Contract as voluntary commutative justice

Gordley, James Russell; Jiang, Hao

At present, there is no generally accepted theory of why contracts are binding. We will propose one based on an idea that goes back to Aristotle: contract as voluntary commutative justice. In principle, a contract of exchange should be enforced when it is both voluntary and economically fair. It is voluntary so long as a party puts a higher value on what he is to receive than on what he is to give. Voluntariness is subjective and personal; economic fairness is not. An exchange is economically fair when the performance that each party is to make is equivalent in economic value to the one that he is to receive. Performances are equivalent in economic value when each party is compensated for the risks that the contract places on him.