Nonparty Interests in Contract Law

Abstract

Contract law has one overarching goal: to advance the legitimate interests of the contracting parties. For the most part, scholars, judges, and parties embrace this party primacy norm, recognizing only a few exceptions, such as mandatory rules that bar enforcement of agreements that harm others. This Article describes a distinct species of previously unnoticed contract law rules that advance nonparty interests, which it calls “nonparty defaults.”

In doing so, this Article makes three contributions to the contract law literature. First, it identifies nonparty defaults as a judicial technique. It shows how courts deviate from the party primary norm with surprising frequency through a variety of default rules, interpretation practices, and remedies. These defaults are meant to protect nonparties’ interests and benefit society at large. Second, it develops a normative account as to when common law courts adjudicating contract disputes are a suitable forum to identify and advance nonparty interests. Finally, it documents and explains the surprising durability of nonparty defaults, which the parties could, but rarely do, disclaim.

Keywords: contract, externalities, COVID, default, mandatory, interpretation, remedies, nonparties

JEL Classification: k12