This paper explores the following question: if, as John Rawls famously suggests, justice is the first virtue of social institutions, how are we to understand the institution of contract law? On the one hand, many writers take the view that the rules of contracts are merely a tool for bringing about distributive justice; on the other hand, some libertarian writers contend that the rules of contract leave no space for any idea of distributive justice. In this paper, I propose an alternative account. I situate contract law in terms of what John Rawls calls “the social division of responsibility”: society as a whole has to provide individuals with an adequate share of opportunities and resources that they need in order to set and pursue their own conception of the good. Once individuals have those fair shares, citizens have to take responsibility for how their own lives go. An important way that people may pursue their plans is by entering into arrangements with others. This requires a system of contract rules. I argue that justice requires that we understand contract rules in terms of the idea of fair terms of interaction – that is, terms that would be accepted by reasonable persons moved by a desire for a social world in which they, as free and equal, can cooperate with others on terms they accept. The underlying idea is that of reciprocity, that is, the idea that individuals should not set the terms of their interactions with others unilaterally. Those fair terms of interaction are reasonable terms. Thus, in this paper, I claim that contractual interactions should be approached from the perspective of the reasonable person. My aim is to explain the formation of a contract, the legal response to a breach, and other issues that come up with contractual interactions from that perspective.
