Contractual Freedom, Contractual Justice, and Contract Law (Theory)

By Rodl, Florian | Law and Contemporary Problems, Spring 2013 | Go to article overview

Contractual Freedom, Contractual Justice, and Contract Law (Theory)


Rodl, Florian, Law and Contemporary Problems


I

INTRODUCTION

The current symposium, "The Public Dimension of Contract," has been gathered under the promising subheading of "legal theories in dialogue." It thus might be useful to begin with a few remarks about my general approach to the "theory of private law," which informs the questions and answers provided in this article. The theoretical project to which the article is committed is neither sociological, cultural, nor economic. It is philosophical. As a philosophical project, its first aim is to understand, in the sense of hermeneutical understanding. Generally speaking, such hermeneutical understanding has its focus on concepts with which we are dealing every day in an unproblematic way, but which become puzzling if we try to make them explicit. (1) Time is the famous example of such an apparently unproblematic concept; truth and justice are others. Contract is a concept of the same sort. One eminent task of the theory of private law is to illuminate this concept, to help us understand what a contract is and why contract law is therefore the way it is. The focus of such a project of illumination is certainly not on this or that particular contract rule or on this or that area of contracting; its focus is on the basic structure of contract.: In short, this article is directed at better understanding the basic structure of contract law.

Of course, there are not only other projects in private law theory--for example sociological, cultural, and economics projects--but also alternative philosophical projects, most notably projects of critique or deconstruction. (3) However, these projects presuppose an understanding of what is submitted to critique or deconstruction. Any philosophical theory, including critical or deconstructivist theories, must start (and actually does, though sometimes implicitly) first and foremost with an understanding of contract law--with an idea of what a contract is and why contract law is therefore the way it is.

It might be helpful to present a contrasting example to the philosophical approach taken here. Law and economics provides such an example. Law and economics scholars usually seem to claim that they are able to explain the basic structure of private law in general and of contract law in particular. (4) One eminent puzzle for contract law theory in general is why contract law, all over the world, usually gives expectation remedies--either specific performance or expectation damages--instead of reliance damages in case of breach of contract. (5) Hence a theory which claims to illuminate basic features of contract law must solve this puzzle.

The law and economics approach is well known for its "efficient breach" of contract theory. (6) The theory says that remedies for breach of contract must be designed in a way to make sure that contracts are only breached if breach is efficient. And this is meant to explain the award of expectation damages, as reliance damages would allow for inefficient breach. Only expectation damages secure that the promisor will breach only for a better bargain, that is, to vend an item for a higher price. Only a better bargain makes the promisor still better off, even though he pays expectation damages to the promisee. The award of reliance damages, in contrast, would invite breach for bargains which are not better but worse, in particular in the case of a promise not relied upon. The problem with this account is that it is over-inclusive. The account based on "efficient breach" is over-inclusive because it explains too much. Let us take it for granted that it would explain expectation remedies. But the same argument would hold that conversion should be treated just the same way as breach of contract. (7) If the original promisor happens to find a better bargain, but after the execution of the contract including transfer of property, he may convert and keep the surplus from the better bargain, if he repays the original purchasing price. …

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