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CRITIQUE OF THE RELATIONAL THEORY OF CONTRACT

METHODOLOGY
RESEARCH PROBLEM:
The validity of the reasons given by the Relational Theory of contract law for
criticising the Classical Theory of Contract Law.
RESEARCH QUESTIONS AND HYPOTHESIS:
Question 1:

Whether Macneil in his theory has satisfactorily established the


new concept of relational contracts introduced by him?

Hypothesis:

Yes, Macneil has satisfactorily established in the Relational


theory of contract law the concept of relational contracts.

Question2:

Whether

Macneil

hasnt

sufficiently

substantiated

his

opposition to the Classical Contract theory regarding role of


Hypothesis

consent.
Yes, Macneil has sufficiently substantiated his opposition to the

Question3:

Classical Contract theory regarding role of consent.


Whether Macneil has studied the role of consent with respect

Hypothesis

to tacit assumptions?
No, Macneils study of consent with regard to tacit
assumptions isnt comprehensive.

Question4:

Whether Ian Macneils relational theory of contract is


influenced by his focus on exchange to the exclusion of any
treatment of its functional relationship to the conception of
property that exchange presupposes?

Hypothesis

Yes, the Relational theory is influenced by his exclusive focus


on exchange to the exclusion of any treatment of its functional
relationship to the conception of property that exchange
presupposes.

Question5:

Whether or not relationalism is the core concept contributing


to consent formation in the contract theory propounded by
Macneil?

Hypothesis

Yes, relationalism is the core concept affecting consent


formation.

RESEARCH METHODOLOGY FOLLOWED:


This project report has been prepared using secondary sources of reference. Research
cards have been used for collecting data.

METHOD OF REFERENCE: MLA Sheet has been used for method of reference
INTRODUCTION
The leading contemporary critic of the classical theory of contract law
has been Ian Macneil. (Macneil 1980, 47-48) Professor Ian Macneil is a strong
proponent of a humanized view of contracts is and often deemed the father
of relational contract theory. The rich social complexities of his life
probably contributed to Macneils escape from the narrow nuts of classical and
neo-classical contract into the openness of relational contract. There, relatively
direct transactions are important but only as part of a broad landscape.
Macneil went through hundreds of American agreement to agree cases and
concluded that these agreements to agree make sense only in terms of
relations outside any theoretical structure- where the consent is always either
100 percent on or 100 percent off. In real life, on-off consent (in contrast to
apparent expressions of such consent) is virtually if not totally non-existent.

This experience led Macneil to realise that only a fully relational approach can
deal adequately with either relations or the relatively discrete transactions
embedded in them.(Campbell 2001, 5)

THE RELATIONAL THEORY OF CONTRACTS VS. THE CLASSICAL THEORY


Macneil accepted the fact that the classical law of contract has been of
enormous and substantial value. But still he has sought to reveal the
shortcomings of the philosophy articulated by the classical law that produces
incoherence and empirical irrelevance. By doing so, he has attempted to
construct a coherent and relevant rival law of contract.
Macneil submits that the classical contract law is inefficient in dealing
with present day contracts like the highly planned, very extensive inter-firm
contracts between large firms which are legally independent but economically
interdependent. These firms have become far more significant with the
increase in the scale of production over the course of capitalist economic
development. Contracts of that sort involve substantial investment which
cannot be relocated to other contracts without uncompensatable loss. Such
contracts are so complex that they cannot be fully specified in advance and
both their expectations and obligations during and at the conclusion of
performance.
Such contracts are a modern day phenomena which cant be explained
by the classical contract law. In the classical law of contract, precisely
quantified damages are awarded for foreseeable losses in case of breach. Such
remedy cannot be given in contracts which are characterized by complex
obligations and asset specific investments. They are governed efficiently only
if the parties adopt a consciously co-operative attitude. This co-operative
awareness of the value of the relation legally expressed in the contract
between the parties is called as relational contracts by Macneil.

Macneils major achievement has been stated by many to be the open


minded analysis of contracting by which he revealed a class of relational
contracts in which action predominantly is so oriented in the minds of the
parties towards conscious co-operation that a contract of this class no longer
stands alone as in the discrete transaction, but is part of a relational web. All
the negotiating tactics adopted by the parties concerning formation,
performance, variation, termination and application of remedies can be
explained as being part of this co-operative attitude.
In the process of developing his relational theory of contract law,
Macneil has criticised the classical theory of contract law because of the
reasons given in brief below:
1. The Axiomatic and Deductive Nature of Classical Contract Law.
Classical contract law is axiomatic in nature i.e. it takes as a premise that
fundamental legal doctrinal propositions can be established on the ground that
they are self-evident and therefore, doesnt allow any room for justifying
doctrinal propositions on the basis of social propositions--morality, policy, and
experience. Also, it conceives of a second set of rules that were justified on the
ground that they could be deduced from the fundamental principles.
For example, it was an axiom of classical contract law that in principle
only a bargain promise had consideration--that is, was enforceable-- although
exceptions were recognized for certain kinds of promises that were
enforceable on purely historical grounds. The issue then arose whether a firm
offer--an unbargained-for promise to hold an offer open--was legally
enforceable. The conclusion of classical contract law was, no. This conclusion
was justified by deduction alone. The major premise was that only bargains
had consideration. The minor premise was that a promise to hold a firm offer
open is not bargained for. The conclusion was that a firm offer was not
enforceable.

BUT, Ian Macneil proposes that law must be justified by social


propositions as axiomatic theories of law cannot be sustained, and cant be
justified on the ground that it is self-evident. For this, he tried to bring to the
fore the distinction between the justification of a doctrine and the justification
for following a doctrine. The relational theorists have explained this as: Once
a doctrine has been adopted it may justifiably be followed, either in the
interest of stability, reliance, and the like, or because of social reasons for
following rules that have been adopted in a certain way. However, those
elements only justify following the doctrine; they do not justify the doctrine
itself.
Deductive theories are no more sustainable than axiomatic theories as all
doctrines are always subject to as-yet-unarticulated exceptions based on social
propositions, which can be made because the social propositions that support
the doctrine do not extend to a new fact pattern that is within the doctrine's
scope.(2000b, 805)
Accordingly, the applicability of a doctrine to a fact pattern that falls
within the doctrine's stated scope is always dependent on a conclusion that
social propositions, on balance, do not justify creating an exception for the fact
pattern. The concept, implicit and often explicit in classical contract law, that
contract law can be developed axiomatically and deductively, cannot be
sustained.
2. Many Rules of Contract Law Should be Individualized, Subjective, or
Both. The basic principle that should determine the content of contract law is
that the law should effectuate the objectives of parties to a promissory
transaction if appropriate conditions are satisfied and subject to appropriate
constraints. Because the objective of contract law should be to further the
interests of the contracting parties, the rules of contract law must often be
formulated so that their application will turn on the particular circumstances of
the parties' transactions and, in certain cases, on the parties' subjective
intentions. Whether a given rule of contract law should be objective or

subjective, and whether it should be standardized or individualized, are


matters that must be decided on a rule-by-rule basis. The overriding preference
of classical contract law for objective, standardized rules was incorrect.
3. Contract Law Should Take Account of the Dynamic Aspects of the
Contracting Process. Promissory transactions seldom occur in an instant of
time. (eg. the contract of continuing guarantee).They have a past, a present,
and a future, and often it is not easy to say where the past ends and the present
begins (because, for example, the process of concluding a deal is often a
rolling process) or where the present ends and the future begins (because, for
example, the contract is partly what it was at the time of contract formation
and partly what it becomes thereafter). Because promissory transactions
seldom occur in an instant of time, contract law, if it is to effectuate the
objectives of parties to promissory transactions, must reflect the reality of
contracting by adopting dynamic rules that parallel that reality, rather than
static rules that deny that reality.
4. Classical Contract Law assumes the existence of contracts which have
been called as discrete contracts by Macneil. It is implicitly based on a
paradigm of bargains made between strangers transacting in a perfect market.
So, for example, classical contract law rejected principles of unfairness, which
typically have their fullest application in transactions that occur either offmarket or on very imperfect markets and have little application to contracts
made between strangers on perfect markets.
This assumption is however, flawed as the contracts are seldom made on
perfect markets, and seldom made between complete strangers.
THUS, Classical contract law is axiomatic and deductive; relational contract
theory is open and inductive. Classical contract law is standardized; relational
contract theory is individualized. Classical contract law was based on the
paradigm of strangers transacting on a perfect market; relational contract
theory is based on the paradigm of transactions by actors who are in an

ongoing relationship, and often in a bilateral monopoly. Classical contract law


was static; relational contract theory is dynamic.
This rejection of the basic approaches and assumptions of classical
contract law even if considered to be true and justified however, what is
required is constructing a body of relational contract law that involves more
than just rejecting the approaches and assumptions of classical contract law.
There needs to be a new body of legal rules formulated, based on approaches
and assumptions that are justified by morality, policy, and experience. This is
something which the Relational theory of contract law doesnt do or
probably cannot.
One of the main things that havent been given discussed in this theory is a
proper definition of relational contracts which would in clearly establish the
difference between relational and non-relational contracts --that is, in a way
that carves out a set of special and well-specified relational contracts for
treatment under a body of special and well-specified rules.
Since Macneil has placed discrete and relational contracts at the two
opposite sides of the continuum, it might be said that the definition of
relational contracts as those contracts that are not discrete. Vic Goldberg has
defined a discrete contract as a contract in which no duties exist between the
parties prior to the contract formation . . . . (1976, 49) However, even in the
case of a relational contract no duties can exist under the contract prior to its
formation. (Of course, the parties may be under other duties to each other prior
to formation, but that is true whether the contract is relational or discrete.)
Similarly, although a duty may arise, prior to the formation of a contract, to
negotiate the terms of a contract in good faith, that duty arises as a result of a
preliminary commitment, or on the basis of preliminary actions taken by one
or both parties, not under the terms of the contract.
Besides, Macneil treats discreteness as an end of a spectrum rather than
as a definition of a body of contracts. Contract lying at the discrete end of the
spectrum have the characteristics--for example, less duration, less personal

interaction, less future cooperative burdens, less in the way of units of


exchange that are difficult to measure--and as lying at the relational end of the
spectrum if it has more of the relevant characteristics. A spectrum approach is
certainly acceptable if we view relational contracts only from a sociological
and economic perspective.
However, the enterprise of contract law entails the formulation of rules,
and a spectrum approach is inadequate to that enterprise, because it cannot be
operationalized. Under such an approach, many or most contracts will have
both relational and discrete elements. Accordingly, except for the relatively
few cases that lie at one end of the spectrum, or that satisfy or fail to satisfy
every item on the checklist, there would be no way to know whether the
general rules of contract law or special rules of relational contract law should
be applied in any given case.
No definition of relational contracts has been provided by Macneil in his
theory and thus, no straightforward definition of relational contracts is readily
at hand. Correspondingly, the obvious definition of a discrete contract is a
contract that involves only an exchange, and not a relationship. Macneil
himself has sometimes favored such a definition. For example, in The New
Social Contract, Macneil defines a discrete contract as one in which no
relation exists between the parties apart from the simple exchange of goods.
(1980) Such a definition not only can be operationalized, but also reflects the
everyday, common sense meaning of the term relational.
If such a definition is adopted, it seems that discrete contracts are almost
nonexistent, because virtually all contracts either create or reflect
relationships. Consumer contracts commonly involve ongoing relationships
even when they are made with huge bureaucratic organizations. Eg. Most
shoppers at the neighbourhood departmental store have shopped there before
and expect to shop there again. Neither the store nor the shoppers perceive
each individual exchange as an isolated non-relational transaction. Even

contracts on perfect spot markets are likely to involve traders or brokers who
have continuing relationships of some sort.
It is only for the sake of argument that Macneil has quite naturally driven
to extremes:
[A]t noon two strangers come into town from opposite directions, one
walking and one riding a horse. The walker offers to buy the horse, and after
brief dickering a deal is struck in which delivery of the horse is to be made at
sundown upon the handing over of $10. The two strangers expect to have
nothing to do with each other between now and sundown; they expect never to
see each other thereafter; and each has as much feeling for the other as has a
Viking trading with a Saxon.
However, in the end, Macneil admits that a discrete contract is an
impossibility, (1978b, 857) and characterizes discrete contracts as entirely
fictional.
One reason for the overthrow of classical contract law is that it was tacitly
based on the empirically incorrect premise that most contracts were discrete.
Ironically, however, relational contract theory has made an empirical mistake
comparable to that made by classical contract law: insofar as relational
contract theory supports the idea that there should be a body of special rules to
govern relational contracts, it is tacitly based on the incorrect premise that
relational contracts are only a special subcategory of contracts as a class. Once
relational contracts are properly defined, however, and it is recognized that all
or almost all contracts are relational, it is easy to see that relational contracts
are not a special subcategory of contracts, and therefore should not and cannot
be governed by a body of special contract-law rules. There can be no special
law of relational contracts, because relational contracts and contracts are
virtually one and the same.
Macneil's has given the general rules for relational contracts in some of the
relational contract literature, however, he fails to demonstrate that there either
is or should be a law of relational contracts.

MACNEILS VIEW ON CONSENT


Consent is an essential component of contract formation. It belongs at
the heart of contract law. (Barnett 1984, 1223) Contractual obligation
ordinarily occurs i.e. an agreement becomes a contract only when one person
manifests an "intention to create legal relations" or an "intention to be legally
bound" to fulfill a commitment.
Macneil distinguishes consent from either choice or voluntariness.
Indeed, he views the binding quality of contract as potentially choicerestricting, even choice-destroying. He however uses different concepts of
consent when criticizing the traditional contract theory and another when
developing his own. When criticizing traditional contract theories, Macneil
implicitly assumes that the only actual or real consent is subjective or
"conscious consent. He repeatedly disparages the theory of objective assent
adopted by nearly all classical and neoclassical contracts theorists as fictitious.
In sum, macneil thought that the only true consent is specific promise
genuinely communicated. All else is fiction.
While developing his own theory, Macneil makes use of a similar
concept of consent. He considers consent to commence relations, the content
of which is subjectively unknown to the person consenting, to be real enough
consent to legitimize contractual enforcement. For example, he uses this sort
of analysis to discuss the consensual basis of arbitration. He also uses a similar
analysis of consent to legitimize contracts of adhesion. An example of
Macneils willingness to see the presence of consent as making a difference is
a distinction he suggests between transactions that are generated by consent
and those that are created by bureaucracies.
Macneil appears to use the concept of consent in quite different ways
depending on the context of his usage. It is important to note that he employs
this sort of distinction even in the light of his usual reticence to acknowledge
its moral significance. This implies that a consent theorys distinction between
commitments that are accompanied by a manifested consent-to-create-legal-

10

relations or consent-to-be-legally-bound and those that are not consented to in


this manner cannot be dismissed by him as meaningless, or more importantly,
functionless. (Barnett 1992c, 1187)
Macneil in his theory does not lay enough stress on the importance of
showing consent when the all pervasive implied assumptions of the planning
context are to be applied in the context of consent. Macneil is of the opinion
that one important aspect of incomplete planning in relations is the tacit
assumption.(Macneil 1974, 717)
Now, the question to be asked here is what is a tacit assumption? A
tacit assumption is an assumption implied or inferred from certain actions or
statements. These tacit assumptions may range from trust to highly complex
ones like particular trade usages or standard methods employed. (Macneil
1980, 25) In case of a contract, during an exchange when the assumptions
inferred are mutual by both the parties then it acts as the same thing to
properly communicated consent given by the acceptor to the offeror. (Macneil
1974, 773)
Macneil compares the above with the breach of contract rules and
states that just like the breach of contract (default) rules mutually negotiated
and arrived at the planning of the contract is done by these tacit assumptions
in the absence of proper rules and guidelines stipulated and agreed by both
members of the contract, they both serve equal importance in terms of future
possible impact. (Macneil 1974, 774)
Although in his theory Macneil is claiming that tacit assumptions
permit planning by default in the absence of expressed mutual consent, he fails
to explain why the same commonly-held tacit or non-conscious assumptions
that permit planning do not also influence the actual meaning of expressed
consent-in particular the meaning of silence-even when parties may not have
consciously considered an issue. Another question arises whether or not these

11

tacit assumptions can be used to also affect the meaning of consent, especially
when the parties have not consciously taken up an issue? Can it be used to
give meaning to the silence between the parties? Thus a loophole arises in
Macneils relational theory of contract law.
Neither does Macneil explain why these default rules that reflect the
inferred or so called tacit assumptions of most persons or rather a majority of
the particular/relevant community of speech or in writing (discourse) brings
about the effect of the actual contracting parties is somehow contrary to the
liberal conception of contract. (Macneil 1974, 772-773)
Because Macneil is a prisoner of a purely subjectivist conception (Any
of various theories holding that the only valid standard of judgment is that of
the individual) of consent, he misses the fact that the existence of tacit
assumptions greatly expands the domain of actual consent and shrinks the
domain of coercively imposed gapfillers to plug gaps and loopholes.
Another reason for this oversight by Macneil is that he is a prisoner of
his communitarianism (A member or supporter of a small cooperative or a
collectivist community).
In sum, by acknowledging the importance of tacit assumptions in
planning, Macneil opens the door to an expanded, more realistic notion of
contractual consent that is not limited to matters about which the parties
consciously deliberated, the unconscious pathway to contract also arises. Thus
there exists an alternative to the stark contrast Macneil draws between
"conscious consent" and no consent. (Macneil 1980, 49) When Macneil
argues that "the 'great sea of custom' . . . forms the main structure of contract"
(Macneil 1974, 731) and explicit promise the exception, he does not realize
that this argument against consent turns on itself. For, if custom is a reflection
of our shared tacit assumptions and the reverse, then custom can be seen as the
embodiment of what parties in the relevant community actually, not
fictitiously, consent to when they manifest their intention to be legally bound.

12

Macneil discusses the scope of consent as follows: Since virtually any


contract has far more complex consequences than anyone can possibly have
in mind at once, one of two things must happen. Either the scope of the power
created is beyond the realm of conscious consent, or important aspects of the
contract remain subject to free exercise of further choice by the consenting
party.
Tacit assumptions need not be existing on every corner or eventuality
during the time of contract formation but what has to be seen here is that when
actual consent (conscious consent) embraces all the tacit assumptions which
again embrace the consciously made assumptions this creates a vast domain of
the actual consent far beyond what Macneil could acknowledge. Hence the
scope of consent had become very wide.
Macneil has also launched criticism against those theorists who
support the idea of too much stress on what he calls discreteness (consisting
of unconnected distinct parts) and presentiation. Macneil further states that:
Discreteness and presentiation are themselves not the same phenomenon, in
spite of their merger in discrete contracts. Discreteness is the separating of a
transaction from all else between the participants at the same time and before
and after. Its ideal, never achieved in life, occurs when there is nothing else
between the parties never has been and never will be. Presentiation, on the
other hand, is the bringing of the future into the present. Underlying both is
the ideal of 100 percent planning of the future. (Macneil 1980, 60)
As stated above he criticizes the notion that every term that will be
found to govern an exchange is consciously consented to at some magic
moment of contractual conception that is completely divorced from relations
that precede and succeed the contract formation. Macneil opposed the
viewpoint that the contract should be completely shut out from the
environment past, present and future. On this issue Macneil has clearly
prevailed. Criticisms of theories that identify consent exclusively with
discreteness -presentiation too- do not apply with equal force to a consent

13

theory that includes consent-to-default-rules and the non conscious tacit


assumptions that pervade contract as part of its conception of consent.
Macneil's arguments against consent, then, apply only within a
particular context. He offers nothing to refute the importance of a conception
of consent that lies outside that context. Because a consent theory of the sort
we favour is compatible conceptually with either highly discrete and
presentiated or highly intertwined contracts, arguments effective against
theories identifying consent exclusively with fully specified, conscious
consent at the moment of formation are inapplicable to our approach.
Enhancing discreteness requires the ignoring of the identity of partners
to a transaction lest relations begin to barge in. Also Discretion calls for
avoiding multiple parties. Since the ideal subjects of discretion transaction are
money on the one hand and an easily measured commodity on the other,
discreteness is enhanced by treating the subject of exchange as much like
commodities as possible.
In determining the content of a transaction discreteness calls for strictly
limiting the sources of communication and the substantive content of the
transaction, in order to sharpen the focus as much as possible. Ideally the
planning and consent should occur only through formal, specific
communication, non linguistic communication or the setting in which the
transaction occurs should be considered as irrelevant as the identity of the
parties. Clearly recognition of when a deal is on and when a deal is not on is
required with no half stations such as that created in law like promissory
estoppels.
MACNEILS VIEW ON PROPERTY AND FREEDOM OF CONTRACT
In this Section, criticism offered is: Macneil's classificatory apparatus
is not rich enough. In particular, by failing to offer a social theory of property
that corresponds to his social theory of exchange, he attempts to view
Macneilian contractual exchange-and a fortiori legally enforceable contracts-

14

largely apart from the function played by the liberal concept of several
property.
In one passage, Macneil considers, and then misses, the knowledgegenerating function of exchange made possible by both freedom to and
freedom from contract: At first thought, one might conclude that knowledge, a
good, can be created by discrete exchange, e.g., the sale of a book on
carpentry. But, of course, a book is not knowledge, merely a source of it; the
production of knowledge comes, alas, from reading, not from acquiring, the
book. Knowledge can, however, be created by the processes of relational
exchange-witness any classroom1.
The criticism regarding this is not merely that Macneil fails to analyze
property as thoroughly as he analyzes exchange. He is certainly entitled to
concentrate his attention primarily on exchange if he wishes. Rather, we are
maintaining that his relational theory of contract is both greatly influenced and
distorted by his exclusive focus on exchange to the exclusion of any treatment
of its functional relationship to the conception of property that exchange
presupposes.
This omission is manifested in two ways.
First, as just explained, Macneil entirely fails to take into account the
vital social functions performed by the liberal principle of freedom from
contract (Barnett 1992a, p 859). Consequently, his relational theory of contract
makes no effort to deal with the danger of contractual over enforcement that
is, the enforcement of commitments that ought not be enforced. Without
considering these dangers, the advantages of liberal contract theory and
doctrine that, at least in part, address this problem will be seriously
underestimated. This accounts for Macneil's patent lack of concern to provide

Macneil apparently has in mind the direct impartation or explicit exchange of knowledge
between teachers and students.

15

any

principled

distinction

between

enforceable

and

unenforceable

commitments.
Second, Macneil's relational theory takes an overly restricted view of
the social function of freedom to contract, or what he calls the power of
contract. The only function he acknowledges that this principle serves is that
of enhancing the value of resources that are the subject of exchanges.
According to Macneil, when an exchange of control of resources designated
by the concepts of ownership or property occurs, it is productive only because
the exchange per se-virtually by definition, and certainly in effect is expected
to enhance the value of the items exchanged. While discrete exchange is
commonly a prelude to further physical production, and while it enhances
value by itself, it does not achieve physical production. This is not to minimize
its importance or to denigrate its social value, but to recognize its nature2.
Whatever the reason, in considering the social function of exchange of
property rights, Macneil focuses exclusively on the physical effects of such
exchange while ignoring the informational effects3. Nowhere in his
voluminous writings, for example, does he consider the informational function
of the price system that the two liberal principles of contractual freedom,
along with the concept of several property, make possible (Barnett 1992b, p
62). When exercise my freedom to sell my house at the prevailing market
price my actions will affect the price signals that others receive concerning the
social demand for their houses. But as important, when I exercise my right to
refrain from selling my house I also affect, by my inaction, the market price of
2

The exact set of behavioral norms has evolved over the period of his writings. Recently
Search Term Begin Macneil Search Term End has offered the following list:
(1) role integrity, (2) reciprocity, (3) implementation of planning, (4) effectuation of consent,
(5) flexibility, (6) Search Term Begin contractual Search Term End solidarity, (7) the linking
norms of restitution, reliance, and expectation interests, (8) the power norm (creation and
restraint of power), (9) propriety of means (doing things the "right way"), and (10)
harmonization
with
the
social
matrix.
3

Transfer of control by discrete exchange often involves some movement of the goods and
services. This movement may be indeed usually is productive in the physical sense.

16

houses and thereby contribute to a more knowledgeable use of resources.


Indeed, market prices would never arise without the freedom to refuse to
consent to an exchange.
Like many others, Macneil fails to appreciate the essential "socialeducational" function of consensual exchange itself 4.

An omission this

serious cannot help but have significant implications for his relational theory
of contract. For example, at one juncture in his analysis, Macneil relies on the
institution of market cost, as though this information were not a product of the
very processes he was seeking to explain. Thus, the explanation of the value of
contractual freedom provided by Macneil's relational theory of contract, which
he never denies, is a pale one5.
In is submitted that Macneil's classificatory apparatus is not rich
enough (Oliver E. Williamson, 1979, p 233-236). In particular, by failing to
offer a social theory of property that corresponds to his social theory of
exchange, he attempts to view Macneilian contractual exchange-and a fortiori
legally enforceable contracts-largely apart from the function played by the
liberal concept of several property.
In light of this theoretical gap, it is especially intriguing that Macneil
has from his earliest writings to the present consistently asserted that the
concept or practice of contract presupposes the concept of property. In 1974,
he said that "exchange transactions can occur effectively only if property
rights receive socioeconomic support from others besides the parties to the
transaction6." His later writings are replete with similar observations.
4

Intriguingly, in another context, Macneil sees how organization can be a form of knowledge.

In 1962, Macneil wrote: Power of contract is one of two sides of freedom of contract. On
one hand, freedom of contract is freedom from restraint, an immunity from legal reprisal for
making or receiving promises. On the other hand, it is not really a freedom of contract but a
power of contract, a secure legal sanctions when another breaks his pomise.
6

In Macneil's lexicon, "transaction" lies on the discrete, presentiated end of the contractual
spectrum, so this quotation, and others as well, could be interpreted as limiting the role of
property rights to these sorts of exchanges. However, Macneil does not always confine this

17

Macneil's uncharacteristic silence on the nature and scope of the


property rights that, he concedes, underlie legally enforceable contracts
significantly affects his treatment of contractual freedom. Notwithstanding
that his earliest contract writings distinguished between freedom from and
freedom to contract, from then to the present, Macneil has consistently
maintained that freedom of contract is a misleading misnomer that is better
called the "power of contract," which corresponds to freedom to contract. With
rare exceptions, he has focused exclusively on this aspect of contractual
freedom whenever the subject arose.
His neglect of freedom from contract is directly related to his neglect
of property and its functional relation to contract. For Macneil considers
freedom from contract to be an aspect, not of contract theory, but of what he
terms

"basic

property

and

liberty

rights":

The basis for the right not to contract is so obvious-and one would think
especially to those trained in economics-that it hardly seemed necessary at the
time to explain it or to explain that the basis is not to be found in the power of
contract. It arises out of the basic property and liberty rights underlying the
institution of contract. Property rights are rights to have others not interfere
with possession, use, etc., and normally these include rights not to have to
contract with others wishing to deprive the rights holder of those rights by
agreement.
Macneil's relational theory of contract, therefore, ignores the vital
social functions performed by freedom from contract because it ignores the
social functions of property rights as well as the functional relationship
between property and contract.
observation to this specific context. Moreover, because he generally acknowledges the social
necessity of having such transactions (his criticism is that contract is more than just
transactions), he could also be seen as acknowledging the social necessity of the concept of
property that lies behind transactions.

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More specifically, it may be a mistake to assume that the concept and


institution of property bears no functional relationship to the concept and
institution of contract, especially to the distinction between enforceable and
unenforceable contracts. This gap in Macneil's relational theory is as
potentially significant as the omission of relational factors and norms and the
single-minded pursuit of pure presentiation that Macneil attributes to classical
contract theorists.
MACNEIL

AND COMMUNITARIANISM

Macneil is a communitarian. As he puts it, "[t]he vision I have in mind


is that of community." He also tries to accommodate aspects of liberalism into
his communitarianism.7 However, This does not mean there are no rights;
individual communally based rights derive from the next principle mentioned
in the text, reciprocity. In addition, since the community vision advanced here
is paired with-although it can never be melded into-a modified liberal vision,
individual rights also arise from the individualistic liberal side of that pairing.
(Macneil 1984-5, 936) But in Macneil's relational theory these individual
rights would be opposed to other communitarian rights (Macneil 1984-5, 944).
It sounds contradictory to say pairing communitarianism with liberalism.
Macneils attempt towards integrating liberalism8 with his communitarian
views causes the conflicting stand on the role of consent.
The greatest calumny made of liberalism by communitarians is the
charge that liberals have an "atomistic" view of rugged individuals who need
no one and affect no one by their actions. To the contrary, for liberals it is
precisely because individuals inevitably exist in a complex web of social
7

Unlike classical liberalism, which construes communities as originating from the voluntary
acts of pre-community individuals, it emphasizes the role of the community in defining and
shaping individuals. Communitarians believe that the value of community is not sufficiently
recognized in liberal theories of justice.
8
The liberal principles of several property and freedom of contract and the entitlements or
rights they recommend provide a "baseline" or framework within which productive and
satisfying social relations can evolve both spontaneously and by design.

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relations that they require the protection of the entitlements provided by


several property and freedom of contract (and also the protection of the rule of
law). The more all-encompassing, and potentially stifling, a society really is,
the more that "individualistic rights" (Barnett 1992c, 1205) are needed to
protect the members of a society from each other. By bending against the
potentially overpowering social tide, the liberal conception of justice and the
rule of law of which consent is a crucial part that shelters very fragile
individuals and associations. Atomistic individuals would need no such
protection.
There is no moment while contractual negotiation is being done, at
which time every right and obligation of contracting parties is unambiguously
expressed. Hence, some principle is needed to help parties to an exchange, as
well as third parties charged with law enforcement, assess whether
"reinforcement" (to use Macneil's term) of the exchange by legal coercion is or
is not warranted. This social function, which is as relational as any other, is
best performed by consent. (Barnett 1992a, 859-73) When consent is tacit or
non-conscious, its not easy to discern consent-to-create-legal-relations
(Barnett 1992a, 875-885) and thus, this principle can be abused. However, this
principle can be justified if it is shown to be the best way of dealing with a
social problem. Consent can be justified as enabling contracting parties and
others to distinguish enforceable from unenforceable commitments in a
manner that addresses the serious social problems of knowledge, interest, and
power. (Barnett 1992c, 1204)
The liberal principles of contract make possible a relational order of
actions that permits persons and associations to live and pursue happiness in
society with others. (Barnett 1992b, 65). Macneils view on pairing
communitarianism with liberalism renders uncertain the importance of his
concept of relationalism, because if we accept his ideas of communitarianism
and its role in deciding consent, then importance of relationalism with regard

20

to consent becomes questionable. Macneil hasnt explained his stand on the


relative importance of communitarianism and relatinoalism. This means that
relationalism might not be the core aspect of his theory.
CONCLUSION
Relational contract theory has helped bring to the fore two of the fundamental
weaknesses of classical contract law--its static character, and the flawed nature
of its implicit empirical premise that most contracts are discrete.
What relational contract theory has not done, and cannot do, is to create a
law of relational contracts. Because there is no significant difference between
contracts as a class and relational contracts, (or virtually all contracts are
relational) relational contracts must be governed by the general principles of
contract law. Macneil in his theory hasnt elucidated the definition of
relational contracts and its distinction from the so-called discrete contracts
Thus, our first hypothesis, that Macneil in his theory has satisfactorily
established the new concept of relational contracts introduced by him, is
incorrect. The conclusion with respect to the second research questions is that
his conception of consent when criticizing traditional contract theorists is
subjective, however, it is undermined by his broader, more realistic,
conception of consent when developing his own theory. Hence, our hypothesis
was wrong because Macneil hasnt sufficiently substantiated his opposition to
the Classical Contract theory regarding role of consent. Thirdly, when
Macneil's acknowledgement of the pervasiveness of tacit assumptions applied
in the context of consent makes it more meaningful act. Thus, the hypothesis
regarding comprehensiveness of Macneils study regarding consent with
respect to tacit assumptions has been proved incorrect. The fourth
hypothesis regarding the Relational theory being influenced and distorted by
Macneils focus on exchange is correct. Fifthly, Macneil has attempted to pair
his views on communitarianism with liberal principles of contract law, which
in itself is ambiguous, and has also said it to have an impact on consent, which

21

in a way discounts the importance of the concept of relationalism introduced


by him. Thus, the hypothesis of the fourth question is incorrect. However, this
is only stated, it hasnt been established sufficiently.

22

WORKS CITED:
(1974) Macneil, Ian R. "The Many Futures of Contracts." S. Cal. L. Rev. 47
(1974): 680
(1976) Goldberg, Victor Towards an Expanded Economic Theory of
Contract 10 J. Econ. Issues (1976) :45
(1978a) Macneil, Ian R. Contracts: Exchange Transactions and Relations
12-13 (2d ed. 1978)
(1978b)Macneil, Ian. R. Contracts: Adjustment of Long-Term Relations
Under Classical, Neoclassical, and Relational Contract Law 72 Nw. U.
L. Rev. 854,
(1979) E. Williamson, Oliver. "Transaction-Cost Economics: The Governance
of Contractual Relations." J.L. & Econ. 22 (1979): 233-236
(1980) Macneil, Ian R. The New Social Contract: An Inquiry into Modern
Contractual Relations Mod. L. Rev. 44(1980): 20-65
(1984) Barnett, Randy E. "Contract Scholarship and the Reemergence of
Legal Philosophy." Harv. L. Rev. 97 (1984): 1223.
(1984-85) Macneil, Ian R. . "The New Social Bureaucracy, Liberalism, and
Community-American Style." Nw. U. L. Rev. 79 (1984): 900-946.
(1985) Macneil, Ian R.

Relational Contract: What We Do and Do Not

Know Wis. L. Rev. (1985): 483-524


(1992a) E. Barnett, Randy "The Sound of Silence: Default Rules and
Contractual Consent." Va. L. Rev. 78 (1992): 821-887
(1992b) E. Barnett, Randy "The Function of Several Property and Freedom of
Contract." Soc. Phil. & Pol'y 9 (1992): 62.
(1992c) Barnet, Randy E. "Conflicting Visions: A Critique of Ian Macneil's
Relational Theory of Contract." Virginia Law Review 78.No. 5 (1992):
1175-1206.
(2000a) Macneil, Ian. "Relational contract theory: challenges and queries."
Northwestern University law Review, 94 (2000): 3.

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(2000b) Eisenberg, Melvin A. Relational Contract Theory: Unanswered


Questions 94 Nw. U. L. Rev. 805 (2000)
(2001) Campbell, David . the relational theory of contract: selected works of
Ian Macneil. London: Sweet & Maxwell Limited, 2001.

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