A ‘Choice Theory’ of Contracts

Michael Heller has co-written a book of legal theory that explains how the law of contracts can enhance our ability to live freer and fuller lives. 

The Choice Theory of Contracts shows exactly how and why freedom matters to contract law. Heller, the Lawrence A. Wien Professor of Real Estate Law, wrote the book with Hanoch Dagan, the Stewart and Judy Colton Professor of Legal Theory and Innovation at Tel Aviv University and a frequent visiting professor at Columbia. Choice theory, they argue, offers a liberal and general account of contract law. 

Jumping off from the book’s publication, Columbia Law School will host a conference on “Freedom, Choice, and Contracts,” to be held on Oct. 13–14 in Jerome Greene Hall. The conference is co-sponsored by the Office of the Dean; by the Center for Contract and Economic Organization, headed by Robert E. Scott, the Alfred McCormack Professor of Law; and by the Edmond J. Safra Center at Tel Aviv University.

The conference will bring together many of the world’s leading scholars of contract law to explore themes raised by choice theory: Does contract serve freedom, and, if so, how? How should the contending premises of contract law relate to one another? How should contract law facilitate choice?

“Dagan and I had our say in the book,” notes Heller. “The conference is a chance to hopscotch knowledge forward as we explore the field’s most enduring questions.”

More contract types, more autonomy

Choice theory challenges views of contract law that currently dominate the legal landscape and, the authors argue, constrain thinking about contracts to the ability of parties to haggle over and enforce terms of a commercial transaction.

The state, say Heller and Dagan, has an affirmative obligation to ensure the existence of a multiplicity of contract types that people can choose among, so they can organize their lives to reflect their unique needs. For example:

• The so-called sharing economy creates demand for new work arrangements for people who, for example, provide their own equipment and control their own hours, but who also seek protections that the current distinction between employee and independent contractor does not accommodate.
• A scarcity of contract types for structuring gestational surrogacy in which the intended parents contract with a woman to carry their embryo to term. Today, access to such services is limited mostly to people who can afford the legal costs of individually negotiated terms. Heller and Dagan call on states to offer pre-set types of surrogacy contracts, so people can more easily choose between altruistic and commercial relationships. 

“Contract law can be the locus for creating and sustaining the types of relationships that people are looking for out in the world,” says Heller. “Our individual imaginations only take us so far. By offering a range of attractive contract types, the state can and should make meaningful choice available to ordinary people.”

As Heller sees it, the law of contracts that emerged in the U.S. a century ago and endures in law school teaching to this day focuses primarily on commerce and slights the centrality of contract law in a multitude of noncommercial contractual relationships that govern our lives.

Heller notes that even in the commercial sphere, new contract types are emerging; for example, the novel ways entrepreneurs in Silicon Valley are beginning to raise capital. “In the business context, the legal creativity that comes with creating new forms happens more freely because there’s money to be made,” he says.

“We argue there’s more obligation for the state to step in to support new types where the market mechanism is unlikely to produce them, as with emerging surrogacy or family contract relationships.”

Aiming at the academy

Heller and Dagan aim their arguments at law and jurisprudence scholars, who have advanced theories over the past several decades that, the authors assert, do not account fully for why people contract with each other or why the state, through the courts, enforces contracts at all.

For example, in one chapter of Choice Theory, Heller and Dagan build on a theory of liberal jurisprudence advanced by Joseph Raz, the Thomas M. Macioce Professor of Law. In another chapter, they situate the efficiency-oriented approach to contract law that Scott has pioneered. Dagan and Heller celebrate that approach in the commercial context, but argue that other contracting spheres, like work and family, require distinct autonomy-regarding underpinnings.

Most directly, choice theory challenges a prominent view of contract law introduced by Charles Fried ’60, a professor of law at Harvard. Heller and Dagan credit Fried with advancing a theory that ties contract law to freedom, but say his theory does not explain why the promisee can hold the promisor to the terms of the bargain. State enforcement conflicts with Fried’s own understanding of autonomy, they argue, but not with choice theory’s approach.

To Heller and Dagan, enhancing self-determination can explain why the state is justified in holding people to their promises. “Creating new contract types,” says Heller, “increases people’s ability to write the stories of their own lives.”

Further reading

The Choice Theory of Contracts (Cambridge University Press, 2017)

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Posted on October 9, 2017