Contracts as Bilateral Commitments: A New Perspective on Contract Modification

Contracts have traditionally been regarded as means of individual commitment. This article offers a broader vision, viewing contracts as potential means of bilateral commitment as well. Drawing on a burgeoning literature in economics, this article explains that commitment to stick with an original contract, even if both parties later want to modify that contract, may improve contractors' welfare. It provides examples from contracts cases of situations in which such bilateral commitment may be beneficial, and it suggests ways in which contract law might better facilitate such commitment. The primary suggestion for facilitating bilateral commitment is that parties—at least sophisticated ones—be permitted to enter into nonmodifiable contracts, which they cannot do under existing law. Permitting parties to write nonmodifiable contracts would enhance contractors' welfare in the settings examined in this article and would not interfere with other normative goals of contract law.