A M E R I C A N C O N TR A C T TH E O RY
“ T H E G O O D, T H E B A D & T H E U G LY ”
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
SCHOOLS OF THOUGHT
Early 19th Century: REIGN OF EQUITY
Late-19th: LAISSEZ FAIRE
Early 20th Century: LEGAL FORMALISM
1930s: LEGAL REALISM
AMERICAN LEGAL REALISM
CRITICAL LEGAL STUDIES
LAE
EMPIRICAL LEGAL STUDIES
NEO-FORMALISM
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 (1930 s)
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)
ENF ORCEABIL ITY 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 OREGON LAW REVIEW 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
C O N T R A C T L AW
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”
S I R H E N RY S U M N E R M A I N E ( 1 8 2 2 - 1 8 8 8 )
NATHAN ISAACS(1886 -1941)
Philosopher of Law
Forgotten Legal Realist
FALSE DICHOTOMIES
 Formalism-Realism
Textualism-Contextualism
Facilitation-Regulation
Rules-Standards Debate
THANK YOU
 Dr. Larry A. DiMatteo