WHY CONTRACTS SCHOLARS SHOULD READ LEGAL PHILOSOPHY: POSITIVISM, FORMALISM, AND THE SPECIFICATION OF RULES IN CONTRACT LAW

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1 WHY CONTRACTS SCHOLARS SHOULD READ LEGAL PHILOSOPHY: POSITIVISM, FORMALISM, AND THE SPECIFICATION OF RULES IN CONTRACT LAW Curtis Bridgeman * CONTENTS I. Formalism and Anti-Formalism in Contract Law II. Legal Positivism as a Functional Account of Law III. The Promise Theory of Contract as Norm-Sensitive Contract Law IV. Guiding With Vague Rules: The Role of Specification in Jurisprudence V. Context-Sensitive Laws: The Problem of Specification-Avoidance Conclusion: A Note of Caution and Optimism INTRODUCTION After being embattled for most of the twentieth century, formalism is on the rise again in contract law. Very roughly, formalism is the view that legal rules are legally binding because of their form because they are rules, rather than because of their content or any substantive justification for the rules. 1 Opponents of formalism often complain that rigid adherence to rules for the sake of rules too often leads to injustice, either because the rules may not comport with the requirements of justice, fairness, or morality, or because the rules, though perhaps justified as a general matter, lead to injustice when applied in particular cases. In contract law, formalism covers such a wide range that it is * James Edmund and Margaret Elizabeth Hennessey Corry Professor of Law, Florida State University College of Law. Earlier drafts of this work benefited from feedback from numerous people, including participants in workshops at Ohio State University, the Benjamin N. Cardozo School of Law, American University, the University of Florida, and Florida State University. Particular thanks for comments and/or conversation go to Peter Alces, Amitai Aviram, Brian Bix, Mark Fenster, Larry Garvin, Richard Gerberding, Andrew Gold, Bob Hillman, Alexandra Klass, Wayne Logan, Mark Movsesian, Dennis Patterson, Stefan Sciaraffa, Scott Shapiro, Paul Shupack, and Manuel Utset. Special thanks to Karen Sandrik for invaluable research assistance. 1 Frederick Schauer, Formalism, 97 YALE L.J. 509, (1988). 1443

2 1444 CARDOZO LAW REVIEW [Vol. 29:4 difficult to state succinctly what exactly it means to be a formalist. The so-called classical contract law of the late-nineteenth and earlytwentieth centuries was highly formalistic. 2 During that era there were several barriers to the enforcement of broken promises, even when there was good evidence that the promise was made, and that the promisor was under a moral duty to keep it (perhaps because the promisee had relied upon it). Contract law was a set of rigid rules, many of which (e.g., the consideration doctrine, the mailbox rule, offer-and-acceptance, the unenforceability of indefinite terms, the parol evidence rule) seemed only to have historical pedigree to recommend them. It did not help when Christopher Columbus Langdell, the don of the classical period in American contract law and the paradigmatic formalist figure, in arguing for his own preferred version of the mailbox rule, claimed that it was irrelevant that it might produce unjust and absurd results. 3 The rule was the rule. The realist movement of the mid-to-late-twentieth century was an assault on formalism across the law, and contract was no exception. 4 Reformers whittled away at contract s old formal requirements in favor of more flexibility, starting with the drafting of the first Restatement of Contracts and its inclusion of promissory estoppel, in effect an exception to the consideration doctrine. Most notably, the Uniform Commercial Code s (U.C.C. s) Article 2 on the sale of goods, drafted primarily by the realist Karl Llewellyn, 5 relaxed many of the classical rules, including offer-and-acceptance, the parol evidence rule, and the definiteness requirement. 6 Eager to find a contract, the U.C.C. sees offers as inviting acceptance in any reasonable manner unless clearly stated otherwise; invites (in effect) all evidence that does not contradict the writing to supplement the written terms; and will supply almost any missing term in a contract except quantity, including even a reasonable price if one is not stated. 7 Moreover, Article 2 includes a host of default rules that are deemed part of all contracts for the sale of goods unless the contract specifically states otherwise. As a result, in the best-case scenario, the parties are happily saved the trouble of including terms they would have written themselves; in the worst-case 2 Mark L. Movsesian, Formalism in American Contract Law: Classical and Contemporary, 12 IUS GENTIUM 115, 116 (2006) (describing the formalist era in American contract law that occurred [f]or about 60 years after 1870 ). 3 C.C. LANGDELL, A SELECTION OF CASES IN THE LAW OF CONTRACTS (2d ed. 1897). 4 In fact, since two of the people most identified with formalism, Langdell and Samuel Williston, were contracts scholars, contract law is perhaps more identified with formalism than any other area of the law. 5 WILLIAM TWINING, KARL LLEWELLYN AND THE REALIST MOVEMENT 271 (1973). 6 See, e.g., U.C.C (2003) (offer and acceptance); (same); (same); (parol evidence); (indefiniteness); (same). 7 Id

3 2008] POSITIVISM IN CONTRACT LAW 1445 scenario the parties later discover themselves saddled with terms they never even considered at the time of drafting. (In between are those cases where parties who know about the default rules but do not want them draft around them in their contract.) While Langdell (allegedly) 8 saw unjust or absurd results as irrelevant, the drafters of the U.C.C. took pains to avoid them, often by including normative language in the rules themselves. Every contract is said to include a requirement of good faith and fair dealing. And one can hardly find a page in the text of the U.C.C. that does not include the term reasonable, commercially reasonable, reasonable under the circumstances, or something similar. The general strategy was not only to avoid absurd results, but also to incorporate the norms and practices from relevant industries and to pay special attention to the circumstances of the parties involved. While classical contract law was accused of mechanically applying rules that had little to do with justice or even reason, and which often led to injustice in particular cases, the U.C.C. and Second Restatement refer explicitly to norms such as reasonableness in the rules themselves, and to the particular circumstances of the parties involved. The Second Restatement of Contracts later followed suit, echoing much of the informal language of the U.C.C. 9 Over the last two decades, many have argued that modern antiformalism in contract law goes too far, and that its flexibility has led to too much uncertainty and increased litigation costs. 10 Judge Kozinski of the Court of Appeals for the Ninth Circuit claimed in frustration that under the law of California: even when the transaction is very sizeable, even if it involves only sophisticated parties, even if it was negotiated with the aid of counsel, even if it results in contractual language that is devoid of ambiguity, costly and protracted litigation cannot be avoided if one party has a strong enough motive for challenging the contract. While this rule creates much business for lawyers and an occasional windfall to some clients, it leads only to frustration and delay for most litigants and clogs already overburdened courts. 11 In response, some courts have arguably moved back toward a more formalistic approach (to the consternation of some commentators, who claim the rigidity of formalism leads to injustice in particular cases), 12 8 In fact, Langdell s approach was much more complicated than this one quotation that is frequently cited by his critics would suggest. See infra note 29 and accompanying text. 9 See generally RESTATEMENT (SECOND) OF CONTRACTS (1981). 10 See infra note Trident Ctr. v. Conn. Gen. Life Ins. Co., 847 F.2d 564, (9th Cir. 1988). 12 See Ralph James Mooney, The New Conceptualism in Contract Law, 74 OR. L. REV (1995); see also Movsesian, supra note 2, at 115 ( It is a truth universally acknowledged, that we live in a formalist era. ).

4 1446 CARDOZO LAW REVIEW [Vol. 29:4 though the evidence for such a movement in the courts is debatable. 13 Trends in the courts aside, there has certainly been a renewed discussion of formalism in legal scholarship. 14 Complaining about antiformalism, however, is not the same as arguing for a return to formalism. Aside from a notable push from some law-and-economics scholars, 15 no one has developed a sustained argument for a return to formalism in contract law, despite the apparent flaws of modern, informal contract law. The aim of this paper is to present such an argument. The strategy is to do something rarely done in contracts scholarship: take a step back to consider contract law as a form of law, that is, to consider what law is in general and why we have it, before narrowing the focus to contract law. There is a well-developed body of literature in the philosophy of law dealing with such questions, and it has been a mistake for contracts scholars to ignore this literature when dealing with such fundamental questions as the conflict between substance and form in contract law. 16 This paper will draw from that literature for insights that can be useful to contracts scholars, and it will eventually argue that contract law should return to a higher degree of formalism. My argument will proceed as follows. In Part I, I will explain in more detail what the term formalism means, a task that is difficult enough in itself. I will argue that we can usefully divide complaints about formal contract law into two main groups. In the first group fall the claims that the rules of contract law often bear little relationship to justice or morality, a charge that I will call norm insensitivity. In the second group we find claims that some rules, though justified as a general matter, lead to injustice in particular cases, a charge I call context insensitivity. Modern, informal, contract law addresses the first group by adding normative content to the rule itself and the second group by making the content of the rule itself depend on the circumstances. In Part II, I will very briefly describe a leading branch of legal philosophy, legal positivism. While formalism is the view that rules are binding because of their status as rules, positivism, roughly speaking, is the view that legal rules are social artifacts. This claim opens the door to the objection that there could be valid laws that are morally reprehensible, unjust, or unfair. In that sense, positivism also allows for the possibility that law can be norm-insensitive. In trying to figure out 13 See Robert Hillman, The New Conservatism in Contract Law and the Process of Legal Change, 40 B.C. L. REV. 879 (1999). 14 See, e.g., Symposium, Formalism Revisited, 66 U. CHI. L. REV. 527 (1999); Thomas C. Grey, The New Formalism (Stanford Law Sch., Pub. Law & Legal Series, Working Paper No. 4, 1999), available at 15 See infra notes 159, 160, 162 and accompanying text. 16 See infra Part II.

5 2008] POSITIVISM IN CONTRACT LAW 1447 whether it makes sense to have formal legal rules that are binding irrespective of their content, it makes sense to ask why the positivists would see the validity of law as having nothing to do with its content. The answer the positivists give is instructive. Law performs a valuable function: it settles disputes about moral or prudential matters, thereby making society possible in the face of disagreements among its members. In particular, Part II will draw from some very thoughtful recent work in the positivist tradition called the planning theory of law, according to which law is meant to solve the problems associated with people living in unplanned communities. It does so by promulgating plans. Just as in our own everyday practical reasoning, these plans are very often initially partial, with the details then filled in over time. Many important legal questions may be usefully thought of as involving how government can best accomplish this process of filling in plans, and whom it should trust to do so. With a basic understanding of formalism in place, and a basic understanding of the positivists functional account of law, in Part III we can finally turn to evaluating the informalities of modern contract law. The anti-formalist solution to formal law s norm-insensitivity was to refer to norms specifically in the law itself. However, this approach raises a potential problem, which I illustrate with the simpler example of the promise theory of contract. The promise theory holds that the law of contract is based on our moral duty to keep our promises. 17 It might seem at first that such an inclusion of moral terms in legal rules would disqualify them as law. We learned from the positivists that law is meant to settle disputes about controversial issues such as moral duty, and therefore it might seem that a rule that referred to the moral duty itself could not thereby be law. This imagined objection is based on a misguided understanding of positivism, as I will show. However, positivism is a theory of what law is, not what it should be. A norm-laden theory like the promise theory, or modern contract law (with its ubiquitous references to justice, reasonableness, good faith, etc.) can still be a theory of law. But what we want to know is whether such a law would be a good law. Although positivism does not directly answer that question, the lesson from positivism is that we have law in order to guide conduct in the face of disagreement. Vague, norm-laden rules can, in principle, provide reasons for legal actors, but it seems such rules would be unable to provide effective guidance. Just because they qualify as law does not mean they are good law, the kind of law we would want. It seems they would leave us with just as much disagreement as before. To see how such norm-laden rules could be not only valid but also 17 CHARLES FRIED, CONTRACT AS PROMISE: A THEORY OF CONTRACTUAL OBLIGATION 1 (1981).

6 1448 CARDOZO LAW REVIEW [Vol. 29:4 effective law, we will return in Part IV to the planning theory of law. According to the planning theory, laws are plans that guide behavior, but they are often initially vague or partial plans. 18 Their incompleteness alone does not render them ineffective, provided that there is a procedure for further specifying the plans over time. The common law, for example, contained many vague terms, such as the rule that immoral contracts are not to be enforced. 19 Over time, however, the rule was further specified, so that the law eventually told citizens which contracts it considered immoral. 20 Of course, what the best way to go about specifying such rules is and who are the best people to fill in those plans are still open questions. And in fact, we can understand many of the anti-formalists criticisms of the common law and the so-called new-formalist criticisms of the anti-formalists as an attempt to decide who should be trusted to specify initially partial legal rules. Wherever one comes out in these debates, there remains an objection to modern, informal contract law that cannot be so easily addressed, as I will show in Part V. Rules that specifically refer to vague norms in order to avoid norm-insensitivity might still effectively guide conduct if there is a good procedure for specifying the content of those norms. But some of the anti-formalist reforms were aimed not just at norm-insensitivity, but at context-insensitivity. Again, contextinsensitivity describes a case where the application of a rule leads to injustice for particular parties in their situation, perhaps despite justification for the rule in most cases. The response to contextinsensitivity was to make legal rules depend on the particular circumstances or context of the parties. Such rules also fail to guide conduct, in that the parties engaged in a dispute already disagree about what their context requires. And unlike the inclusion of vague norms in legal rules, rules that refer to context cannot be specified except on a case-by-case basis. Parties eventually receive guidance, but only by 18 See Scott J. Shapiro, Laws, Plans, and Practical Reason, 8 LEGAL THEORY 307 (2002) [hereinafter Shapiro, Laws, Plans, and Practical Reason]; Scott J. Shapiro, Interpretation and the Economy of Trust (unpublished manuscript, on file with author) [hereinafter Shapiro, Interpretation and the Economy of Trust]. 19 See RESTATEMENT OF CONTRACTS 512 (1932) ( A bargain is illegal... if either its formation or its performance is criminal, tortious, or otherwise opposed to public policy. ); see also RESTATEMENT (SECOND) OF CONTRACTS 178 (1981) (stating that a promise or term within an agreement may be unenforceable if it is against public policy). 20 For example, in one section alone in the Second Restatement (and there are several similar sections), six comments with nineteen illustrations are used to demonstrate what is and what is not an immoral promise. RESTATEMENT (SECOND) OF CONTRACTS 178. One such illustration found in section 178 is as follows: 11. A promises to pay B, a competitor, $10,000 if he will refrain from competing with A for a year. Although B s refraining from competing with A would not in itself be improper, A s promise unreasonably tends to induce B to refrain from competition ( 186) and is unenforceable on grounds of public policy.

7 2008] POSITIVISM IN CONTRACT LAW 1449 litigating each case. The problem is not only that such rules are partial plans that need to be specified, but also that they are actually designed to resist specification in any manner other than on a case-by-case basis. Making them resistant to specification in this way gives away much of the benefit gained by planning, and by having law in the first place. We would be better off returning to the more formal rules of classical contract law, such as a more strictly enforced parol evidence rule. I. FORMALISM AND ANTI-FORMALISM IN CONTRACT LAW Defining formalism is a tricky task. As stated above, most fundamentally, formalism is the view that rules are legally binding because they are rules rather than because of any substantive justification for them. 21 Historically, the term formalism has meant more than that, but exactly what it meant is far from clear. 22 The traditional definition offered is the familiar caricature of classical formalism as mechanical jurisprudence. 23 Because two of the early alleged purveyors of this jurisprudence were contracts scholars Christopher Columbus Langdell and Samuel Williston mechanical jurisprudence is often associated with contract law in particular, though the relationship between classical formalism and contract law may go no deeper than the alleged common parentage. 24 According to so-called mechanical jurisprudence, legal adjudication is a matter of logical deduction, of moving mechanically or automatically from category or concept to conclusion, without consideration of policy, morality, or practice. 25 This brand of formalism is often associated with transcendentalism; that is, it is often thought to be based on first principles or abstract truths, perhaps from natural law, that can be known a priori. 26 At the very least, even if such legal principles were 21 Schauer, supra note There is, unfortunately, general agreement that the term is, or until recently was, used almost exclusively as a pejorative. See, e.g., BRIAN H. BIX, A DICTIONARY OF LEGAL THEORY 69 (2004) ( The term [ formalism ] is usually used in a pejorative sense.... ); ERNEST J. WEINRIB, THE IDEA OF PRIVATE LAW 22 (1995) ( In contemporary academic discussion, formalism is a term of opprobrium. ); Grey, supra note 14, at 1 ( It has long been an insult in sophisticated legal circles to call someone a formalist. ). 23 See, e.g., Roscoe Pound, Mechanical Jurisprudence, 8 COLUM. L. REV. 608 (1908); Felix S. Cohen, Transcendental Nonsense and the Functional Approach, 35 COLUM. L. REV. 809, 821 (1935); Duncan Kennedy, Legal Formality, 2 J. LEGAL STUD. 351, 359 (1973). 24 The most prominent non-contract-law classical formalist was Joseph Beale, who is known primarily for his work on conflict of laws. For an excellent discussion of classical formalism and the misconceptions about it, see ANTHONY J. SEBOK, LEGAL POSITIVISM IN AMERICAN JURISPRUDENCE (1998). 25 BIX, supra note 22, at See SEBOK, supra note 24, at

8 1450 CARDOZO LAW REVIEW [Vol. 29:4 not claimed to be part of some mystical absolute, 27 they had no obvious connection to the real world. Grant Gilmore uncharitably credited Langdell with the great theory that law is doctrine and nothing but doctrine pure, absolute, abstract, scientific a logician s dream of heaven. 28 The idea that anyone of note ever really held such an extreme view is a myth that has now thankfully been largely debunked by more careful thinkers. 29 Today one finds a variety of proposed definitions of formalism, 30 many of which are in tension, if not outright conflict, with one another. None of these definitions has anything to do with contract law in particular. In contract law and literature about contract law, complaints about formalism gradually centered on decisions not to enforce a contract or to read a contract a certain way. Critics complained about laws that prevented outcomes thought to be more reasonable, more fair, or a more accurate reflection of the intentions of 27 GRANT GILMORE, THE DEATH OF CONTRACT (1974). 28 Id. at SEBOK, supra note 24, at (arguing that formalism as understood by its realist critics was actually invented by those same critics and was unfairly attributed to Langdell and Beale); Thomas C. Grey, Langdell s Orthodoxy, 45 U. PITT. L. REV. 1, (1983) (arguing that classical legal orthodoxy, in particular that of Langdell, was not deductive or mechanical but rather inductive in the spirit of John Stuart Mill s understanding of logic); Mark L. Movsesian, Rediscovering Williston, 62 WASH. & LEE L. REV. 207 (2005) (arguing that the typical understanding of Williston s contracts theory as rigid and overly deductive fails to appreciate a strong pragmatic element in his work); see also RONALD DWORKIN, TAKING RIGHTS SERIOUSLY (1977) ( The theory that there are such rules and chains [anti-formalists] call mechanical jurisprudence, and they are right in ridiculing its practitioners. Their difficulty, however, lies in finding practitioners to ridicule. So far they have had little luck in caging and exhibiting mechanical jurisprudents (all specimens captured even Blackstone and Joseph Beale have had to be released after careful reading of their texts). ); Movsesian, supra note 2 (distinguishing classical formalism from new formalism and arguing that the pragmatic element of classical formalism has been underappreciated). 30 See, e.g., Grey, supra note 29, at 8 ( A legal system is formal to the extent that its outcomes are dictated by demonstrative (rationally compelling) reasoning. ) (emphasis in original); Larry Alexander, With Me, It s All er Nuthin : Formalism in Law and Morality, 66 U. CHI. L. REV. 530, 531 (1999) ( By formalism I mean adherence to a norm s prescription without regard to the background reasons the norm is meant to serve (even when the norm s prescription fails to serve those background reasons in a particular case). ); Brian Leiter, Positivism, Formalism, Realism, 99 COLUM. L. REV. 1138, 1145 (1999) (defining formalism as the descriptive theory of adjudication according to which the class of legal reasons justifies one and only one outcome to a legal dispute and judges have no discretion in adjudicating cases); William Eskridge, Jr., The New Textualism, 37 UCLA L. REV. 621, 646 (1990) ( Formalism posits that judicial interpreters can and should be tightly constrained by the objectively determinable meaning of a statute... ); WEINRIB, supra note 22, at 24 (arguing that formalism is the view that the law is rational, immanent, and normative, and that each of these qualities are related such that the law has each only insofar as it has the other two ); Schauer, supra note 1, at 510 ( At the heart of the word formalism, in many of its numerous uses, lies the concept of decisionmaking according to rule. ) (emphasis in original); ROBERT S. SUMMERS, FORM AND FUNCTION IN A LEGAL SYSTEM A GENERAL STUDY 1, 5 (2006) (developing a theory of law that emphasizes form, where [t]his overall form is defined here as the purposive systematic arrangement of the unit as a whole its organizational essence, and is to be further analyzed in terms of its constituent features, and their inter-relations ).

9 2008] POSITIVISM IN CONTRACT LAW 1451 the parties. 31 An early example of a debate over formal requirements in contract law is the famous debate over promissory estoppel and the consideration doctrine during the drafting of the First Restatement of Contracts. 32 As any first-year law student can attest, contracts generally are not enforceable absent some form of consideration, i.e., something for which a promise was exchanged. 33 A promise to make a gift without receiving anything in return (a gratuitous or donative promise) would not be enforceable. The consideration doctrine might be seen as legal formalism in the sense that the operation of a legal rule prevents certain arguments about what justice might require. 34 The promisor may well have a moral duty to keep her promise, and the promisee may even be a victim of an injustice if she does not (especially if the promisee has relied to her detriment). But without meeting the formal requirement of a bargained-for exchange, the law would not provide a remedy. 35 These sorts of restrictions were maddening to the antiformalists, who saw no reason that courts should fail to provide justice just for the sake of strict adherence to rules, especially when the justification for a rule like the consideration doctrine was a matter of some debate. 36 Grant Gilmore, perhaps the most vocal (and quotable) critic of classical formalism in contract law, is a particularly good example of such an anti-formalist. Gilmore conjectured that classical contract theory seemed to have been dedicated to the proposition that, ideally, no one should be liable to anyone for anything. 37 That was apparently the only explanation Gilmore could imagine for the seemingly arbitrary barriers to the enforcement of contracts erected by the classical view. The consideration doctrine was the balance-wheel of the great machine, 38 according to Gilmore, a machine he was tempted to call monstrous. 39 This balance wheel of consideration was practically invented, or at the very least newly reformulated and put to some hitherto unsuspected uses by Holmes, Langdell, and Williston. 40 But it 31 See David Charny, The New Formalism in Contract, 66 U. CHI. L. REV. 842, 842 (1999). 32 See GILMORE, supra note 27, at See RESTATEMENT OF CONTRACTS 75 (1932); RESTATEMENT (SECOND) OF CONTRACTS 75 (1981). 34 For a famous discussion of the consideration doctrine as a legal formality, see Lon L. Fuller, Consideration and Form, 41 COLUM. L. REV. 799 (1941). 35 See RESTATEMENT OF CONTRACTS 75; RESTATEMENT (SECOND) OF CONTRACTS See generally Fuller, supra note 34; GILMORE, supra note 27. The debate on this topic continues in the present era. Compare FRIED, supra note 17, at with Peter Benson, The Unity of Contract Law, in THE THEORY OF CONTRACT LAW 118, (Peter Benson, ed., 2001). 37 GILMORE, supra note 27, at Id. at Id. at Id. at 18.

10 1452 CARDOZO LAW REVIEW [Vol. 29:4 had nothing to do with the real world; instead, it was an ivory tower abstraction... [whose] natural habitat was the law schools By the early part of the twentieth century, some courts had begun to use the doctrine known as promissory estoppel to enforce donative promises made to charities if the promise had induced reasonable, detrimental reliance on the part of the promisee. 42 Anti-formalists, most of whom opposed the consideration doctrine as a bar to the enforcement of promises, favored a broadening of promissory estoppel so that it would be available generally and not just for promises made to charities. 43 Formalists resisted inclusion of promissory estoppel in the First Restatement. 44 Although the consideration doctrine was preserved in Section 75 of the Restatement, a broad (in the sense that it was not limited to claims by charities) promissory estoppel remedy was added in Section The inclusion of promissory estoppel was a more significant triumph for the anti-formalists than it might at first seem. In practice promissory estoppel limits the consideration doctrine, a legal rule the point and purpose of which were a mystery to many scholars, most of whom attributed its existence in contract law more to historical accident 46 than to its justification. 47 But Section 90 struck a blow for anti-formalism in a more general way as well. It called for relied-upon promises to be enforced to avoid injustice. 48 There is no bright-line test 41 Id. 42 See Allegheny Coll. v. Nat l Chautauqua County Bank, 159 N.E. 173 (N.Y. 1927) (citing cases). The justification for the promissory estoppel doctrine was that having made the promise in a situation when she knew it might induce the promisee to rely to his detriment, the promisor ought to be estopped from asserting the consideration doctrine as a defense when the promisee does so rely. The doctrine is a cousin to the doctrine of equitable estoppel, according to which one who asserts a fact at one time may, under some circumstances, be estopped from denying that fact later. 43 GILMORE, supra note 27, at Id. 45 Gilmore claimed that Williston opposed the inclusion of promissory estoppel but was talked into it by Corbin; this claim has been taken to be received wisdom. Id. More recently, however, Mark Movsesian has argued persuasively that unlike other formalists, Williston himself was always in favor of promissory estoppel as a safety valve to the consideration doctrine. Movsesian, supra note 24, at Indeed, Gilmore implies rather strongly that it may have been no accident: It seems apparent to the twentieth century mind, as perhaps it did not to the nineteenth century mind, that a system in which everybody is invited to do his own thing, at whatever cost to his neighbor, must work ultimately to the benefit of the rich and powerful, who are in a position to look after themselves and to act, so to say, as their own self-insurers. GILMORE, supra note 27, at See, e.g., id. at 19-37; see also FRIED, supra note 17, at See RESTATEMENT OF CONTRACTS 90 (1932) ( A promise which the promisor should reasonably expect to induce action or forbearance of a definite and substantial character on the part of the promisee and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise. ) (emphasis added).

11 2008] POSITIVISM IN CONTRACT LAW 1453 in such a rule, no test that could be applied mechanically. Instead, by referring explicitly to the requirements of justice, Section 90 favors flexibility over rigidity, attempts to make legal rules comport with just outcomes, and seeks to avoid institutional barriers to such outcomes. Presumably the term justice also puts pressure on judges to reach just outcomes, rather than mechanically applying rules in order to avoid controversial moral questions, or, worse yet, to reach an arbitrarily desired outcome. The Second Restatement went even further, adding that the remedies for breach in promissory estoppel may also be limited as justice requires, meaning that there is not even a bright-line formula for calculating damages in promissory estoppel cases. 49 Later in the twentieth century, other formal rules of contract came under attack. Perhaps the best example is the parol evidence rule. In its classical form, once an agreement had been reduced to writing, the parol evidence rule prevented introduction of evidence about the content of the agreement beyond that writing itself. 50 Thus, even in the face of extremely compelling factual evidence that a promisor s promise included an act not expressed in the writing, courts would not allow such evidence if it had not been included in the written agreement. 51 Like the consideration doctrine, the parol evidence rule was an example of a legal rule standing in the way of what would otherwise be considered a just outcome. Of course, in the case of the parol evidence rule, the justification for the rule itself was perhaps more straightforward than the justification for the consideration doctrine, 52 but in any given case the rule was to be applied irrespective of the justification for the rule. For formalists, the applicability of a rule is not determined by weighing its justification against the desirability of an outcome in a particular case. Over the course of the twentieth century, however, the parol evidence rule was gradually whittled away by exceptions. 53 By the midtwentieth century, the classical version of the parol evidence rule was in such disfavor that Karl Llewellyn, a protégé of Arthur Corbin and a paradigmatic realist and anti-formalist, was able to do away with it almost entirely in drafting Article 2 of the U.C.C. 54 Rather than 49 See RESTATEMENT (SECOND) OF CONTRACTS 90 (1981) ( The remedy granted for breach may be limited as justice requires. ). 50 More precisely, the parol evidence rule excluded evidence about matters covered in the agreement, and (in its earliest, most formal version) evidence about any matters, if the writing appeared to be fully integrated, that is, if it appeared from the writing that the writing was a full expression of the agreement. JOSEPH M. PERILLO, CALAMARI AND PERILLO ON CONTRACTS (5th ed. 2003). 51 The casebook chestnut Mitchhill v. Lath is a famous example. 160 N.E. 646 (N.Y. 1928). 52 For the standard policy justifications for the rule, see PERILLO, supra note 50, at Id. at See Century Ready-Mix Co. v. Lower & Co., 770 P.2d 692, 697 (Wyo. 1989) ( [T]he [U.C.C.] parol evidence rule is intended to liberalize the rigidity of the common law and to

12 1454 CARDOZO LAW REVIEW [Vol. 29:4 excluding anything not in the writing, the U.C.C. invites evidence not only of prior communications between the parties, but also of industryspecific customs, both to explain and to supplement written contracts. 55 The only limitation is that the proposed evidence may not contradict the written contract, and even that slim constraint has been eroded in some rather dubious decisions. 56 As the official comments to the U.C.C. explain, these rules are designed to ensure that the true understanding of the parties as to the agreement may be reached. 57 Stating a goal of reaching the parties true understanding when interpreting contracts would seem banal without the previous decades of debate over the parol evidence rule and its role as a frequent obstacle to such understandings. Clearly, Llewellyn and the other Article 2 drafters did not want form to preclude an examination of substance, substance in these circumstances meaning an accurate reading of the parties actual understanding of their agreement at the time of contracting. These two examples the inclusion of promissory estoppel as a limit on the consideration doctrine and the whittling away of the parol evidence rule illustrate two distinct but related themes in antiformalism. The first is a complaint that sometimes legal rules, especially legal rules inherited through the historical accidents of common-law development, can often be insensitive to concerns of justice, fairness, or morality, concerns that may be termed normative. Doctrines like the consideration doctrine provide seemingly arbitrary barriers to the enforcement of promises, often even in the face of normative concerns. 58 Promissory estoppel provides a normative safety valve. It is not only an exception to the consideration doctrine, it is an exception that is applied as justice requires. 59 The strategy is to avoid what might be called norm-insensitivity by including normative content in the law itself. And, in fact, this theme has become common in modern contract law. Modern contract law contains many more direct references to norms than classical contract law did, both in the eliminate the presumption that a written contract is a total integration. ). Recall, too, Judge Kozinski s now famous complaint about the ineffectiveness of the U.C.C. s parol evidence rule. See supra note 11 and accompanying text. 55 U.C.C (2003). 56 Perhaps the most infamous is Hunt Foods & Industries, Inc. v. Doliner, 270 N.Y.S.2d 937 (App. Div. 1966) (holding that a written agreement giving the plaintiff an option to purchase the defendant s stock was not inconsistent with an alleged oral agreement that the option to purchase would be conditional on the grounds that the writing did not specifically claim to be free of conditions). For a criticism of Hunt Foods, as well as a discussion of different approaches in similar cases, see JAMES. J. WHITE & ROBERT S. SUMMERS, UNIFORM COMMERCIAL CODE (5th ed. 2000). 57 U.C.C cmt Another oft-cited example is contract s mailbox rule. See supra note 6 and accompanying text. 59 Calabro v. Calabro, 15 S.W.3d 873, 878 (Tenn. Ct. App. 1999); see also RESTATEMENT (SECOND) OF CONTRACTS 90 (1981).

13 2008] POSITIVISM IN CONTRACT LAW 1455 U.C.C. s Article 2 and in the Second Restatement. For example, note the many references to the requirements of reasonableness, 60 justice, 61 and the now statutorily ubiquitous duty of good faith and fair dealing. 62 To the extent that rules overtly refer to norms such as justice or fairness, even formal application of these rules should not result in unreasonable outcomes, injustice, or unfairness. The second, related complaint is that rigid application of rules like the parol evidence rule, rules which may be perfectly justifiable at some level of generality, can lead to injustice in particular cases for particular parties. While one may readily understand the prima facie justification for a rule like the parol evidence rule, in its classical form it was thought to be too blunt an instrument. 63 Courts were asked to ignore strong evidence about what justice might require in the particular case in front of them, all for the sake of a rule justified as a means of excluding likely weak evidence. If a rule does not allow a court to consider the specific circumstances of the case in front of it and to notice the way in which those circumstances might make application of the rule unjust in the given case, we might call that rule context insensitive. The solution to norm-insensitivity was to refer to the norm in the rule. The corresponding solution to context-insensitivity was, obviously, to refer to the context in the rule. In the case of the parol evidence rule, the U.C.C. specifically directs courts to pay attention to the particular circumstances of the case. 64 Language is to be read in the commercial context in which it is used. 65 If courts find no contradiction with the text, they are to look at course of dealing, course of performance, and usage of trade to interpret or even supplement an agreement. 66 And if the course of dealing, course of performance, and usage of trade conflict, courts are to weigh them in that order, 67 with the factors more specific to the context of the contract 68 trumping the less specific ones, such as prior dealings on other contracts between the 60 See, e.g., U.C.C ( Words or conduct relevant to the creation of an express warranty... shall be construed wherever reasonable... ); id (the buyer may recover as damages... as determined in any manner which is reasonable). 61 See, e.g., RESTATEMENT OF CONTRACTS 90, RESTATEMENT (SECOND) OF CONTRACTS 90; U.C.C U.C.C (explaining that the U.C.C. imposes an obligation of good faith in its performance and enforcement ); see also RESTATEMENT (SECOND) OF CONTRACTS 184 (requiring that a party seeking partial enforcement of an otherwise unenforceable agreement be acting in good faith and in accordance with reasonable standards of fair dealing ). 63 See, e.g., E. ALLAN FARNSWORTH, FARNSWORTH ON CONTRACTS 7.2 (2d ed. 1998); PERILLO, supra note 50, at U.C.C Id cmt 1(b). 66 Id. 67 Id (b). 68 Id

14 1456 CARDOZO LAW REVIEW [Vol. 29:4 parties 69 and the industry standards for similar contracts and similar parties. 70 All of this is established in order to find the true understanding of the parties. 71 There are many other examples in both the U.C.C. and the Second Restatement where particular attention is called to the particular context or circumstances in which the agreement took place. 72 Sometimes norm-insensitivity is addressed simultaneously with context-insensitivity, as when the statute calls for an outcome that is reasonable under the circumstances. Eventually, I will argue that addressing norm-insensitivity by including norms in the rules is a problematic, though perhaps workable, solution, but that addressing context-insensitivity by including references to context in the rule is unacceptable. My argument is based not on the empirical question of which set of rules would maximize welfare, as most recent criticisms of anti-formalism have been. 73 Instead, my argument proceeds from a certain understanding of what law most fundamentally is, and what function it performs. In the next section, I will briefly describe the family of views known as legal positivism. It is beyond the scope of the paper to argue for positivism. Instead, I will use its conclusions as a starting point. Its basic claim is that law is a social artifact, 74 and it follows from this that it is possible to have valid law that is morally objectionable. 75 It seems natural, therefore, to examine positivism when asking if rules should ever be binding just because they are rules without regard to their justification. Positivism is a descriptive account of what law is, not a claim about what law ought to be, but its arguments will be instructive nonetheless. 76 II. LEGAL POSITIVISM AS A FUNCTIONAL ACCOUNT OF LAW Defining legal positivism is as difficult as defining formalism, though in this case not for lack of explicit debate. For our purposes, we can start with the most basic definition: Legal positivism is the claim 69 Id (b). 70 Id (c). 71 Id cmt See supra notes See infra note 172 and accompanying text. 74 See Brian Leiter, Legal Realism, Hard Positivism, and the Limits of Conceptual Analysis, in HART S POSTSCRIPT: ESSAYS ON THE POSTSCRIPT TO THE CONCEPT OF LAW 355, 356 (Jules Coleman ed., 2001)[hereinafter HART S POSTSCRIPT]. 75 See id.; see also JOHN AUSTIN, THE PROVINCE OF JURISPRUDENCE DETERMINED LECTURE V 157 (Wilfrid E. Rumble ed., 1995) ( The existence of law is one thing; its merit or demerit is another. ). 76 Leiter, supra note 30, at 1150.

15 2008] POSITIVISM IN CONTRACT LAW 1457 that what counts as law is a matter of social fact. 77 The statement, Murder is against the law is true not because of a moral prohibition of murder, but rather because of certain facts about our legal conventions or practices. Legal positivists disagree about whether there can be any relationship between morality and law, 78 but they generally agree that valid laws give, or at least claim to give, citizens reasons for action (though not necessarily sufficient reasons) independently of the justification for those laws. 79 For the positivists this is true by definition that is, laws by their nature give so-called contentindependent reasons for action. 80 Positivism s emphasis on the content-independent force of rules has led to objections similar to those raised against legal formalism. 81 If the positivists are correct, there is no necessary check on the moral justifiability of a particular law or legal system. 82 The validity of laws is at least potentially, and perhaps necessarily, insensitive to the norms of morality. Depending on the legal system, the complaint, But that s obviously morally wrong, even if correct, may have no force in responding to a claim about a rule s legal validity. In order to appreciate why the positivists would adopt such a view of law, it is important to consider why we have law at all. Why not just allow parties to govern their actions according to what morality or prudence require? The answer usually given is the Hobbesian warning that in a society without law, individuals would pursue their own narrow self interest, murdering and stealing to suit their preferences. Since life in such a society would be solitary, poor[], nasty, brutish, and short, 83 Hobbes famously argued, it is rational for individuals even the powerful to give up certain rights in exchange for a more ordered society. 84 James Madison made the converse of this claim in the Federalist Papers, arguing that [i]f men were angels, no 77 JULES COLEMAN, THE PRACTICE OF PRINCIPAL 75 (2001); Leiter, supra note 74, at Hard or exclusive legal positivists argue that law and morality must as a conceptual matter be distinct, while soft or inclusive legal positivists argue that the test for what counts as valid law can in some way incorporate moral constraints if a society so chooses. Leiter, supra note 74, at Thanks to Jules Coleman, this tenet is now typically called the Practical Difference Thesis. See COLEMAN, supra note 77, at Scott J. Shapiro, On Hart s Way Out, in HART S POSTSCRIPT, supra note 74, at Ronald Dworkin has been the most famous and consistent critic of positivism. See, e.g., RONALD DWORKIN, TAKING RIGHTS SERIOUSLY chs. 2 & 3 (1977). For a useful discussion, see Scott J. Shapiro, The Hart-Dworkin Debate: A Short Guide for the Perplexed, in RONALD DWORKIN 22 (Arthur Ripstein ed., 2007). 82 Positivists disagree as to whether it is even possible for there to be such a moral test of legality. See supra note 78 and accompanying text. But all positivists agree, unlike natural-law theorists, that it is at least possible that there could be valid law that is morally unacceptable. 83 THOMAS HOBBES, LEVIATHAN 89 (Richard Tuck ed., 1991)(1660). 84 Id. at

16 1458 CARDOZO LAW REVIEW [Vol. 29:4 government would be necessary. 85 But there is more to the story than traditional Hobbesian handwringing about society in the state of nature. Recently, Larry Alexander, 86 and before him (to a lesser extent) Gregory Kavka 87 and John Rawls, 88 emphasized that we have law not just to keep others from acting like brutes. Rather, even if we all agree on an appropriate standard of behavior, disputes about the application of that standard to individual cases would be inevitable. 89 As Alexander puts it, the problem is not that people are not angels, but that they are not gods. 90 We might all agree, for example, on the principle all people are to be treated equally, but, lacking omniscience, disagree a great deal about how to apply that principle in any given case. Law is a system of rules that pre-empts debate about such topics in everyday life. Legal rules give us guides for action because of their status as law independently of their content, and thus we need not debate the merits of those rules in every instance in order to know how to act. Unfortunately, the rules sometimes lead to injustices in particular cases, but, according to Alexander, that is an inevitable dilemma of law. 91 Recent positivists have emphasized this epistemic function of law, i.e., that law informs citizens as to what conduct is and is not acceptable. 92 Joseph Raz argued that an essential feature of law is that it claims to be authoritative. 93 Law claims to mediate between reasons and persons. In the absence of law, people eventually would become embroiled in moral or prudential disputes about proper conduct. Law guides conduct by giving content-independent reasons for action. 94 As H.L.A. Hart noted, legal reasons are also peremptory, that is, they are not only content-independent, they also give a reason not to deliberate about content. 95 And according to Raz, in order for law to be an 85 THE FEDERALIST NO. 51, at 349 (James Madison) (Jacob E. Cooke ed., 1961). 86 Larry Alexander, Law and Formalism (San Diego Legal Studies Paper No , Oct. 2005), available at See generally Alexander, supra note 30; LARRY ALEXANDER & EMILY SHERWIN, THE RULE OF RULES: MORALITY, RULES, AND THE DILEMMAS OF LAW (2001). 87 Gregory S. Kavka, Why Even Morally Perfect People Would Need Government, 12 SOC. PHIL. & POL Y. 1 (1995). 88 JOHN RAWLS, POLITICAL LIBERALISM xviii-xxii, xxxix, (1993). 89 See also H.L.A. HART, THE CONCEPT OF LAW 128 (2d ed. 1994). 90 Alexander, supra note 86, at 25-27; Alexander, supra note 30, at 549; see also HART, supra note 89, at 128 ( Put shortly... the necessity for such choice [between open alternatives] is thrust upon us... because we are men, not gods. It is a feature of the human predicament... that we labor under two connected handicaps whenever we seek to regulate.... The first handicap is our relative ignorance of fact: the second is our relative indeterminacy of aim. ). 91 See ALEXANDER & SHERWIN, supra note See Shapiro, supra note 80, at JOSEPH RAZ, THE AUTHORITY OF LAW: ESSAYS ON LAW AND MORALITY 30 (1979). 94 Id. at 30-33; see also Leiter, supra note 74, at See H.L.A. HART, ESSAYS ON BENTHAM: JURISPRUDENCE AND POLITICAL THEORY (1982).

17 2008] POSITIVISM IN CONTRACT LAW 1459 authority, people must be able to determine what the law is without resorting to argument about what the law should be. The law must be capable of making a practical difference; that is, it must be capable of giving us a reason for action as law that we did not already have from underlying moral or prudential considerations alone. 96 As Scott Shapiro has put it, legal norms eliminate the problems that arise when nonofficials must answer all normative questions themselves and resolve all social controversies by themselves. 97 Of necessity, this very cursory account of legal positivism papers over many differences of opinion and decades of debates about the details. For example, leading positivists disagree over the important question whether it is ever possible for there to be a moral test for legality. 98 The exclusive legal positivists claim that laws must be completely identifiable by their human source or pedigree, while inclusive legal positivists claim that it is possible that a legal obligation could depend on moral facts if the appropriate legal officials have incorporated moral norms by reference in the appropriate way. 99 Despite such disputes, all legal positivists agree that it is at least possible to have valid yet morally reprehensible law. They also generally accept the claim that law is a social institution, one that gives citizens reasons for action in the face of moral or prudential disputes, and it does so in order to deal with the difficulties of social coordination in the face of inevitable disagreement. 100 In fact, even non-positivists sometimes emphasize the desirability of legal rules that give clear, predictable guidance to citizens. 101 Rather than dwell on these wellworn debates, I instead want to turn to some very recent work in the positivist tradition that may be of great help to us in contract law. In the last few years, Scott Shapiro has drawn on the work of the philosopher Michael Bratman to add a new direction to the positivist tradition. 102 Over the last two decades, Bratman has challenged the once-common view in philosophy that practical reasoning is means-end reasoning that can be explained completely in terms of an agent s beliefs and desires. 103 Bratman has shown that, in addition to desires, 96 See Shapiro, supra note 80, at Id. at Leiter, supra note 74, at The exclusive legal positivists are sometimes referred to as hard positivists, while the inclusive legal positivists are sometimes referred to as soft positivists. Id. 100 Shapiro, supra note 80, at See generally Lon L. Fuller, Positivism and Fidelity to Law A Reply to Professor Hart, 71 HARV. L. REV. 630 (1958). 102 See Shapiro, supra note 80; Shapiro, supra note MICHAEL E. BRATMAN, FACES OF INTENTION: SELECTED ESSAYS ON INTENTION AND AGENCY (1999) [hereinafter, BRATMAN, FACE OF INTENTION]; MICHAEL E. BRATMAN, INTENTION, PLANS, AND PRACTICAL REASON (1999) [hereinafter BRATMAN, INTENTION, PLANS, AND PRACTICAL REASON].