Two Takes on Freedom of Contract, Part II: Hanoch Dagan

Back in May, Hanoch Dagan (left) presented the 2024 Maatsricht Private Law Lecture on the subject of Freedom of Contract, Properly Understood.  On Friday, we reviewed Rebecca Stone‘s take on freedom of contract.  It is nice to have two pieces on the topic coming out around the same time to get a state of the field.

Professor Dagan begins with a simple dichotomy — freedom of contract is often touted by libertarians as a negative freedom, while liberal egalitarians attempt to limit it when doing so is in the public interest.  Professor Dagan’s approach flips around the first premise so as to provide a communitarian defense of freedom of contract.  Freedom of contract is a positive, generative freedom, with autonomy as its end, and contract law must serve to help contracts achieve that liberal goal.  Freedom of contract thus carries within it autonomy-enhancing limitations on the abusive transactional practices. 

In the first part of the lecture, Professor Dagan describes the libertarian theory of freedom of contract.  In the second part, he shows that view to be conceptually unnecessary and normatively impoverished.  Properly understood, “freedom of contract is intrinsically bounded by liberal contract’s commitment to relational justice (that is: reciprocal respect for self‐determination and substantive equality) and to the autonomy of the parties’ future selves.” (2) In part three, he applies his concept of freedom of contract to the issue of workers’ rights and non-competes.

In both of those contexts, Professor Dagan aims to show that protections for workers rights and limitations on non-competes do not violate the principle of freedom of contract, properly understood.  Properly understood, contracts theory must go beyond the strictly voluntarist conception, according to which all contracts obligations are created by the parties and freedom of contract is treated as a natural right that entitles promisees to the performances for which they have bargained. (9)

Professor Dagan first notes that modern contracts law creates defaults and mandatory rules that bind the party, sometimes whether they like it or not. (9-10) Drawing on the work of Liam Murphy (right), Professor Dagan describes contracts as a sort of “moral invention.” Unlike torts, which create duties, contracts empower their creators.  Professor Dagan will not go as far as Murphy in treating contracting as a social practice in which enforcement turns on the whether the bargain is “all things considered desirable.” (10-11) Rather, Professor Dagan prefers to emphasize contracts’ distinctive characteristic as a social practice that contributes to self-authorship. (12-13)

Dagan’s “genuinely liberal” account of contracts goes beyond seeing contract as a means of distributing goods or entitlements.  It is a vehicle for joint planning.  So conceived, contract law cannot be strictly voluntaristic. But must adhere to “three autonomy‐based principles – addressing range, limit, and floor.” (15) “Range” entails what Professor Dagan calls “proactive facilitation.” Contracts can be on any subject matter, and they protect the promisee’s interest, not merely reliance. Modern contracts law’s gap fillers and mandatory provisions serve this facilitation function. (15-16)

Having explained how freedom of contract is to be properly understood, Professor Dagan then demonstrates how it is to be properly applied. His second autonomy-based principle is a “jurisdictional floor – relational justice.” In the context of workers rights, relational justice requires the protection of the rights of laborers to organize. Contract theory cannot predetermine the terms of union contracts; it can only describe the preconditions for freedom of contract, properly understood. (18-20)

His third autonomy-based principle is a “jurisdictional limit – the autonomy of the future self.”  In short, this limit circumscribes the power to commit to contracts so that it does not “overly curtail the autonomy of the parties’ future selves.”  Professor Dagan illustrates this concept by pointing to courts’ reluctance to order specific performance in many contexts. (20-22) Non-competes provide another test case. Here, Professor Dagan endorses neither the common-law approach of tolerating non-competes “where reasonable” nor the FTC ban.  Rather, he notes that the solution must be worked out with an eye to the impact of enforcement on the autonomy of future selves. (22-23)

I find Professor Stone’s and Professor Dagan’s very different takes on freedom contract highly constructive and remarkably complementary.  Both bring tremendous jurisprudential acumen to the issue, and I think they arrive at similar positions in terms of tempering libertarian theories of freedom of contract with attention to substantive fairness.  While Professor Stone’s theory operates as a sort of ethical overlay or check on sovereignty theory, Professor Dagan’s theory bakes relational justice into a proper understanding of freedom of contract.