Deregulating Contracts

Alan Schwartz* & Simone M. Sepe**

A contract’s substantive terms specify what the parties will trade; a contract’s procedural terms regulate the parties’ bargain. Quantity and quality terms are substantive; damage, interpretive, and modification terms are procedural. Parties are free, under contract law, to specify substantive terms, but they are not free to specify procedural terms. Rather, courts regulate damages from breach, how courts interpret agreements, when parties can modify their agreements, and so forth.

This Article argues that parties should be as free to specify procedure as substance, for three reasons: (i) Corporations largely escape procedural regulation by substituting equivalent substantive terms, which are free, for regulated procedural terms, which are restricted. Economically weak and occasional contractors lack the means and knowledge to pursue this costly contracting strategy. Thus, procedural regulation functions ineffectively and unfairly. (ii) Procedural regulation, to the extent it binds, is inefficient, with the inefficiency costs falling especially on the weak. (iii) Moral theories of contract, such as those explaining how contract law can and should protect persons’ autonomy in the commercial sphere, do not support, indeed they sometimes oppose, procedural regulation.

Contract law is a residual legal category that affects business transactions generally. For example, damages for breach of a lending agreement or a long-term contract for raw materials cannot exceed the promisee’s expectation interest nor can the parties to such contracts control how those contracts should be modified. Increasing party freedom over the procedural terms would therefore increase the fairness, efficiency, and morality of business contracts generally.

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© 2026 Alan Schwartz and Simone M. Sepe. Individuals and nonprofit institutions may reproduce and distribute copies of this Article in any format at or below cost, for educational purposes, so long as each copy identifies the author, provides a citation to the Notre Dame Law Review, and includes this provision in the copyright notice.

*Sterling Professor Emeritus of Law and Professor of Management, Yale University.

**Professor of Law and Finance and Honorable Frank Iacobucci Chair in Capital Markets Regulation, Jackman Faculty of Law and Rotman School of Management, University of Toronto; Center for the Philosophy of Freedom, University of Arizona; Center for Private Law, Yale Law School; European Corporate Governance Institute; American College of Governance Counsel. This paper benefitted from comments at a Chicago Law School Contracts Workshop, the University of Southern California Law School Law & Philosophy Series, a Hebrew University Contracts Symposium, a Yale Law School Faculty Workshop, a University of Arizona Law School Brown Bag Lunch, a University of San Diego Workshop, the European Law and Economics Association Meeting (2023), a Columbia Law School Faculty Workshop, and the Society of Industrial and Organizational Economics (2024). Nicolas Aldana, Andrea Attar, Ian Ayres, Henry Bauer, Allen Buchanan, Tom Christiano, William Comb, Hanoch Dagan, Guido Ferrarini, Daniel Hemel, Benjamin Johnson, Daniel Markovits, Shalev Roisman, Robert Scott, Kristin Sharman, Rebecca Stone, Peter Vanderschraaf, and Andrew Woods also made helpful comments. Special thanks to Saura Masconale for her valuable feedback during this project.