Contract Law Lecture 2
Theories of Contract
Freedom of Contract Theories
Emphasising choice, entering contracts are consensual and voluntarily. Better place to freely enter
legal contracts. Morality of promising, promises are moral and if you make one you should keep it, if
you aren’t held to promises you don’t respect the other party. Charles Fried - “If we declined to take
seriously the assumption of an obligation … to that extent we do not take the promisor seriously as a
person” If we don’t do our promise we disrespect the other party.
Fulfilling business needs, we have contract law as it means one can engage in market transactions
and aids in entering business and performing through the law. Can take damages and injunctions to
help business. “The core task of the law of contract is to support commercial transactions” Jonathan
Morgan. Contract law is to support business and make it run.
Economic Efficiency, use of contracts to maximise wealth, shows value of trade through contract,
performing the exchanges through this put us better off, however this doesn’t explain why contract
law enforces promises for the future, eg yesterday x was valued more than y but the offeror changed
their mind, economic efficiency can’t answer this.
If you don’t enforce contracts that engaged into to, then it can allow unjust and unfair enrichment of
other parties rather than the other as no exchange on their side has been fulfilled.
Reliance / benefit theories
Protecting reliance on promises, contract law protects the reliance interest, preventing those who
rely on a promise from losing out, Lon Fuller and William Perdue argue this. However, the standard
remedy in contract law is called expectation damages - if one pays something small for something
expensive their damages are the expectation of the higher damages, this is the standard remedy.
Fuller responds to this by saying reliance and expectation almost come to the same thing, you may
have spent that money later on another venture, it is opportunity loss. This is the form of reliance.
Must ensure fair exchange, parties have an interest in getting back what they gave, a restitution
interest - if the other does not perform.
Scepticism about “Promises”, analysing contracts as promises can seem artificial. Patrick Atiyah - “Is
it meaningful or useful to claim that a person who boards a bus is promising to pay his fare?”
Other Theories
Contract law one of several mechanisms for inducing artificial trust, alongside user reviews,
word-of-mouth and trade body membership. It provides “the ability to act as though you trust
someone else to not let you down” - Nick McBride. These means - user reviews etc - mean that you
can regulate people who break trust or agreements by not performing, like actors letting down
directors.
Contract-law pluralism / anti-foundationalism. There is not a single justification to enforce contracts, it
can be many, to prevent unjust enrichment, reliance etc. There is a “multiplicity of moral principles”
that informs contract law - Prince Saprai. Many reasons to enter and enforce contract thus no unifying
reason and is individual to parties or overall contracts.
Contract Law and Its Neighbours
1
Theories of Contract
Freedom of Contract Theories
Emphasising choice, entering contracts are consensual and voluntarily. Better place to freely enter
legal contracts. Morality of promising, promises are moral and if you make one you should keep it, if
you aren’t held to promises you don’t respect the other party. Charles Fried - “If we declined to take
seriously the assumption of an obligation … to that extent we do not take the promisor seriously as a
person” If we don’t do our promise we disrespect the other party.
Fulfilling business needs, we have contract law as it means one can engage in market transactions
and aids in entering business and performing through the law. Can take damages and injunctions to
help business. “The core task of the law of contract is to support commercial transactions” Jonathan
Morgan. Contract law is to support business and make it run.
Economic Efficiency, use of contracts to maximise wealth, shows value of trade through contract,
performing the exchanges through this put us better off, however this doesn’t explain why contract
law enforces promises for the future, eg yesterday x was valued more than y but the offeror changed
their mind, economic efficiency can’t answer this.
If you don’t enforce contracts that engaged into to, then it can allow unjust and unfair enrichment of
other parties rather than the other as no exchange on their side has been fulfilled.
Reliance / benefit theories
Protecting reliance on promises, contract law protects the reliance interest, preventing those who
rely on a promise from losing out, Lon Fuller and William Perdue argue this. However, the standard
remedy in contract law is called expectation damages - if one pays something small for something
expensive their damages are the expectation of the higher damages, this is the standard remedy.
Fuller responds to this by saying reliance and expectation almost come to the same thing, you may
have spent that money later on another venture, it is opportunity loss. This is the form of reliance.
Must ensure fair exchange, parties have an interest in getting back what they gave, a restitution
interest - if the other does not perform.
Scepticism about “Promises”, analysing contracts as promises can seem artificial. Patrick Atiyah - “Is
it meaningful or useful to claim that a person who boards a bus is promising to pay his fare?”
Other Theories
Contract law one of several mechanisms for inducing artificial trust, alongside user reviews,
word-of-mouth and trade body membership. It provides “the ability to act as though you trust
someone else to not let you down” - Nick McBride. These means - user reviews etc - mean that you
can regulate people who break trust or agreements by not performing, like actors letting down
directors.
Contract-law pluralism / anti-foundationalism. There is not a single justification to enforce contracts, it
can be many, to prevent unjust enrichment, reliance etc. There is a “multiplicity of moral principles”
that informs contract law - Prince Saprai. Many reasons to enter and enforce contract thus no unifying
reason and is individual to parties or overall contracts.
Contract Law and Its Neighbours
1
