Contract Law and Distributive Justice *

Within broad limits, our legal system leaves individuals free to dispose of their property as they wish, either by giving it away or by transferring it in exchange for the property of others. The freedom individuals enjoy in this regard includes the power to make contracts, legally binding agreements that provide for the exchange of property on terms fixed by the parties. Among contract scholars, there is nearly universal agreement that the law of contracts, the tangled mass of legal rules that regulate the process of private exchange, has three legitimate functions: first, to specify which agreements are legally binding and which are not; ¹ second, to define the rights and duties created by enforceable but otherwise ambiguous agreements; ² and finally, to indicate the consequences of an unexcused breach. ³ Beyond this, however, it has sometimes been suggested that the law of contracts should also be used as an instrument of distributive justice and that those responsible for choosing or designing rules of contract law—courts and legislatures—should do so with an eye to their distributional effects in a self-conscious effort to achieve a fair division of wealth among the members of society. ⁴