Abstract

Contract law recognizes the power of individuals to consent to legally binding transfers of entitlements. No legal system, however, enforces all agreements made between individuals. Determining the scope of permissible agreements is thus an important issue in contract theory. One widely agreed upon basis for limiting the freedom of contract is paternalism. This Note examines one form of paternalism as a basis for limiting freedom of contract and argues that it justifies procedural, rather than substantive, limitations on contract law.

After demonstrating the inadequacies of this form of paternalism as a ground for substantive contract limitations, this Note explores an alternative basis for substantive contract limitations. Contract theories based on individual rights generally eschew substantive limitations on the scope of permissible contracts. But, a contract theory based on individual rights may imply certain substantive restrictions on the scope of legally permissible agreements. By looking to contract theory itself for the proper limitations of contract law, one preserves the important value of autonomy embodied in freedom of contract, while capturing the moral intuitiveness of certain fundamental restrictions on the scope of contracts.

The strategy for this argument is as follows. The first section analyzes freedom of contract in terms of relationships among legal rules. This conceptual analysis reveals a distinction between procedural and substantive contract restrictions and provides a framework for analyzing justifications for various contract rules. Next, one kind of paternalism is considered as a ground for limiting freedom of contract. Drawing from the contract rule analysis reveals that this paternalism fails as a substantive contract limiting principle. Lastly, an alternative basis for limiting the freedom of contract is advanced. This alternative basis—the concept of inalienable rights—captures the desirable limitations on contract that paternalism leaves exposed, but withstands the criticisms that undermine paternalism.

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