There has been a recent surge in empirical research confirming the widespread social efficacy of unenforceable contract terms, particularly in housing and employment markets.[1] At least one reason to be concerned about this is that these terms are unenforceable for a reason: they lead to socially undesirable outcomes, whether because they are unfair toward the parties involved or because they impose social costs.

The concern around boilerplate and adhesive terms has been around for a long time, but it has received new urgent attention with the rise of internet platforms’ terms of service. Terms of Service (ToS) and other clickwrap agreements manifest what Griffen recently called “captive” contracting, and what has elsewhere been described as “private legislation”. The concern here is similarly about the social costs involved in having private profit-driven companies set the “rules of the road” for what has become essential infrastructure for life in the 21^st century. There is particular concern for the way interests in privacy and personal data are weighed (or rather, disregarded) by these companies. And it is for similar reasons a concern about unfairness: consumers have no choice and often no knowledge of the terms they are bound by.

The privacy concern might be cashed out in terms of social welfare. But it is also a constitutional concern, depending on what privacy interests we take to be protected by the Constitution. Specifically, Kerr has recently voiced his concern about the tendency of (some) courts to view Terms of Service as rights agreements, where parties are taken to waive their rights under the Fourth Amendment. Private agreements between parties seem then to have constitutional ramifications, affecting citizens’ rights vis-à-vis the state.

This is not limited to ToS. Contracts are often used to abrogate purportedly constitutional entitlements. Aziz Huq has illustrated this in the historical context of labor contracts’ impact on workers’ rights to free speech and assembly; and there is of course the controversy around contemporary contracts that impact rights to nondiscrimination and free speech (Masterpiece Cakeshop, etc.) There is a forthcoming article arguing that at-will employment contracts constitute a form of taking, for instance. I’ll not list more, but there are further examples of the kind of thing I have in mind: the literature critical of arbitration clauses and class action waivers, for example.

These phenomena are not obviously related. There are many, and important, differences between them. I might be doing myself a disservice by trying to think about all of them at once. But I’m constantly returning to all of these because I sense they all point to a deeper issue of contract theory: to an ambivalence toward the very idea of contract.

In each of these cases, there is a concern that contractual techniques and mechanisms have “governance” effects that they in some sense should not have. Contractual techniques and mechanisms are structuring both possibilities for human behavior and the associated significances of that behavior.[2] And the concern is that they are doing so in ways that are unjustified and regrettable.

But it is very hard to really understand this concern as applied to any particular context without already having a theory of contract in mind. In each case, the criticism depends, conceptually, on what we think contractual mechanisms and techniques are. And it depends, normatively, on what we think they should do. It depends on a theory of contract. And in each case, critics (implicitly or explicitly) bring their theory with them when they analyze a particular context. But I suspect that the very idea of contract implicitly presumes a specific kind of social context.

It presumes the central case of a “habitat of friendly strangers”, which I elaborate on below. What these examples show is that contractual forms and mechanism clearly exist and are efficacious in different kinds of social contexts. Is it then any wonder that contractual forms and techniques paddle, waddle and quack differently in different social contexts?

In this post, I want to think through the questions of contract theory, and their implications for how we conceptualize and evaluate governance through contractual techniques and mechanisms. But instead of starting with a normative theory about the basis of contractual entitlements or the justification for formal rules of contracts; I want to start with a social theory. The social theory is that contract (both its form and justification) depends on social context, and that it also shapes and structures social contexts.

This is a familiar starting point. I’ll use as a jumping off point Lon Fuller’s work on the role of contract in social ordering.

Fuller suggests, in Human Interaction and the Law,[3]that law interacts with its social context and that different kinds of law are suitable to different social contexts. I am particular interested in his discussion of the interaction between contractual law and its social context. He talks about contractual law as “the law of the contract itself”, not the formal state-made law of or about contracts. I’m also using the term in that sense. For now, I want to set aside the state-made law of or about contracts.

Social Context

At its most abstract, I think it is fair to say Fuller thinks of social contexts as frameworks of interactional expectancies. They are frameworks that determine the possibilities for human behavior and the associated significances of that behavior.[4] That we share such frameworks is what makes our actions meaningful to others, and this is what makes interaction possible. Social contexts are preconditions for interaction.

Fuller tends to invoke a continuum of social contexts, with “intimacy” on the one end and “hostility” on the other. His example of intimacy is the family. His example on the other end of the continuum is “hostilities between nations” but this is quite unhelpful. It is unhelpful because I think “nation” is itself a very complicated framework of interactional expectancies, and hostility is also only possible within frameworks of meaningful interaction.[5]

But elsewhere, Fuller notes that frameworks of expectancies cannot exist without “external stability”. You can’t form expectations if things are not predictable.[6]So perhaps the other end of the continuum is an unpredictable environment.[7] I will start at one end of the continuum and move gradually toward the other, commenting briefly on Fuller’s analysis as I go along.

1. Intimacy

In the context of intimate relationships, families, and “immediate” interactions between familiars, he sees a very limited role for contract. He notes a few related reasons for this. The first is that these situations involve “roles”: positions within ongoing relationships. The idea seems to be that roles are not necessarily voluntarily assumed, and their content cannot be chosen or stipulated.

The second is that what is at stake in these cases is often not specific courses of action, but the attitudes with which they are done. In families and intimate relationships, we are not concerned only with what others do but the sentiments with which they do it–we are caught up in what Strawson would call “webs of affection”. Here, the significance of action turns not only on what is done but the attitudes of resentment or affection it manifests. Contracts, Fuller suggests, are not well-suited to governing such internal aspects of behavior. The third is that the family situation involves many unforeseen contingencies and emergencies, it requires a kind of fluidity and improvisation that will be stifled with the contractual form.

And the fourth is that in these contexts, there are sufficient levels of trust, either because of the nature of the relationship, or because of the situation. We trust our intimate partners such that it seems like an insult to reduce our commitments and entitlements to contract. We know what we can expect of them, in virtue of our ongoing relationship and the sentiments and affections it entails. And often, our situation is so obviously one in which we both have very good reason to expect a particular course of action that a contract is superfluous. Fuller uses the example of two neighbors who find a fallen tree on their shared road–they so clearly can trust one another to help with clearing the road, since it is in both of their interests. This bears some similarity to Hume’s analysis of convention, where two men in a rowboat need no contract to row to shore.

I’ll just make a few preliminary observations here, without saying much more about what kind of form and mechanism contract is.

First, it is not clear that the idea of “roles in relationships”, and “bundles of mandatory obligations” preclude the operation of contract. This would be true if we think contracts only operate to impose voluntary obligations, but there are many reasons to doubt this.[8] A recent article surveys contracts between contractors and subcontractors, internet service providers and consumers, and co-habiting intimate partners to make this point.[9] Similar points have been made about contracts in the context of family.[10]

Second, it is not clear that the unpredictability of family life makes it unsuited to contract. In different contexts, contracts are deployed despite unpredictability, as a technique of managing it. This can be seen in supply chain governance and in managerial contracting.[11]

Third, though I don’t want to overstate the point, it does seem possible to contract for attitudes and not only action. Think of second-best contracting for unobservable but verifiable performance, like best efforts or good faith in performance.[12] And though I don’t want to get into the weeds of what counts as contractual forms and mechanisms here, relational contracting has elements of this.

But finally, I suspect he is right that levels of trust rendering contractual forms and mechanisms superfluous. It is very interesting to note that this kind of trust manifests in two ways: either in intimate and ongoing relationships, or in cases of pure cooperation where we have mutually conditional and roughly coincidental interests. I don’t need an intimate relationship with the person I share a rowboat with. There, the trust is not based on personal interactions, it is an impersonal trust that the person will be minimally rational. Situations of pure cooperation around focal points are not intimate situations at all, but it seems that it is the same mechanism which makes the contractual form and mechanism superfluous in these cases.

Perhaps “trust” is not the right term, then. What is at stake is a framework of very settled interactional expectancies–determinate interactional expectancies. I know what behavior I can expect of you, and I know what the significance of that behavior will be. The framework of interactional expectancies might be determinate because of the nature of a shared situation, or a public focal point, and basic assumptions about instrumental rationality and prudence. This is an agent-neutral framework in the sense that these expectations do not depend on anyone’s interactions or relationships.

On the other hand, it might be determinate because of relationships and intimacy, recurring interactions and (I believe) a corresponding interrelated web of affections and sentiments. This would explain why, in these intimate contexts, a contract might be “offensive” as Fuller suggests. It denies the agent-specific social context and framework of expectancies that exists, it denies that relationship.

So already we can see one way to bring about a framework of determinate interactional expectancies: relationships. This involves a range of emotional and affective engagement, which in turn shape us as we occupy certain roles (father, daughter, friend). We shape these frameworks somewhat, but many of them are imposed on us. Maine would think they have the character of “status” rather than “contract”. The kinds of entitlements and commitments we have within these frameworks might still be voluntary (marriage) or not at all (infancy), but their content is often not chosen (we can choose to get married we can’t choose what that entails). This is precisely because the interactional expectancies are settled or closed. So really, being a “rational agent” is just as much an involuntary unchosen “status” in this sense. It is just impersonally or relatively universally shared rather than relationally constructed.

• “Habitat of Friendly Strangers”

Fuller was clearly very influenced by Simmel’s work on The Stranger. I think that is part of why he conceives of the “middle” social context – in between family and hostility – as that of a “habitat of friendly strangers”. Here is where he sees contract most applicable. With strangers there is an openness of interaction expectancies, and opportunities for mutually beneficial cooperation. This combination of opportunity and openness is where he sees contract playing its most central role. I’ll not say much about that here in this short writeup because I think it is rather familiar. It is the standard picture of bargained-for exchange.

The picture seems to be of a social context which has three related elements which might be instantiated to greater or lesser degrees. The first relatively unsettled expectations. This is really just to say that we have now stepped beyond the agent-neutral or relational settled interactional expectations set out above. It is not clear what others will do, there are ranges of options available. It is also not clear what the significance of their behavior will be: entitlements and commitments are underdetermined.

Secondly, there is the opportunity to shape what others will do. One’s own behavior shapes others’ expectations, and vice versa, so that one is able to settle on more determinate expectations by way of behavior, sharing information, or indeed promising.

And third, which is implied, there is some benefit or reason to do so. This is a context where agents are actively seeking to settle and shape interactional expectancies. There is a mutuality in shaping reciprocal expectations.That is why we associate this situation with cooperation, but that term might be too broad. It is cooperation which is the product of mutual orientation and attention to that cooperative activity.

If the previous technique of arriving at determinate interactional expectancies was relational, this technique is collaborative. It involves a mutually responsive orientation around a shared goal–exchange–where the focus is on external action more than on internal attitudes, on results rather than on webs of affection and roles.

Now we can imagine this social context changing, gradually, as we move from Edgeworth’s world to Walras’s. Opportunity to influence behavior might become less and ultimately absent. It becomes less when terms are offered on a take-it-or-leave-it basis. One party can choose whether or not to accept those terms but can’t influence them specifically. The other party can influence the opting-in decision in how they set their terms. This is familiar in the marketplace. Here, settled interactional expectancies arise out of the social context (the market) broadly, but are not collaboratively shaped in particular interactions. There is still benefit to be had from these interactions, and there is still the relative openness of those expectancies–ranges of options available–at least when seen in light of background market adjustments.

The opportunity to influence behavior seems to disappear this openness recedes. This happens where parties have no, or few, alternatives. There is still presumably some benefit because parties don’t have the option to “leave it”, so they “take it”, and this is known. Here, interactional expectancies are again settled, but this time by one party, who faces no indeterminacy in how the other party will respond, and so there are no opportunities to influence their behavior. Conceptually, the extreme is “captive contracting”, where there is no opportunity to affect the terms and also no meaningful opportunity to opt out. In this social context, contracting looks like private legislation. What breaks down here is any mutuality in shaping the terms of engagements, and often also any real sense of consent or even knowledge of these terms. Here, we get contractual forms that might be better described as notices, licenses, or waivers.[13]

This is a different technique of settling interactional expectancies: it is unilateral. It involves action by one agent which settles the social contexts for others without them having the opportunity to influence that action or collaborate in settling the social context. Calling this “private legislation” is a way of suggesting that contract plays a limited role here. But that is on the assumption that contract “lives” in the social context of open and unsettled expectations, where parties influence one another’s behavior. I wonder if this is true. In short, it seems clear to me that contractual forms and mechanisms play a role in this social context. I think of governance through contract in global supply chains, and on platforms.

• “Public”

Finally, it is possible for the unilateral mechanism I described above to be designed at a collective, political scale. This is mechanism design, and its result is a public context. The public context is where we settle interactional expectancies collectively, politically. They settle, once more, opportunities for behavior, as well as the entitlements and commitments that flow from them. And they settle these via collective authority.

This authority might be operationalized democratically, but it need not be. The point is that these frameworks again involve a level of settledness about what can be expected, and what follows from behavior; and that they are brought about not via mutual interaction or via private action but rather via collective mechanisms. These frameworks of interactional expectancies similarly resemble “status” for that reason. They are not voluntarily adopted and their content is not individually chosen–though in democratic societies we indirectly choose that content. The status is that of citizen. And the core of liberal justice is the idea that this is the status is that of free persons, entitled to equal concern and respect.

The mechanism here is still unilateral, but it is politically authorized unilateral action. And, as I stress, “political authorization” need not involve democracy or liberal constitutions.

Summary

If we identify social contexts in terms of the status of interactional expectancies, I think there are really three kinds of context, forming a continuum:

1. Settled, determinate interactional expectancies
2. Open, determinable interactional expectancies
3. Unpredictability

(3) at its extreme is really just the absence of interactional possibilities. So we are left with a continuum between 1 and 2. And the point might then be that contract, as mechanism for settling expectancies, lives in (2), and not (1). This is how social context shapes contract and its applicability.

But more often, what is at stake is not the context in which contract arises, but rather the effect it has on social context. In other words, the issue is more the use of contract as mechanism for moving from 2 to 1.

Here, I have identified five mechanisms for moving from 2 to 1:

1. Rational (concurrent individual deliberation and action)
2. Relational (mutually responsive individual action that involves attitudes and affections)
3. Collaborative (mutually responsive individual action that focuses on action and outcome)
4. Unilateral (individual (or institutional) action)
5. Politically authorized unilateral (collectively authorized individual/institutional action)

And part of what all the examples I have been considering show is that contractual forms can function as any of these mechanisms.

1. Contracts serve as salient focal points for coordination (Rick Brooks). Here, the contract is much like a feature of the landscape that individuals concurrently deliberate about and use to predict behavior. Many kinds of contracts look and feel like “infrastructure” in this way.
2. Contracts and contractual forms do help to shape part of long-term relationships, becoming the starting point for an ongoing relationship (McNeil, Williamson)
3. Contracts are clearly features of collaboration, and contract theory takes this as a point of departure
4. Contracts often function as private legislation, especially for terms of service and in employment and housing contexts.
5. The social contract theory would have us construe constitutions as contracts, and though we don’t need to accept the whole theory, I think it is a core premise of liberalism that our governance institutions are collectively authorized via individual participation (actual or hypothetical)

So the question is, why associate contract with (3)? Why think contract is a single thing? Why build the normative side of contract theory off (3)?

I think that the answer is that we somehow approve of mechanisms 1, 2, 3, and 5. But not 4. The point that contract should not be able to serve as 4 is then just a point that we don’t want a society with 4 in it.

On that view, contract theory is a political ideal, not a theory about any particular kind of form or interaction.

And I do think it is a contestable political ideal. On three fronts.

1. There is a lot of room to also doubt the value of mechanism 1, and mechanism 2.
2. There is a lot of room to doubt whether formal law really instantiates mechanism 5, and to wonder whether unilateral contractual forms might not sometimes more resemble 5 than 4.
3. And the basis for resistance to 4 is a distinctively proceduralized understanding of liberal justice. It objects to mechanism not outcome.

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[1] By social efficacy, I mean that these terms are effectively shaping behavior, not via a covariant but directly and motivationally: the terms are the reasons for the behavior. Starr, etc.

[2] I use “significances” because I want a very broad term. The contracts shape the costs of behavior, that can be one significance. But it could also shape the normative status of behavior (its propriety, its legality, what claims or entitlements it gives rise to), and though this could also be reduced to costs I worry that that is too reductive especially in relational contexts. “Costs” connote commensurability which I am unsure about.

[3] And at several other places, e.g. The Role of Contract in the Ordering of Social Processes Generally and The Anatomy of Law.

[4] “Governance”, in the perhaps implausibly broad manner I used the term above, is a way of setting up a social context.

[5] It is fascinating, for instance, to compare first-hand accounts of the norms and expectations involved in warfare on Europe versus in the Pacific during World War II.

[6] He notes the example of the large-scale rewriting of contracts that had to take place after the Fire of London.

[7] There is something to be said for this idea. It is not implausible, I think, that our concept of relatively stable “interests” which permeate private law will come under pressure with radically unpredictable weather patterns and climate change.  

[8] There is an interesting study about the shifts in between status and contract across the history of codification.

[9] Mansmura, Unifying Status and Contract.

[10] Bix.

[11] On the latter, there is a recent article by Lisa Bernstein.

[12] Rick Brooks.

[13] Nancy Kim.