Not by Contract Alone: The Contractarian Theory of the Corporation and the Paradox of Implied Terms

European Business Organization Law Review, Forthcoming

46 Pages Posted: 11 Feb 2021

See all articles by David Gibbs

David Gibbs

University of East Anglia (UEA)

David Gindis

University of Hertfordshire - Business School

Derek Whayman

Newcastle Law School, Newcastle University

Date Written: January 22, 2021

Abstract

Contractarians view the corporation as a nexus of contracts, constituted by the express or implied consent of each party to or contracting with it. Strong form contractarianism takes this claim literally and holds that a corporation can be created and sustained by contract alone, thanks notably to the courts’ supportive gap-filling role. We argue that this view is undermined by the way courts actually treat implied terms. While courts do attempt to fill gaps and hold parties to their bargains, courts do not typically manufacture counterfactual consent by resorting to the hypothetical bargain logic of contractarianism. Even under the most flexible form of contract law, the common law contract, the capacity of courts to imply third-party obligations in multi-party contracts is highly limited. This makes the contractarian reliance on contract and the courts to construct the complex set of multi-party obligations that make up the corporate form implausible.

Keywords: Corporation, Contractarianism, Contract Law, Implied Terms

JEL Classification: K12, K15, K22

Suggested Citation

Gibbs, David and Gindis, David and Whayman, Derek, Not by Contract Alone: The Contractarian Theory of the Corporation and the Paradox of Implied Terms (January 22, 2021). European Business Organization Law Review, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3771451 or http://dx.doi.org/10.2139/ssrn.3771451

David Gibbs

University of East Anglia (UEA) ( email )

Norwich Research Park
Norwich, Norfolk NR4 7TJ
United Kingdom

David Gindis (Contact Author)

University of Hertfordshire - Business School ( email )

Hatfield, Herts AL10 9AB
United Kingdom

Derek Whayman

Newcastle Law School, Newcastle University ( email )

Newcastle upon Tyne
NE1 7RU
United Kingdom
0191 208 4741 (Phone)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
112
Abstract Views
476
rank
295,559
PlumX Metrics