A few years ago, Jody Kraus and Robert Scott argued that vindicating the sovereignty of parties who make contracts under free and fair conditions is “the most morally compelling explanation” for contract law’s allegiance to the parties’ ex ante intentions.1 They further claimed that judicial interventions on behalf of justice via ex post doctrines are thus erroneous and “cannot be justified.” Rebecca Stone refutes both points in her brilliant piece, Putting Freedom of Contract in its Place. She first contests the claim that morality is secured by the procedure of contracting under free and fair conditions. She then turns to disprove the claim that judicial ex post interventions “cannot be justified” by offering a powerful argument for setting limits on parties’ ability to control their relationship. Stone’s article puts freedom of contract in its place by no less than crafting a novel account of contract law—one called “the democratic conception.”
Stone develops the democratic conception of contract law by seeking a deeper justification for our lasting commitment to robust freedom of contract. To her, the mere vindication of sovereignty cannot suffice. Rather, freedom of contract is essential because when parties enter a contractual relationship, they face an inevitable normative uncertainty regarding what justice between them would require when challenges arise. Parties, therefore, have the freedom to use their agreement for the purpose of settling this normative uncertainty. Contract law, Stone argues, should respect their usage of this freedom “when and only when” it yielded mechanisms that reflect “plausible, good faith attempts to settle that uncertainty.”
This limitation presents a democratic conception because the parties’ moral authority to transform their rights is conceived as a decentralized version of that of democratic institutions. Just like in those larger institutions, the parties’ authority is grounded in egalitarian values. They can shape their contained private domain via decision procedures that give each of them an equal say, thereby fostering egalitarian relations between them. Furthermore, by respecting the parties’ agreements regarding questions of justice specific to their relationships, the common law of contracts demonstrates its own democratic disposition.
Understanding the freedom of contract as rooted in an underlying democratic principle has two contrasting effects. On the one hand, the democratic framework better supports respecting the parties’ freedom by offering a justification that goes beyond affirming their sovereignty. As such, it highlights the moral value of freely made agreements. On the other hand, the proposed enhanced justification of freedom also sets limits on its scope, narrowing the law’s obligation to adhere to the parties’ agreements. For Stone, contractual freedom exists and deserves protection not whenever non-parties are not harmed but only to the extent that it is exercised in alignment with democratic ideas. Or, in her words, “Parties don’t have untrammeled freedom to design the substance of their transactions. They must do so together with an eye towards realizing substantive justice.”
In this telling, the parties’ obligation to seek substantive justice within their relationship constrains their freedom to shape their transactions. Stone admits adding restrictions in the name of substantive justice counters the conventional idealization of the freedom of contract. Nonetheless, she reminds readers that other theorists have already used various strategies to reach similar results. What works of this variety reflect, Stone explains, is dissatisfaction with the idea that contract law should follow the parties’ agreement based only on purely procedural justice—we should not hold choices as valuable simply because they were freely made. Some substantive limits, Stone insists, are necessary to decide what arrangements should count as valid under the law. Her democratic conception sets such limits by centering the pursuit of substantive justice.
Note, however, that when Stone advocates a “foundational commitment” to substantive justice, she also emphasizes that, generally, it is not contract law’s role to define the content of such justice. Far from directly dictating what justice requires in the face of normative uncertainty, the law responds to the need for such a determination by authorizing the parties to settle the question. It then proceeds by respecting the parties’ decision as long as there are grounds to believe that they have indeed sought substantive justice. “[T]he point of contract law,” Stone contends, is “to provide a just framework” that would allow the parties to freely create their own resolution of the normative uncertainty regarding justice. In that sense, her theory significantly differs from the conventional positioning of freedom and justice as opposites. It configures substantive justice as a “foundational value” that justifies freedom, thus linking the two. If the parties untie this link—using their freedom in a way that clearly does not aim to achieve justice between them—contract law justifiably releases courts from the obligation to defer to them. This recognition of the interdependence of freedom and justice allows Stone to offer a principled explanation for ex post doctrines that authorize courts to override parts of the parties’ agreements.
The article is delightfully philosophical, with A and B exchanging widgets and references to giants like Joseph Raz and John Rawls.2 At the same time, it is also fiercely practical. Stone applies the democratic conception to various ex post doctrines, demonstrating the prescriptive power of the conception. In general, properly understood, the freedom of contract should not warrant deference to the parties’ agreements made in an attempt “to manage problems arising from their unwillingness to conform to justice.” As Stone shows, this broad guidance translates into specific doctrinal rules. It explains, for example, why we need a robust doctrine of unconscionability to invalidate terms adopted via a take-it-or-leave-it practice. Such terms, and indeed all severely one-sided terms, even if freely consented to, do not reflect a good faith effort to “articulate a joint vision of justice” between the parties.
Based on this logic, the democratic conception also supports a mandatory duty of good faith that, in some cases, might even extend to the negotiations phase and justify imposing precontractual liability. Similarly, Stone’s account counsels less deference to remedial clauses when those are used to respond to a party’s unwillingness to follow the parties’ original vision of what justice between them requires. Along these lines, the article further illustrates the democratic conception’s prescriptive power concerning other doctrinal points: from the “stickiness” of the doctrine of constructive conditions to the willingness to discharge duties to perform under the doctrines of mistake, frustration of purpose, or impracticability to the adequate approach to contractual interpretation.
Ultimately, Stone’s article is an impressive search for ways to harmonize freedom and justice rather than pitting them against each other. It introduces an ambitious vision of the role of contract law, arguing it could and should be used to enhance justice. On this view, contract law does not succumb to the demands of external norms but rather deploys its own internal morality. Contract law’s potential to foster justice from within has been previously advanced in works by scholars like Hanoch Dagan and Avihay Dorfman, Seana Shiffrin, and me, leading Robin West to list them as indicating the rise of what she called “the new legal criticisms.”3 Stone’s recent contribution is an invaluable addition to this genre. It is also an inspiring read in and of itself.
- Jody P. Kraus & Robert E. Scott, The Case Against Equity in American Contract Law, 93 S. Cal. L. Rev. 1323 (2020).
- Joseph Raz, Morality of Freedom (1986); John Rawls, A Theory of Justice: Revised Edition (1999).
- Robin West, The New Legal Criticism, 117 Columb. L. Rev. 144 (2017).
