Planning for Bargaining Power

Dec 8, 2025 Daniel BarnhizerAdd a Comment

Daniel Barnhizer

This article by Professors Choi and Triantis hits close to home with how closely it models my personal experiences with oil and gas leases on my family’s farm during the leasing boom of the early 2000s. Specifically, the authors explore how parties can structure long-term contracts to maximize the expected value in the face of uncertainty regarding changes in relative bargaining power that may occur over the term of the contract by designing the contract to permit modification even if that modification merely redistributes the available surplus.

Beginning in about 2008-2010, discoveries in the Utica shale formation stretching from Quebec, Canada, down through Eastern Ohio, together with improved fracking techniques, led to a new oil boom.¹ I assisted my uncle in negotiating a lease for his farm. Based on oral histories of prior experiences, we were reluctant to enter long-term leases without substantial protections against exploitative dealings over the term of the contract. By delaying, we were able to wait until we had more bargaining power as demand for new oil & gas leases increased, and eventually my uncle executed a lease on substantially better terms than the early-moving neighbor. On the other hand, by delaying, we also missed out on almost two years of royalty payments.

This choice between contracting early to avoid later uncertainty versus “wait-and-see” to avoid potential exploitation is the situation addressed by Professors Choi and Triantis in Designing Contract Modification. Facing uncertainty regarding both future changes in bargaining power affecting either party and facing uncertainty regarding good faith, willingness to breach, and statutory impacts on party bargaining power, how should parties contract to maximize the available surplus? Can the parties structure their contracts to promote the willingness of the parties to contract earlier in the transactional process despite uncertainties regarding future changes in party bargaining power? More importantly, should courts respect later contract renegotiations and modifications resulting from changes in party bargaining power, even if those changes are merely redistributive and do not result in any increase in total contract value? Professors Choi and Triantis answer these questions with a welcome take on the dynamic nature of bargaining power, not just at the moment of contracting but also over the course of the parties’ transactional relationship.

The authors describe the central problem in terms of “the parties’ flexibility to modify [contract] terms and its effect on their earlier contracting decisions.” (P. 2.) Renegotiation and modification of long-term contracts provide potential benefits in terms of re-aligning party rights and obligations in light of developments after contract execution, but also carry the risk that one party may exploit changes in bargaining power after contracting solely to extract a greater share of the bargaining surplus. As the authors note:

A modification of a contract can be valuable in promoting ex post efficiency—revising contractual obligations so that they are optimal in the (ex post) realized state of the world. Renegotiation, however, may be hazardous to ex ante efficiency because it presents an opportunity for one contracting party to “hold up” the other, who has made relationship-specific reliance investments. Renegotiation can further undermine ex ante efficiency if it upends the parties’ efficient allocations of risk. (P. 2.)

Professors Choi and Triantis begin by recognizing the reluctance of courts to enforce ex ante modifications that solely redistribute the contractual surplus. (Pp. 2-3.) They survey the “tortured path” taken by courts wrestling with doctrines surrounding contract modification (P. 7), including the pre-existing duty rule at common law, as well as the doctrine of good faith,² duress, and the Restatement (Second) of Contracts § 89 requirement that modifications be “fair and equitable.” (See Pp. 7-13.) With this base, the article moves to a brief description of the economics of contract renegotiation, noting that renegotiation has been viewed as either ex post efficiency enhancing (as where changed circumstances permit the parties to expand the transactional surplus through modification) or ex ante efficiency reducing (as where the threat of later modification reduces a party’s willingness to make relationship-specific investments). (Pp. 13-15.) In particular, as described in the next section, exogenous factors over the course of a long-term contract may significantly alter the relative bargaining power of the parties such that one party may demand renegotiation of the contract.

This recognition of the dynamic nature of bargaining power is what I found compelling about this article. To the extent that courts address relative bargaining power at all, they tend to focus solely on the moment of contracting and not on whether a party could have made bargaining power-related investments before contracting. Professors Choi and Triantis examine things in the other direction, observing that both exogenous and endogenous inputs may affect relative bargaining power over the contract term. (Pp. 15-16.) Focusing on exogenous inputs affecting bargaining power, the authors continue in the following sections with a series of models demonstrating that contracts structured to promote good faith or fair and equitable modifications in the face of such ex post shifts in relative power. Specifically, Professors Choi and Triantis present a compelling argument that parties should be more willing to enter contracts where they anticipate uncertain shifts in bargaining power caused by exogenous events by designing the contract to promote modifications through terms such as deliberately under-compensatory liquidated damages clauses and obligations to renegotiate in good faith. (Pp. 29-30.) In such cases, even if the modification is purely redistributional, the expected value to the parties and the willingness of the parties to make relationship-specific investments will be increased compared to situations in which such modifications are unavailable or unenforceable. This is a great article that explores the modification doctrine in a way courts rarely consider.

1. See Forest Oil To Develop In Quebec, Hart Energy (Sept. 9, 2008); Olga Popova, Utica Shale Play: Geology Review, U.S. Energy Info. Admin. (April, 2017); Bob Downing, Three-state Appalachian Basin with Utica, Marcellus Shales has Become No. 1 U.S. Source of Natural Gas, Akron Beacon J. (May 14, 2016).
2. See UCC §§ 2-209(1) and 1-304.

AI Agents: Tools or … Actors?

Nov 10, 2025 Eliza MikAdd a Comment

Eliza Mik

Let’s start with a cliché: Kolt’s article is a must-read conversation starter. AI agents are proliferating around us, and the opportunities created by those technologies seem infinite. And so are the legal problems. The more powerful the technology and the higher its potential to make our lives easier, the greater the risks of its use. As Kolt puts it, “productivity and efficiency gains may come at the cost of unintended outcomes.” He also provides great illustrations of such risks, ranging from hallucinations (Hello Air Canada!) to unethical behavior in pursuit of the set goals. Ultimately, somebody will have to foot the bill. And it won’t be the AI agent. But – I am running ahead with myself!

If I were to provide a short summary of the article, here it is: Kolt explores the governance challenges presented by autonomous AI agents. The latter differ significantly from language models in their ability to independently plan and execute complex tasks. While established legal and economic frameworks, particularly the principal-agent theory and common law agency doctrine, provide insights into issues like information asymmetry, authority, and loyalty, Kolt shows how all such frameworks hit a wall when applied to non-human entities. Reinterpreting traditional theories and legal doctrines can only get us so far. Can we really speak of fiduciary duties with regard to software? Can we speak of “conflicts of interest” and “loyalty” – or should we speak of ill-defined objective functions, sloppy prompts, or simply bad programming? I can’t help but ask: who (or what!) is easier to control: a human or an AI agent? Of course, Kolts makes an important disclaimer: he uses structures, principles, and vocabulary developed in the common law of agency to shed light on the challenges involved in governing AI agents. The common law of agency is used as an analytic lens, but does not directly examine the legal application of agency law to AI agents. After all, the AI agent is not a discrete legal entity and cannot be held liable.

To address the governance concerns surrounding AI agents, Kolt proposes a three-pronged strategy focused on inclusivity, ensuring AI agents serve a broad range of societal interests beyond a single user, visibility, advocating for greater transparency into AI agent design and operation, and liability, establishing clear rules for accountability when harm occurs. Unsurprisingly, he also emphasizes the need for new technical and legal infrastructure to manage the burgeoning risks of accompanying this technology. Let me split this up.

Regarding inclusivity, Kolt uses this concept to address the alignment problem, that is, the challenge of ensuring that an AI agent’s goals and operations remain compatible with human values. The alignment problem, however, raises its own (seemingly insurmountable) challenges, mainly deriving from the difficulty of defining, formalizing, and encoding human values into an AI system. Values are difficult to capture in code. Whose values are we speaking of anyway? The developer’s or the user’s? The shareholders’ or the consumers’? In practice, an AI agent may extrapolate initial human preferences to achieve the desired objective, while also leading to harmful consequences. For example, a system tasked with increasing shareholder value may target vulnerable consumers with higher prices. Ultimately, we must acknowledge that any technology that operates with a high degree of autonomy and at inhuman speed will preclude humans from evaluating whether its operations are responsible or ethical in real time.

Regarding visibility, Kolt refers to the ability to understand the AI agent’s operations. Such understanding is largely precluded by the fact that many AI agents operate as black boxes so that neither those who developed them nor those who deployed them can fully comprehend their internal operations. This problem seems unsolvable, at least from a technical perspective. LLMs, which form the “brain” of AI agents, are inherently stochastic and unpredictable. We may be able to understand how the technology works in general, but we cannot determine the “reasoning” underlying the individual outputs or “decisions” made by the AI agent. Technical issues aside, we must be realistic. Can we assume that, if provided with adequate technical information about the capabilities of a given AI agent, the average user would familiarise him or herself with such information?

Regarding accountability, Kolt’s article leads straight into the broader and not-so-novel territory of liability for the operation of computer programs, or software in general. For the cacophony of sensationalistic headlines about the imminent arrival of AGI, Agentic AI (or whatever new term appears on the cover of Wired) must not distract us from the simple truth that AI agents are software—computer programs of varying complexity and reliability that interact with each other in unexpected ways. Computer programs do not always execute as intended or operate as instructed. Sometimes it is the “fault” of their creators (bad programming or training); sometimes it is their users who are to blame (using the technology without proper safeguards or for a purpose it was not intended for). Users of AI agents must understand the risks of their, well, use.

There is no sugarcoating: the risks – at least for the time being – may outweigh the benefits. At present, AI agents should not be left to operate without ongoing human supervision. In order to achieve the set goals, such as making restaurant reservations or booking flights, they need login information as well as payment details. How many of us are willing to provide such information to a nascent technology that, as Kolt points out, operates as a black box and is inherently unpredictable? If we are willing to do so, do we deserve protection? We must also remember that software is always provided “as-is,” without many (if any!) guarantees as to its reliability and uptime. As indicated, notwithstanding the new label, AI agents are pieces of software, and software has the tendency to “disobey” the instructions of its users. The instructions themselves may also be unclear or ridden with programming errors. Who provided the instructions? Who decided on the degree of autonomy? Everything leads back to the old problem of “many hands” and the challenges of allocating liability among the many actors involved in developing and deploying the AI agent.

I love the paper for its appreciation of the complexities involved and for its attempt to use “time-tested analytic frameworks” to understand and characterize the tradeoffs arising from the use of AI agents: the economic theory of principal-agent problems and the common law of agency. After all, before setting out to create something new, we should first test existing legal and conceptual frameworks. I do not, however, have Kolt’s confidence to use the term AI agent without a gazillion caveats. After all, the legal meaning of the term agent differs from its technical meaning, as acknowledged by Kolt himself. We must also remember that the concept of “autonomous agents” is not new and concerns a particular way of thinking about how one component of a software program relates to other components. Kolt sees AI agents as actors, not tools. There may be a fine line between tool and actor, a line that needs to be carefully drawn to make this distinction as clear as possible. After all, crossing this line is supposed to trigger a different legal regime and require a discrete governance framework. Kolt defines AI agents as “autonomous systems that can plan and execute complex tasks with only limited human involvement” and regards them as actors, not tools. He leaves some questions underexplored, though. When does a tool become an actor? When does it act autonomously? What is autonomy, then? Is it absolute? Or –is it a question of degree? Kolt’s article confirms the importance of technical details as well as the difficulty of falling back on established legal principles without a full understanding of the complexities involved.

“Consumer” Protection for Small Businesses

Oct 9, 2025 Eboni NelsonAdd a Comment

Eboni Nelson

Although often eclipsed by the prominence of large companies, small businesses play a critical role in helping to grow our economy. Their size, market footprint, resources, experience, and sophistication levels are as varied as the goods and services they provide. In her thought-provoking article The Small Business Dilemma, Professor Rachel G. Ngo Ntomp argues that contract law fails to take these variances into account when considering the contractual relationships between small businesses and other companies. She asserts that small businesses can find themselves caught in a catch-22 by being perceived and treated as “big fish” in dealings with both consumers and businesses when, in fact, they are “small fish” when contracting with companies with more resources and often more bargaining power. Considering that this bargaining power imbalance can result in unfair terms that harm small businesses, Professor Ntomp convincingly draws upon U.S. and international law to advocate for proposals including “a reformulation of the unconscionability doctrine under Section 2-302 of the UCC [Uniform Commercial Code] to provide a fairer and more equitable treatment of small businesses in their contractual relations with larger entities.”

Professor Ntomp situates the issue of small business protection within the broader context of consumer protection. She notes that the weaker party rationale for protecting consumers in contractual relationships is rarely applied to small businesses when they engage in commercial dealings with other businesses even though many small businesses find themselves in vulnerable positions with a lack of bargaining power similar to consumers.

Before advocating for greater protections for small businesses, Professor Ntomp defines “small business” for purposes of her article as “any business with very few to no employees.” She acknowledges the lack of uniformity in defining which entities qualify as a small business and provides examples of various metrics, such as employee counts and financial performance, that the U.S. Small Business Administration and others use to define small businesses. She asserts that “whatever criterion or combination of criteria is used, the general idea remains that these businesses are distinguishable from large enterprises because of their economic or informational inferiority,” which can lead to the imposition of unfair terms that can harm small businesses.

Professor Ntomp grounds her discussion of unfair terms and contracts in the U.S. doctrine of unconscionability and in various fairness tests that are applied internationally. After setting forth an operational definition of “unfair terms” as those “that allocate the risks of the contract to the most vulnerable party or otherwise create a significant imbalance in the parties’ rights and obligations to the detriment of that party,” she argues why rationales commonly used to justify protecting consumers against businesses can also serve as justifications for protecting small businesses against their larger, more powerful counterparts.

One such rationale is related to the prevalent use of standard-form contracts in both consumer and commercial transactions. According to Professor Ntomp, small businesses often have less bargaining power than larger entities who draft form contracts to best serve their interests and present them to small businesses on a “take-it-or-leave-it” basis affording them little or no opportunity to negotiate or change unfair terms that may be hidden therein. In situations involving non-standard-form agreements, Professor Ntomp asserts that “small businesses too often lack the necessary experience, resources, expertise, and legal knowledge to negotiate favorable contract terms and adequately assess the risks of a term.” Unlike businesses with greater financial resources, having the financial means by which to engage legal counsel during the negotiation to strengthen their bargaining position or explain various terms is often a challenge for small businesses that may impede their ability to obtain fairer or more favorable terms.

In detailing the potentially devasting consequences that the enforcement of unfair terms can have on small businesses, the vast majority of which are solo ventures or have fewer than twenty employees, Professor Ntomp makes a compelling case for why small businesses should be afforded greater protections against the operation of such terms despite their commercial rather than consumer status. Such consequences include the loss of substantial private assets and financial savings, diminished credit scores, increased debt, and bankruptcy filings.

Her argument for reforms is further strengthened by her discussion of small businesses’ dual identity dilemma “as ‘big fish,’ when dealing with consumers, and ‘small fish,’ when dealing with bigger businesses.” Central to this dilemma is the role of bargaining power disparities that can exist for “small fish” businesses in contractual relationships and the consideration, if any, that courts and policymakers are willing to give to such imbalances so as to justify interventions and greater protections for small businesses.

Professor Ntomp identifies the foundational contract principles of autonomy and freedom of contact and the advent of a hands-off “‘laissez-faire’ approach” to help explain courts’ present-day reluctance to intervene in the enforcement of contracts, particularly those entered into by businesses. She then engages in a very thorough discussion refuting arguments raised by Professors Max Helveston and Michael Jacobs in their article The Incoherent Role of Bargaining Power in Contract Law that led them to conclude that “all considerations of unequal bargaining power should be removed from contract law.” Professor Ntomp argues that bargaining power inequality can and should continue to be a relevant factor in determining the enforceability of contracts and serves as “a solid foundation for protecting certain contractual parties,” such as small businesses when they are contracting in their “small fish” rather than “big fish” capacity.

Professor Ntomp asserts that current consumer protection and relevant contract law jurisprudence rests on the assumption that “every and any business is presumed to be sophisticated, regardless of size, nature, experience, or resources, and irrespective of its co-contracting party’s identity,” which belies reality and contributes to small businesses’ lack of protections from unfair and harmful contract terms. In an effort to debunk this “‘myth of sophistication,’” she details how small businesses have to contend with similar issues as consumers, ranging from information asymmetries to limited resources and choices, that detrimentally impact the fairness of their bargains and can lead to harmful consequences.

In Professor Ntomp’s assessment, “U.S. contract law fails to protect weaker parties, including small businesses, from unfair terms;” therefore, she proposes amending the unconscionability statute codified in UCC Section 2-302 and adding a “small business” definition to Section 1-201 to enhance small businesses’ protection against unfair terms. The language and rationale for her proposals stem from domestic and international models such as the Texas Deceptive Trade Practices and Consumer Protection Act’s definition of “consumer,” which broadly applies to entities acquiring goods and services regardless of the purpose of the acquisition. By expanding the consumer concept beyond the conventional purpose of buying goods or services for personal, family, or household uses, courts and policymakers can provide greater protections to small businesses in their commercial dealings. Similar to models adopted in the Netherlands and Australia that expand protections beyond consumer contracts by expressly referencing small businesses in their statutes, Professor Ntomp advocates for revising Section 2-302 to arm courts with the ability to intervene in the enforceability of a contract “[i]f the court as a matter of law finds the contract or any clause of the contract to have been unconscionable to the detriment of a consumer or small business at the time it was made.” (emphasis in original) Such revisions are necessary, according to Professor Ntomp, to help prevent the harms that often befall vulnerable small businesses due in part to the bargaining power disparities that can exist as they engage in contractual relationships with other businesses.

I greatly enjoyed reading Professor Ntomp’s article, and I applaud her for penning such an ambitious and excellent paper that draws our attention to an important yet rarely discussed issue. Her informative discussion of the small business dilemma highlights the critical role small businesses play in our society and their vulnerabilities that necessitate greater protection against unfair and unconscionable terms. Professor Ntomp’s well-written piece makes a significant contribution in advocating for such protection, and I look forward to reading more of her work in this area in the future.

Can Consumers Roar Back?

Sep 9, 2025 Omri Ben-ShaharAdd a Comment

Omri Ben-Shahar

A central interest in consumer law is the harm AI algorithms might cause to consumers. Firms are increasingly gaining the power to target individual consumers in manipulative ways and charge prices tailored to each buyer’s ability to pay. People may end up buying things they do not need or regret, at prices exceeding those in the pre-algorithmic market. Rivers of academic ink are spilled in describing the potential harms and recommending urgent regulatory action. Some of that work is very good, although the entire genre is suffering from an acute oversight: it ignores the documented benefits pricing algorithms are bringing to consumers. Personalized prices have been repeatedly shown in the empirical economic literature to benefit low-income consumers (and why not? The easiest thing for these algorithms to infer is individual purchasing power, calibrating the price to match it).

An assumption that runs through much of the legal literature on pricing algorithms is the passivity of consumers. Short of anonymizing themselves by changing the privacy settings (and good luck with that), there is nothing consumers can do to blur their profiling by sellers’ algorithms. Consumers, in other words, are price-takers, and are said to be in peril.

In a recent two-paper project, Haggai Porat challenges this view. Consumers, Porat shows, can fight back. According to Porat, the basic feature that consumers could exploit is the tendency of pricing algorithms to rely on the information conveyed by prior purchasing behavior. Specifically, algorithms assign a higher price to returning consumers who revealed a higher willingness to pay through their past purchases, and a lower price to other consumers who previously refused to buy. Consumers, in turn, if aware of this pattern, may strategically decline early purchases to secure lower prices in the future. In this way, consumers “bargain” with algorithms.

This cat-and-mouse price war between AI algorithms and feisty consumers can help some consumers enjoy lower prices, but it could also end up with other consumers paying higher prices. Overall, it could either enhance or reduce total consumer welfare. This is the lesson from Porat’s benchmark model. So outright bans on personalized pricing may not be smart. Mandated disclosure to consumers of the sellers’ algorithmic pricing practices is also a double-edge sword. Yes, it allows consumers to finagle lower prices; but unfortunately, it also triggers unpleasant counterstrategies by sellers, such as raising early-period prices.

Is it at all plausible to expect consumers to play this patient and calculated game of withholding early purchases only to secure better future prices? In a second leg the multi-paper inquiry, Porat offers novel empirical support, devising a clever laboratory experiment in which consumers make purchases over several rounds, with prices adjusting based on each consumer’s purchasing decisions in preceding rounds. In the lab, consumers were shown to indeed “bargain” with the algorithm, avoiding early purchases to secure better subsequent deals, and even more so if explicitly informed how the pricing algorithm works. Will they also do this with Uber, Amazon, and United Airlines?

It is perhaps premature to celebrate consumers’ arms-length bargaining power vis-à-vis AI algorithms, and Porat is endlessly cautious to use notions like “negotiation” and “bargain” only metaphorically. And yet, such inquiry could not be more timely. We are entering an era in which consumer-side AI agents are developed to assist people in maximizing individual preferences—in navigating the entire web to find low prices and suitable products. As these algorithmic consumers burgeon, longstanding goals of consumer law would become out of touch. Mandated disclosures would be redundant, dark patterns would pose no harm, and data privacy protection would be less necessary and might in fact backfire by handicapping these agents (who perform best when they know a lot about their human masters). Competition law’s burning worry of price collusion among sellers’ algorithms could, who knows, be offset by algorithmic consumer “cartels” coordinating to purchase at prices below sellers’ marginal costs. The deep-rooted conception of a “vulnerable” consumer would have to be categorically rethought.

Everything (Almost) You Wanted to Know About Tortious Interference

Jul 29, 2025 Robert HillmanAdd a Comment

Robert Hillman

Professors D’Onfro and Hwang’s new article, Tortious Interference Revisited, brings the reader almost up to date on the nature of tortious interference and, in doing so, adds to each of their impressive contributions to contract scholarship. I use the word “almost” in the title and the first sentence here advisedly because the final paragraph of their article calls “for more sophisticated empirical treatments” (P. 54) of the subject and announces their intention to investigate recent cases.

Still the reader can learn a lot about tortious interference with contract and with other business relationships and opportunities (as do D’Onfro and Hwang, I will refer to the subject matter, often treated as separate torts, singularly as “tortious inference”). Relying on cases and secondary literature, the article offers numerous insights into the nature of and issues engendered by tortious interference.

The article begins with a brief history of the tort and follows with a rich analysis of its development. Perhaps motivating the authors to write this article, they observe that the frequency of tortious interference cases has recently “exploded” (P. 7) and they supply interesting examples of the tort’s recent usage. In simplified form here, these include in corporate debt cases, where a debtor breaks a pledge not to take on additional debt and liability focuses on a third party influencer, employment at-will and non-compete cases, where courts recognize a duty in third parties not to interfere, and Title IX harassment cases, where a party accused of sexual misconduct in an educational setting brings a tortious interference action against a university administrator.

The authors also isolate and respond in helpful detail to general issues raised by tortious interference, such as the tort’s many ambiguous elements and whether the cause of action is efficient and necessary. For example, the tort’s tension with the beneficial goal of competition leads to a discussion of whether the tort must be malicious or merely a lesser impropriety. As for efficiency, by deterring a prospective employer from making a competitive offer to an employee of another firm, for example, tortious interference interferes with the possibility of an efficient breach. In response to whether the tort is superfluous, the authors raise the issue thusly: “A harmed plaintiff can claim against the breaching party and can already be made whole in contract, so why should they have the right to sue an unrelated third party for even more damages in tort?” (P. 3.)

But the authors see the value of the tort as well. Tortious interference justifiably benefits an injured party if their immediate wrongdoer is judgment proof or able to avoid service of process. The tort also allows for injunctive relief before the harm occurs. Further, some scholars have argued, correctly in my view, that “tortious interference is consistent with tort theory generally . . . and not a made up or inherently redundant cause of action.” (P. 19.) After all, the “common thread” in tort cases “is the idea of unreasonable interference with the interests of others.”³ In response to the alleged redundancy of the remedy, the authors could have added that the availability of punitive damages and other tort remedies ensures that the tort consists of a “safety valve that relieves the pressure on contract to punish bad behavior.”⁴ I would also urge that eliminating the tort because of the range of difficult issues it raises would cast doubt on the wisdom of much of private common law.

Perhaps the most intriguing aspect of Tortious Interference Revisited is its framework for analyzing the tort. The authors observe that the tort contributes to the larger theme of third parties’ interests in contracts: “[I]f third parties can have an interest in other people’s private contracts, then those third parties might sometimes also incur liability because of those same contracts.” (P. 25.) Drawing on two articles, co-authored by Professor Hwang, which emphasize that “the private law of contract is not wholly private” and that “private law affects the public,” (P. 27) Tortious Interference Revisited argues that the tortious interference is the “flip side” of doctrine that enables third parties to express their interests in others’ private contracts. In sum, if third parties have some rights arising from private contracts, they may have some liabilities as well.

This framework sheds helpful but modest light on tortious interference. The authors note that third-party interests and rights are limited in the courts and in scholarly articles on these rights. Accordingly, their framework calls for “keep[ing] tortious interference analogously modest” as well. (P. 28.) The article therefore suggests a series of limitations on the doctrine. For example, as noted above, tortious interference currently extends beyond contract to interference with business or economic opportunity claims. However, the authors suggest limiting the interference tort to contracts to create a much cleaner bright line. In addition, the authors note that a requirement of actual malice would help clarify the distinction between the right to compete and the duty not to interfere. Further, the authors sometimes prefer alternative strategies instead of tortious interference. For example, to ensure that a sexually harassed employee who has agreed to arbitration of employment disputes has her day in court against an harasser, the authors point to Federal law barring enforcement of arbitration agreements in the context of sexual harassment claims by employees.

Of course, the relationship between tort and contract has a long and challenging history. Think, for example, of the debate over the differences between strict tort and the implied warranty of merchantability (are the terms “defective” and “unmerchantable” identical?),⁵ of the consternation over when a contract performance is sufficiently egregious to be tortious,⁶ and of Gilmore’s observation that “‘contract’ is being reabsorbed into the mainstream of ‘tort.’”⁷ D’Onfro and Hwang have done an admirable job bringing back tortious interference into the mainstream of recent scholarship. If the authors do pursue additional research on the subject, as they intimate they might, perhaps broadening their scope to include more on the relationship between tort and contract would yield additional insights into the meaning of tortious interference.

1. W. Page Keeton et al., Prosser and Keeton on the Law of Torts § 1, at 6 (5th ed. 1984).
2. Robert A. Hillman, Principles of Contract Law 250 (5th ed. 2023).
3. See, e.g., Denny v. Ford Motor Co., 42 F.3d 106 (2d Cir. 1994).
4. See, e.g., Mauldin v. Sheffer, 150 S.E.2d 150 (Ga. Ct. App. 1966); Keeton et al., supra note 1, § 92, at 662 (“The question appears to be rather whether the defendant’s performance, as distinct from his promise or his preparation, has gone so far that it has begun to affect the interests of the plaintiff beyond the expected benefits of the contract itself . . . .”).
5. Grant Gilmore, The Death of Contract 87 (1974).

“Basic Interests” Proposal Does Justice to Unconscionability Doctrine

Jun 30, 2025 Martha ErtmanAdd a Comment

Martha Ertman

Sabine Tsuruda’s article Race, Unconscionability, and Contractual Equality illustrates shortcomings of current unconscionability doctrine in contract law and proposes an alternative to enable the contract law to avoid complicity with beneficiaries of race discrimination in credit markets. Her proposed update to unconscionability doctrine, which she dubs a “best interests” approach, essentially makes a contract term substantively unconscionable if it runs contrary to a party’s “basic interests and inalienable rights” such as privacy, having a home, accessing justice, and being free from race and gender discrimination. (P. 206.)

Consistent with unconscionability’s roots in equity – and thus morality or fairness that justice requires –Tsuruda aims to “match unconscionability doctrine to the moral category of objectionable racial subordination.” (P. 192.) As such the article fits within unconscionability’s longstanding role of naming abuses of power that undermine the core assumptions that parties are free and equal. For example, the holding in the canonical unconscionability case of Williams v. Walker Thomas, 350 F.2d 445 (DC Cir 1965), led the drafters of the UCC and federal regulators to ban or sharply limit the blanket security interest that enabled the Walker Thomas Furniture Store to repossess Mrs. Williams’ bureau, bed, and stereo when they were nearly paid off. (UCC § 9-204 & Fed. Trade Comm’n Credit Practices Rule).

Race, Unconscionability, and Contractual Equality will change how I teach unconscionability, and also enrich the materials in the 3rd edition of the casebook that my coauthors and I are now editing. (Ertman, Houh, Sjostrom & Threedy, Contract Law (2nd ed. 2023 Foundation Press)). It also enriches my current writing project on reparations for racial injustice in real estate contracts by providing another doctrinal justification for the restitution-based remedy that I propose.

Race, Unconscionability, and Contractual Equality builds on Dylan Penningroth’s influential article Race in Contract Law, 170 U. Pa. L. Rev. 1199 (2022), extending his comprehensive account of African-Americans’ long history of deploying contract law to exercise agency in highly constrained circumstances of white supremacy. Like Penningroth, Tsuruda critiques the tendency of conventional pedagogy re: Williams v. Walker Thomas, 350 F.2d 445 (DC Cir 1965) to focus on impaired decision-making capacity as grounds to refuse to enforce a term or the entire contract. According to Tsuruda, instead of focusing on Ora Lee Williams’ 8th grade education and poverty, we ought to situate installment sales as an essential element of residential race segregation and racial wealth disparities by virtue of the way that these contracts put ownership – of goods or of a home – “just out of reach.” (P. 187.)

Tsuruda also contends that we should move away from worrying about whether contract law should prevent a mother of seven on public assistance to buy an expensive stereo on credit. Instead, she points out that Mrs. Williams may have rationally chosen this transaction to create a home that was “more than a mere shelter” and to enable the family “to bring music and other aspects of the broader culture into her home.” (P. 184.) In addition to honoring her decision-making capacity, Tsuruda would have us remember that other contracts in the past systemically shunted wealth to whites and away from African Americans through restrictive covenants, redlined mortgage lending, and installment contracts for residential real estate. To this day, lenders routinely extend more favorable terms to white than African-American borrowers.

Tsuruda’s solution is for contract law to recognize systemic bargaining disadvantages, many of which are creatures of earlier contracts and contract doctrine. Instead of taking refuge in unconscionability’s traditional refusal to “disturb the allocation of risks due to superior bargaining power,” (UCC § 2-302 Comment 1), Tsuruda’s improved unconscionability doctrine treats systemically constrained credit choices based on race as falling within the traditional categories of “overly harsh” and “unduly oppressive” terms that courts refuse to enforce on grounds of unconscionability. She explains the role of past installment contract sales in goods and real estate in creating and sustaining today’s tenfold racial wealth gap:

[They] created a set of authority relationships . . . that left [installment buyers] . . . basic interests – in having a home, being free of abject poverty, in maintaining personal and familial boundaries – dependent on the good will of their co-contractors.” (P. 205.)

That contract-created dependency, Tsuruda asserts, has a profound impact, far beyond the contracting parties or particular transactions. In her words, it is “emblematic and partially constitutive of the subordinate position [that installment buyers like Mrs. Williams] occupied in an unjust and racially stratified society.” (P. 205.) In doctrinal terms, therefore, those terms are unconscionable even if other sellers insist on the same unjust terms. The contracts are, in the language of unconscionability doctrine, so unsavory that contract law – and the courts that enforce it – ought to recoil from enforcing them.

Race, Unconscionability, and Contractual Equality concludes with a discussion of how the private law doctrine of unconscionability could and should evolve to reflect the changes she proposes based on the private dispute resolution context of arbitration. This discussion relies on caselaw from caselaw that interprets substantive unconscionability broadly, such as Dale v. Comcast, 498 F.3d 1216 (11th Cir. 1216) and Narayan v. The Ritz-Carleton Dev. Co., 400 P.3d 544 (Haw. 2017), which deems employment discrimination or condominium-purchase claims non-arbitrable. This view, which Tsuruda recognizes as a minority, reflects the logic of unconscionability caselaw in Canada and England on which she also relies.

The Federal Arbitration Act – especially Supreme Court caselaw since 2011 that strongly favors enforcement of arbitrability clauses – shapes unconscionability doctrine in the U.S. Tsuruda’s compelling material and reasoning points the way for unconscionability doctrine to evolve around that restriction. Race, Unconscionability, and Contractual Equality points the way for unconscionability to perform the essential equitable function of adapting to current understandings of unfairness by policing contracts that unreasonably favor one, powerful party, especially when that power is based on race.

Contract Law’s Quest for Justice

May 29, 2025 Hila KerenAdd a Comment

Hila Keren

A few years ago, Jody Kraus and Robert Scott argued that vindicating the sovereignty of parties who make contracts under free and fair conditions is “the most morally compelling explanation” for contract law’s allegiance to the parties’ ex ante intentions.⁸ They further claimed that judicial interventions on behalf of justice via ex post doctrines are thus erroneous and “cannot be justified.” Rebecca Stone refutes both points in her brilliant piece, Putting Freedom of Contract in its Place. She first contests the claim that morality is secured by the procedure of contracting under free and fair conditions. She then turns to disprove the claim that judicial ex post interventions “cannot be justified” by offering a powerful argument for setting limits on parties’ ability to control their relationship. Stone’s article puts freedom of contract in its place by no less than crafting a novel account of contract law—one called “the democratic conception.”

Stone develops the democratic conception of contract law by seeking a deeper justification for our lasting commitment to robust freedom of contract. To her, the mere vindication of sovereignty cannot suffice. Rather, freedom of contract is essential because when parties enter a contractual relationship, they face an inevitable normative uncertainty regarding what justice between them would require when challenges arise. Parties, therefore, have the freedom to use their agreement for the purpose of settling this normative uncertainty. Contract law, Stone argues, should respect their usage of this freedom “when and only when” it yielded mechanisms that reflect “plausible, good faith attempts to settle that uncertainty.”

This limitation presents a democratic conception because the parties’ moral authority to transform their rights is conceived as a decentralized version of that of democratic institutions. Just like in those larger institutions, the parties’ authority is grounded in egalitarian values. They can shape their contained private domain via decision procedures that give each of them an equal say, thereby fostering egalitarian relations between them. Furthermore, by respecting the parties’ agreements regarding questions of justice specific to their relationships, the common law of contracts demonstrates its own democratic disposition.

Understanding the freedom of contract as rooted in an underlying democratic principle has two contrasting effects. On the one hand, the democratic framework better supports respecting the parties’ freedom by offering a justification that goes beyond affirming their sovereignty. As such, it highlights the moral value of freely made agreements. On the other hand, the proposed enhanced justification of freedom also sets limits on its scope, narrowing the law’s obligation to adhere to the parties’ agreements. For Stone, contractual freedom exists and deserves protection not whenever non-parties are not harmed but only to the extent that it is exercised in alignment with democratic ideas. Or, in her words, “Parties don’t have untrammeled freedom to design the substance of their transactions. They must do so together with an eye towards realizing substantive justice.”

In this telling, the parties’ obligation to seek substantive justice within their relationship constrains their freedom to shape their transactions. Stone admits adding restrictions in the name of substantive justice counters the conventional idealization of the freedom of contract. Nonetheless, she reminds readers that other theorists have already used various strategies to reach similar results. What works of this variety reflect, Stone explains, is dissatisfaction with the idea that contract law should follow the parties’ agreement based only on purely procedural justice—we should not hold choices as valuable simply because they were freely made. Some substantive limits, Stone insists, are necessary to decide what arrangements should count as valid under the law. Her democratic conception sets such limits by centering the pursuit of substantive justice.

Note, however, that when Stone advocates a “foundational commitment” to substantive justice, she also emphasizes that, generally, it is not contract law’s role to define the content of such justice. Far from directly dictating what justice requires in the face of normative uncertainty, the law responds to the need for such a determination by authorizing the parties to settle the question. It then proceeds by respecting the parties’ decision as long as there are grounds to believe that they have indeed sought substantive justice. “[T]he point of contract law,” Stone contends, is “to provide a just framework” that would allow the parties to freely create their own resolution of the normative uncertainty regarding justice. In that sense, her theory significantly differs from the conventional positioning of freedom and justice as opposites. It configures substantive justice as a “foundational value” that justifies freedom, thus linking the two. If the parties untie this link—using their freedom in a way that clearly does not aim to achieve justice between them—contract law justifiably releases courts from the obligation to defer to them. This recognition of the interdependence of freedom and justice allows Stone to offer a principled explanation for ex post doctrines that authorize courts to override parts of the parties’ agreements.

The article is delightfully philosophical, with A and B exchanging widgets and references to giants like Joseph Raz and John Rawls.⁹ At the same time, it is also fiercely practical. Stone applies the democratic conception to various ex post doctrines, demonstrating the prescriptive power of the conception. In general, properly understood, the freedom of contract should not warrant deference to the parties’ agreements made in an attempt “to manage problems arising from their unwillingness to conform to justice.” As Stone shows, this broad guidance translates into specific doctrinal rules. It explains, for example, why we need a robust doctrine of unconscionability to invalidate terms adopted via a take-it-or-leave-it practice. Such terms, and indeed all severely one-sided terms, even if freely consented to, do not reflect a good faith effort to “articulate a joint vision of justice” between the parties.

Based on this logic, the democratic conception also supports a mandatory duty of good faith that, in some cases, might even extend to the negotiations phase and justify imposing precontractual liability. Similarly, Stone’s account counsels less deference to remedial clauses when those are used to respond to a party’s unwillingness to follow the parties’ original vision of what justice between them requires. Along these lines, the article further illustrates the democratic conception’s prescriptive power concerning other doctrinal points: from the “stickiness” of the doctrine of constructive conditions to the willingness to discharge duties to perform under the doctrines of mistake, frustration of purpose, or impracticability to the adequate approach to contractual interpretation.

Ultimately, Stone’s article is an impressive search for ways to harmonize freedom and justice rather than pitting them against each other. It introduces an ambitious vision of the role of contract law, arguing it could and should be used to enhance justice. On this view, contract law does not succumb to the demands of external norms but rather deploys its own internal morality. Contract law’s potential to foster justice from within has been previously advanced in works by scholars like Hanoch Dagan and Avihay Dorfman, Seana Shiffrin, and me, leading Robin West to list them as indicating the rise of what she called “the new legal criticisms.”¹⁰ Stone’s recent contribution is an invaluable addition to this genre. It is also an inspiring read in and of itself.

1. Jody P. Kraus & Robert E. Scott, The Case Against Equity in American Contract Law, 93 S. Cal. L. Rev. 1323 (2020).
2. Joseph Raz, Morality of Freedom (1986); John Rawls, A Theory of Justice: Revised Edition (1999).
3. Robin West, The New Legal Criticism, 117 Columb. L. Rev. 144 (2017).

Contracts in The Digital Age

May 1, 2025 Orit GanAdd a Comment

Orit Gan

A fascinating new article by Andrew Keane Woods examines contracts in the digital age. These contracts are society-wide in scope, and their scale surpasses other massive contracts we use. Moreover, they set the rules for digital society and govern the digital world. Furthermore, they determine constitutional rights such as privacy rights, speech rights and Fourth Amendment rights.

The internet, digital platforms, and social media are heavily governed by private law. However, courts generally apply contract law to enforce these contracts without due regard for their public aspects, as outlined above. Courts emphasize procedural fairness and assent rather than substantive justice and the contract’s social impact. Furthermore, courts usually allow parties to contract away their public rights, such as the right to sue in a court of law, and regularly enforce liability waivers. Moreover, courts commonly overlook the public interests, social costs, and harms these contracts entail, and only rarely invalidate contracts on grounds of public policy. Similarly, scholars and reformers mainly focus on procedural fairness and mutual assent, for example by promoting better disclosure, while neglecting the public aspects of these contracts.

The article‘s main argument is that the contracts described carry significant social and public consequences, and therefore should not be merely enforced as private deals. In other words, the article criticizes the inattention of courts, reformers and scholars to the public costs and social harms stemming from these contracts, as they are more than contracts between two parties.

To address these social harms, the article suggests three reforms: first, rather than the contractarian model of governance, public law should be less willing to defer to private contracts. Second, legislatures should use mandatory rules to place substantive limits on social contracts causing social harms. Third, judges should decline to enforce contracts inconsistent with public policy, policing the social harms caused by the contracts.

This must-read article raises interesting questions. First, the notion that contract law is not purely private law is not new. As scholars noted, contract law is a social phenomenon with public aspects and consequences. Therefore, are contracts in the digital age a new phenomenon or an old one in digital cloths? In other words, given that many contracts have always had public implications, are these contracts different only in scale, magnitude, and degree? Are contracts today simply further evidence of the public nature of contract law and the urgent need for contract law to account for it? For example, as the article notes, hush contracts – though not digital contracts – have a social impact and are of public concern. Nevertheless, Professor Woods argues that contracts in the digital age are fundamentally distinct. The characteristics described in the opening paragraph render them unique and different from any other contract. This makes the need for the law to address them as social contracts more acute.

Second, and relatedly, this article illustrates the intricate relationship between private and public law. There is no clear divide between private law and public law: Contract law is not entirely private and encompasses public and social elements. Professor Woods rejects simplistic binaries offering instead a complex, nuanced and contextual picture of contract law. Rather than strict private-public dichotomy, Professor Woods sees it as a matter of delicately balancing between private law and public law and flexibly setting their borders.

Third, the article debates the preferred reform: legislation or judicial intervention? What state actor is better suited to police the social harms caused by these contracts? As Professor Woods shows, there are advantages and disadvantages,costs, and benefits to each of the reforms. Given the profound social costs associated with digital contracts, it may be necessary for both courts and legislators to collaborate in mitigating these social harms.

This article is not only a significant contribution to the literature on the publicness of contract law but also a wake-up call for reformers, legislators, regulators, judges, and scholars to address the social harms of the new social contracts.

A New Account of the Whole Picture of Private Law

Apr 8, 2025 Aditi BagchiAdd a Comment

Aditi Bagchi

It is not every day that we are presented with a new theory of private law that invites us to see the project of private light in a new way.

In a move familiar to philosophers of contract and tort but perhaps surprising to American scholars of those subjects from other traditions and methods, Hanoch Dagan and Avihay Dorfman take “private law” as the operative unit of analysis. Like theories of corrective justice, they aim to identify foundational principles that apply across contract and tort. The language of “relationality” is also familiar from the corrective justice literature. However, Dagan and Dorfman offer us a new way to understand the moral demands that flow from ordinary relationships.

Corrective justice theories conceive of the relationships whose justice private law aims to repair in thin terms. The relationships at issue in corrective justice typically consist of only fleeting interactions. Dagan and Dorfman are more ambitious in the role that they assign private law: It should aim to realize substantive equality between people. It should do this by demanding that people show “reciprocal respect for substantive equality.” Equality understood in this way does not require that everyone has the same income or resources. But relational equality requires that we relate to each other as equals in a more robust—and demanding—sense than does the formal equality of corrective justice. Dagan and Dorfman argue that, when we deal with other people, we must take seriously what they need for self-determination and we must mutually support each other in securing the conditions for self-determination. The justice of even a fleeting interaction may turn on the ground projects of the people involved, and what they need from each other.

Two related features of their account are especially important departures from most existing accounts of private law. First, in their view, principles of equality do not just constrain the state in its allocative role; substantive equality, as they understand it, binds individuals horizontally and informs how we may treat each other independent of distributive justice. Second, because relational justice is strongly horizontal and does not rely on the state and its obligations to promote justice to explain the duties of private law, relational justice does not depend on any particular state. In fact, it constrains states and binds individuals acting across state boundaries.

One of the most interesting examples against which we can test the intuitive appeal of relational justice is the minimum wage. It is likely that raising the minimum wage results in some increase in unemployment. What relevance does this have to how we set the minimum wage? On a view, like my own, that regards contract regulation as a means by which we aim to give people access to the resources they need to pursue their various life projects, the unemployment effects of a minimum wage are cautionary. Where or when it is really the case that the most vulnerable social group fares worse under a proposed minimum wage, that expected effect counsels against the policy. By contrast, for Dagan and Dorfman, it is inherently wrongful for an employer to pay an employee a wage that is inadequate (locally and contingently understood) and the primary purpose of a minimum wage is to prohibit the relational wrong that very low wages represent. On this view, the internal morality of contract law (or more broadly, private law) demands a decent wage as a matter of horizontal justice between employers and employees, regardless of its economic consequences. Whether one is ultimately persuaded that this is the right way to think about the minimum wage, contract or private law, their account sets forth a powerful new way of understanding what we are doing in these domains, and how we might do it better.

Contract Law’s Hidden Civil Rights Foundation

Feb 28, 2025 David HoffmanAdd a Comment

David Hoffman

Erik Encarnacion’s Section 1981 as Contract Law presents a striking claim: 42 U.S.C. § 1981, a statute primarily understood as a piece of federal antidiscrimination law, is, in fact, a foundational component of contract law in the United States. Section 1981, originally part of the Civil Rights Act of 1866 and later amended in 1991, prohibits racial discrimination in the making, performance, modification, termination, and enforcement of contracts. Encarnacion argues that this provision does not merely sit adjacent to contract law as a regulatory constraint; rather, it is an intrinsic part of contract law itself. This conceptual reframing has significant implications for legal theory, doctrinal teaching, and the broader understanding of how contract law operates on the ground, and I recommend the paper to you.

Encarnacion’s thesis rests on two primary claims. First, he makes a conceptual argument that Section 1981 should be recognized as part of contract law because it directly governs the formation, enforcement, and modification of contracts. He traces its origins to the Civil Rights Act of 1866, which sought to dismantle the Black Codes—state laws that restricted the contractual and economic freedoms of newly freed Black Americans. These laws imposed additional formal requirements on Black contract formation, often nullifying their economic agency. The 1866 Act, therefore, was as much a reconstitution of contract law as it was a civil rights measure.

The second argument is normative: recognizing Section 1981 as part of contract law aligns with a certain vision of contract law’s fundamental values, including economic freedom, autonomy, and fairness. Encarnacion contends that the principle of good faith and fair dealing, a debated staple of contract doctrine, implicitly supports a non-discriminatory marketplace. If contract law seeks to ensure fair and efficient transactions, then racial discrimination—which distorts bargaining power and restricts market participation—is contractually unreasonable. Thus, treating Section 1981 as a mere external constraint on contract law rather than an integral part of it misconstrues the relationship between contract law and racial justice.

Encarnacion’s reconceptualization carries significant theoretical consequences. If “contract law” includes Section 1981, then contract law theorists should work harder to make their accounts fit in the country’s history of racial discrimination. This recognition challenges prevailing formalist approaches, which treat contract law as neutral and race-blind. However, it also supports the work of recent writers who seek to surface the story of race in private law and provides a way to make the story of private law more congruent with that of the civil rights movement.

On a practical level, Encarnacion highlights the omission of Section 1981 from major contract law casebooks, the Restatements of Contracts, and leading treatises. (By way of full disclosure, his account mentions my casebook, which now includes a 1981 case in the consideration section but does not otherwise center the statute in the book.) This exclusion, he argues, is a mistake. Law professors teaching contracts should integrate Section 1981 into their syllabi, both to accurately represent the law and to provide students with a fuller understanding of contract law’s social and economic impact. Additionally, judicial applications of doctrines like good faith and fair dealing should be informed by Section 1981, ensuring that contractual relationships operate free of racial discrimination.

Encarnacion’s article arrives at a time when legal scholars are reexamining the intersections of private law and civil rights. Contract law has long been regarded as a residual domain of private ordering, free to largely ignore discrimination since it’s taken care of by statutory law. Encarnacion disrupts this view by trying to fit the statute back into the doctrinal course. One of the major conceptual challenges facing contract teachers and scholars today is this boundary: what counts as “contract” and what as other – the blurred lines between our subject and consumer law, employment law, antitrust law, and privacy law, for instance, are constantly challenging. Encarnacion suggests in some ways the choice is false as doctrine itself is influenced by 1981, both directly and indirectly. It would be a mistake to think of “contract” as unconnected to those developments.

Encarnacion thus ultimately calls for a fundamental shift in how contract law is taught, theorized, and applied. He argues that legal scholarship should acknowledge that racial discrimination is not merely an external wrong that contract law sometimes intersects with—it is a problem that contract law itself has historically addressed and which it continues to engage with. As such, Section 1981 as Contract Law challenges deeply entrenched assumptions about the boundaries of contract law and civil rights law. This article is an essential read for anyone interested in the intersection of contract law and racial justice, which should be all of us.