Freedom of Contracts

72 Pages Posted: 13 Sep 2013 Last revised: 8 Aug 2014

Hanoch Dagan

Tel Aviv University - Buchmann Faculty of Law

Michael Heller

Columbia University - Columbia Law School

Date Written: September 12, 2013

Abstract

“Freedom of contracts” has two components: (1) the familiar freedom to bargain for terms within a contract and (2) the long-neglected freedom to choose from among contract types. Theories built on the first freedom have reached an impasse; attention to the second points toward a long-elusive goal, a liberal and general theory of contract law. This theory is liberal because it develops an appealing conception of contractual autonomy grounded in the actual diversity of contract types. It is general because it explains how contract values – utility, community, and autonomy – properly relate to each other across contract types. Finally, it is a theory of contract law because it covers the field as a whole, including for example marriage, employment, and consumer contracts, not just arm’s length widget sales.

“Freedom of contracts” illuminates numerous puzzles in contract doctrines from liquidated damages to promissory estoppel and across the ABCs of contract types – agency, bailment, consumer transactions, etc. Our approach also generates a range of novel theoretical propositions. For example, it explains how sticky defaults and even mandatory terms within a contract type can actually increase freedom, so long as law offers sufficient choice among types. Finally, it offers law-and-economics contract scholars a way to situate efficiency analysis within a normatively appealing liberal framework. In sum, “freedom of contracts” suggests a refocus of how contract theory should be pursued – and how contract law should be designed and taught.

Suggested Citation

Dagan, Hanoch and Heller, Michael, Freedom of Contracts (September 12, 2013). Columbia Law and Economics Working Paper No. 458. Available at SSRN: https://ssrn.com/abstract=2325254 or http://dx.doi.org/10.2139/ssrn.2325254

Hanoch Dagan (Contact Author)

Tel Aviv University - Buchmann Faculty of Law ( email )

Ramat Aviv
Tel Aviv 69978, IL
Israel
+972 3 640 7302 (Phone)

Michael Heller

Columbia University - Columbia Law School ( email )

435 West 116th Street
New York, NY 10025
United States

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