Lawyers, law, and contract formation.

• Author: Rasmussen, Robert K.
• Position: Response to article by Daniel Keating in this issue, p. 2678

Comments on Daniel Keating's `Exploring the Battle of the Forms in Action'

Attempting to infuse the austerity of theory with a dose of reality, an intrepid group of legal scholars has left the security of the office and ventured into the work-a-day world of commercial practices. The information that they have gathered and are sharing with the rest of us is furthering our understanding of the interaction between commercial law and commercial practice. Embedded in much of the research they have generated is the not-so-flattering conclusion that law professors suffer from a self-serving bias. Those of us in the academy engage in the assumption, often unstated or even unacknowledged, that the law significantly affects the behavior of parties to a contract. This belief in the force of law applies to all aspects of the contracting process: contract formation, contract interpretation, and the remedies available after a contract has been breached. This assumption of the importance of law enhances the status of commercial law professors in that it makes what we teach, and by implication us, important.

The easy link between statutes and cases -- law on the books -- and actual contracting practice -- law in action -- has been strained severely, if not shattered, by the various studies that have been produced so far, both in this Symposium and elsewhere. The stated goal of the recent empirical research in commercial law is to provide a richer understanding of the forces that shape transactions between private parties, with this understanding often being that law is less important than we may have thought before. While various researchers are using differing methodologies to examine commercial practice, one especially fruitful course of inquiry is to talk to the participants in the actual transactions. As an illustration, consider Professor Dan Keating's excellent contribution to this Symposium.(1) Professor Keating explores the role that standardized forms play in contracting behavior by talking to both buyers and sellers of goods. This methodology traces back at least to Stewart Macaulay's famous study of business practices in Wisconsin.(2) The picture drawn by these "law in action" pieces enriches our understanding of commercial law, with the conclusion inevitably being that one cannot ascertain the way in which private parties contract between themselves by simply reading the applicable state-supplied legal rules. One has to talk to the players involved.

As Karl Llewellyn urged long ago, studies such as these serve as an important corrective to the natural academic tendency toward solipsism. We cannot simply assume that the statutes and cases that we teach provide a direct view into contracting behavior. In this cautionary tale for law teachers, there may also be a cautionary tale for empirical legal research. For there is no reason to believe that law professors have a monopoly on self-serving biases. Probably most of us have a need to view ourselves in a positive, if in fact unrealistic, way.(3) This tendency suggests that we should be careful about extrapolating from research that relies on interviews with commercial parties about their perceptions of commercial practice.(4) In particular, we might worry that the information received reflects the natural bias toward self-importance among those people to whom the researchers have spoken.(5) Recognizing the existence of the bias need not lessen the value of this research. Rather, a skeptical treatment of the information received can actually enhance its value.

There are at least three ways in which the self-importance bias may affect the lessons that should be drawn from this body of work. The first is that bias will affect the importance that commercial actors will attach to law. Based on the general tendency of everyone to inflate their own importance, nonlawyers would be less likely to acknowledge the law as an important part of their calculus, whereas lawyers would be more likely to do so. It is not that either nonlawyers or lawyers have a preferred perspective on the "true" state of affairs; rather, it is that law is the province of lawyers, and thus, lawyers will be more likely to perceive an important role for law in any given transaction than would nonlawyers. Nonlawyers, on the other hand, presumably would emphasize those attributes of the transaction for which they have a comparative advantage.

There is a second way that the recognition of a self-serving bias on the part of those interviewed can add to what we learn from those interviews. The differing perceptions of lawyers and nonlawyers provides a glimpse into the workings of the firm. A standard criticism of economics -- which can be extended to much of the empirical work on commercial law as well -- is that it too often ignores how decisions are made inside a firm. A firm is treated as a "black box" that makes the value-maximizing decision. But information gathered from the field suggests that law can be a way for lawyers inside a firm to, at the margin, increase their status within the firm. In-house counsel can advance their position by emphasizing the importance of law, whereas others in the firm may find it in their interest to downplay law's significance. To the extent that this is true, decisions by firms may not represent the optimal weighing of costs and benefits sometimes implied in the literature, but rather reflect the outcome of an internal struggle for power and prestige.

Finally, the likely presence of bias in descriptions of how commercial actors work complicates the normative stance we should take toward participants' views of proposed changes in the law. The promise of seeking the wisdom of those in the field is that they can provide invaluable "situation sense" in assessing the likely impact of proposed reform.(6) The possibility of bias, however, makes it difficult to credit these observations uncritically. Indeed, the extent to which law reform efforts should take account of bias is a difficult question. On the one hand, bias may call into question the accuracy of some statements about the efficacy of a proposed change. On the other, it may lead to a resistance to embrace change, which would be a true cost in attempting to move toward a better legal regime.

Professor Keating's work on the battle of the forms provides an excellent vehicle for exploring these issues. His article is itself a worthy addition to the growing empirical research on commercial law; it tackles one of the staples of the law school curriculum, section 2-207 of the Uniform Commercial Code ("U.C.C."). At the same time, it provides concrete examples of how the bias of those interviewed may affect the vision of "law in action" that one receives. Whereas the researchers in other studies have spoken either primarily or exclusively with nonlawyers, Professor Keating deals primarily with lawyers. Professor Keating examines the contracting behavior of twenty-five firms. For nineteen of these firms, the information comes from lawyers.(7) This predominance of lawyers in the data set, as compared with the lack of lawyers in other reports, provides an opportunity to examine how the respective biases of lawyers and nonlawyers may affect conclusions about the impact of law in the work-a-day world.

One can readily understand why Professor...