Theories of Contractual Obligation

Theories of Contractual Obligations

Consent Theory of Contract in General

The mere fact that one man promises something to another creates no legal duty and makes no legal remedy available in case of non-performance. To be enforceable, the promise must be accompanied by some other factor…. The question now to be discussed is what is this other factor. What fact or facts must accompany a promise to make it enforceable at law?

We look to legal theory to tell us when the use of legal force against an individual is morally [FN2] justified. We look to contract theory, in particular, to tell us which interpersonal commitments the law ought to enforce. Contract theory at present, however, does not provide a satisfactory answer to this question. The five best known theories or principles of contractual obligation–the will theory, the reliance theory, the fairness theory, the efficiency theory and the bargain theory–each have very basic shortcomings. A consent theory of contract avoids these difficulties while explaining coherent obligation in a plausible and coherent manner.

Theories are problem-solving devices. We assess the merits of a particular theory by its ability to solve the problems that gave rise to the need for a theory. We do not, however, assess a particular theory in a vacuum. No theory in any discipline, from physics to biology to philosophy, can be expected to solve every problem raised by the discipline. Rather, we compare contending theories to see which theory handles problems the best.

Theories of Contractual Obligations

Five theories–the will, reliance, efficiency, fairness, and bargain theories [FN5]–are most commonly offered to explain which commitments merit enforcement and which do not. These theories of contractual obligation actually exemplify three types of contract theories. Will and reliance theories are party-based. Efficiency and fairness theories are standards-based. The bargain theory is process-based. At least some of each theory’s weaknesses are characteristics of its type. For this reason, each type of theory shall be separately considered here.

The criticisms presented in this section are neither comprehensive nor particularly novel. Rather, the discussion will identify the main problems that most theorists have acknowledged attach to each theory. The object here is not to refute any of these approaches. Instead, the aim will be to demonstrate that none provides a comprehensive theory of contractual obligation.

Will, reliance, efficiency, fairness, and bargain are best understood as core concerns of contract law. A theory of contractual obligation is needed to provide a framework that specifies when one of these concerns should give way to another. [FN6] Their proper relationship cannot be explained by a theory based solely on any one concern or on some unspecified combination. In Part II, I will explain how a consent theory of contract provides this necessary framework.

A. Party-Based Theories

Theories described here as party-based are those that focus on protecting one particular party to a transaction. A more accurate (though more awkward) label is “one-sided party-based.” Will theories *272 are primarily concerned with protecting the promisor. Reliance theories are primarily concerned with protecting the promisee. The undue emphasis that the will and reliance theories each place on one specific party creates insoluble problems for each approach.

1. Will Theories.–Will theories maintain that commitments are enforceable because the promisor has “willed” or chosen to be bound by his commitment. “According to the classical view, the law of contract gives expression to and protects the will of the parties, for the will is something inherently worthy of respect.” In this approach, the use of force against a reneging promisor is morally justified because the promisor herself has warranted the use of force by her prior exercise of will. A promisor cannot complain about force being used against her, since she intended that such force could be used when she made the commitment.

Will theories depend for their moral force upon the notion that contractual duties are binding because they are freely assumed by those who are required to discharge them. Consequently, enforcement is not morally justified without a genuine commitment by the person who is to be subjected to a legal sanction. This position leads quite naturally to an inquiry as to the promisor’s actual state of mind at the time of agreement–the so-called “subjective” viewpoint. After all, the theory can hardly be based on will if the obligation was not chosen by the individual but instead was imposed by law.

It has long been recognized that a system of contractual enforcement would be unworkable if it adhered to a will theory requiring a subjective inquiry into the putative promisor’s intent. [FN9] Where we cannot discern the actual subjective intent or will of the parties, there is no practical problem, since we assume it corresponds to objectively manifested intentions. But where subjective intent can somehow be proved and is contrary to objectively manifested behavior, subjective intent should prevail if the moral integrity and logic of a will theory are to be preserved.

Of course, any legal preference for the promisor’s subjective intent would disappoint a promisee who has acted in reliance on the appearance *273 of legally binding intent. Permitting a subjective inquiry into the promisor’s intent could also enable a promisor to fraudulently undermine otherwise perfectly clear agreements by generating and preserving extrinsic evidence of ambiguous or conflicting intentions. Such a strategy might create a de facto option in the promisor. The promisor could insist on enforcement if the contract continued to be in her interest, but if it were no longer advantageous, she could avoid the contract, by producing evidence of a differing subjective intent.

Because the subjective approach relies on evidence inaccessible to the promisee, much less to third parties, an inquiry into subjective intent would undermine the security of transactions by greatly reducing the reliability of contractual commitments. Not surprisingly, and notwithstanding the logic of obligation based on “will,” the objective approach has largely prevailed. The subjectivist moral component, on which a will theory focuses to justify legal enforcement, conflicts unavoidably with the practical need for a system of rules based to a large extent on objectively manifested states of mind. While a person’s objective manifestations generally reflect subjective intentions, a will theorist must explain the enforcement of the objective agreement where it can be shown that the subjective understanding of a party differs from her objectively manifested behavior.

Some will theorists uneasily resolve this conflict by acknowledging that other “interests”–for example, reliance–may take priority over the will. By permitting individuals to be bound by promises never intended by them to be enforceable, such a concession deprives a will theory of much of its force. Requiring the promisor’s subjective will to yield always, or almost always, to the promisee’s reliance on the promisor’s objective manifestation of assent undermines the claim that contractual obligation is grounded in the individual’s will and bolsters the view that contractual obligations may be imposed rightfully on unwilling parties. The inability of will theories to explain adequately the enforcement of objective manifestations of intention also accounts in part for the continued interest in reliance-based theories of contractual obligation.

2. Reliance Theories.–Theories that explain contractual obligation as an effort to protect a promisee’s reliance on the promises of others have the apparent virtue of explaining why persons may be bound by the common meaning of their words regardless of their intentions. Thus, it has become increasingly fashionable to assert that contractual obligation is created by reliance on a promise. A reliance theory is based upon the intuition that we ought to be liable in contract law for our assertive behavior when it creates “foreseeable” or “justifiable” reliance in others, in much the same way that we are held liable in tort law for harmful consequences of other acts.

Reliance theories have nonetheless faced a seemingly insuperable difficulty. As Morris Cohen wrote as early as 1933: “Clearly, not all cases of injury resulting from reliance on the word or act of another are actionable, and the theory before us offers no clue as to what distinguishes those which are.” This deficiency has led necessarily to the employment of such phrases as “justifiable” reliance or “reasonable” reliance. These adjectives, however, depend on (usually vague) standards of evaluation that are unrelated to reliance itself, because, whether justified or unjustified, reasonable or unreasonable, reliance is present in any event.

Furthermore, whether a person has “reasonably” relied on a promise depends on what most people would (or ought to) do. We cannot make this assessment independently of the legal rule in effect in the relevant community, because what many people would do in reliance on a promise is crucially affected by their perception of whether or not the promise is enforceable. A reliance theory, therefore, ultimately does no more than pose the crucial question that it is supposed to answer: is this a promise that should be enforced?

The analysis is no different if we ask whether the promisor knew or had reason to know the promise would induce others to act in reliance, [FN21] even though this formulation lessens a reliance theory’s preference for the promisee’s interests. Unlike the subject of the prediction required by foreseeability analysis in tort law–the physical consequences that follow from physical actions–the subject of the prediction required by forseeability analysis in contract law is the actions of a self-conscious person. A prediction that a promise can reasonably be expected to induce reliance by a promisee or third party will unavoidably depend upon whether the promisee or third party believes that reliance will be legally protected. The legal rule itself cannot be formulated based on such a prediction, however, without introducing a practical circularity into the analysis.

Furthermore, if a promise is defined, as in the Restatement (Second) of Contracts, as “a manifestation of intention to act or refrain from acting in a specified way, so made as to justify a promisee in understanding that a commitment has been made,” [FN23] then it would seem that every promisor should reasonably expect to induce reliance. If so, “The real issue is not whether the promisor should have expected the promisee to rely, but whether the extent of the promisee’s reliance was reasonable.” [FN24] But this returns us once again to the difficulties of discerning “reasonable” reliance.

By providing an overly expansive criterion of contractual obligation, any theory that bases obligation on detrimental reliance begs the basic question to be resolved by contract theory: which potentially reliance-inducing actions entail legal consequences and which do not? A person’s actions in reliance on a commitment are not justified–and therefore legally protected– simply because she has relied. Rather, reliance on the words of others is legally protected because of some as yet undefined circumstances.

In short, a person, rather than being entitled to legal enforcement because reliance is justified, is justified in relying on those commitments that will be legally enforced. Reliance theories therefore must appeal to a criterion other than reliance to distinguish justified acts of reliance. Such a criterion has yet to be identified. It is suggested below [FN26] that a consent theory provides such a criterion.

3. The Problem With Party-Based Theories.–These difficulties reveal that reliance theories have much in common with will theories. Both sets of theories must resort to definitions of contractual enforcement that do not follow from either will or reliance, but are based on more fundamental principles that are left unarticulated. By failing to distinguish adequately between those commitments that are worthy of legal protection and those that are not, both the will and reliance theories have failed in their basic mission. Consequently, actual contract cases must be resolved ad hoc using vague concepts such as “reasonableness” or “public policy,” or by employing clearer but formalistic criteria such as “consideration.”

Each theory primarily focuses on protecting one side of a contractual transaction: will theories focus on respecting the intentions of the promisor, while reliance theories focus on correcting the injury to the promisee. As a result, neither can properly assess the interrelational quality of the process of contracting. The law of contract exists to facilitate transactions between persons. In such an enterprise, there is no obvious reason why either party should be automatically preferred. While subjective intentions and reliance costs are important to a proper understanding of contractual obligation, something more basic is missing in theories of contractual obligation the primary focus of which is on only one of these core concerns.

Ironically, though both will and reliance theories assume a strongly moralistic stance–protecting “autonomy” or remedying “injuries”–neither provides an adequate moral framework to explain the legal enforcement of contracts. Both theories fail in this way because both attempt to explain contractual obligation in a theoretical vacuum. In liberal political and legal theory, the interrelational quality of social life is facilitated by identifying the entitlements or property rights of individuals in society. Theories that focus exclusively on the will of promisors or the reliance of promisees fail to utilize this conceptual framework. Not surprisingly, attempts to explain contractual obligations arising between persons go awry when those attempts ignore the foundations of interpersonal legal relationships.

B. Standards-Based Theories

Standards-based theories are those which evaluate the substance of a contractual transaction to see if it conforms to a standard of evaluation that the theory specifies as primary. Economic efficiency and substantive fairness are two such standards that have received wide attention.

1. Efficiency Theories.–One of the most familiar standards-based legal theories is the efficiency approach associated with the “law and economics” school. [FN27] Economic efficiency is viewed by some in this school as the maximization of some concept of social wealth or welfare: “the term efficiency will refer to the relationship between the aggregate benefits of a situation and the aggregate costs of the situation…. In other words, efficiency corresponds to ‘the size of the pie.’ ” [FN28] According to this view, legal rules and practices are assessed to see whether *278 they will expand or contract the size of this pie. [FN29]

In its least assertive variation, an economic assessment of law does not constitute a distinct theory of contractual obligation. Rather, economic analysis of legal rules is simply viewed as a “value-free” scientific inquiry that is confined to accounting for or explaining the consequences that result from particular legal rules or schemes. [FN30] So viewed, economic analysis is not a competing theory of contractual obligation, but only one of many yardsticks for assessing competing legal theories.

Economic analysis may also be viewed as a normative theory of law [FN31]– that is, economic efficiency is seen as providing the best or only yardstick of law. [FN32] However, because standard economic analysis begins by assuming that some agreements are enforceable, [FN33] normative efficiency theories fail to provide a distinction between enforceable and *279 unenforceable commitments. [FN34] In a world of no transaction costs, it is asserted, individual economizing behavior would–by means of mutually advantageous exchanges of entitlements–ensure that legal entitlements are freely transferred to their highest value use. [FN35] Because such a hypothetical world presupposes enforceable exchanges of legal entitlements, it cannot (without much more) tell us why or when some promises are enforceable while others are not.

In a world of positive transaction costs, [FN36] economists who employ a model of “perfect competition” wish to assess the extent to which such costs block the movement of resources to their highest value use and the ways that legal rules and remedies–including those defining the background set of entitlements–can be altered to minimize such “inefficiency.” [FN37] Such an analysis, based on detecting deviations from the background efficiency “norm” of initial entitlements and cost-free exchanges, must ultimately rest on no more than an assumption that such voluntary economizing exchanges are to some extent enforceable. Typically, then, efficiency analyses focus on the real world problems of forced exchanges (tort law) in an effort to make legal solutions to these nonmarket transactions approximate market solutions as closely as possible. [FN38] Efficiency analyses of voluntary exchanges (contract law) typically focus on issues other than the source of contractual obligation itself, such as appropriate remedies and other enforcement mechanisms, *280[ FN39] and assume, rather than demonstrate, the enforceability of all voluntary commitments. [FN40] How we recognize voluntary commitments that ought to be enforced, as opposed to mere social promises that are not enforceable, is not generally discussed.

Moreover, some normative efficiency theories [FN41] generate additional problems. If we are to enforce only those real world agreements that increase the overall wealth of society, [FN42] then it must be either claimed or assumed that a neutral observer (for example, an economist-judge) has access to this information–that is, knows which agreements increase wealth and which do not. [FN43] Two problems arise from this assumption or claim. The first concerns its truth. Can observers ever have information about value- enhancing exchanges independent of the demonstrated preferences of the market participants? More importantly, can a legal system practically base its decisions on such information? It has been persuasively argued that such knowledge is simply not available independently of the production of information by real markets. [FN44] If it is not available, then it cannot provide workable criteria *281 to distinguish enforceable from unenforceable promises. [FN45]

Assuming, however, that such knowledge is available, if we have direct access to information sufficient to know whether particular exchanges are value enhancing or not, why bother with contract law at all? Why not simply have a central authority use this knowledge to transfer entitlements independently of the parties’ agreement, particularly given the fact that the need to reach agreements creates transaction costs? Or, why not let judges use this knowledge to ratify “efficient thefts”–that is, give thieves the option of obtaining title to property that they have taken from others without their consent, provided only that the thief pays court-assessed damages equal to the value to the victim of her property? [FN46] Normative economists are barred by their assumption about available information [FN47] from responding that we need the market to provide such information.

Observations provided by economic theory about the effects of certain contract rules or principles on the efficient allocation of resources may rightly influence our normative assessment of those rules *282 or principles, particularly when these effects are considered along with the effects such rules and principles would have on private autonomy, or “will,” and on reliance. Most notably, the efficient allocation of resources may require a market composed of consensual exchanges that reveal and convey otherwise unobtainable information about personal preferences and economic opportunities. [FN48] Economic analysis may, therefore, suggest that demonstrated consent plays an important role in the law of contract, provided that efficient allocation of resources is a social activity that should be facilitated by a legal system. [FN49] From this perspective, the “transaction costs” created by a requirement of consent are no worse from an efficiency standpoint than any other cost of production. The costs of negotiating to obtain the consent of another may be resources well-spent because such negotiations serve to reveal valuable information.

Where the negotiating costs of obtaining consent become so high as to bar exchanges thought to be desirable by observers, at least three conclusions are possible. Each, however, argues against enforcing involuntary transfers. First, in the absence of a consensual demonstration of preferences, we do not really know if the exchange is worthwhile–value enhancing–or not. [FN50] Second, the inefficiency of government legal institutions that needlessly raise transaction costs may be principally responsible for making these consensual transactions prohibitively expensive. If so, then “government failure” and not “market failure” may be responsible for preventing the exchange and the appropriate response is to eliminate the true source of the inefficiency. *283[ FN51] Finally, when negotiation costs make consensual agreements too expensive a means of obtaining the vital information about value, several alternative ways exist to generate this information without negotiation–for example, by forming a new company or “firm,” by merging one company with another, or by combining products into a single package. [FN52]

In this analysis, demonstrated consent can be seen as playing an important role in any effort to achieve economic or allocative efficiency. Efficiency notions alone, however, cannot completely explain why certain commitments should be enforced unless it is further shown that economic efficiency is the exclusive goal of a legal order. The attempt to provide such a normative theory of wealth maximization, in the area of contract law at least, is fundamentally flawed. [FN53] In short, while the requirement of consent is in general supported by efficiency arguments, the normative justification for a consent theory of contract must be more broadly based.

2. Substantive Fairness Theories.–Another standards-based school of thought attempts to evaluate the substance of a transaction to see if it is “fair.” [FN54] Substantive fairness theories have a long tradition dating back at least to the Christian “just price” theorists of the Middle Ages [FN55] *284 and perhaps even to Aristotle. [FN56] Their modern incarnation in contract law can be found in nineteenth century discussions of the “adequacy of consideration” [FN57] and, more recently, in some treatments of “unconscionability.” [FN58]

A substantive fairness theory assumes that a standard of value can be found by which the substance of any agreement can be objectively evaluated. [FN59] Such a criterion has yet to be articulated and defended. [FN60] Without such a criterion, substantive fairness theories fall back on one or both of two incomplete approaches. On the one hand, such theories tend to focus all their attention on a small fraction of commitments–those that are thought to be so “extreme” as to “shock the conscience” of the courts. [FN61] Most real world agreements are considered to be presumptively enforceable. [FN62] On the other hand, such theories tend to become *285 process based–looking for either information asymmetries or what is called “unequal bargaining power.” [FN63]

The first of these responses attempts to find extreme instances of violations of a standard that cannot be articulated–or at least cannot be articulated for most transactions, [FN64] while the latter represents a retreat from the substantive fairness position altogether. Therefore, at best a substantive fairness approach attempts to deal with a qualitative issue by making either a quantitative or a procedural assessment, but what is being measured–the nature of the unfairness–is not disclosed. [FN65]

Most importantly for this discussion, however, the substantive fairness approach fails to address squarely the most central and common problem of contract theory: which conscionable agreements should be enforced and which should not? This after all, is, or ought to be, the starting point of a useful theory of contractual obligation that purports to discern which commitments merit legal enforcement. [FN66] In sum, the substantive fairness approach provides neither meaningful standards nor predictable results. Both the extreme indeterminacy and the focus on aberrant cases inherent in a principle of substantive fairness prevent it from providing the overarching account of contractual obligation that contract theory requires.

3. The Problem With Standards-Based Theories.–All standards-based theories face two problems, one that is obvious and another that is more subtle. The obvious problem, which has already been discussed, is identifying and defending the appropriate standard by which enforceable commitments can be distinguished from those that should be unenforceable. The more subtle problem arises from the fact that standards-*286 based contract theories are types of what Robert Nozick has called “patterned” principles of distributive justice:

[A] principle of distribution [is] patterned if it specifies that a distribution is to vary along with some natural dimension, weighted sum of natural dimensions, or lexicographic ordering of natural dimensions….

Almost every suggested principle of distributive justice is patterned: to each according to his moral merit, or needs, or marginal product, or how hard he tries, or the weighted sum of the foregoing, and so on. [FN67]

The problem created by such patterned theories of justice–including theories based on some notion of efficiency–is that they require constant interferences with individual preferences. “Render possessions ever so equal, man’s different degrees of art, care, and industry will immediately break that equality.” [FN68] The maintenance of a pattern, therefore, requires either that persons be stopped from entering the contracts they desire, or that those in power “continually (or periodically) interfere to take from some persons resources that others for some reason chose to transfer to them.” [FN69]

Such interferences are at least presumptively suspect. They may sometimes even be objectionable according to the particular standard that is being used to justify the intervention. For example, inefficiency might be shown to be the ultimate result of interventions to achieve “efficiency” that thwart individual preferences in this way. [FN70] And a system in which judges may–in the absence of fraud, duress, or some other demonstrable defect in the formation process–second-guess the wisdom of the parties may create more substantive unfairness than it cures. [FN71] More fundamentally, a theory of rights might support the conclusion that such interferences are unjust and wrong. [FN72]

*287 C. Process-Based Theories

Process-based theories shift the focus of the inquiry from the contract parties and from the substance of the parties’ agreement to the manner in which the parties reached their agreement. Such theories posit appropriate procedures for establishing enforceable obligations and then assess any given transaction to see if these procedures were followed. The best known theory of this sort is the bargain theory of consideration.

1. The Bargain Theory of Consideration.–The origin of the modern doctrine of consideration can be traced to the rise of the action of assumpsit. [FN73] When the voluntary assumption of obligation came to be viewed as the basis of contractual enforcement, no one seriously suggested that every demonstrable agreement could or should be legally enforced. The number of agreements made every day are so numerous that for reasons of both practice and principle some distinction, apart from that made by purely evidentiary requirements, [FN74] must be made between enforceable and unenforceable agreements.

The doctrine of consideration was devised to provide this distinction. [FN75] Where consideration is present, an agreement ordinarily will be enforced. And, most significantly, where there is no consideration, even if the commitment is clear and unambiguous, enforcement is supposed to be unavailable. In the nineteenth century, the “bargain theory of consideration” was promoted by some–most notably Holmes and Langdell–as a way of answering the problem of which commitments merit legal protection. Today it is probably the predominant theory of consideration and is embodied in section 71 of the Restatement (Second) of Contracts:

(1) To constitute consideration, a performance or a return promise must be bargained for.

(2) A performance or return promise is bargained for if it is sought by the promisor in exchange for his promise and is given by the promisee in exchange for that promise. [FN76]

This approach attempts to discern “mutuality” of inducement from the motives and acts of both parties to the transaction. It is not what is bargained for that is important; what solely matters is that each person’s promise or performance is induced by the other’s.

*288 The difficulties presented by the doctrine of consideration depend on which way the concept is viewed. If the doctrine is interpreted restrictively, then whole classes of “serious” agreements will be thought to be lacking consideration. In his recent discussion of consideration, Charles Fried lists four kinds of cases–promises to keep an offer open, to release a debt, to modify an obligation, and to pay for past favors–where promisees have traditionally had considerable difficulty obtaining legal relief for nonperformance because bargained-for consideration is lacking, [FN77] although it is generally conceded that the parties may have intended to be legally bound and that enforcement should therefore be available. [FN78] To these may be added unbargained-for promises to assume the obligations of another, [FN79] to convey land, to give to charities, and those made by bailees and within the family. [FN80]

In each of these types of cases, a promise is made and then broken. The promisee then seeks to base his cause of action on the promise. In many of these cases, the promise is a serious and unambiguous one. In each situation, however, there is no “bargain” and therefore no consideration for the promise.

Such cases as these invite attempts by judges and others to expand the concept of consideration beyond the bargain requirement. [FN81] Any such attempt to capture these and other types of cases will, however, run afoul of an opposing difficulty. If the web of consideration doctrine is woven too loosely, it will increasingly capture “social” agreements where legal enforcement is not contemplated–for example, promises of financial assistance between family members. [FN82] Thus, any expanded concept of consideration threatens to undermine the doctrine’s traditional *289 function: distinguishing enforceable from unenforceable agreements in a predictable fashion to allow for private planning and to prevent the weight of legal coercion from falling upon those informal or “social” arrangements where the parties have not contemplated legal sanctions for breach. [FN83]

Each strategy to deal with the problems generated by a doctrine of consideration, therefore, wreaks havoc in its own way with a coherent theory of contractual obligation. With a restrictive definition like that of bargain, serious promises which merit enforcement are left unenforced. With an expansive formulation, informal promises that are thought to be properly outside the province of legal coercion will be made the subject of legal sanctions. The most recognized problem with the bargain theory is that it appears to have erred too far in the direction of under-enforcement. [FN84] However, the bargain theory suffers in a more fundamental way from its purely process-based character.

2. The Problem With Process-Based Theories.–The problem with process-based theories is not simply that they must strike a balance between over- and under- enforcement. Such trade-offs cannot be completely avoided in any system that bases decision-making on rules and principles of general application. [FN85] The real problem with process-based theories like the bargain theory of consideration is that they place insurmountable obstacles in the way of minimizing such difficulties of enforcement.

First, a process-based theory’s exclusive focus on the process that justifies contractual enforcement conceals the substantive values that must support any choice of process. By obscuring these values, process-based theories come to treat their favored procedural devices as ends, rather than as means. Then, when the adopted procedures inevitably give rise to problems of fit between means and ends, a process-based theory that is divorced from ends cannot say why this has occurred or what is to be done about it. This inherent weakness of process-based theories has plagued the bargain theory of consideration. [FN86]

*290 The bargain theory, which was devised to limit the applicability of assumpsit, [FN87] fails to ensure the enforcement of certain reasonably well-defined categories of unbargained-for, but “serious” commitments. [FN88] Then, when courts are moved to enforce such commitments, the principal theory of consideration to which they adhere cannot account for these “exceptions” to the normal requirement of a bargain without appealing to concepts more fundamental than bargaining. Ironically, the rise of assumpsit– the source of the need for the consideration doctrine–was itself due to the inability of the then existing process-based writ system to accommodate enforcement of informal, but serious promises. [FN89]

Second, an exclusively process-based theory cannot itself explain why certain kinds of commitments are not and should not be enforceable. For example, it is widely recognized that agreements to perform illegal acts should not be enforceable. Similarly, slavery contracts are also thought to be unenforceable per se. If, however, agreements of these types were reached in conformity with all “rules of the game,” a theory that looks only to the rules of the game to decide issues of enforceability cannot say why such an otherwise “proper” agreement should be unenforceable.

These two types of problems, however, are not confined to process-based theories. As was seen above, [FN90] party-based theories based on will and reliance are also plagued by an inability to account for and explain certain “exceptional” agreements that are enforceable without recourse to their animating principles. And theories based on principles of will, reliance, or efficiency have as hard a time as process-based theories explaining why certain agreements are unenforceable due to so-called “public policy” exceptions to their respective norms of contractual obligation.

Notwithstanding the weaknesses inherent in process-based theories, such theories offer significant advantages over both party-based and standards-based theories. By employing a neutral criterion for determining contractual enforcement, a process-based theory can better protect both the contractual intent and the reliance of both parties than one-sided party-based theories, provided it identifies features of the contractual process that normally correspond to the presence of contractual intent and substantial reliance. By identifying judicially workable criteria of enforcement, process-based theories can avoid the difficulties of extreme indeterminacy that were seen to plague standards-based theories. [FN91] They can, in short, better provide the traditionally *291 acknowledged advantages of a system of generally applicable laws, such as facilitating private planning and helping to ensure equal treatment of similarly situated persons. Perhaps it is these advantages that have permitted a process-based theory like the bargain theory to survive its frequent detractors.

The significant administrative advantages of process-based theories suggest that the best approach to contractual obligation is one that preserves a procedural aspect of contract law, while recognizing that such procedures are dependent for their ultimate justification on more fundamental, substantive principles of right that occasionally affect procedural analysis in two ways. First, these principles might suggest specific improvements in procedures governing contract formation that are appropriate in the event that previously adopted procedures have created well-defined problems of under-enforcement. Second, these principles might serve to deprive certain procedurally immaculate agreements of their normal moral significance, thereby ameliorating identifiable problems of over-enforcement. [FN92] A consent theory of contract is such an approach.

Author: Randy E. Barnett
Copyright © 1986 by the Directors of The Columbia Law Review Association