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It is important to realize precisely how the assault on freedom of contract emerged. For every sweeping article like Pound's great piece on "Liberty of Contract," there were twenty others that offered a more technical challenge to one or another specific aspect of contract doctrine. It was this internal critique of latenineteenth-century contract doctrine that initially undermined the foundations of Classical Legal Thought.
The Development of the Progressive Critique of Classical Contract Theory
Private law provided the intellectual source of most legal theory within Classical Legal Thought. And, as we will see in many other areas as well, the Progressive critique of freedom of contract as a constitutional doctrine began with an elaborate assault on the intellectual premises of the private law of contract. After the Lochner decision, most technical internal disputes within the law of contract were often displaced struggles over whether contract law could be justly characterized as a neutral and voluntary system in which the judge simply carried out the will of the contracting parties. It was this "will theory" that Progressive legal thinkers began to criticize immediately after Lochner.
Objectivism and the Law of Contract
The most striking feature of the attack on the will theory of contract is that it developed directly out of objectivism, which had arisen in the second half of the nineteenth century for the purpose of strengthening and consolidating the will theory. Under the will theory, the basis for enforcing a contract was a "meeting of minds" or convergence of the wills of the contracting parties. If, for example, two parties contracted for the sale of one thousand bushels of Grade A wheat, courts held that the meaning of "Grade A wheat" would not be allowed to depend on an unusual or eccentric understanding held by one of the parties. Judges thus rejected any search for the "subjective" or real intent of the parties and satisfied themselves with the customary meaning held by an average, ordinary person. This shift from a subjective to an objective theory after the Civil War was part of a broader tendency to create formal, general theories that would provide uniformity, certainty, and predictability of legal arrangements." Since subjective theories necessarily gave juries extensive powers to determine the actual will of the parties, the shift to an objective theory was part of a self-conscious effort of judges and jurists to establish uniformity by subordinating the fluctuating decisions of juries to judicially created formal rules.
In the process of formalizing and generalizing the system of contract law, the legal rules came to bear a more and more tenuous relationship to the actual intent of the parties. What once could be defended and justified as simply a more efficacious way of carrying out the parties' intentions came eventually to be perceived as a system that subordinated and overruled the parties' will.
An objective theory of contract was not even the best practical approximation of the actual will of the parties, it was argued, for the law often does not even "create that relation which the parties would have intended had they foreseen." "The fact is," wrote Arthur L. Corbin, ". . . that the decision will depend upon the notions of the court as to policy, welfare, justice, right and wrong, such notions often being inarticulate and subconscious." '2 When the attack on the premises of freedom of contract began in earnest early in the twentieth century, it became immediately clear that an objective theory of contract had already sown the seeds of its own destruction. The established principles of contract, the critics maintained, could no longer be defended as simple reflections of the will of the parties or of a "meeting of minds." Objectivism could not be reconciled with individual autonomy or voluntary agreement. In fact, it demonstrated that the existing law of contract had regularly subordinated individual freedom to collective determinations based on policy or justice.
As in many other areas of the law, late-nineteenth-century contract jurisprudence had actually shifted away from post-revolutionary natural rights theories. Its increasingly utilitarian efforts to use law to promote economic growth often sacrificed an individualized sense of justice. The claims of individualism and localism were thus frequently subordinated to the perceived need for standardization in national markets and a national economy. Subjectivism was also associated with utopian natural rights philosophy which was widely regarded as subversive of the "search for order" in a society experiencing ever increasing levels of social and economic conflict. 13
Objectivism, in short, had prepared the way for those who wished to argue that the goals of intervention and regulation were already deeply embedded in the existing law and that the individualistic world of autonomous wills had long since passed from the scene.
The attack on objectivism in contract law was well advanced before it was extended to tort.14 Though there were many prior anticipations, the challenge basically crystallized as a series of reactions to the constitutionalization of freedom of contract in Lochner v. New York (1905). From that time on, Progressive legal thinkers gradually elaborated the argument that since the institution of contract did not actually express the wills of private individuals, when the state either enforced or refused to enforce agreements it was only because of considerations of public policy.
An attack on the will theory of contract had been building for some time even prior to 1905. It focused first on the doctrine of "implied contracts." When courts implied the existence of a contract or a term in a contract, the critics asked, were they enforcing or overruling the parties' intentions? In his first article, written in 1870, Oliver Wendell Holmes, Jr., identified the category of implied contract as including "both contracts which are truly express, and cases which are not contracts at all." 15 But it was still too early for him to conclude anything other than that a "legal fiction" had clouded thought on the subject. Yet, recognition of both express and implied contracts had seemed to suggest that there were many contracts that could be enforced regardless of whether there was any meeting of minds or convergence of the parties' wills. Following Holmes's lead, Professor William Keener of the Harvard Law School published his treatise on Quasi-Contract in 1893.16
For the purpose of clarifying this dilemma, Keener took the willed contract as the paradigm for the "true" or "pure" contract. Among implied contracts, he distinguished between those that were "implied in fact," which were also true contracts because actual intention could be proven on evidence of the parties' behavior, and "implied in law" or quasi-contracts, which had nothing to do with the actual will or intention of the parties. The effect of Keener's classification was to insulate the pure contract from the accusation that it was simply an obligation imposed by the state. By candidly identifying quasi-contract with non-contractual principles, Keener believed he had preserved the realm of contract as the expression of individual autonomy. 17
But the identification of a separate realm of quasi-contract did not always help to sustain the general idea that contract, correctly understood, did in fact express the parties' wills. Many legal writers after Keener actually pointed to quasicontract as proof that the general category of contract concededly contained nonvolitional doctrines. Though this was apparently far from Keener's intention, it did nevertheless underline a deeper truth.
The publication of Quasi-Contract can be understood as representing the beginning of the gradual disintegration of the imperial ideal of contract as it had unfolded from early in the nineteenth century. Until the publication of Keener's treatise, the dominant impulse was toward ever-increasing levels of generality and inclusiveness of contract doctrine. Quasi-Contract moves in the opposite direction-toward a disaggegration of concepts. The abstract ideas of the will of the parties and the meeting of minds can no longer hope to explain a series of doctrines in which courts clearly imposed their own ideas of justice on the contracting parties. Earlier in the century, legal writers had actually sought to root out all non-voluntaristic elements in contract law. 18 But they failed, and courts had never completely abandoned intervention in pursuit of uniformity or of justice. So that by the time Keener wrote, he was presented with a clear choice between con
ceding the existence of non-voluntaristic doctrines in contract law or else excluding these elements from the definition of contract itself. In taking the latter course, he was forced both to cast doubt upon the generalizing tendencies of contract doctrine and to underline the frequency of non-consensual obligation in the law.
The next step in the challenge was undertaken by those who argued that volition was often ignored even in supposedly pure contracts. It was Holmes's objective theory of contract put forth in The Common Law that ultimately provided the foundation for this move. 19 As we have seen, from the middle of the nineteenth century, judges and jurists had begun to retreat from the subjective theory on the ground that it undermined certainty and predictability as well as uniformity and consistency of legal results. In an increasingly national corporate economy, the goal of standardization of commercial transactions began to overwhelm the desire to conceive of contract law as expressing the subjective desires of individuals.
For a long while, however, objectivism was still primarily regarded not as in conflict with a will theory of contract but as necessarily supplementing it. For example,the function of judicial "interpretation and construction" of contracts, Holmes originally wrote, "is to work out, from what is expressly said and done, what would have been said with regard to events not definitely before the minds of the parties, if those events had been considered."20 In this view, while the role of judicial interference and discretion was greatly expanded compared with a model of complete deduction from the parties' intentions, the principal source of guidance remained the actual intention of the parties.
This had led Mark DeWolfe Howe to ask whether Holmes did not actually follow the orthodox view and "allow subjectivism, in the end, to control his theory of contract?" "I take it that he did not," Howe concluded, and I agree.21 And he proceeds to argue that Holmes "was urging a revolutionary change in legal thought."22 "[T]he last of the contract lectures made it quite clear that Holmes saw the objective standard as no less controlling in the law of contract than it was in the law of torts and of crime," Howe declared.23 His goal was an increased "concentration of analytic attention upon the formal and objective aspects of obligation and a reduced concern for the subjectivities of assent."24
Yet it is true that objectivism in contract law could be ambiguously understood as not necessarily in conflict with a theory based on a meeting of minds of the parties. And that is why, for a long time after Holmes wrote The Common Law, objectivism was not understood as a frontal assault upon the will theory itself.
It was Holmes who took the argument one step further. In three sentences in "The Path of the Law" (1897), which were as influential as any he wrote, he simply assumed that the very process of implying a contract or a term in- a contract was an act of judicial legislation for reasons of policy. "You always can imply a condition in a contract," he wrote. "But why do you imply it?"
It is because of some belief as to the practice of the community or of a class, or because of some opinion as to policy, or in short, because of some attitude of yours upon a matter not capable of exact quantitative measurement, and therefore not capable of founding exact logical conclusions.z"
Here, for the first time, Holmes could not be understood ultimately to base contractual liability on the intentions of the parties. It is the revolutionary moment at which objectivism is finally recognized to be incompatible with a will theory of contracts.26 In terms of the much discussed question of how a "paradigm shift" occurs, it is striking that Holmes did not even try to refute the dominant paradigm from an internal perspective but instead simply asserted that it was untrue. It was still possible, after all, to account for the process by which courts imply a contractual condition in terms of the more orthodox theory of contract interpretation he used in The Common Law.
Now, however, Holmes simply declared that when courts interpret or construe a contract, they impose some policy on the parties regardless of any supposed intention. The bright-line distinction between contract and quasi-contract that Keener had formulated just four years earlier was denied. There was no distinction between the interpretation of real contracts and those implied in law.
The influence of Holmes's assertion was overwhelming and became a standard point of departure in the unfolding attack on freedom of contract. In two articles in 1903 and 1904, Clarence Ashley directly challenged the "fetish of this favorite theory of mutual assent."27 Where courts imply conditions in a contract, they "vigorously disclaim any idea of changing the contract of the parties and argue that by interpretation they find the intent of the parties," Ashley wrote, "but this is simply a convenient fiction, and the fact remains, that absence of intent is the basis on which these rules of court rest."28 "As a matter of fact . . . in all these cases the courts have in reality made a new contract for the parties."29 What objectivism actually means is that "there does not seem to be any difference . . . between the obligation of Tort and Contract.. . ."30
In 1907 George Costigan carried the implications of objectivism one step further. Teachers of contract law, he wrote, "are . . . obliged to tell our students that the 'meeting of minds' talked of in the contract cases is often a misnomer. . . "31 Objectivism in contract law means that "a meeting of the expressions of the parties . . . is enough to make a mutual assent contract despite the fact that in an accurate sense of the words the minds of the parties never meet at one and the same moment of time."32
In many articles attacking freedom of contract such as Ashley's, Keener's distinction between contract and quasi-contract seems to have been ignored for polemical purposes. 'T'hus, Ashley continued to write as if contracts implied in law were indistinguishable from real contracts. Since in those cases courts could easily be shown to have "in reality made a new contract for the parties," he simply asserted that this was true for contracts in general. But perhaps Holmes took advantage of precisely the same ambiguity in his famous passage in "The Path of the Law."33
The first practical area of the law to bear the brunt of the attack on the will theory of contract was the law of agency, which had only recently grown in legal significance as the corporate form of business became dominant. The effort of late-nineteenth-century legal thinkers to unify most areas of agency law around will and meeting of minds had never completely succeeded, due perhaps to resistance of the judges to extending the will theory to the corporation. The law of agency thus became one of the major battlegrounds in the campaign to challenge the individualistic framework on which the constitutionalization of freedom of contract had been erected. In order to see this, we need first to see the relationship between agency law and the growth of large organizations.
The Law of Agency and the Growth of Organizational Society
The history of the law of agency is important for several reasons, both institutional and ideological. First, it is one of the best expressions of the emergence of organizational society and, in particular, of the growth of large corporations in the late nineteenth century. Until the rise of the corporation, the law governing the authority of agents for acts done to advance the interests of their principals was not a major area of the law. Economic specialization and organizational complexity moved agency law to center stage in the creation of Classical Legal Thought.
Several of the most important tensions involved in the emergence of organizational society converged around the law of agency. Within the corporation, agency law defined the extent to which superiors in the corporate hierarchy could exercise control over their subordinates. There was a trade-off between, on the one hand, corporate control of the behavior of employees and, on the other, the level of confidence that third parties would have in the legitimate authority of these employees. To the extent that courts restricted the authority of agents only to the most specific and express commands of their superiors, there could be tight control from above but also correspondingly little authority to deal with the outside world. If the requirement of evidence of actual authority became more stringent, therefore, the ability of
the rest of the world to rely on the agent's authority would inevitably be reduced.
Agency law thus embodied a host of contradictory tendencies throughout the nineteenth century. Perhaps the most fundamental was that it sought to bring under one heading both the law of master and servant and the law of principal and agent. The first, respondent superior, continued to represent a status-based liability derived from traditional notions of the identity of master and servant; the second, while it had always contained some consensual elements, tended during the late nineteenth century to push toward the outer limits of contractualism.
The starting point for the nineteenth-century law of agency is the publication of Joseph Story's famous treatise in 1839.34 Its most striking feature is its failure to make the modern distinction between the bases of liability of the principal and of the master.35 The liability of a principal for the contracts of her agent rested on grounds similar to the liability of the master for the torts of his servant.36
For late-nineteenth-century legal thinkers, who feared the extension of the strict liability tendencies of master-servant liability, it became necessary either to discredit the entire doctrine of respondeat superior, as Holmes sought to do, 37 or, at least, to create a substantial gulf between the two theories of liability. The law of principal and agent, they hoped, could be grounded largely in terms of consensual categories, and not be contaminated by the status-based or regulatory character of the master's tort liability.