Contracts are the life blood of capitalism. As Pashukanis wrote, and as my contracts professor said the first day of class, everything in a capitalist legal system can be framed as a contract. The Constitution is the state’s contract with private interests and within itself between the various branches and departments of government. The criminal law is a contract where the accused bargains with the state to work out a deal to “pay their debt to society,” though of course the “debt” is actually accrued by their disruption of the flow of capital. And then of course, there are what we think of on a day-to-day basis as contracts. We sign contracts with our banks, credit card companies, and other financial service providers so that they can have the legitimacy, and thus the ability to use the power, of the state. We sign contracts when we marry, originally because women were viewed as property, and now because it is a risky economic relationship that the state demands some control over in order to alleviate a divorce’s disruption of the flow of capital. And as pictured above, US unions across the board generally hold the provision of a “good contract” by employers as their major, or even their only, platform.
I give that brief introduction because it is important for us to view the material dialectic reality of what a contract is as opposed to the deterministic framework propounded by capitalists and their states. One particular concept that I have oft-seen mythologized, even by the Left, is “fairness.” “Fairness” is an integral part of the market fables that not only purport capitalism as efficient, but as ethically and morally sound. The bourgeoisie own wealth because it is “fair” since they have worked so hard. The wealth inequality is “fair” because the poor do not work hard enough. When I am buying a sofa for my apartment, it is “fair” for my roommates to chip in, even if I make enough money to buy the sofa without their assistance.
Contracts are claimed to be the purveyor of “fairness” (as we will see, this is a mistaken view of their relationship). When an offer is made and someone accepts it, that is generally seen in the United States as “fair” unless the offer was made under force, fraud, or coercion. The focus here will be tailored particularly to unilateral contracts, because of a special interest in fairness with the upholding of these contracts. A unilateral contract is pretty much what it sounds like: it is an offer to carry out some future act (to make a promise) that demands some specified performance to make it binding (called consideration). Why fairness is important to contracts is fairly straightforward: unlike a bilateral contract, the offeree in a unilateral contract has no promise to leverage the offerer with. A good example of a unilateral contract is an insurance policy. Your payment to an insurance company is your consideration, and as such the insurance company promises to insure your health, life, property, etc. And of course we get really upset when insurance companies are “unfair”! People still go off about the tens of thousands being denied insurance for their homes after Hurricane Katrina. The tactic of finding “previous conditions” not reported in the purchase of health insurance was another example of a lack of “fairness” bemoaned by the Left of this country. But in both of these cases (speaking generally about lawsuits around “previous conditions” before the Affordable Care Act), the courts ruled in favor of the contract. And one of the most important things about contracts, a key element to its value in capitalism, is to bind the underclasses to unfair economic dynamics through the state’s authority.
One famous example of such a case was Petterson v. Pattberg (1928) in New York. Essentially this trial dealt with three people: the decease John Petterson, the executrix of his will (simply referred to as Petterson), and a man who held a bond secured by a third mortgage on the house. Pattberg’s bond on John Petterson’s property was, at the time of the execution of the will, unpaid upon the principal the sum of $5450, payable in installments of $250 in 21 days and then subsequently every three months thereafter. Pattberg wrote the plaintiff with an offer to accept cash for the mortgage reduced by $780 if the mortgage was paid on or before May 31, 1924 and the April 25th payment was given on time.” Petterson paid the April 25th payment on time. On a day in May, Petterson went to Pattberg’s home with the money for the remainder of the mortgage. Pattberg informed plaintiff that he had sold the mortgage. Petterson showed that he had the full sum, in cash, but Pattberg refused the money. And the court ruled that without Pattberg accepting the money, there was no legal reason why Pattberg could not rescind his original offer to reduce the payment by $780: it was not a full performance. This case was very controversial, and not just because the dissenting judge insinuated the Chief Justice was hypocritical. One of the most interesting statements comes from a law review commentator named Samuel Blinkoff. Blinkoff said that the “court gives the strict orthodox answer [but] it seems that the demands of good faith in business dealings would require a more liberal decision in cases of this kind” (Note, 14 Cornell L.Q. 1928). The question here is: what are the “demands of good faith in business dealings”?
In a far more recent case, Cook v. Coldwell Banker/Frank Laiben Realty Co. (1998) in Missouri, the issue of “fairness” gets revisited by the court with what appears to be a different philosophical approach. Cook was a licensed real estate agent, and Frank Laiben promised bonuses for any of their contracted agents who made a certain amount in commissions. This bonus would be paid at the end of the year. Cook quickly surpassed the “first tier” of bonuses, and by September she was in the highest tier with a thirty percent bonus. On this month, Frank Laiben informed the agents that bonuses would actually be given on March of the next year, and that agents who were not still with them at that time would not receive their bonuses. Cook stayed through the end of the year, and then started working for another company at the beginning of the next year. She sued to get her bonus and won. The court reasoned that Cook had made a “substantial” enough performance by September that Frank Laiben could not have made a new offer (to collect bonuses on March of the next year) without fulfilling his promise for the first offer (to collect bonuses at the end of the year).
Here’s the issue: why was Cook’s performance considered substantial but not the performance of Petterson or the Hurricane Katrina survivors? The answer has to do with the reproduction of surplus value in a capitalist economy, not with some fairly arbitrary doctrine of “fairness.” Rosa Luxemburg in The Accumulation of Capital expanded on Marx’s own assertion that “money in itself is not an element of actual reproduction”: Luxemburg writes “we must assume that capitalist society must always dispose of money, or a substitute, in just that quantity that is needed for its process of circulation… the capitalist class, that is to say, use the whole of their surplus value for personal consumption. Since the capitalists are the consumers of surplus value, it is not so much a paradox as a truism that they must, in the nature of thing possess the money for appropriating the objects of consumption, the natural form of this surplus value. The circulatory transaction of exchange is the necessary consequence of the fact that the individual capitalist cannot immediately consume his individual surplus value, and accordingly the individual surplus product.”
Unilateral contracts, and perhaps more importantly state enforcement of unilateral contracts or the lack thereof, are an exchange as much as any other. So it is not quite surprising then that the corporations and state have a vested in interest in ensuring that the governance of unilateral contracts creates surplus value for their consumption. Therein lies the difference between Cook and all these other cases: Cook was a member of the bourgeoisie, engaging in the standard capitalist accumulation in her labor and incentivized by the unilateral contract from Frank Laiben. Actually, it is more than standard: real estate is one of the increasingly effective and pervasive ways of accumulating whatever wages are retained by the workers. It is the surplus value extracted on top of the exploitation by their employer. It is no surprise then that the agents of capitalism do not want to disrupt a “substantial performance” by one of their agents generating value for their class.
“Fairness” can only be attributed to contracts when they are atomized, observed individually and in relative isolation. This is why, even when used to speak out against the unfairness of contracts, I want to propose that we cease using the word completely. We must stop looking at contracts, or even class action lawsuits about thousands of contracts, as isolated to the actions of one insurance company or one credit card company or one employer. Fundamentally, contracts are like any other instrument of capitalism: they are part of a massive function, programmed to extract wealth from the working class into the hands of the bourgeoisie.