Striking The Balance in Contract Theory

40 Cleveland State L. Rev. 19 (1992)
by Joel Levin

The past three decades have seen an enormous amount of writing by Anglo-American scholars about contract theory. If nothing else, this demonstrates the almost universal perception that there are serious problems with the received theory of contract, the product of giants like Holmes, Williston, Cardozo and Corbin, a theory enshrined in the First Restatement of Contracts. This theoretical activity, instead of creating a new paradigm, has produced divergent theoretical approaches with various bands of scholars striking off in quite different directions, and in the process leaving most judges and lawyers back at the starting point. Contracts scholarship has largely overlooked the advice of Lon Fuller, who began his famous article The Reliance Interest in Contract Damages with the comment that “Nietzsche’s observation, that the most common stupidity consists in forgetting what one is trying to do, retains a discomforting relevance to legal service.

What should we be trying to do when we build a contract theory for the law and for lawyers? Contract law was the product of common law judges and still largely a matter of common law jurisprudence. It provides the concepts and methods used by courts resolving disputes arising from a particular situation – the contract – which is part social, part legal, part psychological and part economic. If the concepts and methods produced by current contract theory fail to explain what courts are doing and provide them with useful tools, the theory underlying the concepts and methods needs reworking.

Legal theory often founders as the result of what appears to be a sound dichotomy: that between a description of what the law is and a prescription as to what the law should be. Descriptive analysis of law ranges from simple (and simple-minded) lists of black letter rules to sophisticated syntheses of various legal concepts and doctrines made clearer and more precise. What is usually ineligible for inclusion in the descriptive realm is any suggestion that things could be different, better, clearer, fairer, and efficient, or more just. That task of inclusion belongs with those who wish to criticize or reform, who want a better system, or more modestly (and, more commonly, in the rush to correct the minute and ignore the pervasive), a better rule.

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One purpose of a contract theory is to provide a picture which adequately depicts how contract law, properly applied, works. The claim of such a theory would be that various contract rules could be brought together in such a way that, if individuals properly applying contract law had to justify their efforts, they would or could adopt such a theory. The claim would not be that the theory is the best one possible for contracting generally, best again in terms of fairness, justice, efficiency, etc. Rather, taking note of law’s normative element, the depiction would include the claim that such a contract theory would encompass how one imaginative, knowledgeable, and thorough could construct a general theory of contract which explains the myriad of specific contract rules.