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Sunday, August 17, 2014

Kar on Contract Theory: The Sequel ... And Putting Spectacles on the View from Nowhere?

Robin Bradley Kar has now posted the sequel to Contract as Empowerment: A New Theory of Contract.  The second piece is Contract as Empowerment II: Harmonizing the Case Law.   I did a quick review of the first piece in an earlier post.

I need to say first that the length and depth of this post is a reflection of the quality of Rob's work.  I heartily recommend both articles, taken together, as an incredibly ambitious, if not promising (no pun intended), approach, particularly for those of us (like me) who were so significantly unsatisfied with seeing either the doctrine or the practice of entering into contracts as wholly explained by rational actor economics.   So like most reviews, this is perhaps not as much about what Rob is arguing as much as a chance for me to pontificate.  In short, don't take my characterizations as gospel; if you have any interest, download the articles while they're hot!

The context here is the longstanding philosophical debate about why and how courts go about using the resources of state power to resolve matters that originate wholly in private ordering.  Over the last thirty or so years, those inclined to answer that question have tended to see the rationale for state involvement on two philosophical poles, one consequential and one deontological.  From my standpoint, Rob's work (likely in contrast to my own) is firmly within that debate, in that he is searching for a philosophical resolution - one that harmonizes both explanation (i.e. what does contract law do?) and understanding (i.e. what does contract law mean?).   Spoiler alert (yawn!):  I don't think that kind of complete harmonization is possible, although I tip my hat to Rob's rigor in linking philosophical justification and discrete portions of the doctrine, such as consideration, expectation damages, interpretation, performance, and so on.

Within the mainstream debate, one pole for the justification of contract law is the enhancement of economic welfare.  Under that view, contract law serves the purpose mainly of insuring that people follow through on the exchanges of property and services that are economically efficient - i.e., the whole point of an economy is to transfer stuff to those who value it most.  When that happens (in economic theory), everybody gets richer.  This is "law and economics" stuff, the Kaplow and Shavell arguments about fairness and efficiency applied by scholars like Alan Schwartz and Robert Scott in assessing contract doctrine.

The other pole is the view that contract law is (or should be) legal affirmation of promise-keeping as a moral obligation.  The seminal work is Charles Fried's 1981 Contract as Promise, but scholars like Seana Shiffrin keep that moral argument alive.

As I said, those are the polar positions.  Then there are the pluralists who fall somewhere in between:  Jody Kraus, Roy Kreitner, Nathan Oman.

And then there are theorists who are, as they say, orthogonal to the mainstream debate.  Randy Barnett theorizes contract law as being based in libertarian consent.  Stewart Macaulay, Jean Braucher and the contracts-in-action camp largely eschew philosophy in favor of the sociology aspects of contracting practices.  There are the metaphorists:  Curtis Bridgeman (contract as plan), Gordon Smith and Braydon King (contract as organization), Mark Suchman (social artifact), yours truly (ritual or narrative), and perhaps most famously,  Arthur Leff (contract as thing).  (For more on this I suggest, modestly, two of my own pieces.  The first is my introduction to our symposium (45 Suffolk L. Rev. 601 (2012)) a couple years ago commemorating the thirtieth anniversary of Charles Fried's Contract as Promise.  The second is my own take on contracts and contract law (116 Penn St. L. Rev. 987 (2012)) not from the usual retrospective view of the adjudicator, but as a transactional progression from subjective desire to inter-subjective communication to objective artifact.)

In my view, however, the main philosophical battle (if that's an appropriate metaphor) tends to be between the consequential "efficiency" camp and the deontological "morality" camp, and it plays out in particular aspects of doctrine.   The idea of "efficient breach" - the Holmesian idea that you aren't really promising performance but only either to perform or pay damages - strikes the moralists as immoral.  The efficiency camp sees the moralists as failing to explain why accepted contract doctrine has so many aspects that have nothing to do with the affirmation of a promise (best articulated in a Michigan Law Review article by Richard Craswell).  

This is the briar patch into which Rob has jumped.

In Empowerment I, Rob is telling us there's a better way of looking at the justification for state involvement - the law should step in when a particular party has entered into a particular contract with the specific purpose of inducing another to act; and, second, when meeting this purpose depends on granting another contracting party the legal authority to demand compliance. All other things being equal, the law should not—on the other hand—enforce promises in other circumstances.  

In Empowerment II, Rob makes his argument that the foregoing rule does a better job of offering complete and coherent descriptive and normative justification for contract doctrine.

Rob begins by identifying a core constellation of doctrines, which—in his view—crystallize some of the core challenges for modern contract theory.  He then argues that contract as empowerment is uniquely capable of harmonizing this core constellation of doctrines.  He explains:

Contract as empowerment simultaneously offers (1) a more compelling account of the consideration doctrine than exists in the current literature; (2) a more penetrating account of the expectation damages remedy, which significantly moralizes the remedy, and suggests that it need not be understood to permit “efficient breach”—as some economists have suggested; and (3) a special framework to determine the appropriate shape of legal doctrines that make the scope and content of contractual obligations depend on facts other than parties’ subjective wills.  Contract as empowerment also explains key doctrines and answers central puzzles about contract law at each basic stage of contract analysis: formation, interpretation and construction, performance and breach, the standard defenses, and the standard remedies.  When coupled with its other normative and explanatory advantages, contract as empowerment offers the best general interpretation of contract.


It suggests that contract law is not simply a set of rules that aim to maximize efficiency and promote personal consumption, rooted solely in competition and self-interest run wild. Contract law is instead a set of rules that produce genuine legal obligations in part because its rules are simultaneously personally empowering and reflective of a deeper moral ideal of equal respect for persons. If — as this article argues — this represents the best general interpretation of contract, then contracts and many related market activities have a distinctive moral fabric that has been running through them for some time now. This moral fabric has been obscured by classical economic interpretations but cannot be ignored in any true social science of these phenomena. Contract as empowerment seeks to cure these distortions. It can lead to a distinctive societal self-understanding, which better integrates economic activity into lives that brim with moral and civic virtue.

In my earlier post, I wondered aloud about the need to find a harmonizing justification for contract law.  Here, I raise two different questions, the first about the ultimate efficacy of another rule that seeks to ameliorate between other rules that affirm diverse values and the second about approaches to law that aspire to, in Thomas Nagel's famous coinage, "the view from nowhere."   I need to preface this by saying that Rob and I have been having an offline discussion about how our views coincide and differ, so to a large extent I am informed and enriched by words not necessarily in the articles themselves.  

The ultimate futility of definitions 

As I see it, "contract as empowerment" is an attempt to propose a better definitional divide between that which contract law addresses and that which is left to other norms and mechanisms (like trust, morality, market forces, power, etc.).  And it's a subtle definition.  It doesn't say "enforce all promises," or "don't interfere with private ordering."  No, it says something like, "if you have to decide whether something is going to be the subject of contract law, determine whether those involved in the transaction manifest an intention to empower one or the other (or both) to use the promises for instrumental purposes, and with the backing of legal enforcement."  That's the gatekeeping question, and thereafter if we have reason as a society to restrain that empowerment, it's at least not inconsistent with the initial empowering proposition. So Rob's project is to provide an all-encompassing explanation of both the broad deference that contract law gives to parties’ subjective choices and many seemingly conflicting doctrines, which invite courts to police contracts for fairness, on public policy grounds, or to capture objective aspects of intent.

Moreover, his view is that this cashes out practically in better guidance to people about what the answer will be if there's a question of enforceability or not.

I will leave it to others in the more traditional camps to take issue with whether he succeeds or not with respect to specific doctrinal questions.  As I said in the earlier post, I'm sympathetic to the viewpoint that contracting parties know implicitly (with Mick Jagger) that when you leave to others to decide the issue, you can't always get what you want, and I think Rob's work is an advancement on either polar view from that standpoint.  But I return to my own particular orthogonality about the mainstream debate (to which Rob's contribution is indeed, as Larry Solum noted, important).

First, I'm long on record as being skeptical that there's any significant connection between what the parties agree upon before the fact and what they fight about later.  (See The Bewitchment of Intelligence: Language and Ex Post Illusions of Intention, 78 Temp. L. Rev. 99 (2005).  Moreover, the gating question of whether it's a matter for contract law or not is far more important to philosophers than to real people in the real world.  Invariably the consideration cases arise in non-commercial situations where the very issue after the fact is whether the conception of a bargain ought to apply to something that one of the parties now argues after the fact was a gift (or vice versa).  In other words, we have a pre-analytic notion of what a bargain is and what a gift is, and the after the fact problem is trying to draw rational, definitional lines that place bargains in one basket and gifts in another.

Second, does a more thinly sliced definition do a better job of that?  I'm skeptical.  First Kant and later Wittgenstein demonstrated for us that there is no rule for application of a rule.  The very nature of casuistry is that one contending party is going to argue that Rule A applies (i.e. the rule that defines a bargain) and the other contending party is going to argue that Rule B applies (i.e. the rule that defines a gift).  And there is no rule for deciding which of those rules apply!  Or to put it another way (to quote from Rob's note to me), "Wittgenstein was trying to show that when we follow a rule, the applications are not logically entailed by any proposition (including any proposition about the rule and its content).  We go on the same way, when we do, because we share a form of life—which means that there are non-propositional aspects to rule following of all kinds."  (This is the subject of another lengthy conversation, because Wittgenstein wasn't saying that rule-following was wholly indeterminate, as has been suggested by the crits, but instead governed by our shared social understandings.) 

As I suggested in the Metaphors article, this plays out over and over again in almost every hard case.  

[M]y contracts class reads Judge Skelly Wright’s landmark 1965 opinion in Williams v. Walker-Thomas Furniture Co., in which the court deemed a cumulative financing scheme directed at low-income buyers to be unconscionable and unenforceable. A student asked whether Batsakis v. Demotsis, which we had studied earlier, was relevant to the discussion. In Batsakis, a case decided sixteen years prior to Williams, the court declined to inquire into the unfairness of the consideration, even though it was clear that the contract was grossly unfair and the result of wartime profiteering. Why, asked the student, had Batsakis not been considered as an “unconscionability” case? The student’s observation was profound: there was no logical reason that the lawyers could not have argued unconscionability in Batsakis, but either they did not or the court declined to consider it. Nonetheless, Batsakis regularly appears in casebook chapters on consideration because the basis of the decision is a legal proposition about consideration, even though the sense of unfairness that caused the litigation is equally relevant to legal propositions about unconscionability.

* * *

Analogies and metaphors put pressure on category structures by “unmask[ing], captur[ing], or invent[ing] connections absent from or upstaged by one’s category structures.”35 In that respect they are pre-logical and pre-propositional. They are at work in that irreducible “aha” moment of freedom,36 when somebody like my thoughtful student reading a case like Batsakis faces a new situation and there is no decision path that demands to be followed. Is this a consideration issue to which the consideration algorithms apply, or is this an unconscionability issue to which the unconscionability algorithms apply? 

* * *
The drive among students for conceptual coherence is always most apparent to me in the free-for-all Q&A that constitutes my pre-exam “review session.” During these sessions, students display a remarkable ability to spot incoherencies. As noted earlier, Batsakis v. Demotsis,142 a mainstay of the casebooks, holds that courts will not inquire into the sufficiency of consideration even where one party entered into the contract under the strain of wartime financial distress and the other party was aware of those circumstances. In Berryman v. Kmoch,  another oft-used case, the court held that an option contract was not enforceable, first, because it was insufficient merely to recite and not pay the $10 consideration for the option, and second, because a promissory estoppel theory did not suffice to make the option contract binding. Berryman appears primarily to teach the limits of promissory estoppel in the offer and acceptance setting. A student asked me, however, why the court was willing to go beyond the recitation of consideration in Berryman and not in Batsakis. We discussed possible distinctions. Nevertheless, it ultimately seemed to me that the attempt to reconcile the cases into coherent doctrine was futile, that the student was correct in sensing the inconsistency, and that the problem was less one of the reality of incoherent doctrine than the human desire to see often incoherent and messy reality as rationally coherent.
* * *

Return again to Batsakis v. Demotsis, which dealt with whether courts will inquire into the adequacy of consideration in an exchange. There were two legal propositions in conflict. One proposition was that courts will not police the adequacy of consideration. Another proposition was that gross inadequacy of consideration, such that it shocks the conscience, may support a finding of fraud, duress, or oppressive conduct. I give my students two examples of middling cases: (1) the condominium for which I turned out to have grossly overpaid because of the need to do far more renovation work than I expected in order to make it habitable, and (2) a “rent-to-own” contract in which a low-income person commits to pay $2,500 for a $900 sofa. Which proposition applies in each case? The problem is that the analog, continuous world does not divide up into neat little boxes in which it is clear that my condo purchase falls on one side of the line, in the box that is labeled “free market, you pays your money and you takes your chances transaction,” and that the rent-to-own contract falls on the other in the box labeled “exploitation.” Langdellian classification works like this. One looks at all the cases and proposes inductive propositions that reduce those cases to their common elements. “A binding contract is one in which there is a promise supported by consideration. Courts inquire only as to the presence of consideration and not its adequacy.” The answer in each case is either “yes” or “no.”

Figure3The analog world, as to which we think not just in deductive or inductive terms but also process cognitively by way of metaphor, looks something more like Figure 3 [at left]. We have idealized conceptual models of “bargain” on one hand and “exploitation” on the other, and these arise from physical events in the world for which we have clear and unambiguous prototypes. We make an initial intuitive judgment in each case about how close the salient aspects of the circumstances in question meet the prototype. The question is whether we even look to the proposition in that initial intuitive process. 

In short, the very clash of subjective interests that creates litigation plays out in a battle of contending definitions for which there is, and will never be, a rule of resolution.  Now, at this point, Rob and I probably agree about something.  By allowing oneself to manifest anything that could later be argued by anyone to be a manifestation of contract as empowerment, one falls within the jurisdiction of the social contract that says "you may not like the objective result because it conflicts with your subjective wants and understandings, but that's the price you pay for living in a civil society rather than the state of nature."

Putting spectacles on "the view from nowhere"

There is a deeper dilemma here, one Rob has addressed both in his "Deep Structures" work about obligata and in Empowerment II, and that is the task of harmonizing not just complete normative structures or complete descriptive structures about contract law or anything else, but trying to do both at the same time.

I'll try not to go full Kantian here, but there's a reason for the "is-ought" or "fact-value" or "descriptive-normative" or "subjective-objective" dualisms.  That's because they really are hard to reconcile.  Does the real of "is" or "fact" or "description" ever map fully on the rational of "ought" or "value" or "normative"?  The minute you characterize an "ought" as an objective truth you've made a significant cognitive leap.  It's not that philosophers and theologians don't make it; it's that you can persuaded out of a belief by being shown it's wrong as a matter of empirical fact, and you can be persuaded out of many "oughts" by reasoned arguments, but there are still remaining many "oughts" that are going to take events of conversion rather than persuasion in order to change a belief.

Another way to express this is that when we are talking about scientific fact, we might indeed have, in Nagel's coinage, an objective view from nowhere.  I can explain the legislative process or quantum mechanics and my particular viewpoint, my inner self, doesn't make much difference to the explanation.  But when we talk about meaning and significance, to say that there is objective meaning is to take the "view from nowhere," or God's view.  

Harmonizing the descriptive of explanation and the normative of meaning invokes the view from nowhere.  As I said in the previous post, I think we have a hardwired desire to see the world as coherent and rational, morally and descriptively, but I don't think we are capable of a universal harmonization of the two - a complete view from nowhere.  Nor do I think a better normative theory puts spectacles on the view from nowhere.  The moral or normative side of the task is still my subjective take, and thus a view from somewhere.

I mentioned that I just finished Roger Scruton's very interesting book The Soul of the World.  Scruton rejects what he calls "ontological dualism," i.e. that there is some kind of noumenal reality out there in which the real and the rational coincide.  (For example, he says on the last page, "The afterlife, conceived as a condition that succeeds death in time, is an absurdity.")  He advocates something else, a "cognitive dualism" under which we are never going to be able to reduce our subjective take on the objective world, our derivative of meaning, in the way that we explain how the physical world works.  

That's precisely the motivation behind Rob's philosophical recasting of the justification for the law of contracts.  On one hand, there's something moral going on there in addition to that which the science of economics can explain.  On the other hand, there's nuance to the law of contracts that doesn't match up very well to an unqualified affirmation of the morality of promise.  On its own terms, is Rob's articulation more satisfying than the polar camps?  As I've said, almost certainly. 

Where I think we part company is whether playing in the space between the two camps is worth the candle.  To attempt the reconciliation Rob attempts is to have greater faith than I do is the existence of an overlay between the explainable and knowable fact of the law and the morality reflected in a respect for persons.  Contract law comes about because individuals with subjective interests call on objectively articulated rules to fulfill those interests in the face of opposing interests.  Is there a "view from nowhere" correct answer?  I just don't see it.  The application of the rules to the circumstances is always, in my view, the result of a view from somewhere.  Either it's the result of a contending party's argument, or the view of the court.  But it doesn't come from God or any other transcendent source.  Nor do I think there's a view from somewhere that originates in some sort of non-transcendent or non-transcendental collective consciousness.  (I suspect Rob disagrees with my empiricist leanings on that score - in other words, that there is indeed the possibility of objective right answers created by our shared intentions to cooperate in the social contract.)

And now we know why Roy Kreitner called me a metaphysical pluralist of contract law.  I do think there's a moral aspect to our transactional relationships, but the contract is a significantly reduced map.  It gives the parties rights, but doesn't say anything about the moral imperatives surrounding the assertion of those rights.  

This leads me back to the same conclusion as above. Where I think Rob and I do agree is that by objectifying our subjective desires whether by document or other manifestation, part of living in the real world is deferring to the deeper social contract under which we recognize that we don't always get our way, and that the social institution of contract, which we adopt individually, is inestimably superior to merely having a bigger stick.

Posted by Jeff Lipshaw on August 17, 2014 at 06:17 PM | Permalink


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