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COMPARATIVE CONTRACT LAW

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RESEARCH HANDBOOKS IN COMPARATIVE LAW


Series Editors: Francesco Parisi, Oppenheimer Wolff and Donnelly Professor of Law,
University of Minnesota, USA and Professor of Economics, University of Bologna, Italy
and Tom Ginsburg, Professor of Law, University of Chicago, USA

The volumes in this series offer high-level discussion and analysis on particular aspects of
legal systems and the law. Well-known scholars edit each handbook and bring together
accessible yet sophisticated contributions from an international cast of top researchers.
The first series of its kind to cover a wide range of comparative issues so comprehensively,
this is an indispensable resource for students and scholars alike.
Titles in this series include:

Comparative Constitutional Law


Edited by Tom Ginsburg and Rosalind Dixon

Methods of Comparative Law


Edited by Pier Giuseppe Monateri

Comparative Law and Society


Edited by David S. Clark

Comparative Labor Law


Edited by Matthew W. Finkin and Guy Mundlak

Comparative Tort Law


Edited by Mauro Bussani and Anthony Sebok

Comparative Competition Law


Edited by John Duns, Arlen Duke and Brendan Sweeney

Comparative Law and Economics


Edited by Giovanni B. Ramello and Theodore Eisenberg

Comparative Criminal Procedure


Edited by Jacqueline E. Ross and Stephen C. Thaman

Comparative Law and Regulation


Understanding the Global Regulatory Process
Edited by Francesca Bignami and David Zaring

Comparative Contract Law


Edited by Pier Giuseppe Monateri

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Comparative Contract Law

Edited by

Pier Giuseppe Monateri


Professor of Comparative Law, Department of Law,
University of Turin, Italy

RESEARCH HANDBOOKS IN COMPARATIVE LAW

Cheltenham, UK + Northampton, MA, USA

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The editor and contributing authors severally 2017

All rights reserved. No part of this publication may be reproduced, stored in a


retrieval system or transmitted in any form or by any means, electronic, mechanical
or photocopying, recording, or otherwise without the prior permission of the
publisher.

Published by
Edward Elgar Publishing Limited
The Lypiatts
15 Lansdown Road
Cheltenham
Glos GL50 2JA
UK

Edward Elgar Publishing, Inc.


William Pratt House
9 Dewey Court
Northampton
Massachusetts 01060
USA

A catalogue record for this book


is available from the British Library

Library of Congress Control Number: 2016944271

This book is available electronically in the


Law subject collection
DOI 10.4337/9781785369179

ISBN 978 1 84980 451 6 (cased)


ISBN 978 1 78536 917 9 (eBook)

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01

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Contents

List of contributors vii

Introduction 1
Pier Giuseppe Monateri

PART I CONTRACT LAW: THEORIES AND GENEALOGIES

1 Theories of contract law 7


Brian H. Bix
2 In defense of Roman contract law 19
James Gordley
3 The authoritarian theory of contract 47
Pier Giuseppe Monateri
4 Contract and the comparatist: should we think about contract
in terms of contracticles? 67
Geoffrey Samuel
5 Critical comparative contract law 95
Giovanni Marini
6 Contract law and regulation 111
Giuseppe Bellantuono

PART II MARKET VALUES AND THEIR CRITIQUES: PRIVATE


GOVERNANCE AND NORMATIVE REGULATIONS

7 Enforcing bilateral promises: a comparative law and economics


perspective 145
Francesco Parisi, Marta Cenini and Barbara Luppi
8 Spontaneous order and freedom of contract 173
Carlo Ludovico Cordasco
9 Party autonomy 193
Horatia Muir Watt
10 Who is the contracting party? A trip around the transformation
of the legal subject 205
Maria Rosaria Marella

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vi Comparative contract law

11 Freedom of contract and constitutional values: some exceptional


cases from the Colombian Constitutional Court 216
Pablo Moreno Cruz

PART III REPRESENTATIONS AND NARRATIVES

12 The unburiable contract: Grant Gilmores discontinuous parabola


and the literary construction of American legal style 245
Cristina Costantini
13 Queering the contractual paradigm between law and political
theory 303
Flavia Monceri
14 Contracts in literature: from Doctor Faustus to vampires 322
Daniela Carpi
15 Women and contracts in Angela Carters postmodern revision
of the fairy tale 361
Sidia Fiorato

PART IV GLOBAL CONTEXT AND LOCAL FRAMES

16 The wrecking ball: good faith, preemption and US exceptionalism 385


Peter Goodrich
17 Technological contracts 408
Massimiliano Granieri
18 Contractual interpretation: the South African blend of common,
civil and indigenous law in comparative perspective 451
Andrew Hutchison
19 Promissory estoppel 469
Paolo Pardolesi
20 Party autonomy in global context: an international lawyers
take on the political economy of a self-constituting regime 512
Horatia Muir Watt

Index 537

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Contributors

Giuseppe Bellantuono is Associate Professor of Comparative Private


Law at the University of Trento, Faculty of Law. His research interests
include the comparative analysis of regulatory systems, methodologies of
comparative law, interdisciplinary approaches to legal studies, law and
technology, comparative energy law, and comparative communications
law. Among his recent publications are: Contratti e regolazione nei
mercati dellenergia (2009); Law, Development and Innovation (co-
edited with F. Lara, 2015); and Convergences and Divergences Between
the Italian and the Brazilian Legal Systems (co-edited with F. Puppo,
2015).
Brian H. Bix is Frederick W. Thomas Professor of Law and Phil-
osophy, University of Minnesota. He was a Visiting Professor of Law at
Georgetown University Law Center during the Spring semester of 2000
and at George Washington University Law School in the Fall of 1999.
Professor Bix was the Lecturer in Jurisprudence and Legal Reasoning at
Kings College, University of London, from 1991 to 1993. He is a
Member of the Bar of the States of Minnesota, Connecticut and Massa-
chusetts, and a member of the American Law Institute. His publications
are primarily in the areas of contract law, legal philosophy and family
law, and include: Contract Law: Rules, Theory, and Context (2012); A
Dictionary of Legal Theory (2004); and Jurisprudence: Theory and
Context (7th ed., 2015).
Daniela Carpi is Professor of English Literature at the Department of
Foreign Languages and Literature at the University of Verona. She is the
President of AIDEL and a member of Academia Europaea. She is a
member of AIA, Associazione Italiana di Anglistica; of the European
Society for the Study of English, ESSE; and of IASEMS, Italian
Association of Shakespearean and Early Modern Studies. She is on
the editorial board of the journals Symbolism: A Journal of Critical
Aesthetics (New York), Anglistik (University of Heidelberg), Cardozo
Law Bulletin (University of Trento), La Torre di Babele (University of
Parma), Law and Humanities (University of Warwick) and CoSMo
(Comparative Studies in Modernism) (University of Turin). She
co-founded and co-directs the journal Polemos. Her fields of research are

vii

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viii Comparative contract law

literature and law, literature and science, literature and visual arts,
Renaissance theatre, postmodernism, critical theory. Her latest mono-
graph is Fairy Tales in the Postmodern World. No Tales for Children
(2016).
Marta Cenini is Researcher of Private Law at the University of Milan.
In 2013 she obtained the National Scientific Qualification (Law no. 240
of 30 December 2010, article 16) to the position of Associate Professor in
Private Law. She holds a Ph.D in Private Law and she has published in
English and Italian in the fields of contractual damages and tort law,
remedies for breach of contracts, legislation concerning circulation of
goods, securities, and, recently, environmental liability, always using as
research tools the comparison with laws of different countries and the
economic analysis of law. Among her publications, Gli acquisti a non
domino (2009); Cases and Materials on Italian Private Law (with
Rossella Esther Cerchia, 2016).
Carlo Ludovico Cordasco is Ph.D Candidate in Political Philosophy at
the Department of Politics at the University of Sheffield and Visiting
Scholar within the Politics, Philosophy and Economics Program at the
University of Pennsylvania.
Cristina Costantini is Associate Professor of Private Comparative Law
at the University of Perugia. She is member of AIDC (Associazione
Italiana di Diritto Comparato), AIDEL (Associazione Italiana di Diritto e
Letteratura), Selden Society (London), ESSE (The European Society for
the Study of English), and AIA (Associazione Italiana di Anglistica). She
is Managing Editor of Cardozo Electronic Law Bulletin; member of the
Scientific Committee of the review CoSMo (Comparative Studies in
Modernism); Assistant Editor of Plemos: A Journal of Law, Literature
and Culture; member of the Editorial Board of Comparative Law Review
and Comparazione e Diritto Civile. Her main fields of research include
the comparative construction of legal traditions, the history of English
common law, the intellectual assessment of the liminal thresholds within
the humanities (law and literature; law and philosophy; law and religion).
Among her numerous publications: La Legge e il Tempio. Storia com-
parata della giustizia inglese (2007); The Keepers of Traditions: The
English Common Lawyers and the Presence of Law (2010); Representing
Law: Narrative Practices, Poetic Devices, Visual Signs and the Aesthetics
of the Common Law Mind (2013).
Sidia Fiorato is Researcher of English Literature at the University of
Verona. Her fields of research include detective fiction and the legal
thriller, law, literature and culture, literature and the performing arts,

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Contributors ix

Shakespeare studies, the fairy tale. Among her publications, Il Gioco con
lombra. Ambiguit e metanarrazioni nella narrativa di Peter Ackroyd
(2003); The Relationship Between Literature and Science in John Ban-
villes Scientific Tetralogy (2007); and essays on the contemporary novel,
Shakespearian adaptations, Victorian literature.
Peter Goodrich is Professor of Law and Director of the Program in Law
and Humanities at Cardozo School of Law, New York. He was the
founding dean of the department of law, Birkbeck College, University of
London, where he was also the Corporation of London Professor of Law.
He has written extensively in legal history and theory, law and literature
and semiotics and has authored 12 books. He is managing editor of Law
and Literature, and was the founding editor of Law and Critique. His
most recent book is Legal Emblems and the Art of Law (2013); and to
this coruscating and lucifugous erudition can be added co-writing and
co-producing the award winning documentary Auf Wiedersehen:Til We
Meet Again (Diskin Films, 2012).
James Gordley is W.R. Irby Professor of Law at Tulane Law School and
Shannon Cecil Turner Professor of Jurisprudence Emeritus at the Univer-
sity of California School of Law at Berkeley. He is a member of the
American Academy of Arts and Sciences, a Corresponding Fellow of the
British Academy, and a membre titulaire of the Acadmie international
du droit compar.
Massimiliano Granieri is Associate Professor of Comparative Private
Law, Department of Mechanical and Industrial Engineering of the
University of Brescia Health and Wealth (Italy) and adjunct faculty of
European Private Law at the Widener Law School (United States). He
holds a JD from the LUISS Guido Carli School of Law, a Ph.D from the
University of Florence and an LLM from the University of California at
Berkeley, Boalt Hall. He was the Jemolo Fellow at Nuffield College,
Oxford (United Kingdom).
Andrew Hutchison is an Associate Professor in the Department of
Commercial Law at the University of Cape Town, South Africa.
His affinity for contract law began during his LLM studies at UCT
(20056), and was carried through to his Ph.D thesis on fundamental
change of circumstances in contract law (hardship), completed in 2010.
He has published a body of work in leading South African and inter-
national law journals on contract law. His main research interests are
general principles of contract law, specific and commercial contracts,
insurance law, constitutional development of contract law, decolonization

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x Comparative contract law

of law/customary law (with reference to contracting), comparative con-


tract law, and legal interpretation.
Barbara Luppi is Assistant Professor of Economics, University of
Modena. She holds a Ph.D in Political Economy from the University of
Bologna and a Ph.D in Economics from the London School of Eco-
nomics and Political Science. She has held visiting positions at the Eitan
Berglas School of Economics at Tel Aviv University and at the University
of Minnesota. Her recent research has focused on law and economics,
finance and behavioural economics and bounded rationality. Among her
main publications, Deterrence of Wrongdoing in Ancient Law in G.
Dari Mattiacci, Roman Law and Economics (2015); Behavioral
Approach to Tort Law in J. Teitelbaum and K. Zeiler (eds), Handbook of
Behavioral Law and Economics (Edward Elgar Publishing, 2015); Rent-
Seeking in the Law in R. Congleton and A. Hillman (eds), Companion to
the Political Economy of Rent-Seeking (Edward Elgar Publishing, 2015).
Maria Rosaria Marella is Full Professor of Law at the University of
Perugia Faculty of Law, where she teaches Private Law and heads the
Law Clinic on Health, Environment and Territory. She is a member of the
Socit de Lgislation Compare, the International Academy of Com-
parative Law, the Association of Italian Private Law Scholars and the
Italian Society of Feminist Legal Scholars (GIUdIT). She has been
awarded the Canadian Studies Faculty Research Award twice (in 2008
and 2010). Her current fields of study concern comparative family law
and the law of property with a focus on the tension between the
traditional private property paradigm and alternative forms of ownership
and use of resources. She has recently published a book on family law as
a governmental apparatus, Di cosa parliamo quando parliamo di famiglia
(with G. Marini, 2014) and a book on the commons and their legal
regulation, Oltre il pubblico e il privato. Per un diritto dei beni comuni
(M.R. Marella ed., 2012). Other recent publications include: The
Commons as a Legal Concept, Law & Critique (forthcoming); The
Contractualisation of Family Law in Italy in F. Swennen (ed.), Contrac-
tualisation of Family Law Global Perspectives (2015); Famille (with
Giovanni Marini) in M. Troper and D. Chagnollaud (eds), Trait inter-
national de droit constitutionnel (2012); and Critical Family Law,
American University Journal of Gender, Social Policy & the Law (2011).
Giovanni Marini is Full Professor of Law at the University of Perugia
Department of Law, where he teaches Private Comparative Law. He
received his law JD from the Universit degli studi di Roma, La Sapienza
(Rome, Italy) and the MCL from Michigan Law School (Ann Arbor,

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Contributors xi

United States) where he was Fulbright fellow. He has been a researcher


at European University Institute (Fiesole) and a visiting professor at Yale
Law School (New Haven, United States), Max Plank Institute (Hamburg,
Germany), Harvard Law School (Cambridge, United States) and Univer-
sit Paris I, Sorbonne (Paris, France). He has published papers and books
in many areas of interest, such as comparative law, comparative jurispru-
dence, tort law, property and contract law and family law.
Pier Giuseppe Monateri is Visiting Professor at Sciences Po, Paris and
Professor of Comparative Law at the University of Turin. He is titular
member of the International Academy of Comparative Law (New York);
member of Accademia delle Scienze (Bologna); Profesor Honorario
Universidad San Marcos (Lima); Vice-President of AIDEL (Associazione
Italiana di Diritto e Letteratura). He is former Vicarious Rector of the
University of Trento and Past-President of the Italian Association of
Comparative Law. He has been the first Director of the Department of
Private Law of the State, Scuola Superiore della Pubblica Amministrazi-
one (Rome) and former member of the Board of the Italian Society for
Law and Economics. He has been honoured as Jean Monnet Professor of
European Law at the University of Trento. His main fields of research
include comparative law, contract law, tort law, and law and humanities.
Among his publications are The Italian Legal System: An Introduction
(with M. Livingston and F. Parisi, 2015); Classics in Comparative Law
(with T. Ginsburg and F. Parisi, 2014); Methods of Comparative Law
(2012); Black Gaius: A Quest for the Multicultural Origins of the
Western Legal Tradition (2000).
Flavia Monceri is Associate Professor of Political Philosophy, Universit
del Molise, Italy, where she teaches Political Philosophy, Gender Studies
and Multiculturalism and Intercultural Communication. Her research
interests include continental philosophy (from Nietzsche on), queer and
transgender theories, disability studies, intercultural communication, film
philosophy, complexity and systems theories, East Asian cultures,
religions, and institutions (especially Japan).
Pablo Moreno Cruz is Professor of Comparative Law at the University
Externado de Colombia. He is currently also teaching Theory of Com-
parative Law in the Masters on Global Rule of Law and Constitutional
Democracy at the University of Genoa, and a module of the course Law
of the Americas at the University of Ferrara. Between 2011 and 2015 he
taught Comparative Law at the University of Genoa, Imperia. He holds a
law degree from the University Externado de Colombia (2000), a
Masters in European Private Law from the University of Roma, La

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xii Comparative contract law

Sapienza (2005) and a Ph.D in Comparative Law from the University of


Ferrara (2010). He has been a visiting scholar at the University of
Pennsylvania, Penn Law School (2008). He is a member of the editorial
board of Revista de derecho privado published by the University Exter-
nado de Colombia.
Horatia Muir Watt is Professor at the Law School, Sciences Po Paris,
where she currently co-directs the speciality Global Governance Studies
within the Masters in Economic Law. She teaches and publishes in the
field of private international law and comparative law, where she de-
velops critical and interdisciplinary approaches. She was elected in 2013
to the Institute of International Law. She is Editor in Chief of the Revue
critique de droit international priv and on the editorial board of various
international law reviews or journals (Journal of Private International
Law, European Review of Contract Law, Transnational Legal Theory)
and co-editor of various collections: International Studies in the Theory
of Private Law, Private Law in European Context, and A droit ouvert
chez Dalloz (with Antoine Lyon-Caen). Her books include Aspects
conomiques de droit international priv (2005); Common law et trad-
ition civiliste (with Duncan Fairgrieve, 2006) (a pocket comparative
study); Droit international priv (with Dominique Bureau, 2007, now in
its 3rd edition, 2014), and a Que sais-je on the same subject (also with
Dominique Bureau, 2009). She co-edited The Making of European
Private Law: Regulatory Strategies and Governance (with Fabrizio
Cafaggi, vol. I 2008, vol. II 2009). She is co-editor of Private Inter-
national Law as Global Governance (with D. Fernandez Arroyo, 2014).
Representative publications in article form include, Private International
Law Beyond the Schism in Transnational Legal Theory (2011); Dette
souveraine et main visible du march: de nouveaux enjeux du droit
international priv des contrats in Revue critique de droit international
priv (2015); Conflicts of Laws Unbounded: The Case for a Legal-
Pluralist Revival in Transnational Legal Theory (2016).
Paolo Pardolesi has a Ph.D in Comparative Private Law from the
University of Trento and was Official Visiting Researcher at Yale Law
School. He is currently Associate Professor of Comparative Law at the
University of Bari, Aldo Moro, Italy, and a lawyer enrolled in the Bari
Bar Association.
Francesco Parisi is the Oppenheimer Wolff and Donelly Professor of
Law at the University of Minnesota, Law School and a Professor of
Economics at the University of Bologna, Department of Economics.
From 2002 to 2006 he held a Chair in Private Law at the University of

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Contributors xiii

Milan (Statale), where he was appointed Professore Ordinario per Chiara


Fama. From 1993 to 2006 he taught at George Mason University where
he served as Professor of Law and Director of the Law and Economics
programme, and as an Associate Director of the J.M. Buchanan Center
for Political Economy.
Geoffrey Samuel is Professor of Law at the Kent Law School, Univer-
sity of Kent, and a Professor affili at the Sciences Po Law School. He
holds doctorates from the universities of Cambridge and Maastricht and
an honorary doctorate from the University of Nancy 2. His research
interests are in the areas of comparative law theory, legal epistemology
and the law of obligations. His most recent books are An Introduction to
Comparative Law Theory and Method (Hart Publishing, 2014) and A
Short Introduction to Judging and to Legal Reasoning (Edward Elgar
Publishing, 2016).

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Introduction
Pier Giuseppe Monateri

Contract has never been more alive than nowadays and pervasively
dominates world transactions. Notwithstanding its enduring presence and
the complex apparatuses of technicians devoted to managing clauses and
interpretation, the inquiry on the proper nature of contract, on its status
and collocation within private legal taxonomies continues to be a
controversial exercise. This comprehensive book, which collects the
contribution of different scholars from different backgrounds, offers a
thoughtful survey of theories, issues, cases, in order to reassess the
present vision of contract law. The adjective comparative, prominent in
the title, refers both to the specific kind of methodologies implied, and to
the polyphonic perspectives collected on the main topics, with the aim of
superseding the conventional forms of representation. In this perspective,
the work engages a critical search for the fault-lines, which cross
traditions of thought and globalized landscapes.
Moving from a vast array of dissimilar inclinations, which have
historically produced heterogeneous maps of law along with protean
representative aesthetics, the book is built around four main groups of
insights, including: the genealogies of contractual theoretical thinking;
the contentious relationship between private governance and normative
regulations; the competing styles used to stage contract law, and the
concurring opinions expressed within the domain of other disciplines,
such as literature and political theory; the tensions between global
context and local frames and the movable thresholds between canonical
expressions and heterodox constructions.
Part I (Theories and Genealogies) deals with fundamental
epistemological issues and aims to dissect the underlying structure of the
most accredited conceptual frameworks. How can we critically rebuild a
theory of theorizing contract law as a separate field of law? How can we
reassess the genealogy of contract law, managing the darker legacies
embedded in Roman tradition? As it has been noted, despite the long
history and the recent increase in theorizing about contract law, the
nature and purpose of such theorizing remain under-discussed and many
basic questions remain unanswered. Competing visions have framed the
intellectual debate: autonomy theories have confronted property and

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2 Comparative contract law

reliance theories and from their impact, if not from their collision, a new
creature, a hybridized form of scientific construction has taken shape. On
a parallel level, the trans-historical and inter-cultural investigation paves
the way to the possible corruption or contamination of the normative
purity predicated to contract law by legal science. A deeper look reveals
the quest for new taxonomies, for other schemes of intelligibility apt to
valorize the specific role played by contracticles, namely by different
types of transactions to be found at the lowest level of generality. In this
perspective, a supplementary bulk of fragmented knowledge opens mean-
ingful fissures within the body of systematized codes. The reflection on
the actual morphology of contract rules also reveals the growing influ-
ence of social justice in private law and uncovers the failures that can be
ascribed to the liberal conceptions of classical legal thought. In the
present context, an intriguing and illuminating exercise could be to
explore the relationship between what would be called traditional
contract law and regulatory contract law. This is not a well-established
topic in the comparative law literature and rouses broader and more
systematic inquiries.
Part II (Market Values and Their Critiques: Private Governance and
Normative Regulations), developing the arguments introduced at the end
of Part I, reports the most interesting positions on the relation between
private governance and normative regulation. Once again, the issues of
complexity and spontaneous order are under scrutiny, in order to pursue a
strategic response to decisive questions, such as: how is it possible to
maximize the satisfaction of the largest number of compatible goals in
complex systems such as contemporary societies? How is it possible to
secure an acceptable degree of certainty and to have efficient rules in
order to achieve cooperation? On these premises, the contributors re-
discover the various political representations of private autonomy and
detect the key function fulfilled by the principle of party autonomy
within the political economy of private ordering in todays global
scenery. According to a skeptical view, it could be argued that even one
of the most powerful creations of the legal science underlying classical
legal thought, which lasted almost unchanged through the second global-
ization of law, has now come to an end or, in any case, has been
dramatically transformed. A critical perspective aims both to trace and
dissect the epiphanies of this substantial crisis and to propose new
re/de-constructive projects. Another important and closely related topic is
the tense relationship between freedom of contract and judicial interven-
tion on the agreement. In particular, the jurispathic power asserted by
national courts is scrutinized both in its theoretical foundations and in its
operational way of functioning. The judicial creation of exceptions, of

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Introduction 3

cases of contractual terms inapplicability, seems to construct a kind of


supra-competence of the judiciary, enhancing a newfangled sovereign
order, based on a hyperbolic claim.
Part III (Representations and Narratives) stages a compelling por-
traiture of the representational models, which have structured the multi-
farious narratives on contract law. Law, literature and politics are here
intersected in a fruitful interplay of mutual illuminations. The literary
emplotment of legal traditions is disclosed with its inner strategic
potentialities. A particular attention is reserved to the wavering shifts
which have animated the American legal debate, from the assertive and
dogmatic rise of a classical theory of contract to its fall and disintegration
under the fierce attacks of legal realism. The unresolved alternation of
order and crisis, stability and change, certainty and instability is captured
and expressed by the means of the texts written by distinguished
intellectuals. The polyphonic voices are juxtaposed and assembled; legal
tradition is de- and re-composed through the accepted discourses and the
prospective imaginations of scholars and judges, here presented as
mindful legal humanists. In a corresponding way, literature comes to
vivify the normative world in which a community lives: novels, poetry,
fairy tales, dramas and other genres express aspirations and perceptions,
evaluations and expectations. Law lives in literature and is questioned by
literature. Prospecting an unavoidable bond, an inseparable relation
between law and literature, the volume offers a bright ensemble of
diachronic examples, which substantiate the literary lecture of contractual
theories and rules from the Renaissance to the Victorian era, and also
reproduce the deep quest engaged by postmodern compositions. The
interdisciplinary approach allows us to disclose the inconsistencies of the
contractual paradigm (the tenet according to which the social institution
we are used to naming the State has been established by means of a
(social) contract), as one of the most appealing ideas in the history of
modern and contemporary Western political thought. In fact, searching
for the identification of who is entitled to sign the original contract, one
could find that this abstract contractor is concretely personified and
identifies as a male, white and Christian human being. The two most
important requirements for a man to become such a full member are
heterosexuality and able-bodiedness or ableness.
Part IV (Global Context and Local Frames) focuses on the process by
which global ideas, principles and institutions could eventually be
reinterpreted through local frames of reference. Dealing with the main
arguments introduced in Part I, in this renovated de-contextualization and

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4 Comparative contract law

re-contextualization framework, the theorization refers to a dis-


embedding/re-localizing strategy. On this ground, the theoretical para-
digms through which a contract may be read are previously identified in
broader terms, emphasizing their essential characteristics and, subse-
quently, are measured and operationally tested with regard to the specifi-
cities of selected jurisdictions. An analogous exercise is meant to make
clear the proper functioning both of doctrines and of remedies. Therefore,
the doctrine of good faith is scrutinized according to its general scope
and to the exceptional application made in recent decisions of US Courts.
Analogously, Part IV presents a critical genealogy of promissory estop-
pel, dwelling upon the sharp break from the traditional approach and the
paradigm shift from the reasonableness of the conduct during the
negotiations and moves in the direction of the obligation to act in good
faith. A stimulating analysis, conducted through comparative methodol-
ogies, probes the binomial technology/contracts and provides the
observer with a comprehensive view of local responses to common
universal problems and developments posed by use of technology in
contracts.
Comparative Contract Law is intended to be an original contribution to
the ongoing elaboration of contractual theories and a contemplative effort
to explore uncharted paths of inquiry at the intersection of different fields
of research.

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PART I

CONTRACT LAW:
THEORIES AND
GENEALOGIES

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1. Theories of contract law


Brian H. Bix

INTRODUCTION
Theorizing about contract law has a long history its origins coincide
with the origins of thinking of about contract law as a separate area of
law.1 However, there has been a particular flourishing of work (at least in
English) on contract theory in recent decades, prompted in large part by
the publication of Charles Frieds influential book, Contract as Promise2
(about which, more below). Despite the long history and recent increase
in theorizing about contract law, the nature and purpose of such theoriz-
ing remains under-discussed and many basic questions remain
unanswered.
In this chapter, section I will discuss general considerations relating to
theorizing about contract law, section II offers an overview of some
major types of theories, and section III raises some of the skeptical
challenges to theorizing in this area.

I. THEORIZING ABOUT CONTRACT LAW


A basic question about theories of contract law is, what is the nature and
purpose of such a theory? Surprisingly, while there is a growing literature
regarding which is the best theory of contract law, there is relatively little
discussion of this foundational inquiry. At a basic level, a theory of a
social practice could be descriptive (describing what is the case),
prescriptive (making claims about how the practice should be organized
or how existing practices should be reformed), or interpretive (sometimes
called rational reconstruction, this is a combination of description and
prescription, where existing practices are reformed or at least
re-characterized to make them better: more coherent, more legitimate,
etc.). It is crucial to understand what sort of claim is being made for or

1
See Simpson (1981).
2
See Fried (2015). The first edition of the book (published by Harvard
University Press) came out in 1981.

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8 Comparative contract law

by a theory, though this is a matter that theorists (and their critics) too
often leave undiscussed. Sometimes a theory and its critics are talking
past one another: it is not a fair criticism of a purely prescriptive theory
that it does not accurately describe current practices, and so on.
Additionally, we need to know something about a theorys purported
scope. Is the theory meant to be (at one end of the spectrum) about the
contract law of a particular jurisdiction at a particular time, (at the other
end of the spectrum) about all existing, past or possible contract law
systems, or something in-between? For example, when Charles Fried
offers a theory of contract Law,3 is it a theory of American (or, perhaps,
Anglo-American) contract law, a theory about (say) American, English,
and similar common law legal systems, or about all possible legal
systems? Fried never makes that clear.4
In the different area of general theories about the nature of law, it is
often reported that the theories are conceptual meaning that they are
true of any existing or possible legal systems, that they describe simply
and basically what must be true for something to be a legal system.5
Would it make sense to make comparable claims for a theory of contract
law (or tort law or property law), that there are certain characteristics that
must be true for something to be contract law? One could certainly
imagine a functional-style theory of this sort, e.g., that contract law is
whatever set of legal remedies are made available for the enforcement of
promises, exchanges and transactions.
At times the claims made regarding a doctrinal area of law are said to
be explanatory, but in a way that is more abstract or metaphorical.
When contract law is said to be essentially about promise6 (or tort law
to be essentially about corrective justice7), the theorist is usually not
saying that every rule, principle and practice of this doctrinal area
perfectly reflects that value, but more that this value pervades the practice
and is the primary component of the practices justification.
One final line of questioning regards the data that grounds the theory:
is the theory meant to explain or justify the outcome of particular cases
or is the theory meant to operate at a more general level, e.g., explaining
the rules or principles that cover whole categories of cases? To put the
issue another way, when it is said on behalf of a theory on contract law
that it explains or justifies contract law, what precisely within or about

3
Ibid.
4
See Bix (2012a).
5
See, e.g., Raz (2005).
6
See Fried (2015).
7
See, e.g., Coleman (1992).

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Theories of contract law 9

contract law is being explained or justified? The alternatives are perhaps


more sharply differentiated in common law legal systems (like those of
the United States and England), where (a) much of the contract law has
developed from judicial decisions rather than being stated in or derived
from a Code or other collection of statutes; and (b) the law continues to
be developed (modified) by contemporary judicial decisions (which also
bind lower courts and, generally, later decisions by the same court). At
least in relation to common law legal systems, one can reasonably ask
whether the data points that the theory purports to explain are the
particular case outcomes, or rather the black-letter rules (and principles)
that one may find in treatises, Restatements, and other summaries of the
field (but which have no authoritative status in (most) legal systems).8
It has already been mentioned that one type of theorizing about
contracts would involve interpretive claims, also known as rational
reconstruction. Interpretation/rational reconstruction has the advantage
of being similar to what lawyers do in many legal systems while arguing
a case: lawyers offer arguments that take into account relevant legal texts
and past judicial decisions, trying to offer a coherent and principled
justification of the whole area. In legal practice, this form of theorizing is
often part of advocating that the law be changed, filled in or clarified in
a way that is advantageous to one side of a legal dispute. There is a
robust argument that this is the best and most natural use for theories of
doctrinal areas: to offer guidance to judges who need to decide novel
questions of law (in a way that may also combine with the judges
improvement of the legal rules).9
There are, of course, other kinds of theories of, or relating to, contract
law, beyond those already mentioned. For example, Dagan and Heller
have offered what could be thought of as a theory of contract law, though
one that would be part of a larger moral or political theory, in that it
focuses on how the state can and should use contract law to promote a
good (and autonomous) life for its citizens.10 There is also, of course
(and as already mentioned), room for purely prescriptive theories, sug-
gesting what the ideal set of contract rules and principles would be (in
general, or for a particular country).
As already noted, it may be instructive to compare theories about
doctrinal areas of law with the perhaps better established and more
widely known and discussed theories about the nature of law the type

8
See Kraus (2007).
9
See Moore (2000).
10
Dagan and Heller (2013).

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10 Comparative contract law

of theory one finds in general jurisprudential discussions, and the works


of theorists like H.L.A. Hart, Hans Kelsen, Ronald Dworkin and John
Finnis.11 There are parallel questions regarding whether the claims of
these sorts of theories should be understood to be descriptive, interpretive
or conceptual, and whether it makes sense to speak of a general or
universal theory. One difference is that it may be sensible and valuable to
have a parochial theory of contract law (e.g., a theory of German, or
French, or American contract law) in a way that a (general) theory of
German, or French, or American law would likely seem less sensible and
useful.
There are obvious connections between the topic of this volume,
comparative contract law, and the issues surrounding theorizing about
contract law. Comparative contract law starts by assuming something
like the following: that there is a general category, contract law, such
that there are examples of that category in many, and perhaps all, legal
systems. And once one concludes (or assumes) that there are examples of
contract law in most, and perhaps all, legal systems, then it seems
sensible, or at least possible, to have a theory of what all (actual, or
perhaps actual and possible) members of that category (contract law)
have in common.
Additionally, it might be said that one needs to have at least an
intuitive sense of the nature and boundary lines of the category contract
law in order to do comparative contract law. One must know what to
include and to exclude in comparing one legal system with another: for
example, does comparative contract law extend to a countrys legal rules
regarding pension obligations? Landlord-tenant rules? Mandatory terms
for insurance policies? Requirements for separation agreements? Stand-
ards for when charitable pledges are enforceable? And so on.
While having a category of contract law gives one a subject for
theorizing, it still of course leaves open the question of whether anything
interesting can be said about that category, and also what are the nature
of claims being made within the theory. As already noted, a theory of
contract law could be making descriptive claims about what is true about
all the contract law systems one knows, or it could be making a
conceptual claim about what must be true of all contract law systems,
about what makes something a contract law system as opposed to
something else. (There is, inevitably, a certain amount of circularity in
the conceptual inquiry: if one is trying to determine what makes

11
See, e.g., Hart (2012); Kelsen (1997); Dworkin (1986); Finnis (2011); see
also Raz (2005).

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Theories of contract law 11

something contract law as opposed to something else, one will look at


all examples of what one calls contract law, to see what distinguishes
them from other things, e.g., legal rules of tort or restitution, or moral
rules about keeping promises. There is thus a certain reflective equilib-
rium between conventional or intuitive views about what fits into a
category, and potential theoretical views about what makes up the
boundary lines of the category.)
The next section considers some prominent examples of contract law
theories.

II. CURRENT THEORIES


A. Autonomy Theories

This is a broad category that could include not only the will theories of
contract that were popular in continental Europe in the nineteenth
century,12 but also more recent examples, like Charles Frieds promissory
theory13 and Randy Barnetts consent theory.14 These all qualify as
autonomy theories because they tend to focus on the choice of
(potential) contracting parties, and the importance of respecting and
enforcing such choices. The whole ideal of freedom of contract (and its
cognate, freedom from contract) is that contract law is distinctive
(relative both to public law and many other parts of private law) in giving
individuals significant power to choose which duties will bind them: in
principle, one chooses whether one enters any contracts at all, and the
terms of the contracts one does enter. And there is another tie to
autonomy: contractual partners are able to create legally enforceable
rights and obligations to help them achieve objectives it would be
difficult to achieve without legal enforcement of those commitments.15
The most influential modern autonomy theory is probably the promis-
sory theory. The impetus for a promissory theory of contract law is the
likely connection between the generally accepted moral obligation to
keep promises and the legal enforcement of contracts. However, there are
theorists who have questioned the connection between promises and
contracts;16 and, in any event, in almost all legal systems, a significant

12
Gordley (1991).
13
Fried (2015).
14
See, e.g., Barnett (1986); Barnett (2012).
15
Kraus (2009).
16
See, e.g., Pratt (2008); Shiffrin (2012).

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12 Comparative contract law

portion of promises are not legally enforceable (in common law systems,
generally only promises that are part of an exchange are enforceable; in
many civil law systems, there is a requirement that promises be suffi-
ciently important before they are enforced). The fact that not all promises
are enforced, and that courts often focus only on whether a party has
sufficiently outwardly/publicly consented to the legal duties in question,
has motivated the competing consent theory of contract law.17

B. Property Theories

Theories like Peter Bensons theory of contract law posit that a contract
involves a transfer of a property right, or something like a property right,
at the time the contract is entered.18 The advantage of this approach is
that it justifies the rule in many jurisdictions that in the case of a breach,
the non-breaching party has the right to full performance, or its economic
equivalent, even if the breach occurred so early that the non-breaching
party has not suffered any harm from the breach and has not relied on the
contract in any significant way.
On one hand, while the assertion that some sort of entitlement passes
between the contracting parties at the time the agreement is entered does
justify certain doctrinal outcomes, it seems to do this by assuming what
is to be proven. Perhaps more problematic: to claim that one party has an
entitlement or property right against the other leaves open many of the
intricate questions a working contract law system must answer regarding
the contours of that right, e.g., when does the party have the right that a
court order the other party to perform, and in the case of money
damages, how are damages to be measured, and what are the limits of
what can be recovered (e.g., in US contract law, there are limitations
based on causation, foreseeability, mitigation and certainty)? The asser-
tion that one has a property-like contractual right would only open the
inquiry on such questions, and would seem to leave a great deal still to
do before the questions are resolved.

C. Reliance Theories

Some theorists have noted that while the doctrinal rules in some legal
systems may allow the recovery of significant damages for breach of
contract at any point after the contract has been entered (as mentioned in
the previous section), in practice parties may not expect to recover

17
See Barnett (1986); Barnett (2012).
18
Benson (2001); Benson (2007).

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Theories of contract law 13

damages, and courts may be reluctant to award damages, unless the


non-breaching party can prove that the breach caused significant damage
(e.g., because of the non-breaching partys reasonable reliance on the
contract). It is additionally argued that, in any event, the moral claim for
damages is strongest when there has been such reliance, and weak when
no such detrimental reliance has occurred.19 This line of argument has
sometimes been thought to make up a reliance theory of contract law, and
some theorists have strongly urged a focus on (reasonable) reliance,
though it is hard to find fully-worked-out theories of contract law along
these lines.20 In any event, any theory that purports to ground the rights
party do (or should) have on their reliance, will need also to have a
theory regarding when such reliance is reasonable, and that will in turn
require some reference to other values (promise? consent? efficiency?).

D. General Theories, with Application to Contract Law

Along with theories aimed particularly at contract law, there are also
forms of legal theory whose scope is broader, but the scope includes an
application to contract law.
The most influential such general theory (at least in the United States)
is law and economics. Speaking in very rough terms, law and eco-
nomics involves the application of various resources of economic thought
to the understanding of legal rules, practices and institutions, and argues
that legal norms generally do, and generally should, promote economic
efficiency. A large number of theorists have used economic analysis as a
way to explain current contract law doctrine or to prescribe changes in
the current contract law rules (within a particular legal system, though
prescriptions may also range more broadly across legal systems).21
One advantage the economic analysis of law has over other (mostly
deontological) approaches to contract law is that economic analysis has
the resources to make recommendations regarding detailed contract law
rules and principles (e.g., when in a breach of contract case should a
non-breaching party be granted specific performance as opposed to
being confined to money damages? When should damages in a breach of
a construction contract case be measured in terms of cost of completion
as against diminution of value? And when should a seller have a
contract law obligation to disclose information?). A general reference to

19
See, e.g., Fuller and Perdue (19361937).
20
The usual names here are Patrick Atiyah, e.g., Atiyah (1979) and Grant
Gilmore, e.g., Gilmore (1974).
21
See, e.g., Posner (2011); Kronman and Posner (1979); Craswell (1989).

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14 Comparative contract law

autonomy, fairness, corrective justice or property is unlikely to


offer much guidance, while economically focused theorists at least
purport to have recommendations on most detailed questions, based on
efficiency.22
There are other comparably general theories with potential application
to contract law: e.g., utilitarian moral theories,23 Marxist and other
critical theories,24 feminist theories,25 and so on, with examples of such
applications in the notes.

E. Mixed Theories

As there are arguments in favor of a variety of approaches, it is not


surprising that some theorists have argued for a theory of contract law
that combines different approaches: in particular, combining autonomy
and consequentialism (law and economics).26 The difficulty with such
mixed theories is they require the theorist to offer a meta-theory that can
ground which justifications go to which part of the theory, or regarding
what the priority will be among the theorys justifications if and when
they conflict.

III. DOUBTS ABOUT THEORIES


There are theorists who have expressed skepticism about the possibility
or value of any general theory of contract law. This skepticism has been
grounded on a number of grounds, some of which are detailed below.

A. Basic Task

Contract law is a sub-category of law, and some of the same difficulties


that come with theorizing about law apply to theorizing about contract
law. In general, there are complications inherent in the task of offering a
theory of an ongoing social practice. Social practices change over time,
and vary from place to place. They are human creations, not defined by
chemical composition or species category the way natural kinds are.
There are reasons to doubt that there is a stable category, contract law,

22
See Craswell (1989).
23
See, e.g., Cohen (1933).
24
Unger (1986); Feinman and Gabel (1990).
25
See, e.g., Frug (1985).
26
See, e.g., Kraus (2001); Kraus (2002).

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Theories of contract law 15

to offer theories about, and also reasons to doubt that there is anything
valuable that could be said at a descriptive, analytical or conceptual level
about contract law (even skeptics would allow for the option of a purely
prescriptive theory of contract law, arguing for what would be the best
contract law system for a particular country).

B. Pluralism

A number of theorists have rejected theories of contract law on the basis


that it is mistaken or misleading to point to a single essence or nature
of contract law, because, the argument goes, contract law serves a variety
of goods. For example, in most legal systems, there are numerous limits
to autonomy (freedom of contract): one can be held to contractual
terms even if one did not know about or fully understand them, and there
are categories of terms that will not be enforced (e.g., on public policy
grounds) even if the parties consented to them with full knowledge.
Contract law systems generally include mandatory rules, default rules
and rules of interpretation which may frequently serve interests other
than respecting party choice (e.g., values of general fairness, protecting
vulnerable parties and expressing different public policies on particular
issues). And similar counter-examples can be raised to other alleged
essential values for contract law. Indeed, one might see the range of
different essentialist or prescriptive theories as themselves giving proof of
the variety of values that contract law can and should promote: e.g.,
while Ian Macneil famously argued that contract law does and should
promote long-term relationships,27 other writers have emphasized the
way that contract law does (and should) facilitate cooperation between
those who have been, and will remain, strangers.28 The obvious response
is that some types of contracts are primarily about supporting long-term
relationships, and some types of contracts are primarily about facilitating
short-term cooperation among strangers; contract law does and should
promote these quite different values, and many other values as well.

C. Variation

The challenge of variety responds to the (express or implicit) scope of


contract law theories that purport to be general, universal or conceptual.
The argument is that the rules, principles and practices of contract law
are sufficiently diverse over time, across jurisdictions, or even across

27
See Macneil and Campbell (2001).
28
See, e.g., Kimel (2003).

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16 Comparative contract law

transaction types within a single jurisdiction, that no single theory can


capture the whole range of contract law without either being so general,
or so cumbersome and detailed, as to be of little value as a theory.
For example, the analysis goes, across jurisdictions some contract law
systems protect naked promises (promises made without any return
promise, and without any detrimental reliance upon the promise) and
some do not; some jurisdictions prefer the remedy of specific perform-
ance (a court order that a party perform what it promised) for breach of
contract, while others do not; some jurisdictions allow awards of ex-
emplary (punitive) damages or damages for pain and suffering and
emotional distress while others do not, and so on.
Some theorists have argued that we should favor theories of contract
law that are general (at least within a single legal system) because
reinforcing common contract law principles may prevent the rules and
principles covering particular transaction types from being captured by
the interests and values of powerful groups (e.g., lawyers and lobbyists
for insurance companies determining the law of insurance policies, or
large businesses similarly determining the rules for consumer and
employment contracts).29 However, there is also a concern sometimes
expressed in the other direction: that the talk of a single essence to
contract law, especially when this is part of legal education or part of a
public image of contracts that presents them as paradigmatically involv-
ing two parties of equal bargaining power and sophistication negotiating
terms at arms length, may be a way to hide (to legitimate) the real
injustices and inequalities of contracting practices.30

D. Summary

The debate between advocates of contract law theories and skeptics often
seems to be primarily one of emphasis. For example, those favoring
having a general theory of contract law will usually concede that there is
significant variety across transaction types and across jurisdictions and
that there are some rules and practices that do not fit neatly under a
single rubric, but they urge that what is common and constant across
contract law(s) is more important than what varies. From the other
direction, skeptics of contract law theory do not deny that there are
common principles, rules and themes across transaction types and across
jurisdictions, likely based on shared intuitions about keeping promises

29
See Oman (2005).
30
Bix (2012b).

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and the regulation of transactions, but argue that what is common is less
important than what differs.31

CONCLUSION
The area of contract law theory remains largely unformed and unsettled.
Those offering such theories often ignore basic methodological questions
regarding what such theories are meant to accomplish and what the
criteria are for success. Two likely models for such contract law theories
are to see them as efforts to explain contract law, or to rationally
reconstruct its rules and principles. There remain issues as to whether
such theories should be seen as covering all existing, past and possible
contract law systems, or only contract law systems of the theorists home
nation and perhaps comparable current systems. Those who challenge the
possibility or value of contract law theories tend to emphasize the wide
variety of rules, remedies and practices across jurisdictions, over time,
and even across transaction types within a particular jurisdiction. Chal-
lenges may also focus on the plurality of goods that contract law rules
and practices promote, arguing that contract law theories that focus on
only one value inevitably distort the underlying contract law system too
much to be useful.

REFERENCES
Atiyah, P. (1979) The Rise and Fall of Freedom of Contract. Oxford: Oxford University
Press
Barnett, R. (1986) A Consent Theory of Contract, 86 Columbia Law Review 269321
Barnett, R. (2012) Contract is Not Promise; Contract is Consent, 45 Suffolk University
Law Review 64765
Benson, P. (2001) The Unity of Contract Law in P. Benson (ed.), The Theory of Contract
Law: New Essays. Cambridge: Cambridge University Press, 118205
Benson, P. (2007) Contract as a Transfer of Ownership, 48 William and Mary Law
Review 1673731
Bix, B.H. (2012a) Theories of Contract Law and Enforcing Promissory Morality:
Comments on Charles Fried, 45 Suffolk Law Review 71924
Bix, B.H. (2012b) Contract Law: Rules, Theory, and Context. Cambridge: Cambridge
University Press
Cohen, M. (1933) The Basis of Contract Law, 46 Harvard Law Review 553
Coleman, J.L. (1992) Risks and Wrongs. Cambridge: Cambridge University Press

31
Cf. ibid. at 12862 (arguing against contract theory) with Oman (2005)
(arguing for a general contract theory).

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18 Comparative contract law

Craswell, R. (1989) Contract Law, Default Rules, and the Philosophy of Promising 88
Michigan Law Review 489
Dagan, H. and Heller, M.A. (2013) Freedom of Contracts, available at http://papers.
ssrn.com/sol3/papers.cfm?abstract_id=2325254
Dworkin, R. (1986) Laws Empire. Cambridge, MA: Harvard University Press
Feinman, J.M. and Gabel, P. (1990) Contract Law as Ideology in D. Kairys (ed.), The
Politics of Law: A Progressive Critique. New York: Pantheon Books, 37392
Finnis, J. (2011) Natural Law and Natural Rights. Oxford: Oxford University Press, 2nd
edn
Fried, C. (2015) Contract as Promise. Oxford: Oxford University Press, 2nd edn
Frug, M.J. (1985) Re-Reading Contracts: A Feminist Analysis of a Contracts Casebook,
34 American University Law Review 1065
Fuller, L.L. and Perdue, W.R., Jr. (19361937) The Reliance Interest in Contract
Damages: Parts I and II, 46 Yale Law Journal 5296; 373420
Gilmore, G. (1974) The Death of Contract. Columbus, OH: Ohio State University Press
Gordley, J. (1991) The Philosophical Origins of Modern Contract Doctrine. Oxford:
Clarendon Press
Hart, H.L.A. (2012) The Concept of Law. Oxford: Oxford University Press, 3rd edn
Kelsen, H. (1997) Introductions to the Problems of Legal Theory (Bonnie Litschewski
Paulson and Stanley Paulson (trans.)). Oxford: Oxford University Press
Kimel, D. (2003) From Promise to Contract: Towards a Liberal Theory of Contract.
Oxford: Hart Publishing
Kraus, J.S. (2001) Reconciling Autonomy and Efficiency in Contract Law: The Vertical
Integration Strategy in E. Sosa and E. Villanueva (eds), Philosophical Issues: Social,
Political and Legal Philosophy. Oxford: Basil Blackwell, vol. 11, 42041
Kraus, J.S. (2002) Legal Theory and Contract Law: Groundwork for the Reconciliation of
Autonomy and Efficiency in E. Villanueva (ed.), Social, Political and Legal Philosophy,
vol. 1, Legal and Political Philosophy. Amsterdam: Rodopi, 385445
Kraus, J.S. (2007) Transparency and Determinacy in Common Law Adjudication: A
Philosophical Defense of Explanatory Economic Analysis, 93 Virginia Law Review
287359
Kraus, J.S. (2009) Personal Sovereignty and Normative Power Skepticism, 109 Columbia
Law Review Sidebar 12634
Kronman, A.T. and Posner, R.A. (eds) (1979) The Economics of Contract Law. Boston,
MA: Little Brown
Macneil, I. and Campbell, D. (2001) The Relational Theory of Contract: Selected Works of
Ian Macneil. London: Sweet & Maxwell
Moore, M.S. (2000) Theories of Areas of Law, 37 San Diego Law Review 73142
Oman, N.B. (2005) Unity and Pluralism in Contract Law, 103 Michigan Law Review
1483506
Pollock, F. (1885) Principles of Contract, London: Stevens and Sons
Posner, R.A. (2011) Economic Analysis of Law. New York: Aspen Publishers, 8th edn
Pratt, M. (2008) Contract: Not Promise, 35 Florida State University Law Review 80116
Raz, J. (2005) Can There be a Theory of Law? in Martin P. Golding and William A.
Edmundson (eds), The Blackwell Guide to the Philosophy of Law and Legal Theory.
Oxford: Blackwell Publishing, 32442
Shiffrin, S.V. (2012) Is a Contract a Promise in A. Marmor (ed.), The Routledge
Companion to Philosophy of Law. London: Routledge, 24157
Simpson, A.W.B. (1981) The Rise and Fall of the Legal Treatise: Legal Principles and the
Forms of Legal Literature, 47 University of Chicago Law Review 63279
Unger, R.M. (1986) The Critical Legal Studies Movement. Cambridge, MA: Harvard
University Press

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2. In defense of Roman contract law


James Gordley

Even those who understand and admire Roman contract law think that
modern contract law is a great improvement. As has often been said, in
contrast to the Romans, who had a law of particular contracts, we have a
general contract law reflecting general principles. One principle is that
contracts are binding upon consent, although there are exceptions such as
the common law rules on consideration and the civil law requirement that
certain contracts be notarized. Another principle is that the parties are
bound to the terms to which they expressly agreed and, if their agreement
is silent, to the terms on which they would have agreed had they given
the matter thought. A third is that when one party fails to perform, the
aggrieved party should receive a remedy that places him where he would
have been had the performance been forthcoming.
As I have described elsewhere, Roman law was first given a systematic
structure based on general principles by a group of jurists who worked in
the sixteenth and seventeenth centuries and are known to historians as the
Spanish natural law school or the late scholastics. They synthesized
Roman law with the moral philosophy of their intellectual heroes,
Aristotle and Thomas Aquinas. Many of their conclusions were borrowed
by the seventeenth century founders of the northern natural law school,
Hugo Grotius and Samuel Pufendorf, paradoxically, at the very time
when the Aristotelian philosophy on which these conclusions had been
based was falling into disfavor. In the nineteenth century, the doctrinal
structure was reworked by jurists we remember as will theorists. Their
innovation was not to recognize the importance of the concept of will
but, in A.W.B. Simpsons words, to treat the concept as a sort of
Grundnorm from which as many rules of contract law as possible were to
be derived. The three principles just mentioned emerged from the work
of the late scholastics as modified by that of the will theorists.
Elsewhere I have discussed the difference between the work of the late
scholastics and of the will theorists and its implications for modern law.
Here I will discuss some aspects of Roman contract law for which the
systematizers had no use. The late scholastics found no theoretical
justification for them and so dismissed them as matters of Roman
positive law. Many will theorists dismissed them as archaic features

19

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20 Comparative contract law

which modern law had outgrown, an opinion widely held today. I believe
that the work of systematizing Roman law was a great achievement.
Nevertheless, I will argue that these features were dismissed too quickly.

I. WHEN CONTRACTS ARE BINDING


As has often been said, the Romans did not have a general contract law
but a law of particular contracts. They began to use the term contract at
a comparatively late date, after most of the rules governing particular
contracts had been settled. Gaius was the first to distinguish the general
classes of obligations contractus and delictus.1 The distinction is similar
to one that Aristotle drew between involuntary and voluntary commuta-
tive justice. Modern scholars believe that Gaius took it directly or
indirectly from Aristotle.2 In any event, Gaius did not discuss its
implications. Having drawn this distinction, he immediately turned to the
rules that governed particular torts and contracts of Roman law. As Alan
Watson observed, for the Roman jurists:

Each individual type of contract, such as stipulation, loan for use, or loan for
consumption, sale, hire, or mandate, remains intact with its own sui generis
body of rules [F]or a Roman jurist it was unthinkable to write a
commentary on the law of contracts or even on the law of a group of
contracts, such as consensual contracts. The same is equally true of other
fields, for instance of delicts.3

Some of these rules concerned when an agreement between the parties


became binding. Although the Roman jurists recognized that the parties
must consent for any contract to be binding, only some contracts, the
consensual contracts or contracts consensu, were binding by consent
alone. Gaius mentioned sale, lease (or hire), partnership and mandate,
which is a kind of gratuitous agency.4 Others, the real contracts
(contracts re) were binding when an object was actually delivered, for
example, loans for use or for consumption, and deposit, all of which were
gratuitous. Other contracts were binding upon the execution of a formal-
ity. The all-purpose formality was stipulatio, which was originally oral
although eventually a writing could be used to prove that a stipulatio had

1
G. 3.88.
2
See Zimmermann (1990) 1011; Kaser (1959) 522; Honor (1962) 100;
Coing (1952) 59.
3
Watson (1995) 170.
4
G. III. 135.

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In defense of Roman contract law 21

been made. One party would ask the other, Do you promise such and
such? and the other would answer that he did. For each party to be
bound, each party would make a stipulatio in which his obligation was
conditional on the other partys fulfillment of his own. Eventually, a
special formality, insinuatio, was required for the promises of gifts. The
promise had to be officially registered. Finally, there were innominate
contracts, contracts without names, that were not enforceable before
performance. An example was barter.

A. Rejection of the Roman Distinctions

Although some medieval jurists expressed surprise that barter, unlike


sale, was not binding upon consent,5 the attack on the Roman distinctions
among contracts began with the late scholastics. Luis de Molina thought
that the Roman distinctions were wrong in principle. In a barter,
ownership was transferred when the objects exchanged were actually
delivered. Molina saw no reason why, if the parties so intended, they
could not transfer upon consent the right to demand delivery. A court
should ascertain their intent by examining the circumstances.6 Molina
concluded that everything, indeed, concerning innominate and
innominate contracts that was invented and introduced by the pagans
more subtly than usefully should be abolished.7 His contemporary
Leonard Lessius agreed that the Roman distinction had no principled
justification, but for a different reason. He claimed that Molina had failed
to recognize that promises are binding simply because they are promises
and not because of the precise intention with which they are made. A
promise was a commitment to do something, not a mere statement about
what one would do. Therefore every promise gave rise to an obligation.8
A promise to give one object in exchange for another was therefore
binding without any need to inquire into the circumstances.
In the seventeenth and eighteenth centuries, these arguments were
repeated by the leaders of the northern natural law school, Hugo Grotius,
Samuel Pufendorf and Jean Barbeyrac. Grotius and Barbeyrac made the
argument of Molina. Why, Grotius asked, may there not be transferred
a right in personam either that ownership be transferred or that something

5
See, e.g., Iacobus de Ravanis, Lectura Super Codice to C. 4.64.3 (1519);
repr. Opera iuridica rariora, vol. 1 (1967) (published under the name of Petrus
de Bellipertica: on authoriship, see Meijers (1959) 7277.
6
Molina (1614) disp. 262.
7
Ibid. disp. 258.
8
Lessius (1628).

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22 Comparative contract law

be done?9 Barbeyrac concluded that if a purely gratuitous promise can


confer a true right, then the one to whom the promise was made has
certainly lost a right that he had acquired.10 Pufendorf conflated the
arguments of Molina and Lessius. Every perfect promise gave rise to an
obligation because it is a perfect promise when a man not only declares
his will for a future time to perform something for another, but also
shows that he gives him a right whereby the other is fully entitled to
demand of him the thing promised.11 The Roman distinctions among
nominate and innominate contracts came to be regarded, at best, as a
peculiarity of Roman positive law, and, at worst, as a mistake. Over the
next century, they disappeared in jurisdictions that had adopted Roman
law.12 They were abolished by statute in parts of Spain.13 German and
Dutch jurists claimed that, unlike most of Roman law, they had never
been received.14 So did the leading French jurists Jean Domat and Robert
Pothier.15
Molina and Lessius launched the attack on the Roman distinctions with
a simple argument: the parties should be able to make their agreement
binding by consent if they so wished. Therefore, any of the contracts
recognized by Roman law should be binding by consent if the parties so
wished. The question that they did not face is whether or not the parties
to every sort of voluntary arrangement did wish to be bound on consent.
Molina said that a court should ascertain their intent by examining the
circumstances.16 But he was so certain that the parties would wish to be
bound upon consent that he said, everything, indeed, concerning
innominate and innominate contracts should be abolished.17 Lessius
thought that one who consented to a contract promised to abide by its

9
Grotius (1646) II.xi.1.3.
10
Barbeyrac (1734) n. 10 to III.v.10.
11
Pufendorf (1688) III.v.7.
12
See Zimmermann (1990) 53840, 54445.
13
Molina (1614) 25758.
14
Vinnius (1703) 3.14.2 11; Voet (1827) 2.14 9; Bhmer (1791) 2.14
25; Stryk (1739) 2.14 13; Brunnemann (1731) 2.14.7 no. 6. An exception
was Lauterbach, who denied that an action could be brought on a mere
agreement, Lauterbach (1707) 2. 4 1920. As Nanz noted, Wesenbeck, in a
commentary first published in 1565, was the first to make the claim that,
according to usage, all agreements are enforceable, for which he miscited
Bartolus and Baldus. Wesenbeck (1665) 2.14 9; Nanz (1985) 85. See Birocchi
(1990) 14655, 197213.
15
Domat (1771) liv. I, tit. i, sec. 1, 8; Pothier (1821) 3, 1.
16
Molina (1614) disp. 262.
17
Ibid. disp. 258.

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In defense of Roman contract law 23

terms, and therefore bound himself to do so before performance. It is


possible, however, for parties to agree on the terms of a voluntary
arrangement without wishing to be bound in advance of performance.
Lessius would say that they did not consent or promise and that
consequently their arrangement was not a contract. He did not deny that
if the parties did not wish to be bound in advance of performance, they
should not be. The question he did not address was when, typically, or
more often than not, the parties who entered into the Roman real
contracts and innominate contracts would wish to be bound.
The conclusion that in principle, all contracts are binding upon consent
was accepted by the nineteenth century will theorists virtually without
argument. They defined contract in terms of the will or consent or
agreement of the parties.18 They did not explain why the law should
enforce contracts or why the expressed will of the parties should be
respected. As Valrie Ranouil observed in her study of the French will
theories, they took the binding force of contract for granted rather than
demonstrating it.19 She quoted Gounots characterization of their view:
The contract is obligatory simply because it is the contract.20
The question that needs to be addressed is when the parties would wish
to be bound. We will examine that question, first, with regard to
innominate contracts such as barter, and second with regard to real
contracts such as loans for use and consumption and deposit. Then we
will see that the same question should be addressed even in dealing with
consensual contracts such as sale.

B. Innominate Contracts

In innominate contracts, one performance is given for another. There is


no price, and so the contract is neither a sale nor a lease. In a passage
ascribed to Paul but probably interpolated by Justinians compliers,21
there are said to be four such arrangements: either I give to you so that
you give; or I give so that you do; or I do so that you give; or I do so that
you do.22 We will discuss barter (permutatio), in which one thing is given

18
See, e.g., Savigny (1840) 134; Puchta (1884) 49, 54; Windscheid
(1891) 69; Demolombe (1882) 12; Larombire (1857) 1, 41; Laurent
(1875) 15, 42427; Leake (1867) 78; Pollock (1885) 19; Langdell (1880)
121. See generally Gordley (1991) 161213.
19
Ranouil (1980) 7172.
20
Gounot (1912) 129, quoted in Ranouil (1980) 72 n. 31.
21
Zimmermann (1990) 534.
22
Dig. 19.5.5.pr.

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24 Comparative contract law

for another, although the same analysis would apply to other innominate
contracts.
It is not clear that the reasons why contracts such as sale should be
binding in advance of performance normally apply to a barter. Modern
scholars disagree over what these reasons are. I have discussed their
opinions elsewhere,23 and argued that the best explanation is that of
Melvin Eisenberg: one party may want to lock in a favorable bargain.24 It
might seem as though the parties to a barter would want to lock in a
favorable trade just as the parties to a sale might want to lock in a
favorable price. Nevertheless, although the parties to a sale typically are
seeking the best bargain they can make, it is hard to say what is typical of
the parties to a barter. Moreover, even if the parties to a barter are
seeking the best deal they can, it is not clear that they would want to lock
each other in.
Sometimes, the parties to a barter are not seeking the most favorable
bargain. To intend to bind the other party legally would be repugnant to
the reason they chose to barter instead of choosing to buy and sell. One
party might want to acquire an object owned by the other party but,
because they are friends, relatives, neighbours or colleagues, they might
prefer to barter because a cash transaction seems commercial. Artists
frequently trade their work with each other in part because it would be
embarrassing for them to buy and sell for cash based on the estimated
market value of the work of each artist. One of the parties might be
trying to do the other a favor and wish to barter because the favor is less
obvious than if he had adjusted the price. During the Depression my
wifes grandfather, a physician, used to accept cuts of lamb and beef
from a local meat dealer in return for the medical services he provided. I
suspect that my grandfather-in-law was receiving less meat than he could
have purchased for his normal fee because he wanted to help his patients
in hard times, but it may be that the dealer was giving him more meat
than his normal fee would buy, having noticed that he was no longer
buying choice cuts of meat.
Even if each party to a barter were interested only in getting a good
bargain, they might not want the transaction to be binding in advance as
the parties typically do in a sale. Each party to a sale has the choice of
taking the price that the other party proposes or waiting and looking for
a better one. Because a sale is binding upon consent, each party insures
himself against the loss he would suffer if he had waited and obtained a

23
Gordley (2006) 29396.
24
Eisenberg (2001) 223, 279.

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In defense of Roman contract law 25

worse price by forfeiting the gain he would make if he had obtained a


better one. If the parties are risk averse, they will both want to insure. In
contrast, the parties to a barter may not be insuring themselves against
such a risk. They may have chosen to barter rather than to buy and sell,
not to avoid the risk of contracting on less favorable terms if they look
further, but to take advantage of the fact that each happens to have the
very thing that the other wants. Each may have something that the other
regards as very special or difficult to obtain elsewhere. Or they may be
bartering in order to avoid such extra costs as brokers fees, taxes
possibly, and, in any case, the time and money spent in looking for a
good price. The reason one party would want the other party to bind
himself in advance of performance is the fear that the other party will
back out, not because he has found better terms, but because he has
reconsidered and decided the exchange would make him worse off rather
than better. But is that a reason both parties are likely to have? And if so,
is it one the law should respect?
It might be that one party is afraid that the other will back out because
the other party has acted foolishly and will back out as soon as he
realizes it. He realizes that the exchange is one to which no sensible
person would agree. It is unlikely that both parties would want the other
to be bound for this reason, each believing that he has gulled the other. If
so, it is hard to see why the law should enforce an arrangement which is,
in effect, a bet they have placed on which of them has been gulled.
A more likely reason is that one party wants the other to be bound for
fear that the other will decide the exchange is not to his advantage
because of a change of circumstances or simply a change of mind. Is it
likely that both parties would have this fear, and to such an extent that
each would be willing to bind himself for fear the other party will not
wish to be bound? If so, each party thinks it more likely the other will
back out than that he will want to do so himself. Sometimes each partys
fear that the other will want to withdraw, and his confidence that he will
not wish to, may be so great that each party will want the arrangement to
be binding on both. But it would be odd if that were normally the case.
Even if it were, it is hard to see why the fear that one party may decide
the bargain is disadvantageous is a reason that the law should respect for
holding them bound. A prime objective of contract law is to allow the
parties to enter into contracts that make each of them better off, at least
in his own estimation. Sometimes there is a good reason why the party
who later finds the contract disadvantageous should not be able to
withdraw: the purpose of the contract is place on one of the parties a risk
that must be borne by someone. The party who bears that risk is
compensated for doing so. He should not be able to withdraw if he loses

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26 Comparative contract law

when he might have won. Insurance contracts are binding for that reason.
So, as we have seen, are sales which insure each party against the risk of
finding worse terms if he waits and looks further. Suppose, however, that
one party wants to lock the other in for fear the other party will discover
that the deal will make him worse off. It is hard to see what good purpose
is served by holding the parties bound in advance of performance. If each
party is free to withdraw, and one party discovers that the deal on the
original terms will make him worse off, it may still be possible to
renegotiate the deal on terms that make both parties better off. If not, one
party will have been made worse off and the normal purpose of contract
law will have been frustrated.

C. Real Contracts

In Roman law, some contracts, the contracts re, were not formed until an
object was delivered. Translators call them real contracts, using real in
the sense of real estate, not in the sense of the real McCoy. Among
these contracts are loan for consumption (mutuum), loan for use (com-
modatum), and deposit (depositum). All three are gratuitous. No compen-
sation is paid by the person who is allowed to consume or use a thing, or
to a person who agrees to safeguard an object deposited with him.
According to the late scholastics, as we have seen, all contracts should
be binding on consent as long as the parties so intended. They assumed
that when the parties consented, they intended to be bound as of that
moment. Nevertheless, they recognized that the real contracts were
different than others. One of the parties was doing the other a favor, and,
indeed, a favor that he could do without cost to himself. The lender might
have no other use for the object loaned, or the depositee for the storage
space needed to keep the object deposited. That difference seemed to call
for a difference in the treatment of these arrangements. Having assumed
that the parties had promised to be bound before delivery, Lessius and
Molina moderated the rigor of this conclusion by saying that they had
promised subject to a condition: that the party doing the favor could
perform at no cost to himself. If that party discovered that he needed the
object loaned or the storage space, he could withdraw from the arrange-
ment even after delivery.25
They reached this conclusion despite a Roman text:

As lending rests on free will and decency, not on compulsion, so it is the right
of the person who does the kindness to fix the terms and duration of the loan.

25
Lessius (1628) lib. 2, cap. 27, dub. 5; Molina (1614) disp. 294, nos. 810.

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In defense of Roman contract law 27

However, once he has done it, that is to say, after he has made the loan for
use, then not only decency but also obligation undertaken between lender and
borrower prevent his fixing time limits, claiming the thing back or walking off
with it in disregard of agreed times Thus, if you have lent me writing
tablets for my debtor to enter a cautio, you will do wrong suddenly to demand
them back. For if you had refused, I would have either bought some or made
sure I had witnesses present. The same applies where you have lent timber to
prop up a building and then hauled it away again or even knowingly supplied
defective materials. Favors should help, not lead to trouble.26

Molina agreed, as a general principle, that one party should not be able to
change their mind in a way that injures another. But, he argued, the
borrower should have understood that the loan was made on the tacit
condition that the lender continued to have no need for the object. If the
need arose, it was an accident for which the promisor should not be held
responsible.27
Thus, for the late scholastics, as for the Romans, mutuum, com-
modatum and depositum remained special contracts requiring special
treatment because a favor could be done costlessly. The Roman solution
had the advantage of simplicity: the party doing the favor could call the
arrangement off before delivery or afterwards with no questions asked,
unless he had set a time limit, in which case he must observe that limit.
The late scholastic solution had the advantage that it required the party
withdrawing from the arrangement to prove he had a good reason for
doing so. But it did not protect the party with whom the Romans
sympathized: a party who had changed his position expecting to receive a
favor and now was hurt when the arrangement was cancelled before the
time agreed. The reason, according to Molina, was that the consent of the
party conferring the favor was subject to a condition: that doing would be
costless. That conclusion seemed necessary because Molina and Lessius
had assumed that the parties had consented to be bound in advance of
performance, and they thought it unfair to hold him unconditionally
bound. But if he promised subject to such a condition, then the party to
receive the favor could not complain. Whether or not the late scholastic
solution was fairer than that of Roman law, the late scholastics arrived at
it, not by asking which solution was the fairest, but by assuming that, like
other contracts, mutuum, commodatum and depositum were binding upon
consent.
Modern jurisdictions have adopted either the Roman rule, or the late
scholastic rule, or some cross-variation. I edited a study in 2001 in which

26
Dig. 13.6.17.3.
27
Molina (1614) disp. 279 no. 10.

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28 Comparative contract law

authorities from 12 Member States of the European Union were asked


how their jurisdiction would resolve a series of problems concerning the
enforcement of promises. One problem concerned the loan of a car which
the owner later discovered that she needed for her own use.28 Here is a
summary of the answer in civil law jurisdictions:

In two civil law countries (Spain and Germany), and possibly in a third
(Greece), a contract of loan for use is formed whether or not the car is
delivered. In the rest, except for Scotland, such a contract is formed only if
the car is delivered; otherwise the arrangement is a promise to enter into a
loan for use (France, Belgium, the Netherlands, Portugal, Italy, Austria and
possibly Greece). In Italy, possibly in the Netherlands, and conceivably in
Spain and Portugal (where the majority opinion is to the contrary), the
distinction matters because such a promise would not be binding. In France
and Belgium, it matters because [the owner] can reclaim her car if circum-
stances have changed only if the contract is a loan for use. In Austria, it
matters because [the owner] can reclaim her car for this reason only if the
contract is not a loan for use In Scotland, the promise is unenforceable
(absent a writing or reliance) whether or not the car is delivered.
The Civil Codes of France, Belgium, the Netherlands, Italy, Austria, Germany
and Greece all provide that, in a loan for use, the lender who has a grave and
unforeseen need for the object loaned can reclaim it before the time agreed.
The Spanish Code has a similar provision that speaks of the gravity of the
need but not of its unforeseeability. The Portugese Code allows the lender to
reclaim it if he has a fair reason. The Austrian Code provides that the lender
cannot reclaim it.29

Another question dealt with a promise to store furniture without charge


when the promisor later learned that he needed the space himself to store
furniture he had just inherited:30

In two civil law systems, a contract of deposit is formed whether or not the
furniture has been delivered (the Netherlands and Germany). In seven civil
law systems a contract of deposit is formed only upon delivery; before then,
the arrangement is a promise to enter into such a contract. In two of these
systems, such a promise is enforceable (Belgium and Austria); in two it is
enforceable according to the leading opinion (Greece) or that of most scholars
(Portugal); in two it is uncertain whether it is enforceable (France and Spain);
and in one it is not enforceable unless made in the economic interest of the
promisee, as, possibly, if he were an antiques dealer or a professional storer

28
Gordley (2001) 17192.
29
Ibid. 19192.
30
Ibid. 11850.

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In defense of Roman contract law 29

In one system, the promise is not enforceable with or without delivery


absent a writing or reliance (Scotland).
In six systems, even if [the person storing the furniture] is bound con-
tractually, he will likely be excused because of a specific provision in the civil
code that a depositee can return the goods before the time fixed if he has an
important reason (the Netherlands and Germany) or fair motive or fair
reason (Spain and Portugal) for doing so, or if, due to changed and
unforeseen circumstances, he cannot store them without harm to his own
interests (Austria and Greece). In Belgium, [the depositee] may be excused on
account of force majeure, even though performance has become more difficult
rather than impossible. The reporters from France, Italy [and] Scotland
concluded that the reason for the change of mind is irrelevant. (It might be
worth noting that in Italy, the promise is not binding without delivery; in
France, whether it is binding is doubtful; in Scotland, it is not binding with or
without delivery ) In the six systems in which the promise is enforceable
with or without delivery, at least according to the prevalent opinion, [the
depositee] would have an excuse (the Netherlands, Germany, Belgium,
Portugal, Austria and Greece).31

Both of these solutions treat the Roman real contracts as special. They
are subject to a special rule that does not apply to other contracts. The
difference among modern civil law jurisdictions concerns what this rule
should be: that these contracts are not binding before delivery, or that a
party can back out if he finds the contract disadvantageous for a reason
that he did not expect. The one rule is a legacy of Roman law. The other
is a legacy of the late scholastics conclusion that the parties wished to be
bound upon consent but not conditionally. But they did not reach that
conclusion because it seemed to be fairer, but because it seemed to be
necessary given their conclusion as to when all contracts were binding.
Supposedly, common law jurisdictions do not accord any special status
to these arrangements. If a promise was made in connection with them,
the promise is binding if it has consideration. In the United States, it is
binding even without consideration if the promisee changed his position
in reliance that it would be kept. Yet the common law has been unable to
ignore the special features of what the Romans called real contracts.
Before the nineteenth century, the common law was not organized in
categories such as contract and tort. It was organized by writs. In the
Middle Ages, a writ was necessary to bring a lawsuit before the royal
courts. Centuries later, whether the plaintiff could recover still depended
on whether he could bring his case within a certain writ. If the defendant
broke a promise, he could bring a writ of covenant if the promise had

31
Ibid. 14950.

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30 Comparative contract law

been made under seal, by making an impression on a document contain-


ing that promise. He could recover in assumpsit if the promise had
consideration.
Traditionally, English courts had found consideration in disparate
cases in which it seemed sensible for the plaintiff to recover. Some of
these cases were bargains or exchanges in the normal sense. Some were
not: for example, some were of gratuitous loans and bailments32 includ-
ing the types of voluntary arrangements that the Romans had called
mutuum, commodatum and depositum. The courts held that there was
consideration for the promise of the borrower or bailee to look after the
object and to return it or repay the loan.
In the nineteenth century, treatise writers, followed by courts, tried to
rationalize and systematize the common law. Wanting to attach a definite
meaning to consideration, they equated it with bargain or exchange. Sir
Frederick Pollock explained bargain in an ingenious way that trans-
formed into bargains cases such as those just mentioned which were not
bargains in any ordinary sense. A promise had been bargained for if the
promisor was induced to make it by some change in the legal position of
the promisee.33 The promisee gave up a legal right, or promised to do so,
and the promisor made his promise, in part, in order to induce the
promisee to give up that right. That definition was adopted by his
American friend, Oliver Wendell Holmes,34 and by Holmes admirer
Samuel Williston,35 whence it passed into the first Restatement of
Contracts36 and eventually into the Second Restatement.37
By this definition, once delivery was made, a gratuitous loan could be
considered a bargain. The lender gave up his legal right to the use or
consumption of his property. The borrower promised to give it back or
take care of it, in part, to induce the lender to give up the legal right.38
The result was like that in Roman law. The contract was binding only
after delivery was made. Yet supposedly, the reason was not that such

32
Simpson (1975) 41652.
33
Pollock (1936) 164.
34
Pollock sent him a copy of the manuscript of the first edition; Holmes
wrote back that the account of consideration was the best which I had seen.
Letter from Pollock to Holmes, 16 December 1875, in Holmes et al. (1961) 276.
Holmes then published his own theory of consideration, which was similar.
Holmes (1881) 29394.
35
Williston (1914) 51618.
36
Restatement of Contracts 75 (1932).
37
Restatement (Second) of Contracts 71(1) (1979).
38
See Restatement (Second) of Contracts 71 cmt. c, illus. 8 (1979).

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In defense of Roman contract law 31

contracts were subject to a special rule. It was that such contracts were
bargains, and subject to the same rules as all other bargains.
Williston accepted that explanation,39 although his friend Arthur Cor-
bin found it artificial.40 A harder question was why there was consider-
ation for the arrangement that the Romans called depositum. In the early
case of Coggs v. Bernard, a carter had agreed to transport a keg of brandy
free of charge, and then damaged the keg. The court said that bare being
trusted with another mans goods, must be taken to be a sufficient
consideration.41 Pollock and Williston themselves admitted that in this
situation the formula did not work.42 The carter was not promising, even
in part, to induce the owner to entrust him with the goods.
These problems were resolved, to the satisfaction of many jurists,
when Williston, with Corbins assistance, wrote the doctrine of promis-
sory estoppel into the first Restatement of Contracts. Under this doctrine,
a promise was enforceable if it was relied upon, even if it lacked
consideration.43 The result, again, and as in Roman law, was that a
gratuitous loan or deposit is binding only upon delivery. But now the
reason was said to be that, in making delivery, the lender or depository
was relying on the other partys promise to repay him, to return the
property, or to safeguard it.44 Thus, the reason given was not that
mutuum, commodatum and depositum are special contracts that require a
special rule. It is that, as in the case of all promises, the promisor is liable
if the promisee relies.
That explanation is no more plausible than the claim that these
gratuitous contracts are really bargains. One hopes a US court would

39
Williston (1920) 1, 138, at 3057.
40
His notes to his 1919 edition of Ansons Principles of the Law of Contract
contain two of his principal ideas about contract formation. First, [n]o single
definition of consideration could explain all the currently approved decisions.
Anson (1919) 118, at 116 n. 3. Consequently, one should not try to fit all the
cases into a single formula. Second, when courts find consideration they are
sometimes holding the promisor liable because of subsequent facts consisting of
acts in reliance on the promise. Ibid. 118, at 116 n. 3. Although Corbin does
not say so expressly, he seems to have been thinking of cases in which the courts
found consideration for gratuitous agencies and bailments. In the text Corbin
was editing, Anson had listed them as an exception to the normal requirements of
consideration. Ibid. 122, at 119; 13335, at 13235.
41
(1703) 92 Eng. Rep. 107, 114.
42
Pollock (1885) 174 n. (n); Williston (1920) para. 1038.
43
Restatement (First) of Contracts 90 (1932).
44
Corbin (1963) para. 207, at 26263; Boyer (1952) 66574; Seavy (1951)
918.

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32 Comparative contract law

hold the promisor liable whether the promisee relied or not. Suppose that
the owner of the keg of brandy who entrusted it to the carter had no other
choice but to abandon it. The carter happened to be the only person on
the pier when the owner was told he could not take it with him on a
cruise ship he was about to board. In Shakespeares play, The Merchant
of Venice, Antonio loaned money to his friend Bassanio to woo and win
the fair Portia, a loan which could only be repaid if Bassanio succeeded.
Suppose that Antonio were thoroughly convinced that Bassanio would
not succeed, that the money would never be repaid, but loaned it to
Bassanio anyway for fear of losing his friendship. An American lawyer
would find it hard to explain why, if Bassanio did marry Portia, he had to
repay Antonio. Antonio did not loan the money in reliance on Bassianos
promise to do so. Portia, having studied Roman law, would have no
trouble at all. The contract was a mutuum.

D. Consensual Contracts

According to Gaius, sale, lease, partnership and mandate (a kind of


gratuitous agency) were contracts consensu. The reason was not that, in
these instances, Roman law adopted the modern principle that contracts
are binding on consent. Roman law was a law of particular contracts.
Sale, lease, partnership and mandate were binding on consent because
each was a kind of contract to which such a rule was appropriate.
The Roman rules as to what constituted a sale, lease, partnership or
mandate thus set a boundary to the contracts that were enforceable upon
consent. Here, we will discuss one case in which those boundaries were
later crossed: the enforcement of a generic sale, a sale-like contract that
the Romans did not recognize as sale.
In Roman law, the seller was bound to deliver an object whose identity
could be specified at the time of sale. He could not be bound to deliver
any goods that answered to a certain description, such as a certain
amount of a fungible commodity such as wheat, or goods made to certain
specifications. In Roman law, the owner of a barn that contained wheat
could sell so many bushels of it although they had not yet been measured
out.45 The owner of a field could sell wheat that had yet to be grown on
it.46 A goldsmith could sell a ring he was yet to make.47 A fisherman

45
Dig. 18.1.35.5.
46
Dig. 18.1.8. pr.; 18.1.39.1.
47
Dig. 18.1.20.

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In defense of Roman contract law 33

could sell whatever his net would catch on the next cast.48 But one could
not sell or buy any wheat or any ring that met certain specifications.49
The medieval jurists lost track of this limitation. In the Ordinary Gloss
to the Corpus Iuris of Justinian, Accursius, speaking of a sale of so many
amphorae of wine, simply noted, and so it is the sale of a quantity or of
a genus, which is the same.50 To the late scholastics, the northern natural
lawyers, and the will theorists, the limitation did not matter. If, in
principle, all contracts were binding on consent, then one did not have to
decide whether a contract was a sale to determine when it was binding.
Today, the Roman refusal to recognize a generic sale is considered a
primitive feature of their law which we have wisely done without.
According to Kaser, originally, sale-like transactions were executed on
the spot. Consequently, every sale was of a specific object to be delivered
immediately. The failure of Roman law to recognize generic sale was
supposedly a relic of this earlier way of thinking.51
Nevertheless, the recognition of a generic sale in modern law has
caused difficulties that do not arise with the sale of a specific object. As
mentioned, one reason that it makes sense for the sale of a specific object
to be binding in advance is that it allows the parties to lock in a price.
The specific object, however, is either owned by the seller or will be
owned by him, for example, as soon as the grain on his land ripens and is
harvested. Because he is the owner of the goods he wishes to sell, he runs
the risk that he will obtain a larger or smaller price when he does so. By
selling, he transfers this risk to the buyer. Typically, however, in a generic
sale, the seller does not yet own the goods that he sells. The buyer
anticipates that he will need goods of a certain kind in the future, and
will be hurt if the price of them rises. As Paul Joskow noted, the seller
insures him against that risk.52 The parties enter into a contract of
insurance cast in the form of a contract of sale.
It does not follow, as Joskow believed, that the seller assumes the risk
of a rise in price, however drastic.53 In a conventional insurance policy,
the amount the insurer can lose will be no greater than the loss that the
insured will suffer. An insurance company will not insure a house for
more than its value. The reason is not simply a fear that the insured

48
Dig. 18.1.8.1.
49
Buckland (1950) 484; Zimmermann (1990) 238.
50
Accursius, Glossa ordinaria to C. 4.48.2 to veneant (Venice, 1551). See
generally Ernst (1997) 303.
51
Kaser (1955) 455. Similarly, Zimmermann (1990) 238.
52
Joskow (1977) 162.
53
Ibid.

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34 Comparative contract law

might burn the house down to collect the insurance. Parties are normally
risk averse. A party who faces a probability p of a loss of L will pay
another party more than pL to assume that risk. The other party will
charge more than pL for assuming it. If a party were to insure for more
than his loss, the parties would, in effect, have made a sidebet on whether
the loss would occur. The insured party would not pay more than p times
that extra amount; the insurer would insist on receiving more. The
contract would not be made because risk-averse parties never gamble.54
In a generic sale, if the market price of the goods contracted for
changes sufficiently, the seller may owe far more than any loss against
which the buyer would have been willing to insure. Yet courts and
commentators tried to resolve the problem as though the contract were a
sale like that of a specific object. Consequently, they have seen only two
possibilities when market prices rise to extraordinary levels between the
time of contracting and that of delivery. One is to apply the Roman rule
that the seller is liable for non-performance unless it is impossible for
anyone to perform, that is, he is excused only for vis maior. The other
expands the rule of vis maior to excuse a party when performance is still
possible but has become extremely expensive.
Until recently, French courts have opted for the first alternative. No
relief could be given unless performance became actually impossible.55
The French Civil Code has now been changed by ordinance.56 It now
provides that a party can demand renegotiation of the contract if an
unforeseeable change of circumstances renders execution excessively
onerous.57
German courts took the restrictive approach in the early twentieth
century and then flip-flopped. In 1916, the German court for civil
matters, then called the Reichsgericht, held the defendant liable on a
contract he had made to deliver brands of English tin even though the
price skyrocketed a couple months later with the outbreak of World War
I.58 In 1921, the Reichsgericht repudiated that position. A party who had

54
Consequently, I do not see how the analysis that Jeffrey Perloff applies to
the case of a farmer selling his crops for future delivery can be carried forward,
as he says it could be, to the case of a dealer who breaches because the price of
his inputs rises. The farmer is trying to adjust the risk on the crop he raises by
selling forward. The dealer is insuring the other party against some loss he may
suffer. Perloff (1981) 233.
55
Gordley (2006) 34849.
56
Ordonnance n 2016-131, 10 February 2016.
57
Code civil art. 1195.
58
Reichsgericht, 21 March 1916, RGZ 88, 172.

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In defense of Roman contract law 35

sold ten tons of iron wire in October 1918, refused to deliver it when the
price had soared due to the German military defeat. The court applied the
doctrine of changed circumstances (clausula rebus sic stantibus) to
relieve the seller of his obligation.59 The view of the German courts is
still that the doctrine applies to radical and supposedly unforeseen
changes in prices.60
In the United States, it is an open question whether a seller would
receive relief in such a case under the doctrine of changed or unforeseen
circumstances, or, in the language of the Uniform Commercial Code, of
commercial impracticability.61 The question arose in the Westinghouse
litigation.62 Westinghouse had agreed to provide a continuing supply of
uranium at a fixed price to fuel nuclear generators. The price of uranium
then skyrocketed due to the Arab oil crisis. The case was settled before
appeal.
The seller should be given relief in such a case, but the reason is not
because the change in price was unforeseeable. It is because the Roman
law of sales should have been limited to sale as the Romans conceived it.
In the modern world, it is perfectly proper that parties dealing in fungible
commodities would want to purchase price insurance. But that need
should be met, not by ignoring the Roman distinctions among contracts,
but by working out new rules for a new type of contract that would better
meet their need. The proper solution, I have argued elsewhere, is, as in an
insurance contract, to limit the plaintiffs recovery to what one might call
his insurable interest, the amount of the loss he might have suffered had
he been forced to buy the goods for his own use on the open market. If
the price rose to the point that he would make more by reselling the
goods on the open market than by using them himself, he should not
recover the excess.63

II. CONTRACTS BONAE FIDEI AND STRICTI IURIS


In Roman law, sale, lease, partnership, mandate and loan for consump-
tion were contracts bonae fidei, contracts of good faith. The parties were
bound, not only to what they expressly agreed, but to do whatever good
faith required. Others were contracts stricti iuris, contracts of strict law.

59
Reichsgericht, 29 November 1921, RGZ 103, 77, 78.
60
On the development of German doctrine, see Dawson (1983) 1039.
61
UCC 2-615.
62
See generally Joskow (1977).
63
Gordley (2006) 35051.

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36 Comparative contract law

The parties were bound only to the terms to which they agreed. The
paradigm example was the formal contract of stipulatio. Initially, such a
contract could only be made by the two parties face to face. One party
would ask the other Do you promise such-and-such? The other party
would answer that he did. Tony Weir gave an example taken from the
poem, The Owl and the Pussycat. The pussycat said to the owl, Oh let
us be married, too long have we tarried, but what shall we do for a ring?
The owl overcame this obstacle with the help of a pig whom he asked:
Sir Pig, are you willing to sell for one shilling your ring? Said the
piggy, I will.64 The owl and the pig thus made a contract of stipulatio.
There was no requirement that such a contract be in writing. It became
customary to write down the terms, at first, as evidence of what the terms
were, and later, because a written contract was becoming a substitute for
stipulatio. Supposedly, the parties still needed to be face to face. Yet
Justinian provided that:

the documents which indicate that the parties were present are to be regarded
as conclusive unless the person who makes this suspect defense proves by the
clearest evidence in writing or by respectable witnesses that for the entire day
for which the contract was made he or his adversary was in another place.65

In the Middle Ages, this requirement was swept up in a serious of rules


as to how many witnesses it would take to contradict a private document.
The safe course was to have the document notarized.66
Notaries handbooks contained formulas for all sorts of agreements
that, once notarized, would be binding as contracts by stipulatio. Some of
them disadvantaged one of the parties. Critics charged that such pro-
visions were inserted in contracts, not because of the will of the parties,
but because they were incorporated in the notarys form (ex tabellionum
stylo).67 The protection the party would have received by hearing the
terms of the contracts read aloud to him face to face had been lost. Some
critics argued unsuccessfully that these provisions should only be binding
if they were read aloud to the disadvantaged party or put in his
handwriting.68

64
By the late Roman republic, the promisor did not have to repeat back the
question that was put to him. Zimmermann (1990) 74.
65
I. III.20.12.
66
Accursius, Glossa Ordinaria to III.20 [vulg. 19].12 to omnino.
67
Covarruvias (1568) II, iii, no. 4.
68
Ibid. Covarruvias rejected this view.

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In defense of Roman contract law 37

In the modern world, as Reinhard Zimmerman has noted, one who


subscribes to a standard form contract lacks the protection once provided
by stipulatio.

As the promisor is made to listen to this question and to give an explicit,


corresponding answer, there is little room for misunderstanding: much less
than where contracts can be concluded inter absentes and/or by signing
lengthy documents that have often not been read (let alone understood), such
as (for example) modern standard form contracts.69

The attempt to protect those who sign standard form contracts is often
criticized as an interference with freedom of the parties to contract on
whatever terms they want. When, as Zimmermann observes, the parties
sign documents which there is no realistic expectation they can read and
understand, then terms contained in these documents are not those that
they want.
The solution has been to move in two directions, both prefigured in
Roman law. One is to bind them by terms to which they should be bound
as a matter of good faith, as Roman parties were in contracts bonae fidei.
The other is to hold them bound to terms of which they were expressly
made aware, as in stipulatio.
Indeed, it is hard to police unfair terms without returning to the idea
that certain terms normally belong, as a matter of good faith, to certain
types of contracts, and that deviations from these terms are forbidden or,
at least, need special justification. For example, according to section 307
of the German Civil Code:

(1) Provisions in standard contract terms are ineffective when they unduly
disadvantage the contract party of the party who supplies them contrary to the
requirements of good faith.
(2) In doubt, an undue disadvantage is established when a provision:
1. is not in agreement with the basic ideas (Grungedanken) of the
statutory regulation from which it departs, or
2. so limits essential rights and duties that result from the nature of the
contract that the achievement of the purpose of the contract is
endangered.

The German Civil Code contains statutory regulation of each of the


principal Roman contracts which sets forth the terms that will govern
these contracts unless the parties agree otherwise. They are modernized
versions of the terms that Roman law would have read into these

69
Zimmermann (1990) 6869.

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38 Comparative contract law

contracts as a matter of good faith. Section 307(2)(1) sets limits to


deviations from the basic ideas behind these terms. According to section
307(2)(2), contacts have a nature and purpose which make certain
terms appropriate as a matter of good faith and others inappropriate. We
have returned to an approach more like that of Roman law in which the
parties who enter particular types of contracts are bound to whatever
good faith requires of them in those types of contracts, or, at least, they
cannot stray from what it requires.
One can see the same approach implicit in US cases on the uncon-
scionability of contract terms. In Henningsen v. Bloomfield Motors, a
case that played a major role in establishing the unconsionability
doctrine,70 an automobile company had disclaimed liability for conse-
quential damages resulting from defects in the cars it sold. Plaintiff sued
over an injury resulting from an unconnected brake cable. Refusing to
enforce the disclaimer, the court said that the right [relinquished] is the
most important and fundamental one resulting from the relationship.71
The implied warranty was treated as a term which the contract ought to
contain as a matter of fairness, not merely as an interpretation of the
presumed will of the parties. The premise explicit in this cases is implicit
in others. Not all the terms of a written contract come under scrutiny, but
only those that depart from the terms the law would otherwise read in to
such a contract. As in Roman law, those terms are taken to belong to that
kind of contract as a matter of good faith.
The second approach is to require that the parties be expressly made
aware of the terms to which they are bound, as in stipulatio. The German
Civil Code provides that the party asked to assent to standardized terms
be given a reasonable opportunity to become aware of their content. He
must be expressly told about terms with which he might otherwise be
unfamiliar, or, if it is not feasible to do so, his attention must be called to
them by a sign which is clearly visible and posted at the place of
contracting.72 According to the Draft Common Frame of Reference, in a
contract between a business and a consumer, terms that were not
individually negotiated may be considered unfair on the sole ground
that they are not drafted and communicated in plain, intelligible lan-
guage.73 A term may also be considered unfair if it significantly

70
Although the problem it dealt with is now handled by imposing strict
liability in tort for defects in manufacture.
71
161 A.2d 69, 92 (N.J. 1960).
72
BGB 305(2).
73
Principles, Definitions and Model Rules of European Private Law: Draft
Common Frame of Reference (Munich, 2009) II.-9.402.

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In defense of Roman contract law 39

disadvantages the other party, contrary to good faith and fair dealing,
and one circumstance to be taken into account in determining whether it
does is the extent to which the consumer was given a real opportunity to
become acquainted with the term.74
The same approach is often taken in the United States. An example is
the Uniform Commercial Code. According to the Code: A term or clause
is conspicuous when it is so written that a reasonable person against
whom it is to operate ought to have noticed it.75 In a variety of
situations, terms or clauses that are conspicuous have greater force that
those that are not. For example, to exclude or modify the implied
warranty of merchantability the language must be conspicuous.76
If further progress is made, a modern contracting party may be nearly
as well protected as a party was 2000 years ago.

III. DAMAGES
A leading principle of modern contract law is that when a party fails to
perform, the law should put the aggrieved party where he would have
been if performance had been made. That principle is a generalization of
instances in Roman law in which a party was compensated for what was
later called damnum emergens and lucrum cessans, the loss he suffered
and the profit he failed to make.
Roman law was actually complicated, and, indeed, baffling. There
were instances in which the aggrieved party recovered for damnum
emergens and lucrum cessans, harm suffered and lost profit, but there
was no general rule, at least, so far as one can see. The difficulty in
trying to find a general rule about the recovery of damnum emergens can
be illustrated by a single passage from Ulpian:

If someone unknowingly leases out defective storage jars and wine runs out of
them, he will be liable for the [lessees] interest, nor will his lack of
awareness have been excused, so Cassius wrote as well. It is quite different if
you leased out a pasture in which harmful weeds grew; in this case, if the
cattle either died or lost value, the lessees interest is owing if you knew this,
but if you were unaware of it, you may not sue for payment of rent, a view
which Servius, Labeo and Sabinus also approve.77

74
Ibid. II.-9.403, II-9.407(2).
75
UCC 1-201(10).
76
UCC 2-316(2).
77
Dig. 19.2.19.1.

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40 Comparative contract law

As Zimmermann notes, [i]t is very difficult if not impossible to


reconstruct the true position in Roman law78 despite centuries of effort.
The difficulty of finding a general rule about the recovery of lucrum
cessans is illustrated by comparing a text ascribed to Neratius with one
ascribed to Paul. According to Neratius, if I did not deliver a slave on
time, I should be held responsible not only for what I acquired through
him but for what the buyer would have acquired had the slave already
been delivered to him.79 According to Paul, When the seller is respons-
ible for nondelivery of an object, every benefit to the buyer is taken into
account provided that it stands in close relation to this matter. If he could
have completed a deal and made a profit from wine, this should not be
reckoned in.80
Whatever distinctions the Roman jurists were attempting to draw were
obscure to Justinian, who, as Zimmermann notes, was not altogether
pleased with the intricacies of the case law.81 He placed a mechanical
limit on the damages that the plaintiff could recover. They could not
exceed twice the contract price in cases which have a certain quantity or
nature.82 The limit was clear, although what cases had a certain quantity
or nature was not.
The late scholastics sought order, once again, by borrowing from
Aristotle and Aquinas. Aristotle had distinguished commutative justice in
voluntary and involuntary transactions, a distinction which, as mentioned,
had probably prompted Gaius to distinguish contract and tort. Commuta-
tive justice preserved each persons share of resources. As we have seen,
the late scholastics thought that by consent, one party to a contract
transferred to the other the right to claim performance. Therefore, if the
promise was broken, the aggrieved party was entitled to the value of the
performance of which he had been deprived.
They discussed whether his damages might extend beyond that
amount. Aquinas had said that if a persons thing was actually taken,
for example, if his house was destroyed, he should be paid an equiva-
lent: the amount the house is worth. If someone is harmed by another
person by preventing him from acquiring what he was on the way to
having he should receive less.83 Lessius and Molina explained that as
long as a person was deprived of a right, he should receive compensation

78
Zimmermann (1990) 366.
79
Dig. 19.1.31.1.
80
Dig. 19.1.21.3.
81
Zimmermann (1990) 828.
82
C. 7.47.1.
83
Summa theologiae II-II, Q.62, a.4.

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In defense of Roman contract law 41

for whatever he might have acquired by the use of that right, taking into
account the labor it would have taken and the probability of acquiring
it,84 an idea that approached the modern economic concept of expected
value.85 Roman limitations on this principle were matters of Roman
positive law, perhaps warranted for pragmatic reasons, but lacking
support in principle
The late scholastics explanation was founded on a clear principle. It
passed into modern law by way of the seventeenth and eighteenth century
natural law school, and then with the support of modern jurists.86 A
disappointed promisee was entitled to be placed where he would have
been if the promise had been kept.
It might seem difficult in this instance to defend the Roman law. The
modern approach is based on a clear principle. That of the Roman jurists
was based on no clear principle at all. The confusion was such that
Justinian stepped in and promulgated a mechanical but unprincipled rule:
that the aggrieved party could recover no more than twice the contract
price.
Nevertheless, the Romans may have done well, and, indeed, better that
we have done since. They recognized that recovery of damages in
contract should be limited although they could not explain where and
how. The limit Justinian imposed was mechanical but may have been
more sensible that the limit imposed by modern law.
Modern law, with some variations, limits the damages recoverable for
breach of contract to those that were foreseen at the time the contract was
made. That limit was recognized by the French jurist Robert Pothier,
whence it passed into the French Civil Code and codes based upon it, and
into English and US law in the famous case of Hadley v. Baxendale. The
German variation, inspired by French law, is that if the damages are not
foreseeable by the party who is to perform, the failure of the other party
to explain the extent of these damages may constitute contributory
negligence and so prevent recovery of unforeseeable damages.
The foreseeability rule was taken by Pothier from the work a sixteenth
century French jurist, Charles Dumoulin.87 He had been attempting to
find a principled explanation for the mechanical rule laid down by
Justinian. He claimed:

84
Lessius (1628) lib. 2, cap. 12, dub. 19, no. 137; Molina (1614) disp. 726,
no. 4.
85
So did Soto and Lessius in discussing wagers and insurance. Franklin
(2001) 28688.
86
Zimmermann (1990) 833.
87
Ibid. 829.

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42 Comparative contract law

the particular rationale of the limitation in the cases of what is certain is that
most likely it was not foreseen or thought that greater damage would be
suffered or that there was a risk beyond the principal object than the principal
object itself.88

Although Du Moulin had tried to explain Justinians rule in terms of


foreseeability, Pothier turned the requirement of foreseeability into a rule
in its own right
I have argued elsewhere that Pothiers rule, which is ubiquitous in
modern law, makes less sense than the ancient rule of Justinian which
it replaced precisely because it is a rule about foreseeability unlike
Justinians, which was a rule about the disproportionality of damages.89 If
the parties realize that non-performance by one party may cause dispro-
portionately high damage to the other, they may or may not agree that the
party who fails to perform should be liable. It depends on which party
can best bear the risk. If the party who is to perform can best do so, then
risk-averse parties will place the risk on him, and he will be compensated
by an increase in the price. The fact that a party can foresee the harm
suffered if he fails to perform does not mean that he can best bear this
risk, let alone that he agreed to do so and that the price was adjusted to
compensate him.
It is not surprising, then, that courts that claim to be considering
foreseeability have been unwilling to live with the consequences. They
have denied recovery of damages that were disproportionately high,
given the contract price, by claiming that the damages were unforesee-
able, even when they could have been foreseen. In France, for example,
when a contractors employee negligently set fire to the plaintiffs
chateau with a blow torch, the Cour de cassation said it was unforesee-
able that the owner would have to borrow money at interest to fix the
damage or that he would lose rentals while it was being fixed.90 The
Cour de cassation refused to impose liability on a party responsible for
the death of a race horse91 or the loss of a box with unusually valuable
contents.92 The court said that although the type of harm was foreseeable,
the amount was not. Yet it was surely foreseeable to a party entrusted
with race horses or boxes that sometimes they will be extremely valuable.

88
Molinaeus (1589).
89
Gordley (2011) 699.
90
Cass., 1e ch. civ., 11 May 1982, Gaz. Pal. 1982.2.612.
91
Cass. civ., 3 August 1932, D.H. 1932.572.
92
Cass. civ., 7 July 1924, D.P. 1927.1.119.

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In defense of Roman contract law 43

Similarly, in one German case,93 the defendant was to translate a


brochure concerning motorcycle parts into Dutch, French, English,
Spanish and Italian. The defendant sought damages on the grounds that
brochures it printed were unusable because the translation was faulty.
The court said that the plaintiff was at fault for not calling the
defendants attention to the fact that it would print the brochures without
having the translation checked. Was that really so unlikely? One suspects
that the courts real concern was that, in its words, the damage that
threatened, and which occurred, was forty times as large as the fee for
translation.
Indeed, the same seems to have been true in Hadley v. Baxendale. A
mill was stopped when the mill shaft broke, and the mill owners
contracted with a transporter to carry the shaft to where it could be
repaired. Due to the transporters delay, the mill remained stopped, and
the mill owner sued the transporter for his lost profits. The court denied
recovery, supposedly because the lost profits were not foreseeable. Yet,
according to the headnote of the case, the plaintiff told the defendant
that the mill was stopped. Is the headnote wrong, or was the court wrong
to say that the loss was unforeseeable? Or did the court use Pothiers rule
to reach a result that did not in fact turn on foreseeability?
The American Restatement (Second) of Contracts accepts the rule of
Hadley v. Baxendale that [d]amages are not recoverable for loss that the
party in breach did not have reason to foresee when the contract was
made.94 Yet in giving an illustration based on Hadley, it explains that the
judge may deny recovery because damages are disproportionate:

A, a private trucker, contracts with B to deliver to Bs factory a machine that


has just been repaired and, without which Bs factory, as A knows, cannot
reopen. Delivery is delayed because As truck breaks down. In an action by B
against A for breach of contract the court may, after taking into consideration
such factors as the absence of an elaborate written contract and the extreme
disproportion between Bs loss of profits during the delay and the price of the
truckers services, exclude recovery for loss of profits.95

93
OLG, Hamm, 28 February 1989, NJW 1989, 2006.
94
Restatement (Second) of Contracts 351(1) (1979).
95
Restatement (Second) of Contracts 351 Illus. 17 (1979).

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44 Comparative contract law

Indeed, there is a line of cases stretching back almost to Hadley v.


Baxendale that deny recovery when damages were disproportionate but
seem to be foreseeable.96
Roman law recognized that the problem is one of disproportionality
and adopted a rule directed at that problem. Their rule was mechanical,
and they explained the need for it poorly, but it may have been better
than any we have found.

IV. CONCLUSION
The Romans were not systematizers. Their gift was an insight into how
concepts should be applied to reach good results in particular situations.
From the time of the late scholastics to that of the German Pandekten-
schule, the work of systematizers seemed intellectually strong in part
because of its ability to explain the Roman insights. In the process, as we
have seen, some of these insights were neglected. Often they were
neglected, not because they were unsound insights, but because the
systematizers could not think of a principled justification for them. We
should re-examine them, and when they were sound, look for principles
by which they can be explained.

96
Postal Instant Press, Inc. v. Sealy, 51 Cal. Rptr. 2d 365, 373 75 (Ct. App.
1996) (no recovery by franchisor of future royalties from a franchisee); Sundance
Cruises Corp. v. American Bureau of Shipping, 7 F.3d 1077, 1084 (2d Cir. 1993)
(no recovery for loss caused by defects in a ship that the defendant had certified
to have no defects); Armstrong Rubber Co. v. Griffith, 43 F.2d 689, 691 (2d Cir.
1930) (no recovery for injury to plaintiffs business caused by defendants
delivery of defective tires); McEwen v. McKinnon, 11 N.W. 828, 830 (Mich.
1882) (no recovery for profits lost on a steam mill and salt block when the
defendant failed to provide boilers on time); Snell v. Cottingham, 72 Ill. 161, 170
(1874) (no recovery against a defendant who failed to finish building a railroad
for profits lost when the road could not be used); Moulthrop v. Hyett, 17 So. 32,
3334 (Ala. 1895) (no recovery of profits lost when defendant failed to furnish a
machine for drying bricks with as much capacity as promised, although the court
added that damages were remote and speculative); Fleming v. Beck, 48 Pa. 309,
312 (1864) (no recovery of profits lost by a miller when defendant breached a
contract to dress stones for his mill); Armstrong and Latta v. City of Philadel-
phia, 94 A. 455, 458 (Pa. 1915) (no recovery by the owner of machinery of the
profit he would have made had it been returned to him on time). For other cases
see Garvin (1998) 34560.

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In defense of Roman contract law 45

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3. The authoritarian theory of contract


Pier Giuseppe Monateri*

The encounter of contract (conceived as an autonomous field of law, as a


set of rules, principles, doctrines) with the political strategies of authori-
tarian regimes brought ground-breaking theories and reshaped the inter-
nal articulation of operational taxonomies.
This chapter will discuss three main issues. First of all, moving from a
comparison among different authoritarian projects (namely the Fascist
and National Socialist ones), the analysis will emphasize how private law
was variously reassessed by the means of a proclaimed rejection or
constraint of Liberal individualism. Secondly, it will be demonstrated
how the inaugurated vision led to a new kind of geopolitical distribution
of legal rules and devices, to a divergent dislocation and re-articulation of
competing forces. The morphology of private law was synthetically
moulded in order to produce and, meanwhile, deal with a juridical
exception: it was framed into a liminal threshold between tradition and
innovation. Finally, the critical inquiry will dissect the specific de-
clensions of Italian legal discourse during Fascism, in order to detect the
structural dissonance which countered the rhetorical strategies introduced
by legal scholars to subvert Liberal determinations with the conservative
style preserved by Italian courts in the text of their decisions. Ultimately,
the emerged incongruity seems to be responsible for the conscious
choices of economic policy, discovering an unexpected contiguity
between classic liberal thought and the Fascist appraisal of contract law
as a cornerstone of the economic process.

* The chapter is based on reflections and arguments first discussed, written


and published with Prof. Alessandro Somma, who subsquently modified his
scientific opinion on some relevant issues. On the contrary, I remain persuaded of
the intellectual legitimacy of the research project conducted and devoted to
rediscover the darker legacies of European private law. In this perspective it can
be demonstrated how contract law could be framed and moulded in similar terms
both in totalitarian regimes and in market economies.

47

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48 Comparative contract law

I. KEYWORDS AND FORMALISMS OF THE DEBATE


ON JURIDICAL FASCISM
The reflection carried out by German authors on National Socialism and
the law has taken on the dimension of a debate the features of which
have impressed Italian scholars. First of all, it is a debate that involves a
considerable number of jurists, and therefore it is not the marginal
occupation of a limited circle of enthusiasts. In the second place, it is not
a debate conditioned by the intent of preserving the scientific and moral
integrity of the masters whose activity is under discussion or of comply-
ing with the protective instinct of their disciples. Finally, it is a debate
characterized by a prominent interdisciplinary vocation and, therefore, by
methods less susceptible to the charm of the formalistic approach.
In Italian literature the features of the scientific discussion regarding
law in the Fascist time are different. It is carried out against the
background of a dispute about the role of the relationship between
intellectuals and the Fascist regime stimulated by the intent of finding its
most open supporters, thus neglecting the ample circle of those who
simply made the totalitarian perversion possible by attitudes that were in
other respects not so markedly referable to the dominant ideology.1
This approach becomes an expedient by which any continuity of the 20
years of Fascism with the immediately preceding or following periods
can be denied. It combines with the intent of maintaining that intellectu-
als are substantially impervious to the regime, and that such condition
concerns most of all the juridical science.2
In the wake of these specifications it is asserted that a sort of
extrinsic homage has been paid to the politics of the regime: no one
historian who really considers the significant traits of these two decades
can concretely talk about a fascist theory of private law, figuring a
break with dogmatic methodologies and traditional schools of thought.3
A similar opinion is expressed with regard to the so-called Mussolinian
codifications, insofar as the Italian codes promulgated from 1930 to 1942
are largely based on ancient codes and past doctrines, even if they were
originated by a completely different political context: the new ideas and
constructions were grafted on the elder legislation.4

1
See Somma (2001) 617.
2
Such trend is developed in particular by those scholars who adopt the
conception of Crocian origin elaborated by Bobbio (1973) 209.
3
Irti (1990) 138.
4
Biondi (1952).

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The authoritarian theory of contract 49

These opinions are founded on an implied premise: that the formulas


used in legal texts and in doctrinary discussion are capable of expressing
univocal constructions, regardless of the cultural context in which they
are used. Such premise leads to a denial that the so-called lip service paid
to the regime contributes to the definition of the rule. With specific
reference to private law, it leads to insisting blindly on a jus-rationalist
assertion, namely, the necessary Anti-Fascist value of a contract dis-
cipline claiming to be constructed around the principles deriving from
Roman law.5
The link between Roman law and the liberal juridical culture is hinted
at on different occasions, starting at least from the well-known dispute
opposing the Bernhard Windscheid Romanists to the Otto Gierke Ger-
manists in the course of drafting the German Civil Code currently in
force. On the other hand, such link is disproved if one examines the life
of the Brgerliches Gesetzbuch (BGB): this text begins in the Germany
of Wilhelm II and survives the Weimar Republic. The same text remained
in force during National Socialism and after World War II, and has
constituted for almost three decades the core of printed text of the
German Democratic Republics private law.
The reference to the National Socialist experience is therefore of
certain interest for studying juridical Fascism: an interest that, in fact, is
justified not only on a scientific level. As the existence and the features
of National Socialist private law are largely agreed upon, identifying
analogies with the Fascist experience actually contributes to temper the
ideological conflict that, especially in the Italian context, still accom-
panies the investigations devoted to the theme which is the object of
these notes.

II. A POSSIBLE WAY OUT: COMPARISON WITH


JURIDICAL NATIONAL SOCIALISM
There are many connections, mostly highlighted by the theories about
Fascism as a European phenomenon, between the Fascist and National
Socialist experiences. In particular, both regimes develop in a common
economic and social background which at first feeds their revolutionary
potential and later on, instead, calls for adaptation to the status quo: for
this purpose, they start building a productive system formally based upon
cooperation among the classes but, in fact, sensitive to the request of

5
Ibid. See Somma (2002) 15382.

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50 Comparative contract law

major industry. Further, Fascism and National Socialism share the view
of State organization as a power instrument in the hands of the leader
and therefore the construction of a legal system aimed at minimizing and
controlling individual action.6
Such circumstances lead, during the 20 years of Fascism, to a
comparative study of Fascism and National Socialism, centred on themes
of public and political importance in a broad sense: in particular about
the idea of the State developed in both experiences by the scholars who
were close to the political power. The system of private law is also of
interest for the scholars of the time. Besides, both National Socialists and
Fascists tackle problems connected with the codification of civil law and
with overcoming of the values which inspire the texts in force at the time.
And this is one of the aims of the Italian-German juridical committee,
Comitato giuridico italo-germanico, constituted to coordinate the
collaboration between the scholars of the two countries.7
Some passages of the Nationalsozialistische Deutsche Arbeiterpartei
(NSDAP) programme are indeed devoted to the reform of the German
legal system. It states that each German citizen has the duty of acting
both spiritually and materially for the common interest (item 10) and that
it is up to the State, in this perspective, to fight those who act to the
prejudice of the common needs (item 18). It also says that it is necessary
to substitute Roman law which is subservient to the world-wide materi-
alistic order with German common law: Wir fordern ersatz fr das der
materialistischen Weltordnung dienende rmische Recht durch ein
deutsches Gemeinrecht (item 19).8 In private law, such intents lead to
cancelling most laws and institutions based in different ways on the
Kantian philosophy and therefore refusing the jus-rationalist perspective
of the legal system as a complex of duties:

ordnet der Nationalsozialismus den einzelnen der Gemeinschaft unter, so


muss er auch das Rangverhltniszwischen Recht und Einzelwillen umkehren,
den Gemeinwillen zum Herrscher, den Parteiwille zum Diener machen.9

Within the indicated perspective, the underrating of individual interests is


clearly the element characterizing the National Socialist experience,

6
See De Grand (1999) and Tranfaglia (2001).
7
The Committee is mentioned in art. 7 of the Cultural Agreement between
the Italian Reign and the German Reich dated 23 November 1938. In this regard
see Messina (1938).
8
See Simon (1989) 161. In the literature of the time see Jung (1934) 183.
9
Lange (1934).

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The authoritarian theory of contract 51

which identifies in the struggle against the Liberal ideology the only
course to reconstruct a legal system based on the duties of individuals
and on the glorification of the prerogatives pertaining to the group: der
Einzelne is nicht um seiner selbst, sondern um einer Stellung in der
gemeinschaft willen von Bedeutung.10 It is widely known that in the
National Socialist ideology the group on which the destiny of the
individuals depends, has in the first place a racial connotation. However,
references to its economic value often prevail, and together with them,
statements regarding subordination of the individual needs to the require-
ments of production:

Nach der nazionalsozialistischen Rechtsidee ist der Vertragsabschluss schon


rechtspolitisch eine Gemeinschaftsangelegenheit und daher kann die Hin-
wirkung des Staates auf den Abschluss von Vertrgen geboten sein. Alle
dahingehende allgemeinen oder besonderen hoheitlichen Anoprdnungen sind
Lenkungsmassnahmen Diese Massnahmen sind Ausdruck der staatlich
gelenkten Wirtschaft.11

As an implementation of this programme, a number of special laws are


developed with regard to different aspects of the discipline of the
relations among individuals. Most of all, the National Socialist doctrine
intended to replace the Brgerliches Gesetzbuch with a popular code,
the Volksgesetzbuch.12 However, this project did not appear to be a
political priority of the regime, whose interest seemed rather to be
directed to conditioning the application of the law and therefore to
formulating keywords expressing a use of the law in force as an
instrument to impose the Fhrers will.13

III. COMPARISONS BETWEEN FASCIST AND


NATIONAL SOCIALIST PRIVATE LAW, IN
PARTICULAR THE DEBATE ON THE VALUE OF
ROMAN LAW
National Socialists and Fascists are joined together in the fight against
the values believed to be expressed by Liberal juridical thought. Even in

10
Lange (1933). In the same way see, e.g., Bhmer (1932), and Stoll (1943).
11
Stoll (1943). In the same way see among others Larenz (1936).
12
In the literature of the time see, e.g., Hedemann (1941) 1913 and Lehmann
(1942) 1492.
13
See in particular Frank (1936) 137 and ff. and Lange (1934).

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52 Comparative contract law

Italian literature, the individualist framework of the private system


inherited from the past is criticized14 and especially those civil law
codifications are attacked, which pursued the acknowledgment of
individual interests, putting aside the relevance of social values and
functions.15
As we have already seen, the National Socialist scholars conceive the
struggle against Liberal laws as a glorification of the German juridical
experience and a contextual abandoning of the Roman one. Some authors
close to the Fascist regime expressed themselves in the same way,
demanding the abandonment of the apologetic defence of Roman law,
conceived as the juridical device used to support the fortunes of
liberalism and the Fascist interpretation of the Code Napoleon.16
On the other hand, Italian scholars of the Fascist period did not
approve of such statements and, on the contrary, claimed a solid link with
Roman law.17 Actually, the Fascist authors work in a context which the
traditional structures are still solid, and in this perspective they are
interested in legitimating the regime by excluding a break with the past.
This does not mean, however, promoting values alternative to those
implied by the National Socialist reference to German law: for Fascists
the Roman-Italic law is the living law of the Roman (authoritarian,
hierarchic and expansionist) State.18 Thus, Dino Grandi was able to
address the German jurists by stating that the Nazi-Socialists, inclined to
preserve the purity of the German race and tradition, and the Fascists,
devoted to promote and support Roman law as the better expression of
Italic race, were united in destiny.19
Fascists and National Socialists also share the belief that private law is
to be seen as a complex of duties assigned to the members of society for
the common needs.20 Even among Italian scholars, the underrating of
individuals is further aimed at defending race, conceived as the proper
protection of the Italian family, of the Italian civilization and of the
Italian law:21 such aim leads to establishing the rule according to which

14
As appears, for instance, from Scaduto (1939) 321 and ff. and Domined
(1942). See also Bellomo (1936), and Costamagna (1940) 530.
15
De Semo (1942) 166. Similarly Maroi (1941) 65 and Panunzio (1936).
16
Costamagna (1938).
17
Among many others Maffei (1934).
18
Grandi (1940).
19
Grandi (1941).
20
See for all Asquini (1938).
21
Maroi (1941).

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The authoritarian theory of contract 53

the limitations of the juridical capacity based on race are provided by


statutes (Italian Civil Code, article 1).22
On the other hand, in the Fascist literature the intent of supporting
economic interests, and in particular the necessities of national produc-
tion, prevailed. Italian authors substantially agreed in believing that such
circumstance might be ascribed to the development of the corporative
idea of the State23 and in underlining that it leads to exalting themes such
as enterprise productivity and economic solidarity in the superior interest
of the nation.24 For this purpose, the Labour Chart states that the
production objectives are to be considered unitary, related to the welfare
of the individuals and to the growth of national power, and argued that
the organizer of the enterprise is held responsible before the State for
production.
Even with specific reference to the law of obligations, Fascists and
National Socialists had the opportunity to draw the guidelines of a
common development of the Italian and German legal systems. These
aspects were dealt with in the course of a meeting of the Italian-German
juridical committee, held in Rome in the summer of 1938. On this
occasion, Alberto Asquini noted that the new law of obligations should
be inspired by the political spirit of the reform.
Similarly, Hans Carl Nipperdey observed that the Nazi and Fascist
interpretations have transmuted the proper significance of ancient and
fundamental principles (such as private property, freedom, free com-
petition, private association), giving particular emphasis to the individual
responsibility against community.25

IV. NATIONAL SOCIALISM AND THE LAW OF


CONTRACTS: FROM THE BILATERAL JURIDICAL
TRANSACTION TO THE AGREEMENT FOR
EXCHANGE OF GOODS AND SERVICES
Fascists and National Socialists devoted another meeting of the Italian-
German juridical committee to the issue of contractual matter in Vienna
in the spring of 1939. On that occasion, they discussed the principle of

22
For references to the Italian-German cooperation in building a racist legal
system see Costamagna (1939a).
23
See Aquarone (1995).
24
In the literature of the time see among many others Pugliatti (1942).
25
See Nipperdey (1938).

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54 Comparative contract law

freedom of contract to affirm its value only within the limits of the new
principles of public order and to specify that the same is abused not only
in case of violation of express statutory prohibitions and morality, but
also in case of violation of political order and fundamental economic
principles.26 Along these guidelines the law of contracts was re-examined
and in particular its traditional aspects referable to the theory of
individual rights were removed.
In Germany, first of all the equation identifying contracts with a
bilateral juridical transaction was abandoned. In fact, the abstraction
principle was criticized, and with it also the identification of contract
aimed at the immediate transfer of real rights as an independent figure of
the law of goods.27 It is also specified that the cases regarding the
individual position in respect of the social formations, in particular in
family law and in labour law, did not constitute contracts.28 In this way,
the contract is confined to cases in which the parties exchange individual
goods and services:

Das Verlbnis, die Eheschliessung, der Eintritt in ein Arbeitsverhltnis sind in


unserem Sinne keine Vertrge, weil sie nicht den Austausch einzelner Leis-
tungen oder Gter zum Gegenstande haben, sondern die Eingliederung der
ganzen Persnlichkeit in einer Gemeinschaft.29

Obviously, the limitation of contracts to the cases of exchange of goods


and services depends on considerations regarding the emphasis on the act
with respect to the contractual bond. Such limitation is also a means to
underline subordination of the parties interests to those promoted by the
legal system. And indeed, on one hand, in the National Socialist literature
the relation between debtor and creditor is qualified as a bond between
cooperating parties. On the other hand, it is said that the external control
on the contract derives from considerations concerning the execution of
its performance according to the bona fide principle: according to a
communitarian view, the obligational relationship has not yet to be
considered as a fight between creditor and debtor.30
It is worth noting that in this way the reference to good faith is not
connected with the jus-rationalist fides: it does not lead, in fact, to
suppress the principle of the freedom of contract to give prominence to

26
Vassalli (1939).
27
See Wieacker (1941).
28
See, e.g., Siebert (1941).
29
Larenz (1939).
30
Vassalli (1939).

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The authoritarian theory of contract 55

the opposite principle of contractual equity. The legal system, in


fact, prevails on the private act for aims placed beyond the parties
horizon and not corresponding to the intent of achieving the balance of
performances.
Such formulation was insisted upon during the drafting of the Volks-
gesetzbuch. On that occasion it was underlined in particular that the law
of contract must be restricted to the exchange of goods and services. It
was also confirmed that this institution must be reconstructed from the
point of view of the bond, ignoring its formation.
This latter suggestion is the maxim founding the theory of de facto
contractual relations, as suggested by legal writers close to National
Socialist political power.31 However, in the intention of its founder it is
not aimed at preventing the application of the Civil Code, but only at
avoiding recourse to legal fictions. In this sense, it would not represent an
element of crisis in the traditional doctrine of contracts, but simply an
integration of the same.32

V. FASCISM AND THE LAW OF CONTRACTS


BETWEEN TRADITION AND INNOVATION
We have said before that Fascists and National Socialists recognized
themselves in the statement according to which free private enterprise is
a value to be re-examined in the light of the maxims formulated by the
regime. In the Italian context, such idea caused a re-examination of the
contractual matter in less strict terms than in the German formulation.
And yet it led to the promotion of solutions characterizing the system of
the sources of law in a public and corporativist perspective:33 unification
of the law of obligations and of contracts is among these solutions.34 The
patterns deriving from it often lay the accent on the productivity of the
enterprise, on the economic solidarity and on the superior interest of
the nation.35
A selection of material regarding the codification of private law allows
some traditional solutions to be found together with interventions in the
opposite sense. To the former kind belong the descriptions of the law of
obligations as a subject matter moulded on the basis of the classic

31
Haupt (1943a).
32
Ibid.
33
Ferrajoli (1998).
34
See mostly Teti (1990).
35
Perlingieri (1978).

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56 Comparative contract law

paradigm of Roman law, considered as the ratio scripta. To the latter,


instead, the glorifications of the law of contracts as a sector of the legal
system in which obligations are strictly linked to the economic life.36
This second remark does not account for the statements regarding the
patrimonial nature of the performance (Italian Civil Code, article 1174)
and of the legal relation that is the object of the contractual relation
(Italian Civil Code, article 1321). In both cases, such nature is included
in the intent of coordinating the regulations of contracts with the damage
compensation system centred on the principle of the patrimonial liability
of the debtor.37 Nor are there any links with the Fascist doctrine of
contracts, finally, in those comments on the legal definition of the
concept that seem not to exclude its equivalence to the bilateral legal
transaction and which, however, highlight its nature of technical con-
cept of private law.38
Different observations can be made with regard to the rule according to
which debtor and creditor must behave according to the rules of correctness
and to the principles of corporatist solidarity (Italian Civil Code, article
1175). Such provision, in fact, takes up the idea of cooperation of the
parties to the obligation and in this perspective it reveals the influence
exerted by Nazi-Socialist doctrines on our compilators.39
Similar influences seem to inspire the reflections aimed at relinquish-
ing the equivalence of the contract to the bilateral legal transaction:
equivalence that is recurrent in the literature influenced by the German
doctrine of pandectist inspiration. On the basis of such intents, in the
preliminary works it is stated that the contract is the juridical device used
for the exchange of products and services and that it must be governed
by provisions based on the Fascist rule of the prudential coordination of
individual interests and of the pre-eminence of general, collective
interest.40
Some indications about the contents of the mentioned maxim can be
derived in particular from the comments to the regime of atypical
contracts and from the regime of the essential elements of the contract.

36
Relazione della Commissione Reale al progetto del libro Obbligazioni e
contratti, n. 5.
37
See Relazione del Guardasigilli al progetto ministeriale delle obbligazioni,
n. 17.
38
Relazione del Guardasigilli al progetto ministeriale delle obbligazioni,
n. 156. In the same sense, among the authors of the time Messineo (1943).
39
Di Majo (1985), who refers to opinions expressed by Pietro Rescigno.
40
Relazione del Guardasigilli al progetto ministeriale delle obbligazioni,
n. 10.

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The authoritarian theory of contract 57

As regards the first aspect, the Civil Code provides that the parties can
conclude even contracts which cannot be subsumed into a specific
normative type, as long as they are intended to realize interests worthy of
protection (Italian Civil Code, article 1322). In this respect it is specified
that this rule intended to codify the maxim according to which the legal
system acknowledges the private agreement only as much as the effects
deriving from it realize at the same time interests outside the sphere of
the parties: the new obligation law was inspired by the concept of
autonomy of will instead of the one of dominion of will41 and saw in the
equivalence of contract to law a formulation by which it can be stated
that the autonomy could not legitimate interference in the rights of third
parties.42 Similar considerations, as is well known, are the grounds of the
rule that identifies causa as one of the essential requisites of contracts
and in particular of the formulation according to which it is the
social-economic scope of the contract or is the scope of the contract
socially appreciable.43 The same conclusions drawn with regard to the
German experience may be inferred from the discipline of cause and of
atypical contracts: in the Fascist idea the supremacy of positive law on
the covenant was mostly characterized as an instrument for the impos-
ition of the will of the political power per se, and not as a means to
affect the situation of the party whose interests the system decides to
interpret. In other words, in the Fascist and National Socialist contract
law the individual was not considered uti singulus, but always and only
uti civis.44

VI. PROTECTION OF THE WEAKER CONTRACTING


PARTY IN JURIDICAL FASCISM AND NATIONAL
SOCIALISM
Both Fascism and National Socialism developed reflections regarding
protection of the weaker contracting party. On the other hand, they did
not deviate from the principle according to which the prevalence of the
legal system on contract was a mere mark of the power of the group on
the individual. The weaker contracting party, in fact, is considered as
such only insofar as he is party to a bond that the outside intervention

41
Relazione al Re, n. 603.
42
Relazione al Re, n. 627.
43
Relazione del Guardasigilli al progetto ministeriale delle obbligazioni,
nn. 193 and 194.
44
Costanza (1981) and Alpa (2001).

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58 Comparative contract law

intends to examine in the perspective of the common needs and not of the
balance between performances.
Such considerations are consistent in the first place with some of the
proposals worked out during the drawing up of the National Socialist
popular code, and in particular the one concerning the duty of the
drafting party to formulate the general conditions of contract in accord-
ance with the needs of society:

Inbesondere mssen Abreden, die den Vertraginhalt fr eine unbestimmte


Zahl zuknftig abzuschliessender Vertrge (Reihenvertrge) festsetzen (allge-
meine Geschftsbedingungen), den Anforderungen des Gemeinschafts lebens
entsprechen.45

In this sense, the general conditions of contract assumed a largely


different meaning compared to the one attributed to them previously, in
particular by the Liberal scholars. The latter had considered such
conditions as a sort of generalization of the contents of bonds that certain
categories of contracting parties would later conclude. The National
Socialist scholars deemed such approach not to be a sufficient break with
the traditional private system and maintained that it was necessary, on the
contrary, to underline the prescriptive character of the general condition
of contract. Only in this way, in fact, could they be efficiently coordin-
ated with the super-individual interest:

Die Vertragsordnung macht die Geschftsbedingungen sichtbar, erleichtert so


die ffentliche Kontrolle und die Einordnung der Wirtschaft des Einzelnen
Unternehmers in die Volkswirtschaf und die Ordnung unseres Volkes
berhaupt.46

Not all the proposals formulated by the National Socialist authors imply
a discipline of mass contracts having the indicated features.47 On the
other hand, those who justify the lawmakers intervention to subtract the
scope for private autonomy without carrying out considerations regarding
the matter of contractual equity are definitely prevalent.48 Even the
Fascist experience tackles the protection of the weaker contracting party
with different attitudes. In the Civil Code, some rules seem to take up

45
So para. 1 Gesetzentwurf von Heinrich Stoll aus der Denkschrift des
Ausschusses fr Personen- Vereins- und Schuldrecht: Die Lehre von den
Leistungsstrungen. Schubert (1988); Schubert and Regge (1988).
46
Herschel (1942).
47
See, e.g., Haupt (1943b).
48
See for all Larenz (1936).

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The authoritarian theory of contract 59

models aimed at promoting values such as the balance between the


performances provided for in contracts, in particular the provision stating
usurious interests to be void (Italian Civil Code, article 1815) and the one
deciding on the matter of annulment for injury, pointing out the general
character of such remedy and setting aside the referability of the relevant
hypothesis to the vices of agreement (article 1448). Quite different are
some reflections devoted to protection of multi-party contracts. The
authors who are close to the political power invoke in this regard an
imperative intervention that would place the will of the State over the
will of the individual.49 Similar concerns seem to have inspired the
discipline of the general conditions of contracts (article 1341) and of
contracts stipulated through forms (article 1342). This latter is sometimes
indicated as an instrument of protection of the contracting parties who
are at a disadvantage because of the context in which the transaction is
stipulated. However, the mentioned discipline is often based on the
remark that mass negotiation is a factor of acceleration of productivity, to
which the freedom of transaction has to be sacrificed.50
The underlining of such aspects is a feature of the Fascist and National
Socialist contract law, which refers to the economic interests of the group
and in such perspective pursues objectives such as an efficient allocation
of assets: Der Vertrag hat fr die Gemeinschaft die Aufgabe, an einer
sinnvollen Gterverteilung und zur Erreichung immer hherer Leistungen
mitzuwirken.51 Therefore, the invective of certain authors in the Fascist
period claiming the distance of the new ideas from Liberal theories about
the homo oeconomicus assume a merely propagandistic meaning, and in
any case they seem to be inconsistent, as those theories were also
founded on a view of the contract that set aside the parties horizon.52

VII. LAW OF CONTRACT IN THE FASCIST AND


NATIONAL SOCIALIST COURTS
A common feeling has thus been shown between the Fascist and the
National Socialist literature interested in constructing a contract law
alternative to the one inherited from the Liberal scholars. And we have
seen that the spreading of the new ideas characterizes the German

49
Domined (1942).
50
Relazione al Re, n. 612.
51
Stoll (1943).
52
See among others Ferri (1931) and Costamagna (1933).

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60 Comparative contract law

experience more than the Italian one. Similar considerations concern the
application of the law.
Fascists and National Socialists entrusted the judiciary with the task of
implementing the political programme of the regime through
re-examination of pre-existing rules; such task was undertaken by some
scholars during the meeting of the Italian-German juridical committee,
held in Vienna in March 1939.53 In this perspective, the National
Socialists prepared a system of strict political control extended to the
whole public service.54 The Fascists, on the contrary, issued rules aimed
at favouring conditions on the judiciary that would not lead to political
prosecutions55 and yet affecting a system of rules that proclaimed the
autonomy of the judicial body just in principle.56 With specific reference
to the law of contract, the German courts seem at first to resist the
pressures of the National Socialist doctrine, in particular those regarding
the use of general clauses as an instrument to emphasize the general
interest in construing the agreements between individuals.57
A different trend develops through the reference to the provision
according to which is void a contract against morality (BGB, section
138). On one hand, the good morals clause is apt to allow the intro-
duction in contracts of the values promoted by the political power,
particularly as judges apply it referring to a subsequent time with respect
to the conclusion of the agreement.58 On the other hand, such clause is
combined with the sanction of voidness of the private deed, thus not
allowing reform of its contents. Especially, National Socialists deem that
such impediment is not compatible with the intent of subduing individual
ends to the exigence of the legal system.
The Italian Civil Code also contains (obviously) provisions regarding
contracts contrary to good morals. In particular, article 1119 provides that
the obligation without cause or based on a false or illicit cause can have
no effect, and the subsequent article 1122 specifies that the cause is illicit
when it is prohibited by law, contrary to good morals or public order.

53
See the report by Costamagna (1939b).
54
See Gestetz zur Wiederherstellung des Berufsbeamtentums (7 April 1933),
in particular para. 4.
55
According to Aquarone (1995).
56
Neppi Modona (1973) 136.
57
RG, 9 July 1935, (1935) Entscheidungen des Reichsgerichts in Zivil-
sachen, 266.
58
RG, 8 January 1937, (1937) Entscheidungen des Reichsgerichts in Zivil-
sachen, 294.

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The authoritarian theory of contract 61

However, it seems that the Courts did not develop trends inspired by
the intent of accepting the guidelines of the political power. Against the
background of a concept of causa other than the model used in the
preliminary works,59 the Courts continued to interpret such formulation
with reference to the grade of middle morality, thus establishing a
continuity with the previous line of decisions.60 And they also provided
that the unlawfulness of the cause has to be ascertained at the time of
conclusion of contract.61

VIII. REVISION OF CONTRACTS BY JUDGES


We have already remarked that through the good morals clause, the
German Courts came to eliminate agreements that were not compatible
with the maxims propagandized by the regime, without, however, affect-
ing their contents. This latter result was obtained instead by recourse to
certain constructions derived from application of BGB, sections 157 and
242, i.e. the provisions mentioning the good faith principle respectively
in the matter of contract construction and performance fulfilment.
It is well known that the use of good faith for the mentioned aims is
not a remedy conceived by the National Socialist literature. It was
established, in fact, during previous periods and is present, for instance,
in the first doctrinal formulations of the contractual grounds (Geschfts-
grundlage) theory, the whole of the events integrating the implied
foundation of a negotiated agreement, the breaking of which justifies an
intervention aimed at rebalancing the transaction.
The theory in question is established in a period of German juridical
history characterized by the intent of re-examining the cultural premises
on which the civil codification is based, and in particular the intent of
re-evaluating the rebus sic stantibus clause. In the Italian context it is
precisely the recourse to this clause that allowed the courts during the
Fascist period to justify certain interventions affecting the contract
contents. Nothing being contained in the Italian Civil Code on this

59
See Cass. Civ., 1 August 1936, (1936) Repertorio della Giurisprudenza
italiana, Entry obbligazioni e contratti n. 44 and Cass. Civ. 23 April 1937,
(1937) Repertorio della Giurisprudenza italiana, Entry Obbligazioni e contratti
n. 18. Later on see Cass. Civ. 11 December 1940, (1940) Repertorio della
Giurisprudenza italiana, Entry Obbligazioni e contratti, n. 25.
60
See Cass. Civ., 11 May 1936, (1936) Giurisprudenza italiana at I, 1, 626.
61
Trib. Caltanissetta, 22 December 1933, (1934) Repertorio della Giuris-
prudenza italiana, Entry Obbligazioni e contratti, n. 59.

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62 Comparative contract law

matter, the judges used to this end the provision regarding good faith in
the fulfilment of contracts (article 1124).62 On the other hand, in this way
they did not promote principles formally referable to the Fascist private
law. The provision, in fact, was interpreted in the light of the common
intention of the parties (article 1131)63 on the equivalence of perform-
ances and led to solutions which did not subordinate the individual end to
the general interest, as is shown by those decisions that refused to use the
clause rebus sic stantibus in order to consider ineffective a golden
clause, thus damaging the regimes monetary policy.64
Even the scholars who were closest to the political power, in fact, did
not seem to agree completely with the National Socialist writers trend.
Many Italian authors were not in favour of giving judges discretionary
powers to modify the contract which, according to the general principles
of impossibility, should be declared resolved. It seems, rather, that the
opinion fostering the limitation of political interventions in the monetary
and economic order was prevalent.65
In the German Courts, the theory of the contractual grounds became,
on the contrary, an instrument used to reform contract law in the light of
the principles proposed by the National Socialist literature. This latter
identified in the use of the institution in question one of the main devices
apt to strike at Liberal individualism.66
The German judges did not cease to found such theory on the grounds
of an individual character, as proved in particular by the references to the
presumed intention of the contracting parties and the discipline of error.
However, they emphasized new events capable of justifying external
intervention on the act vitiated by loss of the contractual grounds. In
order to determine the social and economic marginalization of Jews, the
changes in the racial policy of the regime, in particular, were mentioned:

Das verstrkte Hervortreten des Rassengedankens kann ein Grund dafr


sein, auch frhere Ruhegehaltsvereinbarungen mit jdischen Angestellten
dahin zu berprfen, ob und wieweit sie noch mit nationalsozialistischen
Volks- und Rechtsempfinden vereinbar sind.67

62
See Cass. Civ., 13 July 1942, (1942) Giurisprudenza italiana at I, 1, 606.
63
See App. Palermo, 29 April 1938, (1939) Repertorio della Giurisprudenza
italiana, Entry Obbligazioni e contratti, n. 16 and Cass. Civ., 24 June 1940,
(1940) Giurisprudenza italiana at I, 1, 919.
64
See, among many others, App. Bologna, 20 July 1939, (1940) Giuris-
prudenza italiana at I, 2, 37 and ff.
65
Asquini (1938).
66
See for all Lange (1934) and Larenz (1936).
67
RG, 24 April 1940, (1940) Deutsches Recht, 1314.

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The authoritarian theory of contract 63

To increase political control on the productive system, on the other hand,


circumstances such as the destiny of the popular economic system were
referred to:

Denn ein Festhalten am Vertrage wrde nach stndiger Rechtsprechung


insbesondere dann gegen Treu un Glauben verstossen, wenn infolge des
Irrtums beider Parteien ber das Bestehen einer sachlichen Geschftsgrund-
lage ein Missverhltnis zwischen Leistung und Gegenleistung eingetreten ist
Auch die Heranziehung des volkswirtschaftlichen Gesichtspunktes in
diesem Zusammenhang ist zu billigen.68

IX. SOME FINAL CONSIDERATIONS: THE LAW OF


CONTRACTS FASCIST MALGR SOI
In consulting the Italian Fascist magazines cases and on Court decisions,
therefore, one does not receive the impression that in the law of contract
the Italian judges have behaved simply as executors of the regimes
policy, but at least not with as much zest as their German colleagues.
The same does not apply, on the other hand, with regard to scholars.
Certainly, they have not adopted the regimes keywords with the same
intensity as observed in the German authors, a circumstance due in part
to the variety of positions in which the authors who were close to the
political power have reflected themselves.
And yet the comparison with National Socialist law has allowed the
highlighting of certain features characterizing the Fascist doctrine on
contract law. In particular, it has allowed us to remark that such doctrine
is based on the subordination of agreements to the legal system for aims
outside the pursuit of interests ascribable to the parties. The comparison
with the German experience has also made it clear that the prevalence of
the legal system is often functional to promotion of the economic
structure decided upon by the political power. This leads to confining the
matter to cases of exchange of goods and services, through certain
devices that differentiate it from contracts of a jus-rationalist character.
From this point of view, the Fascist and National Socialist experiences
diverge from the preceding theories about functionalization of private
action, even though they seem to imply a reconstruction of the relations
between contracts and the legal system which is not always sensitive to
the question of the balance between performances.

68
RG, 5 April 1939, (1939) Entscheidungen des Reichsgerichts in Zivil-
sachen, 257.

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64 Comparative contract law

If these are indeed the characteristics of the Fascist law of contracts, it


is necessary to specify, in the first place, that they have been introduced
in the civil law codification in force. And it is further to be underlined
that this implies the presence of a juridical doctrine in some way
participating in the construction of such law, even though only by virtue
of distinguishing contents.69 The statements of those who think that it is
possible to speak of juridical Fascism only if the scholars are united and
conformed to the political power, concluding that this is not the case in a
context where it merely formulates an external homage to the politics of
regime, are therefore worthless. Even such homages, in fact, contribute to
outline a law of contracts Fascist malgr soi.70 However, even without
such express references to the Fascist contract law, for instance in the
language that was substantially taken from the Liberal tradition, some
constructions have emerged, capable of supporting the legal policies
determined by the regime: a circumstance that was justified in the past by
portraying Fascism as the white guard of capitalism.71

REFERENCES
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Aquarone, A. (1995) Lorganizzazione dello stato totalitario. Turin: Einaudi, 2nd edn
Asquini, A. (1938) Unificazione del diritto delle obbligazioni, Lo Stato 413
Bellomo, P.B. (1936) Dallo stato liberale alla politica corporativa. Padova: Cedam
Biondi, B. (1952) Il diritto romano cristiano. Milan: Giuffr
Bobbio, N. (1973) La cultura e il fascismo in G. Quazza (ed.), Fascismo e societ
italiana. Turin: Einaudi, 20946
Bhmer, G. (1932) Einfhrung in das Brgerliche Recht. Leipzig: Weicher
Costamagna, C. (1933) La riforma della scienza giuridica, Lo Stato 563
Costamagna, C. (1938) Professori ebrei e dottrina ebraica, Lo Stato 490
Costamagna, C. (1939a) Razza e diritto al convegno italo-tedesco di Vienna, Lo Stato
129
Costamagna, C. (1939b) Il giudice e la legge, Lo Stato 193
Costamagna, C. (1940) La Carta del lavoro nella Costituzione italiana, Lo Stato 530
Costanza, M. (1981) Il contratto atipico. Milan: Giuffr
De Grand, A.J. (1999) LItalia fascista e la Germania nazista. Bologna: Il Mulino
De Semo, G. (1942) La riforma dei codici e la nuova partizione del diritto privato,
Diritto e pratica commerciale 166
Di Majo, A. (1985) Obbligazioni in generale. Bologna: Zanichelli
Domined, F.M. (1942) Studi sulle fonti del diritto, I Rivista di diritto commerciale 203
Ferrajoli, L. (1998) La cultura giuridica nellItalia del novecento. Rome and Bari: Laterza
Ferri, C.E. (1931) Il sepolcro delluomo economico, Lo Stato 708

69
Lucarelli (1983).
70
See Somma (2001), referring to Tomasz Giaro.
71
Gramsci (1998).

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Frank, H. (1936) Gesetzgebung und Rechtsprechung im Dritten Reich, Zeitschrift der


Akademie fr Deutsches Recht 137
Gramsci, A. (1998) I due fascismi in R. De Felice (ed.), Il fascismo. Le interpretazioni
dei contemporanei e degli storici. Rome and Bari: Laterza
Grandi, D. (1940) Tradizione e rivoluzione dei Codici Mussoliniani. Rome: Tipografia
delle Mantellate
Grandi, D. (1941) Diritto romano-fascista e germanico-nazista di fronte alla rivoluzione
del secolo XX, Monitore dei tribunali 3
Haupt, G. (1943a) ber faktische Vertragsverhltnisse, II Festschrift der Leipziger
Juristenfakultt fr H. Siber zum 10. April 1940. Leipzig: Weicher 3
Haupt, G. (1943b) Vertragsfreiheit und Gesetz, Zeitschrift der Akademei fr Deutsches
Recht 84
Hedemann, H.W. (1941) Arbeit am Volksgesetzbuch, Deutsches Recht 1913
Herschel, W. (1942) Die Vertragsordnung als Rechtsnorm. Zur praktischen Bedeutung der
neuen Lehre von den allgemeinen Geschftsbedingungen, Deutsches Recht 753
Irti, N. (1990) Diritto civile in VI Digesto delle discipline privatistiche, Sezione civile.
Turin: Utet
Jung, E. (1934) Deutschrechtliches und Rmischrechtliches zur Reform des Brgerlichen
Rechts, Zeitschrift der Akademie fr Deutsches Recht 183
Lange, H. (1933) Liberalismus Nazionalsozialismus und Brgerliches Recht. Tbingen:
Nomos
Lange, H. (1934) Vom alten zum neuen Schuldrecht. Hamburg: Hanseat Verlanst
Larenz, K. (1936) Vertrag und Unrecht, vol. 1. Hamburg: Hanseat Verlanst
Larenz, K. (1939) Neubau des Privatsrechts, Archiv fr die civilistische Praxis 93
Lehmann, H. (1942) Vom Werden des Volksgesetzbuchs, DRW 1492
Lucarelli, F. (1983) Diritti civili e istituzioni privatistiche. Padova: Cedam
Maffei, G. (1934) La concezione anti-romana razzista del diritto, Lo Stato 674
Maroi, F. (1941) La codificazione fascista del diritto civile, Monitore dei tribunali 65
Messina, S. (1938) Origini scopi ed organizzazione del Comitato, in Lo Stato 387
Messineo, F. (1943) Manuale di diritto civile e commerciale. Padova: Cedam, 6th edn,
vol. II
Neppi Modona, G. (1973) La magistratura e il fascismo in G. Quazza (ed.) Fascismo e
societ italiana. Turin: Einaudi, 136
Nipperdey, H.C. (1938) Il comitato giuridico Italo-germanico per la riforma del diritto
delle obbligazioni, I Rivista di diritto commerciale 437
Panunzio, S. (1936) Il problema dei codici e i limiti della codificazione, Lo Stato 647
Perlingieri, P. (1978) Scuole civilistiche e dibattito ideologico: introduzione allo studio
del diritto privato in Italia, I Rivista di diritto civile 44
Pugliatti, S. (1942) Lordinamento corporativo e il codice civile, I Rivista di diritto
commerciale 358
Scaduto, G. (1939) Introduzione al libro primo del nuovo codice civile, Rivista di diritto
commerciale 321
Schubert, W. (1988) Volksgesetzbuch. Teilenwrfe, Arbeitsberichte und sonstige Material-
ien. Berlin: Verlag De Gruyter
Schubert, W. and Regge, J. (eds) (1988) Akademie fr deutsches Recht 19331945.
Protokolle der Ausschsse, vol. III.4. Berlin and New York: Springer
Siebert, W. (1941) Ergebnisse und Vorschlge zum System des deutschen Vermgens-
rechts, Deutsches Recht 1506
Siebert, W. (1942) Contrato y libertad de contratacin en el nuevo sistema del Derecho
alemn, Revista de derecho privado 454
Simon, D. (1989) Die deutsche Wissenschaft vom rmischen Recht nach 1933 in
M. Stolleis and D. Simon (eds), Rechtsgeschichte im Nationalsozialismus. Tbingen:
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66 Comparative contract law

Somma, A. (2001) Fascismo e diritto: una ricerca sul nulla?, Rivista trimestrale di diritto
e procedura civile 597
Somma, A. (2002) Roma madre delle leggi. Luso politico del diritto romano, Materiali
per la storia della cultura giuridica 15382
Stoll, H. (1943) Vertrag und unrecht, 3. Aufl., 1. Halbb. Tbingen: Mohr
Teti, R. (1990) Codice civile e regime fascista. Milan: Giuffr
Tranfaglia, N. (2001) Fascismi e modernizzazione in Europa. Turin: Bollati Boringhieri
Vassalli, G. (1939) Per un diritto unico delle obbligazioni, Lo Stato 206
Wieacker, F. (1941) Zum system des deutschen Vermgensrechts. Erwgungen und
Vorschlge. Leipzig: Weicher

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4. Contract and the comparatist: should we


think about contract in terms of
contracticles?
Geoffrey Samuel

When asked to think about contract in a comparative law context, many


academic lawyers and law students might well be tempted into thinking
about the subject at a very general level. This should surprise nobody.
Contract in both the civil law and the common law world is founded on
a general theory which now finds concrete expression in a range of
transnational codes.1 These codes would appear to be the fruits of work
done by comparative lawyers who have toiled to harmonize the some-
times divergent principles that make up the various general theories in the
nationalized systems.2 However, not all comparatists have envisaged
contract in this way. And two in particular have produced work that
might encourage a rather different approach to thinking about contract.
The late Tony Weir expressed concern at the abstract nature of contract,
especially when compared to the Roman law of contracts,3 while the late
Emeritus Professor of Comparative Law at Oxford, Bernard Rudden,
produced a key work in the law of torts which, by way of analogy, ought
to provoke reflection about contract.4
Building on the ideas of these two eminent comparatists, this present
contribution will investigate whether it would be epistemologically
valuable to think about contract, not by way of a general theory, but by
way of the very many and various types of contract. Might classification
of contract by way of index, which has the potential capacity to identify
not just the grand transaction such as sale and hire but equally the little
contracts (contracticles), provide knowledge that le grand plan cannot
reveal? Indeed, such reflection might go further than classification given
this reference to the index. Might not the idea of clusters within the
framework of contractual knowledge act as points of entry into this

1
See, e.g., Rampelberg (2005); Cabrillac (2012).
2
See recently Schulze and Zoll (2013).
3
See Weir (1992); Weir (1998).
4
Rudden (199192).

67

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68 Comparative contract law

knowledge itself? By cluster is meant a focal point that can consist of


an empirical object (pork or peas), a descriptive concept such as
commercial or public interest, reasonableness, damage or fault, or even a
normative concept such as right or duty. These classification categories
and these clusters cannot be linked or described relationally in terms of a
contents plan or even a complex system;5 they are brought together only
in an index whose linking scheme is of course the alphabet.6

I. INTRODUCTION: THE WEIR AND RUDDEN


DIMENSION
Tony Weir was perhaps better known as a tort rather than a contract
lawyer but as a Roman law specialist and comparatist his tort knowledge
must of course be appreciated within the context of the law of obligations
as a whole. In fact, he published several contributions on contract and if
one were to attempt to extract some memorable points there are two that
are striking. The first was his (statistically correct) insistence that most
claims for breach (or perhaps one should say non-performance) of
contract were actions for debt rather than damages. Specific performance
is, in other words, by far the most important remedy in English contract
law. As Tony Weir put it:

The critical matter is, what did the defendant promise to do and under what
conditions? Here the principal distinction, as it seems to me, is between
promises to pay money and all other promises.

As he goes on to point out, though one would never suppose it from the
books, the money promise is the commonest of all promises, and the one
most commonly unperformed. And so while consumers are always
presented as victims, the truer view is that they are people who dont
pay for what theyve got. Thus whatever academics say or might like to
think, courts are principally collectors of debts, not extractors of dam-
ages.7 The second point is this:

The civilian emphasis on the different kinds of contract rather puzzles the
English lawyer, for he assumes that contract consists only of the general part
and is strongly disinclined to pay much attention to the nature of the
transaction in question. In complete contrast to his attitude to torts, his

5
Cf. Morin (2005).
6
See further Samuel (2011b).
7
Weir (1998) 72.

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Contract and the comparatist 69

approach to contract is abstract and unitary. The reason is that whereas the
law of torts developed (as did the Roman law of contracts) under different
forms of action trespass, case, trover and so on the English law of contract
since the early seventeenth century had really only one form of action
assumpsit A student asked to specify what kind of contract he has in mind
will sooner think of replying bilateral than sale or employment or
carriage.8

And he continued:

This abstraction is distractingly unrealistic It is as if medical students had


a first-year course entitled Disease, and consequently came to believe that
diseases were all much of a muchness and that when it was a question of
remedies, it did not really matter whether it was a case of nephritis or
schizophrenia.9

This extract obviously provokes one into thinking about contract in terms
of the various major transactions mentioned by Tony Weir.10 Yet is this
the only classification structure which might act as a useful alternative?
Tony Weir had already alluded to one, namely, the dichotomy at the level
of remedies between debt and damages. This suggests that if one were to
approach contract from the position of remedies, then a grouping under
debt, damages, rescission, rectification, injunction, and so on could
provide valuable insights. However, a closer examination not just of the
cases but also of the legislative texts stimulates a range of other schemes.
The distinction between a supply of goods and a supply of services
contract suggests a dichotomy between an obligation of means and of
result,11 while a sale of land contract has different effects than a sale of
goods one.12 The difference between public and private law contracts is
of course well known and has given rise to some literature,13 but the ever
growing number of regulations coming from Brussels is adding a whole
new meaning to Ulpians observation that there are more transactions
than names that attach to them.14 Could being unaware of the differences
between different kinds of contract have important practical implications?
Are there not important pedagogical reasons for emphasizing different
classes of contract? One is used to approaching contract from the

8
Weir (1992) 1638.
9
Ibid. 1640.
10
See further Samuel (2011a).
11
UNIDROIT Principles of International Commercial Contracts, art. 5.1.4.
12
Lawson and Rudden (2002) 5662.
13
See, e.g. Davies (2008).
14
D.19.5.4.

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70 Comparative contract law

position of an over-arching general theory; but what if one were to adopt


an index-based approach?
With respect to the law of torts, Weir himself suggested not just that a
general theory is an unintelligent way of thinking about torts in the
common law but that there is no general theory. The only thing holding
a torts book together is the binding.15 Bernard Ruddens article on
torticles approaches the subject in a similar spirit.16 However, the
important contribution that he makes is to suggest that classification
through the alphabet will reveal a much richer undergrowth (so to speak)
than a series of general chapters organized in accordance with some
abstract plan. The idea of thinking about law through the alphabet has
also been explored by Nicholas Kasirer and his original paper has
stimulated a more general reflection as to whether an index can have an
epistemological role.17 The topic of classification of contracts, which
seems to be largely ignored by those writing general introductions to the
subject, ought, then, to be given some more serious attention.

II. WORDS AND THINGS


Following a lead provided by the late Peter Birks, some academic
lawyers have started to interest themselves once again with questions of
taxonomy. One of the tensions that emerges out of this debate is the
dichotomy between words and things: classifying physical objects is
perhaps not the same exercise as classifying things that have no physical
(or immediate physical) existence.18 Indeed, the debate between what
actually exist as physical objects and what are only names (nomina) is
one that goes back at least as far as the Middles Ages, if not to Roman
law. The debate has relevance to any discussion of classification by index
in a subject like law because the index will always be a place where the
empirical world meets the world of ideas. Offal and offer could well
be close neighbours in a contract textbook, as could pants, peas,
personality, pork and product. Now classifying through categories
such as personality, property and obligations would not be the same
as classifying law through bathroom, cat and peas. Yet these latter
categories could actually be used as a means of conveying, ultimately, as

15
Weir (2006).
16
Rudden (199192).
17
Kasirer (2003); and see Samuel (2011b).
18
See further Samuel (2000); Samuel (2004).

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Contract and the comparatist 71

much information as the former scheme if one reasons, not through a


structure of genus and species, but through a progression by analogy.
This point perhaps ought to be developed a little further. Hugo Mattei
has written an article in which he suggests that the legal systems of the
world should be classified according to three categories, namely profes-
sional, political and traditional.19 No doubt this taxonomical scheme
is open to criticism, but the point to be made here is that, arguably, one
could arrive at the same information by starting out from the empirical
categories mentioned above. It may seem a little bizarre that a bath-
room could stimulate a jurist into thinking about the relationship
between the professional and the political, but the location of a bathroom
in a local authority council flat came close to provoking a constitutional
crisis in a case that, because of its sensitivity, ended up in the House of
Lords.20 Lord Hoffmann managed to find a professional way of solving
the problem, but not before he had explained the political implications
of the case. One can move from this bathroom to others: the builder who
fails to build one in conformity to the contract with a flat owner or the
bathroom that leaks water into the flat downstairs. Again, the builder who
fails to complete the construction of a bathroom, leaving valuable shower
fittings and basins unfixed to the property. Can the builder reclaim these
objects as his own? Moving, by way of analogy, from bathroom to flat
and from flat to other buildings will allow one to raise all manner of
obligation and property problems. Is not the notion of a home one that
brings in both professional law and tradition?21 Indeed, the question
has even been raised as to whether a building has legal personality.22
With regard to cat, an advertisement in the 1970s once asserted that
Your cat has the right to eat Whiskers (a particular tinned cat food). Do
cats have rights? What are the legal problems here? It is easy to move
from this creature to a much more political sensitive one: the unborn
child in the womb. Does such a person have personality rights? Do
these rights trump those of the mother who might desire an abortion?
One has soon moved into the categories of political and traditional.
One can move in other directions. Your cat eats your neighbours
goldfish: what are the legal implications?23 What if a vet fails to cure
your cats illness or what if your neighbour tries to adopt your cat?

19
Mattei (1997).
20
Birmingham City Council v. Oakley [2001] 1 AC 617.
21
See Attia v. British Gas Plc [1988] QB 304.
22
See Bumper Development Corp. v. Metropolitan Police Commissioner
[1991] 1 WLR 1362.
23
See Animals Act 1971, s. 2(2).

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72 Comparative contract law

Perhaps these examples are entirely professional ones, but if one moves
by way of analogy to a horse, the legal implications become more
interesting. A horse panics, jumps the fence of a field, and crashes into an
oncoming car seriously injuring the driver. The injured driver it seems
can get damages without having to prove fault.24 Yet, if there is a strict
liability scheme for horses that cause car accidents, why is there not a
liability without fault regime that attaches more generally to motor
vehicles that cause accidents?25 Is this professional law or is one in the
realm of tradition?
As for peas they can lead one into a discussion, first, about defective
products (the caterpillar in the tin of peas)26 and then, thanks to a case
concerning an unfortunate piece of aerial advertising (Eat Batchelors
Peas), about the effects of words on a group of understandably sensitive
people.27 By way of analogy pushing outwards from these facts one
can soon arrive at a whole range of problems about formation of
contracts (does putting a tin of peas into ones supermarket trolley
constitute contractual acceptance?), about the effects of insulting, untrue
or misleading words, about the futures market (buying peas before they
are grown), about agriculture and land use, about government regulations
with respect to food production and safety, and so on and so forth.
Now, of course, it is very easy to raise objections to this empirical
object and reasoning by analogy approach to understanding legal sys-
tems. Peas are not, as such, all embracing categories like those of the
law of property or professional and political and thus such a category
would have provoked ridicule from the late Peter Birks who regarded the
alphabet as a scheme lacking epistemological credibility.28 Yet perhaps
care must be taken. If one starts out from categories such as those
suggested by Mattei there is a real danger that, for the comparative
lawyer at least, one could end up taking a Eurocentric view of law as a
knowledge system. If one adopts physical objects as the starting point
there is the point that such objects are to be found in many very different
kinds of cultures with the result that one is at least starting out with less
culturally infused terms. No doubt bathroom might not be a particularly
suitable object but there are rough equivalents in many cultures and cats
and green vegetables certainly are global things. Interestingly, the Gaian
scheme of persons, things and actions is, by this test, more culturally

24
Mirvahedy v. Henley [2003] 2 AC 491.
25
Mansfield v. Weetabix Ltd [1998] 1 WLR 1263.
26
Smedleys Ltd v. Breed [1974] AC 839.
27
Aerial Advertising Co. v. Batchelors Peas Ltd [1938] 2 All ER 788.
28
See, e.g., Birks (1997) 34. See also Editors Preface at v.

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Contract and the comparatist 73

neutral than the Mattei scheme inasmuch as persons and things (if not
actions) are empirical as well as rational categories. Gaius was, it could
be argued, trying to classify objective social realities.
The difficulty with trying to apply scientifically inspired taxonomical
schemes (genus and species) to a discipline that essentially consists, if
the rule theorists are to be believed, of words is that one is not classifying
an independent object. Professor Birks tried to get around this problem
by asserting that legal categories were responses to causative events.29
Actions in tort arose from wrongs while claims in contract were triggered
by agreements. Wrongs and agreements were things rather than words.
Moreover, sub-classifications within tort were a matter of interests (and
thus things) and so distinctions had to be made between, for example,
the bodily health, property, financial and reputation interests. The prob-
lem with this thesis is that the taxonomical scheme itself was as much
implicated in determining the object as the objects themselves. Certainly,
one can objectively distinguish between a bodily, financial and reputation
interest; but many factual situations reveal ambiguity as to which interest
is in play. Did Mr Spring, the victim of an untrue reference letter, suffer
an invasion of his economic or his reputational interest?30 In asserting
that he suffered an invasion only of the latter, Birks was in part asserting
his own reality.31
High level abstract schemes in law cannot, then, rely on correspond-
ence for their epistemological validity. This leaves only coherence and
consensus.32 Tony Weir has suggested, as we have seen, that attempting
to apply some kind of coherent scheme to tort is a fruitless task and,
given his view on contract, even if such a scheme were possible it would
be meaninglessly abstract. Medical reasoning cannot solve problems by
reference to the category of disease. The legal scientist would no doubt
agree but equally would argue that such high level categories are made
relevant through a hierarchy of sub-categories, sub-sub-categories, and so
on, until one arrives at a sufficiently empirical level to solve concrete
cases. One is thus creating not just a set of empirically relevant categories
such as products, goods, services and the like but linking these
categories within a rationalized structure that can be reduced finally to a
single notion which sits atop of the pyramid or hierarchy. Scientific
reductionism is what motivates many legal taxonomists. The index in
contrast has only the alphabet as its organizing scheme, even if it is a site

29
Ibid. 17.
30
Spring v. Guardian Assurance Plc [1995] 2 AC 296.
31
Birks (1996) 46.
32
Soler (2000) 4345.

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74 Comparative contract law

where, as the law of contract demands, a pork chop can be distinguished


from a lamb one33 and a caf from a restaurant.34

III. LEVELS OF CLASSIFICATION


One taxonomical question that emerges from this discussion is, accord-
ingly, the level at which contracts might be classified. Much will depend
upon the kind of problems to be solved. And so, for example, if the
emphasis is on liability rather than, say, on the particular professional
peculiarities of different classes of contract (architects, solicitors, ship-
ping, and the like) one might look to comparative law and think in terms
of fault (obligation of means) and strict liability (obligation of result).35
Here the distinction that emerges is one between a contract for the supply
of goods, where liability is strict if the goods are defective,36 and a
contract for the supply of services, where the duty is one only of
professional skill and care.37 Nevertheless, as useful as this dichotomy is,
one cannot really abandon the index since certain factual situations can
prove awkward.
A recent case is of interest in this respect. In Platform Funding Ltd v.
Bank of Scotland,38 a bank brought an action for damages against a firm
of surveyors for breach of contract. The bank had contracted with the
surveyors for the latter to value a property to be used by the bank as
security for a loan made to a third party. The surveyors gave a written
valuation on the property after being shown around it by the third party
borrower and the bank made the loan. When the borrower failed to keep
up the loan repayments, the bank repossessed the property but then
discovered that the wrong property had been valued with the result that
the bank incurred a financial loss because the repossessed property was
worth less than the valuation. Now the surveyors argued that it was not
liable for breach of contract because it had not failed to exercise the skill

33
Heil v. Hedges [1951] 1 TLR 512.
34
Lockett v. A & M Charles Ltd [1938] 4 All ER 170; cf. Donoghue v.
Stevenson [1932] AC 562.
35
See UNIDROIT Principles for International Commercial Contracts,
art. 5.4; Avant-projet de rforme du droit des obligations et de la prescription,
art. 1149.
36
See traditionally Sale of Goods Act 1979, s. 14; and now Consumer
Rights Act 2015, s. 9.
37
See traditionally Supply of Goods and Services Act 1982, s. 13; and now
Consumer Rights Act 2015, s. 49.
38
[2009] QB 426.

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Contract and the comparatist 75

and care required of the reasonable valuer. In other words, this was a
service contract and, despite valuing the wrong property, it was not, the
valuer argued, actually negligent. The claimant, for his part, asserted that
this argument was irrelevant since the contractual obligation to inspect
the correct property was an absolute one. Fault did not enter into the
equation, so to speak. In holding the valuer liable, Rix LJ, supporting the
judgment of Moore-Bick LJ, observed that if the defendants argument
were to succeed the valuer who valued the wrong house (without any
want of care), like the photographer who photographed the wrong
wedding (equally without any want of care), could demand his fee: there
has been no breach, for each has acted with all reasonable care. This
idea, he concluded, is plainly flawed.39
The judges were keen to stress that as a general rule service contracts
were, as the civilian would put it, obligation of means rather than ends.
However, in service contracts it would appear that whether the claimant
is entitled to damages is answered by posing the question whether the
defendant is entitled to claim his debt. If he was so entitled, then the
issue of liability becomes one focusing on the quality of the performance.
The emphasis is on the act or behaviour of the contractual party and such
an emphasis leads naturally towards fault or its absence. If he was not so
entitled, then the issue is different; it means that there has been no
performance of the basic promissory obligation at all and in this situation
the emphasis shifts to the object of the contract, the property valued (or
not valued). Distinguishing between service and sale contract must, in
consequence, be treated with caution. Is this because certain types of
service have goods-like qualities or is it because the remedy of
debt attracts its own rules which in turn can distort the transactional
distinction?
Certainly, debt has an interesting role. As Tony Weir stressed, the most
common contractual promise is one to pay a sum of money but this
obligation contains within it a question about the circumstances in which
the debtor becomes obliged to pay. As Rix LJ says, payment can be
refused if there is a complete non-performance of the service. The
supplier of goods and the supplier of a service can therefore find
themselves in an identical position if what they proffer as performance
proves to be completely defective. They do not get paid. This point is not
always appreciated in contractual cases. In Photo Production v. Secur-
icor, the House of Lords had to consider whether or not a security
company would be liable for the destruction of a clients factory when

39
Ibid. para. 50.

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76 Comparative contract law

the companys patrolman sent to guard the factory burned it down


instead.40 Leaving aside the exclusion clause issue, one would have
thought that the way to determine this question might have been to ask
whether or not, after the fire, the security company could claim its fee. If
not, then the company would, if Rix LJ is right, be liable to pay damages
irrespective of the question about whether or not the patrolman was
acting outside the course of his employment. Yet this was not the
approach adopted and one reason is, surely, the very force of the facts
themselves. Valuing the wrong factory is very different than burning
a factory down. An employee who deliberately destroys the object of a
contract is likely to be distinguished from the employee who makes a
drastic misidentification.
The point to be made here is that a classification distinction between
contracts to supply goods and contracts to supply services is epistemo-
logically wanting. Reference equally needs to be made to the distinction
between debt and damages claims and to different types of objects such
as buildings, photographs, paintings, arsonists, and so on. These low level
facts (things) can be just as determinative as categories founded upon
names (words). Other examples can be given. A claimant contracts with
the defendant ship-owners for the latter to hire the former a ship;
however, for some unexplained reason the ship explodes and sinks
leaving the claimant without a vessel to transport their cargo. The
claimant accordingly brings a claim for damages for failure to perform
the charterparty (namely, to provide a ship) but the defendants argue that
they are not liable as the contract is frustrated.41 Was the cause of the
ship exploding due to some act or omission on the part of the owners or
was it due to an event completely outside the control of the defendants?
The civilian rule might prove useful here in that it suggests that where
someone has promised to do something, the burden of proof should be on
the promisor. If the promise is not performed, then the non-performer
should be required, at the very least, to show absence of fault. Thus Scott
LJ, in the Court of Appeal, seemingly adopting this approach, said that it
was a very simple case.42 Yet this was not the approach adopted by the
House of Lords. As soon as fault became a focal point the judges took
the view that he who alleges fault ought to bear the burden of proving it.
This the claimant could evidently not do since the explosion was
unexplained and the result was that the defence of frustration was upheld.

40
Photo Production Ltd v. Securicor [1980] AC 827.
41
Constantine (Joseph) SS Ltd v. Imperial Smelting Corp. [1942] AC 154.
42
[1940] 2 KB 430, at 432.

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Contract and the comparatist 77

What provided the opportunity for a difference of opinion between the


Court of Appeal and the House of Lords was the choice between two
factual focal points, both in turn governed by quite separate normative
propositions. The first was the fact of non-performance in turn linked to
the explosion, and the second was fault. The non-performance and
explosion was what made the case a simple one for the Court of Appeal,
while the fault is what made it not a very simple one for the House
of Lords.43 Now a critic might very reasonably argue in respect of this
case that taxonomy is of considerable importance. The rule that he who
alleges fault must prove it is one primarily belonging to the tort of
negligence whereas the frustration rules belong in the law of contract. In
the codes, therefore, non-contractual fault liability is in a quite separate
section than fault liability in contract.44 Moreover, one might provide
some support for criticizing the decision handed down from the House of
Lords by arguing that not only did they indulge in some false dichot-
omies but the Law Lords equally have handed to contracting parties the
possibility of escaping from the consequences of a non-performance by
alleging frustration. A consumer hires a boat for a holiday on the Norfolk
Broads which catches fire and sinks causing damage to the hirers. The
boat owner can, it would logically seem, escape liability by alleging
frustration unless the consumer himself can prove that the boat was
defective (not reasonably fit), which might not be easy. However, when
such a case came before the courts the judge observed that he was
entitled to say that, when a motor launch catches fire, apparently for an
entirely unexplained cause, there is a presumption that the launch was not
reasonably fit for that purpose.45
The false dichotomy employed by the House of Lords was that
between what a French jurist would call an obligation of result and an
obligation of means.46 In the words of Lord Porter there are some
contracts absolute in their nature where the promisor warrants the
possibility of performance and in these he is bound to perform in any
event or to pay damages, but there are other cases where the promisor is
only obliged to perform if he can.47 The Law Lord then went on to make
the point that where a contracting party seeks damages for non-
performance of an if he can contract in order to make him liable his

43
[1942] AC at 160 per Viscount Simon LC.
44
See, e.g., Code civil, arts 1231-1 and 1240.
45
Lewis J in Reed v. Dean [1949] 1 KB 188, at 193.
46
See Avant-projet de rforme du droit des obligations et de la prescription,
art. 1149; Nicholas (1995) 339, 351.
47
[1942] AC at 2034.

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78 Comparative contract law

fault must be proved by the party which alleges that it destroys his
excuse.48 This is a false dichotomy inasmuch as it seems to suggest that
there are no if he can (obligation of means) contracts where a
non-performer might have to prove absence of fault. This is not true. For
example, if a contract of services is defectively performed (a form of
non-performance) it may be that the provider of the service will be
obliged to prove an absence of fault before he can recover the agreed
price. Thus, in a case about a defectively performed funeral service, the
Court of Appeal refused to allow the funeral parlour to claim its debt.49
Consequently, when something goes wrong which undermines the
performance the burden is not always on the person alleging fault; he can
simply allege non-performance. In the exploding ship case, however,
reasonableness seems to have crept in at the burden of proof level. He
who alleges unreasonableness (fault), so it seems reasonable to say, must
prove it. One can only assume that a contract involving a ship is different
from a contract involving a boat or a funeral service, strongly suggesting
that these terms should appear in the index.
Having said this, the distinction between ships on the one hand, and
boats and funeral service on the other, might be rationalized at a higher
level of abstraction by reference to the consumer (equally to appear in the
index). Consumers are treated differently in the law of contract than
business professionals.50 This is certainly true with respect to exclusion
and other unfair clauses, but formally classifying contracts into these two
categories would beg a question as to whether this is a suitable level to
operate. Might it not be better to operate at an even higher level of
generality? Would it not be better to move to the more general level of
status and to see the consumer as an issue of capacity? Certain types
of contractual parties (consumers, dealers in the course of a business,
distant sellers, professionals, and so on) attract their own particular
rules.51 No doubt being aware that the status of a party is of importance,
but formally classifying contracts in terms of a special status category,
would probably not prove particularly helpful because the rules attaching
to the different status groups vary quite widely. It would, surely, be better
to make these distinctions in the index.

48
Ibid. 204.
49
Vigers v. Cook [1919] 2 KB 475.
50
See now Consumer Rights Act 2015.
51
See, e.g., Consumer Contracts (Information, Cancellation and Additional
Charges) Regulations 2013, SI 2013/3134.

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Contract and the comparatist 79

IV. RIGHTS AND REASONABLENESS


Another possible criterion for categorization in respect of contracts is the
dichotomy between rights and reasonableness. Could it be said that there
are some contracts where the performance of the promises is judged in
terms of strict rights and other contracts where the key to performance is
reasonableness? Now in 1963, a Court of Appeal judge asserted that he
would be sorry to find a new concept of law introduced that a man may
unreasonably exercise his right of termination, which was clearly given to
him by the contract.52 In the same year another Court of Appeal judge
had declared that a person who had a right under a contract was entitled
to exercise it for a good reason, a bad reason or no reason at all.53
These assertions seem to reinforce what is surely a common perception,
namely, that the law of contract is about strict promissory obligations
voluntarily assumed (for the most part) between two parties and which
can be vindicated as a matter of right. Contract rights, in other words, are
often not that far removed from property rights.54 These rights may be
expressed orally or in writing or, depending on the transaction, implied
by the law; but the key concept is that a contract is an agreement
between two or more persons which the law recognises as creating,
altering or extinguishing legal rights and duties.55
This common perception of rights capable of vindication is, it must be
said at the outset, not a false one in respect of one of the most common
promissory obligations which, as we have seen, is the promise to pay a
fixed and determined sum of money in return for a service or for goods
or other property supplied.56 Just as the courts do not inquire into the
behaviour of an owner seeking to assert his right of ownership in an item
of property,57 so they do not look beyond the formal question of whether
the creditor has the right to the debt being claimed. If the court finds that
the claimant is a lawful creditor, they condemn the defendant to pay and
the judges do not generally inquire into the behaviour of the parties or
into the substance of the transaction. Yet, are these normative concepts of
rights and duties always capable in themselves of providing an under-
standing of how contractual liability cases are reasoned and decided or

52
Upjohn LJ in Financings Ltd v. Baldock [1963] 2 QB 104, at 115.
53
Pearson LJ in Chapman v. Honig [1963] 2 QB 502, at 520.
54
Atiyah (1979) 102. Note that a debt is a form of property (a chose in
action).
55
McGregor (1993) art. 1.
56
An action for debt or sum due: Zakrzewski (2005) 108.
57
See, e.g., Moorgate Mercantile Ltd v. Twitchings [1977] AC 890.

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80 Comparative contract law

do other, more moderating, notions or ideas have a role in contract cases?


Are there more latent ideas to be found beyond the formality of a right?
A recently published thesis in France suggests that there is such a
concept or notion at work, often latent, within legal reasoning and that
this concept or notion is that of reasonableness.58 This thesis is of
course devoted to French law (although there are references to the
common law), but it evidently raises important questions for English and
for comparative lawyers. The most obvious question, prompted by
Madame Ramparany-Ravololomiaranas book, is this. Are those French
private lawyers, like the preface writer to Madame Ramparany-
Ravololomiaranas thesis, who assume that the notion of reasonableness
is taken for granted in the common law of contract, correct in their
assumption?59 If the observations of the two Court of Appeal judges cited
above are to be believed, it might well appear that the assumption should
be treated with scepticism. Madame Ramparany-Ravololomiaranas the-
sis, in other words, should be transplanted to England, if at all, only with
great care. Yet perhaps the scepticism and the care should be directed less
at the idea of reasonableness in itself and more at the way the question is
formulated. Instead of asking some general question about reasonable-
ness and contract it might be better to pose a series of bottom-up
questions. In other words, it might be better to take an index approach.
Does reasonableness, for example, have a role to play in contract where
one person is claiming to have been damaged by the other partys failure
to execute (or to execute fully) his promise? Can reasonableness have a
role where one person is attempting to vindicate what appears to be a
clear contractual right? Does reasonableness ever apply to the object of
the contract? And, if reasonableness, does make appearances on occa-
sions, how can it be reconciled with the idea that contract is about strict
rights and duties?
Before these questions concerning reasonableness can be properly
tackled, one is faced both with the question of why this reasonableness
question might be of importance and with some definitional problems.
The question of reasonableness and contract could be an important one if
it were to reveal a dcalage between contract, on the one hand, as an
abstract structure of rules, rights and duties60 and, on the other hand, as a
series of liability cases which are reasoned and decided using methods

58
Ramparany-Ravololomiarana (2009).
59
See Beauchard (2009) v.
60
See, e.g., McGregor (1993); Principles of European Contract Law
(PECL); UNIDROIT Principles of International Commercial Contracts
(UNIDROIT).

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Contract and the comparatist 81

and notions that may have little or no place in the textbooks, treatises and
codes on the subject.61 Put another way, the question would be important
if it were to indicate that there is a whole dimension of contract
knowledge that is unrevealed by the traditional doctrinal material on
contract. Do contract and legal reasoning inhabit different
epistemological worlds? And can these different worlds only be revealed
by an index?
With regard to the definition problems there are a number of issues.
What, actually, is meant by a right and what is meant by reasonable-
ness (or unreasonableness)? In addition, if the notion of reasonableness
does have a role in contract, there are questions about the level or levels
at which this role might operate. For example, it is generally stated that
consideration does not have to be reasonable in the sense of fair or
just (there is, in other words no doctrine of the just price). Con-
sequently, it would seem difficult to assert that all contracts must be
reasonable. Or, put another way, there is no doctrine prohibiting a
person generally from making unreasonable contracts (although of course
some will be prohibited by the law).62 Yet once one descends from this
holistic level to the individual parts of contract law to the individual
levels of formation, content, performance and remedies the position
becomes more complex (as indeed Madame Ramparany-Ravololomiarana
indicates in respect of French contract law). Reasonableness cannot be so
easily dismissed, as a glance at the exclusion clause legislation or some
cases on performance indicates.63
As one might expect, Madame Ramparany-Ravololomiarana
approaches reasonableness (le raisonnable) in terms of a notion that is
difficult to grasp. She examines the various definitions and concludes,
importantly, that it is not actually to be confused with other notions such
as rationality, justice or equity.64 Equally, it is not to be confused with
good faith.65 Perhaps, she suggests, it is to be understood in a negative
sense: it is something that is not unreasonable.66 Thus it could be said

61
See, e.g., Samuel (2009).
62
This principle finds expression in (to take a random example) Galbraith v.
Mitchenall Estates Ltd [1965] 2 QB 473, although this is not to suggest that this
case would be decided the same way today (although it might be: see Director
General of Fair Trading v. First National Bank plc [2002] 1 AC 481).
63
See in particular the Unfair Contract Terms Act 1977 and now Consumer
Rights Act 2015.
64
Ramparany-Ravololomiarana (2009) 25.
65
Ibid. 67.
66
Ibid. 78.

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82 Comparative contract law

that reasonableness is absent in situations of abuse or irrationality; but of


course the danger here, as she recognizes, is that it can become confused
with morality and this is dangerous because one important aspect of the
notion of reasonableness is its pragmatic orientation.67 It is a means of
moving away both from the irrationality of sentiment and passion and
from the rigid rationality of formal deductivism towards a pragmatism in
which an economic and (or) social functionalism can come into play. It is
a means of adapting legal reasoning to the case in issue. And it does this
by permitting the legal reasoner to switch from one scheme of intelligi-
bility to another. One moves from formal structuralism (contract as a set
of axioms) to a form of reasoning that takes its reference from, on the
one hand, an idealized actor (the reasonable person) and from, on the
other hand, the economic supposed ends that the contract rule or
principle is said to be pursuing.
Accordingly, definitions of a right have tended to be based on
structural schemes that are circular in their pattern. For example, one
leading theory is that a right is correlative to a duty and so where a
party is under a duty to pay to the claimant 100 the latter has a right
to such a sum (which, presumably, can then be claimed for a good
reason, a bad reason or no reason at all).68 Another structural approach is
to see a right as being based on a relation between persona and res. Here
the paradigm example is the right of ownership, in turn defined as the
right to enjoy and dispose of in the most absolute manner,69 but the
notion of a res can be extended to embrace all kinds of intangible things,
including claims not just for something under a contract but for more
ephemeral items such as liberty, wealth, privacy, dignity, education, and
so on. A right under this scheme of intelligibility has the flavour of
property talk and from a diachronic viewpoint is rooted in the history of
the two Roman law terms of dominium and ius.70
Another definitional possibility is to add a functional dimension to the
structural approach. Under this scheme a right is, for example, nothing
more than a social interest recognized and protected by a legal action or
claim, that is to say that the function of a right is to give priority to some
empirical interests over others.71 However, lawyers are usually forced to
adopt a dialectical scheme when it comes to deciding actual cases since
many rights come into conflict, for example, the right to privacy often

67
Ibid. 9.
68
Hohfeld (1919).
69
Code civile, art. 544.
70
See, e.g., Tuck (1979); Villey (2006).
71
See generally Ionescu (1978) 14149.

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Contract and the comparatist 83

finds itself in conflict with the right to press freedom or the right of
ownership with the protection of third parties.72 The judges talk of
balancing one right against another although not it seems where
ownership is concerned73 and this, in turn, can force the legal reasoner
towards an actor approach whereby, for example, the courts create an
agent such as the reasonable journalist or the reasonable business-
man.74 In short, definitions are in themselves of little help; what matters
are the methodological schemes of intelligibility adopted by judges in
individual cases concerning rights.

V. INVASION AND BEHAVIOUR


Nevertheless one way of approaching rights, and possibly the most useful
way for the purposes of comparing rights with reasonableness, is to
contrast invasions with behaviour. As Lord Hobhouse once explained
with respect to the law of tort:

Typically, a tort involves the invasion by the defendant of some legally


protected right of the plaintiff, for example, trespass to property or trespass to
the person. Conversion is another example. Such conduct on the part of the
defendant is actionable as such and the belief of the defendant as to the
legality of what he did is irrelevant. It is no defence for the defendant to say
that he believed that he had statutory or other legal authority if he did not. The
legal justification must actually exist otherwise he is liable in tort.75

The Law Lord then went on to observe:

On the other hand, where the plaintiff is not entitled to complain of the
invasion of such a right but bases his claim on some loss which he has
suffered consequentially upon some act of the defendant which the defendant
mistakenly believed was authorised by the law, the defendants honest belief
provides him with an answer to the plaintiffs claim notwithstanding any
actual illegality. Thus the holder of a public office who acts honestly will not
be liable to a third party indirectly affected by something which the official
has done even if it turns out to have been unlawful.76

72
See, e.g., Shogun Finance Ltd v. Hudson [2004] 1 AC 919.
73
Ibid.
74
See Lord Hoffmann in Jameel (Mohammed) v. Wall Street Journal [2007]
1 AC 359, para. 55.
75
Lord Hobhouse in Three Rivers District Council v. Bank of England
(No. 3) [2003] 2 AC 1, at 229.
76
Ibid.

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84 Comparative contract law

This distinction between the starting points of invasion and behaviour


might be a useful analogy for approaching rights and reasonableness in
contract. Is contractual liability about vindication that is to say
claiming something without having to prove anything more than non-
performance by the other contractual party (the invasion of the right)
or is it about suffering loss through some act which itself must be proved,
in substance, as unreasonable, the mere proving of a breach of promise
not being sufficient to result in any substantive remedy? More generally
one might say that the question comes down to one of vindication of
rights contrasted with proof of unreasonableness.77
However this general question is not in itself sufficient as a vehicle for
approaching the issue of reasonableness in contract. As Madame
Ramparany-Ravololomiaranas thesis indicates, where reasonableness
does appear to have a role is at the level of individual aspects of contract
law (problems concerning penal and exclusion clauses, change of circum-
stances (imprvision), performance expectations, and the like) and so
what is needed is a scheme for analysing contract into parts that are
relevant for this purpose. The obvious scheme is the one employed by
contract codes and textbooks. Reasonableness can be assessed, first, at
the various stages of contract and, secondly, at the level of the contractual
obligation itself. Thus one might start at the pre-contractual (negotiation)
stage, progressing to reasonableness in formation, in interpretation of
content, in performance and in the enforcement of remedies.
Yet the problem with this approach is that it fails to comprehend a
further dimension to the problem. It may be that reasonableness is not a
concept that can easily (if at all) be detached from the contractual liability
cases so as to exist as some kind of abstract entity itself amenable to a
consistent definition. Madame Ramparany-Ravololomiarana seemingly
takes a somewhat different view it must be said; for she sees reasonable-
ness as being some kind of general notion that has the function of adapting
the various elements of contract to make it conform to the aim (la finalit)
of the parties.78 Nevertheless, she might agree that reasonableness exists
not only within the facts as an empirical idea and within a range of legal
rules (even statutory ones) as a normative proposition but also as a vehicle
capable of informing and explaining legal reasoning. As she says, the
notion authorizes the judge to fill in gaps or adapt or declare void certain
clauses which do not facilitate the achievement of the objective of the

77
An interesting case displaying such a conflict is Moorgate Mercantile Ltd
v. Twitchings [1977] AC 890.
78
Ramparany-Ravololomiarana (2009) 399.

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Contract and the comparatist 85

parties.79 To a common lawyer this may sound as if it is a notion that


explains everything and nothing and were it to be employed only at what
might be called the large scale mapping level the criticism would
probably be valid. This is why one is forced back to an index approach.
Time must be spent looking at the reasoning methods employed by the
judges (no doubt inspired by counsel on occasions) in some contract cases.
In other words the devil is in the detail and these details can only be
accurately referenced through a well-constructed index.

VI. SCHEMES OF INTELLIGIBILITY


These reasoning methods have been described in detail elsewhere.80
Nevertheless, it might be valuable to recall how they interrelate with
contract decisions so as to permit the idea of reasonableness to enter into
the equation. Several such methods, or schemes, have already been
mentioned in passing. An actor approach is one that permits the
reasoner to construct an individual agent endowed with certain qualities
and attitudes; this agent can then be called upon to make a judgement
within particular sets of facts. What would the reasonable man have
done? How would the reasonable bystander have interpreted the negoti-
ations? The validity of this approach will, of course, depend upon the
extent to which such a constructed individual enjoys consensual support
amongst the audience at whom the reasoning is aimed.
A structural scheme emphasizes the relations between elements, for
example between persons, things and actions or between carefully
defined categories and classes or again between abstract concepts such as
rights, duties, liberties and privileges.81 Often such a scheme draws its
validity from its coherence, the model being that of mathematics, and
thus ideas such as symmetry and non-contradiction are fundamental.
Indeed, the reasoning method usually employed by conceptual structur-
alists is logical deduction and the reliability of such reasoning depends
on the perfection of the structure or the system.82 This aspect of legal

79
Ibid. 399401.
80
Samuel (2009).
81
On structuralism as a scheme of intelligibility see Berthelot (1990) 7072.
82
Bouchon-Meunier and Nguyen (1996) 720.

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86 Comparative contract law

conceptualization has a long history in European legal thought.83


Reasonableness within this scheme would be a matter of axiomatic
principle, but one linked to the circumstances of each case.84
One might add to this structural scheme a causal approach, that is to
say the scheme of reasoning normally used in the natural sciences.85
Certain structural models might be employed to demonstrate how one
object (in law a particular result or solution: S) is dependent upon a
causal relation with another object (a rule or concept or norm: N). If N,
then S. Thus if one is able to establish offer, acceptance and consider-
ation in a set of facts (F) then one can conclude there is a contract (C);
and if one can go on to establish an act that amounts to a breach of this
contract (B) one can causally conclude there will be liability (L). Thus F
causes C which causes B to be treated as L.
In contrast to this structural scheme is a functional approach which
puts the emphasis on the purpose or function of a rule, concept or
category.86 What is the empirical role of the doctrine of consideration in
contract? What economic or social objectives should the law of contract
be attempting to achieve? A functionalist might, then, refuse to interpret
a provision in a written contract in a way that will lead to an unreason-
able economic or social result. One should add here that functionalism
often makes its appearance in English law civil liability cases under the
guise of policy. In asking what the policy is behind a particular rule a
judge is often alluding to its social purpose.
Other approaches that are of importance are hermeneutics and dialec-
tics. A hermeneutical approach is one that sees a rule, word, concept,
category or whatever as a sign whose deeper meaning whose signifi-
cance is in need of discovery.87 For example, in statutory interpretation
one often talks of the will of Parliament as the object to be discovered
behind a word or expression in a legislative text; the role of the
interpreter is thus to discover this will behind the written word. In
contract one can talk of the will of the parties. Does the written text
(contractual document) give a true expression of what the parties
intended? Did the parties, for example, imply into the text a term that the
two parties should perform the contract reasonably? A dialectical
approach is one that emphasizes contradiction out of which will emerge

83
See generally Dubouchet (1990).
84
See, e.g., European Sales Law Regulation (proposal), art. 5.
85
Berthelot (1990) 6265.
86
Ibid. 6570.
87
Ibid. 7275.

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Contract and the comparatist 87

some higher truth.88 This, of course, is a scheme that is inherent in the


whole adversarial approach of the common law; out of arguments for and
against (advocatus diaboli) will result the solution to a litigation or
criminal prosecution problem. Judges might adopt this approach in
contrasting two possible outcomes to a contract problem and then, after a
careful comparative analysis, choosing the most appropriate (the most
reasonable?) between them.
One final point needs to be recalled with respect to these different
schemes of intelligibility in reasoning. They are not mutually exclusive
but, as already indicated, often combine to produce a set of reasons or
justifications. Thus a causal approach, or indeed a functional approach,
might be combined with an actor scheme; a hermeneutical scheme might
be mixed with a dialectical one (as in medieval legal reasoning).
Reasonableness, in other words, might be excluded in a scheme of
intelligibility that emphasizes conceptual structure and causal logic; the
solution (S) is caused by the juxtaposition of a given set of facts (F) and
a conceptual scheme of norms or positive rules (N). Thus N juxtaposed
with F causes S. However, reasonableness can be (re)introduced by the
reasoner who adopts a different scheme, say functionalism or dialectics.
As a Law Lord once said, a preoccupation with conceptualistic reason-
ing may lead to [an] absurd conclusion; and thus ideas divorced from
reality have never held much attraction for judges steeped in the tradition
that their task is to deliver principled but practical justice.89

VII. CONTRACT CLUSTERING


How do these different reasoning schemes relate to the classification of
contracts? In one sense they do not; they are forms of reasoning and not
forms of contractual types. However, where they meet different types or
categories of contract is in the index. The index becomes the place where
taxonomical, conceptual (including reasonableness), institutional, factual,
economic, political, social, moral and other notions meet. This place is
the means through which a reader can appreciate the complexity of law
and legal reasoning. This complexity, rather than being rationalized
through classification (at whatever level) of rules and transaction types,
might be better reflected in a form of clustering that takes as its starting
point a factual situation, a descriptive concept or a reasoning method.
Instead, therefore, of understanding contract through a rule (or set of

88
Ibid. 8283.
89
Lord Steyn in Lister v. Hesley Hall Ltd [2002] 1 AC 215, para. 16.

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88 Comparative contract law

rules) like offer and acceptance it might be better to look at the details
of contractual situations as reflected in differing factual situations such as
supermarkets, transport, builders, ships, boats, motor vehicles, and so on.
This is not to assert that rules such as offer and acceptance or consider-
ation are irrelevant; they are not. However, they should be seen not as
axioms as such but as the means of marking out relatively defined spaces
in which a whole range of differing clusters are to be found. One might
make an analogy with the theatre where the stage acts as a space for an
enormous range of differing productions themselves involving complex
relations between actors, props and scripts. Plays represent a cluster
within the defined space of the stage.
In truth even the idea of contract rules determining a space within
which contract problems are played out is misleading in that once one
starts out from a factual situation such as the supermarket it becomes
clear that certain problems do not fit neatly within a contract framework.
The customer who picks up, and places in his trolley, a can of beans from
a display marked special offers and then, with a change of mind,
replaces the can back in the display certainly raises an issue that is of
interest to the contract lawyer. At what point is there a contract to
purchase the tin? But what if the customer slips up and injures himself on
some spilt yoghurt: is this equally a contract issue? One customer
surreptitiously removes an item from the trolley of another customer
because there are no more of these special offer items on the shelves: is
this a contract issue? Now of course one might argue that this is exactly
the problem with emphasizing the empirical context rather than the
systematized conceptual structures of normative rules; contract norms
become lost in a mass of other norms from other areas of the law.
However, one may respond in saying that one of the advantages in
viewing contract within specific empirical situations is that it actually
emphasizes the artificiality of dividing up the law into tight normative
categories of a type essentially inherited from Roman law. At the level of
particular transactions in particular factual situations contract rules can-
not often be divorced from tort, from property, from public or from
procedural rules. This does not make the contract rules irrelevant as such,
but the idea that there exists a body of pure contract norms is useful only
in certain kinds of problem-solving situations where, for example, it
might be ideologically useful (in a legal argumentation sense) to separate
contract norms from administrative law or from property law norms.
This point can be put another way. The construction of a set of
contractual norms isolated from other areas of law such as status, wills,
family relationships, employment, ownership and legal personality under-
pins much contemporary legal thinking in Europe, at least if the Draft

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Contract and the comparatist 89

Common Frame of Reference is to be believed.90 Such normative purity


is usually regarded as a product of legal science. The methodology
associated with this science is one based on the idea that one categorizes
and analyses a factual situation in relation to the existence of this
abstracted taxonomical normative structure. Yet do those working in the
natural sciences problem-solve in this type of way? If one looks at an
area of science that is perhaps the closest (in some ways) to law, namely
medical reasoning, medics themselves do not seem to think that the
methodology is founded upon comparing facts (symptoms) with an
abstract and highly systematic taxonomical structure of diseases.91 The
experienced doctor well knows that illnesses often do not manifest
themselves in the way described in textbooks and that there is not a clear
demarcation between being ill and not being ill. Medical reasoning is
based as much on analogy as upon deduction.92 Much the same is true of
law, although it must be stressed at once that there are different
epistemological underpinnings between the two disciplines.93 As has
been seen with respect to one of the cases already discussed, one arrives
at the conclusion that the valuer who values the wrong building is strictly
liable through the use of an analogy. The valuer is analogous to the
painter who paints the wrong person or to the photographer who
photographs the wrong wedding.
How might contract clustering relate to contract classification? In order
to try to answer this question one needs to return to the role of the index
because classification and categorization can take many forms and
operate at many levels. In addition, as we have seen, one has to factor in
reasoning methods (induction, deduction and analogy) and schemes of
intelligibility. What the index provides is a range of entry points in which
one can understand the workings of contract law. Thus the distinctions
between sale and hire, between contracts of service and contracts for the
supply of goods, between interactions in a supermarket and in building
construction sites, between distance selling contracts and financial ser-
vices transactions, between expectations or interests and rights and

90
See DCFR Book I, art. 1:101.
91
Masquelet (2006) 45. Medical reasoning is of course different in many
ways to legal reasoning but they do share some similarities; for example, both
doctor and legal practitioner have clients who have expectations which mean that
they must reason in a manner that forms part of an ongoing relationship between
reasoner and client: Masquelet (2006) 3. See Samuel (2015) 323.
92
Masquelet (2006) 41, 9193.
93
Samuel (2015).

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90 Comparative contract law

duties, between rights and reasonableness, and so on and so forth, are all
points of entry. Yet they all operate at different levels and in different
dimensions which cannot be adequately embraced in a two-dimensional
plan; they can only be listed in an index. Contracticles that is to say
the many different types of transaction to be found at the lowest level of
generality are, in other words, just one aspect of a fragmented
knowledge. This does not mean that systematized codes (or textbooks) of
abstract contractual rules are irrelevant. They are not. They are, to use the
mapping metaphor, like large-scale national motorways maps; yet the
existence and undoubted utility of such maps does not render irrelevant
the street plan map which in its own way is of equal utility. The index,
then, is like a contract street map. It provides an entry into contractual
knowledge from the bottom up. There are contract cases about, for
example, offer and acceptance, rules of interpretation and frustration; but
there are also contract cases about bailment, banks, buses, damage, debts,
franchising arrangements, functional reasoning, funerals, heating sys-
tems, insurance, interests (commercial, public, and so on), knives, local
authorities, peas, pork, property, reasonable business person, rectification
in equity, telecommunications agreements, valuers, and so on and so
forth. These clustering points have as much knowledge potential as offer
and acceptance or any other notion to be found in a code or textbook.
They may require, of course, a particular type of reasoning and scheme
of intelligibility to unlock this knowledge potential.

VIII. OBSERVATIONS AND CONCLUSIONS


These points are not particularly startling or original. The good indexer
knows that his or her index should act as a kind of metaphorical X-ray
which reveals the interior in all its detail and complexity of some defined
area of knowledge. Equally, the civil lawyer has long thought in terms of
particular types of contractual transaction and that classification of
contracts is an important part of the introductory section in some codes
and textbooks. Even the common lawyer has books on specific contracts.
What perhaps has not been sufficiently appreciated is how these not
particularly startling or original points have never really formed the basis
of any serious epistemological thinking within legal subject areas. Tony
Weir, it must be said, was contemptuous of epistemology despite his
excellent epistemological point that thinking at the level of a general
theory of contract was analogous to a doctor thinking at the level only of

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Contract and the comparatist 91

disease (as opposed to specific illnesses).94 But while jurists have been
prepared to look at, for example, political or gender bias in cases and in
legal reasoning, they (with one or two exceptions) have never really
seemed that interested in thinkers such as Edgar Morin who has
reminded scientists and social scientists of the importance of complexity.
As Morin points out, science is based at one and the same time on
consensus and conflict; there are permanent conflicts between rationalism
and empiricism and between the whole and its parts. Complexity is a
dialogue between order, disorder and organization.95
If one looks hard enough at certain legal rationalizations such as
reasonableness in contract one can see this conflict. Reasonableness is
to be objectively ascertained by having regard to the nature and
purpose of the contract, to the circumstances of the case and to the
usages and practices of the trades or professions involved.96 The
epistemological emptiness of this assertion ought surely to be a warning
sign that law as a rational discipline is in danger of becoming a kind of
intellectual parody in which social reality is envisaged as a flat two-
dimensional framework full of one-dimensional subjects and objects
linked by notions such as reasonableness that cannot ever have any
abstract meaning. The idea that reasonableness can be objectively
ascertained in some sense divorced from the nature and purpose of the
contract and the circumstance of the case is epistemologically absurd and
seemingly works only because of the inductive formal framework (hav-
ing regard to) that gives the assertion the appearance of intellectual
credibility. There is, in other words, a dialogue only between order and
organization. It is not a dialogue that embraces the disorder of social
complexity.
Of course, there is a very strong ideological element to all of this. Law
must be seen to be certain and free of internal contradiction. Equally, say
some, it must be free of social functional reasoning; law is about rights
not social ends.97 These rights theories are perfectly proper, but if they
become dominant in comparative law or indeed in legal education then
comparing laws and learning the law become a matter of ideological
imperialism rather than epistemological investigation. Perhaps ideology
is too strong a notion and so one might replace it with what Morin has
called the paradigm of simplicity. This is a paradigm which puts order in

94
See Weir (1992) 1616.
95
See Morin (2005).
96
Proposal for a Regulation on a common European sales law (2011/0284
(COD)), art. 5(1).
97
See generally, e.g. Robertson and Wu (2009).

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92 Comparative contract law

the universe and chases disorder out of it.98 It is a matter of continual


reduction, of uncovering the simplicity that lies hidden behind the
apparent complexity and disorder of phenomena. That comparative law is
plagued by this paradigm is evident in these European general theory of
contract codification projects in which highly complex notions such as
reasonableness, or difficult problem areas like mistake, are reduced to
normative assertions that are so general as often to be meaningless when
applied to facts. It is, as Tony Weir obliquely suggested, like trying to
harmonize all the illnesses in Europe by reducing them to the single
notion of disease. No doubt they are all diseases, but this is hardly a
notion that is of any use when it comes to medical problem-solving.
Thinking at much lower levels of categorization at least as low as all
the different contracticles thrown up by European Directives but prob-
ably on occasions one should go to the even lower idea of clusters has
the advantage of being more ideologically neutral and more transparent
with regard to the reasoning methods and schemes of intelligibility in
play. For example, if one really wishes to appreciate the English law
approach to mistake problems where there is no misrepresentation one
can do no better than study Lord Atkins judgment in Bell v. Lever
Brothers.99 No abstract normative proposition could ever capture the
detail of this Law Lords analogies.
Lord Atkin operated at the level of paintings, garages and horses.100
These are cluster point things that cannot be captured in any general
theory plan; their epistemological location is only in an index where they
can co-exist both with other low level categories such as financial
service contracts and dry cleaning transactions and with other cluster
focal points such as interest, debt and functional reasoning. The
good index is where the details of contractual and near to contract
knowledge can be discovered. The comparative lawyer keen on identify-
ing difference (and indeed similarity) should, accordingly, become a
lover of the index. Professor Birks, as has been seen, argued that the
alphabet is not an epistemological scheme of any value, but Tony Weir
has asserted that he could tell a hawk from a handsaw without the need
of any theory of aerial predators.101 Somewhere between the two lies the
good index a scheme that, as this chapter has hopefully demonstrated,
does have an important epistemological dimension and this is the
location where the enquiring comparatist ought to take up her residence.

98
Morin (2005) 79.
99
Bell v. Lever Brothers [1932] AC 161.
100
Ibid. 224.
101
Weir (1992) 1616.

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Contract and the comparatist 93

Both Tony Weir and Bernard Rudden helped direct comparatists towards
this location.

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Beauchard, J. (2009) Prface in H. Ramparany-Ravololomiarana, Le raisonnable en droit
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Berthelot, J.-M. (1990) Lintelligence du social. Paris: Presses Universitaires de France
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Ionescu, O. (1978) La notion de droit subjectif dans le droit priv. Brussels: Bruylant
Kasirer, N. (2003) Pothier from A to Z in J. Pineau, B. Moore, Mlanges Jean Pineau.
Montral: ditions Thmis, 387
Lawson, F.H. and Rudden, B. (2002) The Law of Property. Oxford: Oxford University
Press, 3rd edn
Masquelet, A.C. (2006) Le raisonnement mdical. Paris: Presses Universitaires de France
Mattei, U. (1997) Three Patterns of Law: Taxonomy and Change in the Worlds Legal
Systems, 45 American Journal of Comparative Law 5
McGregor, H. (1993) Contract Code Drawn Up on Behalf of the English Law Commis-
sion. Milan: Giuffr
Morin, E. (2005) Introduction la pense complexe. Paris: ditions du Seuil
Nicholas, B. (1995) Fault and Breach of Contract in J. Beatson and D. Friedmann (eds),
Good Faith and Fault in Contract Law. Oxford: Oxford University Press, 337
Ramparany-Ravololomiarana, H. (2009) Le raisonnable en droit des contrats. Paris: LJDG
Rampelberg, R.M. (2005) Repres romains pour le droit europen des contrats. Paris:
LGDJ
Robertson, A. and Wu, T.H. (eds) (2009) The Goals of Private Law. Oxford: Hart
Rudden, B. (199192) Torticles, 6/7 Tulane Civil Law Forum 105
Samuel, G. (2004) English Private Law: Old and New Thinking in the Taxonomy
Debate, 24 Oxford Journal of Legal Studies 335
Samuel, G. (2011a) Classification of Contracts: A View from a Common Lawyer in
F.J.A. Santos, C. Baldus and H. Dedek (eds), Vertragstypen in Europa: Historische
Entwicklung und europische Perspektiven. Paris: Sellier, 117
Samuel, G. (2011b) What is in an Index? A View from a European Orientated Lawyer in
C. Barnard and O. Odudu (eds), 13 The Cambridge Yearbook of European Legal Studies
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Samuel, G. (2015) Is Legal Reasoning Like Medical Reasoning?, 35 Legal Studies 323

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Samuel, S. (2000) Can Gaius Really be Compared to Darwin?, 49 International and


Comparative Law Quarterly 297
Samuel, S. (2009) Can Legal Reasoning be Demystified?, 29 Legal Studies 181
Schulze, R. and Zoll, F. (eds) (2013) The Law of Obligations in Europe: A New Wave of
Codifications. Munich: Sellier
Soler, L. (2000) Introduction lpistmologie. Paris: Ellipses
Tuck, R. (1979) Natural Rights Theories: Their Origin and Development. Cambridge:
Cambridge University Press
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sitaires de France, 4th edn
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English Law in L. Vacca (ed.), Il contratto inadempiuto: Realt e tradizione del diritto
contrattuale europeo. Turin: G. Giappichelli, 71
Weir, T. (2006) An Introduction to Tort Law. Oxford: Oxford University Press, 2nd edn
Zakrzewski, R. (2005) Remedies Reclassified. Oxford: Oxford University Press

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5. Critical comparative contract law


Giovanni Marini

I. INTRODUCTION: THE AESTHETICS OF THE


SOCIAL
The course of the twentieth century is characterized by the growing
influence of social justice within private law. The liberal conceptions of
the classical legal thought failed to portray the actual transformation from
a set of formal notions regarding private autonomy and freedom of
contract to the idea that, in different contexts, individuals were not so
autonomous and free to contract.1 In particular, this transformation
imposed a limitation to the freedom of contract and its binding force and
introduced a series of duties to protect the weaker party and to avert
unfairness. Similarly, social justice within the law of property meant the
introduction of the social function idea and the consequent elaboration of
a series of limits to the classical concept of liability, based on fault in tort
law.2
This social approach spread in European and North American legal
systems on the one side mainly through legislation (and more rarely the
judge through general clauses), which took a primary role through the
legal protection of specific categories of weaker parties (workers, con-
sumers) and on the other, through courts, which began deploying
doctrines to pursue the socialization of private law.3 After World War II,
in Europe the process continued with the new generation of constitutional
charters. Several constitutions drafted during these years were profoundly
influenced by social justice ideas: the Italian Constitution, for example,
contains the duties of solidarity (article 2), the conception of substantial
equality (article 3) and the idea of the social function of property (article
42). Similar pronunciations may be found in the constitutions of Ger-
many, Spain, Greece and Portugal. The socialization of private law is

1
For a further focus on the globalization of the social, see Kennedy
(2006a) 37 ff. See also, Hesselink (2008) 16 ff.
2
On the social function of property idea, see M.R. Marella, The Core of
Property (unpublished paper available from the author).
3
See Kennedy (2006a) 4446.

95

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96 Comparative contract law

pursued deploying the constitutional tools: contract, property and tort law
are studied through the social principles stated in the constitutions.
Moreover, this process of socialization of private law has profoundly
affected European legal systems recalibrating the private/public divide
and enhancing a new idea of private law as another tool to redistribute
power among the different categories of individuals.4
The social seems now to be part of that whole of common interests,
beliefs and values which constitute the European legal tradition.
By the appeal to the social European tradition, some scholars working
on issues of European integration seem sometimes to constitute a new
contract law under their influence that can be used against the influence
of US dominated global contemporary legal consciousness. In contracts,
for instance, a conception grounded on altruistic good faith is pitted
against a more individualistic American conception of contract. A similar
position, grounded on social justice, is sometimes taken against EU
private law and its functional approach.5 The European legal tradition is
called on to slow down the harmonization projects.
At the same time, the social has undergone a striking process of
transformation. Legislation and intervention by the judge (through gen-
eral clauses) which were the key tools of the second globalization, for its
capacity to bring back into discussion the boundaries between law and
policy with reference to social realities and to the creativity of the judge,
have been redeployed. Now they are not used to react against an
exceedingly individualistic approach in the name of the public interest.
On the contrary, their goal is to enhance autonomy. Private autonomy as
self-determination becomes a value, which is at the core of consumer
protection a value to be balanced eventually with other competing
values.

II. THE CONSTRUCTION OF LEGAL TRADITION


In this short sketch there are many features, which deserve a closer
analysis from a comparative perspective.
The first is the renewed focus on tradition. Tracing back the roots is a
work of representation and its process of construction and reconstruction
gradually occupies a central place in comparative studies. An investiga-
tion into legal tradition may better be understood as a self-reflection and

4
Kennedy (2006b) 19 ff.; Caruso (1997).
5
On this point, see Hesselink (2001) 3749; Wilhelmsson (2004) 712 ff.;
Lurger (2005); Collins (2006).

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Critical comparative contract law 97

critical interrogation of the various and conflicting political projects


underlying comparative law. Together with style, the way law is produced
over and over again by its institutional actors and represented to get its
legitimacy, canons, etc., that is tradition, plays a central role in our
studies. It is a sign of the undeniable aesthetic dimension of law.
The second is the emergence of distributive analysis, the analysis of
the institutional structure that governs the discipline of transactions and
economic relations, on which the power and possibilities of the parties
depend.6 Every change in that institutional structure and its background
rules is able to affect the power of the parties and the power of groups
and categories to which these parties belong. This is a feature particularly
important with reference to the ambiguity of the advocacy of certain
(social) values.
They look at wholly different features: the former at the representative
moments and the latter at the operational rules (background rules). But
both reinstate politics at the center of the stage in private law and in
comparative law and both are necessary for a serious critical analysis.
If it is necessary to move out of the ideological mechanisms and
produce a critique of the process of meaning production, at the same time
it is also necessary to avoid the trap of reducing everything to a discourse
or an epistemic question. If the critique and the dismantling of the
previous order may often reveal the marginalization or suppression of
other discourses inherent to the text itself, what is at stake is not only the
repression of a discourse but also the consequences of this repression.7
Law is simultaneously a body of ideological representations of space
and a collection of material practices, which maintain social order and
govern space. In fact, space is also a bundle of relations and networks
that make social action possible. To reconstruct a national or regional
identity is to redistribute wealth and power. It is therefore important to
ask who wins and who loses. The different opinions may be better
understood in terms of ideological disputes over the acceptable limits of
redistributive projects.

6
The focus of the analysis is not on general notions defining contract or
property but on those specific background rules that assure their operation, those
rules that create limits to the parties of a contract. Within these limits, the parties
can take advantage of their own specific competence, their information and even
other resources, such as a social position or strength.
7
The material consequences they produce are assured by the means of a
complex bulk of devices, such as dispositifs, conceived as an involved network
of relations, which link different strategies and techniques together.

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98 Comparative contract law

As to the latter, it is also important to remember that advocacy of


social values is not self-explanatory: It is not per se progressive or
egalitarian. Some ambiguities arise when we move from the market to the
family or privacy sphere. In the latter, the social may be identified with
duties of solidarity or relation of authority, and is often connected to a
traditionalist agenda of upholding the dominant morality. In that sphere, a
progressive project seems better deployed by tropes such as self-
determination or autonomy which would be considered conservative in
the law of the market.
Every legal intervention is open to biases and blind spots. Legal
reforms or legal changes require in fact a more complex analysis, with a
frank assessment of distributive effects. It is noteworthy to underline the
cross-subsidy effect in which redistribution occurs within the same
section of society.8 It is very interesting to note how often representa-
tions, theoretical statements and argumentations provided to explain legal
rules may reveal the same legal rules to be redundant and even contra-
dictory. This trend opens the way for a sort of false consciousness very
close to the ideology, just in the same light underlined by Marx a couple
of centuries ago.
As to the former, it is important to remember the increasing import-
ance of legal tradition as a renewed tool for analysis in the field of
comparative law, something totally different from the usual units of
analysis such as functions, operational rules and their justificatory
arguments. Legal traditions are not only a challenge to the old tax-
onomies in the name of a more dynamic and flexible approach. Very
often legal traditions are deployed or used strategically to advance
various projects, such as to resist or slow down integration, to negotiate a
strategy to minimize how much to give up in the encounter with other
legal systems.
In this perspective, legal traditions are not only another exercise in
re-mapping the world but also a tool to challenge the taxonomic exercise
in itself. To map the world you combine and re-combine pre-existing
elements according to a theory of the basic units and structure you think
relevant and the respective weight you assign to the different elements.
As critical legal geographers, comparative lawyers are interested in the
way their discipline draws lines of inclusion and exclusion. In this work
it is important to identify cultural and legal elements which can be

8
These effects require an accurate inquiry in order to clarify their general
impact. In fact, costs may be reallocated, as is the case in all relations between
professionals and consumers. See Kennedy (1982).

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Critical comparative contract law 99

included, and are actually included, in a tradition, the way in which


tradition works combining and re-combining their constitutive elements
and foundational myths, the way in which it adapts and maintain its
distinctiveness and makes strategic use of law in relationship with other
cultures.9
In this project it is possible to understand comparative law as the
analysis of plural ways of combining cultural and legal elements with
rhetorical devices ground a memory. The genealogical method can
provide the tools to challenge the coherence of the reconstruction.
Genealogy makes it possible to situate historical events not along a
unique model of development, but alongside different paths of possibil-
ities and shows other roads which, at the moment of the choice, were not
followed. In this sense, the resulting choice is only the result of a series
of contingent events.
Any totalizing or organic understanding of tradition fails to take into
account the role that individual actors can play in generating meaning
and, in particular, it fails to account for conflicting understandings and
views within every tradition. Tradition as context, tradition as culture is
not smooth, but it is the product of conflicts.
The focus of comparative law is on the dissemination of discursive
practices, which shapes the legal consciousness of the authors and marks
the boundaries within which hegemonic and counter-hegemonic projects
can take place. Legal consciousness is the complex system of distinct and
multiple building blocks, such as a common conceptual vocabulary, a set
of potential rule solutions, typical arguments pro and con, organizational
schemes, modes of reasoning, which are actually considered typical in
each given experience. To study legal consciousness means to identify the
elements of the system and the balance between forces (explicit and
implicit) operating in a specific legal field on which depends the way in
which the elements combine in any given period.10

9
Recently, the study of borders and limits. It has been proposed that there
should be a more complex topology and a more critical approach to borders.
Instead of the border in which what is in and what is out is clearly defined, in
which you are included or excluded, we can imagine an in-between, a threshold
of indistinction between inside and outside, inclusion and exclusion, a field
which is characterized not by opposition but by a tension between poles that
requires you think in a different way, a space which is not seized, impossible to
map.
10
The medium is constraining but also plastic, its flexibility depending on
the elements (signatures) which mark it and refer it to a specific interpretation
and context.

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100 Comparative contract law

The assumption that not only the objects of the analysis but also the
subjects are socially and culturally constituted is crucial. Thus the
subjective side of knowledge moves to center stage in the comparative
analysis and comparative law has to face the constraint of forms of
knowledge production and their engagement with governance. By treat-
ing consciousness as a historical product, the analysis shifts attention to
the constitution of the structure in historically specific situations and the
way it contributes to the asymmetries in the abilities of individuals and
social groups to define and realize their projects.
The reference to historical forms of consciousness or subjectivity
emphasizes that subjects can work only within specific contexts which
provide the language they can speak when they have to face a specific
legal issue. The more relevant questions for comparative law become to
understand the way in which the consciousness is shaped, who shapes it
and what the purpose of the whole enterprise might be.

III. FROM CLASSIC TO CONTEMPORARY


COMPARATIVE LAW
This marks a strong difference between classic and contemporary com-
parative enterprise. Comparative studies turn to the humanities, the
sciences which study the complex relationships between individuals and
knowledge, individuals and culture. The encounter with various strands
of critical theory had a very important impact on comparative law and its
critique of the processes of meaning production.
Combining the structural approach with the identity turn and then with
the post-structuralist and the post-colonial turns, comparative law pro-
vides the basis for a critique of hidden assumptions, normative inconsist-
encies, fallacies and interests associated with particular imaginations and
categories and a critique of the latent that limit, through a variable mix of
consent, coercion and other technologies of domination the capacity to
advance a project of emancipation.
In comparative law, functionalism, due to its anti-formalist approach,
emphasized the connections between law and social context. This per-
spective focused on the function of the legal instruments in order to
address issues and problems in the society. The goal was to measure the
distances between different legal systems, using the function as a tertium
comparationis. Through this functional comparison, societies (or at least
most of them) appeared to be facing the same issues, their solutions
differed only because the tools employed to solve them are affected by
the specific legal culture that influences the lawyers of each legal system.

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Critical comparative contract law 101

The variety of the different legal cultures influences the legal tools
employed only and it doesnt spread to the results. Such aspect allows
this type of comparison to develop a critical approach towards those legal
cultures, as for example the Italian, still affected by formalism. Function-
alists rely on historical dimension and variability of legal institutions that
can nevertheless be used to perform the same function in different legal
systems as tools to weaken the reification of legal concepts.11 On the
other hand, this method pushes them to identify which solution addresses
better a specific legal issue. So, they determined (by using the compara-
tive argument as an interpretative tool or as a possible de iure condendo
answer) that some solutions are better than others and can be seen as
models to imitate. Specific differences, related to irrational elements or
historical accidents within a particular legal system, were easily dis-
missed. The faith in the function replaced the faith in the essence.
Functionalism, in its pretension to universal science, faces two mortal
enemies: first, the critique regarding its dismissal of every other (cultural)
element, different from the function and secondly, the critical approach
towards its adoption, through the functional paradigm, of determined
cultural perspectives, deeply connected to specific legal systems and far
from universal applications.
The functionalist approach was, most of all, an attempt to grasp the
interrelations between law and society. Essentially, functionalism was a
response to conceptualism and the split between legal reasoning and
social context. It sought to understand policy-oriented decisions that
stand behind positive legal rules: how legal systems employ different
tools to realize their specific policy. In this vision, law becomes both an
instrument to drive the evolution of society and a key factor of change
within society, reducing in this way the juxtaposition between application
and creation of the law.
Functionalism, as a theory of the relationship between law and society,
had to struggle not just against the so called dark sides of the
regulation, but also with a task growing more and more difficult:
matching the events produced within a particular society (social and
economic phenomena) and a determined legal form. The solution identi-
fied by the functionalist approach, the functional analogue, turned out to
be a double-edged sword.12 In fact, the intellectual efforts needed to
detect these functional analogues and their uncontrolled proliferation

11
An emblematic text is Zweigert and Ktz (1998).
12
In this sense, functionalism can be considered as subversive and so is the
comparative law inspired by this method. Cf. Muir Watt (2000).

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102 Comparative contract law

weakened the functionalist theory, preventing its generalization. For these


reasons, functionalists decided to focus on restricted and more generic
goals, in which legal rules were employed as means to ensure predict-
ability and stability of legal relations, a set of minimum conditions in
order to preserve economic exchanges. Obviously, these struggles under-
mined further the method.
By the end of the 1970s, an alternative approach gained importance
within comparative legal studies. This method focused on the constitutive
role of law, highlighting its capacity to provide visions of the world that
are used to frame social relations and determine their concrete terms and
on the resulting complexity in keeping law apart from culture and
society. Unfortunately, the study has always remained on a high level of
abstraction.13 Under these circumstances, it has been quite easy for the
structural approach to strike down the functional method and so chop off
the link between law and society.

IV. THE LEGACY OF HETERODOXY


The success of Schlesingers factual approach during the 1960s offered
an alternative way to overcome conceptualizations, beyond the strict
boundaries of functionalism. In the course of the well-known Cornell
seminars, the comparative endeavor focuses on how legal systems usually
solve a particular legal issue: starting from a typical problem originated
from a hypothetical case, focusing on the factual elements that character-
ize each solution, avoiding any type of national conceptual category.
The rehash of the Cornell method by the structural approach allows
significant progress in comparative legal studies, highlighting how, within
every legal system, there is not always just one legal solution, on the
contrary, there are various possibilities, as many as the formulations.
Every single legal system is formed by a multiplicity of legal formu-
lations that develop independently and whose interaction allows us to
confer a meaning to legal rules. Due to several factors, such as the
circulation of models from different legal systems, these formulations

13
The critique of functionalism moves from the critique of the generalization
represented by the adoption of the function, the presumptio similitudinis to the
use of functional analogues, a particular problem or issue within a given society
cannot be the same in another (among the others, Frankenberg (1985); Husa
(2003); Michaels (2007); Graziadei (2003) 100. The critique of functionalism is
connected to the critique of scientism in Somma (2005) 3.

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Critical comparative contract law 103

may not only contradict each other (fundamental dissociation), as hap-


pens when the positive legal rule is different from the one established by
the courts or elaborated by legal scholars. The contradiction can also be
found within a single legal formulation (internal dissociation).14 Every
formulation may elaborate both an operative rule (a set of factual
elements that are necessary to provide a certain legal effect) and a
declamatory rule that is meant to describe the rule itself and to affect the
way these rules are perceived and evaluated.
For these reasons, there is a plurality of possible solutions and also a
plurality of possible justifications. So, the justifications, as we will see,
can be related to the solutions in different ways: they can be completely
overlapped, they can be superfluous or even contradictory.
In the structural approach, the context is interpreted as structure and
not as social background. The components of a legal system can be
evaluated only in relation to each other.15 Structuralism allows legal
comparison to become, at the same time, a theory of interpretation aimed
at criticizing the conception of law as a merely linguistic construction,
and a legal process theory aimed at analyzing the (dynamic) relationships
between the different components within a particular legal system that
operate in the production and the enforcement of law.
For these reasons, two major changes were introduced within compara-
tive legal studies. First, legal comparison didnt dismiss but rather
recognized and embraced blanks, ambiguities and conflicts inside the
legal rule. According to the structural linguistics, legal structuralists
emphasize the spread between significance and significant: the interpret-
ation of the legal rule is arbitrary and depends on the complex compos-
ition and re-composition of legal formulations within each legal system.
The structural approach could be considered as an anti-formalistic
method. So, structuralism, as any other anti-formalism, could be
involved in a scientific endeavor (reconstructive) or in a critical analysis
(deconstructive).
Within structuralism, it was possible to find both the tools to unpack
the idea of completeness of the legal dogmatism, highlighting the
multiplicity of different solutions and the conflict among them, and the
instruments to affect this completeness.

14
The reference point is always represented by the coercive institution
through market law and the rules that govern the relations among individuals; cf.
Barcellona (2000); Marini (2008).
15
They both share the need to go beyond the concepts to focus instead on
the substantial problem (cf. Zweigert and Ktz (1998)), or on solutions: a set of
factual elements that determine a single legal effect (cf. Schlesinger (1968)).

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104 Comparative contract law

On one side, the different solutions provided by the legal formulations


and their contradictions could enhance those alternative reconstructions
that were eclipsed by the dominant ones. The former assumed the role of
dangerous supplement, highlighting an aporia that showed how these
dominant reconstructions were substantially partial and how they
betrayed their coherence conditions. These premises made it possible to
situate historical events not along a unique model of development, but
alongside different paths of possibilities. In this sense, the chosen path
wasnt mandatory, only the result of a series of contingent events. This
theory, applied to national legal systems and besides any deconstructive
implications, is basely a critique of the internal coherence of single legal
models and rules, very similar to the critical positions of American legal
realism.
On the other side, the analysis of the internal dynamics of law could
have allowed us to predict the outcome of a possible conflict among the
formulations. In fact, if it is possible to analyze the institutional con-
ditions that characterize their competition, the factors that influence such
competition, the official (theories) and unofficial (cryptotypes) facts, the
implicit (cryptotypes again) and explicit connections not necessarily
determined by human actors that can affect decisions, then this method
can reduce or even reset the indefiniteness.
At the same time, this approach cut the last ties that connected law to
society. Through the observation of the different legal systems, Sacco
showed how societies characterized by deeply different socio-economical
structures have adopted the same legal rules, while on the contrary,
societies which share the same socio-economic structure have chosen
quite different legal rules.

V. IDEOLOGY AND LEGAL ARGUMENTS


The study of the internal dynamics of law had unveiled another quite
important aspect. We are talking about the need to explore not only the
results provided by the different legal systems, but also the way in which
(within a single framework delimited by the tools and the restrictions
provided by the legal tradition) the outcome is produced, described and
justified.
If it is quite normal for interpreters to give motivations in order to
legitimize their choices, it is very interesting to note how often represen-
tations, theoretical statements and argumentations provided to explain
legal rules may be revealed to be redundant and even contradictory
vis--vis the same legal rules. Interpreters are well aware of these

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Critical comparative contract law 105

aspects. These justifications influence the way in which rules are


embraced and evaluated within every legal system. So, they can provide a
false consciousness of what the system actually produces.
At the same time, justifications, as well as the whole system of
representations provided by the interpretative practices, have an
extremely important goal of social communication and social stability.
The ideological aspect that affects these justifications and representations
is now quite clear, understood as a false consciousness of the reality.
This phenomenon can be found typically in openly politicized legal
systems, such as was once the Soviet one, but it is also quite normal in
any other system, starting from those systems which, like the French
legal system, were historically influenced by jus naturalism. It is no
surprise that the Code was the ground where the synecdoche was tested,
this figure of speech, in which a part is used to refer to the whole, allows
and makes easier the separation between operational rule and declama-
tion.
The synecdoche makes room for ideology. This ideological component
works on different levels. First, it operates at a more general level, where
ideology involves interpretation and in which the whole interpretative
process is considered purely technical. This legal reasoning can be
exclusively deductive or policy-oriented, taking into account the social
interests (often conflicting) protected by the legal rules. According to this
representation, the interpreter denies his creativity, legitimizing the
product of his work as neutral.
At the same time, within the comparative legal studies, an apologetic
component appears: representations are useless to the elaboration of a
solution, but they can be very helpful to provide and develop visions of
the world, discourses and narratives that can be imitated and duplicated
over and over again. Different representations are functional to elaborate
projects for intellectual lites. For example, representations, which
depict, through comparison, different legal models as prestigious can help
realize projects in favor or against the particular legal system that
originated the same model, inspiring or activating resistance and oppos-
ition. We are very close to the idea of using cultural products as tools to
eliminate or to substitute a hegemony.
Comparative law meets the disciplines which study the relationship
between individuals and knowledge and individuals and cultures. It is at
this juncture that comparative law goes beyond the identification of legal
formulations and their deconstruction and turns to narratives and dis-
courses. This aspect is strictly connected to the idea of belief systems:
those collectively delimitated structures of thinking which, implicitly or
explicitly, direct the way interpreters think. These intellectual paradigms

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106 Comparative contract law

of historical and contingent nature restrict the field where interpreters


conditions of possibilities can work and determine the achievable out-
comes.
It is interesting to note that the ideological and apologetic component,
underlined by the separation between the process of rule selection and its
justifications, is quite common. In fact, the study of several specific
discourses, that are used to explain and justify the adoption of particular
legal rules of private law, can highlight the recurring division between
theoretical declamations, rules presented and the outcomes obtained in
different contexts.

VI. CONTRACTUAL JUSTICE AS A LEGAL


DISCOURSE: SOME EXAMPLES AND THEIR
DISTRIBUTIONAL IMPACT
This is the case, for example, of those discourses that are connected to
the application of several rules of contractual justice. This legal field
perhaps represents the example of greater separation between theoretical
justifications historically inspired by deeply committed declamations in
favor of the highest reconstructive principles distinctive of the various
ages in which they established themselves and operational rules that
produced specific distributive outcomes.
Within the contractual justice field, while justifications swung from the
will theory, the social and finally solidarity, operational rules often
produced outcomes particularly difficult to match with these statements
of principles.
We only need mention how the classical legal thought grounded
contractual remedies firmly on the will theory. Within this limited
framework, however, it was possible to pursue projects of different types
not always in line with their purported justifications. Thus by recognizing
the actionability of the remedy only on behalf of the seller of land,
French courts only ended up by protecting the landowner against
speculation by bourgeois merchants.
With respect to the social, the rules enacted by the German Civil
Code in 1900 were seen as a necessary concession to the protection of
the weak parties (2 Brgerliches Gesetzbuch (BGB), section 138). Their
practical operation produced results often at odds with the spirit of
innovation. By a narrow interpretation of the requirements (necessity,
inexperience and carelessness) and preventing the judge from reshaping

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Critical comparative contract law 107

the contract, they depleted the remedy of any utility for the weak parties,
who had to bargain again on the market for the performance.
Today, regarding solidarity, which is at the core of many of the
contractual justice discourses, particularly in EU law, it is necessary to
perform the same kind of careful analysis to double check its operation in
different contexts and settings with respect to its distributive impact.
The forward expansion of the unconscionability clause to cover any
kind of excessive and unjustified advantage (UNIDROIT Principles,
article 3.10) and unjust profit or iniquitous advantage (Principles of
European Contract Law (PECL), article 4:109), levelling the way towards
an adaptation of the contract by the judge, goes well beyond any
remedy anticipated by national legislation. Nevertheless it is very pos-
sible that the remedy will work only to restore the functionality of the
market, in particular the conservation of the contract with reference to the
equilibrium that would have been reached in a comparable but perfectly
competitive market.16
This approach opens the way to another quite interesting development
in the study of the effects of legal rules. This field of research is not
entirely new, it is quite familiar to comparative legal studies that are
usually connected to economic analysis in general and law and eco-
nomics in particular.
The idea of operational rules as a set of relevant elements necessary to
produce a result allows not only a better approach for scholars interested
to understand similarities and dissimilarities between the different legal
systems, but also a series of other intriguing results. Beyond declam-
ations and conceptual structures of each legal system, operational rules
enhanced a more accurate analysis of how rules work within different
societies, in particular they could unveil the effect (incentives) of these
rules on the behavior of the components of given society.
This formulation has also been used to test the efficiency of the rules
with respect to allocating resources or reducing costs17 and consequently
to evaluate which rule should be used within a project of harmonization
of the law or which rule was the fittest in order to circulate it among the
legal systems.18
The employment of the consideration and its functional analogues
(causa) to select which promises and contracts should be considered

16
Consumer relationships deserve a close analysis in themselves for their
many different cross-subsidy effects.
17
See Cooter (1991); Mattei (1994).
18
See the application of Calabresis Chart (Calabresi and Melamed (1972))
to the inter-proprietary conflicts in Mattei (1987).

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108 Comparative contract law

legally binding highlighted how decisions taken by the different legal


systems in those circumstances are policy-oriented. Deciding that only
those promises or bargains supported by a sufficient consideration or
other relevant (in terms of efficiency) elements represents a huge step
forward to prove that these outcomes could be considered really efficient.
The result of the operational rules can also be compared to the
declamations. Here, the patterns of the economic analysis allowed a
critical control of the possible separation between declamations and the
rules made by the courts, exposing the cleavage between the substantial
level of the operational rules (remedies) and the formal level of the
conceptualizations of a particular system.19

VII. FINAL REMARKS: THE FOCUS ON


BACKGROUND RULES
In any case, even with the more critical approaches, law and economics
does not take into account any consequences different from the efficient
allocation of resources. The idea was that the only possible goal shared
also by classical economic analysis should have been to ensure to the
entire society the bigger cake (without any discussion about the way in
which this cake should be divided). This aim was considered the only one
legitimately pursuable using private law rules.
The new stream restates the importance of distributive consequences
that follow the operational rules. This approach does not lead to any
Marxist analysis,20 in the sense that it does not take into consideration the
fate of the capitalist system, but it focuses only on local conflict with
small interests at stake.
So, it is necessary to rethink the role of operational rules: if once they
were used only to evaluate the more efficient allocation, now they have
become a way to understand how resources and power were distributed.
The recent discussion regarding the projects of harmonization of
contract law focused on the fact that an adoption or the modification of a
particular legal rule also through the simple consolidation of a judicial
orientation can change the outcomes of the conflict between the

19
The disagreement persists only regarding the criterion with which this aim
must be pursued; this criterion allows us to state that the method is substantially
neutral, but see Baker (1975) and Kennedy (1981).
20
In this sense, no rule is precise and strong enough to frame an entire
system inside a particular logic.

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Critical comparative contract law 109

different parts, but also among the categories and the groups to which the
parts belong (the related distribution of the resources).
The debate does not involve configurations or general notions regard-
ing contract, property or anything else, but it focuses on those back-
ground particular rules that assure their operation, those rules that create
limits for the parties of a contract. Within these limits, the parties can
take advantage of their own specific competence, of the information they
can collect and even of other resources, such as social position or
strength.
Every change (even small) in the institutional structure that governs the
discipline of transactions and economic relations is able to produce
re-distributive effects relevant to the power of the parties and the
distribution of resources.21 There is no field within private law that can
be considered not affected by these effects.
These rules create the substantial framework where the social and
economic relations among the different groups operate. Such rules are
normally considered neutral or at least scarcely relevant, but they decide
the position of strength of each individual and also how much they can
obtain through the relations of cooperation and competition between one
another. This perspective also allows consideration of whether the
presence of the same rule, or its possible modification, may alter the
relationships of strength between groups and how much the individuals
belonging to those groups may obtain when they enter into conflictual or
cooperative rapport with the others.

REFERENCES
Baker, E. (1975) The Ideology of the Economic Analysis of Law, 3 J Phil. and Pub.
Aff. 3
Barcellona M. (2000) La scienza giuridica italiana ed il marxismo, prima e dopo luso
alternativo del diritto, Riv. crit. dir. priv. 715
Calabresi, G. and Melamed, A. (1972) Property Rules, Liability Rules, Inalienability
Rules: One View of the Cathedral, 85 Harvard L Rev. 1089
Caruso, D. (1997) The Missing View of the Cathedral: The Private Law Paradigm of
European Legal Integration 3 ELJ 332
Collins, H. (2006) The Alchemy of Deriving General Principles of Contract Law from
European Legislation: In Search of the Philosophers Stone, 2 ERCL 21326
Cooter, R. (1991) Le migliori regole giuste, Quadr. 526

21
These effects demand an accurate inquiry in order to clarify their general
impact. In fact, as in all the re-distributive phenomena, sometimes costs can be
re-allocated, as happens with the relations between professionals and consumers.
See Kennedy (1982).

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110 Comparative contract law

Frankenberg, G. (1985) Critical Comparisons, Harvard Intl LJ. 41145


Graziadei, M. (2003) The Functional Heritage in P. Legrand and R. Munday (eds),
Comparative Legal Studies: Traditions and Transitions. Cambridge: Cambridge Univer-
sity Press
Hesselink, M. (2001) The New European Legal Culture. Deventer: Kluwer
Hesselink, M. (2008) CFR and Social Justice: A Short Study for the European Parliament
on the Values Underlying the Draft Common Frame of Reference for European Private
Law: What Roles for Fairness and Social Justice?, Centre for the Study of European
Contract Law Working Paper Series No. 2008/04
Husa J. (2003) Farewell to Functionalism or Methodological Tolerance, Rabels Zeits-
schrift fr auslandisches und internationals Privatrecht, 419
Kennedy, D. (1981) Cost-Benefit Analysis of Entitlement Problems: A Critique, 33 Stan.
L Rev. 387
Kennedy, D. (1982) Distributive and Paternalist Motives in Contract and Tort Law, with
Special Reference to Compulsory Terms and Unequal Bargaining Power, 41 Maryland
Law Review 563658
Kennedy, D. (2006a) Three Globalizations of Law and Legal Thought in D. Trubek and
A. Santos (eds), The New Law and Economic Development: A Critical Appraisal.
Cambridge: Cambridge University Press
Kennedy, D. (2006b) Thoughts on Coherence, Social Values and National Tradition in
Private Law in M. Hesselink (ed.), The Politics of a European Civil Code. The Hague:
Kluwer
Lurger, B. (2005) The Future of Contract Law between Freedom of Contract, Social
Justice and Market Rationality, 1 ERCL 44268
Marini, G. (2008) Gli anni settanta della responsabilit civile. Uno studio sulla relazione
pubblico/privato (parte II), Riv. crit. dir. priv. 229
Mattei, U. (1987) Tutela inibitoria e tutela risarcitoria. Milan: Giuffr
Mattei, U. (1994) Efficiency in Legal Transplants: An Essay in Comparative Law and
Economics, 14 Intl Rev. Law and Economy 3
Michaels R. (2007) The Functional Method of Comparative Law in M. Reimann and R.
Zimmermann (eds), The Oxford Handbook of Comparative Law. Oxford: Oxford
University Press
Muir Watt, H. (2000) La fonction subversive du droit compar, Rev. int. dr. comp. 503
Schlesinger, R.B. (1968) Formation of Contracts: A Study on the Common Core of Legal
Systems. New York: Oceana Publications
Somma, A. (2005) Tecniche e valori nella ricerca comparatistica. Turin: Giappichelli
Wilhelmsson, T. (2004) Varieties of Welfarism in European Contract Law, 10 ELJ 712
Zweigert, K. and Ktz, H. (1998) Introduction to Comparative Law. Oxford: Clarendon
Press

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6. Contract law and regulation


Giuseppe Bellantuono

I. INTRODUCTION: MAPPING THE RELATIONSHIP


BETWEEN CONTRACT LAW AND REGULATION
Suppose you want to know which rules apply to the contractual relation-
ship between the operator of a communications or energy network and
the users of that network. Or suppose you want to know the remedies
available to an investor who has been damaged by an investment service
provider. It is common knowledge that general contract law does not
provide complete answers to such questions. Sector-specific rules must
be consulted. What is less well known is that issues at the interface
between general contract law and sector-specific regulation pop up with
increasing frequency in a disparate set of fields and across developed and
developing countries. This chapter sets out to explore the relationship
between what will be called traditional contract law and regulatory
contract law.
This is not a well-established topic in the comparative law literature.
Therefore, what follows is just a mapping exercise that hopefully will
help broader and more systematic inquiries. Before explaining why this
exercise is needed, it is useful to point out three methodological
challenges that must be faced when dealing with the relationship between
contract law and regulation from a comparative perspective.
First, both notions are highly variable across space, time and dis-
ciplines. This means that the definition of the research agenda risks
starting from arbitrary assumptions about the kind of issues that should
be taken into account by each branch, in a specific period and with
specific analytic tools. Secondly, the relationship evolves along paths that
are largely influenced by broader dynamics (e.g., the regional economic
integration leading to the Single Market in the EU or the building of a
regulatory state with distinctive features in developing countries). There-
fore, it is quite difficult to disentangle the changes brought about by these
dynamics from the influence they exert on contract law and regulation.
Thirdly, the relationship may remain more or less hidden, with each
branch living in its own separate sphere until it collides, overlaps or
interferes with the other one. This means that in some legal systems no

111

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112 Comparative contract law

systematic assessment of the relationship is provided or discussion only


takes place in some sectors.
Despite these challenges, this chapter argues that more sustained
attention to the relationship between contract law and regulation provides
insights that risk being overlooked by an exclusive focus on one branch.
Today, a not insignificant share of contractual relationships take place in
markets that have been restructured or liberalized. In those same markets
independent authorities were granted the power to produce contract rules
and use a vast array of enforcement mechanisms. Moreover, in global
markets contracts are used for many different purposes, including regu-
lating transnational supply chains, regulating risks or providing the
building blocks for private orderings. What seems increasingly clear is
that the search for new governance tools in global markets and in
multi-level regulatory systems has led to the belief that contracts are
more or less interchangeable with other regulatory tools. More often than
not, each tool competes with, clashes with, supplants or complements the
other ones.
While not pretending to explore all the facets of such an interplay, this
chapter tries to shed light on the parallel dynamics of contract rules
devised for traditional bilateral relationships and contract rules applied in
regulated markets. Section II discusses attempts to classify the relation-
ship between contract law and regulation. It suggests that the core issue
is how to identify a set of rules that can be labelled regulatory contract
law. Section III turns its attention to rule-making processes and tries to
identify the main features of regulatory contract law in the European
Union and the United States. Section IV deals with enforcement mech-
anisms and compares them across the two branches. Section V draws on
examples from Brazil and China to understand what is the role played by
regulatory contract law outside the Western legal tradition. Section VI
identifies the most important policy choices to be made when using
regulatory contract law. Section VII summarizes the analysis.

II. TYPOLOGIES
Because of the multiplicity of meanings that can be attached to the
notions of contract and regulation, it is useful to distinguish the different
streams of the debate. This section tries to identify connections among
related but distinct research areas and to clarify the relationship with
non-legal disciplines.

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Contract law and regulation 113

Let us start with a typology proposed by the literature on contract


governance (Mslein and Riesenhuber 2009: 260 ff.; Grundmann et al.
2015: 42). Four different topics are singled out:

(1) the institutional framework of contract rule-making (who produces


contract law and how);
(2) governance of contractual relationships (the facilitative or enabling
function of contract law);
(3) contract law as an instrument for achieving regulatory goals;
(4) collective self-regulation through contract.

The first two topics reflect the usual concerns of contract law literature
about the bilateral relationship. The last two topics are the focus of this
chapter, from the point of view of public and private regulation,
respectively. Some preliminary observations about this functional typ-
ology are in order.
First, it explicitly includes contract law among several other regulatory
instruments. This approach plays both a descriptive and a justificatory
role. But it runs the risk of overlooking the distinctive features of contract
law. The latter include processes of rule-making, availability of enforce-
ment mechanisms and interplay between private and public goals.
Whether contract law can be employed for regulatory purposes is directly
dependent on those features. Most importantly, local, national or regional
institutional contexts shape those features and render them more or less
amenable to adaptation for different purposes. This means that the
assumption of an unbounded malleability of contract law might be wrong
in most settings. Hence, contract law cannot be equated with other
regulatory tools. Of course, none of the above mentioned observations
prevents a comparison between contract law and other regulatory tools.
Secondly, the typology conveys the impression that the first two and
the last two topics listed above can be analysed separately. Indeed, the
most troublesome issue is their interdependence. The contexts in which
contract law and regulation interact show that rule-making can be
directed both at the bilateral relationship and at the wider market
environment, contract rules can be at the same time enabling and
regulative, and private goals are intertwined with public ones. What we
need is a theoretical framework that helps assess the wide implications of
such coexistence.1

1
Micklitz (2015a: 132 ff.) suggests to merge the four categories into two
(the first two concerning the structural level or governance and the second two

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114 Comparative contract law

Thirdly, the typology suggests an answer to the question whether there


is something really new in the relationship between contract law and
regulation. In a long-term perspective, one might observe that contract
law has been instrumentalized many times to pursue public goals
(Jansen and Michaels 2008). However, signs of a real transformation can
be detected in the multiplicity of the processes that lead to the production
of contract rules besides the traditional legislative and judicial ones, as
well as in the availability of new enforcement mechanisms. Additionally,
the geographical reach of the contractual relationships to be managed
today is much wider than in the past. Contract rules play a regulatory role
both in multi-level regional systems and in global supply chains. What
these developments show is that more general transformations about the
role of the nation-state and the changing nature of global markets lead to
a completely different set of contract rules, or to a parallel branch of
contract law. Therefore, elements of change are both quantitative (the
number of contexts in which contract rules play a regulatory role) and
qualitative (how such a role is played).
Fourthly, different disciplines may conceive of the relationship
between contract law and regulation in different ways. To the extent each
of them talks about different research problems, semantic assonances do
not cause any misunderstandings. For example, the economic literature
which focuses on infrastructure or concession contracts (Guasch et al.
2008; Stern 2012) or on the relationship between the regulators and the
regulatees (Spiller 2013) employs a contractual language, but deals with
issues related to the private-public interaction from a perspective that is
clearly distinct from the one discussed here. Conversely, the need for
interdisciplinary integration arises when there is overlap between the
issues dealt with from different disciplinary perspectives (Repko 2012).
For example, to the extent law and economics suggests a specific view of
the relationship between contract law and regulation, its methodological
premises must be compared with different perspectives and a synthesis
should be sought.
These preliminary observations help articulate a set of questions that
will guide the discussion in the following sections:

(a) Do contract law and regulation live in separate spheres or do they


interact? And what types of interactions can be observed? Which
institutional factors shape the type of interaction? Is there any

the interplay of regulation and autonomy) and to add a procedural level that
connects the structural and content levels.

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Contract law and regulation 115

observable difference between legal traditions or countries in differ-


ent stages of economic development?
(b) How does the interaction work when public (statutory, judicial or
regulatory) or private contract rules are involved?
(c) Can relevant differences be detected between contract law remedies
and regulatory remedies?

Questions (a) and (b) have to do with rule-making processes and will be
discussed in section III. Question (c) has to do with enforcement
mechanisms and will be discussed in section IV.

III. REGULATORY CONTRACT LAW IN THE


MAKING: THE WESTERN LEGAL TRADITION
This section tries to establish to what extent the EU and the US legal
systems accept and use some version of regulatory contract law. Here the
focus is on differences between the processes aimed at producing the
rules that make up traditional contracts and those aimed at producing
regulatory contract law. To some extent, such processes overlap. Legisla-
tors, judges and private regulators are involved in the development of
both types of contract rules. However, public regulators are only involved
in the production of regulatory contract law. Even though the two types
of rules cannot be distinguished from the point of view of the rule-maker,
several distinctive features can be singled out:

(1) Timing: traditional contract law was developed over the centuries
through doctrinal and judicial work; regulatory contract law is
developed in a much shorter time span by private and public
regulators.
(2) Stability: traditional contract law changes slowly; regulatory con-
tract law changes quickly.
(3) Generality: traditional contract law includes rules with a higher
degree of generality than those making up regulatory contract law.
(4) Public-private distinction: in traditional contract law public (legis-
lative and judicial) processes of rule-making are clearly divided
from private processes; in regulatory contract law private and public
processes of rule-making are usually blended together.
(5) Systemic coherence: in traditional contract law coherence (with past
decisions or other parts of the legal system) is a strong constraint;
in regulatory contract law coherence plays a lesser role (although

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116 Comparative contract law

there are other types of constraints, for example, those imposed by


judicial review).
(6) Democratic legitimacy and justice: in traditional contract law
legitimacy and justice are taken for granted, but at the same time
they are heavily constrained by the focus on the bilateral relation-
ship; in regulatory contract law legitimacy and justice are widely
disputed, but may find more channels to influence the contractual
relationships.

This list proposes stark dichotomies, but they are much less clear-cut in
practice. Moreover, the same contract rule could play a traditional and a
regulatory role. Keeping these caveats in mind, the features described
above highlight the close connection between contract rules and the
rule-making processes available in a specific regulatory state. Moreover,
those features alert to the fact that traditional contract law and regulatory
contract law may well lead to different outcomes.
At first sight, the EU market-building process shows a clearer connec-
tion with the evolution of EU contract rules. But we shall see that the
relationship between the American and European versions of the regula-
tory state, on one hand, and contract law on the other hand does not lend
itself to easy interpretations.
The regulatory role of EU contract law has been the object of a lively
debate. Collins (1999, 2004, 2008) argued, first with reference to English
law and then to the future of EU law, that contract rules could play a
much broader regulatory role in the three areas of rule-making, moni-
toring and enforcement. This position explicitly endorses the view that
contract law and regulation belong to the same conceptual box of
regulatory tools. Moreover, it claims that traditional contract law can
incorporate public interests or values going beyond the private interests
of the parties.
For the purposes of this chapter, Collins most important contribution
is the catalogue of strengths and weaknesses displayed by contract rules
when employed for regulatory purposes. Whereas their reflective charac-
ter allows adaptation to parties needs, overlooking of third parties
externalities, insufficient particularity and lack of expertise by legislators
or adjudicators may reduce their regulatory capacity. However, the bulk
of the discussion is not addressed at the interplay with other bodies of
regulation, but at the internal transformation of contract law. Collins
delineates the contours of a new vision of instrumental contract law, but
does not take a position on its relationship with other bodies of
regulatory law.

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Contract law and regulation 117

The interplay becomes the central issue in the approach to regulatory


private law proposed by Micklitz (2005, 2009) and his co-authors
(Micklitz and Svetiev 2012; Micklitz et al. 2014; also see Cafaggi and
Muir Watt 2010). Regulatory private law is the product of the peculiar
features of the EU rule-making process. The latter manufactures a new
type of contract law that differs under several respects from traditional
(national) contract law. How the pre-contractual stage is defined, the
balance between default and mandatory rules, the type of available
remedies, as well as the notions of private autonomy and justice fed into
the new paradigm bear little resemblance to the branch of private law that
was systematized in the European codifications and in English common
law. Regulatory private law is tightly linked to the Single Market project
and finds itself in an uneasy relationship with national contract laws. This
analysis leaves open the possibility that the European and the national
legal orders clash, converge or merge.
The development of a new regulatory contract law is grounded on the
choices made by the EU in a large number of sectors, ranging from
financial markets to utilities. However, a different debate is also taking
place within the EU, this time with reference to the replacement of
national contract law with a new EU code. The legislative process on the
regulation for a Common European Sales Law (CESL) is the most
advanced project in this field. But its withdrawal in 2015 signals that
Member States are only willing to transfer to the EU level more limited
competences in the field of contract law.
The two projects (regulatory contract law and CESL) are difficult, if
not impossible, to reconcile. Whereas the former addresses real problems
of a multi-level regulatory system in a host of sectors, the latter relies on
arguments about the benefits of harmonization of a dubious quality. This
is not the place to discuss the codification projects in any detail. For
present purposes, the most important aspect is that the EU regulatory
approach to private law has already transformed the European debate.
The excessive instrumentalization of contract law prompted by EU
policies can be criticized (Schmid 2010), but the criticisms are not
addressed to the instrumental approach per se. They suggest that the
goals to be pursued should be different. For example, the Manifesto for
Social Justice in European contract law claims that a balance must be
struck between the Single Market agenda and the demands for distribu-
tive justice in economic relations (Brggemeier et al. 2004). This claim
implicitly accepts that contract law can and should pursue wider goals
than those closely associated with the parties. Much the same point can
be made about the role of fundamental rights in private law (Brggemeier
et al. 2010; Collins 2011) or about the principles to be applied to

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118 Comparative contract law

contracts playing a crucial role for self-realization and human develop-


ment (Nogler and Reifner 2014).2
Looking at legislative interventions only provides a partial view of the
changes taking place in EU contract law. Much of the transformative
potential of the new paradigm resides in the daily activities of public and
private regulators at European and national level. Although their rule-
making powers vary a lot from one sector to the other, in most cases they
significantly impact on contractual relationships. This new source of
contract law raises several issues. First, are regulators using the same
concepts of traditional contract law? Or are they transforming and
adapting them? Secondly, what is the relationship between contract rules
produced by regulators and traditional contract law? We still lack final
answers to these questions, but we can at least discern some emerging
patterns. One of them has to do with the features displayed by the
contract rules written by regulators. Another one relates to the interaction
with more traditional sources of contract rule-making.
With regard to the features of the rules produced by public and private
regulators, an analogy with the process leading to the adoption of
technical standards has been proposed (Micklitz 2009). The content of
the new contract rules is decided within administrative procedures aiming
at a wide participation from different categories of interest groups. In
several cases, EU processes leave room for self- or co-regulatory
processes (Cafaggi 2011). This means that regulatory contract rules can
be qualified as soft or binding, but the distinction is much less relevant
than the default-mandatory rules dichotomy in traditional contract law.
What matters is the availability of mechanisms that, on one hand, allow
the reaching of acceptable compromises and on the other hand, avoid
abusive or anti-competitive behaviour. Plenty of examples can be found
in the fields of network or market access in the electronic communica-
tions, energy, transport and financial sectors. At the same time, legal
concepts are borrowed from traditional contract law, but they are embed-
ded in a different context that changes their meaning. Hence, pre-
contractual information rights can be used to increase the switching rate
from incumbents to new entrants, contract formation rules can be used to
avoid discriminatory behaviour in network access and rules about the
quality of the performance can be used to increase the reliability of the
infrastructures. Generally speaking, in most cases regulatory contract

2
It is possible to argue that the horizontal direct effect of fundamental rights
only strengthens the interests of the individuals concerned (Colombi Ciacchi
2011), but what is suggested in the text is that the European debate thrives on the
ambivalence between instrumental and non-instrumental arguments.

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Contract law and regulation 119

rules display the features described in the list at the beginning of this
section. Of course, they may be present with varying degrees of intensity.
With regard to the interaction with traditional sources, it is tempting to
conclude that the new regulatory contract law lives in a separate room
(Black 2004). While this could be true in some cases, it seems increas-
ingly less so today because of the pervasive nature of the new regulatory
contract law. The contemporary trend seems to be more in the direction
of hybridity (in the sense proposed by Trubek and Trubek 2006), that is,
a blend of new and old concepts to form a new one with a different
meaning or role. To pick up just one example: in the financial sector the
business conduct rules laid down by the Markets in Financial Instruments
Directive (MiFID) may be interpreted as public standards without any
relevance for contractual relationships, as a reference point for contrac-
tual duties and as a minimum threshold that does not prevent national
courts from imposing broader duties on investment service providers
(Cherednychenko 2014). What can be expected is not that the EU will
come up with a single solution for conflicts between regulatory and
traditional contract law, but that a range of mechanisms will be experi-
mented with and gradually adopted to deal with vertical, horizontal and
diagonal conflicts in the EU multi-level system (Joerges and Schmid
2011).
To what extent does the European debate tally with the contemporary
debate and evolution of US contract law? From a historical point of view,
the starting point seems to be much different. US contract law was
pushed in a direction that today shows few commonalities with the EU
turn to regulatory contract law. But we shall see in a moment that there is
more to this than meets the eye.
The starting point in the evolution of US contract law can be identified
in the loose ties connecting contracts to state sovereignty. Whereas the
legal systems of continental Europe accepted the idea that contractual
relationships can only exist within the boundaries set forth by the state,
US thinking turned such perception upside down and granted priority to
parties power to structure their private orderings (Caruso 2006: 24 ff.;
Michaels and Jansen 2008: 76 ff.). The most important implication is a
much narrower view of the proper scope of contract law. For example,
mandatory rules can be described as something extraneous to the core of
the relationship. The same view explains why remedies and enforcement
are central issues in US contract theory.
The historical processes that drove this perspective may have to do
with the conception of the individual that became dominant in late
nineteenth century American culture. The invention of a general contract
law exclusively based on consent transformed any state intervention in an

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120 Comparative contract law

interference to be justified (Kreitner 2007). Of course, contract law as


applied by the courts did not reflect this image. Several doctrines allowed
the judges to impose limits on the parties or to fill gaps in the contracts.
Though, still today the idea of a contractual relationship almost com-
pletely detached from public interventions has a looming influence.
Consider the debate between instrumentalist and anti-instrumentalist
approaches to private law and to law more generally (Tamanaha 2006;
Kraus 2007). That such debate has been more heated in the United States
than in other countries signals a strong resistance to the idea of pursuing
external goals through contractual relationships. Moreover, even in the
instrumentalist camp the arguments supporting the pursuit of external
goals are usually confined to those interventions that are closely con-
nected to the parties interests, not to some overarching or systemic
public interest. Perhaps this approach has to do with the need to find a
middle ground that sounds acceptable to both sides of the debate (Dagan
2008; Hedley 2009). Or perhaps it is a consequence of the normative
preferences expressed by lawyer-economists, the group of scholars
usually identified as the staunchest supporters of an instrumentalist view.
More generally, it cannot be excluded that social and institutional factors
make it more difficult for the US legal system to implement public
policies with ex ante mandatory rules and easier to rely on ex post
interpretative default rules (Bagchi 2014b).
It might be surprising to find that instrumental arguments are more
easily accepted in the EU, with its majority of civil law countries, than in
the United States, where policy arguments are usually deployed by
common law courts. However, a distinction must be made between types
of policy arguments. To the extent that they refer to goals such as
efficiency, fairness and deterrence, their close connection to parties
interests allows the judges to embed them in their doctrines. However,
common law judicial developments face several constraints when broader
policy assessments are needed (Robertson 2009; Waddams 2011). There-
fore, the institutional context of the common law does not automatically
open the door to regulatory contract law.3

3
Interestingly, the US debate devotes more attention to the relationship
between regulation and tort law (e.g., Rabin 2012; Geistfeld 2014). While by no
means uncontroversial, the regulatory role of tort law seems to be received more
favourably. Several reasons might explain such difference, including the absence
of interferences between liability and consent, the supplementary role often
played by tort law with respect to regulation, and the distribution of legislative
powers between the federal and the state levels.

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Of course, the US contract literature does not speak with a single


voice. It is not difficult to find positions much closer to the European
idea of regulatory contract law. In the first half of the twentieth century
the public dimension of contract law was underlined by American legal
realists. They are still cited today, but they have been unable to displace
the dominant approach (Kreitner 2007: 191). Much the same observation
can be made about relational contract theory, another influential strand in
the US debate. Stewart Macaulays work cuts across the private-public
distinction and proposes a much broader view of contractual relationships
(Gordon 2013). Similarly, Ian MacNeil pointed out that contractual
relationships can be used to achieve special public goals (MacNeil and
Gudel 2001: 554 ff.). Both authors are also associated with a normative
preference for regulated contracts akin to those available in US labour
law (see critically Scott 2013). However, even the relational approaches
are more interested in redefining the content of traditional contract law
than in exploring its relationships with other branches.
Much the same observation can be made about proposals for a pluralist
approach to contract law (e.g. Kreitner 2012; Dagan and Heller 2013;
Gilson et al. 2014).4 They all start from the premise that general contract
law needs a more fine-grained articulation to account for the characteris-
tics of a larger number of relationships. They do differ as to what
characteristics should be considered. But the main thrust of the argument
is the development of interpretative regimes that should guide the judges
in deciding contract cases. Even when an explicit link with public or
private regulation is proposed, it goes in the direction of extending to
those areas the same interpretative regime which is proposed for other
commercial relationships.5 Additionally, the many examples of private
orderings analysed in the US legal system provide further support for the

4
There are also authors that defend a unitary view of contract law (e.g.,
Oman 2009).
5
See Gilson et al. (2014: 68 ff.) with reference to the regulation of
agricultural commodities and self-regulation of food safety. The same authors
praise the EU consumer protection regime because it clearly separates the
mandatory regulation for unsophisticated parties from the common law rules of
interpretation. However, they do not refer to the regulatory role played by EU
consumer law. Also see Zamir (2014) for the observation that contemporary US
books on contract law tend to eschew any reference to statutory contract rules
and to expel consumer issues from general contract law. It seems that this
approach reflects widespread opinions about the proper scope of contract law.
See, e.g., Snyder and Mirabito (2014: 402 ff., 406 ff.) (suggesting that issues
about consent in e-commerce and public policy defences are best left to
regulatory authorities).

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122 Comparative contract law

argument that general contract law should not play any regulatory role at
all. Hence, the US debate shows another peculiar feature: contractual
concepts and ideas can be and are exported to regulated sectors, but the
opposite track is much rarer.6
Should we conclude from the foregoing review that a deep cleavage is
going to divide US and EU contract law? Perhaps so. But there are other
corners of the US legal system we should look at before jumping to this
conclusion. State-building throughout the nineteenth and the twentieth
centuries has involved incremental changes in the balance of powers
among the federal branches as well as between the federal and the state
levels. Public interventions in the economy were made possible and at
the same time shaped by those developments and by the legal infrastruc-
tures they produced (Carpenter 2001; Mashaw 2012). Strong analogies
with the building of the EU regulatory state in the second half of the
twentieth century can be identified (Egan 2013). However, the EU
experience appears exceptional in the way it relied on private law to craft
a peculiar version of a supranational market state (Micklitz and Patterson
2013). Conversely, in the US state-building took place mainly through
changes in administrative law. This is not to say that the US regulatory
state did not have to deal with the interface between public regulation
and contract law. Judicial review of agencies decisions made it possible
to work out several doctrines whose influence is still felt today. The filed
rate doctrine is perhaps the most famous among them. It was already laid
down in early twentieth century and is still applied across the utilities
sectors (Rossi 2005: 131 ff.). Its meaning has changed somewhat in the
passage from the monopoly to the competition era. Its usefulness has
been contested and its abolition has been suggested (Bush 2006;
Vaheesan 2013; Hovenkamp 2013). But the doctrine helps identify the
borderline between contracts and regulation when it prevents any con-
tractual (or antitrust) actions against a tariff (here intended in the broadest
sense of a collection of contractual terms applied by a utility) which has
been approved by a regulator.
Much the same function is performed by another judicial doctrine
developed in the energy sector. The Mobile-Sierra doctrine, named after
two US Supreme Court cases in the 1950s, prevents the Federal Energy
Regulator (FERC) from modifying a tariff which has been agreed upon in
wholesale energy contracts, unless it adversely affects the public interest.

6
The most prominent examples are disclosure duties and default rules: see,
e.g., Sunstein (2013); Porat and Strahilevitz (2014). For a European discussion of
regulatory default rules see Mslein (2011).

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Contract law and regulation 123

The practical effect of this doctrine is to carve out a space for private
autonomy and avoid, or at least make more difficult, regulatory modifi-
cations of contracts. Developments of US energy markets in the early
twenty-first century have re-opened the debate about the interpretation of
the doctrine both in federal courts and at the FERC (McCaffrey 2009;
Haskell 2010; Tewksbury et al. 2011; Keegan 2012; White 2012).
However, the point to underscore here is that in the US legal system a
body of judicial doctrines and regulatory decisions addresses the inter-
face between contract law and regulation with sector-specific rules that
balance the public and private interests at stake. This is exactly the same
role that EU regulatory contract law tries to play. The important
difference is that in the United States, sector-specific regulation affecting
contracts shows fewer connections with general contract law than is the
case in the EU.
The difference becomes relevant in all the contexts that call for a
diffusion of each model beyond the borders of the two legal systems. To
the extent that the relationship between contract law and regulation
becomes a problem to be addressed in transnational settings, the United
States and the EU may try to export their different models. While the
United States has been generally successful in exporting its contractual
models and its drafting style (Cordero-Moss 2011), the EU has often
been successful in exporting its regulatory choices (Bradford 2012; Roda
2014). What can be expected in the near future is that both of them will
try to replicate the success of their strategies in a larger number of fields.
The multiple forums that today help manage the extraterritorial effects of
regulations in transatlantic relations (Scott 2014; Fahey 2014) may be
employed to decide on the degree of mutual deference that each contract
model is entitled to. A related issue, which will be addressed in section V,
is the influence that Western models might have in non-Western
countries.
In the field of transnational private regulation, the battle between the
two models may be ongoing already. Descriptions of private governance
can emphasize the benefits of an extension of the contractual paradigm to
areas previously monopolized by state interventions (Vandenbergh 2013)
or see it as an extension of public regulation (Cafaggi 2013). Here we
can begin to identify the dividends of a clearer understanding of
regulatory contract law. Differences between the US and EU models
might matter under two respects. First, the type of rules that are endorsed
by each model might include to a larger or lesser extent the features
listed at the beginning of this section. It can be expected that the contract
rules proposed by the US model will resemble the boilerplate provisions
of commercial relationships, while the contract rules proposed by the EU

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124 Comparative contract law

model will resemble the regulatory provisions adopted in public regula-


tory systems. Secondly, the content of the rules in the two models may
differ from the point of view of the balance between public and private
interests. Whereas in the US model it can be expected that public
interests will be a side concern, the opposite should be true for the EU
model.

IV. CONTRACT REMEDIES VS REGULATORY


REMEDIES
This section turns from rule-making to enforcement mechanisms. The
interplay between contract and regulatory remedies will be analysed from
the point of view of the usual dichotomy between public and private
enforcement. We shall see that several countries are experimenting with
the hybridization of different types of remedies. Also, references will be
made to the interplay between remedies administered by public regula-
tors and remedies administered by private regulators.
From the vantage point of a remedial perspective, enforcement mech-
anisms grounded in regulatory and contract law may overlap in a
significant number of cases. For instance, remedies against the infringe-
ment of regulatory law or competition law can be activated by parties to
a contractual relationship. Furthermore, when the same infringement
amounts to contractual non-performance, contract remedies may serve
both to protect individual interests and to achieve regulatory goals.
Finally, criteria to coordinate public and private enforcement are needed
to avoid conflicting outcomes. But the choice of criteria depends on the
content, effectiveness and costs of each type of enforcement. Hence, the
traditional dichotomy is just the starting point for a more complex
assessment of the range of available options (Cafaggi and Micklitz 2009).
The same complexity must be acknowledged in a diachronic perspective.
Traditionally, the US legal system has been identified with a preference
for private enforcement, the European legal system with a preference for
public enforcement. In light of the developments taking place in the last
few decades, such distinction should be revised.
As far as the US legal tradition is concerned, the priority granted to
private enforcement in regulation and antitrust law can be traced back to
some crucial institutional features (Carrington 2004; Gerber 2008). In the
second half of the twentieth century private enforcement became a
conscious political strategy deployed by the two major parties to over-
come the veto points of the US legislative process and the lack of a
presidential commitment to actively enforce the statutes they passed

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(Farhang 2010; Burbank et al. 2013). Since the 1980s, efforts at curbing
private enforcement have largely failed. However, a stream of Supreme
Court decisions has imposed substantive and procedural constraints on
litigation before federal courts (Burbank and Farhang 2014). This means
that private enforcement might become much less relevant in the US
legal tradition. At the same time, the antagonistic stance of the Supreme
Court toward private enforcement might have other repercussions, both
internally, with an increase of litigation rates at state level, and externally,
with a shift of some types of transnational litigation to other countries
(Childress 2014).
No less relevant are the developments that can be observed on the
European side. They point in two opposite directions. On one hand,
several initiatives on alternative dispute resolution (ADR), collective
actions and competition law damages suggest that private enforcement
could be on the rise (Hodges 2014a). These changes seem to support the
hypothesis that the EU is developing its own version of adversarial
legalism, or Eurolegalism (Kelemen 2011). On the other hand, it has been
pointed out that the EU has tried to strengthen the enforcement powers of
regulators, mostly at national level but in some cases at the EU level, too
(Micklitz 2011a, 2015b). The latter development is tightly connected to
the more general dynamics of EU-Member State relationships and to the
new role played by European agencies and networks of national regula-
tors in the rule-making and implementation phases. The stronger their
influence in the EU decision-making process, the higher the probability
that the powers of national regulators will increase (Bach and Ruffing
2013; Maggetti 2014).
For the purposes of this chapter, the developments described above are
rife with implications. To begin with, it is possible to follow the usual
approach in the enforcement literature and assume that the main goal is
to design a complementary relationship between regulatory and contract
remedies. Rightly understood, complementarity should mean that each
type of enforcement has its own sphere of application, there are no
reciprocal interferences and their combined effect is to increase the
probability of accomplishing the chosen goals. However, in both the US
and the European literature there are plenty of analyses lamenting that
such complementarity is difficult to achieve (e.g., Engstrom 2013; Lowe
and Marquis 2014). Moreover, solutions to achieve complementarity may
well differ from one sector to the other (Glover 2012; Burbank et al.
2013). This means that other types of interplay are possible and should
be managed in some way. Two of them are worth discussing here:
displacement of regulatory remedies by contract remedies and displace-
ment of contract remedies by regulatory remedies.

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First, it is possible to observe a recourse to contract remedies in cases


where competition law or regulatory law would apply. This choice may
be due to lighter burdens of proof or to the limited availability of actions
for competition law damages (Hviid and Peysner 2014). The main
problem with this type of interplay is that the real impact of several
contract actions decided by different courts may be difficult to gauge.
Moreover, conflicts between judicial decisions and those of regulatory or
competition authorities cannot be avoided. The only solution is to provide
plaintiffs with the appropriate remedies in the field of regulation or
competition law.
The latter observation leads to the second type of displacement. What
can be observed in both the EU and the United States is a tendency to
introduce new regulatory remedies that go a long way toward providing
the kind of redress that could be claimed with contract or tort actions. In
the EU such a tendency is partly due to national developments and partly
to the Europeanization process. For example, the United Kingdom
granted sector regulators the power to award compensation to consumers.
Remedial action includes paying an amount to affected consumers,
preparing and distributing a written statement setting out the contraven-
tion and its consequences, or terminating or varying any contracts. In the
latter case, the consent of the affected consumer is required. Regulatory
orders can be enforced independently by consumers, who can also claim
additional damages in ordinary civil actions (e.g., Ofcom 2012; Financial
Conduct Authority 2014; Ofgem 2014). However, it can be argued that
this type of regulatory remedy greatly reduces the need for private
enforcement (Hodges 2014b).7
EU law, too, prompted national regulators to develop new remedies,
mostly in the field of adjudication of disputes among operators or
between operators and consumers (Bellantuono 2015). Of course, the
shift from contract to regulatory remedies does matter for the final
outcome. Adjudication by regulators or ADR bodies usually expands the
set of available options. Some of them lie beyond the purview of civil
courts (e.g., for the financial sector, Mak 2013). Whether this is an
advantage for all the parties involved in these adjudicatory processes is

7
The UK Consumer Rights Act 2015 consolidates consumer enforcement
measures and extends the redress powers to public enforcers for any breach of
consumer law. Redress obtained from public enforcers will foreclose individual
civil actions by consumers. The Secretary of State will be granted the power to
extend enforcement measures to private enforcers like consumer bodies or other
private organizations. See Twigg-Flesner (2016).

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highly debated in the literature on dispute resolution (e.g., Meili 2010


and the contributions collected in Steffek and Unberath 2013).
Another open issue is the distribution of enforcement powers between
the national and the EU level. Today, competences are shared unevenly
and remedies are shaped haphazardly by both levels (Reich 2010;
Johnston 2013). Calls for European harmonization have already been
heard (Ottow and de Weers 2011). Though, the guiding principle in the
area of remedies is still Member States procedural autonomy, to be read
in light of the European Court of Justice case law on the principles of
effectiveness and equivalence (Dougan 2011; Rott 2013). Hence, full
harmonization does not seem practicable and more efforts should be
devoted to the search for conflict management mechanisms.
In the United States, both federal and state regulators have a long-term
acquaintance with different types of regulatory remedies. Explanations
about factors leading to the choice of each policy-making form and their
likely effects have been proposed (Magill 2004; Morriss et al. 2005;
Givati 2014). What is most interesting here is that the wide range of tools
and the substantial flexibility enjoyed in using them may reduce the
recourse to contract remedies. Regulatory settlements are examples of
policy-making forms that may produce just that outcome when they make
room for compensation to be awarded directly to final consumers or more
generally damaged parties (Doucet and Littlechild 2006; Ramus and
Zimmerman 2015). Similarly, the availability of informal and non-
binding policy-making tools increases the opportunities to press regula-
tees to adopt voluntary redress schemes or compliance programmes that
decrease litigation in court. Of course, the impact of these regulatory
measures is difficult to disentangle from other contextual factors, for
example, the pressure exerted by the threat of a class action. Moreover,
none of the policy-making forms aimed at informally pushing the
regulatees toward the desired ends or at settling enforcement actions is
free from doubts about accountability and fair distribution of benefits
(Zimmerman 2011). Still, it is of relevance that in a legal system
generally eager to incentivize private enforcement regulatory remedies
play a central role and may at times displace contract remedies.
A comparison between the United States and the EU can also be made
from the point of view of the multi-level distribution of enforcement
powers. It has been observed that the power to enforce federal law often
granted to states Attorneys General provides a useful alternative to
private enforcement, reduces the risk of under-enforcement by federal
agencies and generates the benefits usually associated with the exercise
of decentralized state authority (Lemos 2011). As we saw above, much
the same arguments are made with reference to the role played by

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128 Comparative contract law

national regulators in the enforcement of EU law. However, in the United


States, the availability of a federal judiciary and of federal agencies with
full-fledged enforcement powers reduces the risks of conflicting deci-
sions, over-enforcement or under-enforcement. Conversely, in the EU
those risks loom larger and are kept under control with a mix of hard and
soft mechanisms (for competition law see Wils 2013; for electronic
communications see Simpson 2013). Because of these institutional differ-
ences, coordination of enforcement across levels is usually costlier in the
EU and leads to more cases of interplay between regulatory and contract
remedies.
A complex relationship can also be detected in the interplay between
remedies administered by public regulators and those administered by
private regulators. The literature on regulatory governance underlines the
benefits stemming from the enrolment of private regulators in enforce-
ment activities. The limited availability of enforcement mechanisms at
transnational level suggests that in that context private regulators may
even represent the only credible option (see the contributions collected in
Cafaggi 2012). At the same time, empirical evidence shows that private
regulators provide effective enforcement mechanisms only under rather
stringent conditions (e.g., Parker and Nielsen 2011; Black 2012). More-
over, it is usually quite difficult to identify the distinct contribution made
by private enforcement mechanisms because they are intermingled with
public ones (see the exchange between Brzel 2012 and Sabel and Zeitlin
2012). On a more general level, it should be acknowledged that the
objectives of contractual remedies are different from those of regulatory
or certification remedies (Cafaggi 2013: 1613 ff.). This means that the
respective incentives provided by each mechanism may prevail in a
specific context and leave unanswered the demand for other forms of
redress. Moreover, it cannot be excluded that some private regulators
(e.g., chain leaders) exploit the powers they have been conferred for
regulatory purposes to increase their bargaining power (Killingsworth
2014).
What the materials discussed in this section show is that the interplay
between regulatory and contract remedies cannot be left to spontaneous
coordination but must be managed with ad hoc strategies that take into
account the hybrid character of enforcement. Hybridity can be found in
the distribution of powers across different levels, in the variety of
enforcement tools that can be employed for different purposes, as well as
in the interaction between public and private regulators. Each of these
facets should be included in an enforcement strategy suitable for multi-
level and multi-enforcer settings. Arguably, contract remedies can play an

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Contract law and regulation 129

important role in such a strategy, but only if they are fully integrated with
all the other enforcement mechanisms.

V. REGULATORY CONTRACT LAW BEYOND THE


WESTERN LEGAL TRADITION
Is regulatory contract law a concept that only makes sense within the
Western legal tradition? This section suggests that the concept cannot
travel easily across different legal traditions because it is tightly con-
nected to the peculiar version of the regulatory state that prevails in the
EU and United States. However, countries developing their own versions
of the regulatory state may benefit from a reflection on the interplay
between regulation and contract law. Even though specific solutions
cannot be transplanted, the governance issues entailed by that interplay
need to be understood and interpreted in every regulatory system.
An assessment of the relevance of regulatory contract law beyond the
borders of the Western legal tradition should start from the observation
that the public-private distinction does not have the same meaning
everywhere. The two spheres are not easily distinguishable in areas of
limited statehood, that is in the states (representing the vast majority
still today) where public institutions lack the resources to implement and
enforce rules. In those areas, governance is in the hands of non-state
actors and non-hierarchical modes of social coordination are prevalent.
While both features can also be found in the EU and United States, they
take on a different meaning where no complementary relationship
between state and non-state actors is possible (Risse 2011).8
The idea of regulatory contract law is heavily dependent on the
assumption that the public and private spheres can be kept distinct. It is
exactly because of this assumption that the interplay should be managed
to avoid conflicts and to maximize the efficiency and effectiveness of
each tool. As soon as the assumption becomes untenable in a different

8
To be sure, areas of limited statehood could be identified in the East
European countries which still face problems in implementing EU standards of
regulatory contract law (e.g., Cafaggi et al. 2013; Svetiev 2013; Caruso 2015;
also see Dietz 2014 on the non-use of EU law in cross-border transactions
between West and East Europe countries). Both within and outside the EU it
seems useful to address the issue raised in this section, namely whether the
strategy of regulatory contract law can be effectively implemented, should be
dismissed or adapted to other contexts.

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130 Comparative contract law

institutional context, it is not useful to ask whether and how well-


resourced regulators should balance public and private interests in
contractual relationships. Such a strategy requires institutional capabil-
ities that are not available. However, it still makes sense to ask whether a
regulatory strategy relying on contracts can help overcome the dearth of
public institutional resources.
The benefits and costs of regulatory strategies involving contracts will
depend on the main features of the regulatory state which prevail in a
specific country or region. It has been pointed out that tools and
institutions developed in the regulatory state of the global North acquire
a new meaning in the regulatory state of the global South (Dubash and
Morgan 2013). This observation matches with the comparative law
literature that emphasizes the role of local interdependencies and inter-
pretative practices in shaping the acceptance or rejection of foreign
transplants in developing countries (e.g., Milhaupt and Pistor 2008;
Gillespie and Nicholson 2012). If regulatory contract law is simply
another tool of the global North, the main question is what meaning
could it take in other types of regulatory states. Two examples, one from
Brazil and one from China, may provide partial answers. Both suggest
that the interplay between general contract law and regulation can be
organized in ways that differ from the US and EU models.
The 2002 Brazilian Civil Code states that freedom to contract shall be
exercised by virtue, and within the limits, of the social function of
contract (article 421; article 2035 sanctions with voidness agreements not
fulfilling the social function). These rules were directly influenced by the
broad recognition of individual and collective rights in the Brazilian
federal Constitution of 1988. For example, the protection of consumers is
connected to the fundamental principle of equality (article 5 XXXII) and
the economic order should accord with the dictates of social justice,
having due regard to, among other principles, the social function of
property and, again, the protection of consumers (article 170). Explicit
reference to the rights of users can also be found in article 175 on public
utility services. The new constitutional framework was probably one of
the factors driving the experimentation with a new type of relationship
between the state and the economy (Trubek et al. 2013).
The social function clause made it possible to argue that collective or
diffuse interests should be taken into account by the parties to the
contractual relationship. How exactly such a constitutional reading of
contract law can be reconciled with its economic goals is still debated.
The Brazilian case law has acknowledged that the social function can be
invoked to protect the weaker party, but seems more reluctant to accept
its most wide-ranging interpretations (Modenesi 2009; Albuquerque

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Contract law and regulation 131

2012; Nalin and Sirena 2013; Torres and Ribeiro 2014). For our
purposes, the most interesting observation is that in Brazil general
contract law can drive the development of the regulatory approach.
Whereas the Brazilian regulatory regime is often criticized because of its
limited use of innovative policy tools (e.g., Queiroz-Cunha and Rodrigo
2013), interdependencies between the two branches show that an inte-
grated approach is, at least in theory, possible. Conversely, both the US
and the EU had to pursue a separation approach that keeps the two
branches as distinct as possible.
To be sure, the coordination between contract law and regulation is no
less difficult to manage with an integrated than with a separation
approach. Consider, for instance, Brazilian case law in the field of
telecommunications. In a 2008 decision of the Superior Tribunal de
Justia, the legitimacy of the annual charge for the fixed telephone line
was challenged on the ground that it hampered universal access to
communications services and, as such, was against the social function of
contract and more generally the social values listed in the Constitution.
But that expansive reading was rejected by the Tribunal (Modenesi 2009:
201 ff.). Conversely, Brazilian Civil Code, article 421 does not prevent
Anatel, the Brazilian telecom regulator, from forbidding any charges in
case of reconnection of a previously interrupted communication service.9
These two decisions suggest that general contract law sets down the
boundaries of regulatory action. At the same time, they make clear that
general principles on the balance between private and social interests and
on the degree of deference to be accorded to regulators are still missing.
The Chinese example shows that contracts can be deployed in regula-
tory states with a high degree of public control to smooth out the
transition to alternative regulatory regimes. In this case, the main
advantage of contracts over other regulatory tools is to change the
incentives transmitted to the parties while at the same time safeguarding
public control. The 2012 reform of the relationship between coal
suppliers and electricity utilities exemplifies this kind of strategy. China
is the biggest producer and consumer of coal in the world; 80 per cent of
its electricity generation is dependent on coal-fired plants. Because of
this strategic role, the relationship between the coal and the electricity
sector has traditionally been heavily regulated. However, since the 1990s,
the coal market has been largely deregulated. Conversely, electricity

9
Tribunal Regional Federal da Primeira Regio, decision of 8 August 2014,
17 ff., available at www.trfl.jus.br, rejecting the challenge against the General
Regulation on the rights of consumers of telecommunications services, issued by
Anatel with decision no. 632 of 8 March 2014, available at www.anatel.gov.br/.

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132 Comparative contract law

prices are still regulated. With coal prices becoming higher and more
volatile in the 2000s, the gap between coal prices and electricity prices
has become untenable. For several years, the Chinese government tried to
force coal suppliers to sell at low prices. However, the high rates of
non-compliance suggest that regulated prices could not be enforced
effectively when the price gap widened. In 2011, unavailability of coal
was among the causes of a power shortage (Zhao et al. 2012; Yang et al.
2012; Ming et al. 2013).
The new regulation introduced in 2012 abolished price controls and
left coal suppliers and electricity utilities the task of negotiating new
agreements. Mismatches between coal and electricity prices can be
avoided with different strategies, including vertical integration and
arbitrage with international coal markets. Moreover, the risk of rising
coal prices has been passed on to a large extent (90 per cent of the fuel
cost changes) to grid operators (IEA Coal Industry Advisory Board
2014). It is still unclear whether the new regime is sustainable in the long
run. But the interesting point here is that even regulatory states charac-
terized by a strong component of state intervention in the economy can
find innovative ways to deploy contracts for regulatory purposes. More
specifically, the new regime for the coal-electricity relationship suggests
a model of regulatory contract that helps remedy an enforcement gap.
Taken together, the Brazilian and the Chinese examples confirm that a
Western regulatory tool can take on a different meaning when transferred
to another context. Moreover, for a specific regulatory problem more than
one solution can be devised, each with different economic and distribu-
tive impacts (Kennedy 2013). We can now see more clearly that the
separation approach adopted in the EU and United States is largely due
to the peculiar path they followed in building their regulatory states. But
an integration approach (Brazil) or a partial regulation approach (China)
are equally possible in other institutional contexts. The features of
regulatory contract law listed in section III are still relevant, but they
should not be combined according to Western models. They should be
designed taking into account local factors.
Similar observations can be made about private regulation in non-
Western countries. It has been pointed out that the two main problems are
the imposition of Western private standards and the lack of effective
enforcement mechanisms (e.g., Lin 2009; De Schutter 2014). Both seem
to suggest that regulating through private contracts could be more
difficult in non-Western countries. However, such a conclusion is only
justified with reference to the Western meanings of private standards and
compliance. Different ways to organize a global supply chain, changes in
governance regimes or in enforcement mechanisms may well prompt

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Contract law and regulation 133

beneficial effects in developing countries (Maertens and Swinnen 2012;


Colen et al. 2012; Coslovsky 2013). For public as well as private
regulatory contract law, the key is to identify those contextual conditions
that allow the selection of the most useful model of interplay.

VI. POLICY CHOICES


It is highly probable that anti-instrumentalist scholars will not be
convinced by arguments in favour of regulatory contract law. At the same
time, some instrumentalist scholars might fear that regulatory contract
law goes too far in imposing constraints on private autonomy, while other
instrumentalist scholars might fear it does not go far enough in pursuing
redistributive policies.
What is important to underscore here is that the debate about instru-
mentalization has mainly developed with reference to traditional contract
law. When the interplay with regulation enters the scene, the arguments
discussed in that debate should be revised. Take, for example, the
argument that invokes a minimalist contract law on the ground that
generalist courts do not have the knowledge that would allow them to
write efficient default rules (e.g., Schwartz and Scott 2003; Morgan
2013). Whatever its merits for judicial default rules of traditional contract
law, the argument appears less plausible when interventions on contracts
are made by regulators with a high degree of technical expertise and their
decisions are reviewed by specialized courts. This is not to say that the
regulatory decision-making process is error-free (Tasic 2011; Cooper and
Kovacic 2012). What the developments discussed in this chapter suggest
is that the pros and cons of regulatory contract law need to be assessed
on empirical grounds. It is reasonable to assume that contracts can help
regulators fulfil their tasks in some contexts, not in any context. There-
fore, the institutional factors allowing successful management of contrac-
tual relationships for regulatory purposes should be identified. Moreover,
the economic and distributive impact of regulatory contract law should be
part of the analysis.
This evaluation calls for an institutional diagnostic approach akin to
those proposed by several streams of social sciences literature (McGinnis
and Ostrom 2014; Rodrik 2007; Young 2008). The aim of those
approaches fits well with comparative law inquiries. The core issue is to
unpack the main contextual factors which, across time and legal
systems, could affect the policy issue to be understood. Moreover, the
diagnostics approach explicitly assumes that the interaction among

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134 Comparative contract law

contextual factors, and not any single factor, is the key determinant of the
final outcome.
Of course, this kind of contextual analysis can also be undertaken with
several other more or less interdisciplinary approaches proposed by the
comparative law literature.10 Assuming the perspective of the diagnostic
approach only helps to bridge them in a more integrated framework.
Nothing prevents a diagnostic approach that blends together contributions
from law, social sciences and the humanities. At the same time, efforts at
integration should bring to light fundamental divergences on ontological
and epistemological assumptions.
It is beyond the goals of this chapter to suggest how such an
integration could be carried out. But it is useful to illustrate its meaning
by listing the contextual factors that every attempt to implement the
strategy of regulatory contract law should take into account, as well as
their possible interactions:

(a) The policy-makers should identify the (local, national, supra-


national or international) level of rule-making for regulatory con-
tract law. This factor is important to understand the desirable or
undesirable features of the rule-making process (section III). Most
of the time, more than one level will be involved. Therefore, the
type of relationship among levels should be identified. In some
cases hierarchical relationships will be possible. But usually, rela-
tionships in multi-level regulatory regimes are more complex and
fragmented. They tend toward polycentricity, that is shared com-
petences along fuzzy boundaries. Virtues and vices of polycentricity
(Aligica and Tarko 2012; McGinnis and Ostrom 2012) should be
taken into account when choosing how to use regulatory contract
law.
(b) Policy-makers should also identify the level and type of enforce-
ment mechanism. This choice is closely related and to a large
extent dependent on the choices made for the rule-making process.
The debate about private and public enforcement in multi-level
systems (section IV) provides useful insights. Hybridization strat-
egies are now visible in several sectors and countries. They help
exploit the advantages usually connected to contract and regulatory

10
See e.g. Grundmann et al. (2015: 4 ff.): the governance perspective
contributes to a genuinely interdisciplinary discussion. As opposed to law and
economics, the range of disciplines that collaborate has greatly increased, and
these various disciplines contribute on an equal footing, gathering together into
one discourse community.

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Contract law and regulation 135

remedies. Also, they may reduce coordination costs more signifi-


cantly than any attempt to design complementary relationships
among different types of enforcers.
(c) Regulatory contract law is not neutral from a distributive point of
view. At the same time, there is no reason to suppose it is inherently
biased toward a specific class of interests. It has been observed that
structural distributional effects of any regulatory system are usually
dependent on the exclusion of specific categories of stakeholders
(Bthe 2013). As the examples from non-Western countries show,
regulatory contract law does not automatically prevent the consider-
ation of any public interest. On the contrary, regulatory concepts
like energy poverty or universal service broaden the range of
distributive policies that can directly affect contractual relation-
ships. Of course, like any other regulatory tool, those policies can
be exploited for rent-seeking purposes (Wiener and Richman 2010).
The crucial issues are: (1) to identify the old or new concepts of
justice that should guide the policy-makers (Micklitz 2011b) and
(2) to measure the impact of each regulatory choice. What is
already clear is that traditional arguments about the arbitrariness of
distributive justice in contract law, or about the risk of unintended
consequences of distributive policies (Bagchi 2014a) lose much of
their force when contracts are embedded in a broader regulatory
system and explicitly contribute to achieve its goals.

VII. CONCLUSIONS
In all the markets heavily dependent on some type of regulation, the
interplay with traditional contract law is inevitable. What this chapter
shows is that such interplay does not lead to a single outcome. Within the
Western legal tradition, it is possible to identify an EU model, that leans
toward the development of a completely new regulatory contract law, and
a US model, that tries to negotiate a boundary-setting strategy with both
common law and administrative law concepts. Outside the Western legal
tradition, further variants of the interplay can be identified: they can be
integrationist strategies (e.g., in Brazil) that deny any distinction between
contract law and regulation, or they can be partial regulation strategies
(e.g., in China), where the policy-makers try to exploit contractual
incentives while at the same time maintaining a tight control on the
economic activities.
The regulation/contract interplay raises many theoretical and empirical
issues that cannot find an answer in this chapter. Those issues are

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136 Comparative contract law

entangled in some of the most debated concepts in legal and non-legal


comparative analysis, including the role and meaning of transplants, the
North-South relationship and the causal links between each regulatory
tool and a specific outcome. The mapping exercise attempted in this
chapter was meant to alert readers to the relevance of regulatory contract
law for those broader debates. Both the regulation literature and the
contract law literature should pay more attention to what happens at the
interface between the two fields. Talking about transnational or global
contract law as if it is national contract law with a wider geographic
scope risks being a worthless exercise. What is badly needed is an
in-depth exploration of the contextual factors that, in each regulatory
system, affect the interplay between contract law and regulation. Evi-
dence collected through such an exploration should then lead to policy
recommendations that help engineer the interplay. The ultimate goal is a
fruitful exchange of ideas and concepts that changes for the better the
world of traditional contract law and the world of regulation.

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PART II

MARKET VALUES AND


THEIR CRITIQUES:
PRIVATE GOVERNANCE
AND NORMATIVE
REGULATIONS

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7. Enforcing bilateral promises: a


comparative law and economics
perspective
Francesco Parisi, Marta Cenini and
Barbara Luppi

I. INTRODUCTION
Legal systems use different and often conflicting terminology to refer to
a situation where the parties to a contract exchange promises, creating
mutual obligations to be fulfilled at a later time. Common law systems
refer to these situations as bilateral contracts.1 The original Restatement
on Contracts, section 12, defined a bilateral contract as one in which
there are mutual promises between two parties to the contract and where
each party is both a promisor and a promisee; in other words, an
agreement where the parties exchange promises of performance (rather
than actual performances) with one another.2 In bilateral contracts, the
offer of one party calls for a promise by the other party. Acceptance
usually takes the form of a communication by the offeree of his
counter-promise; the exchange is said to be executory and not already
executed (executory consideration). Each party is obliged to some act or
forbearance, which, at the time of entering into the contract, will take
place in the future.
On the contrary, unilateral contract means a contract where the offer
calls for an act and not for a counter-promise and the promisee does not
undertake any obligation until that moment. The original Restatement
defined a unilateral contract as one in which a promisor receives an

1
See Corbin (1982) para. 1.23 (distinguishing unilateral contracts from
bilateral contracts); see also Treitel (2003) 37 ff.
2
Restatement (Second) of Contracts, on the contrary, chooses not to carry
forward the definition of unilateral and bilateral contracts because of doubts as to
the utility of the distinction between the two types. See Restatement (Second) of
Contracts 1 cmt. f (1981). We believe that the conceptual category of bilateral
contracts remains relevant, inasmuch as it encompasses contractual situations that
share a common distinctive feature.

145

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146 Comparative contract law

actual performance, put differently, a promise of future performance is


made in exchange for an actual present performance. The promise of
performance by one party is conditioned upon the performance of the act
by the other party and the acceptance consists in the fulfillment of the
act, which represents the executed consideration. The promise of future
performance remains an (unaccepted) offer until the other party performs
his side of the obligation (theory of unilateral contract).3
Common law lawyers usually see the contract as a promise, or as a
sum of multiple promises, that causes the promisee to rely upon the
promise, leading to a characterization of breach in terms of reliance.4 On
the contrary, civil lawyers traditionally view the contract as an agreement
that requires the meeting of two or more declarations so that the contract
could be viewed as the sum of as many declarations as there are parties.5
The notion of contract thus pivots the rule of the necessary bilaterality of
its formation. Although still present in the conventional understanding of
what constitutes a contract, this doctrine has been criticized by Rodolfo
Sacco,6 who showed that, when a contract creates obligations only upon
one party, it can be validly concluded with only the declaration of the
burdened party, so it is not true that contracts must be bilateral.7
Article 1108 of the Napoleonic Code also states that for the validity of
the contract (convention) it is only necessary for there to be le
consentement de la partie qui soblige (the consent of the party who
assumes the obligation) and at articles 1102 and 1103 it states that:

Le contrat est synallagmatique ou bilatral lorsque les contractants sobligent


rciproquement les uns envers les autres.
Il est unilatral lorsquune ou plusieurs personnes sont obliges envers une ou
plusieurs autres, sans que de la part de ces dernires il y ait dengagement.

3
See Guest (1984); Schlesinger (1968); Gorla (1955) 327 ff.; Gorla (1968)
431 ff.
4
See Klass (2010) 28; see also Carlo Marchetti, UnIntroduzione al
Contract del Draft Common Frame of Reference: la (Necessaria?) Bilateralit
Della Formazione del Vincolo (2012).
5
See Somma (2000).
6
Sacco and De Nova (2004) 243 ff.
7
The Italian Civil Code of 1865 (art. 1099) also used the term bilateral
contracts to refer to situations in which the contract creates mutual obligations of
future performance. The article was not retained in the 1942 Italian Civil Code
and the term bilateral contract has acquired different significance under the
current code. For a historical narrative of the evolved usage of this term, see
Messineo (1961).

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Enforcing bilateral promises 147

As Sacco points out, at the time of its enactment, the French Civil Code
thought of contracts as means to constitute future obligations and viewed
the partys promise as a commitment under which the promisor under-
takes the obligation.8 The common law conception of bilateral contracts
more closely matches the civil law notion of synallagma and prestazione
corrispettiva, which suggest the interdependence of the two obligations
so that each promise is the consideration for the other. These notions call
to mind a link with the notion of causa, cause, consideration as the
element that justifies the burden borne by each party.9
It is significant to note, however, that in the civil law tradition, the
notion of contract comprehends both exchanges of future performances
and transfers of property or other rights. Thus, it may be that the
exchange of performances is instantaneous, as in a contract of sale. On
the contrary, as we have already noted, the notion of bilateral contracts in
the common law requires that each party is obliged to some act or
forbearance which, at the time of entering into the contract, will always
take place in the future. As a rule, unless otherwise agreed upon by the
parties, the exchange of performances should be simultaneous (hand in
hand, mano contro mano, Zug um Zug, donnant donnant). This is
because, as we will see later in more detail, both common and civil law
countries provide for rules such as the defense of non-performance: each
party can refuse to perform if the other party does not perform.
More recently, the European Draft Common Frame of Reference, at
article II.-I:101, has provided a definition of contract as an agreement
which is intended to give rise to a binding legal relationship or to some
other legal effect and that is a bilateral or multilateral juridical act. The
Draft thus confirms the traditional civil law notion of contract as an
agreement that needs for its formation two or more declarations. In
articles II-1:101 and 103, the Draft introduces the notion of juridical act
(which comprehends that of contract) as any statement or agreement
which is intended to have legal effect as such; the juridical act may be
unilateral, bilateral or multilateral and in case of a unilateral undertaking
the promise is binding even without the acceptance of the promisee. The
Draft has, therefore, kept a distinction between contracts and unilateral
juridical acts, even though an in-depth analysis has shown that this

8
The French Civil Code, therefore, states that in order to create an
obligation it is sufficient that one party has made a promise, whereas it is not
necessary that the other party has accepted. This idea has been opposed by
scholars who are anchored to the idea that contract formation requires the
meeting of two declarations: offer and acceptance.
9
Sacco and De Nova (2004) 779 ff., 792.

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148 Comparative contract law

distinction is immaterial for most practical purposes, given the fact that
unilateral undertakings ultimately have the same discipline and the
same effects as contracts.10
Evolving terminology aside, the problem of how best to enforce the
exchange of promises of future performance remains relevant. Breach
remedies applied to these contracts in the event of unilateral and bilateral
breach determine incentives and equilibria.11
In this chapter, we develop a comparative law and economic analysis
of the breach remedies provided for these types of situations, which, for
the lack of a better and broadly accepted term, we shall interchangeably
refer to as bilateral promises or bilateral contracts. We give special
attention to the defense of non-performance and the preclusion rules that
many legal systems apply in situations of unilateral and bilateral breach.
These remedies play an important role in the enforcement of bilateral
promises and have thus far escaped the attention of comparative law and
economics scholars. In this chapter, we wish to fill this gap in the
literature, considering the effect of bilateral legal remedies applied to
situations in which the contract involves reciprocal promises of perform-
ance. The chapter is structured as follows. Section II identifies the
problem and discusses it in a historical and comparative context, paying
special attention to the alternative ways in which legal systems address
the different cases of unilateral and bilateral breach. Section III intro-
duces an analytical set-up in the context of the existing law and
economics literature. We use this framework to study the effects of
existing legal remedies on the parties performance and reliance incen-
tives when contracts involve reciprocal promises that create bilateral
investment problems. In section IV, we illustrate the results with the aid
of a numerical example. Section V concludes by revisiting the question
of optimal remedies for bilateral contracts in a comparative law and
economics perspective.

II. LEGAL REMEDIES FOR BILATERAL PROMISES


Contracts involving bilateral promises are formally governed by the same
legal principles governing contracts involving unilateral promises.12 Gen-
erally speaking, it is considered a breach of a contract when one party
does not fulfill his performance in due course or does not perform at all.

10
See Marchetti (2012); see also Acquis Group (2009) 125 ff.
11
James (1916) para. 1102.
12
Corbin (1982) para. 1.23.

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Enforcing bilateral promises 149

However, several issues may acquire particular significance in con-


tracts that involve an exchange of promises, as these contracts create
future bilateral obligations between parties.13 In most legal systems,
when no time sequence is specified for fulfilling these obligations, the
performance of both obligations must be simultaneous and either party
can usually demand performance from the other by offering his own
performance.14 In the case of bilateral promises, the non-breaching party
may bring action only if the counterparts breach is substantial, to wit it
compromises the contract in its entirety: US courts will require that any
breach be substantial, and not a mere formality.15 Civil law systems
provide for similar rules, requiring the so-called importance of the
breach.16 When the obligations are divisible, a breach of one of them
does not count as a substantial breach of the contract: in the United
States, if the steps can be exchanged in corresponding pairs, then the
whole contract is not necessarily breached by the failure to perform one
step. This can limit the amount of damages recoverable by the non-
breaching party.
So what remedy, if any, should be given to a party who is unable to
perform and yet has undertaken investments in reliance on the other

13
Restatement (Second) of Contracts 231 (1981).
14
In most cases, when the timing of the parties performances is unspecified
or when performances are due simultaneously, either party can demand perform-
ance from the other by offering or tendering his own performance. See, e.g.,
Restatement (Second) of Contracts 238 (1981); see also UCC 2-507 (1977).
It is only when different periods are affixed within which each party is to
perform that the counter-performance is construed as conditional and dependent
on the performance of the other party. In all other situations where the same time
is fixed for performance, or where time is fixed for one party, and no time is
fixed for the other; or where no time is fixed for the performance of either party;
or where the same period is fixed in which parties may perform, performances
are presumed to be due simultaneously. In all such cases, either party can trigger
performance by the other (after the specified period has elapsed, when a time
was specified), by offering his own counter-performance. Restatement (Second)
of Contracts 234 (1981).
15
Farnsworth (1981) 267 (giving examples from English and early US law
of cases in which a non-breaching party attempted to back out of a contract by
pointing to insubstantial breaches by the defendant). Farnsworth states that this
issue arises most often today in building contracts, in which breaches must be
directed at structural features of the building in order to be considered substantial
breaches. Failure to place a correct doorknob, for example, would not be
considered substantial breach and would not relieve the buyer of paying for the
building.
16
See, e.g., Italian Civil Code, art. 1455.

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150 Comparative contract law

partys counter-performance? Should we allow an action in contract by a


breaching party against his non-breaching counterpart? Should a breach-
ing party be able to collect damages if his counterpart was also in
breach? For bilateral contracts in which both parties promise perform-
ance capable of creating a surplus for the other party, the answer to these
questions has important practical relevance for both private and social
incentives. In the following, we consider the impact of existing legal
remedies when applied to contracts that create mutual performance
obligations.

A. Initial Unilateral Breach and the Defense of Non-Performance

Under most legal systems, in the event of a material breach or lack of


substantial performance, the non-breaching party may suspend his own
obligations under the contract.17 This means that if one party is in breach,
the other party may also breach the contract without being deemed
responsible for it. In this case, the initial non-breaching party may then
sue the breaching party and ask for the termination of the contract and
damages.
This idea has very ancient roots. In the year 294 CE, the Roman
emperors Diocletian and Maximian established that an agreement to
exchange one thing for another was not binding on either party until
there had been performance on one side which was accepted by the
other.18 This principle, also known as the defense of non-performance,
later found broad application in many legal systems and traditions, such
as French, German, Spanish, Swiss and Italian civil law and public
international law.19 The same rule is applied in the countries influenced

17
If breach is non-material (i.e., there has been substantial performance),
then the other party has a claim for damages but is not excused from fulfilling his
contractual obligation.
18
DIG. 19.4.I.2.
19
The French Code Civil adopts the exception of non-performance through
many specific provisions relating to sales (arts 1612 and 1652), barter (art. 1704),
and deposit (art. 1948), but the exception of non-performance is generally
regarded as a principle applicable to all contracts creating bilateral obligations.
Malecki (1999) 3753. Likewise, German law (BGB, s. 320) formulates the
exception as a general principle, under the title of plea of unperformed contract.
A similar approach is followed by Spanish-based legal systems (e.g., Spanish
Cdigo Civil, art. 1426 ) and by the Swiss law of obligations (Swiss Code des
Obligations, art. 82). Italian law adopts the exceptio inadimpleti contractus both
as a general principle (Italian Codice Civile, art. 1460) and as a rule applicable to
specific bilateral contracts (e.g., under arts 1565 and 1901). The defense of

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Enforcing bilateral promises 151

by the German legal tradition, such as Austria (ABGB, sections


918921), Japan (CIV.C. 533) and China (UCL, article 68).
As a general rule, in the case of bilateral breaches the judge must
establish which breach prevails against the other, in order to ascertain
which one justified the other. The trial court must compare the overall
behavior of the parties in order to determine which party is responsible
for the most relevant violations, thereby provoking the behavior of
the counterparty and the consequent alteration of the contractual syn-
allagma.20 Once it is determined which party breached the contract first,
the common rules on damages and restitution will apply.
If it is impossible to determine who was responsible for the most
relevant violations and, therefore, the breaches are equivalent, in coun-
tries like the Philippines (Civil Code of the Philippines, article 1192) the
contract will be extinguished and each party will bear her respective
costs. In Italy,21 the judge cannot declare the termination of the contract
but must declare the rejection of both claims due to the absence of facts
supporting them: in other words, it is impossible to declare the judicial
termination of the contract without placing the responsibility of the
breach on one of the parties.22 This means that civil law systems do not

non-performance has been adopted by the United Nations. United Nations


Convention on Contracts for the International Sale of Goods, Art. 71, 11 April
1980, 1489 UNTS 3. Article 71 of the Convention provides the so-called defense
of non-performance, stating that a party may suspend the performance of his
obligation if, after the conclusion of the contract, it becomes apparent that the
other party will not perform a substantial part of his obligations. Article 72
provides that the right to withhold performance applies also in the case of
anticipatory breach of contract and provides a remedy that is available even
before the obligation becomes due, offering protection against a future breach of
contract. Cenini and Parisi (2009) 15170.
20
See Cass., 24 September 2009, no. 20614, Giust. Civ. Mass. 2009, 9 (In
order to ascertain which breach justified the other, the Court must take into
account the interests of both parties and the objective importance of the breach
and consider not only the chronological element, but also and above all the
contribution in terms of causality, the proportionality between the unfulfilled
performances and the impact of these unfulfilled performances on the overall
economic and social function of the contract. This judgment may lead to
ascertain which of the two parties shall be considered the breaching party while
the default of the other party is justified on the ground of the defense of
non-performance). See generally Sacco and De Nova (2004) 640 ff.
21
See ibid.
22
Cass., 9 June 2010, no. 13840, Giust. Civ. Mass. 2010, 6, 879. Sacco and
De Nova (2004) (arguing that the parties will thus terminate the contract for
mutual agreement).

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152 Comparative contract law

explicitly consider the case of bilateral breach, but solve it with reference
to the unilateral breach problem. The amount of the damages may be
reduced according to the other partys level of culpability and contribu-
tion to the loss.
There are several important differences between the treatment of the
defense of non-performance, and of bilateral contracts in general,
between the civil and common law systems.23 The defense of non-
performance first arose in English law in the sixteenth century.24 Prior to
this time, a non-breaching party would have to give his own performance
before he was allowed to sue the breaching party.25 The idea that this
should not be required was finalized and set right in the famous English
case, Kingston v. Preston.26 In the United States, whether the defense of
non-performance is applicable depends on which performance is due
first. The Restatement (Second) of Contracts provides further guidance to
resolve any remaining ambiguity on when performance is due. According
to section 234, unless otherwise agreed, when performances are capable
of being simultaneous, each duty of performance is constructively
conditioned on tender of the other.27 This implies that, even if the parties
did not expressly condition their promise on performance by the other,
the law sees each partys duty to perform as conditional on the other
partys offer to perform.28 A party that is unable or unwilling to offer his
performance cannot bring an action against the other. Performance or
tender of performance by one party is a condition precedent for the
liability of the other.29 The Uniform Commercial Code also reflects this

23
See generally Treitel (1988) (discussing the differences in the ways civil
and common law systems approach the defense of non-performance and bilateral
contracts).
24
See Farnsworth (1981) 254.
25
Ibid.
26
2 Doug. 689, 99, Eng. Rep. 437 (K.B. 1773).
27
Restatement (Second) of Contracts 234(1) (1981): Where all or part of
the performances to be exchanged under an exchange of promises can be
rendered simultaneously, they are to that extent due simultaneously, unless the
language or the circumstances indicate the contrary; see also ibid. 238; UCC
2-507 (1977). The second type (conditional and dependent) makes the perform-
ance of one promise a constructive condition of performance of another.
Therefore, no counter-performance is due unless the first obligation is duly
performed. See also Corbin (1982) para. 35.6; Perillo (2003) 42429.
28
In practice, courts often depart from this principle. One partys breach of a
promise may be deemed material and thus give a right to suspend the duty to
perform even if the promise was not technically found to be a condition as well.
29
See, e.g., Kingston v. Preston, Lofft 194, 2 Doug. 684 (K.B. 1773).

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Enforcing bilateral promises 153

preference in its rule that payment and delivery of goods must be


simultaneous.30 The rule for the sale of land is the same.31
The scope of the defense of non-performance under US law is quite
broad. The defense is available in all but a few cases, such as when
different periods are affixed within which each party is to perform.32 At
common law, a defense of non-performance gives the non-breaching
party the option of withholding performance in the event of a substantial
breach.33 A non-breaching party has two options: (1) he can refuse his
performance, invoking the defense of non-performance against the other
partys action; and (2) he may ask for a rescission of the contract.34 One
factor that may induce a non-breaching party to exercise the defense of
non-performance is the fact that collecting damages from the other party
can be a costly and difficult enterprise. A second factor is linked to the
opportunity for the non-breaching party to redeploy the performance
towards alternative uses.

30
UCC 2-507(1) (1977).
31
See, e.g., Rushton v. Campbell, 94 Neb. 141, 145 (1913) (holding that the
payment of price and the delivery of the deed are simultaneous except by prior
agreement).
32
Various contract rules reveal a heavy inclination towards simultaneous
performance of promises. The Uniform Commercial Code reveals a similar
tendency for the case of sales in which the counter-performance amounts to the
payment of a price. See, e.g., UCC 2-507 (1977) (tender of delivery is a
condition to the buyers duty to accept the goods and, unless otherwise agreed, to
his duty to pay for them). Along similar lines, UCC 2-511 states that Unless
otherwise agreed tender of payment is a condition to the sellers duty to tender
and complete any delivery.
33
Legal systems adopt different wording to characterize the seriousness of
the breach necessary before a party can exercise the defense of non-performance.
The wording ranges from material breach (Daugherty v. Bruce Realty & Dev,
Inc., 892 S.W. 2d 332 (Mo. App. 1995)), to fundamental non-performance
(UNIDROIT Principles of International Commercial Contracts), to total breach
Restatement (Second) of Contracts 237 (1981).
34
Treitel (1988) 31011 (Termination [through an action for rescission]
brings to an end each partys duty to perform, though the circumstances making
the remedy available may give the injured party a right to damages; it also gives
the injured party a right to the return of his own performance on restoring what
he has received under the contract. The exception [of non-performance] does not
produce these effects but merely entitles the injured party for the time being
to refuse to perform his part.).

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154 Comparative contract law

B. Bilateral Breach and Plaintiff in Default Preclusions

Most legal systems provide that in contracts creating bilateral obligations


between parties, when no time sequence is specified for fulfilling these
obligations, the performance of both obligations must be simultaneous
and either party can usually demand performance from the other by
offering his own performance. As a general rule, a party cannot complain
of the other partys breach if he himself is also in breach: in this case the
party cannot bring suit against the other. The system of the so-called
plaintiff in default preclusions applies to cases of bilateral breach.
A party under the US and UK systems typically cannot bring suit
unless he can show he was ready to perform his end of the bargain: this
is the so-called plaintiff in default rule.35 Even if the non-breaching
party is able and willing to offer performance, other issues may prevent
him from bringing suit. If a suit is brought, the allegedly breaching party
cannot argue that he did, in fact, perform unless his performance is
considered substantial.36 Finally, we have already seen that a court can
hold that the performances in the contract are divisible (i.e., one
incremental step toward performance by one party may require another
incremental performance by another party). If the steps can be exchanged
in corresponding pairs, then the whole contract is not necessarily
breached by the failure to perform one step. This can limit the amount of
damages recoverable by the non-breaching party.
Assuming any case can go forward, the amount of payoff may vary
considerably. In the case of bilateral breach, for instance, neither expect-
ation nor restitution damages are due by either party: a party who was
himself in breach might not be able to recover restitution for any steps he
performed.37 Just in case the plaintiff has actually performed part of the
obligation or conferred some benefit on the other party, then he might

35
Restatement (Second) of Contracts 234 (1981).
36
Farnsworth (1981) 270. For example, if the breaching partys performance
could be returned to him, it would not be considered substantial. Farnsworth
again uses building contracts as an example. Piling up some building materials at
the buyers site would not be considered substantial because the builder could
take the materials back and use them elsewhere. Laying a foundation of a
building, on the other hand, would probably be considered a substantial step
toward performance. Varying degrees of performance will lead to varying
degrees of forfeiture by the breaching party. Willful breach would also make
the performance nonsubstantial.
37
See, e.g., Stark v. Parker, 19 Mass. (2 Pick.) 267, 275 (1824); Lawrence v.
Miller, 86 N.Y. 131, 140 (1881); Britton v. Turner, 6 N.H. 481 (1834).

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Enforcing bilateral promises 155

have restitution38 in application of the rules governing the remedies in


quasi-contracts.39
Civil law systems provide for similar preclusion rules, which usually
take the form of procedural preclusion. In particular, the countries
influenced by the Code Napoleon, like France (article 1139), Italy (article
1454), Switzerland (article 82) and Quebec (articles 1591 and 1596),
provide for the so-called putting in default rule, which states that before
bringing the action the non-breaching party must offer the breaching
party an opportunity to perform. This offer may take the form of a
written letter addressed to the breaching party, or a more official form,
which may require the intervention of a public officer. For this act to be
valid, it is necessary that the claimant be ready to perform his obligation
and to offer his counter-performance. The German Civil Code (section
297) states that the obligee is not in default if the obligor at the time of
the offer is not in a position to effect performance. The Austrian ABGB,
on the contrary, provides for a substantive preclusion rule (sections
918921).
In the case of bilateral breaches, in some countries,40 each party cannot
require specific performance or expectation damages but may sue the
other party for restitution in kind. We have already seen that in the
Philippines,41 where the court is not able to determine which party was in
breach first, the contract will be extinguished and each party will bear
its respective costs. To the contrary, the Chinese legal system provides
that in the case of bilateral breach, both parties must pay damages (UCL,
article 120) or each party must demonstrate to the court to what extent
they have suffered, and the court will determine which party is entitled to
any surplus (the so-called off-setting rule).42 We can conclude that, in
actuality, only China considers the case of a bilateral breach, while the
other systems tend to solve it by reference to the unilateral breach

38
See Perillo (2003) 446. In the case of termination of the contract, which
may be a further consequence of the defense of non-performance, the initial non-
breaching party may be allowed to claim damages. Treitel (1988) 31011.
39
When remedies in quasi-contracts are available, the damages payable in
the event of bilateral breach would not be equal to zero. For the purpose of
analyzing the parties incentives, all that matters is the size of the remedy, rather
than its doctrinal label. Although the remedy generally available in restitution
may be less (and in some cases greater) than the remedy available in contracts,
its availability is nevertheless capable of minimizing the distortions otherwise
created by the preclusion rule.
40
Civil Code of Lithuania, art. 6.62.
41
Civil Code of the Philippines, art. 1192.
42
See Hsu (2007) 115; see also Gregory (2000).

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156 Comparative contract law

problem or applying rules on quasi-contracts. The expected private


payoff of each party is discussed in section III.

III. ENFORCING BILATERAL PROMISES: A


COMPARATIVE LAW AND ECONOMICS
VIEWPOINT
In the following, we develop a comparative law and economic analysis of
the breach remedies discussed in section II, with special attention to the
defense of non-performance and the preclusion rules that many legal
systems apply in situations of unilateral and bilateral breach. As we will
demonstrate, these remedies play an important role in shaping the
incentives of the contracting parties. Here, we will introduce an analytical
set-up, in the context of the existing law and economics literature, to
study the effects of existing legal remedies on the parties performance
and reliance incentives when contracts involve reciprocal promises that
create bilateral investment problems.

A. Conventional Framing of the Contract Problem

The question of which remedy would best incentivize the optimal


performance of contracts has been widely researched by law and eco-
nomics scholars.43 The choice of damage remedies affects the promisors
commitment towards performance and the promisees reliance on the
promised performance.44 Much of the early literature in this field builds
on the contributions of Barton and Shavell.45 Barton asks how a single,
value-maximizing firm would design damage measures in order to induce
two of its divisions to make optimal breach and reliance investments.
Shavell identifies a Pareto efficient complete contingent contract at the
point of contracting in order to derive optimal contract remedies.
According to these authors, the optimal legal remedies should be
designed to mimic the entitlements that would be chosen under each of
these hypothetical frameworks. The issue of optimal remedies for breach

43
This idea is a fundamental part of any law and economics textbook. See,
e.g., Miceli, (2009).
44
In economic terms, reliance is a sunk investment that increases the value
of performance if performance takes place, but also increases the promisees loss
in the event of a breach.
45
Barton (1972); Shavell (1980).

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Enforcing bilateral promises 157

of contract has also been investigated within the framework of incom-


plete contracts.46 These contributions showed that optimal remedies could
mitigate the well-known under-investment phenomenon in relationship-
specific assets.47
There is a general agreement in the law and economics literature that
expectation damages are best suited for promoting optimal performance
and reliance investments by the promisor and promisee to a contract.48
Expectation damages force a breaching promisor to compensate the
promisee for the forgone benefit from the contract, bringing the promisee
to the same level of utility he would have received in the event of
successful performance.49 Expectation damages create incentives for
efficient performance, since awarding expectation damages restores the
promisee to the position that he would have achieved if the promisor had
completed performance.50 Expectation damages also effectively link
liability to the benefit forgone by the promisee, in the absence of other
externalities caused by the breach.51
Under a regime of expectation damages, however, the promisee will
undertake excessive reliance. This is because expectation damages, by
compensating the promisee for the forgone benefit in the event of breach,
operate as a form of implicit insurance, inducing the promisee to invest in
reliance as if performance would likely materialize with certainty.52
The law and economics literature derives the above results using a
model involving two parties: a promisor (debtor of the performance) and
a promisee (creditor of the performance). Each party plays a specific
role: the promisor invests in performance efforts and the promisee invests
in reliance.53 In this model, at least three assumptions are made:54 (1) the
promisee pays a monetary price to the promisor, commonly known as

46
Williamson (1985); see also Hart and Moore (1990).
47
Edlin and Reichelstein (1996).
48
Eisenberg and McDonnell (2003) 1335.
49
Ibid.
50
Ibid. at 1336.
51
See Posner (1972); Shavell (1980). The standard taxonomy of contract
damages is generally based on the distinctions among expectation, reliance and
restitution interests: Fuller and Perdue (1936). Commonly adopted measures of
damages in contract law are linked to one of these three interests of the
promisee. See also Mahoney (2000) 11739.
52
Shavell (1980); Parisi, Luppi and Fon (2011).
53
Parisi, Luppi and Fon (2011).
54
The following assumptions are standard in the law and economics litera-
ture. See, e.g., Cooter and Ulen (2003).

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158 Comparative contract law

consideration, as payment for the promisors performance; (2) the


promisee invests in reliance on the promised performance; (3) the
promisor does not invest in reliance on the promisees payment. These
assumptions allow scholars to focus their intention on the promisors
performance incentives and the promisees reliance incentives.
Although complex contractual relationships can in theory be disentan-
gled into separate agreements with unilateral performance obligations, in
many real-life situations we observe contracts with mutual obligations:
parties exchange promises rather than actual performances and each party
is at the same time a promisor of his obligation and a promisee of the
other partys obligation. In these situations, both the rights and obliga-
tions of the parties have a bilateral nature.55 As Parisi, Luppi and Fon
observe, parties choose to enter into contracts with mutual performance
obligations for a variety of reasons,56 and contracts involving the
exchange of goods or services between two parties can generate a surplus
to the receiving party when the obligation is fulfilled.57 Each party relies
on the other partys performance. In the following analysis, we consider
the effect of existing legal remedies in inducing parties to perform and
rely optimally when entering into contracts with reciprocal performance
obligations. The analysis develops a numerical illustration, which builds
on the economic model of Parisi, Luppi and Fon. The exercise is
intended to show that a bilateral obligation problem cannot be reduced to
the sum of two independent unilateral problems.

B. Extending the Conventional Approach to Bilateral Promises

Bilateral relationships are more common than unilateral relationships in


everyday contractual practice. Thus, it is important to provide answers to
questions that may arise in cases of breach of bilateral contracts. One
such question might pertain to appropriate remedies when one party is
unable to perform but has undertaken investments in reliance on the other
partys counter-performance. Courts also might ask whether there should
be legal remedies, other than resolution for non-performance, in cases of

55
Restatement (Second) of Contracts 231 (1981).
56
Parisi, Luppi and Fon (2011). For example, parties may find it practical to
enter into a contract involving the exchange of goods or services, to reduce
transaction costs, to avoid outlays of money, or to reduce tax burdens. In other
situations, practical necessities may require the formation of contracts with
mutual performance obligations and it would be difficult and often undesirable to
disentangle the parties obligations, creating separate unilateral obligations.
57
Ibid.

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Enforcing bilateral promises 159

bilateral breach. To answer these questions, we analyze the incentives


created by hypothetical rules that would allow a breaching party to
collect damages when his counterpart was also in breach. Likewise, we
analyze the result if a breaching party is allowed to force the performance
of his non-breaching counterpart.
This theoretical analysis will hopefully serve as a building block for
the understanding of the economic incentives created by the defense of
non-performance and preclusion rules in real-life contractual situations.
We examine bilateral contracts in a simplified framework, according to
the standard law and economics assumptions that parties are risk-neutral
and that they choose the level of effort and reliance that maximizes their
wealth.
In cases of contracts involving bilateral promises, one or both parties
could default on their contract obligations. In the case of a breach, the
payoff or loss for non-performance is set equal to zero; in other words,
the promisee receives no benefit in the event of breach, except for the
possible loss of reliance investment. A bilateral contract situation there-
fore has four possible performance outcomes: both parties fulfill their
contractual obligations, one party performs while the other party
breaches, and both parties breach. We consider all such cases, allowing
for the possibility of different measures of damages in the event of
unilateral or bilateral breach.
Given the set of possible outcomes, the social problem can be
described as the sum of the payoffs of parties in each of all four
possibilities, and the net of the total cost of effort and reliance investment
for both parties. If each party fulfills its contractual obligation, each
receives his sought-after gain. If one party fulfills his contractual
obligation and the other party breaches, only the latter party realizes a
gain. The symmetric analysis of payoff applies in the case of unilateral
breach by the first party. There is no payoff in cases of bilateral breach,
because revenues for non-performance are assumed to be zero.58

58
Note that this analytical set-up is different from the standard contract
scenario often discussed in the literature, according to which the second party is
not required to undertake any performance effort. By omitting the counter-
performance problem, these models implicitly assume that the probability of
success of performance by the second party is certain since he cannot possibly
fail to fulfill the contract. Further, no reliance investment is undertaken by the
first party and no gain can be realized from the nonexistent reliance investment.
This scenario may alternatively be interpreted as the case in which performance
by the second party has already taken place (unilateral contract) or where

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160 Comparative contract law

In order to achieve a social optimum, each party should choose a level


of performance effort such that the marginal benefit of performance
efforts for the two parties, inspired by the increased probability of
successful performance, equals the marginal cost of performance effort.59
Likewise, the socially optimal reliance investments by each party are
such that the expected marginal gain from each partys reliance invest-
ment equals the marginal cost of reliance investment.
When looking at the optimum from the private parties points of view,
private costs and benefits of effort and reliance are instead taken into
account: each party acts in a way that maximizes his own private welfare
of the contract.60 The recent law and economics literature has shown that,
in order to align private and social incentives and achieve optimal levels
of performance effort, two relationships must hold. The first requirement
is that damages in the unilateral case be the traditional expectations
damages, which give the non-breaching party the benefit of the bar-
gain.61 The second requirement imposes equal differences between
unilateral and bilateral damages across parties.62 This requirement is
necessarily fulfilled when damages for unilateral and bilateral breach for
each party are set equal to each other, suggesting that in order to align
private and social incentives, courts may want to impose expectation
damages, not only in standard unilateral breach cases in which the victim
of the contractual breach was ready to perform, but also in cases of
bilateral breach, granting damages to someone who himself breached the
contract. With respect to private optimal reliance investment, the trad-
itional result63 holds, according to which setting marginal damages to
zero avoids excessive reliance.64

C. Remedies for Bilateral Contracts: A Numerical Example

With a defense of non-performance, the victim of a unilateral breach can


withhold performance and redeploy it elsewhere. In addition to the

performance by the second party can be carried out at will, without effort
investments.
59
For a standard analysis of this optimality condition, see Cooter and Ulen
(2003).
60
Korobkin (2004).
61
Schweizer (2006) 13445.
62
See Parisi, Luppi and Fon (2011) 252 (providing an analytical proof of the
results discussed here).
63
For a discussion of this concept and for an example from a game theory
point of view, see Cooter and Ulen (2003) 193222.
64
See Parisi, Luppi and Fon (2011) 258.

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Enforcing bilateral promises 161

various advantages offered by the defense of non-performance, as dis-


cussed in section II.A, this gives the victim a benefit equal to the
redeployment value minus a damages reduction set by the court,
weighted by the probability of exercising the defense of non-
performance. Likewise, in the event of a partys own breach, he would be
liable to the other party for expectation damages.65 He would obtain the
expected reduction in damages when the non-breaching party exercises
the defense of non-performance or the expected value of counter-
performance if the non-breaching party chooses not to exercise the
defense of non-performance.66
As will be shown in the numerical example, the defense of non-
performance distorts the parties incentives, leading to an increase in
performance efforts but a decrease in reliance investments.67 In the case
of performance effort, the defense of non-performance induces both
parties to exert an excessive level of effort, above the social optimum.
This can be explained by the fact that by performing, the non-breaching
party not only avoids the threat of liability, but also eliminates the other
partys defense of non-performance, increasing the probability of obtain-
ing the sought-after contractual benefit. Performance incentives, there-
fore, are higher than those created when the breaching party only faces
liability in the measure of expectation damages. On the other hand, the
defense of non-performance dilutes the incentives for optimal reliance
since it creates a new opportunity for the dissipation of the parties
reliance investments. With some probability greater than zero, a party
who would otherwise be ready to perform may choose to exercise the
defense of non-performance. Reliance investments can therefore become
sunk not only as a result of the other partys breach, but also as a result
of the partys own breach, when the defense of non-performance is
exercised by the other party. Therefore, even if marginal damages are
zero, reliance investments become suboptimal because the sunk invest-
ment in reliance leads parties to be wary of investing too much in
reliance in the future. This sunk investment occurs whenever one party is
unable to perform and the other exercises the defense of non-
performance. The magnitude of this distortion of performance effort and
reliance investment depends on the parties expectations regarding their
counterparts use of the defense of non-performance. Factors affecting

65
Cooter and Ulen (2003) 207.
66
See Parisi, Luppi and Fon (2011) 258.
67
See ibid. (analyzing how these incentives are distorted).

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162 Comparative contract law

these expectations might include: the presence of contract-specific


investments; uncertainty in contract litigation; opportunities to redeploy
performances; and damage adjustments that are withheld through the
defense of non-performance.
With the help of a numerical example, we will illustrate the character-
istics of specific remedies for bilateral contracts discussed above. In
order to address these issues more clearly, we consider a bilateral
contract, assuming that the contracts parties are symmetrical. In other
words, we consider the simplest case, in which parties realize the same
sought-after gain from the contract when the other party performs and the
probability that they will perform is the same.68
Each party faces two decisions: (1) how much effort to exert in
delivering their performance to the other party, thereby increasing the
probability of the performance occurring; and (2) how much to invest in
reliance, thereby increasing the value of the contract. The problem arises
when the private optimal levels of effort and reliance, i.e., the levels that
maximize the individual welfare of the parties, differ from the social
optimum, represented by those levels maximizing the joint welfare of the
parties. Legal remedies may or may not reconcile the private and social
optima. It is important to investigate the distortions induced by specific
remedies and whether these distortions can be reduced, in order to arrive
at an accurate overall evaluation of the efficiency of remedies that apply
specifically to bilateral contracts.
According to the numerical simulation presented here, the socially
optimal level of effort for both parties is equal to 4/9 units, with an
associated probability of delivering the performance to the other party
equal to 2/3. The socially optimal level of reliance investment is equal to
1/9. Both parties will experience a gain from the contract equal to 4/3 if
performance occurs, and zero otherwise.
In an ideal world of costless litigation and no administrative costs,
optimal remedies should involve bilateral expectation damages without
any additional remedy specific to bilateral contracts. In contracts involv-
ing bilateral promises, a breaching party should not be barred from
bringing an action against his contracting party demanding performance
and/or expectation damages. In order to reconcile private and social effort
incentives, the courts should grant expectation damages to the non-
breaching party. This would require the faulty party to pay the lost value

68
This numerical simulation is based on the following functions (exhibiting
the properties required in the general theoretical model): the probability of party
1 to perform is equal to e1/(e1+e2) and the value of the performance is equal to
log(r1).

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Enforcing bilateral promises 163

of performance, both in cases of unilateral and in cases of bilateral


breach. In other words, the parties will exert the social optimal effort
level of 4/9 units, if the courts require the breaching party to pay
expectation damages, equal to 4/3 in cases of both unilateral and bilateral
breach. This condition satisfies the additional requirement needed to
align private and social incentives to invest in reliance, which imposes
zero marginal damages to avoid excessive reliance, a standard result in
the literature. In the real world, however, the legal system provides a
number of specific remedies for bilateral contracts, including the defense
of non-performance and the preclusion rule.
First, we analyze the effect of the defense of non-performance. The
defense of non-performance allows the non-breaching party to withhold
his counter-performance in the case of unilateral breach by the other
party. If counter-performance is withheld, the non-breaching party may
redeploy the performance at a redeployment value, of, for instance, 1.
Note that the redeployment value will usually be less than the value of
the contract to the breaching party, since the contract will be efficient if it
is signed between parties on the market who most value that perform-
ance. However, if the defense of non-performance is exercised, the court
will reduce the damages awarded to the non-breaching party, say 1/2.
This scenario occurs with an estimated probability of 1/2. The application
of a defense of non-performance creates a bilateral threat that leads both
parties to undertake an excessive level of effort. In the numerical example
presented here, both parties find it optimal to exert one unit of effort,
above the socially efficient level of 2/3. This is because this rule allows
the non-breaching party to threaten the breaching party with a loss of
contractual surplus. The non-breaching party threatens this because, upon
breach, the non-breaching party has the option of withholding counter-
performance. The possibility that this performance will be withheld
increases the cost of unilateral breach to the breaching party. Reliance
incentives are also distorted by the defense of non-performance, though
the effect is less severe than that on performance incentives. Both parties
invest in reliance 1/4 units, above the social optimum.
As will be discussed later, if the parties have the ability to structure
their contract as a bilateral contract subject to the defense of non-
performance, this can help to mitigate the inefficiencies induced by
insolvency and court errors. In other words, the defense of non-
performance corrects the distortion of effort for the party with limited
liability or the dilution of effort induced by court errors for both parties.
This is because the defense of non-performance creates a higher incentive
to perform, which counterbalances the dilution effect associated with
insolvency or court errors.

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164 Comparative contract law

The same analysis carried out in the previous section can be used to
show the effects of plaintiff in default preclusion rules. When a
preclusion is applied, payoffs are similar to those described above, with
the additional fact that in the event of bilateral breach neither party may
be entitled to receive damages. The analysis would show that the
adoption of a plaintiff in default preclusion rule creates socially optimal
incentives for both parties only in the special case in which the parties
obtain equal benefit from the contract. Absent such symmetry, both
contracting parties face distorted incentives in the opposite direction: the
preclusion rule leads the party seeking the larger contractual surplus to
exert excessive effort, while the party seeking the lower contractual
surplus will be induced to exert suboptimal effort. This leads to a
paradox, since the party that produces something of lesser value than that
produced by the other party is induced to exert greater effort. This is
because the plaintiff in default rule, by precluding the right to recovery
in the event of bilateral breach, causes the contracting parties to consider
not only the potential liability that they may face in the event of breach,
but also the value of their respective contractual expectations. In other
words, incentives are distorted because the parties pay attention to the
surplus that they might lose due to the preclusion rule, rather than to the
benefit that their performance creates for the other party.

D. Summary of Results: Remedies for Unilateral and Bilateral


Breach

Several legal systems combine remedies for unilateral and bilateral


breach: a defense of non-performance similar to that discussed in section
II.A is used in cases of unilateral breach,69 and, in cases of bilateral
breach, such a defense is used in combination with preclusion rules
similar to those discussed in section II.B. In section III.C above, we
argued that in the case of a bilateral contract, the application of a defense
of non-performance may lead both parties to undertake excessive levels
of effort. This is because the defense of non-performance creates a
double threat: the breaching party faces full liability and risks losing the
benefit of his counter-performance. Reliance incentives are also distorted,
though less severely than performance incentives. A preclusion rule for
bilateral breach leads instead to a different type of distortion of incen-
tives. Unlike the defense of non-performance, the preclusion rule leads

69
See Corbin (1982) para. 1.23.

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Enforcing bilateral promises 165

some parties to undertake excessive performance efforts, while leading


others to undertake suboptimal levels of efforts.
We can now examine the incentive problem facing a party that is
subject to a legal regime in which a defense of non-performance for
unilateral breach and a preclusion rule for bilateral breach are applied
concurrently. As shown above, the defense of non-performance leads
both parties to provide excess effort. Additionally, when parties suffer
asymmetric losses from the mutual breach, a preclusion rule will create
distortions, leading one party to exert excessive performance effort and
leading the other party to invest too little towards performance. There-
fore, in order to paint a complete picture, we need to consider the
opposing effects of the preclusions rule on the parties performance
incentives in conjunction with the effects of the defense of non-
performance. Adopting a preclusion rule mitigates the problem created
by the defense of non-performance for the party with lower surplus from
the contract, but exacerbates the already excessive incentives for the party
with higher surplus. Additionally, introducing a preclusion rule for
bilateral breach in a regime that already adopts a defense of non-
performance has a second-order effect on the parties reliance incentives.
We can summarize the effects of the plaintiff in default preclusion on
incentives, considering the effects when the rule is used alone or in
conjunction with the defense of non-performance. The preclusion rule
induces opposite distortion on effort and reliance incentives of the parties
in cases of asymmetric sought-after gains (i.e., when one party gains
more than the other from performance). In the special case of symmetry,
and only in this case, the preclusion rule induces no distortion in effort
and reliance investment. Hence, both parties will choose a private optimal
level of effort and reliance equal to the social optimum. In the case of
symmetric parties, the combined use of the defense of non-performance
and the preclusion rule induces excessive effort and reliance, since the
inefficiency induced by the defense of non-performance dominates. The
optimal choices of effort and reliance will coincide with the optimal
choices when only the defense of non-performance is available.
Table 7.1 below summarizes the efficiency results on optimal effort
when parties receive full compensation in the event of a breach. We
indicate how the privately optimal level of effort chosen under the given
remedies (indicated in the three columns of Table 7.1) compares with the
socially efficient level of effort.
The analysis conducted here suggests that the solution utilized by
many legal systems, combining defense of non-performance for unilateral
breach with preclusion rules for bilateral breach, has opposite effects on
the two parties performance incentives (mitigating the problem of

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166 Comparative contract law

Table 7.1 Effect of bilateral remedies on incentives

Defense of non- Preclusion rule Defense of non-performance


performance and preclusion rule

Asymmetric-value contracts

excessive performance suboptimal performance excessive performance effort


effort for both parties effort for party with for party with higher surplus
higher surplus indeterminate effect on
excessive performance performance effort of party
effort for party with with lower surplus
lower surplus
Symmetric-value contracts

excessive performance optimal performance excessive performance effort


effort for both parties effort for both parties for both parties

excessive effort for one party and exacerbating the problem for the other)
and has no effect on the parties reliance incentives. Similar reasoning
applies in the case of partial compensation due to limited wealth or court
errors.

IV. IMPERFECT ENFORCEMENT AND THE ROLE OF


BILATERAL REMEDIES
In the previous sections we discussed the efficiency of incentives
provided by specific remedies applied in the enforcement of bilateral
contracts. With the help of a numerical example, we will illustrate the
characteristics of specific remedies for bilateral contracts in the presence
of contract imperfections. It will be shown that the inefficiencies induced
by insolvency and court errors can be mitigated, under some circum-
stances, by the ability of the parties to structure their contract as a
bilateral contract subject to the preclusion rule.
Many factors may affect the parties probability of receiving full
compensatory damages in the event of breach. Partial compensation
influences the optimal choice of effort and reliance for the contracting
parties, by diluting the parties optimal effort incentive (under the
conditions stated above). One factor than can lead to partial compen-
sation is the limited liability of at least one contracting party. A party is
said to be insolvent if in the case of its own breach, the party cannot fully
compensate the other party and cannot pay the damages set by the court.

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Enforcing bilateral promises 167

In other words, a contracting party is potentially insolvent if his wealth


level cannot cover an award of at least expectation damages set by the
court. The presence of insolvency dilutes the effort incentives of the
insolvent party. In other words, limited liability will induce the insolvent
party to undertake an inefficiently low level of effort.
Court errors represent another factor that may induce partial
compensation. According to the existing literature, courts are prone to
incur systematic errors or biases in the quantification of damages.70
Likewise, courts can choose to liquidate damages according to a
measure that falls short of expectation damages due to difficulties in
proving subjective value. Alternatively, they can impose limitations on
damages based on the foreseeability of harm.71 As with limited liability,
court errors will cause a dilution of the effort incentives in the case of
undercompensation.72
Parisi, Luppi and Fon have suggested that the inefficiencies induced by
insolvency and court errors can be mitigated, under some circumstances,
by the ability of the parties to structure their contract as a bilateral
contract. The choice of bilateral contracts in real-life contractual practice
may therefore be driven by the presence of imperfect compensation.
Imperfect compensation may be present due to a number of different
reasons, including limited liability, legal costs and court errors. In a
bilateral contract, the contracting parties are given an opportunity to tie
two contractual obligations together, with incentives that are superior to
those achievable with two independent unilateral contracts. The superior-
ity of a bilateral contract derives from specific legal remedies that apply
in cases of unilateral and bilateral breach in bilateral contracts, in the
presence of imperfect compensation of the contractual parties.73
In cases of limited liability, the preclusion rule has mixed effects on
the parties incentives depending on the relative wealth of the parties.
More specifically, the preclusion rule corrects the distortion of effort
incentives for the party with higher wealth. The preclusion rule, however,
worsens the distortion of effort incentives for the party with lower
wealth. When the parties are equally limited in their wealth, the pre-
clusion rule does not have any effect on optimal effort. In a similar way,

70
Dore and Veitch (1994); Muris (1983).
71
Ayres and Gertner (1989); Goetz and Scott (1980).
72
On the other hand, overcompensation induces an inefficiently high level of
effort.
73
See Parisi, Luppi and Fon (2011) (suggesting that another example of
superiority of bilateral contract is the presence of interdependent values for the
contract among the parties).

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168 Comparative contract law

in the case of court errors, application of the preclusion rule alone would
have mixed effects on the parties incentives. The effects depend on the
relative size of distortion of the court assessment of compensation
between the parties.
The following numerical example is designed to illustrate that specific
remedies for bilateral contracts may correct the distortion induced by
imperfect compensation on the private optimal choice of effort and
reliance. Without loss of generality, our example focuses on one specific
reason for imperfect compensation: limited liability. In the event of
limited liability, parties have a wealth level inferior to the damages set by
the court in the event of breach. In this case, parties may not receive full
compensation in case of breach. Imperfect compensation dilutes the
incentives to perform and invest in reliance. Even a small level of
insolvency induces the parties to have a private optimal level of effort
and reliance investment lower than the social optimum. Suppose that the
parties wealth is equal to 1/2. The limited liability arises when the
wealth level of the breaching party is inferior to the expectation damages,
equal to 4/3 in the numerical example (i.e., the value of the contract if the
parties act in a socially efficient way). The presence of even a small level
of insolvency dilutes the incentive to exert effort (effort then falls to 1/16
units), with a consequent reduction of the probability of performance
(probability falls from 2/3 to 1/4). The private optimal level of reliance
investment falls to 1/64, inducing a consistent reduction of the sought-
after gain from the contract (the gain falls from 4/3 to 9/8).
The defense of non-performance distorts incentives in the opposite
direction from the distortion created by limited liability. This defense
induces the parties to exert more effort and reliance than is socially
optimal. In the presence of limited liability, therefore, the defense of
non-performance can be seen as a way to compensate the party in the
presence of the phenomenon of imperfect compensation. Under the same
numerical assumption discussed above, the defense of non-performance
raises private optimal effort, from 1/16 to 1/4 units, even though it still
remains below the socially optimal level (4/9 units). This induces an
increase in the probability of performance, from 1/4 to 1/2, although the
level remains below the socially optimal level of 2/3. The private optimal
level of reliance investment increases from 1/64 to 1/16, inducing an
increase of the sought-after gain from the contract (from 9/8 to 5/4), even
if full efficiency is not regained (4/3 being the socially optimal gain from

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Enforcing bilateral promises 169

the contract). If the preclusion rule is available, in addition to the defense


of non-performance, the equilibrium will not change.74
In Table 7.2, we summarize the efficiency results on optimal effort in
three cases of contract imperfections (limited liability, court errors and
legal costs) and compare the privately optimal level of effort with the
socially efficient one.

Table 7.2 Correcting contract imperfections with bilateral remedies

Defense of non- Preclusion rule Defense of non- performance


performance and preclusion rule

Limited liability

optimal performance effort optimal performance optimal performance efforts


for both parties efforts for wealthier for wealthier party
party suboptimal performance
suboptimal effort for poorer party
performance effort for
poorer party

Court errors

optimal performance effort optimal performance optimal performance effort


for both parties efforts for both parties

Legal costs

optimal performance effort optimal performance optimal performance effort


for both parties effort for both parties for both parties

The results in Table 7.2 may explain the conditions under which parties
may decide to entire a contract with the exchange of promises of future
performance, instead of disentangling the relationship and entering into
two independent unilateral contracts. Our conclusions are consistent with
the fact that, although parties sometimes enter into contracts with mutual
performance obligations as a matter of convenience, most real-life
examples of bilateral contracts involve relationships with imperfect
enforcement.

74
Under the symmetric case, when only the preclusion rule is available, the
equilibrium will coincide with the case when no specific remedy is available.

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170 Comparative contract law

V. CONCLUSION
In this chapter, we study some problems that parties face when entering
into contracts with bilateral promises of future performance. After
identifying existing legal solutions in contemporary and historical legal
systems, we have observed that two rules often found in legal systems
acquire particular relevance. The first group of rules originates from the
exceptio inadimpleti contractus and is known at common law as the
defense of non-performance. This rule relieves the non-breaching party
from his duty to perform his counter-performance. This rule, by threat-
ening the breaching party with a loss of contractual surplus, increases the
cost of unilateral breach. Our numerical example shows that this may
lead both parties to undertake an excessive level of effort. Our numerical
example shows that reliance incentives are also distorted by the defense
of non-performance, though less severely than performance incentives.
The magnitude of these distortions depends on the parties expectations
regarding their counterparts use of the defense of non-performance.
Factors such as the presence of contract-specific investments, uncertainty
in contract litigation, and opportunities to redeploy withheld perform-
ances, likely affect the magnitude of the distortion created by the defense
of non-performance. The second group of rules creates procedural or
substantive preclusions (in the event of a bilateral breach), for a plaintiff
who is also in default. A plaintiff in default preclusion implies that no
damages are due by either party in the event of a bilateral breach. Our
analysis shows that a preclusion rule for bilateral breach leads to a
different type of distortion of incentives: some parties undertake exces-
sive performance efforts, while others undertake suboptimal levels of
effort.
Taken in isolation, neither remedy seems optimal for the enforcement
of bilateral promises. In an ideal world of costless litigation and no
administrative costs, optimal remedies should not include a defense of
non-performance nor a preclusion rule. Although this may appear
counter-intuitive, recent law and economics literature has shown that
granting breaching parties the right to obtain the counter-performance or
equivalent expectation damages is necessary to maintain optimal incen-
tives in most bilateral contract cases.75 Building on the recent work of
two of the current authors, our analysis suggests that the solution utilized
by many legal systems, combining remedies for unilateral and bilateral
breach, mitigates the problem of excessive effort for one party, although

75
Schweizer (2006) 13445.

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Enforcing bilateral promises 171

possibly exacerbating the problem for the other.76 Before drawing any
firm conclusion, we should note that parties faced with a performance
problem do not generally know ex ante whether the contract will result in
default, or whether the breach will be unilateral or bilateral. The remedies
that we have considered are likely to fail when parties do not face ex
ante uncertainty and strategically rely on the other partys forthcoming
breach, choosing lower performance efforts. This strategic reliance
amplifies the inefficiency of one partys breach, contaminating the other
partys incentives.
The current process of search for transnational principles of contract
law should consider the adequacy, or lack thereof, of these legal
remedies, and maybe encourage a tailored application of bilateral con-
tract remedies in precisely those cases in which the standard remedy of
bilateral expectation damages would be most inadequate.

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8. Spontaneous order and freedom of


contract
Carlo Ludovico Cordasco

I. INTRODUCTION
As Gerald Gaus argues,1 Hayeks theory of spontaneous order has been
attacked on two opposite grounds: on the one hand, some theorists
contend that it leaves no space for reforming or evaluating existing rules
and institutional arrangements;2 on the other hand, other theorists claim
that despite Hayeks insistence on our ignorance in designing institutions,
he still offers prescriptive claims on how we should order our societies.3
Furthermore, some other theorists argue that Hayeks formulation of
spontaneous order consists merely in the protection of freedom of
contract or Lockes triad of rights (life, liberty and property).
In this chapter, I shall analyse three formulations of the theory of the
spontaneous order emerging from Hayeks account and try to show why
the positions mentioned above are ultimately mistaken.
Particularly, I will show that although Hayeks theory provides us with
reasons for limiting our pretence of modifying existing institutions
arising out of negatively free human interactions, his theory of the
spontaneous order does not justify, per se, all institutional arrangements
generated by such interactions. Moreover, I argue that Hayek provides us
with epistemic tools in order to interfere with the overall order of actions
by limiting freedom of contract with the aim of correcting the undesir-
able evolutive patterns that spontaneous orders may face.
It is important to notice that I do not aim to argue that Hayek himself
would allow for such interferences, but that they could be grounded in his
formulation of the spontaneous order.
The chapter is organised as follows: in the first part I shall introduce
what I find to be Hayeks three main requirements for social cooperation
to be possible and will analyse the concept of complexity that is crucial

1
Gaus (2006).
2
See Paul (1988).
3
See Hodgson (1993).

173

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174 Comparative contract law

in order to comprehend Hayeks account of the spontaneous order; within


the second part I shall develop and analyse three different formulations of
the spontaneous order, emerging from Hayeks work, in order to show
that his theory is (a) not bound to justify any existing institutional
arrangements, (b) not contradictory when it prescribes how institutions
should be arranged, (c) not merely consisting in the protection of Lockes
triad of rights.

II. THREE REQUIREMENTS FOR SOCIAL


COOPERATION
In the popular television programme, The Walking Dead, after a zombie
apocalypse, a group of survivors desperately try to get rid of zombies and
to establish a peaceful social order.
The main obstacles that the group faces are essentially four:

(1) Contamination between zombies and survivors happens quite often


and they need to figure out what causes it in order to avoid it, and
how to kill zombies.
(2) People reacted differently to the zombie apocalypse: many became
thieves and it is hard to know what to expect when groups of
survivors meet.
(3) There are different and often incompatible goals, both intra-group
(among members of a single group) and inter-groups (among
different groups). For instance, in a certain group some members
may prefer to assume relevant risks to rescue their relatives, some
others might prefer to risk their lives in order to find a safer
environment, some others might think there is no such thing as a
safer environment, and that the search is ultimately worthless.
(4) Behaviours are not regulated by stable and efficient social norms.

These four obstacles might be summarised in three main points, which


also constitute what I find to be Hayeks three minimum requirements for
social order to be possible: certainty, compatibility of goals, efficiency.
If I could not attribute any probabilities on your reactions to my
actions, it would be incredibly hard to coordinate and pursue our goals.
To live in an ordered world means, in the first place, to be able to form
expectations that have a good probability to be correct. For instance, in a
post-apocalyptic scenario such as in The Walking Dead it is unclear
what kinds of conduct lead to contagion (whether the physical contact

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Spontaneous order and freedom of contract 175

with zombies is enough to be contaminated), what kinds of behaviour


should we expect from other survivors, etc.
This uncertainty can be overcome mainly through the observation of
regularities. For instance, I can form expectations on how contagion
happens if I can observe regularities when analysing it. Clearly, my
expectations can be mistaken but I have, at least, some reasons to
attribute probabilities on future events. Similarly, if group X of survivors
happen to be robbed every time they meet an unknown group, group X
may reasonably come to suspect that theft is quite common among
groups of survivors and, thus, take some precautions.
There is a clear positive correlation between our ability to form
expectations on future events and the possibility of satisfying our goals:
for instance, I need to know what kinds of formal and informal conducts
may help in pursuing an academic career in the United States if I wish to
become a professor; similarly, if I do not have the ability to form
meaningful expectations on shops opening and closing times, it would be
hard to organise my day.
In fact, it is difficult to imagine how we could possibly design either
long or short-term plans aimed at pursuing our own goals without a
certain degree of certainty within our social order. The importance of
certainty in Hayeks definition of order can be easily traced by looking at
one of the most famous passages of Law, Legislation and Liberty:

[Order is a] state of affairs in which a multiplicity of elements of various


kinds are so related to each other that we may learn from our acquaintance
with some spatial or temporal part of the whole to form correct expectations
concerning the rest, or at least expectations which have a good chance of
proving correct.4

The second aspect I wish to consider is compatibility of goals. Goal


compatibility, here, should not be interpreted at a micro-level. There are,
in fact, many intuitive cases in which our goals are non-compatible with
one another in that they cannot be fulfilled together: for instance, we can
compete for a PhD scholarship, to win the Wimbledon Championships, to
become the President of the United States. However, the fact that our
goals are often non-compatible does not make playing the social game
worthless. Here, on the other hand, I refer to goal compatibility as a
general compatibility of individuals ends: for instance, it would be
meaningless to live in a society based upon theft, not just because we

4
Hayek (1982) vol. I, 36.

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176 Comparative contract law

may consider theft as immoral, but because there is an overall incompat-


ibility of goals both among thieves and between thieves and non-thieves.
In a society based upon theft I can even form correct expectations on
other peoples reactions to my actions, but it would be worthless to play
the social game as it would hardly be a sum-positive game for the parties
involved.
Compatibility of goals clarifies why any meaningful definitions of
order relying merely on certainty are bound to be incomplete: we may
live in a society where individuals can form the correct expectation to be
robbed every time they meet someone they do not know, they can even
know the strategies through which thieves operate, but we would hardly
define such society as ordered. In a society based upon theft we can
experience different degrees of certainty, but there is no room for goal
compatibility.5
The third basic requirement I wish to focus on is efficiency. Suppose
two sisters, Penny and Julia, find a chocolate cake and they need to find
a way to divide it. Unless they spontaneously converge on a solution,
such that Julia only wants a quarter of the cake and Penny is happy with
the remaining 75 per cent, they need a norm to solve the dispute. In the
case in which the spontaneous solution is not at hand, the fact that Penny
and Julia can form correct expectations with regard to the portions of the
cake that each other desires does not necessarily mean they will be able
to reach an agreement. Norms, thus, are needed in order to find a
uniquely salient solution to a coordination problem, reducing the risk of
coordination failure. Without such solutions to coordination problems we
would hardly define our society as ordered as there is no predictable way
to settle disputes and to avoid the risk of systematic coordination failure.
The efficiency requirement, though, does not merely say we need norms
to solve such disputes; it says we need efficient norms. Suppose, again,
Penny and Julia want respectively 80 per cent and 30 per cent of the
cake: although any norm would be better than the impossibility to
peacefully coordinate, a norm dividing the cake into 70 per cent for
Penny and 30 per cent for Julia would intuitively make more sense than
another one assigning 10 per cent to Penny and 90 per cent to Julia. As
we shall see, though, what Hayek is looking for is not a single norm able
to maximise payoffs at any given situation, but rather a set of norms that

5
Although in the quoted passage Hayek seems to define order as a mere
function of certainty, many other passages clarify the importance of compatibility
of goals as a basic requirement for social order under his account. See Hayek
(1982) vol. I, 2024, 207, 211.

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Spontaneous order and freedom of contract 177

is able to create the conditions for cooperation and coordination allowing


for the satisfaction of compatible goals over time.
Although Hayek seems to take compatibility of goals as an exogenous
requirement (in that he takes goals as given), certainty and efficiency are,
in Hayeks mind, the two features on which the spontaneous order acts
with the aim of creating the conditions for social cooperation in order to
maximise the satisfaction of the largest number of compatible goals, as
we shall see in the rest of the chapter.
It is important to notice that each of these basic requirements is
continuous: in fact, we can imagine different degrees of certainty,
compatibility of goals and efficiency. The more is the adherence to those
requirements, the more it would be meaningful to play the social game
since it would result in an overall sum-positive game in which we all
have better chances to pursue our own goals.

III. COMPLEXITY AND THE SPONTANEOUS ORDER


Before I go through the analysis of Hayeks formulations of spontaneous
order I need to say a few words on the concept of complexity that is
crucial to comprehend the nature of the theory of spontaneous order.
Complexity plays an important role in Hayeks system of ideas insofar as
social orders are inherently complex ones. They in fact possess two main
features: non-ergodicity and high number of variables.
Economists such as Douglass North speak of non-ergodicity to define
the continually changing structure of our social orders:

If I say the world is ergodic, I mean that it has a stable underlying structure,
such that we can develop a theory that can be applied time after time,
consistently. It is very important to understand that the world with which we
are concerned is continually changing, is continually novel. That does not
mean that there are not ergodic aspects of the world. But we cannot develop
theory that can be used over and over again and over time. For an enormous
number of issues that are important to us, the world is one of novelty and
change; it does not repeat itself. There may be lessons in history, but we have
to be careful about them.6

Let us think about the invention of the washing machine, to the ways in
which it changed our lives, giving us much more free time compared to
the past, when doing the laundry used to take an entire day of the week.
This spare time could be used to go shopping at the city centre, meet new

6
North (1999) 2.

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178 Comparative contract law

friends, cultivate new hobbies, be connected with new ideas concerning


lifestyle, politics, fashions, morality, etc. Cultural diversity is an import-
ant source of non-ergodicity, since it determines relevant changes to the
basic structure of our societies. There are even more intuitive examples of
innovations that, by cutting transaction costs, allowed us to be connected
to new people and to be acquainted with new ideas. These sorts of
innovation change, more or less directly, the basic structure of our world
with no possibility of going back to previous equilibria.
Essentially, what distinguishes a non-ergodic from an ergodic system is
the way in which their structures react to the introduction of novelty: an
ergodic system returns back to its initial state, while a non-ergodic one
changes its structure permanently. Non-ergodicity also implies two other
features of complex systems: tight coupling and error sensitivity. Com-
puter scientists refer to tight coupling to describe a system in which
hardware and software are not just linked but inextricably dependent on
one another. A small change in the structure of the former will determine
significant changes within the latter. Similarly, error sensitivity says that
if we try to reproduce a complex system, even a small error in
reproducing a single element, its structure, its positions or interactions,
will determine enormous differences in the evolution of the new system.7
Here, the elements of our complex system are individuals; the objects of
our investigation are the interactions among them, the interactions
between elements and the environment, and the equilibria arising out of
these interactions.
The other important feature concerns the high number of elements.
There is not a precise number of elements needed in order to define a
system as complex, and the individuation of complexity rests on an
intuitive level.8 For the purpose of the present chapter, though, the
individuation of the complexity of our object is intuitively clear: the
world we inhabit is characterised by a large number of elements

7
On this issue I found particularly useful the reading of Alippi, Piuri and
Sami (1994).
8
On this issue I found particularly interesting Cotsaftis (2009). Anyway, the
literature concerning complexity is incredibly vast. For a general introduction to
the concept of complexity see Mitchell (2009). Here is a list of selected works I
found extremely useful: Kauffman (1993); Simon (1962); Gell-Mann (1988);
Gell-Mann (1984); Papentin (1980); Koppl (2006).

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Spontaneous order and freedom of contract 179

(individuals), that are inextricably related to one another, generating


continuous moral and technological innovation.9

IV. UTILITARIANISM AND THE SPONTANEOUS


ORDER
Hayek is often regarded as a critic of the utilitarian tradition but the
theory of spontaneous order seems to belong to the utilitarian frame-
work.10 This appears to be evident from Hayeks account of the general
good in a free society as the facilitation of the pursuit of unknown
individual purposes. Such definition, in fact, opens the second volume of
Law, Legislation and Liberty and starts Hayeks critical discussion of the
utilitarian tradition.
While Hayek seems to regard the satisfaction of the largest number of
compatible goals as the ultimate aim of the theory of spontaneous order,
his attitude toward the utilitarian tradition remains sceptical. The main
reason for such scepticism can be found by looking at Hayeks know-
ledge problem:

The fact, however, is that in a Great Society in which the individuals are to be
free to use their own knowledge for their own purposes, the general welfare at
which a government ought to aim cannot consist of the sum of particular
satisfactions of the several individuals for the simple reason that neither those
nor all the circumstances determining them can be known to government or
anybody else. Even in the modern welfare societies the great majority and the
most important of the daily needs of the great masses are met as a result of
processes whose particulars government does not and cannot know.11

Here, Hayek is clearly rejecting the maximisation of particular satisfac-


tions of several individuals as the ultimate end of the Great Society on
two main grounds: first, in a complex world there is no such thing as a
planner able to know the goals of particular individuals; second, goals are
not given but emerge after a process of discovery that is dynamic and,
thus, subject to change. Such criticisms, though, do not undermine the
utilitarian soul of his moral/political theorising, but merely aim to
criticise utilitarianism on practical grounds, that is to say on how utility is

9
Despite the requirement of the large number of elements, in this chapter
many examples will only involve a few individuals. This oversimplification
should not be an obstacle for my purposes.
10
On Hayek and Utilitarianism see also Gray (1984).
11
Hayek (1982) vol. 2, 2.

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180 Comparative contract law

to be maximised. Essentially, the utilitarian tradition, in Hayeks mind,


fails to take seriously the ignorance of legislators and planners. The
knowledge problem, indeed, seems to undermine the feasibility of naive
utilitarian approaches by ruling out the possibility of knowing indi-
viduals goals:

[That] the prime public concern must be directed not toward particular known
needs but toward the conditions for the preservation of a spontaneous order
which enables the individuals to provide for their needs in manners not known
to authority was well understood through most of history. For those ancient
authors whose ideas chiefly provide the foundations of the modern ideal of
freedom, the Stoics and Cicero, public utility and justice were the same. And
on the frequent occasions when utilitas publica was invoked during the
Middle Ages, what was generally meant was simply the preservation of peace
and justice.12

If particular goals are either impossible to be gathered to the planner or


dynamic, then, direct maximisation is problematic in two main senses.
Suppose that Alf and Betty have two different sets of goals x and y and
that Bob, the planner, is supposed to choose the set of rules that
maximises the satisfaction of the largest number of Alf and Bettys
compatible goals. If Bob is not able to know Alf and Bettys particular
goals, then, direct maximisation is strictly impossible. On the other hand,
if Bob is aware of Alf and Bettys sets of goals at t1, but the goals are
dynamic, then, the set of rules that allows for the maximisation of goals
at t1 may be different from the set of rules that would be required at t2.
This latter scenario poses four different kinds of knowledge problem:
(a) Bob is aware of x and y at t1 but cannot predict the evolution of x and
y, then, we face a classic knowledge problem starting at t2 instead of at
t1; (b) Bob is aware of x and y both at t1 and t2, but the set of rules
cannot be changed without costs for Alf and Betty; (c) Bob is aware of x
and y both at t1 and t2 but is unable to find the set that contains the
largest number of compatible goals between x and y; (d) Bob is aware of
x and y both at t1 and t2 but is unable to find the set of rules that would
lead to the satisfaction of the largest number of compatible goals over
time.
How are we supposed to maximise the satisfaction of the largest
number of compatible goals if goals are continuously changing and
cannot be known by planners or legislators? Since particular goals cannot
be the direct object of planners maximisation, the choice among sets of
rules is, ultimately, worthless. Such choice, indeed, would need to be
based on a calculation that the planner is unable to perform.

12
Hayek (1982) vol. 2, 2.

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Spontaneous order and freedom of contract 181

Hayeks solution to the knowledge problem seems to consist in a sort


of indirect maximisation. Specifically, rules should aim at maximising
the satisfaction of the largest number of compatible goals by securing the
conditions for cooperation and coordination. Sets of rules able to create a
cooperative environment are tools that might be able to allow individuals
to satisfy the largest amount of compatible goals within a certain social
order. In Hayeks words:

The rules of conduct which prevail in a Great Society are thus not designed to
produce particular foreseen benefits for particular people, but are multi-
purpose instruments developed as adaptations to certain kinds of environment
because they help to deal with certain kinds of situations. And this adaptation
to a kind of environment takes place through a process very different from
that in which we might decide on a procedure designed to achieve particular
foreseen results. It is based not on anticipation of particular needs, but on the
past experience that certain kinds of situations are likely to occur with various
degrees of probability. And the result of such past experience gained through
trial and error is preserved not as a recollection of particular events, or as
explicit knowledge of the kind of situation likely to occur, but as a sense of
the importance of observing certain rules.13

We may summarise Hayeks claims as follows:

(i) The main aim of a Great Society is to maximise the satisfaction of


the largest number of compatible goals.
(ii) Sets of rules should be evaluated according to their ability in
bringing such maximisation.
(iii) Particular goals cannot be known and, even if they were, rules
cannot aim to satisfy such goals as long as we cannot predict the
detailed effects that particular norms will have on the realisation of
particular goals. Hence, sets of rules chosen with the aim of
satisfying particular goals do not really bring the maximisation we
are looking for. Rule-utilitarians who endorse such calculation are
mistaken. They ignore the fact that we need rules insofar as we are
ignorant.
(iv) Sets of rules should merely promote cooperation and coordination
and should be selected according to past experience.

13
Hayek (1982) vol. 2, 4.

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182 Comparative contract law

V. A FIRST DEFINITION OF SPONTANEOUS ORDER


Why should we rely on past experience in selecting sets of rules that
promote the conditions for cooperation and coordination? The main
reason is that rules, in Hayeks mind, are the result of a complex
selection process that embeds individual expectations and preferences.
If Bob were able to collect Alf and Bettys specific goals and to select
a set of norms that maximises their payoffs, there would no need for the
complex selection process. We may just collect information and deliber-
ate about which set of rules would be best in order to maximise payoffs.
On the contrary, when Bob is ignorant with regard to Alf and Bettys
goals or unable to perform the calculation, Hayeks solution to the
maximisation problem consists in the reliance on past experience in order
to select the best set of rules. The main questions to Hayeks solution are:
what is the relationship between past experience and the satisfaction of
goals? Which mechanism is able to select rules embedding the past
experience that is needed in order to create the conditions for cooperation
and coordination?
When payoffs are not available or it is meaningfully impossible to
choose between different sets of rules, reliance on past experience in
selecting sets of rules is motivated by the idea that the evolution of norms
tend to follow a non-random pattern that would naturally improve rules,
facilitating cooperation and coordination among individuals.
Particularly, according to Gaus, Hayek identifies three main ways in
which norms evolve: group survival, group growth and an endogenous
mechanism.14 The first two mechanisms capture the idea of an inter-
group selection of rules:

Although the existence and preservation of the order of actions of a group can
be accounted for only from the rules of conduct which individuals obey, these
rules of conduct have developed because the individuals have been living in
groups whose structures have gradually changed. In other words, the proper-
ties of the individuals which are significant for the existence and preservation
of the group, and through this also for the existence and preservation of the
individuals themselves, have been shaped by the selection of those individuals
from the individuals living in groups which at each stage of evolution of the
group tended to act according to such rules as made the group more
efficient.15

14
See also Shearmur (1996).
15
Hayek (1982).

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Spontaneous order and freedom of contract 183

According to those two requirements, the evolution of norms regulating


the group of Alf and Betty is shaped by a process of imitation of more
successful groups. If, for instance, Penny and Julia, complying with set
of norms k, were able to achieve better outcomes than Alf and Betty did,
under set z, Alf and Betty would naturally converge toward set k. Such
shift may not be the result of Alf and Bettys rational and intended
deliberation, but rather the unintended result of complex interactions. At
the inter-group level, the process of imitation normally concerns the
whole set of norms instead of particular rules. This is because Alf and
Betty can hardly isolate the effects of particular norms on the general
outcomes. This means that, if a particular rule R, belonging to set k
seems more efficient compared to another norm, belonging to set z, it
may very well be the case that if Alf and Betty decide to incorporate R
within z, the interaction between R and z may even worsen zs ability to
bring the desired outcomes.
The endogenous mechanism, on the other hand, works at the intra-
group level and is shaped by the competition between individuals. As
Gaus says: This stress on individual competition and the evolution of
rules suggests that, instead of a competition between social orders, Hayek
has in mind a competition between individuals within a social order that
leads to the selection and evolution of rules.16
Specifically, intra-group selection is shaped by non-random deviations
from the current set of rules. Particularly, rules that do not satisfy entirely
Alf or Betty are more likely to be violated and, thus, replaced with more
efficient rules. If Betty rightly expects that following norm b would
produce better outcomes than by complying with norm a, and such
deviation also satisfies Alf, then, b will replace a.
If any orders in which inter and intra-group selection processes of
norms take place could be defined as spontaneous, then, almost any order
would be considered as spontaneous. In fact, any institutional arrange-
ments already embed the competition processes that shape the evolution
of norms. This is to say that both the intra and inter-group selection
processes happen almost in any kinds of social order. If we are to define
norms as good or justified merely by virtue of being selected by those
mechanisms, then any norm or institutional arrangements would be either
good or justified and there would be little to say about possible
improvements. However, this is not what Hayek has in mind when he
thinks about the theory of spontaneous order. He seems to think that
improvements can be possible at the general level, or at the basic

16
Gaus (2006).

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184 Comparative contract law

structure level. In order to show that, I need to introduce a crucial


distinction between fine-grained explanations and explanations of the
principle.

VI. EXPLANATION OF THE PRINCIPLE AND A


SECOND DEFINITION OF SPONTANEOUS ORDER
Although Hayeks account of the evolution of norms provides several and
decisive reasons for relying on existing sets of rules, it does not exclude
the possibility of prescriptive judgements on how to improve the overall
order of actions even in the absence of a detailed knowledge. Such
evaluation is made possible by Hayeks distinction between explanations
of the principle and detailed or fine-grained explanations. Specifically,
fine-grained explanations of complex systems, such as political orders,
require that we have at our disposal distinct elements whose action in
different circumstances is known irrespective of the particular model in
which we use them.17 Hence, all explanations concerning complex
systems must possess some degree of generality since [t]he model might
reproduce only the few common features of a great variety of phenom-
ena, or it may reproduce a much larger number of features common to a
smaller number of instances.18 The degree of generality, though, is not
simply the result of an agents choice but is also dictated by an
epistemological constraint, which impedes us from giving meaningful
detailed explanations of complex systems. Such constraint constitutes one
of Hayeks most relevant contributions to epistemology and consists in
the logical necessity, for any apparatus of class