The richness of contract theory.

• Author: Barnett, Randy E.
• Position: 1999 Survey of Books Related to the Law

THE RICHNESS OF CONTRACT LAW: AN ANALYSIS AND CRITIQUE OF CONTEMPORARY THEORIES OF CONTRACT LAW. By Robert A. Hillman. Boston: Kluwer Academic Publishers. 1997. Pp. xiv, 279. $120.50.

INTRODUCTION: THE GENERATIONAL SHIFT IN CONTRACTS SCHOLARSHIP

When I teach the doctrine of good faith performance, I assign an exchange between two distinguished contracts scholars, Robert Summers and Steven Burton, that has come to be known as the "Summers-Burton" debate.(1) This debate is interesting not only for the contrasting views of its protagonists concerning the doctrine of good faith, but also because of the generational shift in modes of scholarship it represents.

In the 1950s and 1960s, contracts scholars, like so many others, rejected so-called "conceptualist" or "formalist" approaches that attempted to dictate the outcome of cases with general concepts and rules. Contracts scholarship was dominated by supposedly "realist" inquiries into the complexities of actual commercial practice, inquiries which sought to identify the multiple factors or considerations that judges do or should take into account when deciding cases. Usually it was denied that these factors could or should be weighted or organized in some manner in advance of a legal dispute. Any effort to reduce the vast complexity of the real world of commercial practice to some verbal formula was dismissed as "reductionist" or "simplistic."

The Oxford English Dictionary defines "reductionist" as: "An advocate of reductionism; one who attempts to analyse or account for a complex theory or phenomenon by reduction."(2) And it defines "simplistic" as: "Of the nature of, or characterized by, (extreme) simplicity. Now usu[ally] with the connotation of excessive or misleading simplification."(3) An 1881 example of the word's usage captures the "realist" spirit that eventually captured the imagination of legal scholars: "The facts of nature and of life are more apt to be complex than simple. Simplistic theories are generally one-sided and partial."(4)

Professor Summers is of the generation of legal academics that was taught by the vanguard of "realist" professors -- a generation that took their teachers' gestalt and terminology to heart. For example, to explain the implied duty of good faith performance in his seminal 1968 article, "Good Faith" in General Contract Law and the Sales Provisions of the Uniform Commercial Code,(5) Summers proposed a series of six categories of bad faith performance: (a) evasion of the spirit of the deal, (b) lack of diligence and slacking off, (c) willfully rendering only "substantial performance," (d) abuse of a power to specify contract terms, (e) abuse of a power to determine compliance, and (f) interfering with or failing to cooperate in the other party's performance.(6) In terms that embody the spirit of the realist generation (and of those whom the realists taught), Summers explicitly denied that any more general conception of good faith was helpful or even possible:

It is submitted that any but the most vacuous general definition of good faith will ... fail to cover all the many and varied specific meanings that it is possible to assign to the phrase in light of the many and varied forms of bad faith recognized in the cases.... ... [G]eneral definitions of good faith either spiral into the Charybdis of vacuous generality or collide with the Scylla of restrictive specificity.(7) A judge, he advised, "should not waste effort formulating his own reductionist definitions. Instead, he should characterize with care the particular forms of bad faith he chooses to rule out...."(8)

In the 1970s and 1980s, this attitude toward scholarship began to change. Legal scholarship shifted away from realist modes toward what came to be called "legal theory." Contracts scholarship, like other fields, came to be dominated by scholars who risked the epithets of "reductionist" and "simplistic" in search of unifying theories of legal doctrine. For reasons I have elaborated elsewhere,(9) attribute this generational shift initially to the rise of law and economics -- which directly responded to the consequentialist or "policy" concerns of the realists -- and to the subsequent emergence of normative legal philosophy that sought to trump the "conservative" conclusions of efficiency theorists that many "progressive" legal scholars found unpalatable. As a result, scholarship like Robert Summers's realist lists of multiple factors that judges, in their discretion, needed to take "into account," began to give way to more systematic theories and approaches.

One of these was a comprehensive theory of good faith performance developed by Steven Burton, which he presented in his 1980 article, Breach of Contract and the Common Law Duty to Perform in Good Faith.(10) According to Burton, the problem of good faith performance arises when a contract gives one party a degree of discretion in performing, and this discretion is then used by that party to recapture an opportunity foregone at contract formation. So to determine whether a party has acted in bad faith, one must identify both an opportunity objectively foregone and a subjective intention to recapture it.

Burton contended that without "an operational standard that distinguishes good faith performance from bad faith performance,"(11) the general requirement of good faith as contained in the Uniform Commercial Code "appears as a license for the exercise of judicial or juror intuition, and presumably results in unpredictable and inconsistent applications."(12) And he specifically took issue with Summers's "list of factors" approach: "No effort is made to develop a unifying theory that explains what these categories have in common. Indeed, the assertion is made that one cannot or should not do so."(13) In contrast, Burton argued that "[r]epeated common law adjudication, however, has enriched the concept of good faith performance so that an operational standard now can be articulated and evaluated."(14) Burton's theory was based on "a survey of over 400 cases in which courts explicitly refer to good faith in performance,"(15) but also on a basic low-tech efficiency analysis.(16)

Summers did not remain silent in the face of this challenge, and his response was methodological as much as it was substantive:

My view is that all such efforts to define good faith, for purposes of a section like 205, are misguided. Such formulations provide little, if any, genuine definitional guidance. Moreover, some of them may restrictively distort the scope of the general requirement of good faith.... Finally, the very idea of good faith, if I am right, is simply not the kind of idea that is susceptible of such a definitional approach.(17) Substantively, he argued that Burton's two-part inquiry was not helpful to deciding cases, that it did not focus on the right things, and that it did not go far enough.(18)

Burton responded with a thoughtful, and I think persuasive, reply to Summers's critique, in which he characterized the difference in their methodologies -- the difference that I am calling generational:

We want our language to call our attention to the facts that matter -- those that legitimately establish similarities with or significant differences from the precedents.... We want to know which facts shall count for more than their truth because they are legally significant. Language can perform this function in a number of ways in addition to `positive definitions.' Professor Summers' preference for "lists of factors generally relevant to the determination" favors one form that could be employed, in theory.... A second form that could be employed, however, is the general description or model -- a simplified representation of a complex reality.... Unlike most lists of factors, the general description technique encourages us to focus on complex webs of relationships among the facts.(19) Or, in the words of P.J. O'Rourke: "Complexities are fun to talk about, but, when it comes to action, simplicities are often more effective."(20)

In drawing attention to a generational shift in modes of scholarship, I do not wish to exaggerate it. Not everyone took the turn to unifying theory. Most notable among contracts scholars who did not are those associated with the Wisconsin Contracts Group(21) and those who were attracted to relational theory.(22) Nevertheless, both of these schools of thought grew out of the influence of two scholars who were born within four years of Robert Summers at the beginning of the Great Depression: Stewart Macaulay and Ian Macneil.(23)

Summers has not been without his own influence, particularly on his Cornell Law School colleague and casebook coauthor,(24) Robert Hillman. Hillman, a 1972 graduate of Cornell himself, began teaching in 1975 at the University of Iowa, where Steven Burton arrived two years later in 1977. They taught together for five years when, in a career move that starkly symbolizes his choice of scholarly models, Hillman left Iowa in 1983(25) to join the faculty of Cornell and his mentor Robert Summers.

1. HILLMAN'S CRITIQUE OF CONTRACT THEORY

   Over the past twenty-five years, Professor Hillman has made many valuable contributions to contracts scholarship,(26) but early on he expressed his discomfort with what he labeled "modern contract theory." In 1988, five years after moving from Iowa to Cornell, he published an essay, The Crisis in Modern Contract Theory,(27) in which he laid out a general critique of unifying theories, and which he has now expanded into a book, The Richness of Contract Law.

   The title of Hillman's book is intended to emphasize the fact that contract law is far more complex and "rich" than modern unifying contract theories seem to acknowledge:

   Contract law includes a rich combination of normative approaches and theories of obligation. It is divided by special rules for distinct kinds of contracts and is subject to many exceptions and counter-principles. Despite its...