Is It Time for a Constitutional Crisis, (or Why the UCC’s Codification of Expectation Damages Infringes on Natural Liberty).
January 22, 2026
BY JAMES MULCAHY
The American legal tradition is theoretically anchored in the protection of negative liberty - the right of the individual to act without interference from the state. Under this classical liberal framework, the role of the government is that of a night-watchman, protecting existing property from theft and ensuring that voluntary agreements are not coerced. However, the Uniform Commercial Code (UCC) represents a radical departure from this role, moving the state from a protector of boundaries to a guarantor of results. By analyzing the Code through the lens of Isaiah Berlin’s theory of negative liberty, it becomes clear that certain provisions of the UCC are not merely regulatory but are inherently unconstitutional infringements on the natural right to property and the freedom of contract.
I. The Entitlement of the Expected State (UCC Section 1-305)
The most egregious constitutional overreach is found in UCC Section 1-305(a), which mandates that remedies must be liberally administered to the end that the aggrieved party may be put in as good a position as if the other party had fully performed.
This is the codification of the expectation interest, and it represents a transition from protecting property to granting an entitlement. In a system of negative liberty, the state has no authority to bridge the gap between a hope and a reality. When a court forces a breaching party to pay for the benefit of the bargain - profits that were never earned and property that never changed hands - it is essentially performing a non-consensual transfer of wealth. By granting a statutory right to a future state of being, the government creates a positive law mandate that exceeds the limits of the Commerce Clause and violates the Due Process requirements of the Fifth and Fourteenth Amendments. The state is not preventing a harm; it is manufacturing a gain for one party at the expense of another's existing assets.
II. The Redefinition of Remedy (UCC Section 1-201)
The philosophical shift is further evidenced in the Code's own definitions. UCC Section 1-201(b)(32) defines a remedy as any remedial right to which an aggrieved party is entitled. This choice of language is a formal admission that the UCC does not view legal recourse as a shield against injury, but as a state-granted benefit.
If a remedy is an entitlement, it is a creature of the state, not a natural response to a wrong. This framework effectively socializes the risks of private commerce. When the law guarantees a specific economic outcome regardless of the actual physical damages or restitutionary needs of the parties, it strips the individual of their negative liberty to engage in high-risk, high-reward behavior. The state has paternalistically decided that the market must be predictable, and in doing so, it has sacrificed the individual's right to manage their own contractual destiny.
III. The Abeyance Problem and the Seizure of Agency (UCC Section 2-718)
Perhaps the most practical illustration of this constitutional violation appears in the treatment of funds held in abeyance. Under UCC Section 2-718(3)(b), the law allows for offsets against a refund based on the amount or value of any benefits received by the party.
Consider the scenario where a seller holds a buyer's deposit during a dispute. If that seller, through their own investment expertise and market access, generates a profit on those funds before a refund is issued, the UCC treats that profit as a benefit received by reason of the contract. This allows the state to redistribute those earnings to the buyer to make them whole.
From a natural rights perspective, this is a clear taking. The profit generated was the product of the seller's labor and intelligence - their agency. The buyer provided the capital, but they did not provide the investment act. By allowing the state to seize the fruits of the seller’s independent effort and reallocate them to fulfill the buyer’s statutory position, the UCC violates the principle that a person owns the products of their own labor. It is the ultimate expression of positive law overreaching into the realm of individual production.
IV. Mandatory Standards as Paternalistic Constraints
Finally, the mandatory inclusion of good faith (Section 1-304) and the doctrine of unconscionability (Section 2-302) act as invisible chains on the freedom of contract. Negative liberty demands that two consenting adults be allowed to enter into a deal that is objectively foolish or unfairly weighted, provided there is no fraud or force.
The UCC, however, grants the judiciary the power to rewrite or strike down agreements that do not meet the state's vision of fair dealing. This is an unconstitutional delegation of legislative and social power to the courts. When the state overrides a voluntary agreement because it lacks good faith, it is interfering with the negative liberty of the parties to define their own ethics and risk tolerances.
Conclusion
The Uniform Commercial Code is a masterpiece of legal realism, but it is a failure of constitutional philosophy. It views the market as a government-managed utility rather than a collection of free individuals. By transforming the expectation of profit into a legal entitlement and allowing for the redistribution of wealth generated through private agency, the UCC undermines the very foundations of liberty it claims to support. To truly respect the Constitution, we must return to a remedial system that protects what a person has, rather than guaranteeing what they merely hoped to get.