Revisiting the Contracts Scholarship of Stewart Macaulay, Post I: Jay Feinman, Ambition & Humility

This is the first in a series of posts in our online symposium on the Contracts Scholarship of Stewart Macaulay.  More about the online symposium can be found here.  More information about this week’s guest bloggers can be found here. 

Jay Feinman is Distinguished Professor of Law at Rutgers School of Law‒Camden. 

My contribution to Revisitingthe Contracts Scholarship of Stewart Macaulay: On the Empirical and the Lyricalis a chapter entitled “Ambition and Humility in Contract Law.” The chapter focuseson several of Macaulay’s articles in the 1960s in which he presented an organizationof the fundamental policies underlying contract law, the structures throughwhich contract law acts, and some policies of the legal system that influencethe fundamental and structural policies. The organization encapsulates in a remarkable2x2 matrix the essential issues of contract law.

Here is the matrix, which separates the substantive policies thatcontract law serves (market and other-than-market goals) from the ways in whichthe legal system can realize those goals (through rules or case-by-caseadjudication). (As Macaulay recognizes, the elements of the matrix are actuallyends of continua rather than discrete categories.)

 Macaulay’s organization clearly and powerfullyexpresses the underpinnings and operations of the field.  For mainstream scholars, the identificationof policies and approaches provides a framework that clarifies analysis inlegislation, adjudication, and scholarship. But the matrix also contains theseeds of a critique that demonstrated that contract law is at best badlyconfused and at worst incoherent and largely ineffective. In that way, Macaulay’swork contributed to critical legal studies’ account of private law through itsinfluence on Duncan Kennedy’s monumental “Form and Substance In Private LawAdjudication,” 89 Harv. L. Rev. 1685(1976) and other works.

Consider just one instance of the way in which theorganization reveals these problems, in the relationship between market andother-than-market goals.

For contract law, themarket is the primary social institution, so market goals predominate.  Macaulay’s framing of market-promoting goalsas primary and market-correcting goals as secondary correctly states thecustomary objectives of contract law as ambition tempered with humility.  But that framing makes apparent why contractlaw needs to temper its ambition of serving the market with a large dose ofhumility.

First, the conflictingmarket and non-market goals need to be balanced, and the measures for doing soare controversial.  The case law andliterature offer a variety of mechanisms for carrying out this balancing.  Courts employ different tropes includingavoidance by doctrinal formalism, casual policy analysis, and ad hocpaternalism.  The Restatement Second frequently lists factors to be balanced withoutspecifying the techniques of balancing. Economic analysis aims for efficient results, variously defined andsought.  In his later reflections on thesystematic presentation of contract law policies, Macaulay recognized theinadequacy of these efforts and the difficulty, perhaps impossibility of thisbalancing process.  There he entitles thematrix “The Contradictions of Contract Law” and comments that contract law “inconsistentlyrests on policies that both promote the market and those that attempt to bluntit.”  Macaulay, “Klein and theContradictions of Corporate Law, 2 BerkeleyBus.  L. J.  119  (2005).

Second, the hierarchyand separation between market and non-market goals needs to be established inpractice.  Consider the choice between arule-oriented market functioning policy and a case-by-case transactionalpolicy.  One of the substantive contractpolicies Macaulay identifies is self-reliance. In the conception of the market as private, individual, andself-actuating, self-reliance is crucial. Macaulay writes of promoting self-reliance by encouraging or requiringparties to look out for themselves, in a world in which the law will rigidlyenforce apparent bargains they have made, through a market-functioning ortransactional policy.

But implicit in thisconstruction is the illogic of simply promoting the market by promotingself-reliance through a body of contract law that rewards initiative andpunishes dependence.  Instead, the lawcan further self-reliance in either of two opposite ways—by creating a minimalbody of contract law that puts parties at risk or an aggressivelyinterventionist body of law that provides parties with security.  A body of contract that provides relief fromone’s ill-informed or ill-fated promises encourages self-reliant action by assuringthat the consequences of action will not be too severe.  The risk of intervention or non-interventionin this way protects all economic actors, as all are potentially subject to baddecisions or bad luck, although the weak probably more so than the strong.

Stewart Macaulay

Therefore, acombination of the transactional policy and the relief of hardshippolicy—determining the enforceability of contracts, or not, on a case-by-casebasis—may maximize social welfare; whether the social welfare so produced isgreater or lesser than that generated by the rule-based market functioningpolicy ameliorated with social or economic planning policy is an empiricalquestion for which no theoretical answer exists.

Third, as thetheoretical conflict about self-reliance illustrates, it is problematic even toattempt to define market and non-market goals as separate.  Inherent in the separation is the conceptionthat market goals involve the facilitation of private activity, a process thatis distinct from the imposition of public values such as redressinginequality.  Private activity isfundamentally individual, whereas public goals are collective.  Courts in private law cases are primarily aforum for the adjudication of private disputes; legislatures are the arena inwhich public goals are primarily enunciated. And so on.

But these dichotomiesare exaggerated.  There is no institutionof the market separate from and preexisting non-market activity, just as thereis no private law not constituted by public values.  The exchange of goods may be a privateactivity, but the exchange of goods that the law has made the subject ofproperty and which exchange is enforceable by law is an essentially publicactivity.  Law constitutes the market forreasons of the public good, so supporting the market through contract law isonly another way of advancing the public good, and not a particularly distinctway at that.

Because the market isnot distinctively private, the hierarchy of market goals and the need forself-reliance in the service of those goals are not evident.  The justification for contract law and itsrules must rest elsewhere than on a claim that the market is distinctive anddistinctively important.  And that is aclaim that is assumed but seldom justified in the case law or literature.  Part of the power of Macaulay’s organizationis the way in which it makes clear the great defects of contract law’sambition.

[Posted, on Jay Feinman’s behalf, by JT]