Friday, December 19, 2008
The forthcoming December 2008 issue of the New York University Law Review features not one, but two scintillating-looking articles of interest to contracts scholars and teachers.
In Efficient Breach Theory Through the Looking Glass, 83 NYU L. Rev. 1679 (2008), NYU's Barry Adler (left) offers his insights into a frequent topic of discussion at September's Fault in Contract Law symposium at the University of Chicago (the papers for which the Michigan Law Review will publish early next year). Here's Adler's abstract:
A party in breach of contract cannot sue the victim of breach to recover what would have been the victim’s loss on the contract. The doctrinal rationale is simple: A violator should not benefit from his violation. This rationale does not, however, provide an economic justification for the rule. Indeed, efficient breach theory is founded on the proposition that a breach of contract need not be met with reproach. Yet the prospect of recovery by the party in breach—that is, the prospect of negative damages—has received scant attention in the contracts literature. Close analysis reveals potential costs to disallowance of negative damages, particularly where a party with private information about the benefits of termination also has an incentive to continue under the contract. These costs can arise both ex post, at the time of a performance-or-termination decision, and ex ante, in anticipation of that decision. Nevertheless, allowance of negative damages could impose its own costs, where background information would create an incentive to repudiate a contract before either party could gather more information, for example. Ex ante contractual provisions, such as liquidated-damages or specific-performance clauses, permit parties some latitude to balance the costs of disallowance and allowance of negative damages, albeit imperfectly. Common law limitations on the mitigation duty may be seen as a mechanism to approach this balance in the absence of an explicit contractual solution.
In Three Pictures of Contract: Duty, Power, and Compound Rule, 83 NYU L. Rev. 1726 (2008), Georgetown's Gregory Klass (right) tackles "a fundamental divide among theories of contract law between those that picture contract as a power and those that picture it as a duty." Klass's abstract continues:
On the power conferring picture, contracting is a sort of legislative act in which persons determine what law will apply to their transaction. On the duty-imposing picture, contract law places duties on persons entering into agreements for consideration, whether they want them or not. Until now, very little attention has been paid to the problem of how to tell whether a given rule is power conferring or duty imposing—a question that should lie at the center of contract theory.
This Article argues that legal powers have two characteristic features. First, there is an expectation that actors will satisfy the rules with the purpose of achieving the associated legal consequences. Second, the legal rules are designed to facilitate such uses. A law might exhibit these features in either of two ways, which define two types of legal powers. Many laws that create legal powers employ conditions of legal validity, such as legal formalities, designed to guarantee the actor’s legal purpose. The presence of such validity conditions is strong evidence that the law’s sole function is to create a legal power, and I suggest reserving the term “power conferring” for such laws. Other laws anticipate and enable their purposive use without conditioning an act’s legal consequences on the actor’s legal purpose. The structure of such laws suggests that they function both to create powers and to impose duties. I coin the term “compound rule” for laws that satisfy this description and argue that the contract law we have is a compound rule. The dual function of compound rules provides empirical support for pluralist justifications of contract law. An example of such a theory can be found in Joseph Raz’s comments on the relationship between contract law and voluntary obligations.
Having found the articles on-line, I look forward to reading them over the semester break and not having to wait for the print copy of the NYU Law Review to make its way to my campus mailbox.
[Keith A. Rowley]