ContractsProf Blog

Editor: Myanna Dellinger
University of South Dakota School of Law

Friday, October 10, 2014

Guest Post: Robin Kar, The Emerging New Life of Contract Law Studies, Part IV

KarThis is the fourth in a four-part post by Robin Kar that serves as a sort of coda to our virtual symposium on the new book by Omri Ben-Shahar and Carl E. SchneiderMore Than You Wanted to Know: The Failure of Mandated Disclosure 

Part I, The Proverbial “Egg,” can be found here.

Part II, Breaking Out of the Shell, can be found here.

Part III, What Is This Emerging New Life? can be found here.

Part IV: Discarding the Last Remnants of the Old Shell

When reading More Than You Wanted to Know together with the reactions in the virtual symposium, I have been struck by two facts. First, we clearly know much more about how mandatory disclosure regimes work than ever before. Details aside, a consensus is emerging that these regimes do not always help consumers make better decisions. Second, despite this increase in knowledge and emerging consensus over the problem, there is even more uncertainty and even less consensus over how consumer protection should be reformed in light of these facts.  

            i.          Diagnosing the Problem

How can more clarity about the empirical facts lead to less clarity about what the law should be? I believe that part of the reason is simple: many of the current debates over these issues are still insufficiently attentive to the rigorous types of argumentation needed to address the purely normative aspects of these questions. To be more specific, the third premise of the classical law and economics movement (see Part I) has not yet been replaced by rigorously developed lines of argumentation from the appropriate cognate fields—as has happened with the first two premises. 

MoreIn saying this, I do not mean to suggest that rigorous argumentation on these topics is lacking. I mean to highlight a sociological fact about the current legal academy. I believe that the right lines of argument have not yet been sufficiently absorbed by contract law scholars who work in and around the law and economics paradigm. Because of the predominance and recent expansions of this paradigm within the study of contract law, this third premise is increasingly assumed or tacitly accepted by many other contract law scholars. This includes many scholars who do work predominantly in law and psychology or engage in straightforward empirical legal research.

In More Than You Wanted to Know, Ben-Shahar and Schneider are, for example, apparently willing to accept that the primary purpose of consumer protection law is to help consumers make better decisions. This is why they recommend better advice instead of more disclosure. But interestingly enough, almost all of the people who have responded critically in this symposium appear to accept—either explicitly or tacitly—either the same normative proposition or the alternative view that consumer protection laws should be set up to promote social welfare more generally. (The most notable exception is Aditi Bagchi’s response—though Steven Burton’s plea that the authors spend more time thinking about obligation may represent a similar thought.)

Hence, there is a normative assumption running through many of the current debates. The assumption is that consumer protection laws should be shaped to promote either better subjective choice or human welfare more generally. But is this normative premise true? And before we even get to that question: how might we determine whether it is true?

After the jump, I will pursue these questions. I will suggest that we cannot get clearer about the appropriate shape of consumer protection law, however, until we ask the right normative questions. And I will suggest that we are not yet doing that in major areas of contract law studies.

 

            ii.        Getting Oriented on Normative Methodology

The last section suggested that a particular normative assumption pervades many current debates over the appropriate contours of consumer protection law. I have therefore posed a methodological question: how can we know whether this normative assumption is true?

Because it is a normative view, it cannot be grounded in any amount of psychological or empirical research. Hence, it cannot be grounded in the emerging new life of contract law studies—as I have described it thus far and is reflected in More Than You Wanted to Know. Nor can it be grounded in any normative assumptions that happen to be widely shared in a particular sub-discipline like law and economics, which claims to be a social science.

To answer normative questions in the right way, one must instead engage in the specific types of reasoning and patterns of justification that have been most rigorously developed by moral, legal and political philosophers to answer normative questions. One must also notice what subjective choice purports to do in contract law as a normative matter. It purports to create genuine legal obligations to other parties. Legal obligations are different—normatively speaking—from mere reasons for action. 

A philosophical analysis of the relevant differences suggests the following. As contract law currently stands, subjective choices to contract purport to give other parties the authority to make demands of contracting parties’ conduct, backed by the coercive power of the state. (See here, and here.) This authority purports to create not just ordinary reasons for action but also reasons that override or exclude many competing reasons for action. (See generally here.) This authority is purportedly held by one private party over another private party. In the specific case of contracting, the authority is typically construed as the authority to demand that the other party either perform or pay expectation damages.

In order to determine the appropriate contours of consumer protection law, one must therefore ask a specific normative question: when might private demands, which are rooted in contracts and backed by the coercive power of the state, be justifiable to the particular contracting parties who might be subjected to the coercion?

In what follows, I will discuss some right and wrong answers to this question—beginning with the wrong.

            iii.       Some Wrong (But Popular) Answer 

Here are two answers that are quite popular but clearly wrong: 1) whenever the coercion would benefit the contracting party, and 2) whenever the coercion would generate the greatest amount of social welfare.

I think we all know these two answers are wrong—at least intuitively. After all, if state coercion were justifiable to its subjects whenever it led to their benefit, then people could be forced to do all kinds of things against their will. And if state coercion were justifiable to its subjects whenever it led to the greatest amount of social welfare, then everyone could be forced by law to engage in lives dedicated more fully to public service.

Still, wrong answers like these lie at the root of Ben-Shahar’s and Schneider’s suggestion that what consumers need is not more disclosure but merely better advice to make better decisions. Wrong answers like these also lie at the basis of many of the criticisms of More Than You Wanted to Know that I see in this symposium—including the points that:

  1.  Some types of disclosures work well enough for consumer protection because they produce better consumer decisions in some circumstances (see, e.g., Lauren Willis, David Vladeck, Nancy Kim, Ethan Leib, Robert Hillman and Jeff Sovern);

  2. Advice by private entities is problematic because it suffers from some of the same problems as mandated disclosure (Florencia Marotta-Wurgler);

  3. Mandatory disclosure regimes are not so bad because they are only the worst “except for all of the current alternatives” at producing better consumer decisions (Ryan Calo, David Vladeck); and

  4. Mandatory disclosure regimes should be preserved because they create some social benefits that are not attributable to better individual consumer choices [see, e.g., Daniel Schwarcz, Steven Burton.)

I do not mean to suggest that points like these are irrelevant to the right normative questions we should be asking. I believe they are relevant, but in a less direct fashion. Still, we need to get clearer on what the right normative questions are before we can understand how facts and debates like these should guide legal reform. 

            iv.        Some Right Answers

So let us return to our fundamental question, which is: when might the private demands that arise from contracts and are backed by the coercive power of the state be justifiable to the particular subjects of the state coercion?

In answering this question, we need to remember that state coercion cannot always be justified to its subjects on the mere ground that either they or the community will benefit. The fact that there is a mere reason for a law or action, based on its consequences for welfare or the good, is not, in fact, a reason of the right kind to justify interpersonal demands, backed by state coercion, to their subjects. Reasons are not obligations, and we are not obligated to do what either rationality or impartial beneficence demands.   

Moral and political philosophers have spent quite a bit of time distinguishing between these different types of normative questions. They have also produced rigorous and important work, which aims to specify the distinctive types of evidence and argumentation that speak legitimately to each type of normative question. But much of the current scholarship in contract law does not attend to these distinctions. It therefore continues to risk distortions in our knowledge.

To cure these distortions, what we need to do—as a field—is draw more heavily on these rigorously developed lines of research and argumentation. We need to get much clearer on what the right normative questions are. We then need to argue about the right contours of consumer protection law by citing reasons of the right kind to justify interpersonal demands, backed by state coercion, to their potential subjects. 

Elsewhere, I have employed just these methods to argue that state coercion can be justified to contracting parties in a special set of circumstances: namely, when (1) these parties have tried to use a promise as a tool to influence another person’s actions and thereby meet a real human need or interest; and (2) when that influence (and hence the ability to promote a real human need or interest) reasonably depends upon the promise being legally enforceable. A person who enters into a contract in these circumstances is personally invested in its legal enforceability, and its legal enforcement is generally empowering. 

More importantly, once having made a promise in these special circumstances, contracting parties can no longer reasonably reject a set of legal rules that allow their specific counterparties to make demands of their conduct, backed by the coercive power of the state. It follows that private demands, backed by state coercion, are justifiable to these particular contracting parties in terms that these particular contracting parties cannot reasonably reject.

I call the resulting view “Contract as Empowerment” (see here and here).

Using this same methodology, I have argued that expectation damages should be the default remedy in contract law, and that courts should use a modified objective approach to interpretation. (See here.) I have suggested that this justification only applies to promises that are supported by consideration (though there are other reasons to accept a separate cause of action for promissory estoppel—see here)—thus accounting for the common law consideration requirement. I have also argued that contract law should exhibit a carefully balanced tension between some doctrines that require courts to defer to parties’ voluntary choice and some others that invite courts to police bargains for fairness (in the sense of equal empowerment) (see here.)

When we ask the right normative questions, and seek to answer them with the right kinds of normative argumentation, we can thus see how a medley of familiar contract law rules should come together as a coherent body of law. This is a good thing, because many of these rules would otherwise seem inconsistent. Notice, moreover, that this normative view is rooted in argumentation and not mere normative intuition. It relies on a special form of argumentation, which justifies contract enforcement in the right way to vindicate contract law’s claim to generate genuine legal obligations.

When contract laws can be justified in this manner, they are simultaneously personally empowering and reflective of a deeper moral ideal of equal respect for persons. This point about equal respect is incredibly important. It follows from the fact that when contract laws are justified in this manner, no person (not the promisor, not the promisee) can reasonably reject them. When engaging in this type of justification, each person is thus construed as having an equal moral standing to make claims on the law’s content. Each person is construed as having an equal moral standing to limit both the state’s powers of coercion and other peoples’ authority to make demands of his or her conduct.

But there is an important catch. In order to exhibit equal respect for persons, the contract law rules that promote personal contractual empowerment must seek to promote the greatest equal contractual empowerment of all. And laws cannot genuinely obligate individuals without exhibiting that kind of respect for them.

Unless we get the law right, both the state (with its contract laws) and many private individuals who use contract law to further their own interests in the marketplace are therefore getting people to comply with rules that do not produce genuine obligations. They are acting more like a “Gunman writ large”—to use one of Hart’s most memorable phrases—than a genuine source of interpersonal contractual obligation.  

            v.         Where to Go from More Than You Wanted to Know

So what should we learn from More Than You Wanted to Know? When it comes to consumer protection law, I believe we need to ask not only how to help consumers make better decisions, or which laws would produce more social welfare. The more fundamental normative question to ask is which set of contract law rules would be most equally empoweringi.e., which are most likely to allow contracting parties the greatest equal opportunity to meet a broad range of human needs and interests by making contracting choices that influence other peoples’ actions.

It seems clear enough from the evidence pulled together in More Than What You Wanted to Know that mandatory disclosure regimes are not always equally empowering in this sense. They often allow corporations to disorient consumers and manipulate their subjective choices—thus creating imbalances of power. Lauren Willis’s early work showed this brilliantly (see, e.g., here, here and here)—as has more recent work like Oren-Bar Gill’s Seduction by Contract and Margaret Jane Raden’s Boilerplate. (Lauren Willis’s more recent work on Performance-Based Consumer Law may also help level the playing field in the right way—though I wish she wouldn’t say that “social welfare is the right metric”, as she does in her contribution to this symposium.) 

To cure this problem, Ben-Shahar and Schneider are clearly right that we cannot just rely on more disclosure. But we will also need more than just more (or better) private advice. We need to seriously rethink how much boilerplate should be legally enforceable, so that both consumers and corporations have more equal power to decide the terms of the choices they are making. There is—after all—more than one efficient way to fill gaps in parties’ agreements, and not all methods are equally empowering. 

My methodological point is, however, more general. If the field of contract law continues to leave rigorous philosophical argumentation on normative questions out of the debates that arise in law and economics circles, then we will not know what do to with the increasing number of psychological and empirical facts that are at our disposal. One of the most influential and powerful cores of contract law studies will continue to expand in influence but will continue to produce distortion.

I would therefore urge more people working in and around the law and economics paradigm to begin to integrate more rigorous normative and philosophical argumentation into their work. I would urge them to recognize where their training gives them comparative advantages, and where it creates blind spots. I would urge them to begin to collaborate and co-author not only with psychologists and other social scientists but also with moral and political philosophers. And I would encourage them to invite more moral and political philosophers to their conferences and symposia, so that these important discussions are not dominated by unfounded normative premises, like their premise 3. Absent this type of collaboration, even important books like More Than You Wanted to Know will ultimately leave us with less than we need to know to determine how best to reform contract and consumer protection law.

But there is also an enormous opportunity here.  One of the most wonderful things about the legal academy is that we study a common subject matter but can draw on a wide range of interdisciplinary fields and methodologies to illuminate that subject matter. As a sociological matter, we will track the truth best if we reject the parochial premises that define particular disciplines and draw instead on whichever methodologies and lines of evidence or argument correctly inform the various aspects of our joint inquiry. Much of the continuing strength of the research that has begun to emerge from the classical law and economics movement arises from the fact that it has been willing to reject two of its three classical guiding premises. But it has not yet rejected the third, and the ability of this research to track the truth will only come into full fruition once it has.

At that point, the proverbial egg will have given birth to something much, much better. We will have discarded disciplinary parochiality and replaced it with a genuinely interdisciplinary search for the truth. This is something that we can do better in the legal academy than in many cognate disciplines, because the premises and methodologies that define these disciplines are often simply taught and applied.    

And so my hope—and now my plea—is that we all do our respective parts to give more life to this emerging new approach to contract law studies. More Than You Wanted to Know does its part, and the only part that it is capable of doing based on better psychological and empirical research. But I hope that both its authors and more contract law scholars remain open to the need for more input from other disciplines to take us all the way there.  

https://lawprofessors.typepad.com/contractsprof_blog/2014/10/guest-post-robin-kar-the-emerging-new-life-of-contract-law-studies-part-iv.html

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