The Limits of Freedom of Contract.

• Author: Rakoff, Todd D.

Contract law aspires both to state the law governing actual social interactions -- buying, hiring, leasing, and licensing -- and to depict an ideal society -- the market free and just. Contracts scholars, taken as a group, share these aspirations. It is still an honorable calling to fashion the positive law of contracts into a coherent set of doctrines.(1) Over the last couple of decades, however, a growing body of scholarship has addressed the relationship between the law of contracts and the desirable social order.(2) Being somewhat abstract, this literature has tended to reflect various jurisprudential, sociological, and political assumptions. We thus see in contract scholarship what we see in legal scholarship generally these days -- a proliferation of theories. In an effort to sort out these theories, Professor Michael Trebilcock(3) has written The Limits of Freedom of Contract.

Considered as a guide to the scholarly debate of the last twenty years, The Limits of Freedom of Contract is an excellent book. Trebilcock canvasses a wide range of theoretical perspectives: utilitarians, Kantians, social contractarians, Paretians, libertarians, communitarians, and some others all have their say. He also confronts a wide range of legal and social topics: prostitution, surrogacy, monopoly, just price, pollution, mistake and regret, consideration, affirmative action, international trade, and many more make their appearance. Yet the book does not fall apart; to the contrary, it is tightly and clearly organized. It opens and closes with a chapter setting out the general themes. In between, eight chapters grapple with specific topics: "Commodification," "Externalities," "Coercion," "Asymmetric Information Imperfections," "Symmetric Information Imperfections," "Paternalism," "Consideration," and "Discrimination." Each of these eight opens with a discussion of "The Nature of the Conceptual Problem," proceeds to a consideration of instances in which the problem arises, and rounds off with a short conclusion.

Trebilcock explicates the existing literature with great care. I have not read all of the works he discusses, but I have read a lot of them, and at no point did I see a dismissive or unfair rendition. There is one body of work that is omitted; because he treats contract law as a doctrinal system, Trebilcock has little time for the writings of those who emphasize context above doctrine.(4) Aside from that, the book gives each major point of view an extended consideration across a large range of examples. As a result, each chapter, considered by itself, provides an excellent overview of an important topic in contract theory.

What is Trebilcock's own point of view? In the first sentence of the preface he proclaims: "I am a law and economics scholar by trade" (p. v). Certainly he takes the market society as a given. The chapter headings, recited above, by and large reflect the law and economics paradigm. And, if there is a leitmotif running through the book, it is this quotation from Milton Friedman: "The possibility of coordination through voluntary cooperation rests on the elementary -- yet frequently denied -- proposition that both parties to an economic transaction benefit from it, provided the transaction is bilaterally voluntary and informed."(5)

By the fifth sentence of the preface, however, we find that one of Trebilcock's principal motivations for writing the book is "a concern that much law and economic[s] scholarship is far too unself-critical" (p. v). By and large, the book lives up to the promise implicit in that statement. As already said, it takes up many different social and philosophical theories, and from first to last comprehends that "freedom of contract" is as much a political as an economic proposition. Moreover, Trebilcock does not assume that the analyses offered by law and economics are, in the end, inherently superior to the alternatives. Indeed, he criticizes these analyses in at least three distinct ways. At times, he faults the use of economics in legal analysis for producing hopelessly indeterminate results. In considering the problem of externalities, for example, he says that the literal Pareto-superiority test(6) is almost never met; but if one instead employs the Kaldor-Hicks criterion,(7) there are a great many situations when the empirical uncertainties are overwhelming (pp. 66, 244-45). At other times, Trebilcock reproaches law and economics for being insensitive to important moral distinctions. A pure Pareto-efficiency approach to coercion -- one that asks only whether the parties think they are better off having traded than never having encountered each other -- will, he says, fail to see that, in conditions of pervasive scarcity, we need to make an essentially moral judgment as to which of the sets of baseline conditions that induce trade are tolerable, and which are not. The pure law and economics view of coercion "would have a very meagre, indeed impoverished, content" (p. 84). At still other times, Trebilcock takes the economic approach to task for assuming matters too important to be assumed. He frames the whole chapter on "Paternalism" around the problems raised by the fact that "neo-classical economics essentially has no theory of how preferences are formed, whether they are good or bad in terms of the welfare of those holding them . . . all preferences are accepted as equally valid" (p. 147). All of this is not to say that Trebilcock is picking a fight with law and economics, for he makes comparable points about the other theories he surveys. It is to say that he does not write from the standpoint of a true believer who tries to produce the best defense of his own theory at every turn. While the tone sometimes wavers, by the end of the book it is clear that Trebilcock rather takes his stand as the intelligent citizen, or the intelligent scholarly generalist, trying to make sense of the regime of contract law in a world of multiple contesting theories.

This, Trebilcock concludes in the final chapter, is no easy task. On the one hand, the applicable theories are typically so abstract that their implications for the law remain arguable. There is, he says, a "plasticity to concepts of autonomy, efficiency, and distributive justice" such that they can seem to endorse almost the same outcomes, or remarkably different ones, depending on the course of further...