The Limits of Public Contract Law

24 Pages Posted: 19 Dec 2021

See all articles by Anthony J. Casey

Anthony J. Casey

University of Chicago Law School; ECGI

Anthony Niblett

University of Toronto - Faculty of Law; Vector Institute for Artificial Intelligence

Date Written: August 5, 2021

Abstract

The conventional set of tools for managing externalities created by private transactions is broad and includes various forms of ex ante regulation and ex post tort liability. While contract law is not often included in that set, some scholars have recently suggested that it should be. Most prominent is the suggestion that courts should—in some circumstances—reform and reinterpret contracts to discourage behavior that creates negative public externalities. This essay argues that the costs inherent in adapting contract law to this new public role outweigh any likely benefits.

We argue that the judicial administration of contract law is a particularly ill-suited tool for addressing systemic public problems, especially in times of crisis. Compared to other legal institutions, a court deciding a contract dispute is at a disadvantage in developing and implementing public policy. The deficiencies of courts in this context include:

1) a limited ability to gather relevant information, which leads to errors in measuring social costs and developing public policies;
2) a limited scope of enforcement power, which leads to incomplete, slow, and inequitable administration and enforcement of public policies;
3) unpredictable effects of the available remedies, which make it difficult to implement public policies.

Moreover, the development of public policy through court decisions in contract disputes will distort the implementation of conventional contract law. The inclination of courts with incomplete information to infuse contract interpretation with ex post and ad hoc public policy reasoning is likely to frustrate private transactions that are both publicly and privately desirable. In particular, courts will frustrate private attempts to allocate known risks associated with a crisis. In some cases, this may undermine the very public policy that the court is trying to support.

Keywords: contracts

Suggested Citation

Casey, Anthony Joseph and Niblett, Anthony, The Limits of Public Contract Law (August 5, 2021). Law and Contemporary Problems, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3949810 or http://dx.doi.org/10.2139/ssrn.3949810

Anthony Joseph Casey (Contact Author)

University of Chicago Law School ( email )

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Anthony Niblett

University of Toronto - Faculty of Law ( email )

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Vector Institute for Artificial Intelligence ( email )

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