April 17, 2007
Oman on Contract Theory
Posted by Jeff Lipshaw
Nate Oman (William & Mary, left) has an interesting new article (The Failure of Economic Interpretations of the Law of Contract Damages) out on the reconciliation of efficiency (i.e. law and economics) and autonomy (i.e. the moral consequence of promising) as a basis for a coherent internal interpretive theory of contract law - why does the doctrine say what it says?
Nate demonstrates that the bilateral nature of private contract remedies (i.e. the parties sue each other, rather than having some state apparatus remedy the situation) creates an unresolvable paradox for economic justifications. The problem is that the expectation remedy is thought to create inefficient over-reliance by the promisor, but the remedy best suited to making sure the promisee does not over-rely - restitution - creates inefficient incentives for the promisor to breach. If the state were an intermediary, "fining" the promisor to the extent of expectation damages, but rewarding the promisee only to the extent of restitution, there would be (in the perfect world of economists) the optimum efficient. But the bilateral nature of the remedy means that the system - which only rewards and punishes in a single amount between the parties - cannot be wholly efficient.
I think Nate is a wonderful communicator of contract theory (not to mention Anglo-American legal history), and this is a nice read. I also admire his doggedness in pursuing the internal reconciliation of the justification of contract law as it exists. Understand what that means: by Nate's own analogy (chess), he is going to stay inside the game to provide a coherent explanation for why the game's rules are what they are.
Patrick O'Donnell, commenting over at Concurring Opinions, asked Nate to juxtapose my recent take on the futility of the effort to justify contract law with Nate's piece. I can't resist offering up my own take. To some extent, Nate and I are ships passing in the night. I am less concerned about trying to create a coherent internal explanation. Indeed, my point is that a wholly complete and consistent model is not possible under any system of axioms and logical rules (which, as a mathematical model, economics is). So it is hardly surprising to me that Nate's conclusion is hybrid (as was Jody Kraus's). Both moral theory and efficiency seem to play a role in different aspects of contract law. My piece is expressly "meta" in trying to come to terms with why. Or to put it more cynically (or hopefully, depending on your perspective), I am going to try to explain the relationship of the internal view to the external perspective - the one taken by law and society types, legal realists, critical theorists, and moral philosophers. Not surprising I get all twisted up (in a fun sort of way) in the question whether the participants in a contract dispute are on inside looking out (as involved first parties), or on the outside looking in (as objective third parties), or if at some point they move from one to the other.
For the last couple weeks, I have been teaching UCC Article 2 remedies, and the dominant theme (in some respects a revelation to me) is the conflict we often find between a literal or mechanical application of the remedy formulas and our intuitive notion of the correct result. Within the Code, the problem shows up as a conflict between a remedy in the 2-700 series of statutes and Revised 1-305 that says the purpose of the remedy is to put the aggrieved party in as good a position as he or she would have been had the breaching party performed. But I'm willing to posit, as a metaphor or analogy (here, not in my class, or the students' eyes would be spinning like pinwheels), that it's not just a matter of reconciliation within the system, but the problem that the system (here, legal axioms and rules of inference) will contain true but unprovable propositions - like "the literal application of Section 2-708(1) in X circumstance will overcompensate the aggrieved party."
Nate's abstract is below the fold. Highly recommended! Download it while it's hot! (Sue me, Solum.)
Here is the abstract:
The law of contracts is complex but remarkably stable. What we lack is a widely accepted interpretation of that law as embodying a coherent set of normative choices. Some scholars have suggested that either economic efficiency or personal autonomy provide unifying principles of contract law. These two approaches, however, seem incommensurable, which suggests that we must reject at least one of them in order to have a coherent theory. This article dissents from this view and has a simple thesis: Economic accounts of the current doctrine governing contract damages have failed, but efficiency arguments remain key to any adequate theory of contract law. Contractual liability - like virtually all civil liability - is structured around the concept of bilateralism, meaning that damages are always paid by defeated defendants to victorious plaintiffs. Ultimately, economic accounts of this basic feature are unpersuasive. This criticism, however, leaves untouched many of the key economic insights into the doctrine of contract damages. The limited failure of economic interpretations points toward a principled accommodation of both autonomy and efficiency in a single vision of contract law where notions of autonomy provide the basic structure and economics fills in most of the doctrinal detail.
April 17, 2007 in Abstracts Highlights - Academic Articles on the Legal Profession | Permalink | Comments (1) | TrackBack
April 16, 2007
More from Northwestern's Colloquy on Pro Bono and the Hopeless Goo-Goos Who Support It
We linked a few days back to the Colloquy feature of the Northwestern University Law Review, which is running an online discussion about mandatory pro bono. So far Tom Lininger (Oregon) has commented on Deborah Rhode's proposal. As advertised, Sam Bagenstos (Wash. U.) has a rejoinder and, I have to admit, the teaser before the break had me laughing out loud.
Not to put too fine a point on it: Professor Lininger thinks Professor Rhode wimps out. Her "heart is in the right place," but she too readily draws back from proposing mandatory pro bono service. In this brief response, I want to up the ante. If Professor Lininger thinks Professor Rhode is a wimp, I think they're both hopeless goo-goos. We currently have a system of civil rights enforcement that harnesses the profit motive of plaintiffs' attorneys to encourage the prosecution of violations of civil rights laws. That system may seem crass and disreputable to those who believe that lawyers should bring civil rights actions out of the goodness of their hearts (perhaps while singing "Kumbaya" or, for those of a more lefty persuasion, "If I Had a Hammer"). But it's the best system of civil rights enforcement we've found.
Colloquy promises a surrebuttal from Professor Lininger. How will he respond to being called a hopeless goo-goo? Stay tuned. But in the meantime, ask yourself the question, would the articles editors have allowed the phrase "hopeless goo-goo" to have graced the pages of the hard copy of the Nw. U. L. Rev.? I don't know, but hope to be commenting on this issue in the near future.
One further note. Professor Bagenstos' footnote explaining the derivation of "goo-goo" is at best cryptic. My son, Matt, attended a concert given by the Goo Goo Dolls at the 2004 Democratic National Convention in Boston, so that may be a connection.
April 16, 2007 in Abstracts Highlights - Academic Articles on the Legal Profession | Permalink | Comments (3) | TrackBack
April 15, 2007
The California Bar Journal reports that disciplinary sanctions have been imposed against the two lawyers involved in the case where their dogs mauled a neighbor resulting in her death. One resigned from the bar and the other was disbarred. (Mike Frisch)
Privilege Waiver Upheld
In a recent decision, the United States Court of Appeals for the District of Columbia Circuit upheld the District Court's decision to enforce a subpoena for testimony of corporate counsel concerning his communications with a corporation executive and the executive's retained outside counsel. The corporation conducted an internal investigation of possible federal election law violations. The results were submitted to the Department of Justice, which began an investigation. A document was submitted by the corporation that appeared to be exculpatory evidence. The document had in fact been backdated. Because it had been voluntarily submitted to DOJ, the privilege was waived. In any event, the crime-fraud exception applied to the fraudulent document. The court further held that neither the D.C. Bar rule regarding confidentiality or the existence of a joint defense agreement between corporate counsel and outside counsel for a corporate executive affected the result. Outside counsel had sought to quash the subpoena seeking corporate counsel's testimony. (Mike Frisch)
A Serious Problem
The Arkansas Supreme Court disbarred an attorney as a result of a felony conviction for a second offense of driving while intoxicated. The court held that the felony offense involved a "serious crime." The attorney had been suspended on an interim basis after the conviction but continued to practice law. The court held that the practice of law involves broader conduct than appearing in court, but includes holding oneself out as a licensed attorney. When the attorney was arrested on a revocation warrant for the practicing while suspended charge, his blood alcohol level was .32% (Mike Frisch)
Public Protection Or Lawyer Protectionism?
The Arizona Supreme Court recently decided a disciplinary case involving a lawyer who was admitted to practice in Florida and Virginia. She also was a licensed mediator in Florida. After moving to Arizona, where she was not admitted, she participated in a real estate mediation with full disclosure of her status to her clients and the opposing party. The mediator looked into the issue and concluded that her participation was proper. Counsel for the opposing party complained to the Arizona Bar, which filed charges of unauthorized practice and failure to cooperate.
A hearing led to findings of misconduct, but also findings that the attorney acted without knowledge that her actions involved unauthorized practice and without improper motive. These findings were overturned by the Disciplinary Commission, which found that the misconduct was knowing and for a selfish purpose (i.e. charging a fee). Notably, her clients were entirely satisfied with her services.
The court in turn overruled the Commission's findings, concluding that the hearing officer's facts were not clearly erroneous (to meet that exacting standard, the findings must "strike [the reviewing body] as wrong with the force of a five-week-old unrefrigerated dead fish"). The court rejected the Commission's overly expansive definition of "knowledge." The court also rejected the proposed censure in favor of the lesser sanction of informal reprimand.
One might fairly wonder why the Arizona Disciplinary Commission was so eager to rachet up a minor case of unauthorized practice and define the knowledge element of unauthorized practice in such an broad manner. (Mike Frisch)