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There is a fundamental divide among theories of contract law between those that picture contract as a power and those that picture it as a duty. On the power-conferring picture, contracting is a sort of legislative act in which persons determine what law will apply to their transaction. On the duty-imposing picture, contract law places duties on persons entering into agreements for consideration, whether they want them or not. Until now, very little attention has been paid to the problem of how to tell whether a given rule is power conferring or duty imposing—a question that should lie at the center of contract theory.

This Article argues that legal powers have two characteristic features. First, there is an expectation that actors will satisfy the rules with the purpose of achieving the associated legal consequences. Second, the legal rules are designed to facilitate such uses. A law might exhibit these features in either of two ways, which define two types of legal powers. Many laws that create legal powers employ conditions of legal validity, such as legal formalities, designed to guarantee the actor’s legal purpose. The presence of such validity conditions is strong evidence that the law’s sole function is to create a legal power, and I suggest reserving the term “power conferring” for such laws. Other laws anticipate and enable their purposive use without conditioning an act’s legal consequences on the actor’s legal purpose. The structure of such laws suggests that they function both to create powers and to impose duties. I coin the term “compound rule” for laws that satisfy this description and argue that the contract law we have is a compound rule. The dual function of compound rules provides empirical support for pluralist justifications of contract law. An example of such a theory can be found in Joseph Raz’s comments on the relationship between contract law and voluntary obligations.

A party in breach of contract cannot sue the victim of breach to recover what would have been the victim’s loss on the contract. The doctrinal rationale is simple: A violator should not benefit from his violation. This rationale does not, however, provide an economic justification for the rule. Indeed, efficient breach theory is founded on the proposition that a breach of contract need not be met with reproach. Yet the prospect of recovery by the party in breach—that is, the prospect of negative damages—has received scant attention in the contracts literature. Close analysis reveals potential costs to disallowance of negative damages, particularly where a party with private information about the benefits of termination also has an incentive to continue under the contract. These costs can arise both ex post, at the time of a performance-or-termination decision, and ex ante, in anticipation of that decision. Nevertheless, allowance of negative damages could impose its own costs, where background information would create an incentive to repudiate a contract before either party could gather more information, for example. Ex ante contractual provisions, such as liquidated-damages or specific-performance clauses, permit parties some latitude to balance the costs of disallowance and allowance of negative damages, albeit imperfectly. Common law limitations on the mitigation duty may be seen as a mechanism to approach this balance in the absence of an explicit con- tractual solution.

This Article uses recent developments in the enforcement of arbitration agreements to illustrate one way in which strategic dynamics can drive doctrinal change. In a fairly short period of time, arbitration has grown from a method of resolving disputes between sophisticated business entities into a phenomenon that pervades the contemporary economy. The United States Supreme Court has encouraged this transformation through expansive interpretations of the Federal Arbitration Act. But not all courts have embraced arbitration so fervently, and therefore case law in this area is marked by tension and conflict. The thesis of this Article is that we can better understand developments in arbitration doctrine by viewing the case law as the product of an ongoing strategic interaction between courts with differing preferences regarding the spread of arbitration. As the Supreme Court has shut off most other means of resisting arbitration, the state law doctrine of unconscionability has in the last several years become a surprisingly attractive and successful tool for striking down arbitration agreements. The nature of unconscionability analysis is that it is flexible, which provides opportunities for courts skeptical of arbitration to use the doctrine to evade the Supreme Court’s pro-arbitration directives while simultaneously insulating their rulings from Supreme Court review. Sophisticated resistance to arbitration is just one side of the story, however. The approach employed in this Article examines the judicial system as a whole, including the ways pro-arbitration courts respond, sometimes indirectly, to what they perceive as manipulation of unconscionability. The suspicion that some courts are disfavoring arbitration drives pro-arbitration courts to change their strategies, such as by establishing new doctrine that facilitates monitoring and shifts decisionmaking authority. This strategic framework can help us make sense of otherwise puzzling trends in arbitration doctrine and can help us predict what moves will be next. Although the specific subject matter is arbitration, this analysis is also aimed at those interested in more general problems of judicial federalism.

The study of contract law is undergoing a difficult transition as it moves from the theoretical to the empirical. Over the past few decades scholars have focused largely on developing economic theories that offer a normative approach to setting the legal rules governing voluntary exchange. The time has now come to test whether these theories provide a meaningful basis for choosing our laws—in other words, to ask whether empirical data supports the theoretical models that contracts scholars have posited. Unfortunately, this type of empirical analysis has proven exceptionally difficult to conduct, and some commentators are beginning to question whether it will ever be possible to test and revise our economic theories of contract in a meaningful manner. Yet the problem of harnessing information to support complex decisions is not unique to contract law. This Essay explores the possibility that recent technological developments from the field of organizational knowledge management—including advances in meaning-based computing algorithms—will soon make it easier to conduct empirical work in contract law on a much larger scale.

Modern contract law is governed by a two-stage adjudicative regime—an inheritance of the centuries-old conflict between law and equity. Under this regime, formal contract terms are treated as prima facie provisions that courts can override by invoking equitable doctrines so as to substantially “correct” the parties’ contract by realigning it with their contractual intent. This ex post judicial determination of the contractual obligation serves as a fallback mechanism for vindicating the parties’ contractual intent whenever the formal contract terms fall short of achieving the parties’ purposes. Honoring the contractual intent of the parties is thus the central objective of contract law. Yet little scholarly attention has been given to the structure of contractual intent. Courts naturally equate contractual intent with the parties’ contractual objectives, which we call the “contractual ends” of their collaboration. But reaching agreement on a shared objective is only the first step to designing an enforceable contract. Thereafter, the parties must create the particular rights and duties that will serve as their “contractual means” for achieving their shared ends. The thesis of this Article argues that the current regime of contract adjudication conflates the parties’ contractual means with their contractual ends. In so doing, it reduces the range of contractual arrangements to which contract law gives effect, thereby potentially depriving commercially sophisticated parties of essential tools for contract design. Sophisticated actors engage in ex ante determinations of their means of enforcement, choosing whether enforcement is to be either legal or relational and whether legal enforcement should rely on either rules or standards. Both theory and available evidence suggest that such parties would prefer a default rule that strictly enforces formal contract doctrine unless they have expressly indicated their intent to delegate hindsight authority to a court. By eliminating the risk that courts will erroneously infer the parties’ preference for ex post judicial intervention, such a regime increases the reliability of formal contract terms and enhances the parties’ control over the content of their contract.

Scholars have argued that the malpractice system would be better off if patients had the option of waiving the right to sue for malpractice in exchange for a lower fee. Some doctors have tried to follow this advice by having their patients sign medical malpractice exculpatory agreements, but courts usually have refused to enforce these agreements, invoking a void-for-public-policy rationale. This Note argues that a doctor could maximize the odds that a court would enforce her medical malpractice exculpatory agreement by somehow ensuring that she will never find out whether her patient decided to sign. A case study of the law in New York highlights the ambiguity in the void-for-public-policy rationale as to whether the simple fact that the doctor-patient relationship is implicated in a medical malpractice contract is fatal to enforcement, or whether such a contract could be enforced if it were nonadhesive and clearly worded. A behavioral-economic analysis of the patient’s decision to sign a medical malpractice exculpatory agreement reveals a reason why the agreements may be categorically barred: Some patients might unwillingly agree to sign for fear of signaling distrust or litigiousness to their doctors. A confidential contract—in which the offeror never knew whether the offeree had accepted or not—would avoid this signaling effect. A provider using such a contract could distinguish those cases in which the doctor-patient relationship alone seemed to justify nonenforcement as not involving this prophylactic measure.

Standard Form Contracts (SFCs) are at the heart of an ongoing debate among legal and empirical scholars about the extent to which market forces serve to discipline sellers into providing fair contract terms. Scholars have long assumed that consumers do not read SFCs ex ante (e.g., at the time of purchase or installation) but have generally left open the possibility that consumers might read SFCs ex post (e.g., if there is a breakdown in service or functionality). This Note examines empirically the extent to which online product ratings might serve as a conduit of information regarding contract terms from ex post to ex ante consumers. Comparing online product ratings from Epinions.com and Amazon.com with software license agreements graded according to a contract bias index, I find that product ratings on Amazon.com surprisingly bear a negative correlation with contract bias. That is, more highly rated products tend to come bundled with more pro-seller terms. My results suggest that while product ratings may contain information about contract terms, this information is not conveyed in a way that is useful to ex ante consumers and, accordingly, is unlikely to discipline sellers. This Note thus provides guidance for future research and policy initiatives seeking to explore ways to discipline sellers into providing fairer and more efficient contract terms.

Recent Supreme Court decisions such as American Express v. Italian Colors Restaurant, 133 S. Ct. 2304 (2013), and AT&T Mobility v. Concepcion, 131 S. Ct. 1740 (2011), represent dramatic developments with implications that extend far beyond the arbitration context. These decisions are a product of what the author refers to as the “contract model” of the Federal Arbitration Act (FAA). Heretofore largely unquestioned, the contract model posits the FAA’s original and dominant purpose as the promotion of private ordering in dispute resolution, as free as possible from state regulation. The model has, in turn, helped courts and commentators claim that the FAA requires arbitration agreements to be enforced strictly “according to their terms”—without regard to the way those agreements might compromise procedural values, such as when they preclude classwide relief.

This Article questions both the descriptive accuracy and normative persuasiveness of the contract model. It argues that when placed in their proper historical context, the FAA’s text and legislative history appear equally consistent (if not more so) with a purpose to improve upon the widely discussed procedural failings of the courts circa 1925. From this standpoint, the FAA can be understood as an offshoot of ongoing efforts at the time to reform procedure in the federal courts—efforts spearheaded by figures such as Roscoe Pound and Charles E. Clark, and that eventually culminated in the Federal Rules of Civil Procedure in 1938. The FAA, in short, was arguably a type of procedural reform.

These insights lead the author to propose a “procedural reform” model of the FAA, one that he contends is both more faithful to the statute’s history (legislative and otherwise) and more adept at answering the difficult questions that confront arbitration law in the age of “contract procedure.” The author considers two recent examples to illustrate.

I hypothesize that different experiences with online contracting have led some consumers to see contracts—both online and offline—in distinctive ways. Experimenting on a large, nationally representative sample, this paper provides evidence of age-based and experience-based differences in views of consumer contract formation and breach. I show that younger subjects who have entered into more online contracts are likelier than older ones to think that contracts can be formed online, that digital contracts are legitimate while oral contracts are not, and that contract law is unforgiving of breach.

I argue that such individual differences in views of contract formation and enforceability might lead firms to discriminate among consumers. There is some evidence that businesses are already using variance in views of contract to induce consumers to purchase goods they would not otherwise have. I conclude by suggesting how the law might respond to such behavior.

Interpreting the language of contracts may be the most common and least satisfactory task courts perform in contract disputes. This Article proposes to take much of this task out of the hands of lawyers and judges, entrusting it instead to the public. The Article develops and tests a novel regime—the “survey interpretation method”—in which interpretation disputes are resolved through large surveys of representative respondents, by choosing the meaning that a majority supports. This Article demonstrates the rich potential for this method to examine variations of contractual language that could have made an intended meaning clearer. A similar survey regime has been applied successfully in trademark and unfair competition law for decades to interpret precontractual messages, and this Article shows how it could be extended to interpret contractual texts. The Article focuses on the interpretation of consumer contracts as the primary application of the proposed method, but demonstrates how the method could also apply to contracts between sophisticated parties. To demonstrate the technique, this Article applies the survey interpretation method to five real cases in which courts struggled to interpret contracts. It then provides normative, pragmatic, and doctrinal support for the proposed regime.