ContractsProf Blog

More International Contracts Law Scholarship

Florida Coastal School of Law's Charles Martin (pictured) recently published The Electronic Contracts Convention, the CISG, and New Sources of E-Commerce Law  in 16 Tulane Journal of International and Comparative Law 1 (Fall 2007).  Here's the abstract: 

Although no non-European Union convention focusing on international electronic commercial contracts is currently in effect, such contracts are growing in number and importance and do not exist in a legal vacuum. The Convention on Contracts for the International Sale of Goods (CISG) has been interpreted by its Advisory Council to apply to such electronic contracts. International law, based on general principles of good faith and equity and on customary international law, is an existing and future source of international commercial electronic contract law. Customary international electronic commerce law is derived from the general practices of businesses contracting through electronic communications that are accepted as law, and from international treaties and model laws, and their interpretations, which have been accepted as authoritative descriptions of such practices. The United States will decide whether or not and how to ratify the Convention on the Use of Electronic Communications in International Contracts (CUECIC) that was proposed by it to the United Nations Commission on International Trade Law (UNCITRAL) and was drafted and approved by UNCITRAL. CUECIC advances further than existing law the legitimacy and functionality of international electronic commercial contracts. U.S. ratification decision makers should recognize this advancement, reinforce the freedom of contract norms promoted by CUECIC, and preserve the legitimacy of customary international law as a supplement to the limited contract formation rules of CUECIC.

[Jeremy Telman]

The Army Lawyer: Special Contracts Issue

The Army Lawyer's January 2008 issue is a special issue devoted to "Contracts and Fiscal Law Developments of 2007 -- The Year in Review.  As the Table of Contents indicates, much of the issue is taken up with developments in contracts law.

[Jeremy Telman]

Peter Alces in University of Illinois Law Review

Peter Alces (pictured) of the William and May School of Law has just published Unintelligent Design in Contract, in the University of Illinois Law Review.  Here is the abstract:

Scholars have expended considerable energy in the effort to “discover” a normative theory of Contract. This Article surveys that effort and concludes that something fundamental about Contract has been missed and has frustrated the search from the outset. Succinctly, Contract doctrine resists the neat formulation theory requires.
    Theorists’ perspectives on Contract may be generalized as attempts to impute either deontology or consequentialism to the Contract law. Focusing largely on deontological constructions of Contract, this Article demonstrates the inconsistencies among the extant heuristics—promise, reliance, and transfer—and more importantly, the failure of any of those constructions to provide a coherent explanation of Contract doctrine. This failure reveals a more fundamental failure of Contract theory generally: Because doctrine is a matter of historical accident rather than “divine” inspiration, efforts to explain doctrine as an outgrowth of some coherent and fundamental purpose are necessarily unavailing, and ultimately obfuscatory.
    Contract defies reduction into certain normative terms because Contract doctrine is an amalgam of normative inclinations. Neither pure deontology nor pure consequentialism is the source of all Contract; both rather serve as poles at the ends of a Contract continuum. This Article concludes that the search for the grail—the theory of Contract—heretofore has been misdirected. Our effort to understand Contract in normative terms should begin anew, from the premises offered here.

Heady stuff.

[Jeremy Telman]

New Contracts Scholarship

Jody Kraus's: From Langdell to Law and Economics: Two Conceptions of Stare Decisis in Contract Law and Theory, has just come out in the Virginia Law Review.  Here's the abstract:

In his classic monograph, The Death of Contract, Grant Gilmore argued that Christopher Columbus Langdell, Oliver Wendell Holmes, and Samuel Williston trumped up the legal credentials for their classical bargain theory of contract law. Gilmore’s analysis has been subjected to extensive criticism, but its specific, sustained, and fundamental charge that the bargain theory was based on a fraudulent misrepresentation of precedential authority has never been questioned. In this Essay, I argue that Gilmore’s case against the classical theorists rests on the suppressed premise that the precedential authority of cases resides in the express judicial reasoning used to decide them. In contrast, I argue that the classical theorists implicitly presuppose that the precedential authority of cases consists in the best theory that explains their outcomes, even if that theory is inconsistent with the case’s express judicial reasoning. The classical view of precedential authority completely defuses Gilmore’s charge of fraud. In Gilmore’s view, merely demonstrating the inconsistency between the proposition for which the classical theorists cited a case and the express reasoning in that case suffices as proof of misrepresentation. But in the classical theorists’ view, the express reasoning in a case is simply a theory of its precedential authority, which, like any theory, can be wrong. Thus, the classical theorists simply reject Gilmore’s claim that a case cannot properly be cited for a proposition inconsistent with its express reasoning. The real dispute, then, between Gilmore and the classical theorists is over the nature of precedential authority and not the content of contract law.
 
Having reframed the classic death-of-contract debate, I then trace these competing conceptions of precedential authority through the major schools of contemporary contract theory. I argue that a contract theory’s embrace of one view instead of the other can be explained by the relative priority it accords to each of the two components in a conception of adjudicative legitimacy. A conception of adjudicative legitimacy consists in a theory of what it means for a decision to be based on law and a theory of what is required for law to be justified. I explain why theories according priority to the former tend to subscribe to the precedents-as-outcomes view, while theories according priority to the latter tend to favor the express reasoning view. The Essay concludes by arguing that the economic analysis of contract law subscribes to the precedents-as-outcomes view and therefore is the contemporary jurisprudential successor to the late 19th century classical theorists.

Happy reading!

[Jeremy Telman]

The CISG: The Rodney Dangerfield of Treaties

In their new case comment, All Quiet on the CISG Front: Guiliani v. Invar Manufacturing, the Battle of the Forms, and the Elusive Concept of Terminus Fixus, James M. Klotz, Peter Mazzacano and friend of the Blog, Antonin I. Pribetic argue that the CISG gets no respect, no respect at all.  Not even in Canada!  Here's the abstract from SSRN:

Since Canada adopted the U.N. Convention on the International Sale of Goods (the "CISG") in 1992, international sales practitioners have been patiently waiting for a corpus of Canadian case law to develop. The slow pace of development of case law has been due, in large part, to the failure of litigants and judges to recognize that the CISG is the applicable law in numerous international contract disputes involving the sale of goods. The latest example, the recently reported case of Guiliani v. Invar Manufacturing is a further manifestation of this failure. Not only is this case the latest disappointment in Canadian CISG jurisprudence, the case also begs additional questions: When is contract formation complete? At what point does the "battle of the forms" end, and contract consummation begin? Finally, is there a specific point at which the contract is formed, or is the idea of terminus fixus in contracts an elusive goal? This Case Comment considers these questions within the broader context of the failure in Canadian jurisprudence to give the CISG its day in court.

HT: Antonin Pribetic!

[Jeremy Telman]

No Punitive Damages in Genentech Case

Last week, the California Supreme Court upheld a $300 million verdict on a breach of contract claim against the biotechnology company Genentech (HQ pictured) but struck the $200 million award of punitive damages, according to the San Francisco Chronicle.  The dispute relates to the discovery of a process for producing insulin made in the 1970s by two scientists working at the City of Hope National Medical Center, a cancer research center, City of Hope contracted with Genentech to patent and market products derived from the process in return for a 2 percent royalty.  Genentech paid City of Hope more than $300 million in royalties relating to the product the two scientists had synthesized but did not pay royalties relating to other products that were created using the engineering process that the two scientists had created. 

The jury had awarded punitive damages based on a finding that Genentech had breached a fiducity duty to City of Hope.  The Supreme Court refused to permit plaintiffs to get around the limitation on contractual damages by characterizing a breach of contract claim as one alleging a fiduciary breach.  Summarizing the opinion, the Chronicle reports:

The court said a company that markets another firm's scientific discoveries in exchange for royalties has no special obligation to protect the other's interests, apart from its duty to adhere to the contract. Without any such obligation, the justices said, punitive damages cannot be awarded for a breach of contract.

And there was much rejoicing among the amici.

[Jeremy Telman]

Teaching Transactional Contracts Law

Our faculty, like the faculty at many law schools, is engrossed in the Carnegie report on legal education.  Meanwhile, the contracts law professors listserv is bubbling with interesting ideas about integrating practical drafting and transactional skills training into the first-year contracts curriculum.  The result is a doubled heightening of my awareness of my own inadequacies as a contracts professor.  Oh well.

As long as I'm wallowing . . . . I came across Eric Goldman's recent publication "Integrating Contract Drafting Skills and Doctrine."  It's short enough that even I can read it.  Here's the abstract:

This Essay is based on my remarks at the "Teaching Writing and Teaching Doctrine: A Symbiotic Relationship?" conference at Brooklyn Law School, February 2006. The Essay discusses the benefits and challenges of integrating the teaching of contract drafting skills and doctrine. The Essay then discusses some ways I have accomplished this integration.

[Jeremy Telman]

Contracts, Politics, and National Security

  On February 29th, the U.S. Air Force announced that it was awarding a $35-40 billion contract to build aerial refueling planes to a team formally led by Northrop Grumman.  I challenge anyone to click on the image at left and resist the temptation to stand up and shout U.S.A!!  U.S.A.!!  Aerial refueling is cool!!

Anyhow, the contract award to Northrop Grumman and its partner, the European Aeronautic Defense and Space Co. (EADS),was widely reported as a "stunning setback" for Boeing, since EADS is the parent corporation of Boeing's rival, Airbus.  What was the Air Force thinking?  This is about refueling, not about supplying pilots with beaujolais nouveau.  In any case, like an earlier proposal to place a Dubai-controlled company in charge of managing six U.S. port terminals, this government contract raises issues of patriotism, national security and economic outsourcing.

Today, the Associated Press reports that Boeing will file a challenge to the Air Force's decision with the Government Accountability Office.  According to the AP, pressure to review the decision is coming from politicians representing states that would have benefitted had the contract been awarded to Boeing. Meanwhile, Alabma Senator, Richard Shelby, defended the Air Force's decision.  Northrup Grumman reports that the contract will lead to the creation of 2000 new jobs in Mobile.

UPDATE: For those interested in learning more about the Government Accountability Office bid-protest mechanism, there is a new article out:  Robert S. Metzger & Daniel A. Lyons, A Critical Reassessment of the GAO Bid-Protest Mechanism, 2007 Wisc. L. Rev. 1225.

[Jeremy Telman]

Showdown in Minnesota

It's high noon in L’etoile du Nord, and the big guns are out and firing.  In its "Exchange" forum, the Minnesota Law Review is featuring lively contributions by NYU's Oren Bar-Gill (left) and the University of Chicago's Richard Epstein (below left). 

Bar-Gill's essay, The Behavioral Economics of Consumer Contracts, addresses the question of whether the fact that individuals make mistakes merits legal intervention.  In order to answer this question, Bar-Gill answers four sub-questions: (1) Do consumers suffer from systematic misperception of the costs and benefits associated with certain products?  (2) Do sophisticated sellers respond strategically to consumer misperception?  (3) Is consumer misperception and sellers' response thereto welfare-reducing? (4) Is legal intervention warranted and if so what type of legal internvetion is desirable?

In his response, The Neoclasical Economics of Consumer Contracts, Richard Epstein contends that "Bar-Gill overstates the level of consumer error by underestimating the corrective powers already at work."  Epstein further argues that both Bar-Gill and the behavioral economists on whom he relies "ignore more traditional explanations that better account for the apparently irrational behavior that they observe."  Finally, Epstein suggets that credit markets themelves, especially as aided by the introduction of new technologies such as the Internet, provide "the most powerful way to combat all sorts of consumer misperceptions."

[Jeremy Telman]

Legal Theory Blog Recommends . . .

For the first time since December 1, 2007, Lawrence Solum, the inspirator of the Legal Theory Blog, recommends a piece of contracts scholarship as his Download of the Week.  He recommends Curtis Bridgeman's Contracts as Plans.

Here is the abstract:

This paper offers an original theory of contract law that draws from recent work in the philosophy of action and legal theory. Human beings are essentially planning creatures. Making plans and following through with them is crucial to everyday practical reasoning both for individuals acting alone and individuals acting together. This somewhat intuitive point was not fully appreciated in the philosophy of action as recently as twenty years ago, when Michael Bratman began to point out the inadequacies of the then-dominant view of rationality. Recently, Scott Shapiro has been applying Bratman's insights on practical reasoning to debates in legal theory to great effect, developing what he calls the planning theory of law. According to the planning theory, laws are plans for citizens, developed and applied by legal institutions to solve coordination problems that result from individuals living together in otherwise unplanned communities.

In this paper, I propose a new theory of contract law informed by these insights. First I will survey the current leading theories of contract and explain why a new theory is needed. Then I will argue that viewing contracts as plans designed to solve a particular coordination problem better accounts for how we are able to make exchanges over time even in situations where the parties involved might otherwise not be able to trust one another. A planning theory of contract law takes the view that whatever ends a society might want to achieve, those ends are more likely to be achieved if the parties have the ability to create contracts, that is, to adopt legally obligatory plans to make exchanges. The theory does not seek to justify a particular body of contract law. Rather, as I will argue, it explains the fundamental doctrines of our current law better than do the presently available theories.

Once we view contracts as plans, it becomes clear that a better understanding of planning will give us a better understanding of contract law. It follows that advances in the philosophy of practical reasoning as it treats plans will give us insight into contract law. In the final part of the paper, I will show how these insights go beyond an accurate description of the established central doctrines of contract law and can lead to a better resolution of more controversial issues. For now I will be limited to offering a few indicative examples that offer suggestions for further study. At the very least, I hope to establish that contract scholars should pay attention to scholarship on practical reasoning just as they have long studied moral philosophy and economics.

[Jeremy Telman]

Why Is a Burrito Sandwich So Hard to Swallow?

As Professor Marjorie Florestal (University of the Pacific McGeorge School of Law) notes in the abstract to her new article, Is a Burrito a Sandwich? Exploring Race, Class and Culture in Contracts, a recent case involving the question of whether or not a burrito is a sandwich sparked a "firestorm of media attention."  She might have cited to this blog as evidence.  Some readers may be disappointed to learn that the article does not in fact answer the question in its title.  Well, one thing we know for sure, since it's not a goose, a duck or a turkey, a burrito must be a chicken.

In any case, for those hungry for Professor Florestal's insights on the case, here's the rest of the abstract:

A superior court in Worcester, Massachusetts, recently determined that a burrito is not a sandwich. Surprisingly, the decision sparked a firestorm of media attention. Worcester, Massachusetts, is hardly the pinnacle of the culinary arts - so why all the interest in the musings of one lone judge on the nature of burritos and sandwiches? Closer inspection revealed the allure of this otherwise peculiar case: Potentially thousands of dollars turned on the interpretation of a single word in a single clause of a commercial contract. Judge Locke based his decision on common sense and a single definition of sandwich - two thin pieces of bread, usually buttered, with a thin layer (as of meat, cheese, or savory mixture) spread between them. The only barrier to the burrito's entry into the sacred realm of sandwiches is an additional piece of bread? What about the one-slice, open-face sandwich? Or the club sandwich, typically served as a double-decker with three pieces of bread? What about wraps? The court's definition lacked subtlety, complexity or nuance; it was rigid, not allowing for the possibility of change and evolution. It was a decision couched in the primitive formalism Judge Cardozo derided nearly ninety years ago when he said [t]he law has outgrown its primitive stage of formalism when the precise word was a sovereign talisman, and every slip was fatal. It takes a border view today. Does it? Despite the title of this piece, my goal is not to determine with any legal, scientific or culinary specificity whether a burrito is a sandwich. Rather, I explore what lies beneath the primitive formalism or somewhat smug determination of the court that common sense answers the question for us. I suggest Judge Locke's gut-level understanding that burritos are not sandwiches actually masks an unconscious bias. I explore this bias by examining the impact of race, class and culture on contract principles and on the determination of this case.

[Jeremy Telman]

Regulating Service Contracts in the EC

The European Community has been working toward a system for encouraging and regulating an internal market in services.  How it's going about that task is the subject of Regulatory Strategies on Services Contracts in EC Law, a new paper by Hans-W. Micklitz (European University Institute) (left).  Here's the abstract:

The idea is to show how and by what means the European Community is attempting to realise its overall policy to establish and accomplish the Internal Market for services, and more particularly how this policy which is meant to open up markets affects the contractual relations between the supplier and the customer, whether the latter be a professional or a consumer. The European Community relies, as usual, on a piecemeal approach. Regulation of services is very much following different patterns in different areas of the economic sector. I have chosen a particularly European perspective, as the European Community has become by far the most important regulator. The paper is first and foremost meant to systemize the existing regulatory strategies applied in the field of services. As such, this paper is just a first step to provide the groundwork for ongoing research.

[Frank Snyder]

Weekly Top Ten

It's been a pretty good week for Christopher Peterson (Florida), who sees two of his recent papers land in the top three this week.  All in all, there are four new papers and six returnees.  Following are the top ten most-downloaded recent papers from the SSRN Journal of Contract and Commercial Law for the 60 days ending February 24, 2008.  (Last week's rank in parentheses.)

1 (-) Usury Law and the Christian Right: Faith Based Political Power and the Geography of the American Payday Loan Regulation, Christopher Lewis Peterson (Florida) & Steven M. Graves (Cal State Northridge).

2 (1) Choice of Law in the American Courts in 2007: Twenty-First Annual Survey, Symeon C. Symeonides (Willamette).

3 (3) Over-Indebtedness, Predatory Lending, and the International Political Economy of Residential Home Mortgage Securitization: Comparing the United States' Subprime Home Mortgage Lending Crisis to Home Finance in the United Kingdom, Germany, and Japan, Christopher Lewis Peterson (Florida).

4 (5) The Case for Banning Subprime Mortgages, Alan M. White (Valparaiso).

5 (6) Homeownership Risk Beyond a Subprime Crisis: The Role of Delinquency Management, Melissa B. Jacoby (North Carolina).

6 (-) Party Autonomy and Beyond: An International Perspective of Contractual Choice of Law, Mo Zhang (Temple).

7 (8) All But Accurate: A Critique of the American Bankers Association's Study on Credit Card Regulation, Adam Levitin (Georgetown).

8 (9) Arbitration's Summer Soldiers: An Empirical Study of Arbitration Clauses in Consumer and Nonconsumer Contracts, Theodore Eisenberg (Cornell), Geoffrey P. Miller (NYU) & Emily L. Sherwin (Cornell).

9 (-) Neither Saints Nor Devils: A Behavioral Analysis of Attorneys' Contingent Fees, Eyal Zamir (Hebrew U.-Law) & Ilana Ritov (Hebrew U.-Education).

10 (-) The Making of Transnational Contract Law, Gralf-Peter Calliess (Bremen).

[Frank Snyder]

Dispute Resolution and Strategic Sellers

Pre-dispute arbitration agreements carry with them the possibility that sellers who include such clauses in End User License Agreements may do so strategically -- that is, that they may use them to gain a systematic advantage over buyers.

Do sellers in general act strategically in incorporating pre-dispute arbitration?  That's the question that Florencia Marotta-Wurgler (NYU) (left) asks in a recent paper 'Unfair' Dispute Resolution Clauses: Much Ado About Nothing?, published as part of Omri Ben-Shahar's anthology Boilerplate: Foundations of Market Contracts (Cambridge 2007).  Here's the abstract:

Dispute resolution clauses are a common and potentially important component of many types of standard form contracts. I examine the use of dispute resolution clauses in 597 end-user license agreements (EULAs) of software packages sold online. I find that 75% of EULAs include choice of law clauses, 28% include forum selection clauses, 6% include arbitration clauses, and none include class action waivers. Sellers are equally likely to include dispute resolution clauses in the EULAs of consumer-oriented and business-oriented products. Despite the concerns of some legal academics, I do not find much evidence of "strategic" use of DRCs to advantage sellers over buyers. For example, sellers located in states with "seller-friendly" laws are no more likely to include choice of law or choice of forum clauses than sellers in states with stronger consumer protections; despite UCITA's flexible choice-of-law rules and otherwise seller-friendly provisions, sellers do not go out of their way to select UCITA; and, there is no evidence that fora selected are intentionally inconvenient to buyers. These results question certain proposals to regulate dispute resolution clauses in consumer form contracts on the basis of strategic behavior by sellers.

[Frank Snyder]

Evangelicals and Payday Loans

Traditional American usury law has always been heavily influenced by a Biblical tradition that has disfavored lending money at interest.  The prohibition of lending money at interest has been condemned at least since Plato, and was completely banned to Christians in the middle ages.  In 1311 the Council of Vienne pronounced it heresy even to argue in favor of allowing interest-bearing loans to businesses.

So it’s something of a puzzle as to why U.S. states with substantial Evangelical Christian populations -- places where conventional wisdom says that state policies are most likely to reflect Biblical values -- have some of the highest concentrations of payday lenders in the country.  But that’s the finding of Christopher L. Peterson (Florida) (left) and Steven M. Graves (Cal State Northridge), in a new paper, Usury Law and the Christian Right: Faith Based Political Power and the Geography of the American Payday Loan Regulation, which is forthcoming in the Catholic University Law Review.  Here’s the abstract:

The culture war has become a national moniker describing a variety of policy debates between social conservatives and secular liberal Americans. Hotly contested battle grounds in this metaphorical war have included abortion policy, affirmative action, the right to bear arms, and gay marriage. Frequently these debates have divided secular Americans from people of faith. This article explores this cultural divide in the context of consumer financial services. In the past fifteen to twenty years America has witnessed a stunning transformation in financial services offered to lower and lower-middle classes. A new breed of fringe creditors charging prices far in excess of the old mafia loan sharking syndicates have spread throughout much of the country. The archetype of fringe creditors commonly referred to as payday lenders, charges average simple nominal annual interest rates of around 450 percent. This Article presents empirical research based on the largest, most comprehensive database of payday loan locations yet created. Payday lender locations are compared to an index measuring the political power of conservative Christian Americans in all fifty states. We conclude that there is a strong correlation between the density of payday lending industry and the political power of conservative Christians, suggesting that conservative Christians have become a prime demographic target of payday lenders. These findings are further discussed in light of Biblical injunctions against usury.

[Frank Snyder]

Contracting in Wartime

At the Fourth International Conference on Contracts, Jennifer S. Martin (University of Pittsburgh) presented a very interesting paper, Contracting for Wartime Actors: The Limits of the Contract Paradigm. Here is the abstract from SSRN:

Much can be (and has been) said about the war in Iraq. This essay explores the role of contract in wartime and (particularly) reconstruction. First, it considers the use of government contracts to privatize numerous government functions during the reconstruction and conflict in Iraq. Second, it considers the private ordering by contract done by government contractors to obtain security and related services from third parties. Both types of contracting raise complicated issues including: the proper use of force; to what extent the contracts should have government oversight; to what extent contractors should be accountable for crimes; and whether contractors qualify as noncombatants in case of capture. The special issues of contracting in a warzone are not best addressed primarily by common law doctrine. Additional rules and regulations are necessary to address the special issues of non-state actors who contract with the U.S. government.

The presentation was interesting despite the often insurmountable hurdle of being part of the very last panel of a long conference!

[Meredith R. Mller]

Opting In and Out of European Contract Law

The European Parliament has been mulling over the question whether to develop "optional instruments" for European contract law -- alternative contract law regimes that parties could elect to use, either on an opt-in or opt-out basis.

Exactly how these regimes might be developed, and what law would authorized them, is the subject of a study for the Parliament done by three Dutch scholars, Martijn Hesselink (Amsterdam Institute for Private Law), Jacobien Rutgers (Free University of Amsterdam), and Tim De Booys (University of Amsterdam).  It’s called The Legal Basis for an Optional Instrument on European Contract Law.  Here’s the abstract:

Short study for the European Parliament on the different options for a future instrument on a Common Frame of Reference (CFR) in EU contract law, in particular the legal form and the legal basis for any future optional instrument. The general conclusion is that, considering the relevant EC Treaty provisions and ECJ case law concerning legal bases, the description of an optional instrument by the European Commission in its Action Plan and its follow-up communications on European contract law, and the private law measures already in place, Article 308 EC seems to be the most likely provision to provide a legal base for enacting one or more optional instruments concerning European contract law. Art 95 EC seems to be excluded since an optional instrument would not be an instrument for the harmonisation of the laws of the Member States. From the perspective of a legal basis it would not make a difference whether the optional instruments would be applicable to B2B or B2C contracts or both, nor whether they would apply only to cross-border contracts or also to purely internal contracts. However, even Article 308 EC cannot serve as a legal basis for enacting the entire CFR; any optional instrument will have to be limited to rules on the subjects that are particularly relevant to the internal market.

[Frank Snyder]

Weekly Top 10

A brief by law and economic scholars in a major energy contract case and the continuing problems of the subprime credit market dominate this week's Top Ten list.  Following are the top ten most-downloaded recent papers from the SSRN Journal of Contract and Commercial Law for the 60 days ending February 17, 2008.

1  Choice of Law in the American Courts in 2007: Twenty-First Annual Survey, Symeon C. Symeonides (Willamette).

2  Supreme Court Amicus Brief Regarding Morgan Stanley Capital Group Inc. v. Public Utility District No. 1 of Snohomish County, Washington, William J. Baumol (NYU-Business), et al.

3 Over-Indebtedness, Predatory Lending, and the International Political Economy of Residential Home Mortgage Securitization: Comparing the United States' Subprime Home Mortgage Lending Crisis to Home Finance in the United Kingdom, Germany, and Japan, Christopher Lewis Peterson (Florida).

4  The EU Market Abuse Directive: A Case-Based Analysis, Mathias M. Siems (Edinburgh).

5  The Case for Banning Subprime Mortgages, Alan M. White (Valparaiso).

6  Homeownership Risk Beyond a Subprime Crisis: The Role of Delinquency Management, Melissa B. Jacoby (North Carolina).

7  Informing Consumers about Themselves, Oren Bar-Gill (NYU).

8  All But Accurate: A Critique of the American Bankers Association's Study on Credit Card Regulation, Adam Levitin (Georgetown).

9 Arbitration's Summer Soldiers: An Empirical Study of Arbitration Clauses in Consumer and Nonconsumer Contracts, Theodore Eisenberg (Cornell), Geoffrey P. Miller (NYU) & Emily L. Sherwin (Cornell).

10 Reciprocal Fairness, Strategic Behavior & Venture Survival: A Theory of Venture Capital-Financed Firms, Manuel A. Utset (Florida State).

[Frank Snyder]

Weekly Top Ten

Following are the most-downloaded new papers from the SSRN Journal of Contract and Commercial Law for the 60 days ending October 14, 2007.  (Last week's rank in parentheses.)

1 (1) Explaining the Spread of At-Will Employment as an Inter-Jurisdictional Race-to-the-Bottom of Employment Standards, Richard A. Bales (No. Kentucky).

2 (2) Anti-Social Contracts: The Contractual Governance of Online Communities, Joshua Fairfield (Indiana-Bloomington).

3 (3) Renting the Good Life, Jim Hawkins (Independent).

4 (4) Securitization and Its Discontents: The Dynamics of Financial Product Development, Kenneth C. Kettering (New York LS).

5 (5) Utility and Rights in Common Law Reasoning: Rebalancing Private Law Through Constitutionalization, Hugh Collins (London School of Economics).

6 (5) Morality, Social Norms and Rule of Law as Transaction Cost-Saving Devices: The Case of Ancient Athens, Anastassios Karayiannis (Piraeus) & Aristides N. Hatzis (Athens-Philosophy).

7 (9) Behavioral Law and Economics, Paternalism, and Consumer Contracts: An Empirical Perspective, Joshua D. Wright (Geo. Mason).

8 (7) A Study of Interest, John Y. Gotanda (Villanova).

9 (10) Nonbanks in the Payments System: Vertical Integration Issues, Nicholas Economides (NYU-Business).

10 (-) The Limited Autonomy of Private Law, Hanoch Dagan (Tel Aviv).

[Frank Snyder]

Teaching Assistants: Alan M. White

If you are looking for a clear, concise, well-written review of rational choice theory as it relates to consumer contracts, as well as a critique of that theory from the perspective of behavioral economics, the rational choice is to read Behavior and Contract, written by my new colleague, Alan White (pictured at left).

Alan's key observation, it seems to me, is that while law and economics has incoporated many of the insights of behavioral scientists, "behavioral law and economics has clung stubbornly to goals of efficiency and autonomy."  (3)  In order to advance these goals, rational choice theorists, who have come to influence legislators and government agencies empowered to implement consumer protection laws, advocate deregulation, which, according to Alan, "produces significant consumer harm, exploitation and rent-seeking, and does not necessarily increse consumer welfare." (5)  Orthodox law and economics scholarship thus fails to achieve its stated goals and that failure, Alan urges, ought to cause us to question "the impoverished norm of efficiency."  (6) 

This is all quite provocative stuff, and there are of course articles on the other side (for example, this one).  But the great advantage of Alan's piece (and the reason why I recommend it as a teaching assistant) is that he clearly and succinctly: (1) summarizes the rational choice model; (2) introduces the major insights from behavioral law and economics that undermine the rational choice model; and (3) reviews various attempts by both scholars and regulators to operationalize the insights of behavioral law and economics so as to provide better consumer protections in the contractual realm.  Alan provides a menu of options and acknolwedges that none fully addresses the various issues raised by the behavioral sciences.  Ultimately, Alan would replace the norm of efficiency with a trio of utliitarian sufficiency, autonomy and equity. (50-51)  The competing norms complicate the task of consumer regulation, as Alan's model is not nearly as parsimonious as the rational choice model.  But Alan is willing to trade parsimony for a model that more accurately reflects the circumstances in which consumers make choices.  He advocates a return to regulation and rejects accusations of paternalism: "Consumer's choices will be framed either by sellers or by legal rules.  Allowing the consumers the freedom and autonomy to be manipulated and exploited does not promote autonomy." (50)

[Jeremy Telman]

Bales on Employment at Will

Although it's been at the top of our weekly charts for a few weeks now, some of us have just recently got around to checking out the new paper by Richard Bales (No. Kentucky), Explaining the Spread of At-Will Employment as an Inter-Jurisdictional Race-to-the-Bottom of Employment Standards, forthcoming in the Tennessee Law Review.

One of the problems in explaining the growth of at-will employment in 19th century America is that it originally sprang into existence not in the industrialized states of the North, where factory-owners were increasingly viewing workers as replaceable parts to hire and fire as they chose, but in the least industrialized states.  It was the states of the South and West which were early adopters, while the big industrial states like New York and Pennsylvania came much later.  This fact raises problems for what is perhaps the most widely held explanation for at-will employment, which is that it was a judge-made rule to benefit capitalist businesses at the expense of workers.

But Bales offers a different and ingenious take on the subject.  True, he said, it wasn't the industrialists of the Northeast who pushed the rule through.  (They presumably lacked the political power in the industrialized states to get their own judges to adopt favorable rules.)  But the point of the new rule was still to benefit businesses that were increasing in size and scope.  Courts in Southern and Western states, he theorizes, adopted the rule to attract industry by offering better rules for the capitalists than they were already getting in New York and Pennsylvania.  It was this competition, he argues, that ultimately led the industrial states to go along with the trend.  It's a brief but interesting read.  Here's the abstract:

The at-will employment rule is often attributed to Horace Gay Wood, who described the rule in an 1877 treatise. Over the next forty years, the rule was judicially adopted in most American states. How and why the rule spread, however, has been the subject of considerable academic debate.

This essay argues that the underindustrialized states first adopting the at-will rule likely did so as a means of attracting capital. In any event, and more importantly, this essay argues that once the first underindustrialized states adopted the rule, other underindustrialized states would have been compelled to adopt the rule to remain economically competitive with the early-adopters, and industrialized states would have been compelled to adopt the rule to maintain their competitive advantage in the labor market. The adoption of the at-will rule by a handful of underindustrialized states, therefore, precipitated an inter-jurisdictional race-to-the-bottom in employment standards, culminating in the universal adoption of the at-will rule.

Though the focus of this essay is on labor market conditions that existed as the United States was transitioning from a local to a national economy, the implications resonate today as the United States transitions from a national to an international economy, and attempts to avoid a competitive "race to the bottom" with developing countries that are using low wages and un- or under-regulated working conditions to gain an advantage in the global labor market.

[Frank Snyder]

A Funny Thing Happened on the Way to the Parthenon

The law on the books, as we are fond of telling our students, is not always the same as the law in action.  And the law in action is often only a small slice of the larger commercial environment.  Even where a party might save money by breaching a contract, that party will usually perform -- not because it is worried about being sued, but rather because performing is the "right" thing to do.  Those who have tried to install modern contract law in environments where social norms don't encourage the performance of promises have found that all the statutes and court decisions in the world can't create a hospitable contracting environment.

So how do you get a hospitable contracting environment?  In a new essay, Morality, Social Norms and Rule of Law as Transaction Cost-Saving Devices: The Case of Ancient Athens, scholars Anastassios Karayiannis (Piraeus) and Aristides N. Hatzis (Athens) examine how the Greeks came to develop one of the earliest and most successful systems of the ancient world.  Here's the abstract:

The importance of the institutional framework for economic development is widely accepted today and it is duly stressed in the economic literature. The protection of property rights, the enforcement of contracts and an efficient legal system are the pillars of the contemporary rule of law. However, formal institutions cannot function without being internalized by the citizens and without the backing of social norms. Morality and social norms are the major elements of the informal institutional structure, the social capital, which is also critical for social welfare and economic development. In this paper we will discuss both the formal and the informal institutional framework of Ancient Athens, which was a free market society with economic problems similar to contemporary market societies. Athenians developed a highly sophisticated legal framework for the protection of private property, the enforcement of contracts and the efficient resolution of disputes. Such an institutional framework functioned effectively, cultivating trust and protecting the security of transactions. This entire system however was based on social norms such as reciprocity, the value of reputation and business ethics. Conformity to social norms as well as moral behavior was fostered by social-sanction mechanisms (such as stigma) and moral education. The Athenian example is a further proof of the importance of morality and social norms as transaction cost-saving devices even in quite sophisticated legal systems. Their absence or decline leads inevitably to the need for more regulation, clear-cut rules, less judicial discretionary power and more litigation. Athenian law was pioneering in the development of rules and institutional mechanisms suitable for the reduction of transaction costs, many of them surviving in the most complex contemporary legal systems.

[Frank Snyder]

Weekly Top Ten

Major turnover in the rankings this week, with a new Number One and six new entries on the charts. Following are the Top 10 most-downloaded new papers from the SSRN Journal of Contract and Commercial Law for the 90 days ending October 7, 2008.  (Last week's rank in parentheses.)

1 (2) Explaining the Spread of At-Will Employment as an Inter-Jurisdictional Race-to-the-Bottom of Employment Standards, Richard A. Bales (No. Kentucky).

2 (4) Anti-Social Contracts: The Contractual Governance of Online Communities, Joshua Fairfield (Indiana-Bloomington).

3 (5) Renting the Good Life, Jim Hawkins (Independent).

4 (-) Securitization and Its Discontents: The Dynamics of Financial Product Development, Kenneth C. Kettering (New York LS).

5-tie (10) Morality, Social Norms and Rule of Law as Transaction Cost-Saving Devices: The Case of Ancient Athens, Anastassios Karayiannis (Piraeus) & Aristides N. Hatzis (Athens-Philosophy).

5-tie (-) Utility and Rights in Common Law Reasoning: Rebalancing Private Law Through Constitutionalization, Hugh Collins (London School of Economics).

7 (-) A Study of Interest, John Y. Gotanda (Villanova).

8 (-) Arbitral Jurisdiction and the Dimensions of Consent, Alan Scott Rau (Texas).

9 (-) Behavioral Law and Economics, Paternalism, and Consumer Contracts: An Empirical Perspective, Joshua D. Wright (Geo. Mason).

10 (-) Nonbanks in the Payments System: Vertical Integration Issues, Nicholas Economides (NYU-Business).

[Frank Snyder]

Teaching Assistants: Geoffrey R. Watson

We broke some hearts in last week's post on Kirksey v. Kirksey, as several generations of contracts profs and students were forced to part with their fantasies regarding Isaac and Antillico (Angelico) Kirksey.  Well, this week we have very good news.  Levi Wyman lived!  And his father may even have loved him!!  Or so says Geoffrey R. Watson (left) in In the Tribunal of Conscience: Mills v. Wyman Reconsidered, 71 Tulane L. Rev. 1749 (1997).

Like Kirksey, Mills v. Wyman is a familiar case, involving a Good Samaritan (Mills) who cared for the dying Levi Wyman, estranged son of Seth Wyman.  Mills wrote to Seth to inform him of his son's condition and to invite Seth to visit his son.  According to the case, Seth replied that he could not come but would cover any costs Mills incurred in caring for Levi.  Levi Wyman died, despite Mills' ministrations, and Seth's promise was not kept.  Mills sued to enforce the promise.  The Supreme Judicial Court of Massachusetts concluded that Seth Wyman had a moral obligation to pay Mills but no legal one and ruled for Wyman.

Watson finds fault with everything about the Massachusetts' court's opinion.  Seth Wyman never promised to pay Mills, and Levi Wyman did not die until many years later.  Moreover, if the facts were as the court construed them, Watson thinks the "court missed an opportunity to shape a more sensible doctrine of promissory liability."  Id. at 1752.  Unlike those killjoys, Casto and Ricks, who sucked all the joy and mystery out of Kirksey, Watson leaves some of the mysteries of Mills unresolved.  For example, Watson's exhaustive historical research did not enable him to explain why the court treated Levi Wyman as a corpse in 1825 when as late as 1829 he was engaged in spending and wasting "his estate by excessive drinking and idleness."  Id. at 1757.  We do learn some dramatic details of Levi's illness, however.  For example, his symptoms included bouts of delirium during which "he leaped out of a chamber window to the immminent hazard of his life" and for which he was treated by a "prominent Hartford physician" with "1 gallon spirits" and pills.  Perhaps the Massachusetts court simply indulged the safe assumption that in the 1820s medical treatment for an illness such as Levi's was little more than an unpleasant prelude to death.

In any case, while Mills clearly thought he had received a promise from Seth to pay for services rendered, Watson views Seth's letter as far more equivocal, suggesting at best an intention to pay for future services.  Id. at 1761.  Watson suggests that Seth's failure to visit his dying son is best explained by Seth's advanced age (63) and frail health rather than by lingering ill-will towards Levi.  Id. at 1762-63.  In large part, Watson's critique of the Massachusetts court turns on his conviction that Seth made no promise.  While the court viewed Seth as a man "willing to have his case appear on record as a strong example of particular injustices sometimes necessary resulting from the operation of general rules," Watson paints a different picture of Seth:

Wyman did not make the promise and thus never "determined" to break any promise.  Wyman's "transient feeling of gratitude" might have been a sincere expression of willingness to pay for Levi's future expenses, but not his past ones.  Wyman's "willingness" to stand as an example of "injustice" was more likely a determination to fight for his rights. 

Id. at 1781.  Hmmm.  Do we like Seth better if we think he went to the Massachusetts Supreme Court to fight for his right not to pay a penny to the man who nursed his ill son back to health and then sought full reimbursement and not only reimbursement starting from the moment of the promise?

As to the doctrine of moral consideration, Watson thinks the law was much less clear than the court suggests, as Lord Mansfield had declared in a 1785 case that where there is a moral obligation and a promise, "the honesty and rectitude of the thing is a consideration."  Id. at 1783.  Lord Mansfield's position met with resistance in England, but was viewed sympathetically in America.  In the 1813 case, Bowers v. Hurd, the same Chief Justice Parker who decided Mills, enforced a moral obligation, even where no antecedent debt was found.  Id. at 1784-85. Reminded of Bowers in the context of Mills, Justice Parker remarked that the case "has been doubted."  Id. at 1786.

In the final section of the essay, Watson summarizes theoretical approaches to the moral obligation doctrine, including: the revival or waiver theory, which seems to have informed the Mills decision (id. at 1790-93); the promissory restitution theory embodied in R.2d s. 86 (id. at 1793-95); Duncan Kennedy's concerns about the "legalization" of family relations (id. at 1795-96); and Richard Posner's economic defense of the moral obligation doctrine. (Id. at 1796).  Watson finds all of these approaches inadequate in terms of explaining the behavior of courts.  For example, theoretical approaches call for the enforcement of either a pre-existing obligation or of the subsequent promise, but courts do not consistently enforce either.  The Restatement approach, as well as Posner's, suggest where the law ought to go rather than to describing the law as it is.

Watson has his own ideas for reform that draw on the doctrine of restitution.  Watson argues that "[o]ur society suffers more from apathy than from altruism" (id. at 1801) and therefore proposes that the law create incentives to encourage Good Samaritans, like Mills and Joe Webb of Webb v. McGowin.  Watson acknowledges that an expanded restitutionary doctrine would impose considerable judicial costs of enforcement.  Id.  The solution is simple, however. 

A promise to fulfill a moral obligation should be binding regardless of whether it is supported by consideration.  It should be enough for the plaintiff to prove that the defendant's promise was made with intent to be legally bound.  The existence of a past "moral obligation" should be treated as prima facie evidence that the moral obligor does intend to be bound.

Id. at 1801. Intent to be bound would be evidenced, says Watson, not by the bizarre rigamarole of the consideration doctrine but by formal mechanisms, such as a writing or a seal.  Id. at 1802.  Watson concludes by predicting the ultimate demise of consideration doctrine: "Consideration doctrine, if indeed it was ever useful, has outlived its utility.  The next century will see the end of consideration as we know it."  Id. at 1804.  With the end of the consideration doctrine, Watson foresees a future in which legal liability will be more closely linked to moral responsibility -- and the proposed reform would also enhance efficiency by making promises "more valuable at relatively little social cost."

The rule in Mills v. Wyman, says Watson is "eminently forgettable;" it is both "incoherent and inefficient."  Id. at 1806.  The facts of Mills -- from which we can create competing narratives -- are what remains.

[Jeremy Telman]

Weekly Top Ten

Two new papers hit the list this week, both of them taking a philosophical approach to the subject. Following are the 10 most-downloaded new papers from the SSRN Journal of Contract and Commercial Law for the 60 days ending September 23, 2007. (Last week's rank in parentheses.)

1 (1) Usury Law, Payday Loans, and Statutory Slight of Hand: An Empirical Analysis of American Credit Pricing Limits, Christopher Lewis Peterson (Florida).

2 (2) Explaining the Spread of At-Will Employment as an Inter-Jurisdictional Race-to-the-Bottom of Employment Standards, Richard A. Bales (No. Kentucky).

3 (3) Consumer Protection in the United States: An Overview, Spencer Weber Waller & Jillian G. Brady (Loyola-Chicago).

4 (7) Anti-Social Contracts: The Contractual Governance of Online Communities, Joshua Fairfield (Indiana-Bloomington).

5 (6) Renting the Good Life, Jim Hawkins (Independent).

6 (8) The Other Side of the Picket Line: Contract, Democracy, and Power in a Law School Classroom, Richard Michael Fischl (Connecticut).

7 (9) A Positive Law Theory of Contract, Fergus Farrow (Victorian Bar).

8 (-) Aboutness, Thingness, Models, and Understanding: A Pragmatic Ontology of Formal Systems in Law, Jeffrey M. Lipshaw (Suffolk).

9 (10) Consent and Exchange, Oren Bar-Gill (NYU) & Lucian Arye Bebchuk (Harvard).

10 (-) Morality, Social Norms and Rule of Law as Transaction Cost-Saving Devices: The Case of Ancient Athens, Anastassios Karayiannis (Piraeus) & Aristides N. Hatzis (Athens-Philosophy).

[Frank Snyder]

Teaching Assistants: Casto & Ricks

Okay, so who are the two biggest killjoys in the legal academy?  William R. Casto (left top) and Val .D. Ricks (left bottom), that's who!

Why, you ask?  Because in their recent essay, "Dear Sister Antillico . . ." The Story of Kirksey v. Kirksey, 94 Georgetown L. J. 321 (2006), they solve every last mystery that one might derive from the Alabama Supreme Court's laconic opinion in Kirksey.  Their solution to the great mystery of Kirksey -- why did Isaac Kirksey invite his sister-in-law to live on his land and then evict her just two years later -- sucks all the romance out of the case.  History replaces economics as the dismal science.

In my mind, the key turning point of Kirksey involves a headstrong Antillico (portrayed by Merle Oberon) lured to his lodge on the Heights by a bold, passionate Isaac (portrayed by Laurence Olivier).  The climactic scene comes after the protagonists have lived within close proximity for two years:

Isaac: Dear Sister, I can't disguise my feelings for you any longer.  I must have you!  Will you be mine, all mine?!?

Antillico: Brother, control yourself!  Think of your dear departed brother, of my children!

I: But dearest, won't you show me the slightest kindness?

A: I'm sorry.  I'll always love you, but as a brother.

I: Then torment me no longer!  I shall not share this plot of land with you nor suffer to see your face, your figure.  Leave these lands that I may skulk along my properties in my solitary meanderings, contemplating the happiness that might have been but for your rank obedience to the rabble's law of etiquette!  Haunt me no more, pale specter of a life that might have been!

Or words to that effect.  Not so, say Casto and Ricks.  Isaac and Antillico were never lovers or anything of the sort.  Her name wasn't even Antillico -- it was Angelico -- and the case was all about land and the changing law of holding over on public lands in the 1840s. 

But seriously folks, it's a wonderful essay and here's just some of what you might learn if you read it:

Angelico was the fifth of twenty-eight children born to one John Connolly.  She seems to have inherited little other than her father's fecundity (if that's possible), as she bore at least sixteen children herself, eight or nine of whom accompanied her when she accepted Isaac's invitation and moved to Talladega County.  In so doing, she abandoned land on which she had "held over" and on which she may have earned a "preference" under a federal pre-emption grant Act of 1840.  In other words, if Angelico had not accepted Isaac's invitation, she likely could have purchased the land on which she was squatting for $1.25 per acre.  94 Georgetown L. J. at 343.  Those facts support an argument that Angelico offered good consideration in return for Isaac's promise to provide land for her and her family in that she suffered a legal detriment in quitting her land in a neighboring county.