Teaching Assistants: More Victor Goldberg on Excuse
This is the ninth in a series of posts on Victor Goldberg‘s work. Today’s post is about Chapters 12 and 13 of his book, Rethinking Contract Law and Contract Design (RCL). Links to related posts follow this one.
During World War II, English courts overturned Chandler in Fibrosa, by allowing for restitution of deposits paid before the event excusing contractual performance, and Parliament followed with the Law Reform (Frustrated Contracts) Act of 1943, which also allowed for seller to recover reliance damages. Only two cases governed by that Act were litigated in the 60 years following its adoption. Professor Goldberg surmises that the lack of litigation results from parties’ election to contract around the defaults that the Act established (RCL, 160-64). And then those two cases were not well handled, according to Professor Goldberg. From his perspective there are two main problems with the approach under the Act. First, the approach gives trial courts broad discretion to determine what reliance damages are “just.” Second, the resulting damages are not what the parties would have agreed to ex ante. In fact, and this problem has little to do with the Act, courts ignore the parties’ attempts to allocate risks through force majeure clauses (RCL, 164-72).
The American approach is unconstrained by legislation. Rather, under the Restatement approach, in cases in which structures under construction are destroyed and the destruction is not caused by either party, American courts allow for recovery in restitution based on the value of the performance prior to destruction. They do not allow for recovery of materials not “wrought in” to the structure (RCL, 173-76). Professor Goldberg finds very few cases litigated under the Restatement approach and also finds that construction contracts do not address the problem. But there is a simple reason. Insurance contracts specifically contract around the Restatement approach and adopt the rule from Chandler v. Webster (RCL 176-78).
Chapter 13 is about anticipatory repudiation and requests of assurances. The UCC handles this problem nicely in § 2-609. The Restatement imitates those provisions in what Professor Goldberg describes as a “[P]Restatement,” given that the common law had hitherto recognized so right to request assurances. In NorCon v. Niagara Mohawk, New York’s Court of Appeals adopted a truncated version of the Restatement approach, for reasons that made no sense as a matter of law and that were ill-suited to the facts of that case. If we are going to extend UCC doctrine to the common-law context, we ought to start with simple situations rather than the complex litigation at issue in Niagara Mohawk. Sophisticated parties can work out their own rules in case one party suspects that the other might breach (RCL, 180-83).
As Professor Goldberg shows in detail, the parties in Niagara Mohawk were operating in an environment in which regulation constrained their ability to contract as they might have wished (RCL, 184-94). They very well understood the risks that they assumed in that environment and allocated risks accordingly (RCL, 196-200). Ultimately, the parties settled their dispute, and it is unclear whether the terms of their settlement were influenced in any way by the Court of Appeals’ recognition of the right to demand assurances. Based on the final settlement, Professor Goldberg suspects the effect of that opinion was modest (RCL 201-02).
Two additional points seem worth mentioning here. First, one might think that Professor Goldberg’s focus on sophisticated parties undermines his arguments here. After all, sophisticated parties can contract around default rules, so what those rules are shouldn’t matter much. It would be interesting to consider whether the default rules better suit unsophisticated parties that lack the resources to contract around them. Professor Goldberg offers no insights on this subject, but it is hard to see why the sophistication of the parties would change the analysis. In any case, we also then run into another one of Professor Goldberg’s themes in his work. Courts resist parties’ attempts to contract around default rules. That theme arises repeatedly in these cases, in which courts ignore the parties’ allocation of risk and impose default rules rather than deferring to the intentions of the parties. They do so, Professor Goldberg argues, in the interests of “justice,” but if justice departs so markedly from the parties’ intentions, perhaps we should reconsider our notions of justice (RCL, 179).
A post on Chapter 11 (an Auseinandersetzung with Mel Eisenberg) is here.
A post on Chapters 8-10 (consequential damages) is here.
A post on Chapter 7 (liquidated damages) is here.
A post on Chapters 5 & 6 (speculative damages) is here.
A post on Chapter 4 (lost-volume damages) is here.
A post on Chapter 3 (timing for assessing damages) is here.
A post on Chapter 2 (the flexibility/reliance trade-off) is here.
The introductory post is here.