Designing Default Rules in Contract Law: Consent, Conventionalism and Efficiency

Abstract

This paper considers the principles that ought to be used to determine the scope and content of contract law's "default rules"--rules that will, in the absence of express exclusion, govern parties' contractual relationships. The paper considers three, ostensibly competing, approaches discussed in the literature: that defaults be grounded in the subjective consent of contracting parties, in the customs and norms immanent within the contractors' community, and in the value of economic efficiency. The paper argues that each such approach has something of value to tell us about default rules, but that none can, in isolation, offer a wholly compelling prescription for their design. Rather, the best such prescription must remain an eclectic one, drawing something from all three accounts, but varying to reflect the institution promulgating the default. Where defaults are promulgated legislatively, the case for choosing rules that will promote efficiency is a strong one, and the main criticism of efficiency analysis is shown, in this particular context, to be misguided. Where, however, defaults are promulgated adjudicatively--in the context of settling individual cases--the normative appeal of efficiency is much reduced, and the appeal of the two competing accounts of defaults, much enhanced.