Protecting Individual Self-Interest in Aggregate as the Basis of Fairness in Contract

Abstract

This article puts forward a unifying principle for the exceptions to contractual enforcement, including unconscionability, undue influence, duress, and mistake. In coming to a unified analysis, this article explains and defends three general premises. First, contract law should be understood as operating to maximize societal welfare in the aggregate. Second, contractual enforcement encourages and enforces welfare-enhancing agreements, but only if we can assume that each party is able to rationally consider her own self-interest. Third, agreements that were rationally welfare-enhancing when made should be enforced later even in cases of regret. Based on these premises, the analysis of unenforceability of unfair contracts can be reduced to two questions: whether, in the circumstances, parties to a contract were rationally able to consider and protect their self-interest, and, if not, whether the other side knew or ought to have known this.