- Hi I'm Professor
Omri Ben-Shahar.
I am delighted to give this
first Chicago-based ideas talk
in its COVID-19 format in
which rather than talking about
our own--
kind of parading
our own research,
we talk about the
research of others
on the faculty,
especially something
that we think is particularly
important, interesting,
inspiring.
And so I had no
difficulty volunteering
to talk about the work of my
colleague, Lisa Bernstein.
The work who inspires me--
particular piece of
work that inspired
me to be a contract scholar.
I think Lisa knows how
much I admire that work,
and she's here with us.
And I hope I'm not
going to distort
too much my account of
it, but this was really
a formative work for me.
I was a young
professor, and it gave
me inspired me to do my own
work and to become interested
in contract law.
I will plan to
talk for about 20,
25 minutes describing the work--
Lisa's work and
that particular work
and what it led
me to think about,
and then if we have
time, we can open it
for discussion, comments.
So during the conversation,
I have your participants list
right here in
front of me, so you
can raise a hand if you want.
I will try to not pay
too much attention
to the chat functionality
at this point
so that I can focus on my own--
concentrate on my own words.
And again, I'm saying that if
you want to turn on the video,
you're more than welcome,
there are a lot of people here
who are probably having
lunch or doing other things,
but listening with the
second on the side.
You don't have to, but
please feel welcome.
OK.
So this is what the problem that
Lisa's work sought to address.
Everybody-- the most--
basic question in
contract law is, what
are the terms of the contract?
Of course, there is a
contract to look at,
and to answer that
question, but it
doesn't give a complete account
of all possible scenarios.
For example, many
contracts nowadays,
and every possible
contract nowadays,
has to be interpreted
in light of the COVID-19
circumstance that was not
anticipated when written.
Are people allowed to
walk away from contracts,
is there a risk
application that is
implicit in the language
of the contract?
We turn to interpretation.
And it would not
be an exaggeration
to say that almost all of
contract law disputes that
arise in courts or arbitration
involve interpretation
of the contract.
It's not about shrinkwrap,
it's not about this
or that, it's about what
does the contract say?
Now as we said,
the explicit terms
are usually incomplete--
we need gap-fillers.
Where do these come from?
Well, primarily from the law.
The law says, if
the parties did not
agree on who bears the risk
of loss during shipping,
let's look at UCC
and find that thing,
or if the parties did not
agree as to what exactly
the landlord is required to give
the tenant in terms of quality
of the utilities and so forth,
we can look to municipal laws
or local laws to
figure that out,
the law provides gap-fillers.
But these gap-fillers
are one size fits all.
They are the same
for all contracts.
So maybe we can do better.
Given that parties
vary, we can do better.
And I'm not trying--
this is not a preview
to my forthcoming book
on personalized law,
but rather, an idea
of finding gap-fillers
that fit these
parties and to look
at the context in which they
have been working until now.
The idea is now
widespread in law,
and that is to look at
the norms that govern--
the business norms
surrounding the contract.
First there might be some
practices in the market.
When a builder tells a
subcontractor, I need so many 2
by 4's, they refer to 2 by 4's
as understood in the trade.
Not exactly 2
inches by 4 inches,
it turns out that there
are 1 and 1/2 by 3 and 1/2.
But there is an understanding
in the field of what people mean
when they say use the language.
This is a type of norm.
There are also norms that
arise from the relationship
of the parties.
They have been-- they
know each other, they've
been dealing with
each other, and as you
look at their past
practices, you
can learn a lot as to
what they intended to do
when they wrote the contract.
The case for the argument in
favor of using these business
norms-- these imminent business
norms to interpret a contract
is almost a slam dunk.
Nobody ever disputed
it until Lisa.
But this idea has
been so attractive
and has been incorporated
into American law followed
by the rest of the world in
a way that it seems to be--
it is not an exaggeration
to say that the--
a case where it was unanimous.
It originates-- it
is also very much
consistent with the logic-- the
philosophy of legal realism.
Legal realism tells us, let's
dump old 19th century British
formalism of law, that things
have to do it exactly this way
and we have constricted and
look through their roles
to figure out what things--
let's broaden our look and see--
look at the world around us and
have that reflected in the law.
What better opportunity to
implement this philosophy
than in commercial
contexts where
you have commercial realities?
People in businesses and
people interact all the time,
that creates a reality.
This reality should reflect--
should be reflected in the
obligations of the parties.
We should look at the reality
of markets, of sectors,
of localities, of these
parties-- zoom in on these two
parties and look at their
20-year relationship
to understand what their
reality is and reflect
that in the contract.
So this has been-- this
idea, which is basically
the definition of
legal realism, has
been implemented into the
Uniform Commercial Code.
The chief drafter of Article 2
of the Uniform Commercial Code,
Karl Llewellyn, whom--
if this was my
contracts class, I
would tell you look
outside the class,
turn left, and see
his picture there
on the wall, a professor at
the university a long time ago,
and a very important legal
philosopher and commercial law
scholar--
led-- it is not that common
that you take a philosopher
to write a commercial law.
But that's what we had, and
they brought in Karl Llewellyn.
He wasn't that kind of a
high-falutin' ivory tower
philosopher, he believed
in commercial practices,
in empirical
validation, and he wrote
a law that instructs courts
to interpret contracts
based on the commercial
reality of the parties.
The Uniform Commercial
Code says that the course
of actual performance
between the parties
is the best indication
of what they intended.
Section 202 of the Code.
When the Uniform Commercial Code
defines the agreement-- namely,
that thing that
is enforceable, it
defines it not just as the
contract-- the four corners
of the contract, but
it is the bargain
between the parties in fact, not
the bargain between the parties
on paper, on text.
It is the context, in fact.
As found in their
language or by implication
from other
circumstances, including
the course of performance,
course of dealings, and others.
So that is the idea that
is in the background.
Chuck-- throw away
formalism, bring on--
bring into the law legal
realism and throw away
rigidity and accuracy,
technocracy, ancient law,
unfair law, bring in all
these wonderful new ideas that
have to do with flexibility.
Well then in 1996,
Lisa Bernstein
published an article
that shattered
this widespread
reality, and it's
been enormously influential,
cited endlessly, influenced--
discussed at the time
almost in every workshop.
What Lisa did was not sit
down and write a model or go--
write a dissertation on this,
she actually went to the trade,
to the ground, to the markets,
to the south of the United
States and see how people
interact, what do they do,
spoke to merchants,
spoke to transactors,
spoke to business
people, and began
to get a sense that
something different is
going on the ground.
The first and foremost
insight that was shocking
and needed explanation was
that in these transactions,
and especially she
looked at that study
at grain and feed
transactions, people
that trade in grain, wherever
that is-- feed, animal feed.
When people write
these contracts,
they are part of a
trade organization,
and when they have
disputes, they
go to arbitrators
and to tribunals,
and the tribunals-- guess what?
They don't look at
trade usages, they
don't look at their
past practices,
they don't look at
course of performance
and course of billings.
They do everything the opposite
than what the UCC has invented.
Not the Code, what
Karl Llewellyn,
what legal realism
said to us to do.
They are super formalistic.
What's in the writing in the
contract, and that is all.
Nothing else, they don't
want to hear any evidence
about anything else.
It's not that people on
the ground are rigid.
They're very flexible.
When someone can't deliver
on time, they forgive.
When someone is in
hardship, they give later--
allowance to pay less
or to pay delayed.
There is a lot of flexibility on
the ground, but not in the law.
Not in the tribunals.
How to reconcile that
with our kind of slam
dunk case for courts or--
for legal realism?
So it is--
Lisa made two I think
fundamental insights.
First, she says when people
enter into transactions,
they want to be governed by
two different sets of laws.
You can think of it as the law
of peace and the law of war.
If they're at peace,
they want to be nice.
Pat each other on the
back, give some discounts,
give accommodations, meet in
parties, families interact,
have barbecues on Sundays.
They are engaging
in a very forgiving
and friendly and
cooperative relationship,
adopting many norms that are
not written in the contract.
And they're expected to do that.
You can't be mean
during times of peace,
or else people might shun you.
They want you to be
a peaceful player.
Everything that's
in the contract,
though, is part
of the law of war.
If they end up being disputed,
they cannot reconcile,
if someone cheated,
if someone stole,
if someone left
town and didn't--
took things, then you go
to court or to a tribunal,
and then you apply different
rules, the rules that
are in the contract.
So that was a first-- the
understanding that this is
going on on the ground
suggests that the Code--
Karl Llewellyn had a
categorical conceptual mistake.
They adopted the ideas of peace
to be adjudicated during war.
They took-- they said all
these norms of cooperation
and how parties transact, those
should be part of litigation,
too.
And we should resort to them
when we resolve disputes.
That's not what
the parties want.
The norms, these
norms, these practices
were not intended for
the scenario of endgame,
of breakdown of
the relationship.
That was the first insight.
I love that one.
But I like even more
the second insight.
The second insight
came from an insight
when Lisa was asking
these merchants,
why don't you want
the courts to reflect
the practices of forgiveness and
cooperation that you develop?
They told her that if they
knew that the courts are going
to use their practices to
create new obligations,
they would not engage
in those practices.
If they knew that
every time they say--
that if they have a practice of
forgiving a party in hardship
or giving a price break
or an extension in time,
if they thought-- if they knew
that courts will then impute
from that, imply from that a
change in the contract such
that now they are obligated to
give these concessions-- hey,
you gave it in the past,
that shows what you intended,
now you're obligated
to give the--
they would stop doing this.
Lisa writes, when
merchants anticipate
the courts will use their
course of performance or course
of dealings to resolve
endgame disputes,
they will be less likely
to flexibly adjust
their contractual obligations.
This really resonated to me,
because when I first read this,
I spoke to Lisa on this--
it was in the mid '90s,
I had little kids,
and I remembered
that one of the
things that I try
to implement at home as a
new parent was bedtime rules.
And let's say that I had with
my child a 7:00 PM bedtime rule,
and I noticed that when he
behaves nice and asks nicely,
I sometimes am willing
to go and say, yes--
acquiesce to his
request and say,
you can go to sleep at
7:30 tonight, no problem.
But hey, if he comes
to me the next day
or the few days-- after a few
of these concessions and says,
dad, in the past you allowed me
to go to sleep at 7:30 or 8:00,
so that means now I can go
to sleep every night at 7:30
or 8:00, then that's
not what I intended.
I intended this to be not
something I'm obligated to,
something that I'm willing
to give you as a concession.
If I knew that that
would require now
an erosion of that
bedtime rule, I might not
give these concessions.
I had the same intuition coming
up in my practice at home
that Lisa was reporting
in the market.
Merchants want flexibility.
They want to be able
to give concessions.
But the Code's
instruction that courts
must reflect the flexible
accommodations in litigation
creates not flexibility,
but rigidity.
There's this
unintended consequences
that undermines flexibility.
Mr. Llewellyn,
Professor Llewellyn,
with this notion of let's create
a law of flexible adjustments,
in an unintended way
created a law that
harms flexibility, that forces
the party to be more rigid.
Some of you learned in
first year contracts
the case of Nanakuli
versus Shell Oil.
This is exactly that
kind of scenario
if you remember
what happened there.
Shell was a provider
of asphalt a paver--
some of the companies,
contractors in Hawaii,
and the contract said that
every time the order is made,
it will be charged according
to Shell's posted price
at the time of delivery.
Well, sometimes
the price changed.
There were price changes,
And in those cases,
Shell, in its kind of generosity
or whatever other reason,
was willing to forgive
an increase in price
and give what they
called price protection.
Allow the parties to pay the
old price for the last delivery
rather than the new price.
The court later said, OK, you
did that twice in the past,
now you're obligated
to do it every time.
And that ended up being
very costly for Shell,
because that was enforced,
that obligation to give a price
forgiveness, price protection
was enforced in the 1970s
during the oil embargo
and prices in the market
jumped two or threefold,
and Shell could not
afford to give a price
protection at that time.
Had it known-- imagine, had
it known that the court would
force it to now be
forgiving every time,
they would not have
given the price
protection in the first place.
So that was the
paper-- the 1996 paper
about course of performance.
Lisa continued this--
I don't know what
to call it-- assault
on the Code's legal realism
approach in another kind
of shocking paper
where she looked
at the course of performance
or course of dealings
between these two parties, but
about trade usages and customs
in the market at large.
You all know that-- remember
from first year contracts
that customs and
usages are tools courts
look to to interpret contracts.
For example, what is chicken?
What is Grade A chicken?
What did Judge
Friendly do when he
tried to answer that question?
He said, well,
let's look at what
the people mean in the trade.
Let's look at USDA
regulation, let's
look at trade associations,
let's bring experts, let's
bring middlemen, let's say--
let's find information about
what generally is understood
by the term Grade A chicken.
In that case he said he found
that there is no meaning,
but when we teach
this case, we still
say, OK, in one case
there was no trade usage--
there could be many
different meanings,
but generally
there is a meaning.
Like everybody knows
that a 2 by 4 lumber
means 1 and 1/2 by 3 and 1/2.
Every baker knows
that a dozen mean 13.
There are usages, and it's just
a matter of discovering them.
Well, Lisa argues in a 1999
paper, there is no such thing.
Usages of trade don't exist.
How does she know?
Well she went through the
records of many industries--
the hay industry, the grain
industry, the textile industry,
the silk industry-- and
looked at their attempts
during the 20th century
to codify their usages.
Experts met, they
said and said, what is
the meaning of a bale of hay?
You need to know
what a bale of hay.
What is the meaning
of a carload of grain?
Well, they argued,
well, it's meaning this,
it's meaning-- in the
end, they flew back home
without an agreement.
There is no common agreement.
Rules committees
in each industry
debated for years
sometimes what the customs
are, failing to
reach agreements,
or conceding that they
are making up rules.
They're not reflecting or
incorporating existing ones.
And that is, she saw, in
area after area after area.
Regularities that are observed
and usually very narrow,
they are very--
can't even call them
regional, they are local.
And these local norms vary
across different localities,
and they do not allow us to
create some kind of trade usage
that is general and in
a larger market context.
In a separate follow-up
article a few years later,
Lisa also looked at these cases
that actually adjudicate trade
usage, like Judge Friendly's
what is a chicken case,
and saw that in a great
majority of these cases,
there is no evidence is brought.
Nothing objective is brought
to show the court what
is the trade usage?
One party, the plaintiff
stands and says,
well, the usage is, you have
to give something-- of course,
they testify for
something self-serving.
The other party stands
up, the defendant,
and testifies or brings
an employee to testify,
well, the usage and
the custom is another.
Very rarely in a
minority of cases
there are non-party testimonies.
Very few of them
come from experts.
Only in a handful of cases in
the history of this litigation
did the court admit
evidence from trade codes,
from codes of the
trade associations.
Basically the argument is there
is no objective custom that
is adjudicated in courts.
Not surprisingly,
given the other paper
saying, that there is no
objective custom out there
in the trades because they
can't agree what the custom is.
OK.
So in sum, when you look at
Professor Bernstein's work,
it takes upon this fundamental
idea in basically all of law
that realism is more
attractive than formalism.
Formalism has such limitations,
it's so inaccurate,
it neglects so much
evidence, let's use-- let's
embrace law that brings it
more evidence to litigation,
we can see what's really
going on on the ground.
And she, in the work,
Professor Bernstein
challenges the idea that
such practices even exist.
That they can be verified by
courts, but more fundamentally,
she introduces the
possibility that once
we do that, once we observe
what the parties do and try
to use it in litigation, we
are going to change the way
they are behaving.
It's kind of the Heisenberg
uncertainty principle.
Once you look-- go into
the lab and observe
some kind of a activity,
you're changing that activity.
And that particular
idea, as I said initially
and as I'm moving towards
completing my lecture,
I'll just mention briefly
how that inspired me
in my own work.
It occurred to me that the
phenomena Professor Bernstein
was talking about, namely
parties making concessions--
this kind of law of
peace that they have,
the cooperative
norms that people
adopt as they are
engaging in behavior,
if the law tries
to use it to create
formal or enforceable
rights, that
would change their behavior.
It occurred to me that
that particular insight is
much broader than contract law.
I call this in my own work
the types of erosion rules.
Erosion rules are rules that
do the following thing--
the law creates some kind
of formal entitlement.
Let's say you have an ownership
right or a contractual right.
But you can lose it if you
allow some violations to go
uncontested.
If you allow things
to occur, flexibly you
don't enforce all sorts of
violations or infringements
or breaches that you
don't want to bother with
or too costly to enforce,
you might lose your right.
A very prominent example
of an erosion rule
is the doctrine of
adverse possession.
In property law, in real
property law where it
says that if someone in your--
a neighbor starts encroaching
upon your property--
putting a fence a few inches
or a foot into your property
and you don't
enforce against that,
you will, after some statute
of limitation period,
you will lose this
right, your right.
The doctrine is also known very
much in intellectual property
law under the doctrines
of latches or estoppel
that say that if you sleep on
your rights and don't enforce,
and other people continue
with their violation
to use your copyright or
your trademark or your patent
and you don't stop them,
you will be estopped later
from stopping.
Your formal legal
entitlement will
erode because you
showed some flexibility
and did not rigidly and
strictly enforce against it.
Statutes of limitations
generally do that.
You have a right, but only
if you enforce it vigorously;
if you don't, at some point
you will lose it, waiver--
many other examples are
these erosion rules.
Formal entitlements that are
diminished or forfeited or lost
when the owner allows
violations to go unenforced.
Now these rules have
traditionally been thought
of-- and there's enormous
commentary in each one of these
areas showing that these--
arguing these rules
are bad for owners.
If you have a right and
if you might lose it
by virtue of not--
you're not enforcing it
against violations,
that's not good for you.
Well, applying Lisa's
question, I realized, there
is actually a counter effect.
If you have a right and your
neighbor encroaches upon it,
you might not care.
Who cares?
They walk through or
they put something--
they put their kid's
little playground partly
into your property, you're not
going to do anything about it,
it's not nice, it's costly.
But wait a minute--
if now that means that after
a period of limitation,
under the doctrine of
adverse possession,
they can go to the land registry
and change title and move
the boundary into-- against--
you shrink your property,
now you will have a greater
incentive to enforce.
The stakes have become greater
because of this erosion
possibility, making-- the stakes
have become more long-term,
and owners will be more
motivated to spend more
to fend off, and
encroachers and violators
will realize that they are
not going to get away with it.
So even though it's costly
to enforce, it might pay off.
The doctrine of latches in
trademark law and copyright
law--
IP says that those who
slumber on the rights
might be estopped
from reclaiming them.
Well, under that doctrine, you
will not slumber on your right.
So there is this effect built
in, incentive effect built in,
and in general, these erosion
rules create two effects.
On the one hand, there is some
erosion-- if you don't enforce,
you lose the right.
On the other hand, there
is this added incentive
to enforce this enforcement
effect that leads you to not
let those violations continue.
And in the paper that I
wrote around that time
in the late '90s, I showed
through a formal model
that these two effects
exactly balance out.
Differently, the
choice of legal regime,
whether the law allows you--
allows rights to erode,
contractual rights to erode,
property rights to erode and so
on, and if it does, at what
speed do you lose your rights?
Is the adverse possession 16
years, 10 years, or five years?
Doesn't really matter.
The value of the
right is the same
because of this in the
counterfeiting laning
effect of this added
incentive to enforce.
I proved this irrelevant
result of erosion
rules, and have long since,
but it was entirely inspired
by the work that I read--
Professor Bernstein to do in
the context of contract rights
and how they can get
modified and waived
and changed through course
of performance or course
of dealings.
OK.
So that was--
I looked to this, even
though some of the work
Professor Bernstein did before
she came to Chicago, much of it
has been part--
one of what I regard Chicago's
all-time best ideas, and I
was particularly eager
to share that with you.
And if you have any comments,
questions, and discussion,
this is the time.
Professor Bernstein
is here with us,
so this is maybe
also an opportunity.
If you want, you can
jump in, and I'll
let you have the podium.
Unmute yourself, you're muted.
- OK.
Thank you.
That was as clear a rendition
of my ideas I've ever heard.
I hope some of my
students are watching.
Omri summed things up very well.
I just want to add
one small thing, which
is that even the
example of the 2 by 4
is not really a custom in
the sense of something people
just do.
If you look at the history
of the 2 by 4, what you see
is that early--
in the early 1900s, a 2 by 4
meant one thing in Seattle,
a different thing in New York,
and the third thing in Atlanta.
It also differed
by type of wood.
And when the
lumbermen got together
to try to write down the answer
to the question, what's a 2
by 4?
They couldn't do it.
And their disagreement
was so profound
that they did something that
you rarely see industries do.
They ran screaming to the
Department of Commerce
and said, we can't agree
on what's a 2 by 4.
Can you just tell us
please and write it
in US Commercial product
standard so that we all know?
They actually begged
for regulation.
So the 2 by 4 is not exactly
an example of a custom,
and the same thing with
the baker's dozen, which
actually has its origins--
I won't bore you here
since it's trivia--
in aspects of early English
criminal law for shortchanging
people on the weight of bread.
But I'm glad to take
any questions that you
might have along with Omri.
And thank you, Omri.
- Great.
Any question, any discussion?
Anybody wants to jump
to the defense of Karl
Llewellyn and legal realism?
Phillipo.
- I'll ask a question.
Do they change once you have
a situation like consumer
contracts where there is
an imbalance of power,
do you think?
Or do you think that it remains
the same, those same kind
of insights and thinking
would apply there as well?
- So do you want to clarify
what do you think might change
in consumer contracts?
- I'm thinking of like once
you have like a contract that's
one to one or two to one
or something like this,
you have a more relational--
like a more clear
relation, versus sometimes
you have like one contract that
applies to thousands of people.
So you might have some
kind of like [INAUDIBLE]
if it relates to only
one person or another,
and this would be like
two changes in the law
or something like
this, so that's
what I was thinking about.
- Yeah.
It's an interesting question and
it's an interesting dichotomy.
Because obviously in
consumer contracts,
something very
different is going on.
Parties are not dealing
at arm's length,
they don't have
similar sophistication
or similar stakes.
And consumers largely
don't understand
any of the technical terms.
They are not supposed
to, and it's good
that they don't understand, they
can't be experts in everything.
And therefore, there are--
the logic of cooperating
parties understanding cannot be
extended.
What we need to do
is to have rules
that reflect the
non-understanding of consumers.
Rather than on rules that
incorporate the understanding
and the practices, incorporate
the non-understanding
and non-practices.
The passivity, the autism,
so to speak-- quote-unquote,
of course--
of the consumers in the market.
So we have interpretation
against the drafter.
Rather than trying to figure out
what the parties really meant,
we were going through something
that entirely not meant just
so that--
to protect consumers.
Or things like
reasonable expectations,
what consumers can expect
in situations like this,
and we tried to--
I can give you an example how in
situations where what consumers
mean, understanding how
firms cater to that.
So I wrote in
separate work, I wrote
about contracts
that are marketed
to people under the
category of no contract.
Come sign with Comcast or
with AT&T, no contract.
That was in
billboards everywhere,
in promotions and
advertisements, they tell you,
you have no contract.
Now what do you mean
you have no contract?
Of course you have a
contract with them,
but they mean to say no
obligation, no lock in.
You can exit-- free exit.
They use a term in
the way consumers
kind of colloquially--
sociologically understand it.
And of course, courts will
not override it and say, well,
if there's no contract,
then there is no contract.
We look to what consumers
understand and try
to give it that meaning.
Lisa, want to follow up?
- Sure.
I think that a lot of
Llewellyn's notions
would be even more damaging
in the consumer context,
because firms tend to be--
treat consumers better than
they're required to treat them
under the contract.
And if these types of
concessions and nice things
that they do to keep
the customer happy,
if they were
obligated to do that,
the cost might be too
high across all contracts,
and they would worry that
then consumers would have
a right of action against them.
So very often you see incredibly
one-sided consumer contracts
so that the consumer has
basically no right of action
against the large company
for anything at all,
but in practice, the does make
concessions and work things out
over time, it doesn't call every
single aspect of the contract
and use it against the consumer.
So I think that in
consumer contexts,
the Llewellyn-esque notion
is particularly pernicious.
- Other comments, questions?
Jared.
- Thank you for
representing, this
is a really, really interesting.
I guess my question
here is about kind
of the framing of the
talk where we started out
by briefly seeing but
then immediately rejecting
19th century kind of English
contract law that was brought
over here in part,
but also largely taken
from continental influences,
heavily influenced
by the impetus and sort of
importance of subjective intent
when it comes to contracts.
And then we went to the kind
of-- perhaps as you said
in this talk, a little bit
of overshooting when it comes
to Llewellyn's correction,
namely kind of--
the contract changing over
time, the kind of innovations
that you made with the
modification of waiver
and the problems that Professor
Bernstein's work identified
with that.
But I'm wondering whether
Professor Bernstein's work,
in that same kind of
vein, has something
to say about like sort of
middle ground innovations
that Llewellyn had
with respect to what
they pushed for with
respect to contract law.
So objective grounds of
assent, objective grounds
of interpretation, the duty of
good faith and fair dealing.
I'm curious to what extent
Professor Bernstein's insights
is what I would say about those
kinds of features in contract
doctrine that aren't
as radical, almost,
as modification of waiver.
- Professor Bernstein.
- OK, well I'll
take on good faith.
One of the interesting things
about the commercial systems
that I studied that
were set up by merchants
is they do not have a
duty of good faith implied
into their contracts.
Now that's not to say, however,
that they don't discuss
good faith in the
opinions that they write,
which in many industries
are widely circulated.
So they will say something like,
the buyer wins under Grain Rule
42.3.
The rule is clear.
However, is the opinion of
the arbitration tribunal
that the buyer
acted in bad faith.
So the reputational
aspect of being
found to have acted in
bad faith is retained,
but again, you keep the
outcomes in the cases
very clear and definite.
And so I think that
most of the arguments
that I make apply with equal--
if not perhaps greater--
force to the doctrine
of good faith.
And it's very strange.
Part of my research that I never
published because I didn't ever
finish it was interviewing
transactional lawyers
to see if they would put a
clause in a contract waiving
the duty of good faith
performance if they could.
And most of them
said, absolutely,
they would do that
in a heartbeat.
And in fact, my parents
almost got divorced over this
because my father, a
transactional lawyer,
would do a deal, and apparently
all night he'd known,
Lucy, Lucy, Lucy's
causing a problem,
and he meant Lucy,
Lady Duff-Gordon.
My mother thought Lucy, of
course, was the mistress.
So I learned with mother's
milk, so to speak,
that this particular
aspect of the law
really does cause transactional
lawyers' nightmares,
quite literally, and that's
one of the things that
motivated me to go out and
try to explore it further.
As to objective
assent, not my number,
I'll leave that to Omri.
- I'll say something not related
to objective assent because I
think objective assent probably
predates legal realism,
but I'll talk about the work
that professor Bernstein and I
did together, which is
to challenge the Uniform
Commercial Code's and
the Llewellyn-esque ideal
of remedy.
When a contract is
breached, what do you do?
What do you give the
breached-against party?
And again, to some
extent, inspired
by what Lisa saw in the
actual practice of the trade
organizations, we saw, they're
doing something very different
than the Code.
The Code has this notion of
make the aggrieved party,
the breach-against party whole,
put her in this good a position
as she would have been in had
the contract been performed--
expectations of damages, right?
But it is very
vigorous in trying
to make sure that every cent
that the party expected will
be given, and there
is-- a lot of evidence
is invited into litigation over
these issues of what would have
happened under the
contract and how well would
that aggrieved party
been under the contract.
We need to resurrect that
expectation of damages.
What Lisa saw is that in many
contexts, parties don't use--
in reality, in trade,
in merchant life,
don't use this remedy because
it's very costly to adjudicate.
And instead, they use the
very simple realized damages.
Just your
out-of-pocket expenses,
you will be compensated for
them-- the torch remedy,
not the contract remedy.
Why?
One of the reasons that
we feel we hypothesized
and we found some reference
to is that litigation
over expectation of damages,
over what you would have gotten
under the contract, what
your profit would have been,
that doesn't only require
to bring information that
is costly to produce,
but it requires
people to reveal secrets.
How much money we made--
they don't want to reveal this.
They have what we called
a secrecy interest.
And that secrecy
interest is sometimes
more important than
getting damages.
And so what the Code does
is by allowing the defendant
to require a trial over what
was truly the lost profit,
it undermines the
ability of the plaintiff
to get any kind of
remedy, and it's
kind of shoots
itself in the foot,
this idea of this doctrine.
So that's another legal
realist idea that has gone--
that has been taken
to such extremes
that it doesn't
work well with it.
I think we have maybe time
for one more question,
but we don't have
to, it's 1 o'clock.
I promised Robin that we
will finish by 1 o'clock,
so maybe it's a
good time to end.
Thank you all for joining us.
Happy to-- I'm sure Lisa, too--
happy to get any kind
of follow-up questions
and discussions by email.
And there will be
another one of those,
another Chicago-based idea--
some other Chicago faculty
member-based idea forum
in a week or two.
And I hope you're healthy,
safe, and studying well
despite mandatory pass/fail.
See you later.
