Volume 20, Issue 2

In The Choice Theory of Contracts, Hanoch Dagan and Michael Heller state that by arguing “that autonomy matters centrally to contract,” Contract as Promise makes an “enduring contribution . . . but [its] specific arguments faltered because [they] missed the role of diverse contract types and because [it] grounded contractual freedom in a flawed rights-based view. . .. We can now say all rights-based arguments for contractual autonomy have failed.” The authors conclude that their proposed choice theory “approach returns analysis to the mainstream of twentieth-century liberalism – a tradition concerned with enhancing self-determination that is mostly absent in contract theory today.” Perhaps the signal flaw in Contract as Promise they sought to address was the homogenization of all contract types under a single paradigm. In this Article, I defend the promise principle as the appropriate paradigm for the regime of contract law. Along the way I defend the Kantian account of this subject, while acknowledging that state enforcement necessarily introduces elements — both normative and institutional — for which that paradigm fails adequately to account. Of particular interest and validity is Dagan and Heller’s discussion of contract types, to which the law has always and inevitably recurred. They show how this apparent constraint on contractual freedom actually enhances freedom to contract. I discuss what I have learned from their discussion: that choice like languages, is “lumpy,” so that realistically choices must be made between and framed within available types, off the rack, as it were, and not bespoke on each occasion. I do ask as well how these types come into being mutate, and can be deliberately adapted to changing circumstances.

Liberalism’s concern with human freedom seems related to contractual freedom and thus contract law. There are, however, many strands of liberal thought and which of them best justifies contract is a difficult question. In The Choice Theory of Contracts, Hanoch Dagan and Michael Heller offer a vision of contract based on autonomy. Drawing on the work of Joseph Raz, they argue that extending autonomy should be the law’s primary concern, which requires that we extend the range of contractual choices available. While there is much to admire in their work, I argue that autonomy as conceived by Dagan and Heller cannot justify contract law. First, there are reasons to doubt the coherence of autonomy as an ideal. Second, given the pluralism of liberal societies, which, for example, often include substantial numbers of religious believers who reject core assumptions of autonomy theory, it is doubtful that such a theory can legitimate contract law. A more modest version of liberalism concerned primarily with protection against cruelty and providing a modus vivendi in pluralistic societies is more tenable. Such a vision of liberalism yields a more modest vision of contract law. Rather than making it into another means of realizing the dream of a more autonomous self, it is enough that contract law facilitates commerce and the marketplace. Markets in turn can serve an important — albeit limited — role in sustaining the peaceful cooperation and coexistence toward which a more realistic liberalism should aim.

This Article challenges Hanoch Dagan and Michael Heller’s choice theory of contract, according to which contract law is autonomy-enhancing. I make three points: first, the choice theory of contract cannot clarify the critical normative distinction between enforceable formal contracts and unenforceable informal promises. Second, I develop the roads/contract-types analogy: instead of promoting individuals’ autonomy and enhancing their choice among different projects, most contract types are justified by the preexisting preferences of citizens. Finally, I outline a teleological justification of contract law that is different from that propounded by Dagan and Heller. On this view, contract law should remain neutral as to which conception of the good is commendable and provide individuals with the means of shaping and pursuing a conception of a good life.

Absent mistake or misrepresentation, most scholars assume that parties who agree to contract do so voluntarily. Scholars tend further to regard that choice as an important exercise in moral agency. Hanoch Dagan and Michael Heller are right to question the quality of our choices. Where the fundamental contours of the transaction are legally determined, parties have little opportunity to exercise autonomous choice over the terms on which they deal with others. To the extent that our choices in contract do not reflect our individual moral constitutions — our values, virtues, vices, the set of reasons we reject and the set of reasons we endorse — we are not justified in regulating contracts reluctantly. Contracts are entitled to the privilege of liberal regulatory deference only to the extent that they are the work product of individual autonomy. The assumption that contract is voluntary does enormous work in most normative theories of contract. This Article takes still more seriously the obstacles to autonomous choice that contracting parties face. The most important constraints are not in contract law itself but in the material and moral imperatives that dictate parties’ contracting preferences. Many contracts are driven by circumstantial considerations or actual background obligations. While these contracts are not wholly lacking in the element of voluntariness, we should distinguish them from those choices — and those contracts — which more fully realize our potential to self-consciously author our relations with others. Autonomous choice in contract requires more than Dagan and Heller imply, and it is likely beyond the power of contract law standing alone to deliver it.

Scholars have to date paid relatively little attention to the rules for deciding when a writing is integrated. These integration rules, however, are as dark and full of subtle difficulties as are other parts of parol evidence rules. As a way of thinking about Hanoch Dagan and Michael Heller’s The Choice Theory of Contracts , this Article suggests we would do better with tailored integration rules for two transaction types. In negotiated contracts between firms, courts should apply a hard express integration rule, requiring firms to say when they intend a writing to be integrated. In consumer contracts, standard terms should automatically be integrated against consumer-side communications, and never integrated against a business’s communications. The argument for each rule rests on the ways parties make and express contractual choices in these types of transactions. Whereas Dagan and Heller emphasize the different values at stake in different spheres of contracting, differences among parties’ capacities for choice — or the “mechanics of choice” — are at least as important .

The theoretical availability of an infinite number of contract types suggests that there may be an optimal quantity from which contractual parties could make a selection. In this Article, we emphasize the difficulty of identifying that optimal number, given information costs and other transaction costs related to the production of a contract type. We argue that standard market failures might cause markets to produce a suboptimal number of contract types. We then consider whether government should intervene to remedy any market failure. We conclude that government would generally lack the access to information necessary to identify the optimal number of contract types. Moreover, we argue that issues of political economy would impede the ability of government to achieve the optimal number of contract types, even if it were able to identify that number. Government, that is, may tend to either oversupply or undersupply contract types. Perhaps the best that government can do is to provide “soft” interventions that reflect appropriate defaults or safe harbors.

Contracts are the building blocks of markets, where participation is typically understood through choice: to buy or not to buy, and if so, from whom? In other words, contract choices allow participation by exit, with little need for discussion. However, in some instances markets may be open to a fair degree of voice. Market behavior is not always a take it or leave it endeavor, and market participation does not always entail the kind of passivity associated with the role of the price taker. At least when some contract parties put their minds to it, markets may retreat from the mechanics of pure preference satisfaction and interact with a realm of reasoned deliberation, where some market reasons are significantly public-minded. This essay explores the potential of contracts to become a locus of deliberative participation in the context of institutional investment (primarily by pension funds) and investors’ pursuit of commitments to nonfinancial goals.

Modern contract law is characterized by a certain kind of unity and multiplicity. On the one hand, it establishes fundamental principles that apply to all contracts in general. But at the same time, it specifies further principles and rules for particular kinds of contracts or transaction-types that mark out their distinctive features, incidents and effects. Clearly, a viable theory of contract law should be able to provide a suitable account of both aspects. The central critical contention of The Choice Theory of Contracts is that all prior approaches, in particular rights-based theories, have failed to do so. Indeed, Dagan and Heller argue that only a theory that explains the settled rules of contract law as teleologically oriented toward facilitating individuals’ pursuit of their different substantive goods, and thus as primarily power-conferring in this particularly robust sense, can provide the needed account. Such a theory, they believe, would be not only interpretatively accurate with respect to the actual law but also fully acceptable as a liberal view of contract. This Article challenges the core contentions of choice theory, suggesting why it may be unable to meet its own goal of explaining how contract law coherently specifies and integrates the general and specific dimensions of enforceable agreements. The Article looks into basic contract doctrines in order to specify a general conception of the contractual relation that can meet this desideratum and it sketches how, beginning with that conception, contract law unfolds a rich multiplicity of transaction-types. The resulting view is liberal but rights-based rather than teleological, and it proposes an alternative understanding of how the rules of contract law are power-conferring as well as duty-imposing.

Private law theory must confront the plurality of values that inform the problems that private law addresses in practice. We consider Hanoch Dagan’s and Michael Heller’s The Choice Theory of Contracts as a case-study in the promise and perils that embracing plural values poses for private law theory. We begin by arguing that private law theory cannot ignore value pluralism and identify three approaches that theory might take to pluralism. We call these approaches capitulating to, leveraging, and embracing value pluralism. We illustrate each approach and assess its strengths and weaknesses. Theories that capitulate to pluralism simultaneously limit their scope and hamper their persuasiveness even within their restricted domains. Theories that leverage pluralism limit their domains more dramatically still. And theories that embrace pluralism are difficult to operationalize in practice without abandoning their pluralist roots. We briefly illustrate the drawbacks of capitulating to and leveraging pluralism with examples from recent contract theory. We then take up theories that embrace pluralism in greater detail, by studying Dagan and Heller’s approach. We argue that Dagan and Heller do not solve the deep problems that operationalizing their embrace of pluralism inevitably engenders.

In “The Choice Theory of Contracts,” we explain contractual freedom and celebrate the plurality of contract types. Here, we reply to critics by refining choice theory and showing how it fits and shapes what we term the “Contract Canon”. I. Freedom. (1) Charles Fried challenges our account of Kantian autonomy, but his views, we show, largely converge with choice theory. (2) Nathan Oman argues for a commerce-enhancing account of autonomy. We counter that he arbitrarily slights noncommercial spheres central to human interaction. (3) Yitzhak Benbaji suggests that choice theory’s commitment to autonomy is overly perfectionist. Happily, in response to Benbaji, we can cite with approval Charles Fried’s point that contract types are “enabling our liberties.” II. Choice. (4) Aditi Bagchi criticizes our inattention to impediments to choice. We show how choice theory’s commitments to both multiplicity and relational justice ameliorate these impediments. (5) Gregory Klass explores parol evidence to highlight the mechanisms of choice. We substantially concur with his position, and show how such mechanisms can ensure voluntariness, an essential element of choice. (6) Oren Bar-Gill and Clayton Gillette question the institutional capacity of existing legal actors to implement choice theory. Working from the example of cohabitation, we offer a somewhat more optimistic view. III. Contracts. (7) Peter Benson contends our focus on the rational slights the reasonable. Although we did not use this Rawlsian vocabulary, choice theory complies with its strictures — more so than transfer theory. (8) Daniel Markovits and Alan Schwartz claim provocatively that contract theory must: capitulate before pluralism (as they endorse); leverage it; or fall victim to a so-called “embracing” approach (their charge against us). We reject the charge that choice theory is foundationally value-pluralist. Instead, we cabin pluralism and put it to work. (9) The Contract Canon starts on the next big step for choice theory by explaining existing doctrine (rebutting Benson on lack of fit) and helping adjudicate contract practice (countering Markovits and Schwartz on the vices of our pluralism). Each Article in this Issue advances the field; each prompts us to refine choice theory — all steps, we hope, toward a more just and justified law of contract.