ABSTRACT
A contract’s substantive terms specify what the parties will trade; a contract’s procedural terms regulate the parties’ bargain. Quantity and quality terms are substantive; damage, interpretive and modification terms are procedural. Parties are free, under contract law, to specify substantive terms; but they are not free to specify procedural terms. Rather, courts regulate damages from breach; how courts interpret agreements; when parties can modify their agreements, and so forth. This article argues that parties should be as free to specify procedure as substance, for three reasons: (i) Corporations largely escape procedural regulation by substituting equivalent substantive terms, which are free, for regulated procedural terms, which are restricted. Economically weak and occasional contractors lack the means and knowledge to pursue this costly contracting strategy. Thus, procedural regulation functions ineffectively and unfairly; (ii) procedural regulation, to the extent it binds, is inefficient, with the inefficiency costs falling especially on the weak; (iii) moral theories of contract, such as those explaining how contract law can and should protect persons’ autonomy in the commercial sphere, do not support, indeed they sometimes oppose, procedural regulation.
Contract law is a residual legal category that affects business transactions generally. For example, damages for breach of a lending agreement or a long-term contract for raw materials cannot exceed the promisee’s expectation interest nor can the parties to such contracts control how those contracts should be modified. Increasing party freedom over the procedural terms would therefore increase the fairness, efficiency and morality of business contracts generally.
Schwartz, Alan and Sepe, Simone M, Deregulating Contracts, Forthcoming, Notre Dame Law Review (2025) (March 12, 2025).
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