Annual Distinguished Lecture

Stewart Macaulay, Malcolm Pitman Sharp Hilldale Professor Emeritus at the

University of Wisconsin-Madison, delivered a lecture entitled, “A Contract Crisis?  ‘It Ain’t Necessarily So,’” as the Annual Distinguished Lecture at the BYU Law School on October 1. In his remarks before an overflow audience, Professor Macaulay responded to recent proposals to revise contract law in response to a so-called “contract crisis.”

Professor Macaulay began by exposing the foundational assumption of scholars who want to revise contract law. According to Professor Macaulay, “the claim seems to be that all important contracts are the result of careful planning for each transaction, both as to what is to be done and what will happen if things go wrong.” While some contracts reflect such careful planning, most do not. “In fact, parties often intentionally leave gaps in contracts.”

As a result, even in normal times, many contracts are reworked or adjusted as time passes. “We want people to work very hard to perform the contact,” Professor Macaulay explained, “but, at the same time, we want the other party to be willing to adapt, adjust, and deal with conditions as they change.” To accomplish these sometimes inconsistent goals, contract law often instructs judges to follow the Spike Lee Principle of Jurisprudence: “Do the right thing.”

In more extreme times, like today, the government deals with the potential collapse of the economy by rewriting certain contracts, but is it rewriting contract law? According to Professor Macaulay, “to a great extent, it is just doing what we always do.” Moreover, “letting people out of the letter of their contact, in extraordinary circumstances, is as American as apple pie.”

Among the recent proposals for change is one calling for a new “sophisticated formalism” in contract law. According to proponents of this view, sophisticated contracting parties want contracts to be strictly interpreted and enforced according to the precise and literal language in contract documents. The motivation for this proposal is the desire for uniformity in the interpretation of contracts and predictability in their enforcement.

One problem with this approach is the fact that even sophisticated parties often make contracting mistakes. In addition, as the parties perform, they may create new expectations out of their performance. Also, the parties who are to perform the contract do not draft the written document, and those who draft the document do not always understand what they are asking of those who perform. According to Professor Macaulay, “this division of labor causes some real problems.”

In the end, Professor Macaulay wonders, “Is there a problem that should or could be solved by formality?” Perhaps it is not surprising that Professor Macaulay, one of the most visible proponents of a “new legal realism,” believes that we need more information about how the real world works before we can answer that question. In his own words, “we don’t know what the problems are and we won’t know what the problems are until we go out and do a lot of looking.”

Posted: October 06, 2009