Contract, Property and the Role of Metaphor in Corporations Law
60 Pages Posted: 29 Jun 2001
Date Written: 2001
Cognitive scientists have described the role of metaphor as the attempt to understand one domain of knowledge (the "target") in terms of another (the "source"). Corporations law scholarship is currently dominated by a metaphor which attempts to explain corporations in terms of contracts. This "contractarian" metaphor derives from the economic model of the "firm" as a set of "contracts." The legal version of the metaphor exhibits confusion about both its target and its source. The economic concept of the "firm" is not equivalent to the legal concept of the "corporation." Nor is the economic "contract," a voluntary reciprocal relationship, equivalent to the legal "contract," a legally enforceable relationship that is partly, but not entirely, based on voluntary consent. Contractarian discourse uses the term "contract" loosely, however, and conflates voluntariness and enforceability.
The contractarian metaphor helps show that the firm is not a black box whose characteristics are immune from market forces. But it wrongly suggests that individual choice is the basis for the legitimacy of all legally enforceable corporate relationships. The metaphor masks the fact that the rules of corporate law are often based on social welfare judgments of judges, lawmakers and regulators rather than on parties' bargains in the marketplace. It misleadingly suggests that the law imposes no value judgments but merely rubber-stamps freely made individual decisions. Thus the model lulls us into thinking we can avoid the hard questions of how the law makes its value judgments. Because the concept of "property" includes rights and duties not based on assent, a property-based metaphor for corporations can help put the "law" back into this branch of "private law."
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