Contract As Empowerment Author(s) : Robin Kar Source: The University of Chicago Law Review, Spring 2016, Vol. 83, No. 2 (Spring 2016), Pp. 759-834 Published By: The University of Chicago Law Review

Contract as Empowerment
Author(s): Robin Kar

Source: The University of Chicago Law Review , Spring 2016, Vol. 83, No. 2 (Spring
2016), pp. 759-834
Published by: The University of Chicago Law Review
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Contract as Empowerment
Robin Karf
This Article offers a novel interpretation of contract law , which I call "con-
tract as empowerment. " On this view , contract law is neither a mere mechanism to
promote efficiency , as many economists suggest , nor a mere reflection of any famil-
iar moral norm - such as norms of promise keeping , property , or corrective justice.
Contract law is instead a mechanism of empowerment* it empowers people to use
legally enforceable promises as tools to influence other people's actions and thereby
to meet a broad range of human needs and interests. It also empowers people in a
special way , which reflects a moral ideal of equal respect for persons. This fact ex-
plains why contract law can produce genuine legal obligations and is not just a
system of coercion.
This Article introduces contract as empowerment and argues that it offers a
theory of contract with distinctive advantages over the alternatives. Contract as
empowerment is an interpretive theory : it is simultaneously descriptive , explaining
what contract law is, and normative , explaining what contract law should be. To
establish the theory's interpretive credentials , this Article identifies a core set of
doctrines and puzzles that are particularly well suited to testing competing inter-
pretations of contract law. It argues that contract as empowerment is uniquely ca-
pable of harmonizing this entire constellation of doctrines while explaining the le-
gally obligating force of contracts. Along the way , contract as empowerment offers
(l)a more penetrating account of the expectation damages remedy than exists in
the current literature , (2) a more compelling account of the consideration require-
ment , and (3) a concrete framework to determine the appropriate role of certain
doctrines - like unconscionability - that appear to limit freedom of contract.
The whole of this explanation is greater than the sum of its parts. Because of its
harmonizing power , contract as empowerment demonstrates how a broad range of
seemingly incompatible surface values in modern contract law can work together -
each serving its own distinctive but partial role - to serve a more fundamental
t Special thanks to the following people, who have each contributed to the develop-
ment of my thinking on these topics over the years, sometimes through formal readings of
drafts and sometimes through informal discussions: Elizabeth Anderson, Amitai Aviram,
Ian Ayres, Aditi Bagchi, Douglas Baird, Randy Barnett, Peter Benson, Kenworthey Bilz,
Brian Bix, Curtis Bridgeman, Richard Brooks, Marshall Cohen, Jules Coleman, Stephen
Darwall, Dhammika Dharmapala, Zev Eigen, Stephen Findlay, Claire Finkelstein, Nuno
Garoupa, Margaret Gilbert, Andrew Gold, Mark Greenberg, Jeffrey Helmreich, Barbara
Herman, Robert Hillman, Heidi Hurd, Aaron James, A. J. Julius, Avery Katz, Gregory
Keating, Gregory Klass, Russell Korobkin, Jody Kraus, John Lindo, Jeffrey Lipshaw, Daniel
Markovits, John Mikhail, Michael Moore, Liam Murphy, Nathan Oman, Michael Perry,
Margaret Jane Radin, Peter Railton, Donald Regan, Jennifer Rothman, Alan Schwartz,
Seana Shiffrin, Stephen Smith, Jason Solomon, Lawrence Solum, Suzanne Switzer, Thomas
Ulen, Lauren Willis, Gideon Yaffe, and Ekow Yankah. I would also like to thank Alexis
Dyschkant and Diedre Peters for their invaluable research assistance.
759

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760 The University of Chicago Law Review [83:759
principle that is distinctive to contract law. These surface values include

of fidelity, autonomy, liberty, efficiency, fairness, trust, reliance, and
Although many people think that contract law must involve trade-off
these values, contract as empowerment suggests that surface tensions
them are not always fundamental or real. So long as the complex syste
that govern contracts is fashioned in the right way, these doctrines can
gether to serve a deeper and normatively satisfying principle that is dis
contract. This framework can therefore be used to guide legal reform a
places in which market regulation is warranted by the principles of co
many different contexts of exchange - from those involving consumer
bor, finance, credit, landlord-tenant arrangements, home mortgages,
others.
Introduction
I. Contract as Empowerment: The Basic Theory
II. A Core Challenge for Modern Contract Theory
III. Empowerment in Action: How Contract as Empowerment Meets

This Core Challenge
A. Expectation Damages and the Standard Remedies
1. Expectation damages promote

reliance damages
2. Empowermen
breach
B. The Consideration Requirement
C. Freedom of Contract and Market Regulation
1. Freedom of contract and subjective choice
2. Freedom of contract and deviations from subjective intent
IV. Objections and Limitations
A. Completeness of the Theory
B. Distinctiveness of the Theory from Economic Accounts
C. Controversial Normative Foundations of the Theory
Conclusion
Introduction
As Professors Alan Schwartz and Robert Scott have observed:

"Contract law has neither a complete descriptive theory, explain-
ing what the law is, nor a complete normative theory, explaining
what the law should be."1 Contract law superficially reflects a plu-
rality of different values - like those of fidelity, autonomy, liberty,
1 Alan Schwartz and Robert E. Scott, Contract Theory and the Limits of Contract
Law , 113 Yale L J 541, 543 (2003).

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2016] Contract as Empowerment 761
efficiency, fairness, trust, reliance, and a

argues that many of contract law's deepe
theless be harmonized by reference to a
satisfying principle relating to empower
that contract law aims to empower peopl
tools to influence one another's actions
broad range of human needs and interest
tract as empowerment."
This Article argues that contract as em
terpretive advantages over competing th
positive argument proceeds in three stage
theory of contract as empowerment and
tures. Part II highlights one of the centr
for modern contract theory. No current
count for three core areas of common
standard remedies in contract law (which
damages and, to a lesser extent, on specif
centrality of the consideration doctrine;
sive tension between some doctrines, whic
to parties' subjective wills when determi
scope of contracts, and certain other d
courts to deviate from parties' subjective
concerns for fairness, public policy, and o
argues that contract as empowerment
harmonizing this entire constellation of d
ing the legally obligatory force of contract
Along the way, contract as empowerme
account of the expectation damages remed
2 See, for example, id ("Pluralist theories attempt to r

unitary normative theories pose by urging courts to p
faith, and the protection of individual autonomy."); Pete
Patterson, ed, A Companion to Philosophy of Law an
Blackwell 2d ed 2010) ("[T]he world of contract theory pr
mutually exclusive approaches with their own distin
tions."); Nathan B. Oman, The Failure of Economic Interp
Damages , 64 Wash & Lee L Rev 829, 831 (2007) ("[M]uch
contract law implicitly or explicitly assumes that [a cohe
impossible and that the law we have represents, at best,
dom and disconnected choices resulting from a series of
3 Professor Peter Benson argues that these three que
theory. Peter Benson, The Unity of Contract Lawy in P
Contract Law: New Essays 118, 118-19 (Cambridge 2001
that I am, however, offering a slightly expanded descript
tion, for reasons that I explain in Part II. Benson also a
tion of these doctrines. Benson, The Unity of Contract L

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moralizes the remedy - and suggests that it need not be

stood as permitting "efficient breach," as a number of eco
have proposed.4 Contract as empowerment offers a nove
more compelling account of the consideration requiremen
exists in the current literature.5 Finally, contract as em
ment offers a distinctive understanding of the appropria
of legal doctrines that make the scope or content of cont
obligations depend on facts other than parties' subjective
Objective approaches to interpretation provide one exam
this phenomenon.7 This Article is, however, even more co
with doctrines that either invite or require courts to pol
tracts for substantive fairness - as reflected in the modern un-
conscionability doctrine8 - or on public policy grounds.9 So long
as these doctrines are fashioned in the right way and with the
right limitations, contract as empowerment interprets them as
direct expressions of the basic principles that animate contract
law and modern market activity rather than as alien intrusions
into their core subject matter. Part IV, finally, addresses some
limitations and objections to the theory.
Contract as empowerment thus offers a fundamental rein-
terpretation of the basic principles that animate contract law
and modern markets. This interpretation is novel and improves
on both classical economic and traditional philosophical theories.
By establishing contract as empowerment's interpretive creden-
tials with respect to contract law's doctrinal core, I hope to prove
4 See Part III .A (offering an empowerment-based account of the expectation dam-

ages remedy, which posits additional remedies as unnecessary for empowerment and
suggests that moral equals could not reasonably reject a rule that requires contracting
parties to accept expectation damages and termination of a contract in lieu of perfor-
mance in many circumstances).
5 See Part III.B (offering an empowerment-based account of the centrality of the
consideration doctrine and exposing the link between this account of consideration and
the standard contract-law remedies); Part III.C (exposing the links between this account
of consideration, the objective theory of intent, and certain doctrines that invite courts to
police contracts for fairness).
6 See Part III.C (offering empowerment-based accounts of a broad range of doc-
trines that invite or require courts to determine the scope or content of contractual obli-
gations based on factors that go beyond the parties' subjective wills).
7 See Restatement (Second) of Contracts § 201 (1981) (setting forth the modified
objective approach to contract interpretation). See also generally Joseph M. Perillo, The
Origins of the Objective Theory of Contract Formation and Interpretation , 69 Fordham L
Rev 427 (2000).
8 See Restatement (Second) of Contracts § 208 (1981) ("Unconscionable Contract or
Term"); UCC § 2-302 (ALI 2012) ("Unconscionable Contract or Clause").
9 See Restatement (Second) of Contracts §§ 178-99 (1981).

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the usefulness of extending the theory to

er range of doctrinal questions.
I. Contract as Empowerment: The Basic Theory
Contract as empowerment begins with a simple observat

people sometimes have good reasons to use promises as too
induce other people to make return promises or engage in
ous actions in return. The effectiveness of promises for t
purposes will typically depend on whether the specific prom
trust the specific promisors to fulfill them.10 Interpersona
of this kind can sometimes be generated in informal ways,
especially among relative strangers in many modern settin
is often lacking absent law.11 When this is the case, contra
forcement can therefore empower people to use promises a
to influence one another's actions and thereby to meet a b
range of human needs and interests.12
This form of empowerment is both personal and interpe
al. It is personal insofar as it concerns the ability of indiv
people to use promises as tools to meet their personal need
interests. It is interpersonal insofar as it concerns the ability o
dividual people to use promises as tools to influence other p
10 See Ernst Fehr and Bettina Rockenbach, Detrimental Effects of Sanctio

Human Altruism , 422 Nature 137, 137 (Mar 13, 2003) ("The crucial feature of
change is that the parties involved have to trust each other."); Anthony J. Be
Promises, Trust , and Contract Law , 47 Am J Juris 25, 26 (2002) ('The incentive
on a promise exists only to the degree that a promise is trustworthy.").
11 See, for example, Simon Deakin, Christel Lane, and Frank Wilkinson, Co
Law , Trust Relations , and Incentives for Co-operation: A Comparative Study , i
Deakin and Jonathan Michie, eds, Contracts, Co-operation, and Competition 10
23, 125 (Oxford 1997) (suggesting that contract law should be sensitive to the im
roles that trust and cooperation play in increasing firms' efficiency) .
12 In saying this, I do not mean to suggest that it is the legal sanction tha
always motivate people to respond to contracts. People who have a sense of legal
tion will often respond directly to the perceived authority of legal rules, along wi
who have a sense that legal sanctions would be warranted. See Robin Bradley K
Deep Structure of Law and Morality, 84 Tex L Rev 877, 880 (2006) ("[W]e are al
vated by a sense of obligation, which is not reducible to instrumental reasoning. .
sense of obligation gives rise to characteristic patterns in our social lives and str
a number of our interpersonal actions and reactions to one another."). Legal sa
can also provide an assurance of performance for those who are less intrinsically
vated by the law's authority. As Professor Stewart Macaulay's famous study
contractual Relations in Business: A Preliminary Study , has shown, even com
entities typically respond directly to perceived rights and obligations that arise fr
tracts and to equitable concerns that arise within the relationships created by co
Threats of legal sanction are typically made explicit only rarely and only when t
lations break down. Stewart Macaulay, Non-contractual Relations in Business: A P
inary Study , 28 Am Sociological Rev 55, 60-62 (1963).

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actions. Empowerment should also be understood as a

capability, as Professors Amartya Sen and Martha Nussb
have defined that term.13 When contractual empowerm
ists, it gives people the freedom and ability to achieve a
range of valuable beings and doings by contracting.
Empowerment of this kind can prove valuable in a n
of different contexts, including outside the formal mark
Consider, for example, the famous case of Hamer v Sidwa
which an uncle used a legally enforceable promise as a to
induce his nephew to refrain from drinking liquor, using to
swearing, and gambling until the nephew turned twenty
This was not an arm's-length transaction in a formal ma
and the uncle's motivations in Hamer were apparently a
partly altruistic (to help his nephew) rather than purely
interested.16 Still, the court held that the promise was
forceable contract, and the availability of legal enforc
mechanisms might have helped the uncle generate the t
needed to influence his nephew's actions over such a long
of time with this promise.17 If so, then contract law was
ering in the technical sense used here: it enabled the un
use a legally enforceable promise to influence his nephew
tions and thereby to promote a real human need or inter
contract did this even though it did not arise from a ty
market transaction.
As important as contractual empowerment can be in some
nonmarket contexts, it has become especially critical for human
flourishing in the modern world as modern market activity and
personal dependence on it have become increasingly robust,
13 See Amartya Sen, Development as Freedom 18-20 (Knopf 1999); Martha C.

Nussbaum, Creating Capabilities: The Human Development Approach 17-45 (Belknap 2011).
14 27 NE 256 (NY 1891).
15 Id at 256.
16 See Hamer v Sidway , 11 NYS 182, 184 (NY Sup 1890).
1 ' Of course, one might question whether legal enforceability was needed tor trust
in this particular case,given that the promise arose in a family context. In most intimate
and family settings, I do not believe that legal enforcement mechanisms are necessary
for promises to work. See Part III.B (citing this fact as an explanation for why social and
informal promises are typically not legally enforceable). Still, legal enforcement mecha-
nisms may have been empowering in Hamer because the uncle was trying to induce a
significant set of actions over an extremely long period of time. Hamer , 27 NE at 257-58.
When the promise was made, it was not clear that the uncle would even live long enough
to see his nephew fully perform - in which case the promise might work only if the neph-
ew could trust that he had a legal right against the uncle's legal estate. This is, in fact,
how the case ultimately came to court. See id at 256.

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globalized, and potentially welfare enhanc

pend on a vast network of legally enforc
numerous goods and services from the m
radically reshaped human life in many
world.19 It has allowed for much greater di
zation, and hence freedom from want for m
ple who can depend on readily available t
to obtain a broad range of goods and service
much freer to develop their own specialized
dom can help them achieve the best lives fo
It follows that promisors who seek to
to influence others' actions have persona
to favor the promises' legal enforceme
thing to say that people have instrument
tract enforcement and quite another to sa
ate genuine legal obligations. This differ
contract law purports to generate genu
just instrumental reasons for action. Hen
ry of contract should explain this featur
18 See Joseph Henrich, et al, Markets, Religion, Comm

of Fairness and Punishment , 327 Science 1480, 1480 (2
gests that modern prosociality - including large-scale soc
larly engage in mutually beneficial transactions - is "not
psychology, but also reflects norms and institutions,"
world religions, "that have emerged over the course of h
Growth and Development, The Growth Report: Strategie
clusive Development 25 (World Bank 2008) (discussing ma
high, sustained economic growth); id at x ("[S]ustained [e
essential for things that people care about: poverty redu
education, health, and the opportunity to be creative.").
19 See CGD, The Growth Report at 29 (cited in note
economists have acquired a deeper appreciation of the un
mature markets work. These institutions define property
vey information, and bridge informational gaps between
the other direction, Professor Douglass C. North has obse
ties to develop effective, low-cost enforcement of contra
of both historical stagnation and contemporary underde
Douglass C. North, Institutions, Institutional Change a
(Cambridge 1990).
20 For a classic discussion, see Adam Smith, 1 An I
Causes of the Wealth of Nations 13-30 (Liberty Class
Skinner, and W.B. Todd, eds).
21 This is a theme that Professor Milton Friedman d
ism and Freedom 7-21 (Chicago 1962). This work has beco
an thinking, but one need not be a libertarian to accep
enhancing properties. For a discussion of Friedman's
Pearce, The Legal Profession as a Blue State : Reflections
dence, and Legal Ethics , 75 Fordham L Rev 1339, 1359 (2

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are some of the main differences between instrumental reasons

and obligations?
Instrumental reasons are not owed to anyone else, whereas
obligations are. Obligations give some other person or group the
authority to demand compliance with a rule or standard.22 Un-
like instrumental reasons, which can always be outweighed by
other instrumental reasons, obligations have the authority to
override or exclude some instrumental reasons.23
Because of facts like these, failures of instrumental rational-
ity typically warrant different reactions than breaches of obliga-
tions. Failures of rationality can invite rational criticism, but no
one typically has the authority to demand perfect instrumental
rationality from another person.24 Breach of a contractual obliga-
tion will, by contrast, typically permit not just criticism but also
private demands for compliance or remediation, backed by the
coercive power of the state.
22 Although the term "obligation" can be used in different ways, I believe this re-
quirement is a defining feature of its core meaning. I thus agree with Professor Stephen
Darwall that "[t]here can be no such thing as moral obligation and wrongdoing" - at least
in one core, familiar sense - "without the normative standing to demand and hold agents
accountable for compliance." Stephen Darwall, The Second-Person Standpoint: Morality,
Respect , and Accountability 99 (Harvard 2006). Although people sometimes use the
terms "moral wrong" and "moral obligation" to refer to a wider class of phenomena, the
term "legal obligation" is almost never used so widely. When I ask whether contract laws
can produce "genuine legal obligations," I am therefore asking whether they can give
contracting parties the genuine authority to demand compliance with a contract that is
backed by the coercive power of the state.
23 This point has been made variously, and sometimes with different terminology,
by many theorists. See, for example, id at 91-118; Joseph Raz, Practical Reason and
Norms 80-84 (Oxford 1999) (describing legal obligations as generating exclusionary rea-
sons and exclusionary reasons as having a mandatory or required aspect); David O.
Brink, Kantian Rationalism: Inescapability, Authority, and Supremacy , in Garrett Cullity
and Berys Gaut, eds, Ethics and Practical Reason 255, 259-61 (Clarendon 1997); H.L.A.
Hart, Commands and Authoritative Legal Reasons , in H.L.A. Hart, Essays on Bentham:
Studies in Jurisprudence and Political Theory 243, 253 (Clarendon 1982) (describing le-
gal obligations as "peremptory" and tying this to Professor Joseph Raz's conception of an
exclusionary reason).
24 As Darwall correctly explains, the overriding or exclusionary features of obliga-
tion are only part of their authority, "since there can be requirements on us that no one
has any standing to require of us." Darwall, The Second-Person Standpoint at 13 (cited
in note 22). Darwall explains that:
We are under a requirement of reason, for example, not to believe propositions
that contradict the logical consequences of known premises. But it is only in
certain contexts, say, when you and I are trying to work out what to believe to-
gether, that we have any standing to demand that we each reason logically,
and even here that authority apparently derives from a moral or quasi- moral
aspect: our having undertaken a common aim.
Id at 13-14.

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If contracts are to generate genuine le

must therefore give contracting parties t
actions from other people. These demands
riding or exclusionary force and be legit
coercive power of the state. No number
can create an overriding authority26 tha
by the coercive power of the state, and, h
sons cannot explain the legally obligatory
their own.
To explain how contracts produce genuine legal obligations,
one must instead begin with a substantive account of obligation.
The one I favor is called a "contractualist" account, and it re-
flects one of the two major branches of social contract theory.26
25 See, for example, id at 14-15:

There is hence a general difference between there being normative reasons of
whatever weight or priority for us to do something - its being what we ought to
or must do - and anyone's having any authority to claim or demand that we do
it. If, say, God has the authority to demand that we comply with certain norms,
his authority to demand this cannot be reduced to any normative reasons that
the norms might themselves generate or entail, nor, indeed, to his knowledge
of these.
It is this fact that leads Raz to propose that law's authority to generate exclusionary rea-
sons depends on its epistemic capacity to help people identify what they ought to do bet-
ter than they could on their own. Joseph Raz, Authority, Law, and Morality , in Joseph
Raz, Ethics in the Public Domain: Essays in the Morality of Law and Politics 210, 214
(Clarendon rev ed 1994):
The first two theses articulate what I shall call the service conception of au-
thority. They regard authorities as mediating between people and the right
reasons which apply to them, so that the authority judges and pronounces
what they ought to do according to right reason. The people on their part take
their cue from the authority whose pronouncements replace for them the force
of the dependent reasons.
But I agree with Darwall that this account fails to capture the authority of interpersonal
demands and so cannot be the right account of genuine legal obligations. See Darwall,
The Second-Person Standpoint at 12 n 25 (cited in note 22) ("In my view, failure to ob-
serve this distinction [between counsel and command] infects Joseph Raz's account of
authority.").
26 Speaking at the most general level, social contract theorists seek to account for
some normative concepts in terms of "principles that are, or would be, the object of a
suitable agreement between equals." Stephen Darwall, Introduction , in Stephen
Darwall, ed, Contractarianism / Contractualism 1, 1 (Blackwell 2003). There are two ma-
jor branches of social contract theory: the "contractarian" and "contractualist" branches.
"Contractarians take[] the [relevant] principles to result from rationally self-interested
bargaining," whereas "contractualists" take "the relevant agreement [to be] governed by
a moral ideal of equal respect, one that would be inconsistent, indeed, with bargaining
over fundamental terms of association in the way contractarianism proposes." Id at 4.
Contractualist theories can, in turn, be specified in a number of different ways. Promi-
nent versions of contractualism can be found in the works of Professors Stephen

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On the version of contractualism that I endorse, ordinary

not only are instrumentally motivated but also have a s
justice and interpersonal obligation.27 This is, in fact, an
part of our evolved moral psychologies, and it animates
plex but highly familiar form of human social life and i
tion. I therefore accept the contractualist view that ord
people, who develop in normal social circumstances, typ
acquire some moral motives that are not merely instrum
But I do not accept this psychological claim on faith. Ra
draw on contemporary developments in evolutionary gam
ry and moral psychology to argue for the claim and to
characterize the noninstrumental structure of these motives.
In The Deep Structure of Law and Morality, for example, I
argue that humans have a natural sense of obligation, which at-
taches most people to shared rules that require self-sacrifice.28
This feature of human psychology animates a complex and high-
ly structured form of human social life and interaction that can
be scientifically characterized.29 The human sense of obligation
Darwall, Immanuel Kant, John Rawls, Jean-Jacques Rousseau, and Thomas Scanlon.
See id at 5-7. I myself am a contractualist about genuine legal obligations. I differ from
some other contractualists, however, in that I employ contemporary developments in
evolutionary game theory and moral psychology to specify the motives and complex
forms of social life that go into responding to genuine obligations.
27 A number of contractualists have suggested that most people have moral motiva-
tions of some kind. See, for example, Darwall, The Second-Person Standpoint at 151-81
(cited in note 22) (describing the psychology of what he calls the "second-person stand-
point" as a feature of human nature that motivates action and that is often responsive to
the perceived authority of principles and interpersonal demands - not just the desirabil-
ity of outcomes); John Rawls, A Theory of Justice 46 (Belknap 1971). On this type of
view, each person beyond a certain age and possessing the requisite intellectual capacity
develops a sense of justice under normal social circumstances. In the course of their de-
velopment, ordinary people acquire a skill in judging things to be just and unjust, and in
supporting these judgments by reasons. Moreover, ordinarily people have some desire to
act in accord with these pronouncements and expect a similar desire on the part of oth-
ers. Clearly this moral capacity is extraordinarily complex. See T.M. Scanlon, What We
Owe to Each Other 191-97 (Belknap 1998) (suggesting that ordinary people are motivat-
ed to act not only rationally but also in ways that they can justify to others as conform-
ing to principles for the general regulation of behavior that others, similarly motivated,
cannot reasonably reject).
28 Kar, 84 Tex L Rev at 918-19 (cited in note 12).
29 For some examples of this scientific characterization relevant to law, see general-
ly id; John Mikhail, Elements of Moral Cognition: Rawls ' Linguistic Analogy and the
Cognitive Science of Moral and Legal Judgment (Cambridge 2011); John Mikhail, Uni-
versal Moral Grammar: Theory, Evidence and the Future , 11 Trends in Cognitive Sci 143
(2007). See also Rawls, A Theory of Justice at 502-03 (cited in note 27):
[0]ne might ask how it is that human beings have acquired a nature described
by these psychological principles. The theory of evolution would suggest that it

14.139.214.181 on Fri, 10 Jul 2020 12:52:58 UTC
allows ordinary people to cooperate in gr

broad array of cooperative problems by re
system of perceived obligations30 - includin
tions. But this psychology is structured to
trinsic motivations to follow rules but also motivations to react
to deviations in ways that are perceived to be warranted.
Because of psychological facts like these, it is possible to dis-
tinguish the "reasonable" person from the "merely rational" person.
Whereas the merely rational person responds solely to instrumen-
tal reasons, the reasonable person has an additional motive: she is
inclined to seek out and abide by a mutually acceptable set of
is the outcome of natural selection; the capacity for a sense of justice and the
moral feelings is an adaptation of mankind to its place in nature.
As it turns out, this form of life is poorly understood as the mere result of individuals
pursuing outcomes that they take to be personally desirable - no matter how one charac-
terizes people's individual utility functions. See generally Kar, 84 Tex L Rev 877 (cited in
note 12). I have argued, instead, that the natural function of the human sense of obliga-
tion (namely, what it was naturally selected for over the course of human evolution and
prehistory, and therefore what it is particularly well suited to achieve) is to allow people
to resolve social contract problems flexibly. See id at 878. Because of this fact, the human
sense of moral and legal obligations has some (admittedly fallible) tendencies to track
principles that meet a contractualist test. See Robin Bradley Kar, The Two Faces of Mo-
rality: How Evolutionary Theory Can Both Vindicate and Debunk Morality (with a Spe-
cial Nod to the Growing Importance of Law), in James E. Fleming and Sanford Levinson,
eds, Evolution and Morality 31, 60-65 (NYU 2012) (describing these tracking features of
the human sense of obligation). But see id at 77-92 (describing some systematic ways
that these psychological capacities apparently fail to track the right properties and in-
stead generate what I call "moral illusions"). Hence, I accept on empirical grounds that
ordinary people are motivated to treat some other people as genuine sources of obliga-
tions and to interact with them in ways that exhibit noninstrumental forms of respect.
It would be nice if these psychological facts inclined people to treat all humans in
this way, but our evolutionary history appears to have generated some natural tenden-
cies toward parochialism instead. See Robin Bradley Kar, The Psychological Foundations
of Human Rights , in Dinah Shelton, ed, The Oxford Handbook of International Human
Rights Law 104, 129-34 (Oxford 2013). As is evident from both world history and the
psychological literature on in-group/out-group favoritism, many people are naturally in-
clined to limit this form of respect to perceived ingroup members and deny it to some
perceived out-group members. See, for example, Naoki Masuda, Ingroup Favoritism and
Inter group Cooperation under Indirect Reciprocity Based on Group Reputation , 311 J
Theoretical Bio 8, 9 (2012). I have argued that the law (and especially the recent emer-
gence of international law) can nevertheless promote the extension of these motivations
to more human beings. See Kar, The Psychological Foundations of Human Rights at
141-42 (cited in note 29).
30 For a detailed description of how this distinctive form of human social life and
interaction is structured, see Kar, The Psychological Foundations of Human Rights at
134-40 (cited in note 29). Although that article is focused on how international law can
promote this form of social interaction among otherwise parochially inclined people, it
describes the psychology and structure of social interaction among people with a sense of
interpersonal obligation and how these psychological attitudes work to resolve problems
of cooperation in great detail.

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rules for the general regulation of conduct and treat tho

as generating genuine obligations, given an appropriate
ance that all others will, too.31 Contractualists hold that
perceived obligations are then real when they reflect a sy
obligations that no one who is similarly motivated could
ably reject in light of the available alternatives.32 If no
31 Here, I am following, but building on, the orthodox way of distinguishin

tional person from the reasonable person. I define the "perfectly rational"
someone who reasons only and perfectly in accordance with the rules of form
choice theory - which is fundamentally instrumental in orientation. Perfectly rat
sons thus aim to maximize their subjective-preference satisfaction. They accept
revise their beliefs about the world but do not accept reasons to revise their pr
except to meet certain formal constraints, like those of logical consistency and tr
Of course, the perfectly rational person does not actually exist. See generally, for
Amos Tversky and Daniel Kahneman, The Framing of Decisions and the Psy
Choice , 211 Science 453 (1981). See also Shane Frederick, George Loewenstein
O'Donoghue, Time Discounting and Time Preference: A Critical Review, 40 J
351, 352-55 (2002). I therefore use the term "merely rational" to refer to the
counterparts of perfectly rational people. These people often deviate from perf
ality, either due to limits in rationality or to the reliance on various heuristics
Still, these people are thoroughly - if imperfectly - instrumental in their appr
life. For a description of such people, see Russell B. Korobkin and Thomas S. U
and Behavioral Science: Removing the Rationality Assumption from Law and Ec
88 Cal L Rev 1051, 1059 (2000) ("[PJersons subject to the legal system are seldo
less optimizers of their utility; rather, they often rely on a range of decision
shortcuts and heuristics.").
The reasonable person is, however, wired differently. She is also inclined to
and abide by fair and mutually acceptable rules for the general regulation of
given an appropriate assurance that all others will, too. For a classic discussi
distinction, see John Rawls, Kantian Constructivism in Moral Theory: Rationa
Autonomy , 77 J Phil 515, 528-30 (1980) (distinguishing reasonable people from
people). I further build on this orthodox distinction by specifying that the re
person - at least as I use the term here - treats these rules as generating genuin
tions. She is thus inclined to engage in a specific and highly structured form
social life and interaction with other people - so long as the governing rules m
tractualist test and there is sufficient reciprocity.
32 This way of articulating the contractualist test was first developed by S
although he typically speaks of evaluating "rules for the general regulation of
instead of "obligations." See, for example, T.M. Scanlon, Contractualism and Ut
ism , in Amartya Sen and Bernard Williams, eds, Utilitarianism and Beyond
(Cambridge 1982) ("An act is wrong if its performance under the circumstances
disallowed by any system of rules for the general regulation of behaviour whic
could reasonably reject as a basis for informed, unforced general agreement.")
term "obligation" instead of "rules for the general regulation of behavior" to
two points. First, here I am taking the contractualist forms of justification to be
ly appropriate for identifying genuine interpersonal obligations. Second, I beli
when comparing different systems of obligation in this context, one must un
how the human psychology of obligation typically functions. The variety of co
ism that I am espousing is thus distinct from some others in the literature.
When using contractualist tests to evaluate systems of obligation against th
ble alternatives, one alternative to consider is a system of moral and legal r
permits everything. This would be reflected in a shared view that there are n

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reasonably reject a system of legal obliga

that arise from this system of obligation
state coercion are justifiable to the partic
mands and coercion - and on grounds that
reasonably reject. Hence, ordinary people
to these purported obligations as obligatio
cause of any threats of sanctions or reput
Like all accounts of obligation, this one
versial.33 I will, however, assume this ac
turn to questions about its status at the e
I hope to have established by then - cont
plausibly offers the best way to harmoniz
central tensions, then this account offers
the best and most plausible justifications
tions as they currently exist.
With this background in mind, let us n
argument for contract as empowerment
forcement can instrumentally promote p
interests, empowerment interests can als
contractualist explanation of why some c
legally obligating. To see this, conside
made a promise in order to influence a
and thereby meet a real human need or in
gal authority to demand compliance is
this influence to work, then this promis
promise like this and reasonably reject
promisee the legal authority to demand c
promisor reasonably reject a rule that pe
invoke the state's coercive powers in case
moral or legal obligations. If, however, everyone were to

human life would be more "nasty, brutish, and short" fo
Hobbes famously observed. Thomas Hobbes, Leviathan 7
ed). Hence, in the real world as it exists today, no one ca
and legal principles that prohibit the unbridled pursuit o
cial morality and law can give rise to some genuine oblig
interested action and can motivate (reasonable) peopl
threat of sanctions.
33 For an important argument that this account of obligation applies to obligations

that have the practical authority that is currently under discussion, see Darwall, The
Second-Person Standpoint at 300-20 (cited in note 22). For an argument that law pur-
ports to have this practical authority, see generally Robin Bradley Kar, Hart's Response
to Exclusive Legal Positivism , 95 Georgetown L J 393 (2007). For an argument that con-
tractualist forms of justification apply to a special domain- namely, to what Scanlon
calls "what we owe to each other"- see Scanlon, What We Owe to Each Other at 191-97
(cited in note 27).

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is because a grant of private authority, backed by the c

power of the state, is needed for the promisor to ind
promisee to do something of value.
At least in these circumstances, private contractual de-
mands backed by the coercive power of the state are thus justifi-
able to the particular subjects of the demands in terms of their
own empowerment interests. If these promises are legally en-
forced, then they are more than just promises: they are also
genuine legal obligations, because they are governed by a sys-
tem of legal rules that no one can reasonably reject.
The core idea of contract as empowerment can now be stated
in simple terms:
All other things being equal, contract-law rules should be
set up to empower people to use promises as tools to induce
others to action and thereby meet a broad range of human
needs and interests. The law should therefore construe
promises as generating genuine contractual obligations
when two basic conditions are met: first, when one party
makes a promise in order to influence another person's ac-
tions and thereby promote a real human need or interest;
and second, when this influence reasonably depends on
granting the promisee the legal authority to demand com-
pliance. Absent this form of justification,34 the law should
not enforce promises as true contracts.
(As with any interpretive theory of contract, this theory thus
provides not only a justification and explanation of contract law
but also a way of demarcating the appropriate bounds of what is
appropriately deemed a "true contract.")
In what follows, I say that contract law is "personally em-
powering" when it enforces promises that meet the two criteria
from the last paragraph and that contract law is "equally em-
powering" when its rules are consistent with the equal personal
empowerment of all.35 If a set of contract-law rules is personally
34 I thank Professor Brian Bix for pushing me to clarify this exception in the initial
statement of the theory. Because contract as empowerment is rooted in a more general
account of obligation, it does not rule out the possibility of other grounds for the legal
enforcement of some other classes of promises. Indeed, I outline some of those other rea-
sons elsewhere. See, for example, Part III.B. Contract as empowerment does, however,
identify a distinctive class of empowerment interests, which can be cited in a special con-
tractualist explanation for why most contract-law rules look the way that they do.
35 I would like to thank Professor Dan Markovits for pressing me to clarity these
different definitions of empowerment and the relations between them.

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but unequally empowering, and if a mor

set is available, then that fact should giv
facie reasons to reject the less equally emp
the more equally empowering one. To pr
ligations for all, contract law must there
ering, unless deviations from this ideal are ones that no one
could reasonably reject in light of the available alternatives.36
Despite its appearance of simplicity, contract as empower-
ment differs from other leading contract theories in ways that
can have far-reaching implications. For example, unlike contract
as promise, contract as empowerment does not recommend the
legal enforcement of the moral obligation to keep one's promis-
es.37 It focuses instead on a more limited class of promises: those
that require legal enforcement in order to empower promisors to
meet a broad range of human needs and interests by influencing
other people's actions with legally enforceable promises. As I
will detail in later sections, contract as empowerment can thus
explain why social and informal promises are not typically en-
forced,38 why the consideration requirement is so central to con-
tract law,39 and why specific performance is not the typical rem-
edy for breach of contract.40 These features of contract law can
be hard to explain if one views contract as promise.
36 This does not mean that contract-law rules must be equally empowering. Consider,
in this regard, Rawls's famous argument for the maximin principle, which endorses a prin-
ciple for the regulation of the basic structure of society that endorses certain forms of
economic inequality so long as these inequalities are part of a system of social coopera-
tion that conduces to the advantage of the least well off. Rawls, A Theory of Justice at
152-57 (cited in note 27). Rawls's argument for the maximin principle is a contractualist
argument, and it suggests that certain inequalities are in fact justifiable to each person.
In the case of contract law, it is possible that rules that are unequally empowering in
some ways are still ones that no one could reasonably reject in light of the available al-
ternatives - either because the ideal of equal empowerment is too difficult or costly to
achieve in practice or because the system of rules provides those who are subject to it
with advantages that outweigh the inequalities that persist. What is important about
the contractualist standpoint is, however, the baseline. Deviations from equal empower-
ment must be justified to each person , viewed as free and equal moral agents. On this
view, the mere fact that a system of rules conduces to the advantage of each is not
enough to outweigh unequal empowerment unless every alternative set of rules that is
more equally empowering is even worse for each subject of the inequality.
37 For the classic statement of promise-based accounts of contract, see Charles
Fried, Contract as Promise: A Theory of Contractual Obligation 7-27 (Harvard 1981). For
a more recent and wide-ranging discussion, see generally Symposium, Contract as Prom-
ise at 30: The Future of Contract Theory , 45 Suffolk U L Rev 601 (2012).
3® See Part III.B.
39 See Part III.B.
40 See Part III.A.

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Unlike contract as promise, contract as empowerment als

fers a substantive argument for the legally obligating charac
this subclass of promises. It therefore avoids the problem
ing to explain why the morality of promise keeping shou
gally enforced when some other aspects of morality (lik
purportedly immoral acts that do not harm others) should n
Unlike will-based theories of contract, contract as em
erment does not begin with a fundamental respect for p
subjective choices either.42 It is instead concerned with e
erment, which is a capability to achieve valuable beings
ings. All other things being equal, contract as empowerm
therefore recommends giving parties' subjective choices w
er legal consequences will best promote these capabilities
real world and are most consistent with the equal empow
of all. Sometimes, this will require holding parties to all
only what they have subjectively willed, but at other tim
later sections will show - it will require holding them to
tions that do not perfectly mirror their subjective wills.43 I
41 This is an issue because the fact that something is morally obligatory does
erally mean that it is morally permissible to use state coercion to force moral a
fact can create special problems for normative theories of contract, because co
typically allows expectation damages or specific performance that goes beyond
needed to compensate parties for any harms caused by their reliance. It can the
pear that contract remedies violate some moral limitations on the law, such as Joh
Mill's famous "harm principle" - or the principle that the law should get involved
moral wrongs that generate harms. John Stuart Mill, On Liberty , in John Stuart
Liberty and Other Writings 1, 13 (Cambridge 1989) (Stefan Collini, ed). For go
sions of these issues, see Stephen A. Smith, Contract Theory 69-78 (Oxford
dressing moral objections to promissory theories). See also generally Brian H.
ries of Contract Law and Enforcing Promissory Morality: Comments on Charles
Suffolk U L Rev 719 (2012).
A2ś For a discussion of the will-based theory of contract, see Duncan Kenne
the Will Theory to the Principle of Private Autonomy : Lon Fuller's " Conside
Form", 100 Colum L Rev 94, 115 (2000) ("The will theory of contract liability
all the rules of law that compose the law of contracts can be developed from
proposition that the law of contract protects the wills of the contracting parties.
R. Cohen, The Basis of Contract , 46 Harv L Rev 553, 554-58, 575-78 (1933)
theory was more central to nineteenth-century common-law thought tha
thought. See Max Radin, Contract Obligation and the Human Will , 43 Colum L
575-77 (1943) (discussing the centrality of the will theory to nineteenth
thought). As I explain in Part III.C.l, the importance of the will-based theory t
law is, however, still granted in some form in almost all modern theories of cont
43 See Part III (offering empowerment-based accounts of, among other thin
mandatory aspects of contract remedies, the consideration requirement, the im
of good faith and fair dealing, the various objective approaches to interpretatio
existence of some market regulations).

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circumstances, the law may even have

ability to contract to promote their empow
Contract as empowerment can thus explain cases like
Dougherty v Salt.45 In this case, an aunt used a highly formal-
ized written instrument to promise her nephew money because
of his past good behavior.46 The aunt clearly intended for her
promise to be legally enforceable, and one might therefore think
that its legal enforcement would be "empowering" in one sense
of this word. But this is not the sense of "empowerment" that I
am employing here. As I use the term, the aunt did not have any
genuine empowerment interests at stake in the legal enforce-
ment of her promise, because she was not trying to influence her
nephew to act in any ways at all - let alone in ways that reason-
ably required legal enforceability of her promise for the influ-
ence to work. She was not seeking to influence the nephew to
engage in any valuable beings or doings in reliance on a legally
binding promise. She was merely rewarding him for past ac-
tions, and, hence, there were no empowerment-related grounds
to treat this instrument as a legally enforceable contract. I
therefore endorse the court's holding that this was not a legally
enforceable contract.47
For similar reasons, contract as empowerment differs from
theories that try to reduce contract law to an aspect of proper-
ty.48 Property can often be alienated at will,49 but not all acts of
alienation seek to influence other people's actions by means of
legally enforceable promises. Hence, not all acts of alienation re-
quire legal enforcement to promote either personal or equal em-
powerment as I use those terms. There are, on the other hand,
other areas of the law that give people legal mechanisms to
44 See Part III.C.2 (offering empowerment-based accounts of certain limitations on

freedom of contract that should arise in the fair-lending context).
45 125 NE 94 (NY 1919).
46 Id at 95.
47 The court found that there was no contract because the aunťs promise lacked
consideration. Id.
48 See Part III.C.2 (offering an empowerment-based account of objective approaches

to interpretation).
49 Professor Stephen Smith calls these theories "transfer" theories because they
seek to understand contracts as reflecting contemporaneous transfers rather than prom-
ises of transfers in the future. Smith, Contract Theory at 97-99 (cited in note 41) (dis-
cussing transfer theories and some problems they face). For examples of this approach,
see Randy E. Barnett, A Consent Theory of Contract , 86 Colum L Rev 269, 292-94 (1986);
Benson, Contract at 47-49 (cited in note 2); Peter Benson, The Idea of a Public Basis of
Justification for Contract , 33 Osgoode Hall L J 273, 300-01 (1995).

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alienate their property without necessarily seeking to inf

other people's actions. Trusts and estates provide good ex
ples. Trusts and estates can be used to alienate property w
seeking to influence other people's actions through a lega
forceable promise, and they are therefore properly governed
different set of doctrines than contract law.50 Trusts and estates
are more highly sensitive to features of the will - as is reflected
in the terminological distinction between "wills" and "contracts."
Finally, unlike contract as reliance, contract as empower-
ment does not seek to interpret contract law by focusing on the
reliance interests of promisees.51 It focuses instead on the em-
powerment interests of promisors. As I explain later, I believe
that reliance interests can still generate non-e mpowerment-
related grounds to permit parties to demand legal compensation
for certain harms that are caused by reasonable reliance on oth-
ers' promises.52 Reliance interests can therefore explain the law
of promissory estoppel but not of contract. The fact that these
two explanations differ suggests that claims for promissory es-
toppel should be treated differently from claims for breach of
contract. In fact, contract as empowerment suggests that true
contracts - that is, promises that are supported by legal consid-
eration - should be treated differently both from promises that
merely induce detrimental reliance and from unilateral promis-
es of gifts.53
60 See, for example, Restatement (Third) of Property: Wills and Other Donative
Transfers §§ 3.1-3.9 (1999) (addressing the execution of wills); Restatement (Third) of
Trusts §§ 10-16 (2003) (addressing the creation of trusts).
51 For classic works that develop aspects of the view that contracts should be un-
derstood to protect promisees' reliance interests, see generally P.S. Atiyah, The Rise and
Fall of Freedom of Contract (Clarendon 1979); Grant Gilmore, The Death of Contract
(Ohio State 1974); L.L. Fuller and William R. Perdue Jr, The Reliance Interest in Con-
tract Damages: 1, 46 Yale L J 52 (1936). The idea that reliance interests are important to
contracts goes back even further, however. For example, even before publication of § 90
of the Restatement (First) of Contracts, some people - like Professor Samuel Williston -
were inclined to view reliance as a substitute for consideration, thus qualifying promises
as legally enforceable contracts. See Peter Linzer, et al, eds, A Contracts Anthology 339-
49 (Anderson 2d ed 1995) (representing Williston's comments from the American Law
Institute debates).
S2 See Part III.B.
53 In saying this, I am using the term "true contract" in a way that differs fro
how the Restatement (Second) of Contracts defines "contract." The Restatement
fines a "contract" as "a promise or a set of promises for the breach of which the
gives a remedy, or the performance of which the law in some way recognizes as a
ty." Restatement (Second) of Contracts § 1 (1981). This definition is thus broad enou
to include certain claims that I do not consider claims for true breaches of contr
for example, many claims for promissory estoppel or covenants. I use a diffe

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II. A Core Challenge for Modern Contract Theory
Having introduced the basic theory of contract as emp

ment, the remainder of this Article argues that it offers im
interpretive advantages over other theories of contract -
economic and philosophical. To set the stage, this Part be
identifying a core constellation of doctrines, which crystalliz
of the central challenges for modern contract theory. I
that this constellation offers an especially probing test fo
peting interpretations of contract. Part III will then arg
contract as empowerment is uniquely capable of harmoni
this entire constellation of doctrines while explaining the
obligatory force of contracts.
When Professors Schwartz and Scott observe that
"[cļontract law has neither a complete descriptive th
plaining what the law is, nor a complete normative
plaining what the law should be,"54 what precisely i
of the difficulty? Contract law differs in nuance from
to jurisdiction and over different periods of time. Th
ences are not the real source of the problem, howev
as Professor Benson has recently observed:
[I]n both the common law and civil law the defin
and mutual connections between the various prin
contract law are for the most part well-settled and
subject to controversy. Indeed, despite differences
lation, the main elements of the law of contract ar
ly similar in both legal systems, and these system
directly or by derivation, prevail throughout mo
contemporary world.55
Still, "[t]he same cannot be said [ ] of efforts to und
law at a reflective level."56
terminology than the Restatement because I believe that the best interpretation of
these different legal claims shows them to reflect interests that are fundamentally dif-
ferent. It aids the understanding to keep these distinctions clear, rather than viewing
every legally enforceable promise as a true contract. Indeed, keeping these distinctions
clear would likely be helpful for courts as well.
54 Schwartz and Scott, 113 Yale L J at 543 (cited in note 1).
55 Benson, The Unity of Contract Law at 118 (cited in note 3).
56 Id. Benson further explains:
In common law jurisdictions at least, there is at present no generally accept-
ed theory or even family of theories of contract. To the contrary, there exist
only a multiplicity of competing theoretical approaches, each of which, by its
very terms, purports to provide a comprehensive yet distinctive understanding

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Although this problem is general, this Article focuse

contract law as it appears in common-law jurisdictions. G
the common law's well- settled doctrinal core, Benson ident
three questions that any general theory of contract should
dress in this context:
[1] The first question asks why expectation damages and

specific performance, the so-called "normal" contract reme-
dies, should be given for breach of a wholly executory and
unrelied-upon agreement. [2] The second focuses on the ne-
cessity and the centrality of the doctrine of consideration:
what might be the rationale for this long- established condi-
tion of contract formation? [3] And the third question asks
whether contractual liberty, as embodied in the traditional
principles of contract formation, is compatible with contrac-
tual fairness, as reflected in, say, the more recently devel-
oped doctrine of unconscionability.67
These combined questions offer an appropriate framework
for the current analysis for four reasons. First, as later sections
explain, each of these questions raises independent and well-
known puzzles about the shape of modern contract law.58 These
puzzles are central enough to the subject matter of contract law
that some would say they are defining.59
of contract but which, precisely for this reason, is incompatible with the
others.
Id.
57 Id at 119.
58 See, for example, Fried, Contract as Promise at 28-39, 103-09 (cited in note 37)
(suggesting that the consideration requirement and unconscionability doctrines present
special problems for the coherence of modern contract law); Seana Valentine Shiffrin,
The Divergence of Contract and Promise , 120 Harv L Rev 708, 722-24 (2007) (discussing
some puzzling features about why the standard expectation damages remedy diverges
from the morality of promise); Charles J. Goetz and Robert E. Scott, Enforcing Promises:
An Examination of the Basis of Contract , 89 Yale L J 1261, 1261-64 (1980) (discussing
the puzzling nature of the consideration requirement and standard remedial rules);
Anthony T. Kronman, Contract Law and Distributive Justice , 89 Yale L J 472, 472-75
(1980) (addressing the distinctive and potentially puzzling role of substantive fairness
concerns in contract law).
59 See, for example, Benson, The Unity of Contract Law at 153 (cited in note 3) ("No
doctrine of the common law of contract is more distinctive of it or longer and more con-
tinuously established than the requirement of consideration."); id at 121 ("The link be-
tween consideration and the availability of the expectation measure is taken to be the
central and distinguishing feature of contractual liability."). See also Douglas Baird, Re-
constructing Contracts 3 (Harvard 2013) (noting that "[f]or Holmes, the law of contract
revolved around three central ideas" - including the consideration requirement, the cen-
trality of the expectation measure of damages, and the various objective approaches to con-
tract formation); id at 5 (suggesting that "[t]he core principles that Holmes put forward [as

14.139.214.181 on Fri, 10 Jul 2020 12:52:58 UTC
Second, these combined questions refle

seemingly intractable tensions in modern
most current theories answer some of the
cally do so by pointing to some single va
expression in contract law - like the value
liberty, efficiency, fairness, trust, relian
ues like these famously conflict with on
most current contract theories answer so
tions in ways that make it difficult or im
rest in a satisfying manner. Together, th
tallize one of the deepest challenges for m
Third, the doctrinal facts that generat
have proved remarkably stable, at least
common-law jurisdictions with advanced
Within the United States, for example, t
remedies (question 1) and the considerati
tion 2) have survived influential prophecies concerning the
death of contract and numerous recommendations for reform by
leading experts.62 The tension between doctrines that promote
definitive of the core of contract] are still very much with us, but their logic and limits
are now much better understood," and organizing the reconstruction of contract law around
these basic principles and questions); Smith, Contract Theory at 387 (cited in note 41):
[T]he main reason contract theorists have devoted special attention to reme-
dies is that thinking about remedies raises important theoretical questions. . . .
[T]he analytic debate about whether contractual obligations are best under-
stood as promises, reliance-based obligations or something else [ ] has been
conducted, to a significant degree, as a debate about remedies. So too, what was
earlier described as the normative debate about whether contractual obligations
are justified on the basis of individual rights or social utility [ ] has frequently al-
so been conducted, particularly in recent years, as a debate about remedies.
(citation omitted). The claim that doctrines policing bargains for contractual fairness are
partly definitive of contract law is more controversial. But as I argue in Part III.C.2, his-
tory suggests that the actual rules governing contractual exchanges have typically re-
flected some blend of commitments to contractual freedom and fair exchange. It is thus
better to consider this feature of contract law as part of the relevant explanandum.
60 See Part III.B.
61 See Benson, The Unity of Contract at 153 (cited in note 3).
62 With respect to the consideration requirement, Professor Grant Gilmore pro
sized its demise. Gilmore, The Death of Contract at 76-81 (cited in note 51). Prof
Charles Fried has argued for its abolishment. Fried, Contract as Promise at 28-39 (ci
note 37). In 1981, Professor Charles L. Knapp noted that promissory estoppel, which
nates the consideration requirement and allows for reliance damages, had "become pe
the most radical and expansive development of this century in the law of promissory li
ity." Charles L. Knapp, Reliance in the Revised Restatement: The Proliferation of Prom
ry Estoppel , 81 Colum L Rev 52, 53 (1981). Yet in a review of these developments a
two decades later, Knapp suggested that a "reassessment appear[ed] to be in order
that "1980 may have been the high-water mark for promissory estoppel." Char

fff:ffff:ffff:ffff:ffff:ffff on Thu, 01 Jan 1976 12:34:56 UTC
contractual liberty and those that promote contractual

(question 3) has played itself out in more-diverse ways. S
spite a long history of divisive debate over how this ten
should be resolved, the tension has persisted in some for
common-law systems with advanced market economies.6
other things being equal, a general interpretation of con
law that harmonizes this entire constellation of doctrin
does so in terms of a single normatively satisfying prin
should therefore be preferred over the alternatives.
Fourth, many of the doctrines that give rise to thes
questions reflect mandatory rules. Mandatory rules are
that parties cannot freely contract around, whereas defau
are ones that parties can.64 Mandatory rules present special
challenges to many theories of contract because they appear to
conflict with basic principles of freedom of contract.65
When it comes to contract remedies, parties can, for exam-
ple, insert liquidated damages clauses into their contracts and
thereby try to specify the damages that will ensue from a
breach.66 Courts will not defer to these clauses, however, if they
are deemed "punitive" in the sense that they exceed a reasona-
ble estimation of the compensation needed to protect parties'
Knapp, Rescuing Reliance: The Perils of Promissory Estoppel , 49 Hastings L J 1191, 1192
(1998). As for the standard contractual remedies, some theorists like Professor Seana
Shiffrin have argued on moral grounds that specific performance may be a more appro-
priate remedy than expectation damages. Shiffrin, 120 Harv L Rev at 722-24 (cited in
note 58). Nonetheless, the standard remedy for breach of contract is still expectation
damages. See Restatement (Second) of Contracts § 347 (1981) (defining the general
measure of damages as the loss in value caused by breach, plus any incidental and con-
sequential losses, less any costs and losses that were avoided).
63 See, for example, Kronman, 89 Yale L J at 473 (cited in note 58) ('There are, in
fact, many rules of contract law that are deliberately intended to promote a distributional
end of some sort."); Elizabeth Anderson, Toward a Post Cold-War Political Economy
(Left2Right, Jan 9, 2005), archived at http://perma.cc/F7XA-X6K8 (describing these ten-
sions as integral parts of advanced capital market economies and noting that we therefore
"tend to think that the economies of the advanced democracies in North America and
Europe are 'mixed' in some kind of combination of laissez-faire capitalism and socialism").
64 See, for example, Ian Ayres, Regulating Opt-Out: An Economic Theory of Altering
Rules , 121 Yale L J 2032, 2035 (2012) (defining mandatory and default rules).
65 See, for example, Schwartz and Scott, 113 Yale L J at 619 (cited in note 1) ( The
welfare- maximization goal that we advance . . . cannot support many of the mandatory
rules that today govern much contracting behavior between firms."); id:
A normative theory of contract law that takes party sovereignty seriously
shows that much of the expansion of contract law over the last fifty years has
been ill-advised. Contract law today is composed of a few default rules, many
default standards, and a number of mandatory rules. Most of the mandatory
rules should be repealed or reduced to defaults.
66 Restatement (Second) of Contracts § 356(1) (1981).

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expectation interests.67 Expectation dam

remedy for breach of contract. Hence, ex
cally have some mandatory status. But th
question: How is this mandatory aspect of contract law con-
sistent with freedom of contract?
In common-law jurisdictions, the consideration requirement
is also a mandatory rule. At least in the typical case, parties
cannot simply waive this requirement and turn a unilateral
promise of a gift into a legally enforceable contract.68 This fact
thus raises similar questions about the relationship between the
consideration requirement and freedom of contract.
Finally, at any given time there are typically quite a few
mandatory rules that require courts to determine some aspects of
the scope or content of contractual obligations based on factors
that go beyond the parties' subjective intentions. Some current
examples in American law include objective tests for intent,69
67 Restatement (Second) of Contracts § 356(1) (1981):

Damages for breach by either party may be liquidated in the agreement but on-
ly at an amount that is reasonable in the light of the anticipated or actual loss
caused by the breach and the difficulties of proof of loss. A term fixing unrea-
sonably large liquidated damages is unenforceable on grounds of public policy
as a penalty.
See also Restatement (Second) of Contracts § 356, comment a (1981) ("[T]he parties to a
contract are not free to provide a penalty for its breach. The central objective behind the
system of contract remedies is compensatory, not punitive.").
68 See, for example, Restatement (Second) of Contracts § 71, comment b (1981) ("[A]
mere pretense of bargain does not suffice, as where there is a false recital of considera-
tion or where the purported consideration is merely nominal. In such cases there is no
consideration and the promise is enforced, if at all, as a promise binding without consid-
eration under §§ 82-94.").
There are, of course, also some real or apparent exceptions to this rule. For example,
merchants can make firm offers without consideration by merely following certain for-
malities. See UCC § 2-205 (ALI 2012). These promises often appear to involve hidden
consideration, however, because they seek to induce actions that increase the chances of
sale. The Restatement also suggests that option contracts might be made binding at will
and through the use of certain formalities, though this has not been widely followed by
courts. See Restatement (Second) of Contracts § 87(l)(a) (1981); Mark B. Wessman, Re-
training the Gatekeeper: Further Reflections on the Doctrine of Consideration, 29 Loyola
LA L Rev 713, 719-23 (1996). In some states, there are still claims for breach of cove-
nant. See, for example, Hart v Pacific Rehab of Maryland, PA , 2013 WL 5212309, *18 (D
Md) (noting that Maryland law does not require consideration for certain sealed con-
tracts). All of these exceptions are, however, just that: exceptions that prove the basic
rule. In addition, parties do not get to freely choose whether these exceptions apply. They
either apply or not as a matter of law. In Part III.B, I provide an empowerment-based
account of the consideration requirement, which suggests that these exceptions are war-
ranted when the basic rationale for consideration no longer applies.
69 See, for example, Restatement (Second) of Contracts § 201 (1981) (setting forth a
modified objective test for contract interpretation).

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minimum wage regulations,70 the right to remain free from s

ery,71 the duty of good faith and fair dealing,72 and nume
other limitations on freedom of contract that arise from various
public policies.
As this last discussion shows, contractual liberty sits in ten-
sion not only with principles of contractual fairness - as Benson
rightly observes73 - but also with objective tests for intent and
numerous limitations on freedom of contract that are rooted in
public policy. These combined tensions pose some of the deepest
challenges for modern contract theory, because they force theo-
rists to ask how freedom of contract might be harmonized with a
broad set of market regulations. I would therefore reformulate
Benson's third question to ask the following broader question:
[3B] How might principles of contractual liberty, as embod-
ied in the traditional principles of contract formation and
interpretation, be harmonized with a broad set of doctrines
that sometimes invite courts to determine the existence or
scope of contractual obligations based on factors that go be-
yond the parties' subjective choices? How, in other words,
might principles of contractual liberty be harmonized not
only with principles of contractual fairness but also with ob-
jective approaches to interpretation and various limitations
on freedom of contract that arise from public policy?74
Importantly, these three puzzles arise in some form not only
with respect to contracts between individuals but also with re-
spect to contracts that involve corporations. In contracts between
corporations, expectation damages are still the default remedy,
and limitations on liquidated damages clauses still exist - despite
70 See, for example, Fair Labor Standards Act of 1938 § 6(a), 52 Stat 1060, 1062-63,
codified as amended at 29 USC § 206(a) (setting forth minimum hourly wages for em-
ployees). See also 26 USC §§ 207, 212, 215 (setting forth maximum-hour limitations,
child labor provisions, and other employment regulations).
71 US Const Amend XIII, § 1 ("Neither slavery nor involuntary servitude, except as
a punishment for crime whereof the party shall have been duly convicted, shall exist
within the United States, or any place subject to their jurisdiction.").
72 UCC § l-302(b) (ALI 2012) ('The obligation! ] of good faith . . . may not be dis-
claimed by agreement."); Restatement (Second) of Contracts § 205 (1981) ("Every con-
tract imposes upon each party a duty of good faith and fair dealing in its performance
and its enforcement.").
74 See id.

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prominent economic critiques of these limi

eration requirement is still generally appli
use a modified objective test for interpret
ply mandatory duties like the implied duty
dealing, and they continue to impose publi
exceptions to contract enforcement. Thoug
corporations of equal bargaining power ofte
needed to police bargains for fairness, as I
is an empirical fact that explains why le
may be needed in relation to some contrac
tions. It is not a fact that will undermine t
as empowerment, because contract as empo
this distinction.
Together, questions 1, 2, and 3B thus present an especially
probing threshold test for any general interpretation of contract.
They reflect mandatory rules that are central to the common law
of contracts and that have proved remarkably stable - at least in
some form - in all common-law systems with advanced market
economies.77 This particular constellation of doctrines collects
some of the most seemingly intractable tensions in contract law
in clear form. Each question presents independent puzzles about
the shape of contract law,78 which partly define its core subject
matter,79 and no current theory can jointly account for this en-
tire constellation of doctrines while explaining the legally obli-
gating force of contracts.80 It would therefore mark an important
advance to have a single contract theory that harmonizes this
entire constellation of doctrines. The next Part argues that con-
tract as empowerment offers this needed theory.
III. Empowerment in Action: How Contract as

Empowerment Meets This Core Challenge
No current theory of contract can account for the entire

stellation of doctrines identified in Part II, but contract
powerment can. Contract as empowerment is, in fact, un
75 For one such prominent criticism, see Robert E. Scott and George G. T
Embedded Options and the Case against Compensation in Contract Law , 104
Rev 1428. 1434-56 (2004).
™ See Part III.C.2.
77 See Smith, Contract Theory at 215 (cited in note 41).
78 See note 58 and accompanying text.
7y See note 56 and accompanying text.
80 See Benson, The Unity of Contract Law at 118-19 (cited in note 3).

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capable of harmonizing this entire constellation while ex

ing the legally obligatory force of contracts. The purpose
Part is to demonstrate these claims. To do this, I procee
quentially. In Parts III.A, III.B, and III.C, I develop three
rate empowerment-based answers to the three core ques
identified in Part II.
In each case, I focus on the general rules and suggest that
contract as empowerment offers better answers to the questions
raised by these general rules than both economic and other lead-
ing theories. By focusing on this level of generality, I offer ex-
planations that should invite more-detailed treatments of these
three doctrinal areas (as well as others) and will undoubtedly
include more recommendations for legal reform. My goal in this
introductory article is, however, to show the harmonizing power
of contract as empowerment at the right level of generality to es-
tablish its interpretive credentials with respect to the core prin-
ciples of contract law.
The whole of these three explanations will, moreover, be
greater than the sum of its parts. Contract as empowerment will
reveal how a broad range of seemingly incompatible surface val-
ues in modern contract law can work together - each serving its
own distinct but partial role - to serve a single and normatively
satisfying principle that is distinctive to contract. Contract as
empowerment therefore rejects the nearly universal view that
conflicts between these surface values - such as conflicts be-
tween fairness and efficiency - must always reflect zero-sum
games.81 It leads to a distinctive interpretation of contract law
and also to a distinctive interpretation of market relations.
81 The view that I am rejecting is incredibly common, though it is probably ex-

pressed most clearly in Louis Kaplow and Steven Shavell, Fairness versus Welfare 114
Harv L Rev 961, 966 (2001) (arguing that "the assessment of legal policies should depend
exclusively on their effects on individuals' welfare" and that "no independent weight
should be accorded to conceptions of fairness, such as corrective justice and desert in
punishment" - except to the degree that concerns for these values arise in individuals'
welfare functions). I argue for a view in which doctrines that blend concerns for fairnes
and efficiency are justified because they combine to promote empowerment in the righ
way. The value of fairness will not depend on this value being reflected in any person'
taste for fairness. Nor will justifications of laws that reflect fairness considerations be
reducible to facts about how those laws might promote utility functions that include a
taste for fairness.

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A. Expectation Damages and the Standard Remedies

The first doctrinal puzzle identified in Part II asks why
courts enforce purely executory contracts before there has been
any reliance or harm to the victim of a breach.82 Another part of
the puzzle is why courts use expectation damages (and, to a
lesser extent, specific performance) as the typical remedy in
claims for breach of contract.83 These features of doctrine can be
puzzling because, absent some harm to the victim, it is unclear
why the victim of a contractual breach deserves a remedy.84 It
can also seem puzzling why contract law allows for private, but
not public, enforcement of contracts.
1. Expectation damages promote empowerment better than

reliance damages.
The first point to recognize is that expectation damages
promote personal empowerment better than reliance damages.
If contract is about empowerment, then contracting parties must
have some degree of control over the level of inducement that
they seek to generate with their contracts. This Section argues
that expectation damages give parties the right amount of con-
trol, whereas reliance damages are often insufficient. To
demonstrate this claim, I begin with a highly stylized example. I
then generalize to more-ordinary contracts.
Hence, consider the highly stylized case of a millionaire who
would like to obtain the writing services of a person who, like
Henry David Thoreau, is a brilliant writer but is largely disaffect-
ed by society. This writer lives a largely self-reliant life in the
wilderness. Very few people know where this person is, and he
likes to keep it that way. The writer is not completely self-reliant,
however, and he knows that even a hermit's life in the modern
age may require some dependence on the products of modern
markets. He has therefore used the money from his early books to
set up a small trust for himself, which gives him a monthly
82 See Restatement (Second) of Contracts § 347 (1981); Benson, The Unity of Con-
tract Law at 119 (cited in note 3).
83 See Restatement (Second) of Contracts §§ 347, 359-60 (1981).
84 This is because there has not yet been any harm caused to the victim of the breach.
For a classic discussion, see Fuller and Perdue, 46 Yale L J at 57-66 (cited in note 51) (dis-
cussing the purposes behind awarding contract damages, which especially include protec-
tion of reliance interests and protection from the harms caused by reliance on breached
contracts); id at 52-53 ("Yet in this case we 'compensate' the plaintiff by giving him some-
thing he never had. This seems on the face of things a queer kind of 'compensation.'").

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stipend to use for basic necessities. His sister - who is an

ney - handles his legal affairs.
Assume further that this writer's trust contains just e
money for him to survive through old age but that the writ
always wanted to travel to Tibet and does not have enoug
ey for the trip. The commercial market for his poetry is no
robust, and there is no real hope that he will ever make
money for the trip by seeking regular employment. The
therefore believes the trip is a pipe dream. He is not int
in engaging in any regular employment. To make the ex
even more concrete, assume that the writer could obtain
$100 from the ordinary market for his poetry and that
would cost at least one hundred times more than that. Al
he is willing to write a poem for a trip to Tibet, his poet
not currently have that market value.
The millionaire is nevertheless willing to pay more th
hundred times the current market price for this poem.
might be for any number of reasons: The millionaire mig
a special taste for the writer's poetry, which makes the
higher price well worth it to him. Or the millionaire mig
lieve that the market is simply wrong, because this writ
undiscovered genius whose works will go up in mark
over time. Finally, this particular sum of money may
valuable to the millionaire than to many other people, du
declining marginal utility of money.85 Hence, the milli
might be more willing to take a risk on the writer than
would be, and he may be able to do so consistent with m
his other aims and interests.86 Regardless of his particu
sons, the millionaire is willing and able to promise the w
trip to Tibet in return for a poem.
In these circumstances, it might disempower the mill
if courts were to use only a reliance measure of damages.
this standard, no matter how much the millionaire prom
85 See, for example, Joshua Greene and Jonathan Baron, Intuitions about D
Marginal Utility , 14 J Behav Dec Making 243, 243-44 (2001) (describing how s
judgments about the desirability of money show that money typically has
marginal utility).
86 This may be because the millionaire is rationally responding to tne increased
liquidity and financial insurance that his other assets bring. There is now, however, a
solid and growing body of evidence that poverty causes risk aversion and time dis-
counting that cannot be attributed to the relative absence of factors like these. See
generally Johannes Haushofer and Ernst Fehr, On the Psychology of Poverty , 344 Sci-
ence 862 (2014).

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the poem, the writer could expect to obt

for any harms - including any moneti
costs - caused by reasonable reliance on t
ise. By stipulation, however, this is at le
less than what the writer needs for a tr
writer is unwilling to engage in any emp
small a sum. Hence, the legal assuranc
would be insufficient, on its own, to moti
the poem.
It would, on the other hand, empower the millionaire if
courts were to use an expectation measure of damages. Under
this rule, if the millionaire were to promise a trip to Tibet in ex-
change for a poem, the writer could trust that - in return for the
poem - he would obtain either a trip to Tibet or the trip's fair
market value, which he could then use to purchase the trip for
himself. The millionaire could thus motivate the writer to write
the poem by making a legally enforceable promise.
The reason that expectation damages are more empowering
than reliance damages in this highly stylized case is simple:
they allow the millionaire to provide an assurance of more than
just compensation for reliance harms, which - in this case - is
needed for the promise to influence the writer's actions. One
might therefore object that reliance damages are typically suffi-
cient to motivate contracting parties, and that the current ar-
gument applies only to certain highly nonstandard cases.88 Pro-
fessor Lon Fuller and attorney William Perdue have, in fact,
famously argued that expectation damages often provide a reli-
able measure of reliance harms, due in large part to the fact that
they can cover lost opportunity costs.89
Even Fuller and Perdue acknowledged, however, that this
claim is "most forceful in a hypothetical society in which all val-
ues [are] available on the market and where all markets [are]
'perfect' in the economic sense."90 The case of the writer is not
like this: the monetizable opportunity costs are only $100. But
87 It may, in fact, be less, because the writer was not looking for other work and did
not have any other commercial opportunities on the horizon.
88 I thank Professor Robert Hillman for pressing me on this point.
89 Fuller and Perdue, 46 Yale L J at 60 (cited in note 51) ("[If] we take into ac-
count 'gains prevented' by reliance, that is, losses involved in foregoing the opportuni-
ty to enter other contracts, the notion that the rule protecting the expectancy is adopt-
ed as the most effective means of compensating for detrimental reliance seems not at
all far-fetched.").
90 Id at 62.

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because Fuller and Perdue acknowledged that it is only in

hypothetical world they described that expectation dam
perfect proxies for reliance damages, their own view wa
some aspects of expectation damages (which go beyond t
tection of reliance interests in the real world) must be un
stood as having "a quasi-criminal aspect, [their] purpose
not so much to compensate the promisee as to penalize br
promise by the promisor."91
The problem with this explanation is that this additio
amount is highly variable, generally hard to know, incon
ly related to the magnitude of the wrong, and completely
sitive to whether a breach is intentional. Hence, this purp
"quasi-criminal" aspect of expectation damages is poorly
to serve the standard punitive aims of notice, uniformity
portionality, and sensitivity to desert and culpability.92
Still, Fuller and Perdue were right that the real world
like the hypothetical world in which their reliance-based
works best. Real people are not perfectly rational,93 and
markets are not perfectly competitive.94 Transaction costs
abound,95 and real market prices tend merely to approximate
(and sometimes even to deviate from) the equilibrium prices
9i Id at 61.
92 See Michael S. Moore, Placing Blame : A General 1 heory of the Criminal Law
186-87, 225-29 (Oxford 2010).
93 See, for example, Daniel Kahneman, A Psychological Perspective on Economics ,
93 Am Econ Rev Papers & Proceedings 162, 162-65 (2003) (reviewing experimental evi-
dence of some systematic irrationality in human psychology); id at 162:
No one ever seriously believed that all people have rational beliefs and make
rational decisions all the time. The assumption of rationality is generally un-
derstood to be an approximation, which is made in the belief (or hope) that de-
partures from rationality are rare when the stakes are significant, or that they
will disappear under the discipline of the market.
For an important discussion of some consequences of these facts for law, see generally
Korobkin and Ulen, 88 Cal L Rev 1051 (cited in note 31).
94 See, for example, J. Peter Neary, Presidential Address: Globalization and Market
Structure , 1 J Eur Econ Assn 245, 245 (2003) (reviewing the "economic aspects of globali-
zation" and arguing "that they cannot be satisfactorily addressed in perfectly or monopo-
listically competitive models").
95 For a nice discussion of such costs, see Nathan B. Uman, Markets as a Moral
Foundation for Contract Law , 98 Iowa L Rev 183, 190 & n 31 (2012):
The deeper problem with an economic defense of markets is the ubiquity of
transaction costs. . . . Market actors in the real world face ubiquitous infor-
mation costs, bargaining costs, search costs, and the like. These transaction
costs cannot be dismissed as negligible frictions. . . . Indeed, one study conclud-
ed that roughly forty percent of the entire U.S. economy consisted of private
transaction costs.

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that would be based on actual supply and

market prices are in equilibrium, they s
highly dispersed information and present it in a normalized
form.97 Market prices therefore fail to reflect the actual - and
often idiosyncratic - values that many real people place on many
96 This point about approximation follows from two observations about microeco-
nomic theory as applied to questions of price determination and market equilibria. The
first is that "[t]he actions of buyers and sellers naturally move markets toward the equi-
librium of supply and demand." N. Gregory Mankiw, Principles of Microeconomics 77
(Cengage 7th ed 2014). To the extent that markets are dynamic and real market prices
are in flux, real market prices should therefore tend merely to approximate market equi-
librium prices. See Jean-Philippe Bouchaud, J. Doyne Farmer, and Fabrizio Lillo, How
Markets Slowly Digest Changes in Supply and Demand , in Thorsten Hens and Klaus
Reiner Schenk-Hoppe, eds, Handbook of Financial Markets: Dynamics and Evolution 57,
148 (Elsevier 2009). Second, the proposition that market prices naturally move toward
market equilibria is premised on several theoretical idealizations, which have been chal-
lenged in the main text - for example, that there is perfect market competition, rational
action, complete information, and an absence of market externalities. See Mankiw, Prin-
ciples of Microeconomics at 47-88 (cited in note 96). Deviations like these need not under-
mine the claim that prices naturally move toward the market equilibrium. See generally,
for example, Aldo Rustichini, Mark A. Satterthwaite, and Steven R. Williams, Convergence
to Efficiency in a Simple Market with Incomplete Information , 62 Econometrica 1041 (1994)
(arguing that some deviations between actual trading behavior and true preferences,
which might otherwise undermine the efficiency of a market, tend to vanish as market size
increases). Still, facts like these suggest that real market prices are better understood as
tending toward approximation than toward idealization. See, for example, Angus Deaton
and Guy Laroque, On the Behaviour of Commodity Prices , 59 Rev Econ Stud 1, 4 (1992)
("For most of the thirteen commodity prices . . . the behaviour of prices from one year to
the next conforms to the predictions of the theory about conditional expectations and
conditional variances.") (emphasis added). There is, finally, some empirical and theoreti-
cal evidence that market prices can deviate more sharply from those expected by ideal
microeconomic theory in some contexts. See, for example, Kent D. Daniel, David Hirshleifer,
and Avanidhar Subrahmanyam, Over confidence, Arbitrage, and Equilibrium Asset Pric-
ing, 56 J Fin 921, 957 (2001) (explaining that, in the context of securities markets, "mis-
valuation of industry or market-wide factors persists"); Pinelopi Koujianou Goldberg and
Michael M. Knetter, Good Prices and Exchange Rates: What Have We Learned ?, 35 J
Econ Lit 1243, 1244 (1997) ("|T|t appears that the local currency prices of foreign products
do not respond fully to exchange rates"). See also generally Ivana Kubieová and Luboš
Komárek, The Classification and Identification of Asset Price Bubbles , 61 Czech J Econ &
Fin 34 (2011) (discussing the classification of price bubbles and ways to identify them).
97 For a classic discussion of this normalizing function, see F.A. Hayek, The Use of
Knowledge in Society , 35 Am Econ Rev 519, 519 (1945):
The peculiar character of the problem of a rational economic order is deter-
mined precisely by the fact that the knowledge of the circumstances of which
we must make use never exists in concentrated or integrated form, but solely
as the dispersed bits of incomplete and frequently contradictory knowledge
which all the separate individuals possess.
See also id at 526-27 ("We must look at the price system as such a mechanism for com-
municating information if we want to understand its real function. ... In abbreviated
form, by a kind of symbol, only the most essential information is passed on, and passed
on only to those concerned.").

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real goods and services.98 It is in circumstances like the

real parties need to compete for the attention of their co
ing counterparties. For the real world, we therefore need
count of expectation damages that neither relies on thei
portedly quasi-criminal functions nor reduces them to m
proxies for reliance damages.
Contract as empowerment offers the needed explanat
Although expectation damages do not always serve as
proxies for reliance damages in the real world, expectatio
ages do tend to give promisors greater ability to choose t
of inducement that they seek to generate by making leg
forceable promises. Expectation damages are therefore t
more empowering than reliance damages.
Notice, moreover, that this explanation does not depe
any of the idealized assumptions that are needed to es
the claim that expectation damages serve as perfect prox
reliance damages. To the contrary, it is precisely because of
these differences between expectation and reliance damages
that expectation damages are typically more empowering than
reliance damages. The present account also explains contract
law's focus on expectation damages in terms of personal empow-
erment rather than in terms of a quasi-criminal aspect to pri-
vate law. Hence, the present account not only is better on the
merits but also helps clarify how contract law is distinct from
criminal law."
The contract between the millionaire and the writer is
therefore not as extraordinary as it might seem. It merely e
gerates certain features of run-of-the-mill contracts to ma
point. The point is that expectation damages generally give
vate parties more control over the assurances that they can
vide with their contracts than reliance damages do. In man
real-world circumstances, expectation damages are therefor
98 See Louis Kaplow, An Economic Analysis of Legal Transitions, 99 Harv L

509, 521 n 25 (1986) (describing how "the market value of nonfungible property, su
a home, is typically less than subjective value").
99 In Contract Theory - Who Needs It ?, Professor Avery W. Katz argues that a
ber of recent contract theorists fail to account for what he believes is "[t]he key featu
contract law, as opposed to the other standard first-year subjects" - namely, that
tract law "affords private parties the power of lawmaking." Avery W. Katz, Book R
Contract Theory - Who Needs It ?, 81 U Chi L Rev 2043, 2046 (2014). Contract as em
erment clearly avoids that problem. But it also goes a step further to explain why
private lawmaking power is distinct from the power to make criminal law. The pr
account thereby explains a further dimension of what distinguishes contract law
criminal law.

14.139.214.181 on Fri, 10 Jul 2020 12:52:58 UTC
more empowering than reliance damages. H

seek to influence other private parties by
enforceable contracts have an empowerment
forcement with an expectation damages re
sors cannot both make promises like these
a legal rule that allows their promisees t
damages, rather than reliance damages, in
2. Empowerment offers a better explanat

breach.
It is one thing to explain why contract law allows nothing

less than expectation damages in the typical case and quite an-
other to explain why it allows nothing more. Why, in other
words, does contract law not allow punitive damages or specific
performance as the standard remedy?
Many people think that economic theories of efficient breach
provide one of the best answers to this question.100 When parties
who breach contracts are forced to pay expectation damages and
nothing more, two consequences are said to follow. First, by vir-
tue of obtaining expectation damages, victims of breaches are
left no worse off than if the contracts had been fully per-
formed.101 Second, by requiring nothing more than expectation
damages, parties who find new opportunities to increase their per-
sonal welfare by breaching are incentivized to do so - at least so
long as these benefits are larger than the costs of paying expecta-
tion damages.102 It is thus sometimes said, even by critics of eco-
nomic theories of contract, that a "program of expectation damag-
es, if faithfully implemented, satisfies not only the [Kaldor] -Hicks
standard of hypothetical compensation but the more restrictive
Pareto standards of efficiency as well: not only is there a net
100 See, for example, Daryl J. Levinson, Rights Essentialism and Remedial Equili-
bration , 99 Colum L Rev 857, 859 (1999) ("[T]he centrality of efficient breach to contract
theory has led us to think of the obligation of contract as the choice between performing
and breaching at a price.").
101 See, for example, Richard Craswell, Contract Remedies, Renegotiation, and the
Theory of Efficient Breach , 61 S Cal L Rev 629, 636 & n 9 (1988); Robert L. Birmingham,
Breach of Contract, Damage Measures, and Economic Efficiency , 24 Rutgers L Rev 273,
281 (1970), citing Samuel Williston, 5 A Treatise on the Law of Contracts § 1338 at 3762-
63 (Baker, Voorhis rev ed 1937).
102 Craswell, 61 S Cal L Rev at 634 (cited in note 101). To use the language of eco-
nomics, the costs of any such breaches are thereby effectively "internalized" by the
breaching parties.

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social gain for the contracting parties, but no one is left wo

after breach than before."103
By contrast, one might think that contract as empowerment
recommends either specific performance or punitive damages as
a general rule. These remedies might appear more empowering,
because they provide promisees with an even greater assurance
of performance than expectation damages provide.
These first impressions are misleading. A more careful look
at the issue suggests that contract as empowerment offers an al-
ternative explanation of this standard remedial limitation. In
addition, this explanation, which I will now provide, turns out to
have several advantages over economic explanations.
To understand why this is so, let us return to the case of the
millionaire and the writer. The writer in this case was willing to
write a poem for the millionaire in return for a trip to Tibet. It
thus empowered the millionaire to be able to provide the writer
with that specific level of legal assurance. The writer's interest
in obtaining a trip to Tibet can, however, be met by handing him
either the physical tickets or the money for the tickets. Expecta-
tion damages are therefore sufficient for the millionaire's em-
powerment purposes in this case.
Because neither specific performance nor punitive damages
are needed for the millionaire's empowerment purposes, the mil-
lionaire could reasonably reject a legal rule that allowed for spe-
cific performance or punitive damages for breach of this con-
tract. But he could not reasonably reject a legal rule that
allowed for expectation damages - for reasons explained in the
previous Section. Far from endorsing specific performance or
punitive damages in the typical case, contract as empowerment
thus explains why damages that exceed expectation damages
103 Daniel Friedmann, The Efficient Breach Fallacy , 18 J Legal Stud 1, 3 (1989). As
Professor Jules L. Coleman has explained:
We can distinguish between Pareto optimality and Pareto superiority. ... A
state of affairs S is Pareto superior to another, A, if and only if no one prefers A
to S and at least one person prefers S to A. The notion of Pareto optimality is
then defined with respect to Pareto superiority. A state of affairs S is Pareto
optimal provided there is no state of affairs Sn that is Pareto superior to it.
Jules L. Coleman, Book Review, The Grounds of Welfare , 112 Yale L J 1511, 1516 (2003).
Kaldor- Hicks efficiency is defined in slightly different terms: "One state of affairs, S, is
Kaldor- Hicks efficient to another, A, if and only if the winners under S could compensate
the losers such that, after compensation, no one would prefer A to S and at least one per-
son would prefer S to A." Id at 1517.

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can reflect morally impermissible uses o

like these.
This argument can now be further generalized by considering
some of the facts cited by efficient breach theorists. When the mil-
lionaire made his original promise, he knew or should have
known that circumstances might change in ways that would
make it better for him if he could pay the fair market value of the
trip and be released from the contract.104 For example, the mil-
lionaire might contract for the poem and receive it. Just as he is
about to purchase the ticket for the writer, however, he might
learn that his long-estranged daughter will be in Tibet for a very
limited time. To see his daughter, the millionaire must leave im-
mediately. But there is a catch: There is only one ticket left on the
currently listed flights to Tibet. Other flights will be listed soon
enough, but the millionaire will be unable to personally arrange
the writer's flight to Tibet because of its remote location.
In these circumstances, should the writer really have the le-
gal authority to demand specific performance and thereby pre-
vent the millionaire from seeing his daughter? The writer's ac-
tual interests in this contract can be met by receiving either the
ticket or its fair market value. Hence, the writer cannot reason-
ably reject a legal rule that limits his remedy to expectation
damages. For reasons already explained, the millionaire can, on
the other hand, reasonably reject a rule that allows for more
than expectation damages - that is, for specific performance or
punitive damages. On the present account, it would therefore be
wrong - morally wrong - to allow the writer to invoke the state's
coercive power to force performance and make the millionaire
miss seeing his daughter. This type of argument is, moreover,
perfectly generalizable to any case in which parties can obtain
substitutes for performance on an open market.
This explanation of the expectation damages remedy cites
some of the same facts that efficient breach theorists emphasize,
but it reinterprets them in ways that offer three major im-
provements over efficient breach theory. First, as is now well-
known, efficiency considerations do not uniquely recommend ex-
pectation damages.105 In circumstances in which breach would be
104 See, for example, Richard A. Posner, Let Us Never Blame a Contract Breaker , 107
Mich L Rev 1349, 1353 (2009) ("Involuntary breaches are often inefficient: the promisor
miscalculated his ability to comply with the contractual terms to which he had agreed").
105 See, for example, Richard R.W. Brooks, The Efficient Performance Hypothesis ,
116 Yale L J 568, 578-79 (2006) (discussing how combinations of remedies other than

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efficient, legal rules that allow specific performance or punit

damages would still allow parties to renegotiate their co
tracts.106 At least in principle, parties should therefore be able t
capture these same efficiency gains through renegotiation, alb
with a different typical distribution.107
In some circumstances, transaction costs can make one of
these remedies more efficient than the others. When transaction
costs are equal, however, efficient breach theory cannot be used
to choose among them.108 Hence, efficient breach theory cannot
be used to explain the relative generality of expectation damages
as a default remedy in contract law or its mandatory character.
The first interpretive advantage of contract as empowerment is
that it explains why expectation damages are typically favored
over specific performance and punitive damages - even in many
cases in which these alternative remedies would be equally or
even more efficient.109
expectation damages can be "equally efficient and potentially more consistent with the
other normative understandings of contract enforcement"); Ian Ayres and Kristin
Madison, Threatening Inefficient Performance of Injunctions and Contracts , 148 U Pa L
Rev 45, 56 (1999) ("While it is nigh-on impossible to construct a single damage rule that
will induce efficient behavior along all possible dimensions, giving defendants the op-
tions of inalienability and additur leads toward more efficient plaintiff precaution and,
under certain conditions, more efficient defendant reliance.") (citation omitted); Ian
Ayres and Robert Gertner, Strategic Contractual Inefficiency and the Optimal Choice of
Legal Rules , 101 Yale L J 729, 760-62 (1992) (demonstrating that different damages re-
gimes would be more efficient in different circumstances). For a useful discussion, see
Smith, Contract Theory at 120 (cited in note 41).
106 Smith, Contract Theory at 120 (cited in note 41) ("As economists themselves have
pointed out, ... if performance of a particular contractual obligation is indeed inefficient,
the relevant contracting parties will have incentives to renegotiate or 'bargain arounď a
rule of specific performance so as to reach the efficient result.").
!07 Id at 120-24.
108 See Eric A. Posner, Economic Analysis of Contract Law after Three Decades: Suc-
cess or Failure ?, 112 Yale L J 829, 835 (2003) (noting that the possibility of renegotiation
prior to performance has proved problematic for efficient breach theorists because effi-
cient performance will occur regardless of the remedy when renegotiation costs are low
enough).
109 Professors Robert Scott and George Triantis have, for example, argued that the
rule disfavoring penalty liquidated damages and specific performance in favor of expecta-
tion damages is sometimes less efficient than one that threatens punishment or that allows
private parties a greater role in assessing option prices for breach. Scott and Triantis, 104
Colum L Rev at 1480-86 (cited in note 75). But as these authors have freely acknowl-
edged, their argument suggests that the standing law of contract remedies cannot be
grounded purely in efficiency concerns. Id at 1428 ("[T]his Article [ ] makes the case
against the expectation damages default rule."). Professor William S. Dodge has similar-
ly argued that efficiency considerations favor punitive damages for willful breaches. See
generally William S. Dodge, The Case for Punitive Damages in Contracts , 48 Duke L J
629 (1999). But this too is not the law. Hence, to whatever extent arguments like these
have merit, contract as empowerment offers a better , and not just an equally compelling,

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At the same time, however, this explan

es in which the parties' actual interests c
substitutes on an open market at a value t
able by courts. That fact explains why cou
specific performance in cases in which ite
tation damages are especially hard to calcu
promises for unique items or promises
damages may become difficult to calculate
be empowering absent an assurance of spe
A second interpretive advantage of t
that it explains why expectation damag
the legally obligatory force of both co
Although obligations purport to override
quentialist reasons,110 the theory of effic
the contrary - that contractual oblig
breached on consequentialist grounds.111
grates the status of contractual obligat
the way that they figure into courts' reas
of ordinary contracting parties.112
To the extent that markets and promis
centrally important features of moder
schisms between them can cause tensions
ety. Professor Shiffrin makes the point i
manner. She suggests that by discrediting
promises, "the culture created by contra
tions might make it more difficult to nu
agency, in particular the virtues associate
centrally important aspects of moder
account of the ordinary remedial rules in contract law

Smith, Contract Theory at 120-23 (cited in note 41) (no
might be the more efficient remedy in cases in which d
costly to measure, such that "[o]rdering specific perform
dercompensation (and, for that matter, overcompensation
no This is, in fact, an intrinsic feature of law's basic n
by theorists like Professors H.L.A. Hart and Joseph Raz.
Law 82-91 (Oxford 3d ed 2012); Joseph Raz, The Authori
ed 2009). See also Kar, 95 Georgetown L J at 435-37 (cite
111 See Gil Lahav, A Principle of Justified Promise-Br
Contract Law , 57 NYU Ann Surv Am L 163, 163 (2000).
112 See Hart, The Concept of Law at 57, 89-91 (cited in
ternal point of view"); Kar, 84 Tex L Rev at 925-27 (cit
Richard Posner's argument that adopting a contrarian
standard that requires us to maximize efficiency or pareto-
J. Shapiro, What Is the Internal Point of View?, 75 Fordh
113 Shiffrin, 120 Harv L Rev at 712-13 (cited in note 5

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namely, the interpersonal morality of promise keeping an

ern market exchange - can therefore appear to be pitted
one another in an unresolvable conflict.
Importantly, this problem appears to arise not simply from
divergences between contract and promise (here, at the remedial
stage) but rather from prevailing economic justifications of the
expectation damages remedy - which imply that obligations can
always be breached on purely consequentialist grounds.114 I be-
lieve that it is damaging to modern human society, and can
cause great moral and psychic tensions, if people are forced to
view their moral and economic lives so schizophrenically - that
is, as simultaneously prohibiting and endorsing interpersonal
relations that are purely instrumental in form.115
Contract as empowerment offers an alternative justification
for the expectation damages remedy, which can help resolve
these tensions. Rather than implying that people can always
breach their obligations to one another on consequentialist
grounds, it articulates moral reasons of obligation for limiting
contractual remedies to expectation damages in the typical case.
This is because contract as empowerment is rooted in a more
general account of moral obligation, which simultaneously ex-
plains the morality of promises and places moral limits on when
promises should be legally enforceable. Rather than undermin-
ing the obligatory status of either promises or contracts, contract
as empowerment thus gives moral promises their own space. It
then construes contracts, when they exist, to contain at least two
distinct legal obligations. The primary legal obligation - owed by
each promisor to each promisee - is to perform, conditional on
performance by the other. The secondary legal obligation - owed
by each promisee to each promisor - is to excuse nonperformance
in return for expectation damages in the typical case. This more
complex suite of contractual obligations is justified by the fact
that it is sufficiently and equally empowering to both parties in
the typical case. Hence, there are no empowerment-related
grounds for either party to reasonably reject a system of legal
obligations with these properties.
Contract as empowerment thus reinterprets the expecta-
tion damages remedy in ways that render it consistent with
both the interpersonal morality of promises and the genuinely
114 See id.

115 See id at 714 ("It does not follow [ ] that legal principles in these domains should
be entirely insensitive to or divorced from the demands of interpersonal morality.").

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legally obligating force of contracts. In

vergences will and should still persist be
tract. Consider, for example, the case of
his daughter that he will attend her gr
the two are very close and have sufficien
the father to influence his daughter's
that is not legally enforceable. Influence
however, because the daughter will go to
less, and the father is not really trying
ter's actions in any way with his prom
daughter that he will be there in order t
to give her some peace of mind, and to as
sharing this moment with her more than
er self-interest.116
In these circumstances, it would be mo
father to break his promise to his dau
better economic opportunity has arisen.
insult to injury if this promise were lega
pectation damages and if the father felt t
simply breach and send a check for the "f
presence (however that might be calculate
ing an adequate remedy for this breac
signal that the father considers his pre
life at this important moment to be fun
legal enforceability of this promise, incl
mance to force the father to attend, mig
ship appear too distant and dependent
These attitudes and reliance on legal re
their relationship, not remedy it.117
Although this promise is morally obliga
powerment can explain why it should not
without denigrating its moral status. Bec
trying to influence his daughter's action
sonably required the legal enforceability
influence to work, there are no empowerm
treat this particular promise as a legall
116 Professor Scanlon discusses this in his ground for

ing. See T.M. Scanlon, Promises and Contracts, in Bens
Law 86, 106 (cited in note 3).
117 This is, of course, a major theme in some contract
ample, Melvin Aron Eisenberg, The World of Contract a
Rev 821, 823 (1997) ("[T]he world of gift would be impove
ises were placed into the world of contract.").

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Hence, the father could reasonably reject a legal rule that re

him to perform or pay expectation damages. He could rea
reject this legal rule, even though he could not reasonably
moral rule that gave his daughter the right to demand that
tually attend on pain of damage to the relationship.118
The important point to notice is that none of these ex
tions calls the obligatory force of either promises or contra
to question. On the current view, remedial divergences like
these arise not from any denigration of obligations but from the
fact that morality simultaneously generates promissory obliga-
tions, some limits on the state's authority to coerce moral ac-
tions, and some legal obligations (among some contracting par-
ties) to accept expectation damages in lieu of performance.
Unlike theories of efficient breach, which can exacerbate ten-
sions between the spheres of interpersonal morality and the
modern marketplace, contract as empowerment can therefore
reconcile these spheres in a deeper and more meaningful way.
This interpretation of contract can help relieve some of the social
and psychic tensions that people feel when moving between the
spheres of informal social interaction and the marketplace.119
Contract as empowerment can thus help people flourish better -
and simultaneously - as both moral and economic agents.
The third interpretive advantage of the present account is
that it explains why, as a general rule, it is only the private par-
ties to contracts - as opposed to third parties or public authori-
ties - who have the legal standing to sue for breach of contract.120
By making legally enforceable promises, contracting parties typi-
cally seek to influence the actions of their private counterpar-
ties - but not, at least directly, those of public authorities, third
parties, or the state. Hence, contracting parties cannot reasonably
reject a legal rule that gives their particular contracting counter-
parties the legal authority to demand compliance; but contracting
parties can reasonably reject a broader rule that allows other
118 Scanlon presents an argument that no one could reasonably reject a moral rule
that requires performance in these circumstances, but his argument is rooted in the val-
ue of assurance, not empowerment. See generally Scanlon, Promises and Contracts (cited
in note 116).
119 See Shiffrin, 120 Harv L Rev at 709 (cited in note 58) ("[TJhe legal norms regu-
lating these promises diverge in substance from the moral norms that apply to them.
This divergence raises questions about how the moral agent is to navigate both the legal
and moral systems.").
120 gee F. Andrew Hessick, Standing, Injury in Fact, and Private Rights , 93 Cornell
L Rev 275, 306-07 (2008).

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parties (like third parties or the state) to su

sors have no empowerment interests at s
type of legal enforceability.
For all of the above reasons, contract as
fers a better account of the general rules g
remedies than orthodox economic and phil
B. The Consideration Requirement

The second doctrinal puzzle identified in
the centrality of the consideration requi
common-law systems, the general rule is
breach of contract, parties can enforce onl
supported by consideration.121 A promise is
eration if there is (1) a return promise or p
other party that was (2) "bargained for" in
nical sense: it was both (2a) "sought by the
exchange for [the original] promise" and (2b
inal] promisee in exchange for that promis
several well-known exceptions to this requi
of this Section is to show how contract as e
plain the general features of this rule.123
Although many scholars find the consid
puzzling,124 contract as empowerment off
121 Restatement (Second) of Contracts § 17 (1981).

122 Restatement (Second) of Contracts § 71 (1981).
123 See Restatement (Second) of Contracts §§ 82-94 (198
124 Many theories are, in fact, highly ambivalent about
based theories can offer no rationale at all for consideration
the class of promises that are deemed legally obligatory. Th
ting rid of the limitation altogether, because the doctrine
that voluntary promises should be enforced in accordance w
there is no analogue to the consideration doctrine in the or
keeping. Professor Fried has thus argued that the modern
analytically confused and inconsistent with the basic prom
to underwrite modern contract law. Fried, Contract as Pro
37). Efficiency theorists, by contrast, will have a much eas
centrality of the consideration doctrine. They can begin w
legal enforcement of promises is always somewhat costly. M
produce enormous increases in wealth and social welfare. Th
think that we must enforce promises that are parts of b
hope to maintain the conditions of trust needed for strang
market exchanges through promissory exchanges. Becaus
exchanges greatly expands the bounds of our cooperation
flourish, and allows larger- scale cooperative efforts and div
enforcing these exchanges greatly outweigh the costs. At
same cannot be said for the enforcement of unilateral prom

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explanation of the requirement. Contract as empowermen

contractual obligations in promisors' empowerment inte
where "empowerment" is defined as the ability to use lega
forceable promises to influence other people's actions and
by meet a broad range of human needs and interests. Th
cal point to recognize is that this explanation is therefore
to a special subclass of promises. Which promises are these?
They are all and only those promises that promisors seek to use
as tools to induce a promise or performance from someone else in
return and that reasonably require legal enforceability for the
influence to work.
Actually, even this subclass is too broad because not all such
promises succeed at producing any influence. A promisor can
reasonably reject a rule that gives promisees the legal right to
demand compliance, backed by the coercive power of the state,
before there has been any promise or performance in return. But
once having influenced another person's actions by making a
promise like this, a promisor can no longer reasonably reject
such a legal rule. Hence, contract as empowerment recommends
the legal enforcement of promises as contracts only if there is
(1) a return promise or performance by another party that both
is (2a) sought by the original promisor in exchange for the prom-
ise and reasonably requires legal enforceability for the induction
to work, and is (2b) given by the original promisee in exchange
for that legally enforceable promise.
It follows - with almost mathematical elegance - that con-
tract as empowerment recommends the legal enforcement of all
and only those promises that are supported by legal considera-
tion in the technical sense of the word. Indeed, the Restatement
states:
(1) To constitute consideration, a performance or a retu

promise must be bargained for. (2) A performance or re
promise is bargained for if it is sought by the promiso
by definition promises that seek nothing in return and, hence, are not being used
duce others to engage in any reciprocally advantageous exchanges. The stability o
ern markets in no way depends on enforcing these promises, and there are no oth
ous, large-scale social welfare benefits that depend on their enforcement. The or
costs of their enforcement are therefore more likely to outweigh any benefits. By p
ing at least a plausible rationale for the consideration doctrine, efficiency theori
thus claim a second important explanatory advantage over promise-based theorie

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exchange for his promise and is given b

change for that promise.125
In accordance with the primary account
erment, I call these "true contracts" to d
other classes of promises that are legally
Contract as empowerment recommends that true con-
tracts - in the sense of promises that are supported by legal con-
sideration - be legally enforceable. But it does much more than
that. It also explains why parties cannot generally avoid the
consideration requirement through the mere formality of stating
that consideration exists.126 Although courts do not typically in-
quire into the adequacy of consideration, they do typically re-
quire some real consideration for contracts to be formed.127 There
must, in other words, be some return promise or performance
that the original promisor actually sought to induce with the
original promise and that the original promisee actually gave in
return for the original promise.128
In the famous case of Schnell v Nell,129 for example, the
court found that a promise to devise $200 to each of three lega-
tees "in consideration of one cent" was not supported by consid-
eration.130 The court explained that "[t]he consideration of one
cent [was], plainly, in this case, merely nominal."131 In coming to
this conclusion, the court was not finding the consideration to be
inadequate. The problem was not substantive unfairness but ra-
ther lack of an actual bargain: this promisor was not really try-
ing to induce the payment of one cent by making a legally en-
forceable promise. She was instead seeking to make her
subjective will legally enforceable as a contract by recasting a
unilateral promise of a gift into the apparent form of a bargain.
The court's ruling that this was not a true contract, because it
125 Restatement (Second) of Contracts § 71 (1981). The present theory also recom-
mends a further limitation to promises that reasonably require legal enforcement to in-
fluence action. This recommendation rules out the legal enforceability of most social
promises, and it is largely consistent with the state of the law. I will, however, discuss
this limitation only later. See Part III.B.
126 See Restatement (Second) of Contracts § 71, comment b (1981) ("[A] mere pre-
tense of bargain does not suffice, as where there is a false recital of consideration.").
There are some exceptions to this rule, for things like option contracts, but I discuss
those exceptions separately in Part III.B.3.
127 See Wessman, 29 Loyola LA L Rev at 774-75 (cited in note 68).
128 See Restatement (Second) of Contracts § 71 (1981).
129 17 Ind 29 (1861).
130 Id at 30.
131 Id at 32.

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was not actually supported by consideration, makes sens

an empowerment perspective, because the promisor had
powerment interests at stake in the legal enforcement o
promise. She was not really trying to induce the transfe
penny, and that defect could not be cured either by the mer
mality of stating (falsely) that consideration existed or by t
tachment of unsought "consideration" to her promise of a gif
More generally, when promisors try to get around th
sideration requirement with nominal consideration or
statements of consideration, they are trying to make th
jective wills legally effective through contract law. Part
often achieve this result through other legal mechanisms
as through direct alienations of their property or throug
and estates.133 Contract as empowerment nevertheless int
contract law to be about empowerment, in the technical
developed here, and not mere deference to the subjectiv
Contract as empowerment thus explains why contract la
erally cannot be used in this way, even if other legal
nisms can.134 The current theory also helps to explain w
consideration requirement is specific to contract law and
these other legal mechanisms typically lack the requireme
132 See, for example, Restatement (Second) of Contracts § 71, comment b,

tion 5 (1981):
A desires to make a binding promise to give $1000 to his son B. Being advi
that a gratuitous promise is not binding, A offers to buy from B for $10
book worth less than $1. B accepts the offer knowing that the purchase of
book is a mere pretense. There is no consideration for A's promise to p
$1000.
133 See Restatement (Third) of Property: Wills and Other Donative Transfe
(2001) ("The controlling consideration in determining the meaning of a donati
ment is the donor's intention."). I do not mean to suggest that property is or
ways be alienable through these or other means. For a classic and brilliant dis
when property should be market inalienable (that is, inalienable through contr
market mechanisms, but potentially alienable through other mechanisms
trusts, or estates), see generally Margaret Jane Radin, Market- Inalienability,
L Rev 1849 (1987).
134 See, for example, Restatement (Second) of Property: Donative Transf
(1992) ("The owner of personal property may make a gift thereof to another p
donee) by delivering it to the donee, or to a third person for the donee, with the
ed intention that the donee be the owner of the personal property.").
135 Restatement (Second) of Property: Donative Transfers § 31.1 (1992) (sta
"[acceptance by the donee of the gift is required for completion of the gift," b
quiring consideration); Restatement (Third) of Trusts § 17(2) (2003):
Except as provided in § 19, a trust is created by a will if the intention to cr
the trust and other elements essential to the creation of a testamentary trust
dinarily, identification of the trust property, the beneficiaries, and the purp

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In addition, because the consideration r

guishes promises in which empowerment
from other classes of promises, contract
recommends giving true contracts the spe
forceability needed for empowerment. P
this recommendation involves. Hence,
consideration can now be harmonized with those earlier ac-
counts of the standard remedies.
In particular, the authority to enforce promises that are
supported by consideration through the law should typically be
limited to contracting parties and should not be extended to
third parties or to the state. True contracting parties should also
have the legal right to demand something more than reliance
damages but less than punitive damages. The "Goldilocks" rem-
edy - or the remedy that is "just right" for empowerment in the
typical case - is expectation damages (with some minor excep-
tions that allow for specific performance). The legal right to
these standard contractual remedies should not depend on the
existence of any reliance harms, so long as a return promise or
performance has been induced.
Hence, quite a lot follows from the fact that a promise is
supported by consideration. Notice, moreover, that application of
these remedial rules follows from the fact that they promote con-
tracting parties' empowerment interests and not from the fact
that the parties subjectively chose them. On the current view,
the existence of consideration establishes that empowerment in-
terests are at stake, and that fact explains the structure of
standard contract remedies. Contract as empowerment thus ex-
plains why both the consideration requirement and these reme-
dial rules are mandatory rules, or rules that cannot be contract-
ed around - even though it is generally empowering to give
parties great freedom to choose whether to contract, with whom,
and on what terms.
When promises are not supported by consideration, there is,
on the other hand, either no return promise or no performance
that a promisor sought to induce by making a legally enforceable
promise, or the promisor has failed to influence any such action
of the trust) can be ascertained from (a) the will itself; or (b) an existing in-
strument properly incorporated by reference into the will; or (c) facts referred
to in the will that have significance apart from their effect upon the disposition
of the property bequeathed or devised by the will.

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by making a legally enforceable promise.136 Hence, there

empowerment-related grounds to prevent people who make
promises of these other kinds from reasonably rejecting a rule
that gives their promisees the legal right to demand compliance.
There may, of course, still be alternative grounds to enforce
some of these other classes of promises.137 Nothing about con-
tract as empowerment rules out that possibility. To the extent
that these other promises lack consideration, however, there is
no reason to think that these other promises should be given the
special type of legal enforceability needed for empowerment. The
remedial rules connected with these other promises should
therefore be different, and it is better to distinguish these other
classes of legally enforceable promises from what I am calling
"true contracts."
The most important example of this lies in the law of prom-
issory estoppel. Sometimes, parties bring claims for promissory
estoppel that are really disguised claims for breach of a true con-
tract because consideration really does exist. In those cases, all
of the empowerment-based arguments concerning the appropri-
ate shape of contract law should therefore apply to claims for
promissory estoppel and expectation damages will be appropri-
ate, on the present account. For cases in which there is no con-
sideration, however, the only rationale for promissory estoppel is
reliance based (and not empowerment based). There are, in fact,
well- developed contractualist arguments that suggest that no
one could reasonably reject a legal rule requiring compensation
for harms caused by the breach of various duties, including
promissory breaches.138 Hence, the appropriate remedy for prom-
issory estoppel in these circumstances should be reliance damag-
es. Contract as empowerment does not reject these arguments. It
does, however, reject the view that promissory estoppel claims of
this latter kind are fundamentally contractual in nature.
C. Freedom of Contract and Market Regulation

The third major puzzle for contract theory relates to the
law's inconsistent treatment of parties' subjective contracting
choices. On the one hand, contract law shows great deference to
136 This follows from the standard definition of consideration. See Restatement (Sec-
ond) of Contracts § 71 (1981).
137 See, for example, Nancy S. Kim, Wrap Contracts: Foundations and Ramifications
6-16 (Oxford 2013) (describing various theories for why contracts should be enforced).
138 See Scanlon, Promises and Contracts at 105-11 (cited in note 116).

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parties' subjective choices when determin

scope of contractual obligations.139 Cont
ties great freedom to choose who their c
be. These freedoms are central enough to
are colloquially referred to as "freedom
other hand, contract law contains numerous doctrines that ei-
ther invite or require courts to deviate from parties' subjective
choices when determining the existence or scope of contracts.141
Doctrines that fall into this latter category sometimes meet with
the objection that they undermine freedom of contract.142
If contract law's primary purpose is to promote freedom of
subjective choice, then doctrines that limit subjective choice are
indeed incompatible with the fundamental principles of con-
tract.143 Doctrines like these represent alien intrusions into con-
tract law's core subject matter and deviations from the funda-
mental principles that animate modern market activity.144 But if
contract is about empowerment, rather than subjective choice,
139 See, for example, Benson, The Unity of Contract Law at 131 (cited in note 3);
Katz, Book Review, 81 U Chi L Rev at 2046 (cited in note 99) ("The key feature of con-
tract law, as opposed to the other standard first-year subjects, is that it affords private
parties the power of lawmaking. Contractual obligations are primarily created by decen-
tralized nonstate actors pursuing their own goals and plans."); Elizabeth Anderson, The
Ethical Limitations of the Market , 6 Econ & Phil 179, 180 (1990) ('The most important
ideal that the modern market attempts to embody is a particular conception of free-
dom."); G.H.L. Fridman, Freedom of Contract, 2 Ottawa L Rev 1, 1 (1967) ("One of the
fundamental dogmas of the law is that everyone is free to contract as he wishes, as long
as no illegality is involved."); Friedrich Kessler, Contracts of Adhesion - Some Thoughts
about Freedom of Contract , 43 Colum L Rev 629, 630 (1943) ("[Fļreedom of contract does
not commend itself for moral reasons only; it is also an eminently practical principle. It
is the inevitable counterpart of a free enterprise system.").
140 See Benson, The Unity of Contract Law at 198-99 (cited in note 3).
141 See, for example, Restatement (Second) of Contracts § 208 (1981) (stating the
unconscionability doctrine); Restatement (Second) of Contracts § 201 (1981) (presenting
the modified objective approach to interpretation); Restatement (Second) of Contracts
§ 205 (1981) ("Every contract imposes upon each party a duty of good faith and fair deal-
ing in its performance and its enforcement."); Schwartz and Scott, 113 Yale L J at 619
(cited in note 1) (discussing the growth of mandatory rules in modern contract law). See
also Kronman, 89 Yale L J at 472-511 (cited in note 58) (describing numerous limita-
tions on contracting that arise to promote public policy or substantive fairness).
142 See, for example, Cass R. Sunstein and Richard H. Thaler, Libertarian Paternal-
ism Is Not an Oxymoron , 70 U Chi L Rev 1159, 1160 (2003) ("According to the conven-
tional wisdom, libertarians cannot possibly embrace paternalism, and paternalists abhor
libertarianism."); Richard A. Epstein, Unconscionability: A Critical Reappraisal , 18 J L
& Econ 293, 293-95 (1975).
143 See, for example, Richard A. Epstein, In Defense of the Contract at Will , 51 U Chi
L Rev 947, 947 (1984) (viewing "government regulation" as in "persistent tension" with
"private ordering").
144 See, for example, id.

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then the story is more complex. This Section argues tha

tract as empowerment offers a general framework that
used to harmonize many of the doctrinal tensions that
this third category. Application of this framework will
that many perceived inconsistencies among these doctri
not real.
Four main areas of tension stand out with respect to free-
dom of contract. First, although contract law shows great defer-
ence to parties' subjective contracting choices through its focus
on parties' mutual assent, it interprets this mutual assent using
a modified objective (and not a purely subjective) test for in-
tent.146 In practice, this means that parties are often bound by
contractual obligations that do not perfectly reflect their subjec-
tive wills. Second, contract law makes concessions to a broad
range of public policies that limit freedom of contract.146 Third,
contract law contains doctrines that invite or require courts to
police bargains for contractual fairness at times - as exemplified
most clearly in the modern unconscionability doctrine.147 Fourth,
as I have already described, contract law contains a number of
mandatory rules, which govern remedies and the consideration
requirement - among other things.148
1. Freedom of contract and subjective choice.

Because freedom of contract reflects one side of all these
tensions, it helps to explain the commitment to freedom of con-
tract first. For an empowerment theorist, this commitment is
easy enough to explain. Contract law presumes that people can
meet a broad range of human needs and interests if they are
empowered to influence one another by making legally enforceable
promises.149 This is because people reveal their preferences
through voluntary choices and because there is some correlation
between subjective-preference satisfaction and personal human
145 See Restatement (Second) of Contracts §§ 201-04 (1981) (providing principles for
interpreting contracts, including the principle that when parties attach different mean-
ings to an agreement, it will be interpreted in accordance with the meaning of one party
if the other party knew or had reason to know of the meaning attached by the former).
146 See Restatement (Second) of Contracts §§ 178-96 (1981).
147 See, for example, Restatement (Second) of Contracts § 208 (1981) (providing that
courts either can decline to enforce contracts that have unconscionable terms or can limit
any unconscionable terms).
148 See Part III.A-B.
149 See Part I.

14.139.214.181 on Fri, 10 Jul 2020 12:52:58 UTC
flourishing.150 These routes to human-p

would, moreover, often be very difficult
tralized state planner to identify on its
modern markets therefore provide impor
mechanisms through which people can b
their highly varied personal ends. This c
better lives for themselves.
Through contracting, people can also s
personal ends in a context in which they
or justify their decisions to others.182 In co
ly promotes one's conception of the go
choice or "exit" (that is, through decision
items or to not contract at all) rather than "voice" (that is,
through reasoned deliberation over the good with others).153 Con-
tract laws that are empowering can thus embody one important
conception of freedom: the freedom to pursue one's personal
wants, free from the obligation to justify them to others. To be
empowering in these ways, contract law must, however, give
private parties a great degree of latitude to subjectively decide
whether to contract, with whom, and on what terms. The free-
dom to choose the terms of one's contracts can also be empower-
ing, because it allows one to choose the level of induction that
one seeks to employ in order to influence others' actions.154 Con-
tract as empowerment thus recommends a set of rules that gives
150 For the classic early statement of the "revealed preferences" approach to measur-
ing utility, see generally P.A. Samuelson, A Note on the Pure Theory of Consumer's Be-
haviour , 5 Economica 61 (1938). I do not believe that human flourishing is equivalent to
subjective-preference satisfaction, for reasons elaborated in, for example, Amartya Sen,
Internal Consistency of Choice , 61 Econometrica 495, 498-504 (1993). But there is no
doubt that some connection exists in many circumstances.
151 See Hayek, 35 Am Econ Rev at 524 (cited in note 97).
lb¿ See, for example, Anderson, 6 Econ & Phil at 180-81 (cited in note 139):
On this view [of freedom as embodied in modern markets], freedom is primari-
ly exercised in the choice and consumption of commodities in private life. It
consists in having a large menu of choices in the marketplace and in exclusive
power to use and dispose of things and services in the private sphere without
having to ask permission from anyone else.
See also Epstein, 18 J L & Econ at 293 (cited in note 142) ("One of the first functions of
the law is to guarantee to individuals a sphere of influence in which they will be able to
operate, without having to justify themselves to the state or to third parties.").
153 Anderson, 6 Econ & Phil at 183-84 (cited in note 139) (describing economic goods
as goods whose values are best realized through market transactions, in which "exit" ra-
ther than "voice" is the primary mechanism of influence). See also generally Albert O.
Hirschman, Exit , Voice, and Loyalty: Responses to Decline in Firms, Organizations, and
States (Harvard 1970).
154 See Part IILA.2.

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parties' subjective choices a central role in determining

istence and scope of their contractual obligations.
Contract as empowerment is not unique in this regar
fact, all leading theories of contract provide some explan
contract law's commitment to freedom of contract. For auto
theorists like Kant, contract enforcement is justified by
for autonomous choice.155 For promise-based theorists lik
who I view as differing in important essentials from Kan
tract enforcement is conditioned on the existence of a vo
promise.156 For reliance-based theorists like Professor Pa
Atiyah, only voluntary promises that are relied on shou
rise to contractual liability.157 For neo-Aristotelian theor
Professor James Gordley, the capacity for free choice is vie
having a particular natural function (that is to say, it aim
man flourishing), but some exercise of this capacity is still n
to form a contract.158 And for people who would root contra
ability in the logic of property transfer, like Professor B
transfer must still be voluntary to be legally recognized.159
In fact, voluntary choice even plays a key role in the
economic justification for contract enforcement. This is
economists view voluntary choice as revealing preferenc
untary agreements should therefore produce informatio
the routes to mutual preference satisfaction, and contra
forcement should promote efficiency. To this basic argu
economists often add an important Hayekian insight: th
formation about the routes to human-preference satisfa
which is produced so easily and naturally by free negotia
often very difficult or impossible to produce through cen
state planning.160 Hence, all of the predominant contract th
offer patterns of justification for contract enforcement tha
best - or at least most directly - to terms that are both
tively and voluntarily chosen.161
155 See Arthur Ripstein, Force and Freedom: Kant's Legal and Political Ph
34-45 (Harvard 2009).
156 Fried, Contract as Promise at 1 (cited in note 37).
157 P.S. Atiyah, Promises, Morals, and Law 123-29 (Oxford rev ed 1983).
158 James Gordley, Morality and Contract: The Question of Paternalism , 4
Mary L Rev 1733, 1759 (2007).
160 I explain this in Robin Kar, The Challenge of Boilerplate (Jotwell, Sept
archived at http://perma.cc/9QEP-TG5X.
161 See id. This point has also been emphasized in Margaret Jane Radin, Boi
The Fine Print, Vanishing Rights, and the Rule of Law 55-81 (Princeton 2013).

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The real question for contract theory

contract law's commitment to freedom of
how to explain this commitment in a wa
impossible to interpret a number of othe
seem to limit subjective choice, in a cohe
lowing Section argues that contract as em
of freedom of contract is consistent wit
count of many of the ways in which con
pure deference to parties' subjective inte
ing the existence or scope of contractu
that contract as empowerment harmoniz
doctrinal facts but also the features of remedies and the consid-
eration requirement discussed in earlier sections suggests that
the current theory has important interpretive advantages over
the alternatives.
2. Freedom of contract and deviations from subjective

intent.
Let us begin with the modified objective approach to inter-

pretation.162 The fact that courts take this approach can be puz-
zling because - as noted above - all of the predominant contract
theories offer central patterns of justification that ground con-
tract enforcement in features of parties' free choices.163 As Pro-
fessor Margaret Jane Radin has observed, the concept of free
choice that is presupposed in these theories "has a subjective ba-
sis": it is rooted in an ideal of free will that "is not a matter of
community acquiescence and is not understood as dependent on
community attribution."164 Courts nevertheless determine the
content of contractual obligations based not simply on parties' sub-
jective choices but in part on what a reasonable person would take
the parties' words to mean in context. This "modified objective"
approach to interpretation thus "causes a fissure in contract theo-
ry, roughly between internal and external views of intention."166
As Radin notes, "this fissure has been known to contracts
theorists," but "it has been latent."166 Its problematic nature has
not, in other words, been sufficiently acknowledged or ad-
dressed. It creates a major problem of fit between theory and
162 See Restatement (Second) of Contracts § 201(2) (1981).

See Part III.C.l.
164 Radin, Boilerplate at 89 (cited in note 161).
165 Id at 90.
lee Id.

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doctrine, because objective approaches to interpretation

consistent with the normative foundations of contract law - at
least as expressed in the standard theories.167 This is because -
as Radin notes - the standard theories offer normative justifica-
tions of contract that rely on features of parties' subjective in-
tentions, whereas, on her construal of the existing literature, ob-
jective tests rely on an objective theory of language and
communication.168
Contract as empowerment offers a different view of the mod-
ified objective approach to interpretation. If contract is about
empowerment, then contract law should show great deference to
parties' subjective choices about when to contract, with whom,
and on what terms. This deference is, however, explained in
terms of parties' empowerment interests and not directly in terms
of their subjective choices. If promisors want to influence other
people's actions by making legally enforceable promises, then
they have empowerment-related reasons to accept legal rules that
permit promisees to rely on the most reasonable interpretations
of their words. Otherwise, promisors could get out of their con-
tracts any time that they attached different subjective meanings
to their terms. Hence, promisees would be unable to trust con-
tracts, and promisors would be unable to use them as effective
tools to influence action. Hence, the very same empowerment in-
terests that I use to explain freedom of contract can be used to
explain why courts should take an objective approach to inter-
pretation. Contract as empowerment addresses the fissure iden-
tified by Radin.
But how objective should interpretation be? The point of us-
ing an objective test, on the present view, is not to promote ob-
jectivity for its own sake but rather to promote empowerment.
Empowerment interests inevitably manifest themselves in par-
ticular interpersonal contexts. Different industry conventions
and particular shared understandings between the parties can
therefore affect the reasonable interpretations that parties at-
tach to contract terms in real contexts.169 Given these facts, does
contract as empowerment recommend attaching completely ob-
jective and context-independent meanings to contracts, even if
those meanings differ from both parties' understandings?
167 See id.

168 Radin, Boilerplate at 89 (cited in note 161).
169 See Restatement (Second) of Contracts § 201, comments a-b (1981).

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It does not. Contract as empowerment re

ties negotiate contracts in highly particula
texts. It also recognizes that promises can
the real world only through promisees' sub
ings of contract terms. Hence, when the
share the same understanding of a term, ho
neither party can reasonably reject a legal
parties to that understanding. Being bound
ing is all that is needed for empowerment,
additionally empowering (and might even b
be bound by something else.
Under the modified objective approach
courts do, in fact, defer to shared interp
Courts seek a more objective interpretation
attach different subjective meanings to a disp
Even in cases of dispute, moreover, court
what the most objective interpretation is, w
text. They ask, instead, whether one party
known about the other party's subjective i
the second party neither knew nor shoul
that of the first party.171 In practice, this so
jective approach to interpretation favors wh
was more reasonable under the circumstan
context of the trade, the course of negotiat
nications between the parties.172 This is th
interpretation, but only in the sense that
subjective understanding over another's. Co
jective meanings to contracts that neither p
derstood or fathomed.173
These doctrinal nuances can be puzzlin
who favor objective approaches to interpret
These nuances make sense, however, from an empowerment
perspective. For reasons explained here, promises can influence
people in real- world settings only through promisees' subjective

171 See Restatement (Second) of Contracts § 202(1) (1981) ("Words and other conduct
are interpreted in the light of all the circumstances, and if the principal purpose of the
parties is ascertainable it is given great weight."); Restatement (Second) of Contracts
§ 202, comment b (1981) ("When the parties have adopted a writing as a final expression
of their agreement, interpretation is directed to the meaning of that writing in the light
of the circumstances.").
172 See Restatement (Second) of Contracts § 202 & comment b (1981).

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understandings of their terms. Empowerment interests can

fore justify holding promisors to reasonable interpretatio
promisees rely on but not to anything more objective than t
practice, this rule will sometimes favor one party and som
another - but it cannot systematically favor any reasonable
Hence, neither party to an actual contract can reasonably
modified objective approach to interpretation.174
A second major source of tension with freedom of co
arises from a diverse set of public policies that limit con
liberty in various ways. Sometimes these limitations are
itly endorsed from within the general law of contracts.
fenses of illegality and public policy provide the cleares
ples,175 though it should be noted that these defenses t
incorporate by reference laws or policies that arise from
array of noncontractual sources.176 Other public policy
tions appear in the form of regulations that govern cert
cialized bodies of transactional law, such as those relatin
bor;177 finance;178 intellectual property;179 or food, dru
health.180 Finally, even without the explicit endorsemen
body of transactional law, public policy limitations c
from other sources that interact with contract law in wa
either limit or appear to limit freedom of contract. Some pa
larly prominent examples include laws relating to taxati
pecially for redistributive purposes),181 social security,1
174 Another way to put this point is to say that the modified objective ap
interpretation is more empowering than both purely objective approaches a
subjective approaches. With respect to purely subjective approaches, it would b
cantly disempowering to require a perfect (subjective) meeting of the minds fo
formation. Agreements of this kind rarely exist in practice, and this altern
would therefore disempower people by making almost all contracts unenforceab
176 Restatement (Second) of Contracts § 178 & comment a (1981).
177 See generally, for example, Fair Labor Standards Act of 1938, 52 Stat 10
fied as amended at 29 USC § 201 et sea.
178 See, for example, Title VIII of the Dodd-Frank Wall Street Reform and Consumer
Protection Act ("Payment, Clearing, and Settlement Supervision Act of 2010"), Pub L No
111-203, 124 Stat 1376, 1802-22, codified at 12 USC §§ 5461-72.
179 See, for example, 17 USC § 501 (establishing remedies for copyright infringement).
180 See generally, for example, Federal Food, Drug, and Cosmetic Act, 52 Stat 1040
(1938), codified as amended at 21 USC § 301 et seq.
181 See, for example, 26 USC § l(a)-(d) (setting forth a progressive individual in-
come tax).
182 See generally, for example, Social Security Act, 49 Stat 620 (1935), codified as
amended at 42 USC § 301 et seq.

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universal health care183 - all of which lim

that people can make regarding how to d
income.
Because the public policies that limit freedom of contract
have so many sources, this class of tensions is incredibly diverse.
It is beyond the scope of an article like this one to discuss each
individually. Contract as empowerment nevertheless offers a
distinctive framework for deciding when public policy limita-
tions are and are not consistent with the fundamental principles
of contract.
Contract as empowerment does this by interpreting contract
as empowerment while explaining the legally obligating force of
contracts in terms of a more general theory of obligation. This
more general, "contractualist" theory of obligation independently
rules out some actions and forms of interpersonal influence.184 It
therefore prohibits the use of contracts to promote those actions
or engage in those influences. Prohibitions like these are not in-
consistent with interpreting contract as empowerment, because
they presume it would be empowering to treat these contracts as
legally enforceable instruments. They cite this fact, along with
the fact that these contracts promote prohibited ends, as reasons
not to treat these contracts as genuinely legally obligating.
To take a very simple and uncontroversial example, consid-
er a contract for murder. If a person were to try to induce some-
one to murder a third party by making a legally enforceable
promise to pay, then the promising party could not reasonably
reject a legal rule that gave this promisee the legal right to de-
mand the payment. That much follows from the basic account of
contract as empowerment.185 Still, potential murder victims -
who are the relevant third parties in cases like these - could
reasonably reject any system of rules that permits murder.186
183 See, for example, Patient Protection and Affordable Care Act §§ 1101-03, Pub L
No 111-148, 124 Stat 119, 141-46 (2010), codified at 42 USC §§ 18001-03.
184 See, for example, Darwall, Introduction at 4-7 (cited in note 26) (arguing that
common illegal acts are inconsistent with treating others as moral equals); Rawls, 77 J
Phil at 515 (cited in note 31). See also T.M. Scanlon and Johnathan Dancy, Intention and
Permissibility , 74 Proceedings Aristotelian Socy Supp Vol 301, 313 (2000) (suggesting
that an action like murder is inconsistent with treating another person as possessing a
form of personal authority over his or her own life that cannot be reasonably rejected).
lg5 See Part I.
186 See Scanlon and Dancy, 74 Proceedings Aristotelian Socy Supp Vol at 313 (cited
in note 184) (arguing that intentional killing is "inconsistent with the idea that each per-
son has a special claim to and authority over his or her own life and body, an idea which
[the authors] take to be itself one that no one could reasonably reject").

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They could therefore reasonably reject any system of ru

empowers people to induce murders by making legally enfor
promises. It follows that promises like these should be d
void (as they in fact are under the law187), regardless of
they promote the contracting parties' subjective preferen
cases like these, the same form of justification that expla
contracts should sometimes be enforced on empowerment
grounds explains why contracts that seek to induce certain w
ful actions, like murder, should be deemed void and unenfor
This application of the illegality defense limits parties
dom of contract in an uncontroversial way. Still, contract
powerment offers a distinctive interpretation of this lim
It suggests that there is no genuine incompatibility betw
normative foundations of contract and this limitation on free-
dom of contract. In fact, even if a legally enforceable contract for
murder would produce more subjective-preference satisfaction
for two contracting parties than perceived costs to a particular
murder victim (who may, for example, value his or her life very
little during a bout of depression), the contract could not be gen-
uinely legally obligating on the present account. Contract as
empowerment offers a different justification for limitations like
these than economic accounts that seek to reduce all justifica-
tions to questions of overall or average subjective-preference
maximization. 188
Although it goes beyond the scope of this Article to discuss
which public policy limitations are warranted by this approach,
there is a large secondary literature on what contractualist ac-
counts of obligation require.189 Contract as empowerment sug-
gests that it is this literature, and the questions pursued there-
in, that should be consulted to determine when public policy
limitations are consistent with the normative foundations of
contract. This approach can be used to test a broad range of pub-
lic policy limitations, including prohibitions against contracting

188 Of course, the most sophisticated economists do not fall into this camp. See, for
example, Richard A. Posner, Economic Analysis of Law 35 (Wolters Kluwer 8th ed 2011)
("[Tļhere is more to justice than economics, and this is a point the reader should keep i
mind in evaluating normative statements in this book."). I thank Professor Bix for re-
minding me of this point.
189 See generally, for example, Gerald Gaus, The Order of Public Reason: A Theory
of Freedom and Morality in a Diverse and Bounded World (Cambridge 2011); Jean
Hampton, Hobbes and the Social Contract Tradition (Cambridge 1986). See also Rawls
A Theory of Justice at 130-36 (cited in note 27).

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into slavery,190 minimum wage laws,191 l

tion,192 and regulations of sales of var
drugs.193 If limitations like these preven
others to act in ways that are prohibited
could reasonably reject, then they are fu
normative foundations of contract and th
modern marketplace on the current view.19
I turn, finally, to doctrines that invit
police bargains for contractual fairness
ness," I mean something specific. I mean t
terpersonal fairness that arises between s
ties and within specific contractual relations. This should
therefore be distinguished from fairness in the overall distribu-
tion of benefits and burdens among members of a society - or
what is properly referred to as "distributive justice."195 Contrac-
tual fairness is independent of distributive justice in this sense,
and it is instead concerned with the extent to which specific con-
tracting parties treat one another fairly. It is therefore useful to
separate doctrines that reflect concerns for contractual fairness
from doctrines that reflect concerns for public policy (including
concerns for distributive justice).
The modern unconscionability doctrine is clearly concerned
with contractual fairness - at least in part.196 There are, howev-
er, many other examples of this concern in modern contract law.
One is the implied duty of good faith and fair dealing, because
19° US Const Amend XIII, § 1.

191 See, for example, 29 USC § 206.
192 See, for example, 18 USC § 2422. For a good discussion of some of the values that
are at stake in laws that regulate prostitution, see Radin, 100 Harv L Rev at 1921-25
(cited in note 133).
193 See, for example, 42 USC § 12210; 41 CFR § 60-741.24.
194 I am not arguing here that any particular public policy limitations meet this cri-
terion. That would take another article or a series of articles.
195 Here, I am agreeing with Professor Arnold F. McKee that people sometimes use the
terms "distributive" or "social" justice to encompass three distinct forms of justice: social
justice, distributive justice properly so-called , and the justice of exchange. See Arnold F.
McKee, What Is "Distributive" Justice ?> 39 Rev Soc Econ 1, 1 (1981). Distributive jus-
tice - in the sense of a fair distribution of burdens and benefits within a society among
all its members - nevertheless differs from the justice or fairness of individual exchang-
es. I therefore agree with McKee that "the concept of distributive justice is [ ] best re-
served for its old sense of sharing out community benefits and burdens to individual
members." Id. In any event, I use the term "distributive justice" in this restricted sense
here, and I distinguish it from contractual fairness.
196 However, the doctrine may also be concerned with more. For example, Professor
Anthony Kronman clearly views it as concerned at least in part with distributive justice.
Kronman, 89 Yale L J at 474 (cited in note 58).

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this duty essentially prevents parties from exploiting on

er in unfair ways once having formed a contract.197 An
ample relates to the standard tests for partial, material,
tal breach.198 These rules determine what levels of resp
warranted by different classes of breach. As a practical
these rules, which cannot be contracted around, work to
that parties respond fairly - in the sense of proportion
one another's lapses in performance.199 Yet another exa
lates to the different ways that contract law treats differe
lateral modifications of contracts. In particular, courts w
some unilateral modifications when circumstances chan
ways that alter the fundamental nature of a transaction
as the modifications are "fair."200 Under the preexistin
rule, however, courts will not allow parties to force un
modifications in unfair or exploitative ways.201 There
numerous statutory regimes that regulate specific mar
contractual fairness in more-particularized settings. So
amples include consumer-protection statutes,202 certain
and banking regulations,203 and aspects of labor law.204
197 See UCC § 2-103 (ALI 2012) (defining good faith for merchants as "h
fact and the observance of reasonable commercial standards of fair dealing in
Restatement (Second) of Contracts § 205, comment a (1981) ("Good faith perf
enforcement of a contract emphasizes faithfulness to an agreed common
consistency with the justified expectations of the other party; it excludes a
types of conduct characterized as involving 'bad faith' because they violate c
standards of decency, fairness or reasonableness.").
198 See Restatement (Second) of Contracts §§ 241-42 (1981) (setting forth
distinguish material breaches from partial breaches).
199 See Restatement (Second) of Contracts §§ 235-44 (1981) (setting forth f
evaluating failures to perform and allowing corresponding responses by n
parties).
200 Restatement (Second) of Contracts §§ 261-72 (1981).
201 Compare Restatement (Second) of Contracts §§ 261-72 (1981) (allowing the uni-
lateral discharge of duties on the grounds of impracticability or frustration), with Re-
statement (Second) of Contracts §§ 273-77 (1981) (requiring consideration or a substi-
tute to discharge duties with the assent of the obligee).
202 See generally, for example, Fair Credit Reporting Act, Pub L No 91-508, 84 Stat
1128 (1970), codified as amended at 15 USC § 1681 et seq; Fair Debt Collection Practices
Act, Pub L No 95-109, 91 Stat 874 (1977), codified as amended at 15 USC § 1692 et seq.
See also UCC § 2A-104(l)(c) (ALI 2012) (stating that leases are subject to state consumer-
protection laws).
203 See generally, for example, Truth in Lending Act, Pub L No 90-321, 82 Stat 146
(1968), codified as amended at 15 USC § 1601 et seq. See also Equal Credit Opportunity
Act § 503, Pub L No 93-495, 88 Stat 1521-22 (1974), codified as amended at 15 USC
§ 1691.
204 See, for example, Daniel Morton- Bentley, Two Guiding Trends in Contemporary
Labor and Employment Law: Technology and Fairness (The Federalist Society, Dec 9,
2011), archived at http://perma.cc/5P5K-AZTE (observing that one of the "two primary

14.139.214.181 on Fri, 10 Jul 2020 12:52:58 UTC
Contract as empowerment offers a dist

determine when doctrines that invite or
bargains for contractual fairness reflect d
fundamental principles of contract. To u
work, it helps to ask when contract la
doctrines that either invite or require co
for substantive fairness, as reflected mos
unconscionability doctrine. The two mos
topic are that contracts should never be
fairness (a view that is popular on the
that contracts should always be policed f
(a view that is sometimes voiced on the e
tract as empowerment rejects both of
proach to this question depends on what
police bargains for substantive fairness.
Section explores how judgments of subst
fairness might be made. It describes an
and then recommends another as consistent with contract as
empowerment.
Hence, consider a system of rules that invite or require
courts to reform all contractual terms based on their own senses
of what fair exchange is. Courts would thus substitute their own
conceptions of fairness for the parties' agreed-upon terms in all
cases, thereby making the parties' intents wholly irrelevant to
the remedies available for breaches of contract. Under these
rules, parties would be unable to fashion the level and type of
inducement that they desire when contracting. These rules
would thus be significantly disempowering and would make it
much harder for parties to use contracts to obtain broad ranges
of goods or services. In addition, without some reliable method
trends guiding contemporary labor and employment law" is "increased fairness measures
at the expense of legal certainty").
205 See, for example, Epstein, 18 J L & Econ at 304 (cited in note 142) ("[CJourts
should then enforce [contractual] transactions in accordance with the general principles
of contract law, without any resort to unconscionability doctrines, and without any inde-
pendent examination of the 'fairness' of the agreement's substantive terms."V
206 I say "sometimes" because it is rare to find people who believe that contracts
should always be set aside in favor of courts' views on the substantive fairness of an ex-
change. Some on the economic left nevertheless believe that there should be more, not
less, room for doctrines like unconscionability. See, for example, Kronman, 89 Yale L J at
510 (cited in note 58) (arguing that "contractual regulation will on occasion be the least
intrusive and most efficient way of redistributing wealth to those who have a legitimate
claim to a larger share of society's resources").

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to measure whether contracts are substantively fair,207

clear that these rules would ensure either fair exchange
changes that are perceived as fair by the relevant parties.208
When determining whether promisors could reasonab
ject these legal rules, one must therefore weigh the rule
pected costs and benefits to particular promisors and co
these rules to the alternatives. One must also consider the costs
of error in light of the epistemic challenges that these rules cre-
ate with respect to courts' abilities to identify exchanges that are
both mutually beneficial and fair.209 If the only choices were
rules that always policed bargains for substantive fairness,
based on courts' intuitions of fairness, and rules that never did,
then no one could reasonably reject the latter rules because the
latter rules would be more empowering to all. The rules might
not always be equally empowering and might allow for some
substantively unfair exchanges. Still, these facts cannot be rea-
sonable grounds for rejecting these rules if the ideals of substan-
tive fairness and equal empowerment are unreachable in prac-
tice and if the only alternative legal rules would be
disempowering - and hence harmful - to all.210
There is, however, no reason to consider only the two most
extreme views on this topic - namely, that courts should always
or never police bargains for substantive fairness. Whether peo-
ple can reasonably reject a set of legal rules depends not only on
the intrinsic features of the rules but also on what the alterna-
tives are. Because these are not the only alternatives, this can-
not be the end of the analysis.
Hence, consider a set of rules that invite courts to use in-
formation produced by many private market exchanges as a
metric to determine whether particular exchanges are likely to
207 With respect to this epistemic issue, Professor Richard Epstein has suggested,
for example, that "[i]t is difficult to know what principles identify the 'just term,' and for
the same reasons that make it so difficult to determine the 'just price.'" Epstein, 18 J L
& Econ at 306 (cited in note 142).
208 por reasons that Professor Friedrich Hayek has outlined, I believe that - absent
robust private market activity - it is often difficult to identify exchanges that would be mu-
tually beneficial, let alone fair. See generally Hayek, 35 Am Econ Rev 519 (cited in note 97).
209 For further discussion of these challenges, see generally id.
210 Although the fact that a set of rules produces unfair allocations of goods and ser-
vices can provide a reasonable ground to reject these rules, that rejection will be reason-
able only if there is an alternative set of rules that is more fair and does not create too
much additional harm to anyone.

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be substantively fair.211 Rather than rely

es of fairness to police contracts in all ca
free - under these rules - to bargain from
interest in most cases, and courts would t
their agreed-upon terms (as interpreted
tive test).212
When parties enter into contracts from
gaining positions, courts would view the
cially good evidence of what a fair excha
Courts would then use this information as a metric to test for the
substantive fairness of other similar contracts - but only in certain
exceptional circumstances, which I will describe momentarily.213
The first point to recognize about these rules is that they
would depend on courts' deference to parties' voluntary agree-
ments, as objectively construed, in the broad run of cases. It is
largely by deferring to parties' voluntary agreements in the
broad run of cases that courts would obtain the information that
is needed to police bargains for substantive fairness in certain
exceptional cases. Hence, these rules would not be disempower-
ing to anyone in the broad run of cases.
When parties enter into contracts from highly unequal bar-
gaining positions, however, courts would inquire further into
their terms and test them against this metric for substantive
fairness. Courts would ask whether these terms significantly de-
viated from those that the parties would have likely reached from
a procedurally fair bargaining position. A court would invalidate
211 This method would thus employ, rather than undermine, information produced
by private markets. Rather than failing to acknowledge Hayek's important insights in
The Use of Knowledge in Society , this method would take advantage of them. See gener-
ally Hayek, 35 Am Econ Rev 519 (cited in note 97).
212 I say a "modified objective test" rather than an "objective test" for the reasons
explained in this Section.
213 To understand this proposal, one must understand what it means to say that two
parties have entered into a contract from an "equal bargaining position." I say that two
parties have entered into a contract from a perfectly equal bargaining position if they
have negotiated with perfectly equal capacities, perfectly equal access to knowledge of
any facts relevant to the exchange, perfectly equal understandings of all of the relevant
terms, perfectly equal capacities to modify all of the relevant terms, perfectly equal time
and opportunity to deliberate, and perfectly equal access to the market. In addition, nei-
ther party can have induced the other to enter into the contract through misrepresenta-
tion, duress, undue influence, or manipulation of the other's voluntary choices in ways
that are likely to systematically disadvantage the other party. The parties must there-
fore be motivated solely by their equally reliable assessments of the expected costs, bene-
fits, and perceived market fairness (or fairness relative to other market possibilities) of
the underlying exchange.

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or reform a contract for substantive fairness only if the

sufficient evidence both of one party's opportunity to take
advantage of the other party and of the realization of u
terms in the contract.
This idea roughly matches the orthodox "sliding scale" ap-
proach to unconscionability, which inquires into both procedural
and substantive unconscionability but requires less evidence of
one when there is more evidence of the other.214 Courts tend to
find unconscionability only in exceptional cases and - with some
exceptions - only when both types of unfairness are present in
some form.215
The question to ask is whether parties could reasonably re-
ject this second set of rules in favor of rules that never allow
courts to police bargains for substantive fairness. The answer is
no, so long as this second set of rules sufficiently preserves par-
ties' empowerment interests while helping to ensure that con-
tract law is more equally empowering. The relevant rules must
also be operational: the doctrines cannot seek to promote an ide-
al of substantive fairness that is unattainable in practice, and
the costs of policing must be lower than the benefits of fair
treatment to parties who might otherwise be treated unfairly.
214 See Restatement (Second) of Contracts § 208, comment c (1981) ("[A] contract
[may] be oppressive taken as a whole, even though there is no weakness in the bargain-
ing process and no single term which is in itself unconscionable."); Samuel Williston, 8 A
Treatise on the Law of Contracts § 18:10 at 111-14 (West 4th ed 2010) (Richard A. Lord,
ed) ("Thus, the fairness of the bargaining procedure - and hence, whether there is proce-
dural unconscionability - may be of less importance if it results in harsh or unreasonable
substantive terms, or substantive unconscionability may be sufficient in itself even
though procedural unconscionability is not.") (citation omitted); Philip L. Bruner and
Patrick J. O'Connor Jr, 8 Bruner & O'Connor on Construction Law § 21:142 at 53-54
(Thomson Reuters 2014) ("[A] number [of jurisdictions] have adopted a 'sliding scale' ap-
proach that permits a court to conclude an arbitration clause is unconscionable based on
less evidence of either one of the two types of unconscionability as long as there is
stronger than usual evidence of the other type of unconscionability.").
215 On the exceptional use of unconscionability, see, for example, Sitogum Holdings,
lne v Ropes , 800 A2d 915, 916 (NJ Super Chanc Div 2002) (noting that "[t]he common
law doctrine of unconscionability has proved difficult to define and has been rarely in-
voked undoubtedly because, other than in exceptional cases, it has largely been viewed
as grossly interfering with the freedom to contract"). On the typical need for both proce-
dural and substantive unconscionability, see, for example, Bruner and O'Connor, Bruner
& O'Connor on Construction Law at § 21:142 at 53-54 (cited in note 214) ("[M]ost juris-
dictions require a showing of both procedural and substantive unconscionability."). But
see Williston, 8 A Treatise on the Law of Contracts at § 18:10 at 115 (cited in note 214),
quoting Maxwell v Fidelity Financial Services, Ine , 907 P2d 51, 59 (Ariz 1995) ("There-
fore, we conclude that under [UCC § 2-302], a claim of unconscionability can be estab-
lished with a showing of substantive unconscionability alone, especially in cases involv-
ing either price-cost disparity or limitation of remedies.").

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Contract as empowerment thus offers a

to determine when rules that invite or req
bargains for substantive fairness are consist
tive foundations of contract. Although ma
that these regulations reflect improper restri
contract,216 this framework suggests that
mote equal contractual empowerment - the
tract that is capable of producing genuine
the current view, regulations like these are
rather than alien intrusions into - the fund
contract and the modern market. It is also
nize that this explanation does not depend
as mechanisms to promote distributive just
tual fairness, distributive justice may be be
mechanisms like tax and transfer than thro
The present framework can, moreover,
explain a number of potentially puzzling fea
tract law. For example, it plausibly recomm
terpretive principle, which suggests filling
contracts (and construing ambiguities in th
imate the terms that the parties would hav
cumstances of perfect procedural fairness.21
work also plausibly recommends subjecting certain classes of
contracts, in which procedural inequalities are especially com-
mon, to special scrutiny for both substantive and procedural
fairness. Some examples of laws that already do this include
laws that govern fair-lending practices,218 consumer-protection
statutes,219 the contra proferentem doctrine (which sometimes al-
lows courts to interpret contractual ambiguities against the
216 See Posner, Economic Analysis of Law at 147-48 (cited in note 188). See also
Richard Craswell, Freedom of Contract, in Eric A. Posner, ed, Chicago Lectures in Law
and Economics 81, 81 (Foundation 2000) ("Depending on one's point of view, freedom of
contract can be seen as a choice between individual liberty and heavy-handed govern-
ment control, or between communitarian consensus and the worst excesses of laissez-
faire capitalism.").
217 Some economists have made similar recommendations. See, for example, Steven
Shavell, Foundations of Economic Analysis of Law 301 (Belknap 2004) ("As a general
matter, parties will want incomplete contracts to be interpreted as if they had spent the
time and effort to specify more detailed terms") . The present recommendation neverthe-
less specifies filling gaps in contracts not with the terms that the parties would have ac-
tually agreed to but with the terms they would have agreed to had they been bargaining
from a position of perfect procedural fairness.
218 See, for example, 15 USC §§ 1601-67.
219 See, for example, Uniform Consumer Credit Code § 5.108 (Prentice-Hall 1968).

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dominant parties who draft contracts),220 the reasonable-

expectations doctrine (which applies primarily to insurance con-
tracts),221 the law of collective bargaining,222 employment dis-
crimination and minimum wage statutes,223 and a broad range of
legal doctrines that invite special scrutiny for boilerplate and for
contracts of adhesion.224 As noted, this general framework is also
very close to the modern doctrine of unconscionability.225
I do not, however, believe that current law perfectly reflects
rules that promote equal empowerment (or deviate from this
ideal only when no one could reasonably reject rules that are
unequally empowering in light of the available alternatives). In
my view, this problem is partly attributable to the absence of a
plausible theory of contract that exhibits the appropriate rela-
tionship between doctrines that police bargains for fairness and
the normative foundations of contract. But it is also partly at-
tributable to modern changes in the world, including the fact
that contracts are increasingly formed with the use of boiler-
plate, which is rarely read or understood - especially in many
consumer contexts.226 This is thus one of the areas in which the
greatest amount of legal reform is warranted,227 and for which
220 See Charles L. Knapp, Nathan M. Crystal, and Harry G. Prince, Problems in
Contract Law 357-58 (Wolters Kluwer 2007).
¿¿1 Id at 379-80 (explaining that, under the reasonable-expectations doctrine, the
objectively reasonable expectations of policyholders will be honored even if a study of pol-
icy provisions shows that they would have negated those expectations).
222 See generally, for example, National Labor Relations Act, 49 Stat 449 (1935),
codified as amended at 29 USC § 151 et seq.
223 See, for example, Civil Rights Act of 1964 § 703, Pub L No 88-352, 78 Stat 241,
255-57, codified as amended at 42 USC § 2000e-2.
224 See Kessler, 43 Colum L Rev at 633 (cited in note 139) ("[0]ur common law of
standardized contracts is highly contradictory and confusing, and the potentialities in-
herent in the common law system for coping with contracts of adhesion have not been
fully developed.").
225 See Restatement (Second) of Contracts § 208 (1981); UCC § 2-302 (ALI 2012); E.
Allan Farnsworth and William F. Young, Cases and Materials on Contracts 386-454
(Foundation 5th ed 1995). See also Burch v Second Judicial District Court of the State of
Nevada , 49 P3d 647, 650 (Nev 2002) ("Generally, both procedural and substantive un-
conscionability must be present in order for a court to exercise its discretion to refuse to
enforce a contract or clause as unconscionable. . . . Because the procedural unconsciona-
bility in this case is so great, less evidence of substantive unconscionability is required to
establish unconscionability.").
bee, tor example, Umri Ben-öhahar and Carl b. bchneider, More lhán You
Wanted to Know: The Failure of Mandated Disclosure 59-93 (Princeton 2014); Radin,
Boilerplate at 197-216 (cited in note 161). See also Kar, The Challenge of Boilerplate
(cited in note 160).
227 See, for example, Radin, Boilerplate at 243-48 (cited in note 161) (suggesting
steps for NGOs, firms, regulatory agencies, courts, and lawyers).

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contract as empowerment might be of gr

velop some of these points in later applica
Still, as the above arguments collective
empowerment offers a unified account of
zling and seemingly inconsistent doctrin
law. The fact that contract as empowerm
the core doctrines identified in Part II, w
gally obligatory force of contracts, suggest
ry has important interpretive advantages over other leading
economic and philosophical theories of contract.
IV. Objections and Limitations
This Part now turns to three objections that one might

to contract as empowerment. The first claims that the th
cannot offer a complete interpretive theory of contract
the theory has been shown to have only limited explan
power. The second argues that even if contract as empower
offers a complete interpretive theory, it is insufficiently d
from economic theories to reflect a meaningful alternativ
third suggests that the theory should be rejected because i
on a controversial normative foundation.
A. Completeness of the Theory

The first objection questions whether contract as empower-
ment offers a complete interpretive theory of contract. Even if it
offers the best unified explanation of the three core areas of doc-
trine discussed in this Article, no attempt has been made to in-
terpret many other rules.
This limitation is partly due to space, and partly due to my
aim in this Article. My aim is to introduce the theory of contract
as empowerment and establish that it has major interpretive ad-
vantages over leading economic and philosophical theories. As
explained in Part II, the three areas of doctrines that I focus on
here were therefore chosen very carefully. They collect some of
the best-known puzzles about contract law, which largely define
its core subject matter. The doctrines often have some mandatory
status and have proved remarkably stable, in some form, in all
common-law systems with advanced market economies.228 These
doctrines also capture some of the deepest and most seemingly
228 See Part II.

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irreconcilable tensions in modern contract law, such as those

among fairness, liberty, and efficiency.229 Because contract as
empowerment is uniquely capable of harmonizing this entire
constellation of doctrines while explaining the legally obligatory
force of contracts,230 it has major interpretive advantages over all
other leading theories of contract.
With respect to completeness, I have also shown that con-
tract as empowerment can explain core doctrines at each major
stage of contract analysis: formation (for example, the rules of
mutual assent and consideration);231 interpretation and con-
struction (for example, the modified objective approach to inter-
pretation and the implied duty of good faith and fair dealing);232
performance and breach (for example, the standard rules gov-
erning tests for material breach and the reactions warranted by
different classes of breach);233 many of the standard defenses (for
example, unconscionability and public policy); and the standard
remedies (for example, private rights to expectation damages,
with some exceptions for specific performance).234 Contract as
empowerment also explains why claims for breach of contract
differ from claims for promissory estoppel.235
Although more work remains to be done, contract as em-
powerment thus identifies a unifying thread that runs through
many varied contract-law doctrines and helps to distinguish its
core subject matter. For reasons discussed, contract as empow-
erment also offers the best available general interpretation of
this doctrinal core. Hence, at the very least, it will be worth the
time and effort to extend contract as empowerment to a much
broader range of doctrines. One of the central purposes of this
Article is, in fact, to introduce contract as empowerment in a
succinct and compelling enough manner to prompt those further
applications. I hope to encourage empowerment-based accounts
of a much broader range of doctrines and establish the need for
empowerment-based recommendations with respect to more le-
gal reforms.
229 See Part II.

230 See Parts I, III.
23i See Parts III.B, III.C.l.
232 See Part III.C.2.
233 See Part III.C.2.
234 See Part III.A.
235 See Part III.B. i

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B. Distinctiveness of the Theory from Ec

The second objection argues that even i
erment offers a complete interpretive the
distinct from economic theories to offer
tive. This objection is rooted in the fact t
erment relies on some economic insights
mendations that resemble those of economic theories.236
When determining which contract rules should be legally
enforced, contract as empowerment does, in fact, resemble eco-
nomic theories in some ways. Unlike many traditional deonto-
logical (or duty-based) theories, it explicitly considers the conse-
quences of legal rules when determining the appropriate shape
of contract law.237 Contract as empowerment can therefore ab-
sorb many of the economic and psychological insights that have
given economic theories their traditional explanatory ad-
vantages.238 Still, contract as empowerment considers these con-
sequences from a special perspective, which prevents the theory
from being reduced to a purely consequentialist one.239 Rather
than asking which rules produce the best economic consequenc-
es without more, it asks whether certain rules, with certain ex-
pected consequences, are ones that no one could reasonably re-
ject in light of the available alternatives.240 This form of
justification is fundamentally contractualist, not consequential-
ist, in orientation. It is a deontological (or duty-based) form of
justification, which can sometimes - as shown in earlier sec-
tions - produce different recommendations than economic theo-
ries produce.241
In addition, even when contract as empowerment generates
the same recommendations as economic theories, it offers a fun-
damentally different interpretation of them. This difference is
236 See Part I.

237 Contractualist s agree that "[cļlaims about individual well-being are one class of
valid starting points for moral argument." Scanlon, Contractualism and Utilitarianism
at 108 (cited in note 32).
238 See, for example, Part III.A.2 (absorbing but reinterpreting some insights of effi-
cient breach theorists); Parts I, III.C.l (absorbing but reinterpreting some insights about
the welfare-producing aspects of contract law and modern markets).
239 See generally, for example, Scanlon, Contractualism and Utilitarianism (cited in
note 32).
¿4Ü See id at 110 ( An act is wrong if its performance under the circumstances would
be disallowed by any system of rules for the general regulation of behaviour which no
one could reasonably reject as a basis for informed, unforced general agreement.").
241 See, for example, Part III.

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equally important for understanding the use and distinc

of the current theory.
To illustrate, consider the fact that both contract as
erment and economic theories endorse a major role for
negotiation, pursued from a standpoint of self-interest,
ating legally enforceable contracts.242 Both cite similar
this endorsement. When, for example, private parties
from a perspective of self-interest, their voluntary cho
to reveal their subjective preferences.243 Contract enf
can therefore promote exchanges that conduce to both
subjective preferences.244 Although I do not believe that su
preference satisfaction equates to human welfare,245 1 d
that people are different enough to have varied persona
of happiness and welfare. I also believe that peoples' sub
preferences often provide useful - though not infallible
of information about their routes to personal happiness
fare.246 I believe, finally, that Professor Hayek was right t
242 See Part III.

243 For the source of this highly influential "revealed preference" approach to meas-
uring utility, see generally Samuelson, 5 Economica 61 (cited in note 150). Although
some economists have criticized the idea that preferences can be identified simply from
choice, there is no doubt that choosing something over other available options increases
the likelihood of the chosen good being subjectively preferred to the other options. See
generally, for example, Sen, 61 Econometrica 495 (cited in note 150).
244 See, for example, Ian R. Macneil, Contracts: Adjustment of Long-Term Economic
Relations under Classical, Neoclassical, and Relational Contract Law , 72 Nw U L Rev
854, 872 (1978) ("When A and B agree to exchange As good X in return for B' s good Y, we
conclude, in the absence of factors other than desires for X and Y causing the agreement
to occur, that the exchange will enhance the utility levels of each."); id ("[T]he underlying
assumption [is] that the function of a classical or neoclassical contract law system is to
enhance the utilities created by choice-generated exchange.").
245 For a good discussion of some of the problems with defining human welfare in
terms of revealed subjective preferences, see Robert Sugden, Book Review, Welfare, Re-
sources, and Capabilities: A Review of Inequality Reexamined by Amartya Sen , 31 J Econ
Lit 1947, 1957-62 (1993).
246 Some scholars, including Mill, have posited psychological mechanisms that shape
our complex desires over the course of our experiences to better track our happiness. See,
for example, John Stuart Mill, Utilitarianism, in John Stuart Mill, Utilitarianism, Liber-
ty, and Representative Government 1, 46 (Dutton 1951):
Life would be a poor thing, very ill provided with sources of happiness, if there
were not this provision of nature, by which things originally indifferent, but
conducive to, or otherwise associated with, the satisfaction of our primitive de-
sires, become in themselves sources of pleasure more valuable than the primi-
tive pleasures, both in permanency, in the space of human existence that they
are capable of covering, and even in intensity.
I believe that these types of mechanisms plausibly exist as evolutionary adaptations but
that they are also prone to failure in some circumstances. There are also circumstances

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out that private bargaining produces in

routes to human preference satisfaction t
cult - if not impossible - for a centralized
fy on its own.247 Hence, I believe that c
especially useful and nonduplicative mech
ties to meet a broad range of human needs and interests
through the marketplace.
These are reasons that many economists cite to explain the
legal enforcement of contracts, and these are reasons that empow-
erment theorists can endorse.248 Still, contract as empowerment
interprets self-interested bargaining very differently than classi-
cal economic theories do. Instead of suggesting that people are
purely instrumentally rational (or even boundedly rational249),
contract as empowerment recognizes that most people have ad-
ditional moral motivations. Based on a range of theoretical, evo-
lutionary, and empirical work, it suggests that most humans
have a natural sense of obligation,250 which it interprets to in-
clude motives to act in ways that people can justify to others on
grounds that others cannot reasonably reject.251 On the current
view, people need not dispense with these motives when they
enter the marketplace. They can bargain with one another from
a perspective of self-interest and still treat each other as full
moral equals, so long as this form of bargaining is either permitted
in which true happiness requires freedom from the bondage of self. See Kar, 84 Tex L
Rev at 927 (cited in note 12).
247 See Hayek, 35 Am Econ Rev at 524 (cited in note 97); Macneil, 72 Nw U L Rev at
859 (cited in note 244) ("The combination of exchange with promise has been one of the
most powerful social tools ever developed for the production of goods and services.").
248 See, for example, Posner, Economic Analysis of Law at 123-26 (cited in note 188)
(discussing the economic functions of contracts, particularly with respect to consideration).
249 See generally, for example, Tversky and Kahneman, 211 Science 453 (cited in
note 31) (describing classical assumptions of rationality in economic theory and recom-
mending their replacement with a theory of bounded rationality); Daniel Kahneman, A
Perspective on Judgment and Choice : Mapping Bounded Rationality , 58 Am Psychologist
697 (2003) (suggesting the replacement of classical rational-choice theory with a theory
of bounded rationality in the social sciences).
250 See generally Kar, 84 Tex L Rev 877 (cited in note 12). See also Jonathan Haidt,
The Righteous Mind: Why Good People Are Divided by Politics and Religion 25-26 (Allen
Lane 2012) (supplementing the two main theories from whence "morality comes" -
innateness and childhood learning - with a third theory that "morality is self-constructed
by children on the basis of their experiences with harm"); Mikhail, Elements of Moral
Cognition at 296-97 (cited in note 29) (noting that classical natural lawyers like Cicero
and Hume believed that our "moral sense" is innate to our human nature).
251 Scanlon, What We Owe to Each Other at 191 (cited in note 27) (suggesting that
ordinary people are motivated to act not only rationally but also in ways that they can
justify to others as conforming to principles for the general regulation of behavior that
others, similarly motivated, cannot reasonably reject).

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or encouraged by rules that no one could reasonably rejec

tract as empowerment suggests that bargaining from a p
tive of self-interest is permitted (within limits) in the mark
but construes these bargains as generating genuine legal
tions, which engage more than just contracting parties'
ties for instrumental reason.
On the current view, contracting and modern market activi-
ty are therefore not simply social spheres in which self-interest
runs wild. Nor are they spheres in which competition of every
kind is permitted. They are rule-governed social phenomena,
which generate genuine legal obligations to the precise extent
that the rules are simultaneously empowering and reflective of a
moral ideal of equal respect for persons. It follows that persons
who interact with each other in accordance with rules like these
participate in a form of moral, and not just economic, interac-
tion. They treat one another as full moral equals - and not as
mere means to economic goals or private ends.
Contract as empowerment can therefore absorb many eco-
nomic insights and endorse many similar rules,252 but it still of-
fers a meaningful alternative to economic theories.253 It suggests
that an important moral fiber has been running through con-
tract law and modern markets for some time now - albeit one
that has often been obscured by classical economic interpreta-
tions of these phenomena. This moral fiber must be understood
in any true social science of contract law and modern markets.
C. Controversial Normative Foundations of the Theory

The third objection to contract as empowerment challenges
the theory because it rests on a controversial normative founda-
tion. Every normative theory faces this challenge in some form.
Still, I believe that the normative foundations of contract as em-
powerment are less problematic, in this particular context, than
other normative theories of contract for three reasons.
First, for reasons explained herein, I believe that contract as
empowerment offers the most promising general interpretation of
contract law's doctrinal core.254 To the extent that this is true, it
articulates the best available justification of the core of modern
contract law as it stands. Even if one questions the normative
252 See, for example, Parts I, IILA.2, III.B.

253 See, for example, Parts IILA.2, III.C.
254 See Part III.

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foundations of contract law, the theory

important about what those normative
are not purely consequentialist in nature.
Second, this may be the best we can ho
justifying human constructions like th
tracts. In The Two Faces of Morality , I
general constraints that any form of jus
qualify a rule as a moral (and not merely
concede that both utilitarian and contract
cation meet these very general constra
there may be no further fact of the mat
justification is more valid.256 Humans
have naturally evolved to engage in a par
judgment, which happens to be contractu
to produce a recognizable species of moral
Unless there is some further fact of the ma
ity really is, which conclusively dispro
counts of the right, it may be justificatio
that contract law reflects a human species
Third, in any event, I believe that cont
obligation are the right ones to apply t
goes beyond the scope of this Article to a
tualist accounts have an incredibly solid
one of the two major branches of socia
some of the most prominent moral and
our time - including Professors Steph
Korsgaard, John Rawls, and Thomas Scan
their validity.258 In Contractualism and
explains why contractualist accounts be
tions about morality that lead many to fe
tarian accounts of the right.259 I belie
ments on this point are correct - at leas
realm of what we owe to one another.
There are, moreover, heightened reasons to think that con-
tractualist approaches to justification apply to legal obligations.
255 See Kar, The Two Faces of Morality at 68-69 (cited in note 29).
256 id at 69.
257 See, for example, Kar, 84 Tex L Rev at 877 (cited in note 12); Brian bkyrms, Evo-
lution of the Social Contract 4-7 (Cambridge 1996). See also generally Kar, The Psycho-
logical Foundations of Human Rights (cited in note 29).
258 For a general account of these varied views, see generally Darwall, Contractarianism/
Contractualism (cited in note 26).
259 See generally Scanlon, Contractualism and Utilitarianism (cited in note 32).

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This is because legal obligations purport to give some other p

or group the authority to demand compliance. Legal obl
are therefore instances of what Darwall calls "second-pe
reasons."260 In Hart's Response to Eocclusive Legal Positi
argue at length that the law is fundamentally second per
nature and that Hart was beginning to understand that
himself toward the end of his career.261 This is true even if -
contrary to Darwall - some aspects of interpersonal morality are
not fundamentally second personal in nature.262 But I also accept
Darwall's arguments that second-personal reasons can have the
authority that they purport to have only if they are justifiable in
contractualist terms.263 This is because they involve' interperson-
al demands, which are backed by the threat of formal or infor-
mal sanctions. These demands and sanctions can amount to
something more than coercion only if the rules that give rise to
them are justifiable to their addressees in terms that these ad-
dressees cannot personally reasonably reject.264 It follows that
contractualist forms of justification are particularly relevant to
justifying legal obligations.
260 Darwall, The Second-Person Standpoint at 8 (cited in note 22):

A second-personal reason is one whose validity depends on presupposed au-
thority and accountability relations between persons and, therefore, on the
possibility of the reason's being addressed person-to-person. Reasons addressed
or presupposed in orders, requests, claims, reproaches, complaints, demands,
promises, contracts, givings of consent, commands, and so on are all second-
personal in this sense.
261 See generally Kar, 95 Georgetown L J 393 (cited in note 33).
262 Some have argued against Darwall's second-personal interpretation of morality.
See, for example, Christine M. Korsgaard, Autonomy and the Second Person Within: A
Commentary on Stephen Darwall's The Second-Person Standpoint, 118 Ethics 8, 20-23
(2007) (arguing that Darwall's main normative conclusions follow from a first person
stance on deliberation); R. Jay Wallace, Reasons, Relations , and Commands: Reflections
on Darwall , 118 Ethics 24, 26-27 (2007) (arguing that some moral requirements do not
depend on being addressed in a second-personal manner); Gary Watson, Morality as
Equal Accountability: Comments on Stephen Darwall's The Second-Person Standpoint,
118 Ethics 37, 50-51 (2007) (arguing that Darwall's arguments rely on a limited rejec-
tion of certain nonconstructivist forms of moral realism). But see generally Stephen
Darwall, Reply to Korsgaard, Wallace, and Watson , 118 Ethics 52 (2007). I take no posi-
tion on these issues here, but I would like to make two observations. First, some of these
arguments, like Korsgaard's, imply that there is a first personal source for a similar con-
tractualist approach to morality - thus providing an argument of the wrong kind to un-
dermine the current project. Second, some of the other arguments, like Wallace's, apply
to some aspects of morality but not to law, whereas others, like Watson's, rely on the
possibility of a nonconstructivist form of moral realism - which many reject.
263 See Darwall, The Second-Person Standpoint at 29-38, 300-20 (cited in note 22).
264 See id at 300-20.

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In sum, the normative foundations of c

ment are - at minimum - no more controversial than those of
any other theory. They provide the best harmonized justification
for the core of contract law as it currently stands, in part be-
cause they explain the legally obligatory aspects of contract law
in ways that economic theories cannot. There are also good rea-
sons to think that contractualist accounts of obligation are cor-
rect, especially as accounts of legal obligation. But there may be
no fact of the matter as to whether contractualist or consequen-
tialist theories of the right are true. In that case, contractualist
accounts describe the species of moral action that comes most
naturally to us.
Conclusion
In this Article, I have introduced the basic theory of co

as empowerment and argued that it has major interpretiv
vantages over both orthodox economic and philosophical t
ries. The theory is simultaneously descriptive, in that it ex
the shape of many of contract law's core doctrines, and n
tive, in that it explains how contract law should look if i
give rise to genuine legal obligations. By harmonizing a
constellation of doctrines, which would otherwise pose a p
ful challenge to modern contract theory, I have argued th
tract as empowerment offers the best available interpretat
contract law's doctrinal core - at least in relation to the common
law. Contract as empowerment may therefore offer the missing
theory of contract described by Professors Schwartz and Scott.265
Several important consequences follow. First, I believe that
contract as empowerment tells us something important, and po-
tentially surprising, about contracts and modern markets. Con-
tracting is first and foremost a rule-governed social activity.266
The rules that govern contract are complex and interlocking,267
and any social scientists or philosophers interested in under-
standing them should therefore begin by seeking the best inter-
pretation of this entire body of rules. Although economics aspires
to be a social science,268 economists sometimes bring a range of
theoretical preconceptions to their studies that can distort their
265 Schwartz and Scott, 113 Yale L J at 543 (cited in note 1).
266 See Part I.
™ See Parts II, III.
268 See generally Daniel M. Hausman, Introduction , in Daniel M. Hausman, ed, The
Philosophy of Economics: An Anthology 1 (Cambridge 3d ed 2008).

14.139.214.181 on Fri, 10 Jul 2020 12:52:58 UTC
understandings of these phenomena.269 On the best inte

tion, contracts and modern market activity do not appea
flect rules that merely aim to promote efficiency.270 They
ter interpreted as rule-governed spheres of moral inter
which produce genuine legal obligations to the precise
that the rules are simultaneously empowering and reflect
moral ideal of equal respect for persons. This is what co
law is - though we have thus far only dimly perceived it
Second, contract as empowerment offers a distinct
framework for legal reform. It suggests that contract law
often be finely tuned to be more equally empowering
because this rationale is normatively satisfying in its ow
because this sort of justification is typically needed for co
to produce genuine legal obligations, and because empow
principles better reflect the basic principles that have an
contract law and modern markets for some time now. Contract
as empowerment suggests that many commonly perceived ten-
sions within contract law - such as the tensions among fairness,
liberty, and efficiency - are not always real.271 If crafted properly,
rules that promote all of these values can work together so that
each plays a distinctive but appropriate role in promoting the
fundamental principles of contract.
In my view, the places in which theoretical misinterpreta-
tions of contract have proved most damaging relate to doctrines
269 As Professor Daniel Hausman has said:
[Eļconomics is a peculiar science. Many of its premises are platitudes such as

"Individuals can rank alternatives" or "Individuals choose what they most pre-
fer." Other premises are simplifications such as "Commodities are infinitely di-
visible," or "Individuals have perfect information." On such platitudes and
simplifications, . . . economists have erected a mathematically sophisticated
theoretical edifice, whose conclusions, although certainly not "necessarily erro-
neous," are nevertheless often off the mark.
Id at 1. 1 should also note that I draw a distinction between theoretical assumptions that
are simplifying but illuminating and ones that are distorting. I count some classical eco-
nomic approaches to contract law in the latter category because - as I have argued in
this Article - they fail to account for central, pervasive, highly stable, and defining fea-
tures of contract law. See Part IV.B. In my view, classical and neoclassical approaches to
economics therefore fail to comprehend important aspects of their own subject matter. I
nevertheless accept that some other aspects of economic theory are simplifying but illu-
minating. In those cases, I have tried to absorb the relevant insights into the current
theory.
270 For a classic discussion, see Posner, Economic Analysis of Law at 343 (cited in
note 188) ("On occasion, common law courts flinch from the full embrace of the implica-
tions of that theory. . . . Efficiency or wealth maximization is an important thread in the
ethical tapestry, but it is not the only one.").
271 See Parts II, III.

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that invite or require courts to police ba

fairness. Debates about these doctrines h
polarized and ideological in the United St
sessment has become a near-dead commo
this is that many people view market re
inimical to the principles that animate m
ty.273 Another is the incredibly long hand
has left us with outmoded ways of framin
portant debates about how markets oper
role of markets in contemporary society.
are not, however, just socialism, which in
is now dead,276 or pure laissez-faire capi
existed;276 nor is the best question how
incompatible systems.277 It is time to dis
ed ways of framing the debate over cont
regulations278 so that we can identify th
unify contract law and make modern mar
272 For excellent discussions of how the moral psychol

even some purely factual disputes, see Haidt, The Righte
250). See also generally Dan M. Kahan, et al, "They Saw a
ism and the Speech-Conduct Distinction , 64 Stan L Rev 851 (2012).
273 See, for example, Craswell, Freedom of Contract at 81 (cited in note 216) ("De-
pending on one's point of view, freedom of contract can be seen as a choice between indi-
vidual liberty and heavy-handed government control, or between communitarian consen-
sus and the worst excesses of laissez-faire capitalism.").
274 For an excellent discussion of the Cold War, see Anderson, Toward a Post Cold-
War Political Economy (cited in note 63).
275 See Seweryn Bialer, Is Socialism Dead?, in Robert Jervis and Seweryn Bialer,
eds, Soviet-American Relations after the Cold War 98, 98 (Duke 1991) ("By now it is quite
certain that Marxian socialism in its most politically meaningful twentieth-century vari-
ant, radical Leninism, is dead as a state ideology.").
276 See Anderson, Toward a Post Cold-War Political Economy (cited in note 63)
('There are many difficulties with this way of classifying economic alternatives. For one,
the extremes on both left and right are no longer credible options, if they ever were.").
277 See id ("|T|t doesn't make much sense to represent the economies of Western Europe
and North America as 'mixtures' of two deeply incompatible and doomed systems.").
278 For a related point, see id:
It's time we got rid of the contemporary conceptual analogue to "mixed gov-
ernment" - namely, the idea of a "mixed economy." We still tend to think that
the economies of the advanced democracies in North America and Europe are
"mixed" in some kind of combination of laissez-faire capitalism and socialism.
The idea got a lot of traction from the seeming viability of communism as an
alternative mode of organizing an economy, plus a mythology of capitalism as
at its most pure in its laissez-faire version. It turned out [that] both the (far)
left and the right had an interest in representing "true" capitalism as laissez-
faire capitalism - the former, to stress the ill fates of those who get chewed up
in a dog-eat-dog economy, the latter, to celebrate the freedom to be top dog in
such a system.

14.139.214.181 on Fri, 10 Jul 2020 12:52:58 UTC
I believe that these principles relate to empowermen

reasons discussed, contract as empowerment also offers
tinctive framework for determining when market regu
promote the fundamental principles of contract and
market economies rather than reflect alien intrusions into the
marketplace. The present theory can therefore be extended to
address a range of currently heated debates about the appropri-
ate role of market regulations in many different markets - from
those in consumer goods to those in labor, finance, credit, mort-
gages, and many others. By introducing contract as empower-
ment into contemporary debates over how best to interpret con-
tract law, I hope to encourage empowerment-based approaches
to more questions like these.
Although Professor Elizabeth Anderson has thought deeply about the implications of
such a move for understanding systems of tax and transfer, the current Article engages
in an analogous exercise with respect to contract law.

14.139.214.181 on Fri, 10 Jul 2020 12:52:58 UTC

Contract As Empowerment Author(s) : Robin Kar Source: The University of Chicago Law Review, Spring 2016, Vol. 83, No. 2 (Spring 2016), Pp. 759-834 Published By: The University of Chicago Law Review

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Contract as Empowerment

Author(s): Robin Kar

Stable URL: http://www.jstor.com/stable/43824027

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principle that is distinctive to contract law. These surface values include

I. Contract as Empowerment: The Basic Theory

II. A Core Challenge for Modern Contract Theory

III. Empowerment in Action: How Contract as Empowerment Meets

A. Expectation Damages and the Standard Remedies

1. Expectation damages promote

B. The Consideration Requirement

C. Freedom of Contract and Market Regulation

1. Freedom of contract and subjective choice

2. Freedom of contract and deviations from subjective intent

IV. Objections and Limitations

A. Completeness of the Theory

B. Distinctiveness of the Theory from Economic Accounts

C. Controversial Normative Foundations of the Theory

As Professors Alan Schwartz and Robert Scott have observed:

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efficiency, fairness, trust, reliance, and a

2 See, for example, id ("Pluralist theories attempt to r

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moralizes the remedy - and suggests that it need not be

4 See Part III .A (offering an empowerment-based account of the expectation dam-

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the usefulness of extending the theory to

I. Contract as Empowerment: The Basic Theory

Contract as empowerment begins with a simple observat

10 See Ernst Fehr and Bettina Rockenbach, Detrimental Effects of Sanctio

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actions. Empowerment should also be understood as a

13 See Amartya Sen, Development as Freedom 18-20 (Knopf 1999); Martha C.

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globalized, and potentially welfare enhanc

18 See Joseph Henrich, et al, Markets, Religion, Comm

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are some of the main differences between instrumental reasons

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If contracts are to generate genuine le

25 See, for example, id at 14-15:

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On the version of contractualism that I endorse, ordinary

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allows ordinary people to cooperate in gr

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rules for the general regulation of conduct and treat tho

31 Here, I am following, but building on, the orthodox way of distinguishin

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reasonably reject a system of legal obliga

moral or legal obligations. If, however, everyone were to

33 For an important argument that this account of obligation applies to obligations

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is because a grant of private authority, backed by the c

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but unequally empowering, and if a mor

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Unlike contract as promise, contract as empowerment als