Volume 17, Issue 2

This article critically engages with Peter Benson’s theory of contract law. It explores whether his juridical conception of contract as a transfer of rights, which is governed by the contract law’s internal principles of transactional justice, can be reconciled with fundamental rights. The article argues that the conventional distinction between the direct and indirect horizontal effect of fundamental rights is problematic because it does not make it unequivocal which body of law – fundamental rights or contract law – substantially governs the relations between contracting parties and determines the outcome of disputes between them. The answer to this fundamental question, however, is crucial for the stability of Benson’s theory of contract law. Drawing on the European experience, the article shows that the relationship between fundamental rights and contract law can take the form of the subordination of contract law to fundamental rights or the complementarity between the two. While the latter is compatible with Benson’s theory, the former is in tension with it. For the sake of conceptual clarity, therefore, it is useful to distinguish between three forms of the horizontal effect of fundamental rights in contract law – direct horizontal effect, strong indirect horizontal effect, and weak indirect horizontal effect.

Contract law and property law are traditionally viewed to be two separate fields of private law shaped by different principles. Over the past years a theory of contract law thoroughly drawing on the concept of “ownership” has been promoted by common law scholars. It leads at its core to the conclusion that the distinction between absolute and relative rights is irrelevant inter partes and that, therefore, a theoretical division between contract and property cannot be strictly maintained. This touches upon the fundamental distinction between absolute and relative rights raising the question why a contract does not automatically lead to an absolute right with regard to the substance of the promised performance.

In the first part of his book, Peter Benson elaborates for the common law that fairness in exchange is not only a fundamental principle of contract law, but that it is, moreover, conceptually rooted in the idea of private autonomy. For the common law presumes that a party to a contract intends, in principle, to exchange performance at its value and on fair terms. The following comment shows that this presumption also animates German contract law, including the rules on the review of standard terms. In the second part, Benson develops the image of a harmonious complementarity of private law, which is characterised by transactional justice, and public law, which instantiates distributive justice. The following comment disputes the claimed harmony by demonstrating the fundamental asymmetry in the institutionalisation of both forms of justice in civil society.

The article presents a ‘critique from within’ of Peter Benson’s book ‘Justice in Transactions’, while sharing its premise that a theory of contract has to be liberal one. It identifies three problems with Benson’s answer to the question of how the relation between freedom and equality in contract law should be understood. It criticizes Benson’s Hegelian metaphysics and claims that a principle of mutual recognition and respect between juridical persons does not require that contracts only allow the alienation and appropriation of different things of the quantitatively same value. It demonstrates that Rawls’s idea of a ‘division of labor’ within principles of justice is more plausible than Benson’s reformulated account, which loses sight of the premise that a liberal theory of contract must locate the normative foundations of ‘contract’ in individual rights, and, in addition, is at odds with Rawls’s project in ‘Political Liberalism’ and its concept of public justification.

In his most enlightening book Benson undertakes to give a public justification of contract law, which he distinguishes from a philosophical justification. This essay argues that this opposition is unsound. Benson’s justification is philosophical because it is internal: the justification contract provides for itself. As the justification is internal, the subject of the justification – those who, through it, understand the authority of contract – is the subject of what is justified: the subject of contract. This is the true public of the justification of contract law. And its justification to that public is nothing other than its philosophical justification. In a second step, the essay sketches how the justification of contract law develops so as to reveal its subject to be a concrete universal: civil society. Since that is understood in its philosophical justification, that, too, does not place the publicity of contract law in opposition to its philosophical understanding.

Each of the two parts of Peter Benson’s stimulating book raises an important epistemological question. In the first part, the aim is to search for the “true” theory of contract, the one that best explains the rules and doctrines of general contract law. In the second part, the author seeks to convince that his theory is the best one, in the sense that it is the one that provides the most appropriate moral basis in a liberal democratic society; in other words, the one that allows the greatest “justice” in transactions. A third formidable epistemological question then arises: whether “truth” and “justice” are identical.

Contract is the quintessential legal institution of a market economy, but the contemporary philosophy of contract law is dominated by promissory and autonomy theories that tend to treat contract’s role in facilitating commerce as little more than a happy accident. It is thus striking that in his ambitious effort to generate a purely transactional theory of contract law Peter Benson places markets at that center of his account of transactional fairness. His argues that the abstract equality of contracting parties requires equality of exchange, an equality mediated by the just price. Echoing the scholastic tradition, Benson identifies the just price with the competitive market price. We thus have a fascinating example of an anti-functionalist, anti-distributive theory of contract that nevertheless incorporates the market as an important theoretical element. In this essay, I evaluate Benson’s use of markets, placing it within both the broader discussion of markets in contract law theory and in the larger argument that he is making about contract law. Ultimately, Benson justifies the appeal to markets not because of any attractive distributional features of competitive prices but because such prices have a formal structure that satisfies the demands of Benson’s formal theory. It is an ingenious and subtle argument. However, I am not ultimately persuaded. While I think that the rule for unconscionability cases that Benson extracts from his concept of equality of exchange is defensible, I am not persuaded by Benson’s formal approach to the fairness of markets. Rather, I will argue that competitive markets often do not have the formal features that Benson ascribes to them. Furthermore, a key aspect of his understanding of transactional fairness is best understood as resting on an attractive distributional feature of competitive markets rather than on their formal structure.

This review of Peter Benson’s Justice in Transactions focuses on the book’s attempt to combine the juridical vision of contract with contract’s social role in providing a coherent framework for market relations. The combination is challenging because the juridical conception ignores particular interests, needs, purposes, and preferences of contracting parties, while the market is precisely a system for satisfying needs or obtaining substantive satisfactions. The review suggests that Benson’s treatment of the combination is open to two readings: one reading claims that contract as we know it actually succeeds in achieving public justification; the other reading claims that contract could potentially be a justified institution, but only if the background regime of rights was transformed so that juridical and substantive equality were more closely aligned.

This paper challenges Peter Benson’s claim that his theory of justice in transactions can provide a public basis of justification in the Rawlsian sense specifically worked out for contract law. It argues that Benson’s distinct conception of the contracting parties and their relationships makes it an unlikely candidate for public justification in contemporary liberal democracies that are characterized by the fact of a reasonable pluralism of worldviews. Moreover, Benson’s method of deriving principles of contractual justice from existing contract law doctrines and principles risks pre-empting any critical potential for normative contract theory. In addition, its quasi universalism seems difficult to match with the political autonomy of citizens in democratic societies. Finally, Benson’s understanding of contract law as separate from politics appears at odds, not merely with Rawlsian political justice, but with the very idea of public justification.

This essay raises two challenges to Peter Benson’s compelling new account of contract law. First, I argue that Benson’s use of the concept of reasonableness goes beyond the Rawlsian account to require that we impute to others a capacity to transcend their contingent circumstances in the context of contractual choice. In fact, our choices in contract are driven by external contingencies and it is only reasonable to take those constrains on other people’s choices into account. Second, I contest Benson’s related claim that contract law should be, and largely is, content-neutral. I argue to the contrary that the justice of a society depends on the cumulative outcomes from market transactions, and the justice of transactions depends on the justice of the institutional matrix of which transactional law is one part.

This reply addresses some of the basic questions and criticisms raised by commentators in their interesting pieces on Justice in Transactions . My aim in that book is to work out a public basis of justification for the common law of contract. Given the limits of space, the discussion here is unavoidably selective and incomplete. Within these parameters, however, the article presents, and hopefully clarifies, some of the book’s main arguments that are relevant to the comments, using the footnotes for more detailed responses to the particular points made. These points encompass both methodological and substantive issues. The former center around the nature of public justification and whether the proposed theory of contract law meets its requirements. The substantive issues addressed include the role of promises in contract law, the compatibility between contractual fairness and contractual freedom, and the relation between contract and distributive justice.