AMERICAN CONTRACT THEORY “THE GOOD, THE BAD & THE UGLY” Prof. Dr. Larry A. DiMatteo Huber Hurst Professor of Contract Law University of Florida Teacher-Scholar of Year Shanghai University of Finance and Economics May 2013

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

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)

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

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

LEGAL REALISM (1930s)  Law is Indeterminate Judge’s Breakfast (Jerome Frank) For Every Principle a Counter-principle (Llewellyn) Polices & Equities  Words are Indeterminate Contextualism

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)

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

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)

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

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)

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)

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

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)

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)

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

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

CRITICAL RACE THEORY  Ian Ayres Experiment: ‘Shopping for a New Car’  Blake Morant: Expanded Contextualism  The ‘Burrito Case’

IS A BURRITO A SANDWICH?

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)

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”

SIR HENRY SUMNER MAINE ( ) NATHAN ISAACS( ) Philosopher of Law Forgotten Legal Realist

FALSE DICHOTOMIES  Formalism-Realism  Textualism-Contextualism  Facilitation-Regulation  Rules-Standards Debate

 Dr. Larry A. DiMatteo THANK YOU