ABSTRACT
There is a growing consensus among regulators, civil society, and even CEOs that corporations must consider the impact of their activities on a broad range of actors – not just shareholders. The need to do so is apparent from the externalities that corporations routinely impose on non-shareholders. These externalities are particularly apparent in global supply chains as illustrated by several recent, and unsuccessful, lawsuits against corporations involving forced labor, human trafficking, child labor, and environmental harms. Lack of legal accountability subsequently translates into low legal risk for corporate misconduct, which reduces the likelihood of prevention and results in three separate injuries to third parties: first, the initial corporate misconduct; second, denial of justice in the courts; and, third, the prospect of recurrence because of inadequate prevention.
This Article argues that corporate misconduct towards non-shareholders arises from a fundamental inconsistency within contract law regarding the status of third parties: On the one hand, we know that it takes a community to contract. Contracting parties often rely on multiple third parties – not signatories to the contract – to play important roles in facilitating exchange: kinship networks, trade associations, and community organizations help to reduce market transaction costs through screening potential trade partners, creating social preferences for pro-contractual behavior, improving information flows, and decreasing the risk of opportunism. On the other hand, we deny this community protection from the externalities that contracting parties impose on them under a traditional view of contract as an exchange between two parties …
Parella, Kish, Protecting Third Parties in Contracts (September 22, 2020). American Business Law Journal (forthcoming 2021).
First posted 2020-09-25 05:19:08
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