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AMERICAN CONTRACT THEORY “THE GOOD, THE BAD & THE UGLY” Prof. Dr. Larry A. DiMatteo Huber Hurst Professor of Contract Law 2011-2012 University of Florida Teacher-Scholar of Year Shanghai University of Finance and Economics May 2013
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SCHOOLS OF THOUGHT Early 19 th Century: R EIGN OF E QUITY Late-19 th : L AISSEZ F AIRE Early 20 th Century: L EGAL F ORMALISM 1930s: L EGAL R EALISM A MERICAN L EGAL R EALISM C RITICAL L EGAL S TUDIES LAE E MPIRICAL L EGAL S TUDIES N EO -F ORMALISM
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CLASSICAL LEGAL THOUGHT Christopher C. Langdell (1870): Case Method Law as Science Few Basic Principles Law is Determent, Objective & Impartial Single Correct Answer (Legal Formalism I) Plain Meaning Literalism (Formalism II)
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ATTACK BY PROTO-REALISTS Holmes, Path of the Law (1897) Hohfeld, Fundamental Legal Conceptions (1913) Hale, Coercion (1923) Pound, Mechanical Jurisprudence Isaacs, Standardization of Contracts
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A MERICAN L EGAL R EALISM : B ASIC T ENETS Radical & Moderate Forms Legal Indeterminacy Rule Skepticism Rules do not Decide Cases ‘Later’ Llewellyn: Rules can be made to work Law as a Social Science
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LEGAL REALISM (1930s) Law is Indeterminate Judge’s Breakfast (Jerome Frank) For Every Principle a Counter-principle (Llewellyn) Polices & Equities Words are Indeterminate Contextualism
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L LEWELLYN : ‘I S ’ & ‘O UGHT ’ Practice is relevant to decision, it is a separate question whether the usual result is the normatively correct result. Llewellyn did not attempt to deduce ought from is, but rather sought to learn from “is.” The Normative: “Marking off the Impermissible”(Good Faith; Unconscionability)
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UCC—INNOVATIONS Open-textured Rules Commercial Practice as Touchstone Marking off the Permissible Good Faith & Fair Dealing Doctrine of Unconscionability Impracticability Merchant Rules Rules of Interpretation (contextualism) UCC & Common Law of Contracts
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C RITICAL L EGAL S TUDIES (CRITS) 1970s: Duncan Kennedy, Morton Horwitz Law is Radically Indeterminate Rules are a Façade for Objectivity Contradictions Law Supports Status Quo Power Structures No Positive Theory of Law (nihilism)
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L AW & E CONOMICS (LAE): B ASIC T ENETS Deferring to Individual Autonomy Strict Enforcement of Party Agreement Efficient Breach Freedom to Contract (no required terms) Freedom from Contract (no prohibited terms) Reducing Transaction Costs Default Rules Legal Predictability Formalistic Interpretation
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LAE & C ONTRACTS Eric Posner: Failure of LAE to Explain Contract Law (112Yale LJ 829, 2003) Other Values? Fairness Distributive Justice ‘Contract as Promise’ (vs. Efficient Breach Theory)
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ENFORCEABILITY OF PENALTIES ‘Common law abhors penalty & forfeiture’ Classical Contract Theory (enforce) Compensatory Damages are Efficient (don’t enforce) DiMatteo Study: ‘Penalties as Rational Response to Bargaining Irrationality’ (2006 Michigan St. L. Rev. 883)
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B EHAVIOR D ECISION T HEORY A/K/A Behavioral Law & Economics Coase Theorem: Zero Transaction Costs/Full Info Bounded Rationality Heuristics & Biases Optimism Bias, Status Quo Bias, Availability Bias, Endowment Effect Opting in vs. Opting out
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NEO-FORMALISM Schwartz Scott Thesis: Formalism for Business to Business Transactions Business prefer Certainty & Predictability Plain Meaning Interpretation Hard Parol Evidence Rule Formal Application of Rules (avoid standards) Fosters Better Contracts (but, transaction costs & default rules)
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E MPIRICAL L EGAL S TUDIES DiMatteo & Rich, An Empirical Analysis of Law in Action ( 33 Florida St. Law Review 1067, 2006) Substantive Fairness Doctrine Procedural + Substantive Unconscionability Employment Discharge Psychological Contract Theory (HRM) Fairness & Education 90 Oregon Law Review 449 (2011)
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JUSTICE, EMPLOYMENT & PSYCHOLOGICAL CONTRACT DiMatteo, Bird & Colquitt, Justice, Employment & the Psychological Contract, 90 O REGON L AW R EVIEW 449 (2011) Premise: Workers Believe Legally Protected & Fell Violated when Terminated Survey of 763 persons; 12 Scenarios All 3 Parameters Reduced Rates of Litigation & Retaliation Law & Society Perspective
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F EMINIST J URISPRUDENCE Arthur Murray Dance Cases Threedy, ‘Dancing around Gender (45 Wake Fort Law Review 749 (2010) Legal Archeology Doctrine of Undue Influence Gender Stereotypes Vulnerable, old women Spry, energetic old men
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CRITICAL RACE THEORY Ian Ayres Experiment: ‘Shopping for a New Car’ Blake Morant: Expanded Contextualism The ‘Burrito Case’
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IS A BURRITO A SANDWICH?
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ENGLISH VS. AMERICAN CONTRACT LAW Codification English Sale of Goods Act American Uniform Commercial Code Duty of Good Faith & Fair Dealing Unconscionability Formalism vs. Contextualism Exclusionary Rule (parol evidence rule)
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THEORIES OF LEGAL DEVELOPMENT Henry Sumner Maine’s Progression Thesis “From status to contract" Ancient Law (1861) Nathan Isaacs’ Cycle Theory freedom to regulation to freedom Gradualism and “Jumps”
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SIR HENRY SUMNER MAINE (1822-1888) NATHAN ISAACS(1886-1941) Philosopher of Law Forgotten Legal Realist
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FALSE DICHOTOMIES Formalism-Realism Textualism-Contextualism Facilitation-Regulation Rules-Standards Debate
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Dr. Larry A. DiMatteo THANK YOU
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