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Social Control of Contract

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We're discussing social control of contract in contracts class. As I posted elsewhere, the class is structured around an ill-conceived textbook, compiled (and largely written - there are more notes and discussions than cases!) by some editors with a distinctly socialist bent. The textbook reaches the conclusion almost immediately that social control of contract is necessary, and then proceeds in that vein. The arguments against social control of contract are cursory and formulated so as to be easily rebuttable by their socialist arguments. As I said elsewhere, I don't think I'm learning contracts effectively, so I wanted to discuss this particular issue with some intelligent people.

Macaulay (the casebook editor) says that freedom of contract is abridged in many situations: people are not free to make contracts for illegal activity, people are not free to contract under duress. Macaulay then goes on to make the argument that all contracts between parties of disproportionate bargaining strength are necessarily contracts made under duress (because the poor, unskilled worker has no choice but to accept the contract offered by his powerful, wealthy, discount retail chain employer, for example). Because the freedom to contract is not absolute in the situations of crime or duress, it is not absolute in any context, and all contracts should be subject to the determination by society of what is 'fair' or 'unfair,' without reference to the actual desire of the parties to enter the contract. When I try to ask why what society thinks should matter, I get the response that if the parties had genuinely wanted to enter the contract, they wouldn't be dragging it into court for enforcement. They would have performed instead.

On the other hand, I think the freedom to contract isn't a primary, but is instead an extension of the right to life. By flowing from the right to life, the freedom to contract is necessarily limited by the right to life, not by what society thinks is wrong. The right to life morally limits me from committing murder, and so it also morally limits me from contracting for murder. Murder, duress and incapacity limitations are not imposed on a broad right to contract. Rather, the right to contract never included the right to make contracts under such situations in the first place. Duress, therefore, is rightfully thought of in terms of the initiation of force, and just because an agreement doesn't seem 'fair' to an outside observer does not mean that the agreement must have included some element of force. Instead, in order to defeat a contract for duress, one would have to allege something forceful on the part of the other party.

We're reading all these cases where one party threatens to do something it has a legal right to do (like fire an at-will employee) if the other party doesn't do something it has a legal right to do (like waive some right of action against a third party insurer). The opinions are all coming out in favor of the employee, and the dissents are all edited to omit the best parts!

In law school, they tell us that there is no right answer on the exam, because you always can (and should) make arguments for both sides. Obviously they want to teach us advocacy skills. But this attitude bleeds out into the real world, and I think it's partly due to the fact that the law is deliberately written to be only self-referential. The bulk of the common law doesn't look beyond itself to the facts of reality to justify its rules. Certainly modern common law does this - if you can't back it up with precedent, if someone else hasn't made a similar argument in the past, you're going to lose. Most of my classmates, and some of my professors, take the position that precedent makes something right until 'times change,' when precedent can be overruled. But why do times have to change? Shouldn't it be enough to show that a rule is immoral?

Am I making sense, or is this all stuff-and-nonsense?


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I can't believe you would ask if you were making sense. I thought that what you wrote was exceptionally eloquent and full of astute observations that I suspect exemplify the general state of legal studies in this country fantastically.

While I strained to see the connection between the first major point you made and the last, I do believe it is there. That so many laws are justified merely in reference to other laws should be no surprise given that so many social mores are accepted merely in reference to other social mores. Just as the common misconceptions surrounding the fairness of contracts are reached by many simply because they are easier than thinking about the issue independently, so are many legal conclusions.

Of course, both of these phenomenons stem from the even deeper, even less examined conviction common in our culture that it is not the individual's place to even think, much less act, as a result of his own judgement. It obviously takes no effort to remain weak economically. But, given our culture, it is possible to become economically viable by being more or less dependent upon the talents and judgements of others. If every dollar a person has earned has been the result of agreeing with anything, obeying orders, or merely following fads, then it's logical to conclude that this person's ethical and political views are going to reflect the predominant attitudes surrounding them aswell. They have have a direct financial stake in them or they may just not want to make enemies.

I know that that's a pretty basic observation for most people who frequent this forum, but seeing it come out in real world examples, and understanding just how deeply second-handedness and altruism run, is of value. It's tough to remain disillusioned and to remain clear about just what you're up against. The desperation to interact reasonably or to have a sincere theoretical discussion can make any resemblance of one very seductive, but it's important to remember that many who advocate bad ideas - on any level of abstraction - truly do not care to know their effect on the real world and worse, do not even believe that there will be one.

I think that even if you're not being taught contract law correctly, you definitely understand it's essentials correctly.

- Grant

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I do hope you can survive the experience successfully. That which doesn't kill you will make you stronger, but nevertheless you will feel sick in the process.

Macaulay's argument is a bad-smelling misidentification. I don't know what these supposed arguments for social control of contracts is -- I can't really imagine what it would mean in the first place -- but certainly the argument that freedom of contract is abridged sometime therefore it can be abridged anytime is, uh, what's the word I'm looking for? Silly? If there is duress, there is simply no agreement and thus no contract, plain and simple. So if a court refuses to enforce some words associated with a signature extracted at gunpoint, that is simply because there isn't a contract to enforce, and therefore duress has no relevance to freedom of contract. I'd be interested to see if that book gives you a definition of what a contract is, because under my understanding of a contract, a contract is an agreement, and the concepts of duress and agreement are contradictory. [This is sort of what you say in saying that the right to contract never included the right to make contracts under duress, and I am focusing on the idea that "duress" and "contract" are contradictory concepts, which could be made more obvious by spelling out clearly what a contract is in the first place].

Contracts are to be enforced by law and thus the terms of a contract are a species of law; but if a contracts states that one party must violate the law to obey the law, then the legal system would be contradictory and incoherent if such a clause were to be enforced. The distinguishing property that I see here is not that "contracts are all relative", but that certain apparent contracts contradict the concept contract, and thus are not recognised as contracts under the law.

Now if all contracts are made under duress (this would involve not only the poor, unskilled worker, but any person who has the power of having something that the other person needs, such as labor or money), then we should treat all contracts as equivalent to declarations signed under duress -- they are null and void, and not contracts. Thus, by Macauay's logic, there simply are no contracts. I don't quite see how the issue of what is fair comes into the picture. If I hold a gun to a person's head and force them to sign a contract, then once he's free and takes it to court, as far as I know that means that the coerced party can rescind the contract. Since all parties are coerced, under this theory that men have no free will and cannot make voluntary agreements, then all contracts are void ad libitum. Of course two parties might decide to agree to respect the terms of the agreement, but that would be external to this brave new legal system. In other words, what this really does for us is remove the concept "legally enforceable" from the concept "contract", meaning that you agree just in case you agree, and that the law should have nothing to do with contracts.

An important link in the argument about what a contract is which I have not seen spelled out in Objectivist terms is the notion of "obligation"; because, a contract does not simply say that you may do some things, it also says that you must do certain other things. I have the feeling that the concept of obligation, especially what creates one, is where we could prevail, since it appears to me that their position boils down to saying that obligations are completely arbitrary (and that would lead to absurdities).

I wonder how long this position about no right answer, seeing things from both sides, has been the basic principle in law school. It is just totally wrong (and is one of the reasons I abandoned all thoughts of law school decades ago). The idea that there is no right or wrong and that laws have no necessary grounding in morality is what creates contempt for the law in modern society. Still, I think it's possible (not desirable) to set aside the question of whether laws are necessarily grounded in morality. Morality is relevant for creating laws, so it is a concern for politics, but as long as we live in a basically moral society, a moral interpretation of the rightness of acts comes from having morally-grounded laws (outside of your domain unless you become a legislator) and correctly grasping what the law says. So the action is really in interpretation. It's clear that you can't construe a contract as an enforceable obligation to commit suicide: that is not what the words of the contract mean.

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I wonder how long this position about no right answer, seeing things from both sides, has been the basic principle in law school.

Turns out if I had read my assignment in Civil Procedure before writing my earlier post, I would have understood this aspect of the law. In reading about the background of Tompkins v. Erie R.R. Co., I learned that this attitude stems from the adoption of legal positivism in American jurisprudence at around that time (1938). Apparently, we used to think that the law was something that judges look for and declare, and that it derives from something universally applicable to all people, regardless of which state they happened to reside in. When the country industrialized, lots of workers started getting injured and suing their national employers and insurance companies. The Federal Rules allowed the powerful national corporations to remove to Federal court, almost always to the disadvantage of the lowly plaintiffs. Poor plaintiffs would have to travel to distant courts at great expense, and the Federal courts would apply the law as they interpreted it, not as the plaintiff's home state might have, even though the claim might have arisen there. As a result, allegedly of this idea of law being directly related to the facts of reality, plaintiffs were systematically and routinely being undercompensated.

So to solve the problem, the Supreme Court ruled that the Federal courts should apply the common law of the States, no matter how inconsistent it is, whenever a Federal law (or constitution or treaty) is involved. As far as I can see (and I haven't finished my analysis of Erie yet), this amounts to an enshrinement of legal positivism in American law. The attitude of law school professors is merely a reflection of that positivism.

On a related note, I think my grades in law school are of more value to me than trying to correct this attitude, at least at present. While I'd like to write essays that effectively argue both sides, and then argue that one side is morally superior to the other, I think this will be detrimental to my grades.


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