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Thursday, December 26, 2013

Recent Scholarship: Steven Feldman on Brooks & Stremitzer

FeldmanFriend of the blog, Steven Feldman (pictured), has recently published his critique of Richard R.W. Brooks and Alexander Stremitzer's Remedies on and off Contract, which appeared in the Yale Law Journal in 2011.  Feldman's piece, Rescission, Restitution, and the Principle of Fair Redress: A Response to Professors Brooks and Stremitzer, appeared in the Valparaiso Law Review earlier this year.  Feldman characterizes Brooks and Stremitzer as arguing that current legal doctrine does not allow for rescission often enough and is too liberal in granting restitution.  They believe that these approaches to damages are based on an exaggerated estimate of the threat to contract stabilitiy posed by rescission.  They contend that parties would often bargain for broad rescission rights even if damages for breach were fully enforceable and costless to enforce.  Greater rights of rescission, they contend, would result in more efficient outcomes because rational parties would negotiate price to avoid breach.  

According to Feldman, Brooks and Stremitzer's argument is not based on a comprehensive survey of case law and relevant statutes.  Rather, Feldman contends, "[t]heir legal analysis consists mainly of isolated references to the U.C.C.," the CISG the Restatement (Third) of Restitution and Unjust Enrichment and the Restatement (Second) of Contracts.  By contrast, Feldman surveys case law and finds that courts follow a principle of "fair redress" that permits equitable remedies rather than rigid formulas for calculating damages.  Moreover, Brooks and Stremitzer's economic model ignores situational and relational considerations that often influence buyers' decisions to seek rescission or to breach.

Feldman's article sets out to show that existing precedent supports a status quo that adequately protects both buyers and sellers.  Based on his review of the case law and statutory authority, Feldman argues:

  • Courts are far more liberal in granting rescission than Brooks and Stremitzer suggest;
  • case law interpreting UCC Sections 2-601 and 2-608 is "decidedly "pro-buyer, allowing buyers to reject goods and to revoke acceptance, both of which are species of rescission that Brooks and Stremitzer overlook;
  • Brooks and Stremitzer ignore both federal statutes and regulations and state consumer protection laws that promote a broad right of consumer rescission;
  • the doctrine of material breach has always been a porous barrier against buyer's rescission rights;
  • merchants often allow customers to rescind in order to maintain good customer relations;
  • courts often allow buyers to rescind as an equitable remedy that accords with the principle of fair redress;
  • while Brooks and Stremitzer contend that allowing buyers to recover in restitution overcompensates them, the election of remedies doctrine generally prevents duplicate recovery for the promisee;
  • allowing both rescission and damages do not create a windfall but simply make the injured party whole; and
  • allowing redress in excess of the contract price in cases such as Boomer v. Muir, 24 P.2d 570 (Cal. Dst. Ct. App. 1933), has a sound legal, normative and economic basis.

In the concluding sections of the article, Feldman contends that Brooks and Stremitzer's approach neglects what Feldman terms "the moral imperative " that would permit recovery in excess of losses on the contract in order to protect the innocent victims of legal wrongs.  He then proceeds to attack their rational choice model by reminding readers of numerous criticisms of rational choice theory, especially of those sounding in relational contracts theory.

Feldman has undertaken a fundamental and multi-pronged critique of a very prominent article on contracts remedies that ought to be be considered by any scholar interested in Brooks and Stremitzer's model.

[JT]

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