Consent to Retaliation: A Civil Recourse Theory of Contractual Liability

• Author: Nathan B. Oman
• Position: Associate Professor, William & Mary Law School
• Pages: 529-579

529

Consent to Retaliation: A Civil Recourse

Theory of Contractual Liability

Nathan B. Oman

ABSTRACT: In the ancient Near East, contracts were often solemnized by

hacking up a goat. The ritual was 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 promise making, or by the need to create optimal incentives in

contractual performance. In contrast, this Article argue s 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 consented-to

retaliation 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 of 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. INTRODUCTION ...................................................................................... 531

II. CONSENT AND CIVIL RECOURSE ............................................................ 534

A. CUTTING A COVENANT ..................................................................... 535

B. PENAL BONDS .................................................................................. 537

 Associate Professor, William & Mary Law School. I want to thank Pete Alces, Randy Barnett,

Curtis Bridgeman, Josh Chafetz, Dave Douglas, Greg Klass, Andrew Gold, Michael Gr een,

Robert Hillman, Ben Huff, Eric Kades, Charles Koch, Jeff Lipshaw, and Stephen Smith, as well

as participants at the Contract and Promise Seminar at Georgetown Law Center and workshops

at DePaul Law School, J. Reuben Clark Law School, and William & Mary Law School fo r their

helpful comments and criticisms. All of the standard disclaimers apply. Megan Brazo and Matt

Sutton provided excellent research assistance. As always, I thank Heather.

530 IOWA LAW REVIEW [Vol. 96:529

C. RECOURSE AND MODERN LITIGATION ................................................ 541

III. JUSTIFYING CIVIL RECOURSE .................................................................. 543

A. THE CASE FOR RETALIATION ............................................................ 544

B. RECOURSE AND PLURALISM ............................................................... 551

IV. CIVIL RECOURSE AND SOME PUZZLES OF CONTRACT DOCTRINE ........... 553

A. THE PENALTY DOCTRINE .................................................................. 553

B. LIMITATIONS ON EXPECTATION DAMAGES ......................................... 557

C. THE PRIVATE-LAW STRUCTURE OF CONTRACTUAL LIABILITY ............. 560

V. RESPONDING TO OBJECTIONS ................................................................ 563

A. THE NORMATIVE OBJECTION ............................................................ 564

B. THE TRANSPARENCY OBJECTION ....................................................... 566

C. THE DOCTRINAL OBJECTION ............................................................. 571

VI. CONCLUSION ......................................................................................... 578

2011] CONSENT TO RETALIATION 531

I. INTRODUCTION

Many of the earliest contracts were bloody affairs. Both Homer and the

Bible recount covenant rituals in which promisors slaughtered animals and

poured their blood on the ground to seal a bargain. In essence, these

sanguinary rituals consisted of consent to retaliation in the event of breach.

When promisors hacked up a goat, they consented to be hacked up in like

manner should they breach. While the modern legal world seems very

different from the violent one depicted in these ancient sources, this Article

theorizes that contemporary contract law is much closer to these ancient

covenant rituals than we suppose. Modern scholars have struggled to

account for contractual liability in terms of the moral obligation to keep a

promise, the need for incentives to promote optimal investment in contract

performance, and other social goals.1 This Article argues in favor of a

simpler, rawer claim: contractual liability consists of consent to retaliation in

the event of breach. Of course, the retaliation consented to in a modern

contract consists of recourse through the courts, rather than violence

against life and limb. We moderns, however, are closer to our goat-hacking

forbearers than we assume.

This is an interpretive claim about contractual liability. The goal of such

a theory is not to explain what contract law would look like in the best of all

possible worlds. Rather, the goal is to reveal the normative structure of

contractual liability as it currently exists. Such a theory can be valuable for a

number of reasons. First, it increases our philosophical understanding of an

important social practice. To the extent that we can show that our current

law—or some portion of it—represents a set of coherent goals and choices

rather than the outcome of essentially random historical accidents, we

understand the law better. Second, to the extent that we believe that judges

should decide cases according to preexisting legal rules, or should shift legal

doctrine in ways that nevertheless retain continuity with previous law, we

need an interpretive account of our law as it now stands. Finally, an

understanding of the normative structure of our current law is important

when we propose reforms to change it. Such proposals never exist in a

vacuum, but must be measured against the value of our current law. To

justify replacing current rules with something new, we must understand the

values—if any—instantiated in our current law. Only then can we judge

whether a proposed change will be an improvement. Understanding the

1. See, e.g., Peter Benson, Contract, in A COMPANION TO PHILOSOPHY OF LAW AND LEGAL

THEORY 24 (Dennis Patterson ed., 1996) (summarizing contemporary debates over the theory

of contract law); James Gordley, Contract, in THE OXFORD HANDBOOK OF LEGAL STUDIES 3

(Peter Cane & Mark Tushnet eds., 2003) (same); Jody S. Kraus, Philosophy of Contract Law, in

THE OXFOR D HANDBOOK OF JURISPRUDENCE AND PHILOSOPHY OF LAW 687 (Jules Coleman &

Scott Shapiro eds., 2002) (same).