Academic journal article Northwestern University Law Review

Why There Is No Law of Relational Contracts

Academic journal article Northwestern University Law Review

Why There Is No Law of Relational Contracts

Article excerpt

The identification of relational contracts as a critical construct and an important field of study has led to important insights concerning the economics and sociology of contracting. It has not, however, led to a body of relational contract law: that is, we do not have a body of meaningful and justified contract law rules, either in place or proposed, that apply to, and only to, relational contracts. In this Article, I will show why this is so.


Like most modern contract theories, relational contract theory can only be understood against the backdrop of the school of classical contract law, to which it stands in opposition. I will therefore begin with a brief tour of that school.

A. The Characteristics of Classical Contract Law

Classical contract law was marked by several characteristics. It was axiomatic and deductive. It was objective and standardized. It was static. It was implicitly based on a paradigm of bargains made between strangers transacting on a perfect market. It was based on a rational-actor model of psychology.

1. The Axiomatic and Deductive Nature of Classical Contract Law. Classical contract law was axiomatic in nature. Axiomatic theories of law take as a premise that fundamental doctrinal propositions can be established on the ground that they are self-evident. At least in their strictest versions, such theories allow no room for justifying doctrinal propositions on the basis of social propositions-that is, propositions of morality, policy, and experience. So, for example, Langdell, speaking to the question of whether an acceptance by mail was effective on dispatch, said:

The acceptance ... must be communicated to the original offerer, and until such communication the contract is not made. It has been claimed that the purposes of substantial justice, and the interests of contracting parties as understood by themselves, will be best served by holding that the contract is complete the moment the letter of acceptance is mailed; and cases have been put to show that the contrary view would produce not only unjust but absurd results. The true answer to this argument is that it is irrelevant. . . .1

As Holmes observed, axiomatic theories may easily be coupled with deductive theories, which take as a premise that at least some doctrinal propositions can be established solely by deduction from other, more fundamental doctrinal propositions. "I sometimes tell students," Holmes said, "that the law schools pursue an inspirational combined with a logical method, that is, the postulates are taken for granted upon authority without inquiry into their worth, and then logic is used as the only tool to develop the results."2 Classical contract law was based on just such a coupling. It conceived of contract law as a set of fundamental legal principles that were justified on the ground that they were self-evident, and a second set of rules that were justified on the ground that they could be deduced from the fundamental principles.

For example, it was an axiom of classical contract law that in principle only a bargain promise had consideration-that is, was enforceable-although exceptions were recognized for certain kinds of promises that were enforceable on purely historical grounds. The issue then arose whether a firm offer-an unbargained-for promise to hold an offer open-was legally enforceable. The conclusion of classical contract law was, no.3 This conclusion was justified by deduction alone. The major premise was that only bargains had consideration. The minor premise was that a promise to hold a firm offer open is not bargained for. The conclusion was that a firm offer was not enforceable.

Another axiom of classical contract law was that bargains were formed only by offer and acceptance. The issue then arose whether an offer for a unilateral contract-an offer to be accepted by the performance of an act-- was revocable before performance had been completed, even if the offeree had begun to perform. …

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