Teaching Assistants: Brian Bix on The Moral Obligation to Perform Contracts

When I teach contracts, I often push back against students’ instinct that a breach of a promise is a moral wrong.  When I do so, I always have in mind George M. Cohen’s insight that the difference between those who think here is fault in contract law and those who think there isn’t may just be a matter of emphasis.  It is also true that breaches of contract occur in a variety of settings and thus call forth different moral responses.

Brian Bix (pictured) provides a great introduction to the literature and the problem of the moral obligation to perform contracts in a new paper available on SSRN.

Bix briskly takes us through some useful background.  One has a general moral obligation to obey just laws, but not all laws are just.  Even if there were not a moral obligation to obey laws because they are law, legal  normative systems generally overlap with moral normative systems, and so in many cases, complying with legal obligations is also the right moral choice.  There are counterarguments, and Bix ably lays them out before turning to the more difficult question of how moral obligation applies to contracts law.

Contracts law is different from other types of law, e.g. criminal law or torts, for at least two reasons.  First, as Holmes (below, right) put it, the obligation of contracts is to perform or to pay damages.  Once one has made the other party whole, one way or the other, one has performed one’s legal duty and perhaps that satisfies the moral obligation as well.  Contracts damages are compensatory, not punitive, at least at common law.  Second, the breaching party is liable regardless of fault.  The fact that one took all possible precautions does not excuse breach as it would, say, a cause of action sounding in negligence.  

If one is of the view that contracts law is about enforcing promises, or if one is of the view that contracts law protects a reliance interest, one is likely inclined to view breaches as presumptive breaches of a moral obligation.  If, on the other hand, one sees contracts as primarily a vehicle for facilitating mutually beneficial transactions, breach can be beneficial, when, for example, they are “efficient;” that is, when breach better promotes social utility than does performance. 

Even if one finds the promise theory of contracts appealing, contracts law must confront, in the world of form contracting, the problem of consent.  In asymmetrical contracting, consumers, employees, and others are subjected to form contracts, the terms of which are fixed and non-negotiable.  It is something of a legal fiction to contend that they have promised to comply with all of the terms of a contract that they do not — and are not expected to — read.  

Bix points out that one might have a moral obligation to abide by reasonable contract terms, even if one has not meaningfully consented to them.  Following Karl Llewellyn, Bix notes that one might not be morally bound to abide by unreasonable and inconspicuous terms that one would not have agreed to had one been made aware of them and had a reasonable opportunity to “dicker” over them.  But reasonable minds, such as those of Judge Skelly-Wright and Richard Epstein, might differ on what counts as an unreasonable term.

Bix then briefly considers Steven Shavell’s argument that breach of contract often implies no moral culpability because breach often occurs for reasons that the parties did not contemplate.  Bix thinks Shavell’s reasoning ought to lead to the conclusion that breach often does imply moral culpability.  Because expectation damages do not account for litigation costs, non-breaching parties are rarely made whole.  The breaching party has elected to breach rather than perform, leaving the non-breaching party worse off.

Notions of corrective and distributive justice may also inform our instincts regarding the morality of breach in different circumstances.  One might think that, given the unequal distribution of wealth and power in our society, and our knowledge that one-sided contracts have a role in creating, maintaining, and exacerbating economic inequality, nothing morally blameworthy happens when an economically disadvantaged party breaches a contract with a powerful corporation.  One also might think that an employee’s obligation to perform their contractual duties must take into account unfair terms of employment or mistreatment by the employer.

Returning to Holmes’s view, most people do not think that performance and paying for breach are moral equivalents.  Perhaps that view is justified, in that most breaching parties do not simply pay for breach.  They force the non-breaching party to sue, and as noted above, compensatory damages do not fully compensate, once when accounts for the costs of delay and litigation.

Bix’s article provides a clear, brief overview of the relationship between breach of contract and breach of a moral obligation.  I think one could assign it to students early in the semester in order to enable them to establish a sort of baseline about their moral intuitions regarding breach.  Those stability of those intuitions can be put to the test as the course progresses.