable altogether.[214]
Franchises offer individuals expedited access to markets dominated by recognizable brands. But franchisees who lose their franchises sometimes lose substantial investments in their franchise as well as their livelihood.[215] Their lives are derailed in just the way that the rules of contract should aim to avoid. There are sound reasons for recognizing substantial discretion on the part of franchisors. It is difficult to specify in advance the circumstances under which a franchisee will fall short of mutual expectations under the agreement. Franchisees also are not entitled to a guarantee that their business will be profitable. But there are also important reasons to read franchise agreements systematically to limit abuse of power by franchisors—reasons that go to the heart of contract as an institution, not just empathy for individual franchisees. Such agreements, as well as their risks, illustrate the moral significance of exchange as an exercise in reciprocity, and the need to regulate contracts to ensure they are instruments of empowerment. The doctrine of consideration underlines the significance of mutuality and reciprocity as the prerequisites for an institutional assumption that exchange promotes autonomy.
B. Remedies
Several scholars have doubted that autonomy-based theories of contract have much to say about the appropriate consequences of breach.[216] Will theory can be reconciled with a wide range of remedies with a little theoretical ingenuity.[217] Nevertheless, autonomy-based theories of contract have offered some critiques of contemporary doctrine. Shiffrin has argued that the morality of promise is undermined by the expectation default and the accompanying theory of efficient breach because the latter appears to condone breach of contractual promises as at least morally neutral.[218] Separately, since will theory calls generally for deference to the party’s own wishes, some scholars have recommended that courts enforce liquidated damages whenever they are specified by the parties.[219]
Existing law is still at odds with these views. Penalty clauses that purport to impose legal damages disproportionate to actual damages remain unenforceable.[220] Shiffrin has recently defended this rule, arguing that expanded deference to liquidated damages threatens to “eviscerate[] the important role of the judiciary in vindicating the public interest in addressing legal wrongs fairly, impartially, and independently.”[221] Her argument for judicial oversight of remedial clauses emphasizes the separation between primary and secondary obligations in contract: The former obligations are controlled by parties while the latter are the purview of the courts.[222] Contract as exchange buttresses the same moral intuition without relying on this porous barrier.[223]
According to contract as exchange, penalty clauses impermissibly burden those for whom a contract has turned into a regret. Those parties are not entitled to shift their losses onto others, not least because the firms that are their counterparties can be expected ultimately to shift those losses onto other parties. But the prospect of damages in excess of the losses that result from one’s breach will deter initial entry into the market, and market access has a distinct normative value under contract as exchange. Even if, as economists claim, parties will not knowingly adopt penalty clauses,[224] they might adopt clauses that are reasonably regarded as penalty clauses from either an ex ante or ex post perspective by those who assess the probability of certain defaults and losses differently than do the parties themselves. The point of adjudicating the merits of a particular penalty clause is not simply to ensure that the party called upon to pay penalty damages is not forced to do so but to ensure that the many parties who never go to court are not deterred from entering certain classes of agreements because the typical damages are higher than they have to be for compensation purposes. There is reason, then, to tolerate some false positives in judicial screening of liquidated damages for impermissible penalties.
Interestingly, contract as exchange departs from Shiffrin and aligns better with the conclusions of legal economists with respect to the core remedy of expectation damages. Existing autonomy theories have either abdicated the effort to explain remedies or have asserted the dubious claim that a contractual promise bundles together a promise to perform with a promise to pay in the event of nonperformance. The second, remedial promise directs the breaching party to pay just the amount owed for breach of contract. On this approach, a promise to deliver ten widgets by a certain date is accompanied by a promise to pay expectation damages in the event the widgets are not delivered on time.
Contract as exchange offers a more intuitive explanation for the expectation damages default that incorporates the insights of economic analysis but captures the normativity that those explanations lack standing alone: Parties enter into contract primarily for material, not relational gain. The loss associated with breach is therefore usually monetizable, and the underlying good or service that the nonbreaching party sought can be obtained elsewhere on the market. It is only in atypical cases when those assumptions do not hold that courts should resort to specific performance or other more invasive remedies that force parties to deal with each other personally. The aim of contract is to enable people to obtain the goods and services that they have chosen, but not necessarily from any particular counterparty. Expectation damages are imperfectly tailored to that limited end. Again, contract as exchange makes sense of our remedial regime and its apparent objectives more directly than theories that emphasize the internal dimensions of contract.
C. Unconscionability
Contract as exchange offers a framework that can justify the doctrine of unconscionability and direct us toward the doctrine’s famously indeterminate content.[225] The theory also helps us to understand the doctrine’s outsized normative significance[226] notwithstanding the fact that it is rarely invoked and even more rarely successful.[227]
Unconscionability allows courts to excuse a party from a contract or term where it shocks the court’s conscience.[228] Notwithstanding the fact that this standard on its face turns on the substance of contract terms, scholars tend to emphasize the procedural elements of the doctrine. Since we have a separate set of doctrines that police irregularities in formation—misrepresentation, mistake, and duress—the procedural defects at issue in unconscionability have never been spelled out, and we have no standing account of why ostensible red flags, like unequal bargaining power, are probably regarded as defects at all. In fact, courts are willing to find unconscionability even where there is no plausible procedural argument that a consumer lacked notice of a term or lacked opportunity to reject a proposed sale.[229] The scholarly need to ground unconscionability in a procedural defect is driven by theories of contract that locate their normative force in the minds of contracting parties; only if there is some defect in the cognitive process that led to assent can those theories make sense of the excuse that unconscionability offers. Classic theories of contract otherwise must understand unconscionability as a straightforward exception, an anomaly that serves values outside the core values of contract.
Contract as exchange can do more: Its framework makes the doctrine of unconscionability consistent with the internal logic of contract. While parties generally decide the terms on which they contract, their authority over terms does not reflect any essential feature of people in general. Rather, it reflects contingent facts about how we can optimally allocate scarce social resources—specifically, by harnessing private information through voluntary exchange. But where an exchange is on terms wholly at odds with market price (or market-contradicting in some other respect), the contract at issue cannot fulfill the function of contract in general; instead of enabling the party to access the market, the contract reflects and reinforces a lack of access. To the extent there is procedural irregularity, it lies in the exploitation of background disadvantage, not any deficiency in the mental events that led up to contract.[230] Substantive unconscionability lies in the exacerbation of that background disadvantage.[231] A person already on the periphery of the market is pushed still further out. The doctrine of unconscionability attempts to interrupt this dynamic.
It does so, however, at the risk of cutting similarly situated individuals off from the market more systematically. If an onerous term reflects sellers’ costs with a class of buyers, then prohibiting that term will induce sellers to end sales to that class. This is why courts must be sparing in their findings of unconscionability and should take into account commercial facts about market practice and the profitability of particular firms or industries. The Uniform Commercial Code acknowledges the contingency of any abstract judgment when it allows that a party seeking to enforce a clause “shall be afforded a reasonable opportunity to present evidence as to its commercial setting, purpose and effect to aid the court in making the determination.”[232] Contract as exchange tracks ordinary intuitions about how the fairness of a single contract depends on how it compares to other market options and what alternative terms would be commercially feasible. Unlike contract in the head, contract as exchange motivates the hard empirical question that underlies unconscionability, though of course the theory cannot answer the question it would ask.
Still, it is useful to know what to ask in each case. And the dividends from asking the right questions extend outside of common law unconscionability cases to other regulation of unfair terms. For example, the focus of contract as exchange on market access would have us distinguish among types of credit before arriving at judgments about usury. We have to be more careful about cutting off access to financial products that facilitate market (and therefore social) participation, such as student loans, mortgages, and small business loans. Meanwhile, we can be more vigilant about high interest rates that trap debtors in cycles of indebtedness from which they cannot expect to emerge, as in so-called payday loans.[233] Just as judgments about unconscionability depend on the features of specific markets, the way we regulate personal debt will depend on the kind of debt it is and the purpose it serves for borrowers.
Contract as exchange is clarifying in still one more respect. Students are often alarmed at the imprecision of case language about unconscionability. Opinions sometimes use the term “unconscionability” interchangeably with “public policy,”[234] even though analytically there is a clear line: Unconscionability pertains to inequity between the parties to a given contract while public policy concerns third-party interests.[235] Contract as exchange does not do away with the distinction, but it helps us see why judges themselves appear to see these doctrines as closely related: Unconscionability depends on a finding of market dysfunction, which in turn bears on public policy objectives. Whether one person is mistreating another on the market depends on whether they are exploiting a market dysfunction, and on how allowing (or disallowing) such conduct will inform the experience of other people. There is thus no bright line in practice between unconscionability and public policy, even though, analytically, we can continue helpfully to distinguish between wrongs to a particular counterparty and harms imposed on non-parties to an agreement.
We have seen that contract as exchange takes seriously the need to justify the institution of contract to those on the periphery of society, those most vulnerable to exploitation through contract, and those most likely to be cut off from the market. These worries do not always point in the same direction with respect to the breadth or narrowness of the doctrine of unconscionability. But, in that respect, they make sense of the indeterminacy we see in the doctrine itself.[236]
Conclusion
Contract can be characterized in many ways. It is simultaneously an exercise of some kind of choice, an exercise of normative powers like promise to change our obligations to others, a joint undertaking with others governed on terms that have been mutually agreed upon, and a device to govern market transactions. There are contracts that resonate particularly well with each of these characterizations, but I have argued here that most contracts are best understood as tools for exchange, transactions that are intended to allow the parties to obtain what they need or want from each other. Most people do not get to choose most of the terms of their agreements in any meaningful sense; those terms are determined by the market and the positions that the parties occupy within it. Most contractual relationships are thin and impersonal. But people need access to the market to advance almost every life project. Participation in the market is essential to participation in our political community. While markets are abstract, contracting parties embody the market to each other.
I maintain that contractual obligation is genuinely bilateral. Contracts do not merely purport to obligate parties to one another; they create real rights and obligations between the parties—both those expressly assumed by the parties and others that courts may imply to make contracts serve their social purpose. Their purpose is neither to enrich the political community for the sake of maximizing aggregate wealth, nor to make every deal go well for each party; it is to ensure that the institution of contract benefits all members of the community such that the institution can be justified to everyone. When parties do not contract on terms that satisfy the demands of political morality for transactions, they fail to treat each other well in the relevant sense. Because contract is fundamentally an allocative institution, treating one’s contracting partner with respect entails respecting their political autonomy. This requires transacting on terms and performing in such a way that the legal practice of exchange is cooperative rather than exploitative, mutually productive rather than extractive, or, simply, fair rather than unreasonable.
Other autonomy-based theories locate the principle that ostensibly animates contract in a feature of persons or a moral practice that has nothing to do with markets. In those perspectives, contract is an uneasy extension of a moral phenomenon that has a life of its own outside the law. Contract law as we know it is, unsurprisingly, an awkward fit for such theories. Because those theories do not take seriously what people want out of contract, the theories also do not fit the social reality of contract. Contract as exchange allows us better to appreciate the political demands on contract that follow from its material function, and to regulate transactions in a way that makes the institution most likely to meet its moral mandate.
Copyright © 2025 Aditi Bagchi, I am grateful to many colleagues for their comments, especially Haim Abraham, Thomas Adams, Jaap Baaij, Charles Barzun, Jim Brudney, Hugh Collins, Hanoch Dagan, Elizabeth Emens, Deborah Hellman, Avery Katz, Roy Kreitner, Ethan Lieb, Christopher Mills, Charles Mitchell, Veronica Rodriguez-Blanco, Nick Sage, Irit Samet, Prince Saprai, Larry Solum, Rebecca Stone, Greg Strauss, J.H. Verkerke, and Ben Zipursky. I am also thankful for feedback from participants at the annual conference of the Collective of Women in Legal Philosophy, KCONXVII at the University of Bristol, and workshops at Fordham Law School, University College London, and the University of Virginia Law School.
[1]. By modern contract theory, I refer to contract theory from the nineteenth century onward, beginning with will theory. See James Gordley & Hao Jiang, The Maze of Contemporary Contract Theory and a Way Out, 68 Am. J. Juris. 1, 2–3 (2023) (observing that there was no common law of contract before the nineteenth century).
[2]. See E. Allan Farnsworth, Contracts 114 (1982) (discussing that objectivity dominated American contract law by the end of the nineteenth century).
[3]. See Embry v. Hargadine, McKittrick Dry Goods Co., 105 S.W. 777, 779–80 (Mo. Ct. App. 1907) (holding that the employer renewed a contract because his words were reasonably interpreted to renew, irrespective of employer’s subjective intent).
[4]. Cf. Russell v. Texas Co., 238 F.2d 636, 642–43 (9th Cir. 1956) (finding that the offeror of a license could reasonably conclude his offer was accepted because the offeree would otherwise be illegally trespassing).
[5]. See infra Part I.A.1.
[6]. See infra Part I.A.2.
[7]. See infra Part I.A.3.
[8]. See Andreu Mas-Colell, Michael D. Whinston & Jerry R. Green Microeconomic Theory 314 (1995).
[9]. See id. at 368 (“The presence of privately held (or asymmetrically held) information can confound . . . attempts to achieve optimality.”).
[10]. For example, those who are committed to a particular hobby, whether hiking or chess, tend to be identifiable by the products they buy or know about, such as hiking equipment or books on chess strategy. Even apparently “free” activities like hiking or chess will depend on flying to parks or tournaments and paying related fees.
[11]. See Abbye Atkinson, Borrowing and Belonging, 111 Calif. L. Rev. 1369, 1377 (2023) (“[M]arginalized groups . . . deploy their status as consumers to cement their ‘social standing’ as true Americans.”); see also Judith N. Shklar, American Citizenship: The Quest for Inclusion 2 (1991) (analyzing the notion of “social standing” as understood by American citizens).
[12]. Cf. Hanoch Dagan & Avihay Dorfman, Just Relationships, 116 Colum. L. Rev. 1395, 1398 (2016) (“[P]rivate law . . . cast[s] . . . frameworks of relationships as interactions between free and equal individuals who respect each other for the persons they actually are and thereby vindicate our claims to relational justice from one another.”). Of course, some people do care about the personal relationship they have with some of their contracting partners. But it is still more rare for those people to use their contracts to manage the nuances of those relationships. If anything, they may wish to use contract to achieve separation between distinct dimensions of those relationships. See Aditi Bagchi, Separating Contract and Promise, 38 Fla. St. U. L. Rev. 709, 714–15 (2011); Dori Kimel, Neutrality, Autonomy, and Freedom of Contract, 21 Oxford J. Legal Stud. 473, 491–92 (2001).
One might understand Dagan and Dorfman’s view of the relationality of interest differently. They are not interested in promoting valuable personal relationships in themselves but only in the justice of the terms on which people interact; the latter amount to a relationship only in a formal sense. But it is hard to account for the work that relationality does if the concept is used in the purely formal sense: It is tantamount to whatever happens between two people, including elements of which they may not even be aware. Invoking relationality seems intended at least to emphasize the bilateral character of the nature of the interaction, and therefore the agent-relative duties and claims that arise from it. I am in agreement that contract is and should be responsive to some but not all agent-relative duties and claims, but I wish to emphasize here that the content of those duties does not essentially turn on what passes between two people as much as on the market context in which most contracts take place.
[13]. Hanoch Dagan and Michael Heller have put forward a theory that centers choice. See Hanoch Dagan & Michael Heller, The Choice Theory of Contracts 65 (2017). But the choices that their theory aims to improve are not the choices contracting parties usually care about. See infra Part II.B.1.
[14]. John Rawls, A Theory of Justice 6 (rev. ed. 1971) (defining the basic structure as “the way in which the major social institutions distribute fundamental rights and duties and determine the division of advantages from social cooperation”).
[15]. Because the language of public and private autonomy is most closely associated with Jürgen Habermas, I use the language of private and political autonomy to signal that my usage is closer to the framework of John Rawls. Although he does not use these terms, in Rawls’s account, the basic structure of a society must be justifiable to its members in order to respect their autonomy. Id. at 226 (“The force of the self’s being equal is that the principles chosen [in the original position, behind a veil of ignorance] must be acceptable to other selves.”). The principles of justice must respect both the individual’s capacity to elect and pursue a conception of the good (by respecting what I refer to here as private autonomy), id. at 441–43, as well as their right to mutual respect as embodied in collective institutions that are reasonably justifiable to them (what I refer to here as political autonomy), id. at 257–58. I am not using the term political autonomy here to encompass procedural rights with respect to law-making, though I do not resist the idea that those also apply to contract law. Cf. Martijn W. Hesselink, Private Law Subjects in European Mini-Publics, 22 Int’l J. Const. L. 971 (2024) (exploring deliberative procedures that reflect the dialectic between public and private autonomy).
[16]. See generally Martijn W. Hesselink, The Right to Justification of Contract, 33 Ratio Juris 196 (2020) (arguing for the right to justification and its implications).
[17]. It is possible to understand contract as exchange and adopt its normative agenda without embracing autonomy as an end of contract law. One could endorse the provision of material resources, protection from risk, and distributive justice without referencing autonomy. (Thanks to Larry Solum for this point.) I follow the liberal tradition of rooting contract in the principle of autonomy, but the conception of autonomy deployed here is different from the conception associated with most theories of contract. Those theories focus exclusively on private autonomy as either a constraining moral principle (inasmuch as contract law is bounded by the promissory principle, for example) or a non-material, aspirational principle (inasmuch as contract law promotes the valuable moral practice of promise, for example). By contrast, here I take contract law to be constrained by autonomy as a political principle (that is, it must be justifiable to all members of the political community) and task it with promoting the material conditions for private autonomy (by enabling people to get what they want cooperatively from others).
[18]. See Gordley & Jiang, supra note 1, at 2.
[19]. It is no accident that they do this because autonomy in the Kantian tradition is indeed a function of our thoughts (“a good will”). See Immanuel Kant, Grounding for the Metaphysics of Morals *393–94. In Kantian morality, autonomy contrasts with heteronomy; the former consists of self-governance by maxims we can endorse by virtue of our capacity for reason, while the latter refers to our physical determination or subordination of reason to physical desires and impulses. Id. at *440–41, *454–55, *460–61.
The autonomy that is relevant to contract law is not this moral notion—indeed, it is not deployed by Kant in the context of legal philosophy. Cf. Helge Dedek, A Particle of Freedom: Natural Law Thought and the Kantian Theory of Transfer by Contract, 25 Can. J.L. & Juris. 313, 321 (2012) (observing separation of moral and legal duty in a Kantian regime). Moral autonomy does not depend on anything outside the head; it does not depend on any kind of contract law. It is secured through individual compliance with moral imperatives. I am instead using “autonomy” in the sense of the political liberal tradition, in which we regard human beings as capable of and aspiring to self-governance. In this tradition, the state is constrained by autonomy (for instance, it may not adopt measures that fail to respect it, as in abrogation of free speech or religion), and it is tasked too with promoting its material conditions. See generally Rawls, supra note 14; John Rawls, Political Liberalism (1993). Contract law is a mechanism by which the state promotes its material conditions.
[20]. Will theory regards the right to transfer property as derivative from the right to property itself. See Nicholas C. Dranias, Consideration as Contract: A Secular Natural Law of Contracts, 12 Tex. Rev. L. & Pol. 267, 289 (2008).
[21]. Id. at 290.
[22]. See Morton J. Horwitz, The Historical Foundations of Modern Contract Law, 87 Harv. L. Rev. 917, 920 (1974) (“[T]he most distinctive feature of eighteenth century contract law is the subordination of contract to the law of property.”).
[23]. Dedek, supra note 19, at 332. See Immanuel Kant, The Metaphysics of Morals *6:271 (quoted in Dedek, supra note 19, at 338) (“An act of the united choice of two persons by which anything at all that belongs to one passes to the other is a contract.” (emphasis added)).
[24]. See Dedek, supra note 19, at 339 (Kant “defines the object of the transfer as promissum, the promise. In § 20, he emphasizes and further explains that what is acquired through contract is the promise—in the sense of the causality of someone’s choice—and not what has been promised.”).
[25]. See id. at 341.
[26]. See Horwitz, supra note 22, at 917 (“Only in the nineteenth century did judges and jurists finally reject the long-standing belief that the justification of contractual obligation is derived from the inherent justice or fairness of an exchange.”). Even early in the 1800s, courts refused to enforce contracts with inadequate consideration. See id. at 923 (citing Seymour v. Delancy, 3 Cow. 445, 447 (N.Y. Sup. Ct. 1824)).
[27]. See id. at 918, 936–37.
[28]. See James Gordley, Contract, Property and the Will—The Civil Law and Common Law Tradition, in The State and Freedom of Contract 66, 74 (Harry N. Scheiber ed., 1998) (“England and the United States were developing systematic doctrines of contract and property at the same time that they were adopting will theories.”).
[29]. See id. at 75.
[30]. See id. at 76.
[31]. See Brian H. Bix, Contract Law and the Common Good, 9 Wm. & Mary Bus. L. Rev. 373, 376 (2018) (explaining that in the United States, but not Europe, the will theory is associated with laissez-faire politics).
[32]. See Gordley, supra note 28, at 70 (“[T]he nineteenth-century innovation was not to use the concept of the will. It was to use that concept exclusively, without introducing any other concept that could limit what could be legitimately willed.”).
[33]. L.L. Fuller & William R. Perdue, Jr., The Reliance Interest in Contract Damages: 1, 46 Yale L.J. 52, 58 (1936) (noting that will theory recognizes individuals to have a kind of “legislative power, so that the legal enforcement of a contract becomes merely an implementing by the state of a kind of private law already established by the parties”); see also Daniel P. O’Gorman, Promises, Policies, and Principles: The Supreme Court and Contractual Obligation in Labor Relations, 22 Cornell J.L. & Pub. Pol’y 93, 103 (2012) (“[W]ill theory is not simply the right to freedom from state coercion; it includes the right to have the state enforce one’s contract rights, which are rights against other individuals.”).
[34]. P.S. Atiyah, The Rise and Fall of Freedom of Contract 408 (1979).
[35]. Chad McCracken, Hegel and the Autonomy of Contract Law, 77 Tex. L. Rev. 719, 731 (1999) (“In [Hegel’s] abstract account of contract, there is, and can be, no inquiry into the purposes of the contracting individuals”); id. at 730 (“(a) [T]he contract is the product of the arbitrary will; (b) The identical will which comes into existence through the contract is only a will posited by the contracting parties, hence only a common will.”) (quoting G.W.F. Hegel, Elements of the Philosophy of Right 105 (Allen W. Wood ed., H.B. Nisbet trans., Cambridge Univ. Press 1991) (1820)).
[36]. Andrew S. Gold, A Property Theory of Contract, 103 Nw. U. L. Rev. 1, 3 (2009).
[37]. Id.
[38]. But note that Kant’s transfer theory also abstracted away from the literal property at issue. Dedek, supra note 19, at 339.
[39]. For example, Gold claims that because individuals own their bodies, they own their actions, including future actions, and that “[o]wnership of one’s actions, and their transferability follows naturally from a robust theory of self-ownership.” Gold, supra note 36, at 4. Intentional acts by the promisee complete the transfer. Id. at 5. Gold does not explain why transferability has any particular requirements or why intention is the magic element to complete transfer.
[40]. Roscoe Pound, The Role of the Will in Law, 68 Harv. L. Rev. 1, 7 (1954).
[41]. See James W. Fox Jr., The Law of Many Faces: Antebellum Contract Law Background of Reconstruction-Era Freedom of Contract, 49 Am. J. Legal Hist. 61, 110–11 (2007).
[42]. See infra text accompanying notes 128–141.
[43]. Fried understood himself as pursuing a variant of will theory. Charles Fried, Contract as Promise: A Theory of Contractual Obligation 1–6 (1981).
[44]. See generally Lon L. Fuller, Consideration and Form, 41 Colum. L. Rev. 799 (1941).
[45]. Duncan Kennedy, From the Will Theory to the Principle of Private Autonomy: Lon Fuller’s “Consideration and Form,” 100 Colum. L. Rev. 94, 160 (2000); see also James Boyle, Legal Realism and the Social Contract: Fuller’s Public Jurisprudence of Form, Private Jurisprudence of Substance, 78 Cornell L. Rev. 371, 386–87 (1993) (arguing Fuller’s Consideration and Form wanted to salvage the principle of private autonomy from will theory by arguing that contract theory promoted autonomy with a properly restricted sphere and that objectivity allowed parties to more effectively pursue their particular ends).
[46]. See Kennedy, supra note 45, at 163 (“The principle of private autonomy is not a ‘legal principle’ in the sense of an abstract norm from which a coherent body of sub-norms can be derived, but a ‘policy’ to be confronted in each case with other concurring or conflicting policies.”).
[47]. Daniel Markovits, Making and Keeping Contracts, 92 Va. L. Rev. 1325, 1368 (2006) (“[S]alvaging the suggestion that promisors will their obligations of agreement-keeping into existence, requires abandoning the simplicity and narrow focus of the pure will theory and embedding the intentions that it contemplates in an account of the values that are served by agreement-making.”).
[48]. See id. at 1372 (“[T]he purposes that such conventions of agreement-keeping serve exert a pressure for these conventions to depart, substantively, from the will theory’s central commitment to giving the will free-reign in fixing the content of its contractual obligations.”).
[49]. See, e.g., id. at 1369–70 (casting Fried as an instance of will theory but then noting it might not be an instance after all given the instrumental justifications that Fried invokes).
[50]. Fried, supra note 43, at 17.
[51]. Dedek, supra note 19, at 321 (“Under a Thomasian (and later Kantian) regime of strict separation of internal moral and external legal duties, invoking the moral argument is, as such, fallacious. Neither the moral duty not to lie or to make fake promises, nor the moral duty not to breach one’s promises, has anything to do with the question of whether contracts give rise to a legal and thus enforceable right to the promised performance or its equivalent.”).
[52]. Fried, supra note 43, at 57.
[53]. See Barbara H. Fried, The Holmesian Bad Man Flubs His Entrance, 45 Suffolk U. L. Rev. 627, 641 (2012) (reading Charles Fried to imply that “parties to a contract generally have no moral duty to assume any contractual obligations to each other”).
[54]. See Anthony T. Kronman, A New Champion for the Will Theory, 91 Yale L.J. 404, 405 (1981) (book review) (arguing that Fried revives will theory by conceding that the original version “made the fatal mistake of attempting to prove too much . . . assum[ing] that the promise principle occupies an exclusive, rather than merely dominant position”). On Fried’s version of will theory, if it is one, protecting and even promoting promise is the ambition of contract, but the institution is not strictly governed or dictated by the contents of individual undertakings as classic will theory implied.
[55]. See Fried, supra note 43, at 13, 20.
[56]. See id. at 17. This language seemed to depart from the Kantian morality of promise, which regards promise-breaking as a breach of a perfect duty rather than a failure to fulfill an imperfect duty to promote a useful practice. Cf. Niko Kolodny & R. Jay Wallace, Promises and Practices Revisited, 31 Phil. & Pub. Affs. 119, 121–22 (2003) (noting that in Hume’s theory the wrong of breach can turn either on undermining the useful practice or exploiting it). John Rawls’s account invokes a principle of fairness and decries the exploitation of a practice, or free riding. Rawls, supra note 14, at 347–50.
[57]. Joseph Raz, Promises in Morality and Law, 95 Harv. L. Rev. 916, 933 (1982) (reviewing P.S. Atiyah, Promises, Morals, and Law (1981)).
[58]. Id. at 937.
[59]. Thomas Scanlon, Promises and Practices, 19 Phil. & Pub. Affs. 199 (1990).
[60]. Id. at 216.
[61]. T.M. Scanlon, Promises and Contracts, in The Theory of Contract Law: New Essays 86, 87 (Peter Benson ed., 2001).
[62]. Id. at 108.
[63]. An exception to this trend is Jody Kraus whose “personal sovereignty” theory of contract is an outlier. Jody S. Kraus, Personal Sovereignty and Normative Power Skepticism, 109 Colum. L. Rev. Sidebar 126, 133 (2009) (“The personal sovereignty account . . . explains promissory morality not on the consequentialist ground that it promotes some other moral value, but on the purely deontic ground that it derives from a fundamental moral value.”).
[64]. Seana Valentine Shiffrin, The Divergence of Contract and Promise, 120 Harv. L. Rev. 708, 717 (2007).
[65]. Id. at 749.
[66]. Id. at 750.
[67]. Id. (“Creation of a contract invites this relationship to be witnessed, recognized, and scrutinized by the public.”).
[68]. Id. at 751–52.
[69]. Id. at 752.
[70]. Daniel Markovits, Contract and Collaboration, 113 Yale L.J. 1417, 1420 (2004).
[71]. Id. at 1433.
[72]. Id. at 1422–23.
[73]. Id. at 1472.
[74]. See Kronman, supra note 54, at 421 (describing Fried as amenable to setting rules with an eye to distribution but hostile to ad hoc distribution in adjudication).
[75]. Patrick J. Kelley, Critical Analysis of Holmes’s Theory of Contract, 75 Notre Dame L. Rev. 1681, 1694–95 (2000) (citing 5 Friedrich Carl von Savigny, System des heutigen Romischen Rechts §§ 104-40, at 309 (Berlin, Veit und Comp. 1848)) (discussing Savigny’s view that contract requires two parties to have identical intentions of which they are mutually aware).
[76]. See id. at 1695 (citing 3 Savigny, supra note 75, at 309). For other arguments to this effect, see Lawrence M. Solan, Contract as Agreement, 83 Notre Dame L. Rev. 353, 357 (2007) (arguing mutual intent is essential); Sanford Schane, Contract Formation as a Speech Act, in The Oxford Handbook of Language and Law 100, 105 (Lawrence M. Solan & Peter M. Tiersma eds., 2012) (“[T]his distinction between autonomous and cooperative speech acts . . . differentiates ordinary promises from offers.”).
[77]. Peter Meijes Tiersma, Comment, The Language of Offer and Acceptance: Speech Acts and the Question of Intent, 74 Calif. L. Rev. 189, 196 (1986); see also id. at 226–27 (“[T]he speaker must intend to make the hearer recognize or believe that in uttering words that count as an offer, the speaker is committing himself to the proposed bargain.”); Elizabeth A. Janicki, Note, Contracts as Speech Acts: Bringing Jakobson to the Conversation, 107 Geo. L.J. 201, 208–09 (2018).
[78]. See generally Robin Bradley Kar & Margaret Jane Radin, Pseudo-Contract and Shared Meaning Analysis, 132 Harv. L. Rev. 1135 (2019).
[79]. Id. at 1139.
[80]. Id. at 1143.
[81]. Id. at 1146.
[82]. Id. at 1150.
[83]. Id. at 1140.
[84]. Peter Benson, Contract as a Transfer of Ownership, 48 Wm. & Mary L. Rev. 1673, 1692 (2007).
[85]. Id. at 1694.
[86]. Id.
[87]. Id. at 1696.
[88]. Id. at 1715.
[89]. Nick Sage, Agreement, in Research Handbook on the Philosophy of Contract Law 266, 276 (Mindy Chen-Wishart & Prince Saprai eds., 2025).
[90]. Id.
[91]. Id.
[92]. Bruce A. Kimball, Langdell on Contracts and Legal Reasoning: Correcting the Holmesian Caricature, 25 Law & Hist. Rev. 345, 368 (2007). But see Joseph M. Perillo, The Origins of the Objective Theory of Contract Formation and Interpretation, 69 Fordham L. Rev. 427, 428 (2000) (“[O]bjective approaches have predominated in the common law of contracts since time immemorial.”). Perillo argues that courts never really applied subjective standards in contract, though they flirted with them at the height of will theory. Id.
[93]. See Patrick J. Kelley, Objective Interpretation and Objective Meaning in Holmes and Dickerson: Interpretive Practice and Interpretive History, 1 Nev. L.J. 112, 116–17 (2001); Kimball, supra note 92, at 368–69.
[94]. Farnsworth, supra note 2, at 114.
[95]. 200 F. 287, 293 (S.D.N.Y. 1911). For a discussion of Learned Hand’s view of objectivity, see generally Daniel P. O’Gorman, Learned Hand and the Objective Theory of Contract Interpretation, 18 U.N.H. L. Rev. 63 (2019). Cf. Dranias, supra note 20, at 281 (describing how courts subscribing to the will theory inquired into parties’ actual intentions).
[96]. 239 F. 976, 984 (S.D.N.Y. 1917) (“[W]e commonly speak of a contract as a question of intent, and for most purposes, it is a convenient paraphrase [but] strictly speaking, untrue.”).
[97]. See Comput. Network, Ltd. v. Purcell Tire & Rubber Co., 747 S.W.2d 669, 673–74 (Mo. Ct. App. 1988) (noting that the U.C.C. “focuses upon ‘mutuality of assent as manifested by the conduct of the parties’ in place of the 19th century’s subjective test of intent” (citations omitted)).
[98]. Dranias, supra note 20, at 302 (“Many state courts have held that, although it is not controlling, actual intent is not irrelevant to contract formation or interpretation.”). Nick Sage argues that objective and subjective intent both remain important elements of modern contract law that each capture a substantive ethical ideal. Nick Sage, Reconciling Contract Law’s Objective and Subjective Standards, 86 Mod. L. Rev. 1422, 1422–23 (2023). I am tempted to use some combination of the three strategies that Sage ascribes to those committed to an objectivist approach: denial (that resort to subjectivity is appropriate even where it is invoked), objectification (by recharacterizing reasoning that appears to appeal to subjectivity as in fact consistent with objectivity), and hiving off (of particular lines of cases as subject to some atypical concern that warrants an appeal to subjectivity). Id. at 1436–38. But, in another sense, I do not resist the idea that some ethical dimensions of contract turn on subjective intent. Those dimensions are most likely to relate to the personal or relational dimensions of contract, as compared to the institutional dimensions on which I focus. Individual people can treat each other badly in familiar ways in the context of contracting. For example, they can deceive each other or take advantage of each other’s ignorance. Id. at 1428. While contract law will sometimes offer recourse for such wrongs, when they happen to take place in and around contract, contract law usually takes an interest (or should) only when this bad behavior undermines the moral mandate of the institution, and not just when (or because) it reflects ill treatment of one person by another. Such ill-treatment is ubiquitous in social interactions and is usually without legal remedy.
[99]. Randy E. Barnett, A Consent Theory of Contract, 86 Colum. L. Rev. 269, 273 (1986).
[100]. See, e.g., Titan Grp., Inc. v. Sonoma Valley Cnty. Sanitation Dist., 211 Cal. Rptr. 62, 65 (Ct. App. 1985) (“It is the objective intent, as evidenced by the words of the contract, rather than the subjective intent of one of the parties, that controls interpretation.”); Shelby Cnty. Cookers, LLC v. Util. Consultants Int’l, Inc., 857 N.W.2d 186, 194 (Iowa 2014) (“[W]e evaluate contracts according to the parties’ objective intent, not any ‘undisclosed intention they may have had in mind, or which occurred to them later.’” (citation omitted)).
[101]. See, e.g., Titan Grp., 211 Cal. Rptr. at 65 (“It is the objective intent, as evidenced by the words of the contract, rather than the subjective intent of one of the parties, that controls interpretation.”); Shelby Cnty. Cookers, 857 N.W.2d at 194 (courts interpret objective intent by reference to the words and deeds of contracting parties).
[102]. See Barnett, supra note 99, at 272 (“Will theories depend for their moral force upon the notion that contractual duties are binding because they are freely assumed by those who are required to discharge them. . . . This position leads quite naturally to an inquiry as to the promisor’s actual state of mind at the time of agreement . . . . It has long been recognized that a system of contractual enforcement would be unworkable . . . .”).
[103]. See id. at 273 (“Permitting a subjective inquiry into the promisor’s intent could enable a promisor to fraudulently undermine otherwise perfectly clear agreements by generating and preserving extrinsic evidence of ambiguous or conflicting intentions.”).
[104]. See Hanoch Sheinman, Contractual Liability and Voluntary Undertakings, 20 Oxford J. Legal Stud. 205, 210 (2000) (different versions of will theory appear inconsistent with implied terms and objective character of contract); McCracken, supra note 35, at 734 (noting that gaps in contract are a problem for will theory and the subjective approach).
[105]. Markovits, supra note 47, at 1366.
[106]. Michel Rosenfeld, Contract and Justice: The Relation Between Classical Contract Law and Social Contract Theory, 70 Iowa L. Rev. 769, 829–32 (1985).
[107]. Dranias, supra note 20, at 296.
[108]. See McCracken, supra note 35, at 733 (“Perhaps . . . the shift to an objective theory is required by the will theory, for reasons stronger than evidentiary ones. . . . The parties themselves might require external manifestations of intent in order to know the nature of the transaction in which they are engaged, not simply as a useful evidentiary guarantee against later misunderstandings and litigation.”).
[109]. See Shiffrin, supra note 64, at 750.
[110]. See Markovits, supra note 70, at 1472.
[111]. Peter Benson, though he rejects unilateral will as the basis for transfer, remains interested in will as such, but has emphasized that there must be “external expression of the will to alienate [a] thing.” Benson, supra note 84, at 1694.
[112]. See Solan, supra note 76, at 356 (“[O]bjective theory has little explanatory power.”); id. at 357 (“[W]hat is called an objective theory is better seen as a rule designed to handle a particular set of cases, embedded in a larger theory whose basic organizing principle is the actual mutual assent of the parties.”).
[113]. See Kar & Radin, supra note 78, at 1146.
[114]. Id.
[115]. See Lawrence Kalevitch, Contract, Will & Social Practice, 3 J.L. & Pol’y 379, 402 (1995) (“By determining actual intentions . . . social practice circumscribes the legal test of intent to contract.”).
[116]. Stephen J. Choi, Mitu Gulati & Robert E. Scott, The Black Hole Problem in Commercial Boilerplate, 67 Duke L.J. 1, 3–5 (2017) (detailing problems of rote usage and encrustation).
[117]. John F. Coyle & W. Mark C. Weidemaier, Interpreting Contracts Without Context, 67 Am. U. L. Rev. 1673, 1680 (2018).
[118]. Id.
[119]. See Sage, supra note 89, at 273.
[120]. Id. at 274.
[121]. Cf. Max Radin, Contract Obligation and the Human Will, 43 Colum. L. Rev. 575, 575 n.4 (1943) (arguing that obligations imposed by statute are no more compulsory than obligations imposed on those who did not intend the objective meaning of what they said).
[122]. Clare Dalton, An Essay in the Deconstruction of Contract Doctrine, 94 Yale L.J. 997, 1001–02 (1985) (objectivity threatens the ostensibly private character of contract). Dalton casts the challenge of objectivity as “the problem of knowledge—our ultimate inability to gain access to the subjective intent underlying any particular agreement.” Id. at 1011.
[123]. Id. at 1012–13.
[124]. Id. at 1014.
[125]. See Roy Kreitner, Fear of Contract, 2004 Wis. L. Rev. 429, 430 (“The heart of [contractual practice] is the objective theory of contracts,” which “necessarily implies that contractual relations will sometimes be imposed on parties even against their will.” Scholars that insist on the linchpin of consent “resist[] . . . the necessary extensions of an objective theory of contract.”).
[126]. Arthur L. Corbin, Offer and Acceptance, and Some of the Resulting Legal Relations, 26 Yale L.J. 169, 205 (1917); see also id. at 206 (“The legal relations consequent upon offer and acceptance are not wholly dependent, even upon the reasonable meanings of the words and acts of the parties.”).
[127]. None of the theorists behind these theories is similarly indifferent. However, philosophers of contract tend to subscribe to a division of institutional labor that assigns worry about social justice and perhaps social realities more generally to other legal subjects. See Ernest J. Weinrib, The Idea of Private Law 80 (1995); Peter Benson, The Basis of Corrective Justice and Its Relation to Distributive Justice, 77 Iowa L. Rev. 515, 607 (1992); Stephen R. Perry, On the Relationship Between Corrective and Distributive Justice, in Oxford Essays in Jurisprudence 237, 247 (Jeremy Horder ed., 4th Series 2000); Arthur Ripstein, Private Order and Public Justice: Kant and Rawls, 92 Va. L. Rev. 1391, 1395 (2006); Jules Coleman & Arthur Ripstein, Mischief and Misfortune, 41 McGill L.J. 91, 93 (1995); Melvin A. Eisenberg, The Theory of Contracts, in The Theory of Contract Law: New Essays 206, 257–58 (Peter Benson ed., 2001).
[128]. See infra text accompanying notes 140–141.
[129]. See Victoria Saker Woeste, Book Review, 20 Law & Hist. Rev. 198, 199 (2002) (describing how “liberty of contract . . . became the agent of inequality”).
[130]. Kennedy, supra note 45, at 123.
[131]. Morris R. Cohen, The Basis of Contract, 46 Harv. L. Rev. 553, 562 (1933).
[132]. Id.
[133]. Id.; see also Kennedy, supra note 45, at 115 (inter-war theorists like Cohen rejected will theory and “argued that we should understand contract law as a state-imposed regulatory regime, and tailor it accordingly, rather than seeing it as the protection of individual rights”).
[134]. See Cohen, supra note 131, at 567–68 (“For if the individual will is only part of the world, it cannot be absolutely autonomous but must be subject to influences from the rest of the world.”).
[135]. Id. at 568.
[136]. Id.
[137]. Id. at 590.
[138]. Pound, supra note 40, at 15–16.
[139]. Id. at 19.
[140]. Id.
[141]. Id. at 6.
[142]. Atiyah, supra note 34, at 147.
[143]. P.S. Atiyah, Promises, Morals, and Law 173–74 (1981).
[144]. Atiyah, supra note 34, at 64–65, 555–60.
[145]. Id. at 223–24; see also P.S. Atiyah, Freedom of Contract and the New Right, in Essays on Contract 355, 355 (rev. ed. 1990).
[146]. Atiyah, supra note 34, at 716–18.
[147]. Cf. J.M. Balkin, Deconstructive Practice and Legal Theory, 96 Yale L.J. 743, 769 (1987) (“The privileging of a will theory of contract over a theory based upon effect (unjust enrichment or reliance) involves a relation of difference—of mutual differentiation and dependence.”). Balkin points out that just as “[a] theory that postulates the will of the promisor as binding must explain the moral obligation involved in cases in which the promisor does not will herself to be bound, but accepts a benefit or creates a detrimental reliance to the promisee;” similarly, “a theory of contract based wholly upon benefit or reliance must explain why promises are binding immediately after the parties enter into them, before detrimental effects have developed” and it must rely on the “dangerous supplement” of will theory to explain it. Id. at 769–71. The two theories “exist in a relation . . . of mutual differentiation and dependence.” Id. at 772. Atiyah denies that a detriment-based theory needed an element of voluntariness, see Atiyah, supra note 34, at 181, but the picture of contract he offers denies the contracting party any meaningful agency at all. If will theorists were uninterested in social reality, Atiyah is uninterested in the purposes that individuals bring to contract and the admittedly constrained choices they make. His theory is therefore at odds with the phenomenology of contract and never displaced autonomy-oriented theories.
[148]. See, e.g., J.P.W. Cartwright, An Evidentiary Theory of Promises, 93 Mind 230, 234–35 (1984) (critiquing the evidence-based theory of promise as failing to account for the intuition that binding promises create new obligations rather than merely evidence them).
[149]. See generally 198 U.S. 45 (1905) (striking down a statute that regulated working hours for bakers).
[150]. See Rawls, supra note 14, at 52–56 (setting forth two principles that regulate the basic structure of society: While the first principle secures basic liberties, the second principle, the Difference Principle, permits inequality only to the extent it benefits the most socially disadvantaged group).
[151]. For the most influential contemporary statement of the liberal mandate, see id.
[152]. Bill Gates, with Nathan Myhrvold and Peter Rinearson, offered a particularly optimistic take on this phenomenon. See Bill Gates, Nathan Myhrvold & Peter Rinearson, The Road Ahead: Completely Revised and Up-To-Date 181 (1996) (predicting internet technologies would produce “a new world of low-friction, low-overhead capitalism, in which market information will be plentiful and transaction costs low”).
[153]. Walter Nicholson & Christopher Snyder, Microeconomic Theory: Basic Principles and Extensions 362–65 (10th ed. 2008).
[154]. See Saule T. Omarova, New Tech v. New Deal: Fintech as a Systemic Phenomenon, 36 Yale J. on Regul. 735, 751 (2019) (“While not a recent invention, securitization became a major market-driving phenomenon in the 1980s, in large part because the advances in technology enabled originators and securitizers of loans to create much larger and more complex pools of securitizable assets and to manage the risk-return structure of debt securities backed by such assets. By the early 2000s, the market for these ‘structured’ asset-backed products . . . grew to unprecedented levels.”); David Alan Richards, “Gradable and Tradable”: The Securitization of Commercial Real Estate Mortgages, 16 Real Est. L.J. 99, 112 (1987) (“New investment banking efforts to ‘securitize’ the large commercial mortgage, for single or pooled properties, have resulted from the sheer size of the commercial mortgage market . . . .”).
[155]. See Daniel Miller, Consumption and its Consequences 52 (2012) (explaining that in a consumer society, “goods . . . become the principal idiom for expressing core values”).
[156]. See J. Yannis Bakos, Reducing Buyer Search Costs: Implications for Electronic Marketplaces, 43 Mgmt. Sci. 1676, 1677 (1997) (discussing how “electronic marketplaces” result in “lower search costs”); id. at 1686 (highlighting the impacts of “the falling cost of telecommunications and computers”); Edward L. Glaeser & Janet E. Kohlhase, Cities, Regions and the Decline of Transport Costs, 83 Papers Reg’l Sci. 197, 199 (2004) (arguing that “[t]he great force that has reshaped the city in the twentieth century is the engine” that helped reduce “transportation costs for goods”).
[157]. See Hal R. Varian, Microeconomic Analysis 221–30, 233–38 (3d ed. 1992).
[158]. Donald J. Smythe, Consideration for a Price: Using the Contract Price to Interpret Ambiguous Contract Terms, 34 N. Ill. U. L. Rev. 109, 111–13 (2013) (while price might reflect idiosyncratic consumer valuation of goods and services, we should be able to use contract price to interpret other terms in contracts between sophisticated business parties).
[159]. See Léna Pellandini-Simányi & Michelle Barnhart, The Market Dynamics of Collective Ignorance and Spiraling Risk, 51 J. Consumer Rsch. 698, 699–700 (2024) (describing factors that may contribute to “risk buildup”).
[160]. See Cullen F. Goenner, Robust Lessons Learned from Bank Failures During the Great Financial Crisis, 62 Rev. Quantitative Fin. & Acct. 449, 455–63 (2024) (securitization may increase appetite for risk).
[161]. See Atkinson, supra note 11, at 1404 (arguing that “as reflected in the Bankruptcy Code, the distressed debtor must trade in their dignity in exchange for state-sanctioned relief”).
[162]. Hans-W. Micklitz has argued that “access justice” is a distinct principle of justice embodied by European private law, different from social justice or libertarianism. Hans-W. Micklitz, The Politics of Justice in European Private Law 18–24 (2018). He draws access justice in express contrast with social justice (as opposed to understanding it as an instantiation of social justice in the context of contract law) and seems almost literal at times about what access entails. Id. But access justice is an understanding of European private law that should appeal to the European Commission, which harbors ambitious elite aspirations of cultural integration but is practically limited by treaties focused on market integration, because it has the potential to marry the two types of integration. See id. at 25 (discussing view that European private law “reinvigorate[d] the deep relationship between the economic and the Social in a market society”).
[163]. Because there is no important interest in belonging to any specific kind of subcommunity, that is, in having any particular community of interest exist, opening access to these communities should take priority over preserving their authenticity, where the latter requires (or is perceived by existing participants to require) exclusion. Thanks to Nick Sage for highlighting the potential trade-off.
[164]. In the future, we might expect terms to be personalized on the basis of characteristics with the aim of extracting a maximum amount of surplus. See Alexander MacKay & Samuel N. Weinstein, Dynamic Pricing Algorithms, Consumer Harm, and Regulatory Response, 100 Wash. U. L. Rev. 111, 172 (2022).
[165]. For example, when you apply for a loan, the lender will take into account factors that they think correlate with the likelihood of timely repayment, but they may not be interested in features of your personality that do not bear on repayment prospects, such as whether you have a mole on your chin or prefer brownies to cake.
[166]. For example, when you sign up for a wireless phone carrier, it may have you enter various information into a document, but that information will not be reviewed by a human agent, and the terms of your service agreement may have been settled before you filled out the form.
[167]. See Usha R. Rodrigues, Law and the Blockchain, 104 Iowa L. Rev. 679, 699–700 & n.147 (2019) (describing “decentralized autonomous organizations” (citation omitted)).
[168]. See Dori Kimel, From Promise to Contract: Towards a Liberal Theory of Contract 4 (2003) (arguing that contract facilitates personal detachment); Bagchi, supra note 12, at 733 (arguing that contract is an alternative to rather than an instantiation of the private moral practice of promising).
[169]. There are contracts that are genuinely personal, that is, in which parties are not just constrained by perceived interpersonal constraints but affirmatively use the legal instrument to respond to and manage their relational obligations. For example, two friends might agree that one will pay the other an exorbitant price for lawn mowing, where the mutual aim is for the wealthier friend to help the friend who is struggling financially. But even in this case, part of the appeal of the contract dressing over a simple gift is the mask of impersonal exchange.
[170]. See Michael I. Meyerson, The Efficient Consumer Form Contract: Law and Economics Meets the Real World, 24 Ga. L. Rev. 583, 594 (1990); Todd D. Rakoff, Contracts of Adhesion: An Essay in Reconstruction, 96 Harv. L. Rev. 1173, 1177 (1983).
[171]. Jeffrey Manns and Robert Anderson IV have argued that lawyers do not actually make any difference to the economically significant terms of the deal. Jeffrey Manns & Robert Anderson IV, The Merger Agreement Myth, 98 Cornell L. Rev. 1143, 1186 (2013).
[172]. Cf. Markovits, supra note 70, at 1420 (claiming that collaboration is a form of cooperation and its value of contract lies in its form, not the substantive ends pursued).
[173]. See generally David Owens, Shaping the Normative Landscape (2012).
[174]. Dagan & Heller, supra note 13, at 69–70.
[175]. Id. at 2.
[176]. Id. at 3.
[177]. Id. at 71.
[178]. Id. at 116–19.
[179]. Some regulation of work is designed to mitigate the trade-off. For example, we might understand most employment regulations, including rules that govern worker participation in governance (most importantly, the rules of collective bargaining), as intended only to promote higher worker returns over the long run. While this is plausibly their primary focus, many people believe that worker participation also furthers dignitary interests or resists the inherently problematic imperialism of the modern workplace. See generally Elizabeth Anderson, Private Government: How Employers Rule Our Lives (and Why We Don’t Talk About It) (2017). Contract as exchange would caution against promoting these relational interests at the expense of workers’ own revealed and express preferences to maximize compensation. But even where a rule cannot be understood to affirmatively increase worker compensation over the long term, it might remove from competition a dimension of workplace governance through standardization and thereby mitigate the cost of that (dignity-promoting) rule to employees.
[180]. Hanoch Dagan, Two Visions of Contract, 119 Mich. L. Rev. 1247 (2021) (reviewing Peter Benson, Justice in Transactions: A Theory of Contract Law (2019)).
[181]. See, e.g., Heather Schofield & Atheendar S. Venkataramani, Poverty-Related Bandwidth Constraints Reduce the Value of Consumption, PNAS, Aug. 26, 2021, at 2 (describing “cognitive tax” on poor).
[182]. See Shiffrin, supra note 64, at 741–42.
[183]. Id.
[184]. See Rawls, supra note 14, at 60–75 (arguing that the basic structure of society, or its core institutions, are subject to his two principles of justice, including the Difference Principle, which governs the distribution of primary resources).
[185]. Interestingly, even Nate Oman, who rightly regards contracts as essentially the foundation for markets, emphasizes the ethics of market activity over its political dimension. See Nathan B. Oman, The Dignity of Commerce: Markets and the Moral Foundations of Contract Law 67 (2016). Oman argues that markets inculcate social virtues, in significant part just by generating wealth, but also by creating incentives for empathy and peaceful cooperation. Id. at 82–85. Oman might be optimistic, but he is surely also right about many of his ethical claims. However, it would be a mistake to conclude that a liberal state supports market activity in order to foster the virtues that he identifies.
[186]. Roy Kreitner has argued that recent scholars have attempted to join moral philosophy with political philosophy in our understanding of contract. Roy Kreitner, Voicing the Market: Extending the Ambition of Contract Theory, 69 U. Toronto L.J. 295, 296 (2019). I agree that this connection is imperative but, as discussed supra in Part I, do not think that existing theories make it. Observing that contracts make up markets is the first step to registering the demands of political philosophy on contract and their implications for the private morality of contract.
[187]. See John Gardner, From Personal Law to Private Life 23–25, 50–52 (2018) (distinguishing between “strictly” and “loosely” relational duties).
[188]. Cf. Dagan & Dorfman, supra note 12, at 1415 (“Our private obligations are shaped by reference to the particular interpersonal practices involved; they are unencumbered, at least in principle, by the (potentially more demanding) public obligations of cocitizenship.”).
[189]. See, e.g., Richard A. Posner, The Ethical and Political Basis of the Efficiency Norm in Common Law Adjudication, 8 Hofstra L. Rev. 487, 488 (1980) (advocating wealth maximization as the aim of contract and other common law regimes).
[190]. See, e.g., Anthony T. Kronman & Richard A. Posner, The Economics of Contract Law 1–2 (1979) (“[I]f voluntary exchanges are permitted—if, in other words, a market is allowed to operate—resources will gravitate toward their most valuable uses.”).
[191]. Oman, supra note 185, at 82–85.
[192]. Rawls, supra note 14, at 75–77.
[193]. See, e.g., Lara Buchak, Taking Risks Behind the Veil of Ignorance, 127 Ethics 610, 626–27 n.21 (2017); Philippe Van Parijs, Difference Principles, in The Cambridge Companion to Rawls 200, 201–05 (Samuel Freeman ed., 2003); Eva Feder Kittay, Human Dependency and Rawlsian Equality, in Feminists Rethink the Self 219, 250–51 (Diana Tietjens Meyers ed., 1997); Jeremy Waldron, John Rawls and the Social Minimum, 3 J. Applied Phil. 21, 22 (1986); John C. Harsanyi, Can the Maximin Principle Serve as a Basis for Morality? A Critique of John Rawls’s Theory, 69 Am. Pol. Sci. Rev. 594, 596–97 (1975).
Most of this controversy is not relevant at the level of generality at which I am presenting contract as exchange. Whether the goal should be to maximize the very worst-off group or to minimize inequality by some other measure might be relevant to how we choose between some potential transactional regulations, but for now the aim is to persuade the reader that contract as exchange properly brings whatever political principle of distributive justice to which one subscribes to bear on the institution of contract.
[194]. Rawls, supra note 14, at 11 (relating original position to social contract); id. at 103 (“The social order can be justified to everyone, and in particular to those who are least favored . . . .”).
[195]. See Gordley & Jiang, supra note 1, at 18; see also Kenneth K. Ching, What We Consent to when We Consent to Form Contracts: Market Price, 84 UMKC L. Rev. 1, 2 (2015) (“[C]onsent to form contracts should be construed as consent to pay market price because contracts should be equal exchanges.”).
[196]. See Gordley & Jiang, supra note 1, at 21 (“An exchange is unfair if it imposes a risk on a party for which he is not compensated.”).
[197]. Id. at 28.
[198]. Id. (“A contract is not or is no longer voluntary if a party does not prefer what he is to receive to what he is to give.”).
[199]. See Restatement (Second) of Contracts § 71 (Am. L. Inst. 1981) (defining consideration).
[200]. Kelley, supra note 75, at 1702 (noting that it is difficult to make sense of the rule of consideration under will theory); Fried, supra note 53, at 628 (claiming that consideration fundamentally contradicts the imperative to enforce whatever the parties intended or willed).
[201]. Fried, supra note 43, at 37–38 (arguing consideration doctrine is inconsistent with promissory principle); see also Scanlon, supra note 61, at 106 (concluding that the consideration doctrine is largely a proxy that has no direct function because the “three functions that consideration could serve . . . could also be served in other ways”).
[202]. Benson, supra note 84, at 1718.
[203]. Id. at 1713.
[204]. Kennedy, supra note 45, at 102 (arguing that the attempt to treat consideration as an empty form failed in light of its evident substantive objective and the tendency of courts to impose a de facto adequacy requirement).
[205]. Wood v. Lucy, Lady Duff-Gordon, 118 N.E. 214 (N.Y. 1917) (holding that a contract was enforceable because an agent’s inchoate promise to market and distribute goods was subject to duty of good faith).
[206]. See Kham & Nate’s Shoes No. 2, Inc. v. First Bank of Whiting, 908 F.2d 1351, 1357 (7th Cir. 1990); see also Daniel Markovits, Good Faith as Contract’s Core Value, in Philosophical Foundations of Contract Law 272, 293 n.69 (Gregory Klass, George Letsas & Prince Saprai eds., 2014) (“[G]ood faith was often used to overcome the requirement of mutuality . . . good faith is the measure of the ongoing jointness.” (citation omitted)).
[207]. For an exploration of how the duty of good faith can be revived in the context of employment agreements, see generally Rachel Arnow-Richman & J.H. Verkerke, Deconstructing Employment Contract Law, 75 Fla. L. Rev. 897 (2023).
[208]. See Frank J. Cavico, The Covenant of Good Faith and Fair Dealing in the Franchise Business Relationship, 6 Barry L. Rev. 61, 96–97 (2006); T. Mark McLaughlin & Caryn Jacobs, Termination of Franchises: Application of the Implied Covenant of Good Faith and Fair Dealing, 7 Franchise L.J. 1, 15 (1987); William B. Bohling, Franchise Terminations Under the Sherman Act: Populism and Relational Power, 53 Tex. L. Rev. 1180, 1205–07 (1975).
[209]. See Boyd Allan Byers, Note, Making a Case for Federal Regulation of Franchise Terminations—A Return-of-Equity Approach, 19 J. Corp. L. 607, 632–33 (1994). For cases implying duty of good faith to constrain termination, see Lippo v. Mobil Oil Corp., 776 F.2d 706, 714 n.14 (7th Cir. 1985); Seegmiller v. Western Men, Inc., 437 P.2d 892, 894 (Utah 1968); Atlantic Richfield Co. v. Razumic, 390 A.2d 736, 742 (Pa. 1978); Shell Oil Co. v. Marinello, 307 A.2d 598, 602–03 (N.J. 1973). But later cases were more skeptical of this use of the duty of good faith, at least where there was contract language conferring discretion. See, e.g., Hubbard Chevrolet Co. v. Gen. Motors Corp., 873 F.2d 873, 877 (5th Cir. 1989) (“Michigan law does not imply the good faith covenant where parties have ‘unmistakably expressed’ their respective rights.” (citation omitted)); Grand Light & Supply Co. v. Honeywell, Inc., 771 F.2d 672, 679 (2d Cir. 1985) (“Under Connecticut law, the parties may rely on the express terms of their contract. The U.C.C. good faith provision may not be used to override explicit contractual terms.” (citations omitted)); Domed Stadium Hotel, Inc. v. Holiday Inns, Inc., 732 F.2d 480, 485 (5th Cir. 1984) (“The implied obligation to execute a contract in good faith usually modifies the express terms of the contract and should not be used to override or contradict them.” (citation omitted)); Premier Wine & Spirits of S.D., Inc. v. E. & J. Gallo Winery, 644 F. Supp. 1431, 1436 (E.D. Cal. 1986) (“This Court has previously held that a good cause requirement cannot arise under the covenant of good faith and fair dealing when such a requirement would be inconsistent with the express terms of the Distributorship Agreement.” (citation omitted)).
[210]. See Andrew Elmore & Kati L. Griffith, Franchisor Power as Employment Control, 109 Calif. L. Rev. 1317, 1342 (2021) (describing “overwhelming power” exercised by franchisors that is understood to exceed even contractual language in the eyes of franchisees).
[211]. See David Gamage & Allon Kedem, Commodification and Contract Formation: Placing the Consideration Doctrine on Stronger Foundations, 73 U. Chi. L. Rev. 1299, 1301 (2006) (“[F]ormal accounts of the consideration doctrine have failed to justify the use of consideration . . . .”).
[212]. See Aditi Bagchi, Interpreting Contracts in a Regulatory State, 54 U.S.F. L. Rev. 35, 66–68 (2019) (arguing ambiguous terms should be interpreted as consistent with background legal norms).
[213]. See generally Ian Ayres, Regulating Opt-Out: An Economic Theory of Altering Rules, 121 Yale L.J. 2032 (2012) (introducing concept of sticky default rules).
[214]. See, e.g., Shell Oil Co., 307 A.2d at 603 (holding “that the provision giving Shell the absolute right to terminate on 10 days notice is void as against the public policy of this State, [and] that said public policy requires that there be read into the . . . agreement . . . the restriction that Shell not have the unilateral right to terminate, cancel or fail to renew the franchise . . . in absence of a showing that [franchisee] has failed to substantially perform his obligations . . . i.e., for good cause”).
[215]. In fact, some courts used to hold under the so-called Missouri Rule—because it originated in Glover v. Henderson, 25 S.W. 175, 177–785 (Mo. 1894)—that franchisees were entitled to hold their franchises long enough to recoup their investments. See, e.g., Alpha Distrib. Co. v. Jack Daniel Distillery, 454 F.2d 442, 449 (9th Cir. 1972) (“[T]he law implies that the duration of the distributorship shall be at least a reasonable time, and that the obligations under the contract shall be terminable at will by any party upon reasonable notice after such reasonable time has elapsed.”); Allied Equip. Co. v. Weber Engineered Prods., Inc., 237 F.2d 879, 882 (4th Cir. 1956) (“[W]here an employed agent . . . expends funds in the interest of . . . the principal, the principal is committed to the agency for a reasonable period of time, so that the agent may thus recoup his expenditures.”); C.C. Hauff Hardware, Inc. v. Long Mfg. Co., 136 N.W.2d 276, 279 (Iowa 1965) (“[T]ermination without giving plaintiff time to adjust should in reason entitle him to show his resulting damages, if any, and to recover for them.”); Des Moines Blue Ribbon Distribs., Inc. v. Drewrys Ltd., 129 N.W.2d 731, 737 (Iowa 1964) (“[T]he distributor is entitled to recover the prospective margin on sales it would have made during the period ending in a reasonable time after receipt of notice of termination of the contract.”).
[216]. See Fuller & Perdue, supra note 33, at 58 (“[W]ill theory . . . cannot be regarded as dictating in all cases a recovery of the expectancy. If a contract represents a kind of private law, it is a law which usually says nothing at all about what shall be done when it is violated.”); Richard Craswell, Contract Law, Default Rules, and the Philosophy of Promising, 88 Mich. L. Rev. 489, 490 (1989) (“[T]heories [that] ground the enforceability of promises on considerations of individual freedom and autonomy” do not have any implications for the default rules of contract).
[217]. See, e.g., Eyal Zamir, The Missing Interest: Restoration of the Contractual Equivalence, 93 Va. L. Rev. 59, 107–08 (2007) (will theory is consistent with restoring to the plaintiff the value she conferred on the defendant to the extent that value is proportionally in excess of the value she actually received from the breaching party’s performance).
[218]. Seana Shiffrin, Could Breach of Contract Be Immoral?, 107 Mich. L. Rev. 1551, 1565–67 (2009); Shiffrin, supra note 64, at 709–10.
[219]. See Charles Fried, The Ambitions of Contract as Promise, in Philosophical Foundations of Contract Law, supra note 206, at 17, 27; Barnett, supra note 99, at 317; George Triantis, Promissory Autonomy, Imperfect Courts, and the Immorality of the Expectation Damages Default, 45 Suffolk U. L. Rev. 827, 834 (2012).
[220]. See, e.g., W. Va. Pub. Emps. Ins. Bd. v. Blue Cross Hosp. Serv. Inc., 328 S.E.2d 356, 359 (W. Va. 1985) (“While the parties may properly contract for liquidated damages where such damages are not readily ascertainable, when the amount is grossly disproportionate to the actual damages such a clause in a contract is a penalty clause rather than a liquidated damages provision.”).
[221]. Seana Valentine Shiffrin, Remedial Clauses: The Overprivatization of Private Law, 67 Hastings L.J. 407, 442 (2016).
[222]. Id. at 419–20.
[223]. The barrier is porous because parties can stipulate liquidated damages and abrogate warranties. They can also passively limit the damages available to them by failing to disclose their susceptibility to unusual damages, thereby suggesting that parties voluntarily assume their liability in the same way—and indeed, in the same moment—that they assume their substantive obligations under a contract. See generally Hadley v. Baxendale (1854) 156 Eng. Rep. 145.
[224]. See Charles J. Goetz & Robert E. Scott, Liquidated Damages, Penalties and the Just Compensation Principle: Some Notes on an Enforcement Model and a Theory of Efficient Breach, 77 Colum. L. Rev. 554, 591–93 (1977); Alan Schwartz, The Myth That Promisees Prefer Supracompensatory Remedies: An Analysis of Contracting for Damage Measures, 100 Yale L.J. 369, 370 (1990).
[225]. See Arthur Allen Leff, Unconscionability and the Code—The Emperor’s New Clause, 115 U. Pa. L. Rev. 485, 487–89 (1967) (critiquing the unconscionability doctrine’s indeterminacy). But see Jean Braucher, E. Allan Farnsworth and the Restatement (Second) of Contracts, 105 Colum. L. Rev. 1420, 1424–25 (2005) (describing Farnsworth’s defense of unconscionability’s open-endedness).
[226]. See Farnsworth, supra note 2, at 307 (Llewelyn described the unconscionability provision of the Uniform Commercial Code as “perhaps the most valuable section in the entire Code” (citation omitted)).
[227]. See Charles L. Knapp, Unconscionability in American Contract Law: A Twenty-First-Century Survey, in Commercial Contract Law: Transatlantic Perspectives 309, 337 (Larry A. DiMatteo, Qi Zhou, Séverine Saintier & Keith Rowley eds., 2013) (describing unconscionability as marginal in practice); Sinai Deutch, Unfair Contracts 243 (1977) (noting consumers rarely pursue unconscionability challenges).
[228]. See, e.g., Ferguson v. Countrywide Credit Indus., Inc., 298 F.3d 778, 784–85 (9th Cir. 2002) (refusing to enforce arbitration provision in employment clause where it was one-sided and the product of surprise and asymmetrical bargaining power).
[229]. See, e.g., Jones v. Star Credit Corp., 298 N.Y.S.2d 264, 266–67 (Sup. Ct. 1969) (refusing to enforce purchase of freezer far above market price and inferring procedural unconscionability from substantive unconscionability alone).
[230]. See Aditi Bagchi, Distributive Injustice and Private Law, 60 Hastings L.J. 105, 137–38 (2008) (interpreting doctrine of unconscionability).
[231]. Id.
[232]. U.C.C. § 2-302 (Am. L. Inst. & Unif. L. Comm’n 1977).
[233]. See Scott Horsley, Payday Loans—and Endless Cycles of Debt—Targeted by Federal Watchdog, NPR (Mar. 26, 2015), https://www.npr.org/2015/03/26/395421117/payday-loans-and-endless-cycles-of-debt-targeted-by-federal-watchdog [https://perma.cc/RT6M-4JVB]; Protecting Consumers from Unreasonable Credit Rates Act of 2023, S. 2730, 118th Cong. § 2(3), 2(5).
[234]. See, e.g., Data Mgmt., Inc. v. Greene, 757 P.2d 62, 64–65 (Alaska 1988) (collapsing unconscionability and public policy issues with respect to noncompete terms).
[235]. See Zahra Takhshid, Assumption of Risk in Consumer Contracts and the Distraction of Unconscionability, 42 Cardozo L. Rev. 2183, 2221–23 (2021).
[236]. The significance of material consequences in the contract as exchange paradigm also points to the importance of personal bankruptcy as a complementary regime rather than an orthogonal or even corrective one.
