Private Law Theory

INTRODUCTION
At present, there is no generally accepted theory of why contracts are binding. We will propose one based on an idea that goes back to Aristotle: contract as voluntary commutative justice. In principle, a contract of exchange should be enforced when it is both voluntary and economically fair. It is voluntary so long as a party puts a higher value on what he is to receive than on what he is to give. Voluntariness is subjective and personal; economic fairness is not. An exchange is economically fair when the performance that each party is to make is equivalent in economic value to the one that he is to receive. Performances are equivalent in economic value when each party is compensated for the risks that the contract places on him.

In Part I, we see why that explanation better accounts for the enforceability of contracts than modern explanations based on autonomy and efficiency. We then hope to show how this theory can explain the principal common law doctrines that govern when and how a contract of exchange is enforced. Some doctrines such as unconscionability, impracticability, and consideration are concerned with fairness, even though consideration supposedly is not. We consider them in Part II. In Part III we consider others that concern voluntariness such as mistake and frustration of purpose. In Part IV, we discuss remedies for breach of contract.

James Gordley and Hao Jiang, Contract as Voluntary Commutative Justice, 2020 Michigan State Law Review 725 (2020).

First posted 2021-01-26 06:29:47