Thursday, March 9, 2023
Finding Morality in Contract Law
When I was a (much) younger post-doctorate fellow at the Center of Law and Society in Berkeley, I was lucky to experience some of what Ethan Leib shared in his contribution to this symposium: Mel Eisenberg’s warmth and generosity. We shared a lovely lunch, for which I believe he paid, but that’s not my evidence of the previous point. Although we had so little in common in terms of stardom (I had none!), gender, age, or even country of origin, Mel learned about my Ph.D. thesis (a feminist one) and announced that we share something unique. I guess my jaw dropped because he hurried to explain that “nowadays” (read: almost two decades ago), only a few scholars are truly passionate about the good old law of contracts and sincerely focused on the role it plays in our lives. Until today, those words inspire my work. More importantly, they illuminate Mel’s lifetime insistence that morality is integral to contract law and moral behavior is expected from contractual parties who seek to enforce their agreements. To me, this theoretical vision is tightly linked to Mel’s interpersonal kindheartedness.
Frequent readers of contract law scholarship are usually exposed to variations of the argument that this field of law has, and should have, little to do with morality. As early as the end of the nineteenth century, Oliver Wendell Holmes made a strong claim against the integration of contract law and morality. In his Harvard Law Review article, The Path of the Law, Holmes wrote that “[n]owhere is the confusion between legal and moral ideas more manifest than in the law of contract.” He also cautioned that it would be “a gain if every word of moral significance could be banished from the law altogether.”
Fast-forward to 2008, Richard Posner echoed the message from the bench when he stated in Classic Cheesecake v JPMorgan Chase Bank: “it is a strength rather than a weakness of contract law that it generally eschews a moral conception of transactions.” Like Holmes, Posner added a normative warning. In his view, not without followers among contract theorists, it is better to discuss real contractual issues rather than “[r]uminating on the meaning of ‘unjust’ and ‘unconscionable.’”
Much of the modern resistance to any incorporation of morality in contract law focused on the doctrine of unconscionability, perhaps because its very name reflects an aspiration to such integration. Commentators, many of whom leaders or followers of the law and economics approach, criticized the doctrine’s application in the watershed 1965 case of Williams v. Walker-Thomas Furniture Company. They argued that market actors should be left free and never be expected, as Posner put it in another decision, to be their “brother’s keeper.” Or, as Frank Easterbrook explained in Wilkow v. Forbes, Inc., “an allegation of greed is not defamatory” because “sedulous pursuit of self-interest is the engine that propels a market economy.” Moreover, many in this camp and outside of it also labeled the doctrine of unconscionability “paternalistic.” Many, including most famously Richard Epstein, added caution that excusing exploited promisees due to contracts’ unconscionability would end up harming the victims instead of offering them relief.
Given this dominant opposition, one is left puzzled: How should the law respond to exploitative market behaviors that yield predatory contracts? By and large, our legal system delegates the problem to the judiciary. Then, admittedly, many greed-born contracts slip under the legal radar because the exploited parties simply lack the means, monetary and otherwise, to seek legal help. Those who do manage to access courts request release from their promise, mainly in the name of unconscionability. On the other hand, exploiting parties frequently use their abundant means to turn to the law and demand enforcement of their contracts. Therefore, any time litigation ensues, courts must choose, respectively, between greed and conscience, exploiters and exploited, and enforcement and unconscionability. So, what should courts do? I think they should follow Mel’s analysis.
In the face of the loud attacks on morality in contract law in general and the use of unconscionability in particular, Mel has developed and shared with the world the opposite approach. He has brilliantly analyzed, demonstrated, and compellingly argued that insisting on moral behavior by contractual parties is an integral part of contract law and for all the right reasons. Nowhere is this approach more evident than in his celebration of unconscionability in his phenomenal book Foundational Principles of Contract Law, in which the third part is dedicated to “Moral Elements in Contract Law.” Opening this part is chapter seven, titled “The Unconscionability Principle,” thereby elevating the concept from a doctrine to a leading principle, claiming its centrality to the contractual legal system, and challenging its marginalization by others. To remove any possible doubt about this feature, the chapter starts by unapologetically crowning the principle as “one of the most important developments in modern contract law.” Morality, Mel explains, is at the heart of this “fundamental principle,” reminding readers that “the term unconscionable suggests a significant degree of moral fault.” The beauty of the principle, he further illuminates, is its ability to connect rather than separate contract law and social morality (the latter eloquently defined as the “moral standards that are rooted in aspirations for the community as a whole”). As our social norms evolve, Mel writes, unconscionability “continues to unfold,” ensuring our law reflects and supports those norms.
In a set of hypotheticals with lovely titles, the chapter illustrates how essential is the expectation of morality to the appropriate operation of contract law. For example, The Desperate Traveler hypo raises the problem of “immoral exploitation of [a] promisor’s distress.” Similarly, The Desperate Patient story focuses on a medical provider acting “in a morally improper way” when demanding an excessive price for a life-saving procedure that others cannot perform. Further, The Artless Heir example shows how exploiting an unsophisticated counterparty’s lack of understanding of a transaction sometimes “violates social morality” even if basic legal capacity exists. In the same vein, as if predicting COVID-19, Mel states that “price gouging is immoral” because “it is morally improper to significantly raise prices to exploit important needs resulting from a temporary disaster.” This is also his view of cases of sellers’ exploitation of price ignorance on the side of consumers and some door-to-door sales. Those and other compelling examples more generally show how unconscionability is the voice of conscience and morality within our contractual system. Or, in Mel’s words, “Whether a contract is unconscionable normally turns in significant part on whether the promisor engaged in morally improper conduct.”
Significantly, the chapter offers a forceful response to the loud outcry of “paternalism!” This part (which I had the privilege of reading in earlier drafts of the book) truly inspired much of how I think about the role of contract law, so please allow me to consume some more virtual space by presenting the entire idea. Mel writes: “It is not paternalistic to refuse to enforce a contract obtained through morally improper conduct.” He then emphasizes that even if some paternalism is involved, it is “a very diluted form of paternalism.” Why? Because in applying the unconscionability principle: “the government forbids nothing and commands nothing. It simply says to the promisee, ‘If you can accomplish your ends without our assistance, fine. But don’t ask us to help you recover a pound of flesh.’”
Touché! And also, how beautiful it is that Mel’s phrasing echoes not only Shakespeare’s The Merchant of Venice but also Judge Story’s insistence that Courts of Equity “ought to interfere” because unconscionable contracts “shock the conscience.”
But what I find most thought-provoking in this forceful statement is that it can be read as going far beyond successfully replying to allegations of paternalism. Hidden here, but not too far from the surface, is a precious gem: a robust conceptualization of how a moral contract law should work. In Mel’s reply, I find not only a justification for the judicial invalidation of exploitative contracts but also a broader obligation of the state. Because courts support the contractual system by providing market actors with valuable enforcement services, they must be careful about how they do so. Accordingly, when market actors utilize contractual powers in an immoral manner, the judiciary should refrain from supporting their abuse of the system. As a matter of duty, the state ought to operate the foundational principle of unconscionability to prevent the enforcement of agreements that transgress society’s moral norms.
Recognizing the state’s ability and obligation to discourage the immoral use of contracts via the unconscionability principle is invaluable. Elsewhere, I explained why the way courts operate the principle is critical to how people choose to behave. As scientists have shown, “rightness and wrongness…are things we feel,” and moral emotions like guilt are designed to guide us to avoid what we believe is immoral. What courts say and do when facing the puzzle of contracts blemished by immoral conduct has a significant impact on this human process. Given the immense expressive power of the law, judicial decisions and their dissemination via the media shape what people consider a faulty behavior that should be avoided. For example, when the law defines the exploitation of distressed people as improper, it can induce in market actors the anticipation of guilt feelings if they so misbehave. In response, some actors may decide to escape this foreseeable unpleasant emotion by taking the course of more self-restraint. By contrast, the conventional insistence that contract law should focus merely on economic incentives and avert questions of morality suppresses this emotional incentive to refrain from exploitation.
And there is more. Fully understanding the power of the unconscionability principle carries an even broader meaning. It suggests that contract law’s principles should reflect and support the idea that contracts—as powerful private tools trusted in human hands—should be morally used. For instance, as I have recently written, much like unconscionability, the foundational principle of good faith should be operationalized to discourage market providers from humiliating their counterparties. On this view, employers act in bad faith (and not only discriminate as decided in Bostock v Clayton County) when they terminate contracts with LGBTQ+ employees after learning about their sexual orientation or gender identity. Likewise, MacDonald’s performs its contract with a Black diner in bad faith when its manager responds with horrible racial slurs to an ordinary request to replace cold fries with fresh ones.
Once more, it all goes back to Mel’s argument that the state should not accept and reward immoral abuses of the contractual system. Following this guidance, I would add that the state should secure market citizenship for all its members whenever its judiciary applies the law of contracts. That means that the foundational principles of contract law must be used to prevent those profiting from contracts from damaging the contractual experiences of others. Note that this broader point is again a matter of morality: free and equal citizens must respect each other, and the state ought to refuse to support their contractual endeavors when they intentionally and severely harm the human dignity of their counterparties. Because exploitation and humiliation both have this injurious effect, such behaviors should be handled via foundational principles like unconscionability and good faith.
All told, read as embedding morality in contract law’s leading principles, Mel’s chapter on unconscionability, and his entire notable body of work, inspires a deeper conversation regarding contracts, the people who use them, and the role of contract law. It invites us to imagine a world in which contracts are not battlefields wherein the winner takes it all but rather an essential type of relationship between humans. Those humans are not only rational and selfish but also equipped with good amounts of social and emotional intelligence. As such, they are much more amenable than the infamous homo economicus to moral cues, including those expressed by the law. Furthermore, under this view, contract law is not only a quintessential strain of private law designed to support the free market. Instead, it is also a unique social institution that can (and should) foster morally healthy relationships between market actors. So, in conclusion, I hope you can see how such a generous outlook on contracts, humans, and the law not only arises from Mel’s remarkable work but also ties in with the generosity and care he exhibited in that lovely lunch many years ago.
Previous posts in the Symposium:
Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part V: Introducing the Second Week
Subsequent posts in the series: