The Error Theory of Contract

Abstract

Many people have false beliefs about contract doctrine. That pervasive phenomenon has profound practical, theoretical, and normative implications that neither courts nor scholars have recognized. This Article will make three contributions to fill that gap. First, it will establish just how widespread the phenomenon is among non-lawyers. After synthesizing the existing evidence of false beliefs about contract law, it will contribute a new empirical study showing that between one-third and one-half of people falsely believe specific performance rather than damages is the remedy for breach.

The Article will then argue that people’s false beliefs about contract doctrine pose a fundamental challenge to prominent promise- and consent-based theories of contract, which serve as the principal theoretical alternative to law and economics theories of contract. Because people have false beliefs about aspects of contract doctrine that affect the value of the contract, the law enforces a bargain materially different from the one to which people thought they agreed. For example, they pay a contract price they think purchases them a guarantee of performance, but the law ultimately provides them only with money damages for breach. People thus did not actually promise or consent to the bargain the law enforces. For that reason, the normative justification for existing contract doctrine cannot be grounded in promise or consent.

Finally, the Article will explore the implications of that conclusion for ongoing doctrinal disputes. First, by removing promise or consent as a potential normative basis for contract doctrine, we may finally have grounds to settle long-standing disputes that ultimately depend on our choice of normative foundations about doctrines like consideration, mitigation, and unconscionability. Second, by failing to recognize the phenomenon of legal ignorance, the current debate about boilerplate misunderstood the problem it poses. If people are ignorant of, and, therefore, do not consent to, both boilerplate contract terms and the background law that would apply if boilerplate were not enforced, then refusing to enforce boilerplate does not solve the problem of lack of consent — it simply moves it from a lack of consent to fine-print terms to a lack of consent to gap-filling background law. The problem of the lack of consent is, therefore, one that banning boilerplate cannot solve. Instead, reform should focus on the remaining problem that boilerplate is substantively biased in favor of the firms that draft it. The solution, then, may be to allow boilerplate, but to regulate its content to ensure it offers terms that are not too slanted in the firms’ favor.

Keywords: contracts, law and philosophy, law and economics, behavioral law and economics