Tuesday, March 2, 2010

The "Goat Hacking" Justification for Contract Law

Posted by Jeff Lipshaw

NateHS A contract law theorist whose work I admire greatly, Nate Oman (William & Mary, Visiting Cornell, left), has posted a new piece in the burgeoning area of "pluralistic" contract theory.  For the uninitiated, the poles of the debate over the last twenty-five years or so have been, on one hand, the "law & economics" view which sees state enforcement of private promises as justified by the enhancement of economic welfare (i.e., people are more likely to invest in transactions that move goods and services to those who value them the most if contracts are in place that restrain opportunism) and, on the other hand, the "promise principle" view that the state has an interest in upholding the moral commitment of a promise.  The problem with both views is that they either explain too much or too little about not only the justification of state involvement in private matters, but also the specific elements of doctrine themselves.  A number of theorists, including Nate, have either tried to reconcile the poles, or to propose other alternatives.

Nate's most recent contribution to the discussion is Consent to Retaliation: A Civil Recourse Theory of Contractual Liability, and the abstract follows:

In the ancient Near East, contracts were often solemnized by hacking up a goat. The ritual was in effect an enacted penalty clause: "If I breach this contract, let it be done to me as we are doing to the goat." This Article argues that we are not so far removed from our goat-hacking forbearers. Legal scholars have argued that contractual liability is best explained by the morality of promising or the need to create optimal incentives in contractual performance. In contrast, this Article argues for the simpler, rawer claim that contractual liability consists of consent to retaliation in the event of breach. In the ancient ritual with the goat, the retaliation consented to consisted of self-help violence against life and limb. The private law in effect domesticates and civilizes retaliation by replacing private warfare with civil recourse through the courts. It thus facilitates the social cooperation made possible by the ancient threats of retaliation while avoiding the danger of escalation and violence that such private violence presented. This civil recourse theory of contractual liability provides an explanation for a number remedial doctrines that have proven difficult for rival interpretations of contract law to explain, including the penalty clause doctrine, limitations on expectation damages, and the basic private law structure of contractual liability. Finally, this Article responds to some of the most powerful objections that might be made against a civil recourse theory of contractual liability.

I should add that I'm sympathetic to this view, having argued elsewhere a similar point about contracts being backup mechanisms that take effect when the social norms of a relationship break down.  If Nate and I part company, it may be that I am less persuaded that the jurisprudential justification translates into specific doctrine.  But, as Larry Solum says, download it while it's white hot.


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