American Contract Theory “The Good, The Bad & the Ugly”

1. 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

2. Schools of Thought Early 19th Century: Reign of Equity Late-19th: Laissez Faire Early 20th Century: Legal Formalism1930s: Legal Realism American Legal Realism Critical Legal Studies LAE Empirical Legal Studies Neo-Formalism

3. 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)

4. 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

5. American Legal Realism: Basic Tenets • 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

6. Legal Realism (1930s) • Law is Indeterminate • Judge’s Breakfast (Jerome Frank) • For Every Principle a Counter-principle (Llewellyn) • Polices & Equities • Words are Indeterminate • Contextualism

7. Llewellyn: ‘Is’ & ‘Ought’ • 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)

8. 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

9. Critical Legal Studies (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)

10. Law & Economics (LAE): Basic Tenets • 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

11. LAE & Contracts • 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)

12. 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)

13. Behavior Decision Theory • 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

14. 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)

15. Empirical Legal Studies • 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)

16. 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

17. Feminist Jurisprudence • 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

18. Critical Race Theory • Ian Ayres Experiment: ‘Shopping for a New Car’ • Blake Morant: Expanded Contextualism • The ‘Burrito Case’

19. Is a Burrito a Sandwich?

20. 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)

21. 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”

22. Sir Henry Sumner Maine (1822-1888)Nathan Isaacs(1886-1941) Forgotten Legal Realist Philosopher of Law

23. False dichotomies • Formalism-Realism • Textualism-Contextualism • Facilitation-Regulation • Rules-Standards Debate

24. Thank YOU • Dr. Larry A. DiMatteo