Julian Jonker (University of Pennsylvania – Legal Studies Department) has posted Stability in Contract on SSRN. Here is the abstract:
Contract law involves the public and therefore coercive enforcement of private claims. The coercive nature of contract consists in the fact that contract enforcement goes beyond acknowledgement that the underlying claims are binding. This coercive element stands in need of justification. This Article develops a justificatory criterion of reflexive adequacy: contract law doctrine that is otherwise substantively just is nonetheless defective if its enforcement materially contradicts its public rationale. The state lacks the normative authority to rely upon an enforcement rationale that depends for its success upon opacity, effective suppression of remedial claims, or burdens that cannot be justified to those who bear them as participants in a reciprocal arrangement. This criterion operationalizes that feature of a just society that Rawls described as stability for the right reasons: just institutions must be capable of informed, reason-responsive support through their ordinary operation.
The criterion of reflexive adequacy can be applied to contract doctrine as both justification and critique. The Article illustrates the justificatory use of reflexive adequacy by reconstructing unconscionability doctrine as a response to two potential failures of stability to which contract is vulnerable. A failure of publicity is one that makes a consequential contractual term or mechanism practically inaccessible to a contracting party. A failure under the strains of commitment imposes a recurring burden that free and equal participants in the practice of contracting cannot reasonably be asked to bear. These failures cut across the orthodox procedural and substantive prongs of unconscionability doctrine. Either failure independently justifies withholding or limiting enforcement, but neither adhesion nor unequal bargaining power is sufficient on its own to establish such a failure.
The Article illustrates the critical use of reflexive adequacy by diagnosing the recent history of mandatory arbitration in consumer and employment contracts. Failures of publicity and excessive strains of commitment both arise within the regime established by the Supreme Court’s reading of the Federal Arbitration Act. The emergence of mass arbitration, with claimants filing individual demands in the thousands and firms resisting the fees assigned by the arbitration clauses they have drafted, is a stress test for stability. Whether contemporary arbitration practices are consistent with reflexive adequacy depends upon whether, empirically, contract drafters depend on counterparties not exercising their contractual rights, or instead genuinely seek to avoid exploitation of arbitration fee structures. The Article proposed that the Federal Arbitration Act be amended so that the enforcement of arbitration clauses in consumer and employment contracts is made conditional on use of federally certified providers who publish rules, outcome data, and redacted reasons for rulings disposing of statutory claims or affecting other cases. The proposal establishes a minimum standard for achieving the publicity that makes drafters and providers publicly accountable and informs further interventions aiming at substantive fairness.
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