Theories of Contract Law Brian Bix

JOBNAME: Monateri PAGE: 3 SESS: 4 OUTPUT: Tue Mar 21 15:52:53 2017
1. Theories of contract law

Brian H. Bix
INTRODUCTION
Theorizing about contract law has a long history – its origins coincide
with the origins of thinking of about contract law as a separate area of
law.1 However, there has been a particular flourishing of work (at least in
English) on contract theory in recent decades, prompted in large part by
the publication of Charles Fried’s influential book, Contract as Promise2
(about which, more below). Despite the long history and recent increase
in theorizing about contract law, the nature and purpose of such theoriz-
ing remains under-discussed and many basic questions remain
unanswered.
In this chapter, section I will discuss general considerations relating to
theorizing about contract law, section II offers an overview of some
major types of theories, and section III raises some of the skeptical
challenges to theorizing in this area.
I. THEORIZING ABOUT CONTRACT LAW

A basic question about theories of contract law is, what is the nature and
purpose of such a theory? Surprisingly, while there is a growing literature
regarding which is the best theory of contract law, there is relatively little
discussion of this foundational inquiry. At a basic level, a theory of a
social practice could be descriptive (describing what is the case),
prescriptive (making claims about how the practice should be organized
or how existing practices should be reformed), or interpretive (sometimes
called ‘rational reconstruction’, this is a combination of description and
prescription, where existing practices are reformed or at least
re-characterized to make them better: more coherent, more legitimate,
etc.). It is crucial to understand what sort of claim is being made for or
1
See Simpson (1981).
2
See Fried (2015). The first edition of the book (published by Harvard
University Press) came out in 1981.
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8 Comparative contract law
by a theory, though this is a matter that theorists (and their critics) too
often leave undiscussed. Sometimes a theory and its critics are talking
past one another: it is not a fair criticism of a purely prescriptive theory
that it does not accurately describe current practices, and so on.
Additionally, we need to know something about a theory’s purported
scope. Is the theory meant to be (at one end of the spectrum) about the
contract law of a particular jurisdiction at a particular time, (at the other
end of the spectrum) about all existing, past or possible contract law
systems, or something in-between? For example, when Charles Fried
offers a ‘theory of contract Law’,3 is it a theory of American (or, perhaps,
Anglo-American) contract law, a theory about (say) ‘American, English,
and similar common law’ legal systems, or about all possible legal
systems? Fried never makes that clear.4
In the different area of general theories about the nature of law, it is
often reported that the theories are ‘conceptual’ – meaning that they are
true of any existing or possible legal systems, that they describe simply
and basically what must be true for something to be a legal system.5
Would it make sense to make comparable claims for a theory of contract
law (or tort law or property law), that there are certain characteristics that
must be true for something to be contract law? One could certainly
imagine a functional-style theory of this sort, e.g., that ‘contract law’ is
whatever set of legal remedies are made available for the enforcement of
promises, exchanges and transactions.
At times the claims made regarding a doctrinal area of law are said to
be ‘explanatory’, but in a way that is more abstract or metaphorical.
When contract law is said to be ‘essentially about promise’6 (or tort law
to be ‘essentially about corrective justice’7), the theorist is usually not
saying that every rule, principle and practice of this doctrinal area
perfectly reflects that value, but more that this value pervades the practice
and is the primary component of the practice’s justification.
One final line of questioning regards the data that grounds the theory:
is the theory meant to explain or justify the outcome of particular cases
or is the theory meant to operate at a more general level, e.g., explaining
the rules or principles that cover whole categories of cases? To put the
issue another way, when it is said on behalf of a theory on contract law
that it ‘explains’ or ‘justifies’ contract law, what precisely within or about
3
Ibid.
4
See Bix (2012a).
5
See, e.g., Raz (2005).
6
See Fried (2015).
7
See, e.g., Coleman (1992).
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Theories of contract law 9
contract law is being explained or justified? The alternatives are perhaps

more sharply differentiated in common law legal systems (like those of
the United States and England), where (a) much of the contract law has
developed from judicial decisions rather than being stated in or derived
from a Code or other collection of statutes; and (b) the law continues to
be developed (modified) by contemporary judicial decisions (which also
bind lower courts and, generally, later decisions by the same court). At
least in relation to common law legal systems, one can reasonably ask
whether the ‘data points’ that the theory purports to explain are the
particular case outcomes, or rather the ‘black-letter’ rules (and principles)
that one may find in treatises, Restatements, and other summaries of the
field (but which have no authoritative status in (most) legal systems).8
It has already been mentioned that one type of theorizing about
contracts would involve ‘interpretive’ claims, also known as ‘rational
reconstruction’. Interpretation/rational reconstruction has the advantage
of being similar to what lawyers do in many legal systems while arguing
a case: lawyers offer arguments that take into account relevant legal texts
and past judicial decisions, trying to offer a coherent and principled
justification of the whole area. In legal practice, this form of theorizing is
often part of advocating that the law be changed, filled in or clarified in
a way that is advantageous to one side of a legal dispute. There is a
robust argument that this is the best and most natural use for theories of
doctrinal areas: to offer guidance to judges who need to decide novel
questions of law (in a way that may also combine with the judges’
improvement of the legal rules).9
There are, of course, other kinds of theories of, or relating to, contract
law, beyond those already mentioned. For example, Dagan and Heller
have offered what could be thought of as a theory of contract law, though
one that would be part of a larger moral or political theory, in that it
focuses on how the state can and should use contract law to promote a
good (and autonomous) life for its citizens.10 There is also, of course
(and as already mentioned), room for purely prescriptive theories, sug-
gesting what the ideal set of contract rules and principles would be (in
general, or for a particular country).
As already noted, it may be instructive to compare theories about
doctrinal areas of law with the perhaps better established and more
widely known and discussed theories about the nature of law – the type
8
See Kraus (2007).
9
See Moore (2000).
10
Dagan and Heller (2013).
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of theory one finds in general jurisprudential discussions, and the works

of theorists like H.L.A. Hart, Hans Kelsen, Ronald Dworkin and John
Finnis.11 There are parallel questions regarding whether the claims of
these sorts of theories should be understood to be descriptive, interpretive
or conceptual, and whether it makes sense to speak of a general or
universal theory. One difference is that it may be sensible and valuable to
have a parochial theory of contract law (e.g., a theory of German, or
French, or American contract law) in a way that a ‘(general) theory of
German, or French, or American law’ would likely seem less sensible and
useful.
There are obvious connections between the topic of this volume,
‘comparative contract law’, and the issues surrounding theorizing about
contract law. ‘Comparative contract law’ starts by assuming something
like the following: that there is a general category, ‘contract law’, such
that there are examples of that category in many, and perhaps all, legal
systems. And once one concludes (or assumes) that there are examples of
‘contract law’ in most, and perhaps all, legal systems, then it seems
sensible, or at least possible, to have a theory of what all (actual, or
perhaps actual and possible) members of that category (‘contract law’)
have in common.
Additionally, it might be said that one needs to have at least an
intuitive sense of the nature and boundary lines of the category ‘contract
law’ in order to do comparative contract law. One must know what to
include and to exclude in comparing one legal system with another: for
example, does comparative contract law extend to a country’s legal rules
regarding pension obligations? Landlord-tenant rules? Mandatory terms
for insurance policies? Requirements for separation agreements? Stand-
ards for when charitable pledges are enforceable? And so on.
While having a category of ‘contract law’ gives one a subject for
theorizing, it still of course leaves open the question of whether anything
interesting can be said about that category, and also what are the nature
of claims being made within the theory. As already noted, a theory of
contract law could be making descriptive claims about what is true about
all the contract law systems one knows, or it could be making a
conceptual claim about what must be true of all contract law systems,
about what makes something a contract law system as opposed to
something else. (There is, inevitably, a certain amount of circularity in
the conceptual inquiry: if one is trying to determine what makes
11
See, e.g., Hart (2012); Kelsen (1997); Dworkin (1986); Finnis (2011); see
also Raz (2005).
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something ‘contract law’ as opposed to something else, one will look at

all examples of what one calls ‘contract law’, to see what distinguishes
them from other things, e.g., legal rules of tort or restitution, or moral
rules about keeping promises. There is thus a certain ‘reflective equilib-
rium’ between conventional or intuitive views about what fits into a
category, and potential theoretical views about what makes up the
boundary lines of the category.)
The next section considers some prominent examples of contract law
theories.
II. CURRENT THEORIES

A. Autonomy Theories
This is a broad category that could include not only the will theories of
contract that were popular in continental Europe in the nineteenth
century,12 but also more recent examples, like Charles Fried’s promissory
theory13 and Randy Barnett’s consent theory.14 These all qualify as
‘autonomy theories’ because they tend to focus on the choice of
(potential) contracting parties, and the importance of respecting and
enforcing such choices. The whole ideal of ‘freedom of contract’ (and its
cognate, ‘freedom from contract’) is that contract law is distinctive
(relative both to public law and many other parts of private law) in giving
individuals significant power to choose which duties will bind them: in
principle, one chooses whether one enters any contracts at all, and the
terms of the contracts one does enter. And there is another tie to
autonomy: contractual partners are able to create legally enforceable
rights and obligations to help them achieve objectives it would be
difficult to achieve without legal enforcement of those commitments.15
The most influential modern autonomy theory is probably the promis-
sory theory. The impetus for a promissory theory of contract law is the
likely connection between the generally accepted moral obligation to
keep promises and the legal enforcement of contracts. However, there are
theorists who have questioned the connection between promises and
contracts;16 and, in any event, in almost all legal systems, a significant
12
Gordley (1991).
13
Fried (2015).
14
See, e.g., Barnett (1986); Barnett (2012).
15
Kraus (2009).
16
See, e.g., Pratt (2008); Shiffrin (2012).
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portion of promises are not legally enforceable (in common law systems,
generally only promises that are part of an exchange are enforceable; in
many civil law systems, there is a requirement that promises be suffi-
ciently important before they are enforced). The fact that not all promises
are enforced, and that courts often focus only on whether a party has
sufficiently outwardly/publicly consented to the legal duties in question,
has motivated the competing ‘consent’ theory of contract law.17
B. Property Theories
Theories like Peter Benson’s theory of contract law posit that a contract
involves a transfer of a property right, or something like a property right,
at the time the contract is entered.18 The advantage of this approach is
that it justifies the rule in many jurisdictions that in the case of a breach,
the non-breaching party has the right to full performance, or its economic
equivalent, even if the breach occurred so early that the non-breaching
party has not suffered any harm from the breach and has not relied on the
contract in any significant way.
On one hand, while the assertion that some sort of entitlement passes
between the contracting parties at the time the agreement is entered does
justify certain doctrinal outcomes, it seems to do this by assuming what
is to be proven. Perhaps more problematic: to claim that one party has an
entitlement or property right against the other leaves open many of the
intricate questions a working contract law system must answer regarding
the contours of that right, e.g., when does the party have the right that a
court order the other party to perform, and in the case of money
damages, how are damages to be measured, and what are the limits of
what can be recovered (e.g., in US contract law, there are limitations
based on causation, foreseeability, mitigation and certainty)? The asser-
tion that one has a property-like contractual right would only open the
inquiry on such questions, and would seem to leave a great deal still to
do before the questions are resolved.
C. Reliance Theories
Some theorists have noted that while the doctrinal rules in some legal
systems may allow the recovery of significant damages for breach of
contract at any point after the contract has been entered (as mentioned in
the previous section), in practice parties may not expect to recover
17
See Barnett (1986); Barnett (2012).
18
Benson (2001); Benson (2007).
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damages, and courts may be reluctant to award damages, unless the

non-breaching party can prove that the breach caused significant damage
(e.g., because of the non-breaching party’s reasonable reliance on the
contract). It is additionally argued that, in any event, the moral claim for
damages is strongest when there has been such reliance, and weak when
no such detrimental reliance has occurred.19 This line of argument has
sometimes been thought to make up a reliance theory of contract law, and
some theorists have strongly urged a focus on (reasonable) reliance,
though it is hard to find fully-worked-out theories of contract law along
these lines.20 In any event, any theory that purports to ground the rights
party do (or should) have on their reliance, will need also to have a
theory regarding when such reliance is reasonable, and that will in turn
require some reference to other values (promise? consent? efficiency?).
D. General Theories, with Application to Contract Law
Along with theories aimed particularly at contract law, there are also
forms of legal theory whose scope is broader, but the scope includes an
application to contract law.
The most influential such general theory (at least in the United States)
is ‘law and economics’. Speaking in very rough terms, law and eco-
nomics involves the application of various resources of economic thought
to the understanding of legal rules, practices and institutions, and argues
that legal norms generally do, and generally should, promote economic
efficiency. A large number of theorists have used economic analysis as a
way to explain current contract law doctrine or to prescribe changes in
the current contract law rules (within a particular legal system, though
prescriptions may also range more broadly across legal systems).21
One advantage the economic analysis of law has over other (mostly
‘deontological’) approaches to contract law is that economic analysis has
the resources to make recommendations regarding detailed contract law
rules and principles (e.g., when in a breach of contract case should a
non-breaching party be granted ‘specific performance’ as opposed to
being confined to money damages? When should damages in a breach of
a construction contract case be measured in terms of ‘cost of completion’
as against ‘diminution of value’? And when should a seller have a
contract law obligation to disclose information?). A general reference to
19
See, e.g., Fuller and Perdue (1936–1937).
20
The usual names here are Patrick Atiyah, e.g., Atiyah (1979) and Grant
Gilmore, e.g., Gilmore (1974).
21
See, e.g., Posner (2011); Kronman and Posner (1979); Craswell (1989).
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‘autonomy’, ‘fairness’, ‘corrective justice’ or ‘property’ is unlikely to

offer much guidance, while economically focused theorists at least
purport to have recommendations on most detailed questions, based on
efficiency.22
There are other comparably general theories with potential application
to contract law: e.g., utilitarian moral theories,23 Marxist and other
critical theories,24 feminist theories,25 and so on, with examples of such
applications in the notes.
E. Mixed Theories
As there are arguments in favor of a variety of approaches, it is not

surprising that some theorists have argued for a theory of contract law
that combines different approaches: in particular, combining autonomy
and consequentialism (law and economics).26 The difficulty with such
mixed theories is they require the theorist to offer a meta-theory that can
ground which justifications go to which part of the theory, or regarding
what the priority will be among the theory’s justifications if and when
they conflict.
III. DOUBTS ABOUT THEORIES

There are theorists who have expressed skepticism about the possibility
or value of any general theory of contract law. This skepticism has been
grounded on a number of grounds, some of which are detailed below.
A. Basic Task
Contract law is a sub-category of law, and some of the same difficulties

that come with theorizing about law apply to theorizing about contract
law. In general, there are complications inherent in the task of offering a
theory of an ongoing social practice. Social practices change over time,
and vary from place to place. They are human creations, not defined by
chemical composition or species category the way ‘natural kinds’ are.
There are reasons to doubt that there is a stable category, ‘contract law’,
22
See Craswell (1989).
23
See, e.g., Cohen (1933).
24
Unger (1986); Feinman and Gabel (1990).
25
See, e.g., Frug (1985).
26
See, e.g., Kraus (2001); Kraus (2002).
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to offer theories about, and also reasons to doubt that there is anything
valuable that could be said at a descriptive, analytical or conceptual level
about contract law (even skeptics would allow for the option of a purely
prescriptive theory of contract law, arguing for what would be the best
contract law system for a particular country).
B. Pluralism
A number of theorists have rejected theories of contract law on the basis

that it is mistaken or misleading to point to a single ‘essence’ or ‘nature’
of contract law, because, the argument goes, contract law serves a variety
of goods. For example, in most legal systems, there are numerous limits
to autonomy (‘freedom of contract’): one can be held to contractual
terms even if one did not know about or fully understand them, and there
are categories of terms that will not be enforced (e.g., on public policy
grounds) even if the parties consented to them with full knowledge.
Contract law systems generally include mandatory rules, default rules
and rules of interpretation which may frequently serve interests other
than respecting party choice (e.g., values of general fairness, protecting
vulnerable parties and expressing different public policies on particular
issues). And similar counter-examples can be raised to other alleged
‘essential’ values for contract law. Indeed, one might see the range of
different essentialist or prescriptive theories as themselves giving proof of
the variety of values that contract law can and should promote: e.g.,
while Ian Macneil famously argued that contract law does and should
promote long-term relationships,27 other writers have emphasized the
way that contract law does (and should) facilitate cooperation between
those who have been, and will remain, strangers.28 The obvious response
is that some types of contracts are primarily about supporting long-term
relationships, and some types of contracts are primarily about facilitating
short-term cooperation among strangers; contract law does and should
promote these quite different values, and many other values as well.
C. Variation
The challenge of variety responds to the (express or implicit) scope of

contract law theories that purport to be general, universal or conceptual.
The argument is that the rules, principles and practices of contract law
are sufficiently diverse over time, across jurisdictions, or even across
27
See Macneil and Campbell (2001).
28
See, e.g., Kimel (2003).
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transaction types within a single jurisdiction, that no single theory can

capture the whole range of contract law without either being so general,
or so cumbersome and detailed, as to be of little value as a theory.
For example, the analysis goes, across jurisdictions some contract law
systems protect ‘naked promises’ (promises made without any return
promise, and without any detrimental reliance upon the promise) and
some do not; some jurisdictions prefer the remedy of ‘specific perform-
ance’ (a court order that a party perform what it promised) for breach of
contract, while others do not; some jurisdictions allow awards of ex-
emplary (punitive) damages or damages for pain and suffering and
emotional distress while others do not, and so on.
Some theorists have argued that we should favor theories of contract
law that are general (at least within a single legal system) because
reinforcing common contract law principles may prevent the rules and
principles covering particular transaction types from being ‘captured’ by
the interests and values of powerful groups (e.g., lawyers and lobbyists
for insurance companies determining the law of insurance policies, or
large businesses similarly determining the rules for consumer and
employment contracts).29 However, there is also a concern sometimes
expressed in the other direction: that the talk of a single essence to
contract law, especially when this is part of legal education or part of a
public image of contracts that presents them as paradigmatically involv-
ing two parties of equal bargaining power and sophistication negotiating
terms at arm’s length, may be a way to hide (to legitimate) the real
injustices and inequalities of contracting practices.30
D. Summary
The debate between advocates of contract law theories and skeptics often
seems to be primarily one of emphasis. For example, those favoring
having a general theory of contract law will usually concede that there is
significant variety across transaction types and across jurisdictions and
that there are some rules and practices that do not fit neatly under a
single rubric, but they urge that what is common and constant across
contract law(s) is more important than what varies. From the other
direction, skeptics of contract law theory do not deny that there are
common principles, rules and themes across transaction types and across
jurisdictions, likely based on shared intuitions about keeping promises
29
See Oman (2005).
30
Bix (2012b).
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and the regulation of transactions, but argue that what is common is less
important than what differs.31
CONCLUSION
The area of contract law theory remains largely unformed and unsettled.
Those offering such theories often ignore basic methodological questions
regarding what such theories are meant to accomplish and what the
criteria are for success. Two likely models for such contract law theories
are to see them as efforts to ‘explain’ contract law, or to ‘rationally
reconstruct’ its rules and principles. There remain issues as to whether
such theories should be seen as covering all existing, past and possible
contract law systems, or only contract law systems of the theorist’s home
nation and perhaps comparable current systems. Those who challenge the
possibility or value of contract law theories tend to emphasize the wide
variety of rules, remedies and practices across jurisdictions, over time,
and even across transaction types within a particular jurisdiction. Chal-
lenges may also focus on the plurality of goods that contract law rules
and practices promote, arguing that contract law theories that focus on
only one value inevitably distort the underlying contract law system too
much to be useful.
REFERENCES
Atiyah, P. (1979) The Rise and Fall of Freedom of Contract. Oxford: Oxford University
Press
Barnett, R. (1986) ‘A Consent Theory of Contract’, 86 Columbia Law Review 269–321
Barnett, R. (2012) ‘Contract is Not Promise; Contract is Consent’, 45 Suffolk University
Law Review 647–65
Benson, P. (2001) ‘The Unity of Contract Law’ in P. Benson (ed.), The Theory of Contract
Law: New Essays. Cambridge: Cambridge University Press, 118–205
Benson, P. (2007) ‘Contract as a Transfer of Ownership’, 48 William and Mary Law
Review 1673–731
Bix, B.H. (2012a) ‘Theories of Contract Law and Enforcing Promissory Morality:
Comments on Charles Fried’, 45 Suffolk Law Review 719–24
Bix, B.H. (2012b) Contract Law: Rules, Theory, and Context. Cambridge: Cambridge
University Press
Cohen, M. (1933) ‘The Basis of Contract Law’, 46 Harvard Law Review 553
Coleman, J.L. (1992) Risks and Wrongs. Cambridge: Cambridge University Press
31
Cf. ibid. at 128–62 (arguing against contract theory) with Oman (2005)
(arguing for a general contract theory).
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Craswell, R. (1989) ‘Contract Law, Default Rules, and the Philosophy of Promising’ 88
Michigan Law Review 489
Dagan, H. and Heller, M.A. (2013) Freedom of Contracts, available at http://papers.
ssrn.com/sol3/papers.cfm?abstract_id=2325254
Dworkin, R. (1986) Law’s Empire. Cambridge, MA: Harvard University Press
Feinman, J.M. and Gabel, P. (1990) ‘Contract Law as Ideology’ in D. Kairys (ed.), The
Politics of Law: A Progressive Critique. New York: Pantheon Books, 373–92
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Fuller, L.L. and Perdue, W.R., Jr. (1936–1937) ‘The Reliance Interest in Contract
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Political and Legal Philosophy. Oxford: Basil Blackwell, vol. 11, 420–41
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JOBNAME: Monateri PAGE: 3 SESS: 4 OUTPUT: Tue Mar 21 15:52:53 2017

1. Theories of contract law

I. THEORIZING ABOUT CONTRACT LAW

Brian H. Bix - 9781785369179

8 Comparative contract law

Brian H. Bix - 9781785369179

Theories of contract law 9

contract law is being explained or justified? The alternatives are perhaps

Brian H. Bix - 9781785369179

10 Comparative contract law

of theory one finds in general jurisprudential discussions, and the works

Brian H. Bix - 9781785369179

Theories of contract law 11

something ‘contract law’ as opposed to something else, one will look at

II. CURRENT THEORIES

Brian H. Bix - 9781785369179

12 Comparative contract law

Brian H. Bix - 9781785369179

Theories of contract law 13

damages, and courts may be reluctant to award damages, unless the

D. General Theories, with Application to Contract Law

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14 Comparative contract law

‘autonomy’, ‘fairness’, ‘corrective justice’ or ‘property’ is unlikely to

As there are arguments in favor of a variety of approaches, it is not

III. DOUBTS ABOUT THEORIES

Contract law is a sub-category of law, and some of the same difficulties

Brian H. Bix - 9781785369179

Theories of contract law 15

A number of theorists have rejected theories of contract law on the basis

The challenge of variety responds to the (express or implicit) scope of

Brian H. Bix - 9781785369179

16 Comparative contract law

transaction types within a single jurisdiction, that no single theory can

Brian H. Bix - 9781785369179

Theories of contract law 17

Brian H. Bix - 9781785369179

18 Comparative contract law

Brian H. Bix - 9781785369179

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