A theory of contract law under conditions of radical judicial error

Northwestern University Law Review

Volumn 94, Issue 3, 2000, Pages 749-774

  Posner, Eric A ^a  

^a NONE

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EID: 0013371177     PISSN: 00293571     EISSN: None     Source Type: Journal    
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References (76)

1. Ian R. Macneil, Contracts: Adjustment of Long-Term Economic Relations Under Classical, Neoclassical, and Relational Contract Law, 72 Nw. U. L. REV. 854 (1978).
2. In particular, it is hard to believe that the neoclassical model, to the extent that it overlaps with the standard economic approach, has been exhausted. A sample of recent work along these lines includes Ian Ayres & Robert Gertner, Filling Gaps in Incomplete Contracts: An Economic Theory of Default Rules, 94 YALE L.J. 97 (1989) [hereinafter Filling Gaps]; Ian Ayres & Robert Gertner, Strategic Contractual Inefficiency and the Optimal Choice of Legal Rules, 101 YALE L.J. 729 (1992); Lucian Arye Bebchuk & Steven Shavell, Information and the Scope of Liability for Breach of Contract: The Rule of Hadley v. Baxendale, 7 J.L. ECON. & ORG. 284 (1991); Jason Scott Johnston, Strategic Bargaining and the Economic Theory of Contract Default Rules, 100 YALE L.J. 615 (1990); Paul G. Mahoney, Contract Remedies and Options Pricing, 24 J. LEGAL STUD. 139 (1995); Thomas J. Miceli, Contract Modification when Litigating for Damages Is Costly, 15 INT'L REV. L. & ECON. 87 (1995); Eric A. Posner, Contract Law in the Welfare State: A Defense of the Unconscionability Doctrine, Usury Laws, and Related Limitations on the Freedom of Contract, 24 J. LEGAL STUD. 283 (1995) (restrictions on contractual freedom); Alan Schwartz, The Default Rule Paradigm and the Limits of Contract Law, 3 S. CAL. INTERDISC. L.J. 389 (1994); Lars A. Stole, The Economics of Liquidated Damage Clauses in Contractual Environments with Private Information, 8 J.L. ECON. & ORG. 582 (1992) (penalty doctrine); Eric Talley, Contract Renegotiation, Mechanism Design, and the Liquidated Damages Rule, 46 STAN. L. REV. 1195 (1994); Alexander J. Triantis & George G. Triantis, Timing Problems in Contract Breach Decisions, 41 J.L. & ECON. 163 (1998) (options approach to contract damages); Avery Wiener Katz, An Economic Analysis of the Guaranty Contract, 66 U. CHI. L. REV. 47 (1999) (guaranty contracts). Some other examples are cited below.
3. In particular, it is hard to believe that the neoclassical model, to the extent that it overlaps with the standard economic approach, has been exhausted. A sample of recent work along these lines includes Ian Ayres & Robert Gertner, Filling Gaps in Incomplete Contracts: An Economic Theory of Default Rules, 94 YALE L.J. 97 (1989) [hereinafter Filling Gaps]; Ian Ayres & Robert Gertner, Strategic Contractual Inefficiency and the Optimal Choice of Legal Rules, 101 YALE L.J. 729 (1992); Lucian Arye Bebchuk & Steven Shavell, Information and the Scope of Liability for Breach of Contract: The Rule of Hadley v. Baxendale, 7 J.L. ECON. & ORG. 284 (1991); Jason Scott Johnston, Strategic Bargaining and the Economic Theory of Contract Default Rules, 100 YALE L.J. 615 (1990); Paul G. Mahoney, Contract Remedies and Options Pricing, 24 J. LEGAL STUD. 139 (1995); Thomas J. Miceli, Contract Modification when Litigating for Damages Is Costly, 15 INT'L REV. L. & ECON. 87 (1995); Eric A. Posner, Contract Law in the Welfare State: A Defense of the Unconscionability Doctrine, Usury Laws, and Related Limitations on the Freedom of Contract, 24 J. LEGAL STUD. 283 (1995) (restrictions on contractual freedom); Alan Schwartz, The Default Rule Paradigm and the Limits of Contract Law, 3 S. CAL. INTERDISC. L.J. 389 (1994); Lars A. Stole, The Economics of Liquidated Damage Clauses in Contractual Environments with Private Information, 8 J.L. ECON. & ORG. 582 (1992) (penalty doctrine); Eric Talley, Contract Renegotiation, Mechanism Design, and the Liquidated Damages Rule, 46 STAN. L. REV. 1195 (1994); Alexander J. Triantis & George G. Triantis, Timing Problems in Contract Breach Decisions, 41 J.L. & ECON. 163 (1998) (options approach to contract damages); Avery Wiener Katz, An Economic Analysis of the Guaranty Contract, 66 U. CHI. L. REV. 47 (1999) (guaranty contracts). Some other examples are cited below.
4. In particular, it is hard to believe that the neoclassical model, to the extent that it overlaps with the standard economic approach, has been exhausted. A sample of recent work along these lines includes Ian Ayres & Robert Gertner, Filling Gaps in Incomplete Contracts: An Economic Theory of Default Rules, 94 YALE L.J. 97 (1989) [hereinafter Filling Gaps]; Ian Ayres & Robert Gertner, Strategic Contractual Inefficiency and the Optimal Choice of Legal Rules, 101 YALE L.J. 729 (1992); Lucian Arye Bebchuk & Steven Shavell, Information and the Scope of Liability for Breach of Contract: The Rule of Hadley v. Baxendale, 7 J.L. ECON. & ORG. 284 (1991); Jason Scott Johnston, Strategic Bargaining and the Economic Theory of Contract Default Rules, 100 YALE L.J. 615 (1990); Paul G. Mahoney, Contract Remedies and Options Pricing, 24 J. LEGAL STUD. 139 (1995); Thomas J. Miceli, Contract Modification when Litigating for Damages Is Costly, 15 INT'L REV. L. & ECON. 87 (1995); Eric A. Posner, Contract Law in the Welfare State: A Defense of the Unconscionability Doctrine, Usury Laws, and Related Limitations on the Freedom of Contract, 24 J. LEGAL STUD. 283 (1995) (restrictions on contractual freedom); Alan Schwartz, The Default Rule Paradigm and the Limits of Contract Law, 3 S. CAL. INTERDISC. L.J. 389 (1994); Lars A. Stole, The Economics of Liquidated Damage Clauses in Contractual Environments with Private Information, 8 J.L. ECON. & ORG. 582 (1992) (penalty doctrine); Eric Talley, Contract Renegotiation, Mechanism Design, and the Liquidated Damages Rule, 46 STAN. L. REV. 1195 (1994); Alexander J. Triantis & George G. Triantis, Timing Problems in Contract Breach Decisions, 41 J.L. & ECON. 163 (1998) (options approach to contract damages); Avery Wiener Katz, An Economic Analysis of the Guaranty Contract, 66 U. CHI. L. REV. 47 (1999) (guaranty contracts). Some other examples are cited below.
5. In particular, it is hard to believe that the neoclassical model, to the extent that it overlaps with the standard economic approach, has been exhausted. A sample of recent work along these lines includes Ian Ayres & Robert Gertner, Filling Gaps in Incomplete Contracts: An Economic Theory of Default Rules, 94 YALE L.J. 97 (1989) [hereinafter Filling Gaps]; Ian Ayres & Robert Gertner, Strategic Contractual Inefficiency and the Optimal Choice of Legal Rules, 101 YALE L.J. 729 (1992); Lucian Arye Bebchuk & Steven Shavell, Information and the Scope of Liability for Breach of Contract: The Rule of Hadley v. Baxendale, 7 J.L. ECON. & ORG. 284 (1991); Jason Scott Johnston, Strategic Bargaining and the Economic Theory of Contract Default Rules, 100 YALE L.J. 615 (1990); Paul G. Mahoney, Contract Remedies and Options Pricing, 24 J. LEGAL STUD. 139 (1995); Thomas J. Miceli, Contract Modification when Litigating for Damages Is Costly, 15 INT'L REV. L. & ECON. 87 (1995); Eric A. Posner, Contract Law in the Welfare State: A Defense of the Unconscionability Doctrine, Usury Laws, and Related Limitations on the Freedom of Contract, 24 J. LEGAL STUD. 283 (1995) (restrictions on contractual freedom); Alan Schwartz, The Default Rule Paradigm and the Limits of Contract Law, 3 S. CAL. INTERDISC. L.J. 389 (1994); Lars A. Stole, The Economics of Liquidated Damage Clauses in Contractual Environments with Private Information, 8 J.L. ECON. & ORG. 582 (1992) (penalty doctrine); Eric Talley, Contract Renegotiation, Mechanism Design, and the Liquidated Damages Rule, 46 STAN. L. REV. 1195 (1994); Alexander J. Triantis & George G. Triantis, Timing Problems in Contract Breach Decisions, 41 J.L. & ECON. 163 (1998) (options approach to contract damages); Avery Wiener Katz, An Economic Analysis of the Guaranty Contract, 66 U. CHI. L. REV. 47 (1999) (guaranty contracts). Some other examples are cited below.
6. In particular, it is hard to believe that the neoclassical model, to the extent that it overlaps with the standard economic approach, has been exhausted. A sample of recent work along these lines includes Ian Ayres & Robert Gertner, Filling Gaps in Incomplete Contracts: An Economic Theory of Default Rules, 94 YALE L.J. 97 (1989) [hereinafter Filling Gaps]; Ian Ayres & Robert Gertner, Strategic Contractual Inefficiency and the Optimal Choice of Legal Rules, 101 YALE L.J. 729 (1992); Lucian Arye Bebchuk & Steven Shavell, Information and the Scope of Liability for Breach of Contract: The Rule of Hadley v. Baxendale, 7 J.L. ECON. & ORG. 284 (1991); Jason Scott Johnston, Strategic Bargaining and the Economic Theory of Contract Default Rules, 100 YALE L.J. 615 (1990); Paul G. Mahoney, Contract Remedies and Options Pricing, 24 J. LEGAL STUD. 139 (1995); Thomas J. Miceli, Contract Modification when Litigating for Damages Is Costly, 15 INT'L REV. L. & ECON. 87 (1995); Eric A. Posner, Contract Law in the Welfare State: A Defense of the Unconscionability Doctrine, Usury Laws, and Related Limitations on the Freedom of Contract, 24 J. LEGAL STUD. 283 (1995) (restrictions on contractual freedom); Alan Schwartz, The Default Rule Paradigm and the Limits of Contract Law, 3 S. CAL. INTERDISC. L.J. 389 (1994); Lars A. Stole, The Economics of Liquidated Damage Clauses in Contractual Environments with Private Information, 8 J.L. ECON. & ORG. 582 (1992) (penalty doctrine); Eric Talley, Contract Renegotiation, Mechanism Design, and the Liquidated Damages Rule, 46 STAN. L. REV. 1195 (1994); Alexander J. Triantis & George G. Triantis, Timing Problems in Contract Breach Decisions, 41 J.L. & ECON. 163 (1998) (options approach to contract damages); Avery Wiener Katz, An Economic Analysis of the Guaranty Contract, 66 U. CHI. L. REV. 47 (1999) (guaranty contracts). Some other examples are cited below.
7. In particular, it is hard to believe that the neoclassical model, to the extent that it overlaps with the standard economic approach, has been exhausted. A sample of recent work along these lines includes Ian Ayres & Robert Gertner, Filling Gaps in Incomplete Contracts: An Economic Theory of Default Rules, 94 YALE L.J. 97 (1989) [hereinafter Filling Gaps]; Ian Ayres & Robert Gertner, Strategic Contractual Inefficiency and the Optimal Choice of Legal Rules, 101 YALE L.J. 729 (1992); Lucian Arye Bebchuk & Steven Shavell, Information and the Scope of Liability for Breach of Contract: The Rule of Hadley v. Baxendale, 7 J.L. ECON. & ORG. 284 (1991); Jason Scott Johnston, Strategic Bargaining and the Economic Theory of Contract Default Rules, 100 YALE L.J. 615 (1990); Paul G. Mahoney, Contract Remedies and Options Pricing, 24 J. LEGAL STUD. 139 (1995); Thomas J. Miceli, Contract Modification when Litigating for Damages Is Costly, 15 INT'L REV. L. & ECON. 87 (1995); Eric A. Posner, Contract Law in the Welfare State: A Defense of the Unconscionability Doctrine, Usury Laws, and Related Limitations on the Freedom of Contract, 24 J. LEGAL STUD. 283 (1995) (restrictions on contractual freedom); Alan Schwartz, The Default Rule Paradigm and the Limits of Contract Law, 3 S. CAL. INTERDISC. L.J. 389 (1994); Lars A. Stole, The Economics of Liquidated Damage Clauses in Contractual Environments with Private Information, 8 J.L. ECON. & ORG. 582 (1992) (penalty doctrine); Eric Talley, Contract Renegotiation, Mechanism Design, and the Liquidated Damages Rule, 46 STAN. L. REV. 1195 (1994); Alexander J. Triantis & George G. Triantis, Timing Problems in Contract Breach Decisions, 41 J.L. & ECON. 163 (1998) (options approach to contract damages); Avery Wiener Katz, An Economic Analysis of the Guaranty Contract, 66 U. CHI. L. REV. 47 (1999) (guaranty contracts). Some other examples are cited below.
8. In particular, it is hard to believe that the neoclassical model, to the extent that it overlaps with the standard economic approach, has been exhausted. A sample of recent work along these lines includes Ian Ayres & Robert Gertner, Filling Gaps in Incomplete Contracts: An Economic Theory of Default Rules, 94 YALE L.J. 97 (1989) [hereinafter Filling Gaps]; Ian Ayres & Robert Gertner, Strategic Contractual Inefficiency and the Optimal Choice of Legal Rules, 101 YALE L.J. 729 (1992); Lucian Arye Bebchuk & Steven Shavell, Information and the Scope of Liability for Breach of Contract: The Rule of Hadley v. Baxendale, 7 J.L. ECON. & ORG. 284 (1991); Jason Scott Johnston, Strategic Bargaining and the Economic Theory of Contract Default Rules, 100 YALE L.J. 615 (1990); Paul G. Mahoney, Contract Remedies and Options Pricing, 24 J. LEGAL STUD. 139 (1995); Thomas J. Miceli, Contract Modification when Litigating for Damages Is Costly, 15 INT'L REV. L. & ECON. 87 (1995); Eric A. Posner, Contract Law in the Welfare State: A Defense of the Unconscionability Doctrine, Usury Laws, and Related Limitations on the Freedom of Contract, 24 J. LEGAL STUD. 283 (1995) (restrictions on contractual freedom); Alan Schwartz, The Default Rule Paradigm and the Limits of Contract Law, 3 S. CAL. INTERDISC. L.J. 389 (1994); Lars A. Stole, The Economics of Liquidated Damage Clauses in Contractual Environments with Private Information, 8 J.L. ECON. & ORG. 582 (1992) (penalty doctrine); Eric Talley, Contract Renegotiation, Mechanism Design, and the Liquidated Damages Rule, 46 STAN. L. REV. 1195 (1994); Alexander J. Triantis & George G. Triantis, Timing Problems in Contract Breach Decisions, 41 J.L. & ECON. 163 (1998) (options approach to contract damages); Avery Wiener Katz, An Economic Analysis of the Guaranty Contract, 66 U. CHI. L. REV. 47 (1999) (guaranty contracts). Some other examples are cited below.
9. In particular, it is hard to believe that the neoclassical model, to the extent that it overlaps with the standard economic approach, has been exhausted. A sample of recent work along these lines includes Ian Ayres & Robert Gertner, Filling Gaps in Incomplete Contracts: An Economic Theory of Default Rules, 94 YALE L.J. 97 (1989) [hereinafter Filling Gaps]; Ian Ayres & Robert Gertner, Strategic Contractual Inefficiency and the Optimal Choice of Legal Rules, 101 YALE L.J. 729 (1992); Lucian Arye Bebchuk & Steven Shavell, Information and the Scope of Liability for Breach of Contract: The Rule of Hadley v. Baxendale, 7 J.L. ECON. & ORG. 284 (1991); Jason Scott Johnston, Strategic Bargaining and the Economic Theory of Contract Default Rules, 100 YALE L.J. 615 (1990); Paul G. Mahoney, Contract Remedies and Options Pricing, 24 J. LEGAL STUD. 139 (1995); Thomas J. Miceli, Contract Modification when Litigating for Damages Is Costly, 15 INT'L REV. L. & ECON. 87 (1995); Eric A. Posner, Contract Law in the Welfare State: A Defense of the Unconscionability Doctrine, Usury Laws, and Related Limitations on the Freedom of Contract, 24 J. LEGAL STUD. 283 (1995) (restrictions on contractual freedom); Alan Schwartz, The Default Rule Paradigm and the Limits of Contract Law, 3 S. CAL. INTERDISC. L.J. 389 (1994); Lars A. Stole, The Economics of Liquidated Damage Clauses in Contractual Environments with Private Information, 8 J.L. ECON. & ORG. 582 (1992) (penalty doctrine); Eric Talley, Contract Renegotiation, Mechanism Design, and the Liquidated Damages Rule, 46 STAN. L. REV. 1195 (1994); Alexander J. Triantis & George G. Triantis, Timing Problems in Contract Breach Decisions, 41 J.L. & ECON. 163 (1998) (options approach to contract damages); Avery Wiener Katz, An Economic Analysis of the Guaranty Contract, 66 U. CHI. L. REV. 47 (1999) (guaranty contracts). Some other examples are cited below.
10. In particular, it is hard to believe that the neoclassical model, to the extent that it overlaps with the standard economic approach, has been exhausted. A sample of recent work along these lines includes Ian Ayres & Robert Gertner, Filling Gaps in Incomplete Contracts: An Economic Theory of Default Rules, 94 YALE L.J. 97 (1989) [hereinafter Filling Gaps]; Ian Ayres & Robert Gertner, Strategic Contractual Inefficiency and the Optimal Choice of Legal Rules, 101 YALE L.J. 729 (1992); Lucian Arye Bebchuk & Steven Shavell, Information and the Scope of Liability for Breach of Contract: The Rule of Hadley v. Baxendale, 7 J.L. ECON. & ORG. 284 (1991); Jason Scott Johnston, Strategic Bargaining and the Economic Theory of Contract Default Rules, 100 YALE L.J. 615 (1990); Paul G. Mahoney, Contract Remedies and Options Pricing, 24 J. LEGAL STUD. 139 (1995); Thomas J. Miceli, Contract Modification when Litigating for Damages Is Costly, 15 INT'L REV. L. & ECON. 87 (1995); Eric A. Posner, Contract Law in the Welfare State: A Defense of the Unconscionability Doctrine, Usury Laws, and Related Limitations on the Freedom of Contract, 24 J. LEGAL STUD. 283 (1995) (restrictions on contractual freedom); Alan Schwartz, The Default Rule Paradigm and the Limits of Contract Law, 3 S. CAL. INTERDISC. L.J. 389 (1994); Lars A. Stole, The Economics of Liquidated Damage Clauses in Contractual Environments with Private Information, 8 J.L. ECON. & ORG. 582 (1992) (penalty doctrine); Eric Talley, Contract Renegotiation, Mechanism Design, and the Liquidated Damages Rule, 46 STAN. L. REV. 1195 (1994); Alexander J. Triantis & George G. Triantis, Timing Problems in Contract Breach Decisions, 41 J.L. & ECON. 163 (1998) (options approach to contract damages); Avery Wiener Katz, An Economic Analysis of the Guaranty Contract, 66 U. CHI. L. REV. 47 (1999) (guaranty contracts). Some other examples are cited below.
11. In particular, it is hard to believe that the neoclassical model, to the extent that it overlaps with the standard economic approach, has been exhausted. A sample of recent work along these lines includes Ian Ayres & Robert Gertner, Filling Gaps in Incomplete Contracts: An Economic Theory of Default Rules, 94 YALE L.J. 97 (1989) [hereinafter Filling Gaps]; Ian Ayres & Robert Gertner, Strategic Contractual Inefficiency and the Optimal Choice of Legal Rules, 101 YALE L.J. 729 (1992); Lucian Arye Bebchuk & Steven Shavell, Information and the Scope of Liability for Breach of Contract: The Rule of Hadley v. Baxendale, 7 J.L. ECON. & ORG. 284 (1991); Jason Scott Johnston, Strategic Bargaining and the Economic Theory of Contract Default Rules, 100 YALE L.J. 615 (1990); Paul G. Mahoney, Contract Remedies and Options Pricing, 24 J. LEGAL STUD. 139 (1995); Thomas J. Miceli, Contract Modification when Litigating for Damages Is Costly, 15 INT'L REV. L. & ECON. 87 (1995); Eric A. Posner, Contract Law in the Welfare State: A Defense of the Unconscionability Doctrine, Usury Laws, and Related Limitations on the Freedom of Contract, 24 J. LEGAL STUD. 283 (1995) (restrictions on contractual freedom); Alan Schwartz, The Default Rule Paradigm and the Limits of Contract Law, 3 S. CAL. INTERDISC. L.J. 389 (1994); Lars A. Stole, The Economics of Liquidated Damage Clauses in Contractual Environments with Private Information, 8 J.L. ECON. & ORG. 582 (1992) (penalty doctrine); Eric Talley, Contract Renegotiation, Mechanism Design, and the Liquidated Damages Rule, 46 STAN. L. REV. 1195 (1994); Alexander J. Triantis & George G. Triantis, Timing Problems in Contract Breach Decisions, 41 J.L. & ECON. 163 (1998) (options approach to contract damages); Avery Wiener Katz, An Economic Analysis of the Guaranty Contract, 66 U. CHI. L. REV. 47 (1999) (guaranty contracts). Some other examples are cited below.
12. In particular, it is hard to believe that the neoclassical model, to the extent that it overlaps with the standard economic approach, has been exhausted. A sample of recent work along these lines includes Ian Ayres & Robert Gertner, Filling Gaps in Incomplete Contracts: An Economic Theory of Default Rules, 94 YALE L.J. 97 (1989) [hereinafter Filling Gaps]; Ian Ayres & Robert Gertner, Strategic Contractual Inefficiency and the Optimal Choice of Legal Rules, 101 YALE L.J. 729 (1992); Lucian Arye Bebchuk & Steven Shavell, Information and the Scope of Liability for Breach of Contract: The Rule of Hadley v. Baxendale, 7 J.L. ECON. & ORG. 284 (1991); Jason Scott Johnston, Strategic Bargaining and the Economic Theory of Contract Default Rules, 100 YALE L.J. 615 (1990); Paul G. Mahoney, Contract Remedies and Options Pricing, 24 J. LEGAL STUD. 139 (1995); Thomas J. Miceli, Contract Modification when Litigating for Damages Is Costly, 15 INT'L REV. L. & ECON. 87 (1995); Eric A. Posner, Contract Law in the Welfare State: A Defense of the Unconscionability Doctrine, Usury Laws, and Related Limitations on the Freedom of Contract, 24 J. LEGAL STUD. 283 (1995) (restrictions on contractual freedom); Alan Schwartz, The Default Rule Paradigm and the Limits of Contract Law, 3 S. CAL. INTERDISC. L.J. 389 (1994); Lars A. Stole, The Economics of Liquidated Damage Clauses in Contractual Environments with Private Information, 8 J.L. ECON. & ORG. 582 (1992) (penalty doctrine); Eric Talley, Contract Renegotiation, Mechanism Design, and the Liquidated Damages Rule, 46 STAN. L. REV. 1195 (1994); Alexander J. Triantis & George G. Triantis, Timing Problems in Contract Breach Decisions, 41 J.L. & ECON. 163 (1998) (options approach to contract damages); Avery Wiener Katz, An Economic Analysis of the Guaranty Contract, 66 U. CHI. L. REV. 47 (1999) (guaranty contracts). Some other examples are cited below.
13. In particular, it is hard to believe that the neoclassical model, to the extent that it overlaps with the standard economic approach, has been exhausted. A sample of recent work along these lines includes Ian Ayres & Robert Gertner, Filling Gaps in Incomplete Contracts: An Economic Theory of Default Rules, 94 YALE L.J. 97 (1989) [hereinafter Filling Gaps]; Ian Ayres & Robert Gertner, Strategic Contractual Inefficiency and the Optimal Choice of Legal Rules, 101 YALE L.J. 729 (1992); Lucian Arye Bebchuk & Steven Shavell, Information and the Scope of Liability for Breach of Contract: The Rule of Hadley v. Baxendale, 7 J.L. ECON. & ORG. 284 (1991); Jason Scott Johnston, Strategic Bargaining and the Economic Theory of Contract Default Rules, 100 YALE L.J. 615 (1990); Paul G. Mahoney, Contract Remedies and Options Pricing, 24 J. LEGAL STUD. 139 (1995); Thomas J. Miceli, Contract Modification when Litigating for Damages Is Costly, 15 INT'L REV. L. & ECON. 87 (1995); Eric A. Posner, Contract Law in the Welfare State: A Defense of the Unconscionability Doctrine, Usury Laws, and Related Limitations on the Freedom of Contract, 24 J. LEGAL STUD. 283 (1995) (restrictions on contractual freedom); Alan Schwartz, The Default Rule Paradigm and the Limits of Contract Law, 3 S. CAL. INTERDISC. L.J. 389 (1994); Lars A. Stole, The Economics of Liquidated Damage Clauses in Contractual Environments with Private Information, 8 J.L. ECON. & ORG. 582 (1992) (penalty doctrine); Eric Talley, Contract Renegotiation, Mechanism Design, and the Liquidated Damages Rule, 46 STAN. L. REV. 1195 (1994); Alexander J. Triantis & George G. Triantis, Timing Problems in Contract Breach Decisions, 41 J.L. & ECON. 163 (1998) (options approach to contract damages); Avery Wiener Katz, An Economic Analysis of the Guaranty Contract, 66 U. CHI. L. REV. 47 (1999) (guaranty contracts). Some other examples are cited below.
14. For Macneil's acknowledgment, see Ian R. Macneil, The Many Futures of Contract, 47 S. CAL. L. REV. 691, 734 n.131 (1974).
15. Karl Llewellyn, What Price Contract? - An Essay in Perspective, 40 YALE L.J. 704 (1931); Stewart Macaulay, Non-Contractual Relations in Business: A Preliminary Study, 28 AM. SOC. REV. 55 (1963).
16. Karl Llewellyn, What Price Contract? - An Essay in Perspective, 40 YALE L.J. 704 (1931); Stewart Macaulay, Non-Contractual Relations in Business: A Preliminary Study, 28 AM. SOC. REV. 55 (1963).
17. Victor P. Goldberg, Relational Contract, in 3 THE NEW PALGRAVE DICTIONARY OF ECONOMICS AND THE LAW 288 (Peter Newman ed., 1998).
18. See, e.g., Steven Shavell, Damage Measures for Breach of Contract, 11 BELL J. ECON. 466 (1980).
19. See, e.g., Anthony Kronman, Specific Performance, 45 U. CHI. L. REV. 351 (1978); Alan Schwartz, The Case for Specific Performance, 89 YALE L.J. 271 (1979). In fact, all of these ideas appeared in articles by economists going back into the early 1970s, work from which much of the law-and-economics literature derives. The economic literature on "incomplete contracts," which parallels the legal work on relational contracts, has its roots in this earlier work See Oliver Hart & Bengt Holmstrom, The Theory of Contracts, in ADVANCES IN ECONOMIC THEORY 71-155 (Truman Bewley ed., 1987). See also OLIVER E. WILLIAMSON, MARKETS AND HIERARCHIES: ANALYSIS AND ANTITRUST IMPLICATIONS (1975). For Macneil's views, see Ian R. Macneil, Economic Analysis of Contractual Relations: Its Shortfalls and the Need for a "Rich Classiflcatory Apparatus," 75 Nw. U. L. REV. 1018, 1039 (1981) [hereinafter Economic Analysis].
20. See, e.g., Anthony Kronman, Specific Performance, 45 U. CHI. L. REV. 351 (1978); Alan Schwartz, The Case for Specific Performance, 89 YALE L.J. 271 (1979). In fact, all of these ideas appeared in articles by economists going back into the early 1970s, work from which much of the law-and-economics literature derives. The economic literature on "incomplete contracts," which parallels the legal work on relational contracts, has its roots in this earlier work See Oliver Hart & Bengt Holmstrom, The Theory of Contracts, in ADVANCES IN ECONOMIC THEORY 71-155 (Truman Bewley ed., 1987). See also OLIVER E. WILLIAMSON, MARKETS AND HIERARCHIES: ANALYSIS AND ANTITRUST IMPLICATIONS (1975). For Macneil's views, see Ian R. Macneil, Economic Analysis of Contractual Relations: Its Shortfalls and the Need for a "Rich Classiflcatory Apparatus," 75 Nw. U. L. REV. 1018, 1039 (1981) [hereinafter Economic Analysis].
21. See, e.g., Anthony Kronman, Specific Performance, 45 U. CHI. L. REV. 351 (1978); Alan Schwartz, The Case for Specific Performance, 89 YALE L.J. 271 (1979). In fact, all of these ideas appeared in articles by economists going back into the early 1970s, work from which much of the law-and-economics literature derives. The economic literature on "incomplete contracts," which parallels the legal work on relational contracts, has its roots in this earlier work See Oliver Hart & Bengt Holmstrom, The Theory of Contracts, in ADVANCES IN ECONOMIC THEORY 71-155 (Truman Bewley ed., 1987). See also OLIVER E. WILLIAMSON, MARKETS AND HIERARCHIES: ANALYSIS AND ANTITRUST IMPLICATIONS (1975). For Macneil's views, see Ian R. Macneil, Economic Analysis of Contractual Relations: Its Shortfalls and the Need for a "Rich Classiflcatory Apparatus," 75 Nw. U. L. REV. 1018, 1039 (1981) [hereinafter Economic Analysis].
22. See, e.g., Anthony Kronman, Specific Performance, 45 U. CHI. L. REV. 351 (1978); Alan Schwartz, The Case for Specific Performance, 89 YALE L.J. 271 (1979). In fact, all of these ideas appeared in articles by economists going back into the early 1970s, work from which much of the law-and-economics literature derives. The economic literature on "incomplete contracts," which parallels the legal work on relational contracts, has its roots in this earlier work See Oliver Hart & Bengt Holmstrom, The Theory of Contracts, in ADVANCES IN ECONOMIC THEORY 71-155 (Truman Bewley ed., 1987). See also OLIVER E. WILLIAMSON, MARKETS AND HIERARCHIES: ANALYSIS AND ANTITRUST IMPLICATIONS (1975). For Macneil's views, see Ian R. Macneil, Economic Analysis of Contractual Relations: Its Shortfalls and the Need for a "Rich Classiflcatory Apparatus," 75 Nw. U. L. REV. 1018, 1039 (1981) [hereinafter Economic Analysis].
23. See, e.g., Anthony Kronman, Specific Performance, 45 U. CHI. L. REV. 351 (1978); Alan Schwartz, The Case for Specific Performance, 89 YALE L.J. 271 (1979). In fact, all of these ideas appeared in articles by economists going back into the early 1970s, work from which much of the law-and-economics literature derives. The economic literature on "incomplete contracts," which parallels the legal work on relational contracts, has its roots in this earlier work See Oliver Hart & Bengt Holmstrom, The Theory of Contracts, in ADVANCES IN ECONOMIC THEORY 71-155 (Truman Bewley ed., 1987). See also OLIVER E. WILLIAMSON, MARKETS AND HIERARCHIES: ANALYSIS AND ANTITRUST IMPLICATIONS (1975). For Macneil's views, see Ian R. Macneil, Economic Analysis of Contractual Relations: Its Shortfalls and the Need for a "Rich Classiflcatory Apparatus," 75 Nw. U. L. REV. 1018, 1039 (1981) [hereinafter Economic Analysis].
24. See, e.g., IAN R. MACNEIL, THE NEW SOCIAL CONTRACT (1980); Macneil, Economic Analysis, supra note 8; Ian R. Macneil, Values in Contract: Internal and External, 78 Nw. U. L. REV. 340, 383-89 (1983). An interesting application is Richard E. Speidel, Court-Imposed Price Adjustments Under Long-Term Supply Contracts, 76 Nw. U. L. REV. 369, 370-81 (1981). There is also a flavor of this approach in Gillian Hadfield, Problematic Relations: Franchising and the Law of Incomplete Contracts, 42 STAN. L. REV. 927 (1990).
25. See, e.g., IAN R. MACNEIL, THE NEW SOCIAL CONTRACT (1980); Macneil, Economic Analysis, supra note 8; Ian R. Macneil, Values in Contract: Internal and External, 78 Nw. U. L. REV. 340, 383-89 (1983). An interesting application is Richard E. Speidel, Court-Imposed Price Adjustments Under Long-Term Supply Contracts, 76 Nw. U. L. REV. 369, 370-81 (1981). There is also a flavor of this approach in Gillian Hadfield, Problematic Relations: Franchising and the Law of Incomplete Contracts, 42 STAN. L. REV. 927 (1990).
26. See, e.g., IAN R. MACNEIL, THE NEW SOCIAL CONTRACT (1980); Macneil, Economic Analysis, supra note 8; Ian R. Macneil, Values in Contract: Internal and External, 78 Nw. U. L. REV. 340, 383-89 (1983). An interesting application is Richard E. Speidel, Court-Imposed Price Adjustments Under Long-Term Supply Contracts, 76 Nw. U. L. REV. 369, 370-81 (1981). There is also a flavor of this approach in Gillian Hadfield, Problematic Relations: Franchising and the Law of Incomplete Contracts, 42 STAN. L. REV. 927 (1990).
27. See, e.g., IAN R. MACNEIL, THE NEW SOCIAL CONTRACT (1980); Macneil, Economic Analysis, supra note 8; Ian R. Macneil, Values in Contract: Internal and External, 78 Nw. U. L. REV. 340, 383-89 (1983). An interesting application is Richard E. Speidel, Court-Imposed Price Adjustments Under Long-Term Supply Contracts, 76 Nw. U. L. REV. 369, 370-81 (1981). There is also a flavor of this approach in Gillian Hadfield, Problematic Relations: Franchising and the Law of Incomplete Contracts, 42 STAN. L. REV. 927 (1990).
28. See, e.g., IAN R. MACNEIL, THE NEW SOCIAL CONTRACT (1980); Macneil, Economic Analysis, supra note 8; Ian R. Macneil, Values in Contract: Internal and External, 78 Nw. U. L. REV. 340, 383-89 (1983). An interesting application is Richard E. Speidel, Court-Imposed Price Adjustments Under Long-Term Supply Contracts, 76 Nw. U. L. REV. 369, 370-81 (1981). There is also a flavor of this approach in Gillian Hadfield, Problematic Relations: Franchising and the Law of Incomplete Contracts, 42 STAN. L. REV. 927 (1990).
29. See Charles Goetz and Robert Scott, Principles of Relational Contracts, 67 VA. L. REV. 1089 (1981); Robert E. Scott, A Relational Theory of Default Rules for Commercial Contracts, 19 J. LEGAL STUD. 597 (1990). Robert Cooter takes a position midway between Goetz and Scott, on one hand, and Macneil, on the other, arguing that courts should, under certain conditions, identify and apply prevailing commercial customs in order to resolve contractual disputes, and that these customs will generally be efficient. Robert Cooter, Structural Adjudication and the New Law Merchant: A Model of Decentralized Law, 14 INT'L REV. L. & ECON. 215 (1994).
30. See Charles Goetz and Robert Scott, Principles of Relational Contracts, 67 VA. L. REV. 1089 (1981); Robert E. Scott, A Relational Theory of Default Rules for Commercial Contracts, 19 J. LEGAL STUD. 597 (1990). Robert Cooter takes a position midway between Goetz and Scott, on one hand, and Macneil, on the other, arguing that courts should, under certain conditions, identify and apply prevailing commercial customs in order to resolve contractual disputes, and that these customs will generally be efficient. Robert Cooter, Structural Adjudication and the New Law Merchant: A Model of Decentralized Law, 14 INT'L REV. L. & ECON. 215 (1994).
31. See Charles Goetz and Robert Scott, Principles of Relational Contracts, 67 VA. L. REV. 1089 (1981); Robert E. Scott, A Relational Theory of Default Rules for Commercial Contracts, 19 J. LEGAL STUD. 597 (1990). Robert Cooter takes a position midway between Goetz and Scott, on one hand, and Macneil, on the other, arguing that courts should, under certain conditions, identify and apply prevailing commercial customs in order to resolve contractual disputes, and that these customs will generally be efficient. Robert Cooter, Structural Adjudication and the New Law Merchant: A Model of Decentralized Law, 14 INT'L REV. L. & ECON. 215 (1994).
32. See Alan Schwanz, Incomplete Contracts, in THE NEW PALGRAVE DICTIONARY OF ECONOMICS AND THE LAW (Peter Newman ed.,1998); Alan Schwartz, Relational Contracts in the Courts: An Analysis of Incomplete Agreements and Judicial Strategies, 21 J. LEGAL STUD. 271 (1992).
33. See Alan Schwanz, Incomplete Contracts, in THE NEW PALGRAVE DICTIONARY OF ECONOMICS AND THE LAW (Peter Newman ed.,1998); Alan Schwartz, Relational Contracts in the Courts: An Analysis of Incomplete Agreements and Judicial Strategies, 21 J. LEGAL STUD. 271 (1992).
34. See. e.g., Oliver Hart and John Moore, Incomplete Contracts and Renegotiation, 56 ECONOMETRICA 755 (1988); Philippe Aghion, Mathias Dewatripont, and Patrick Rey, Renegotiation Design with Unverifiable Information, 62 ECONOMETRlCA 257 (1994); Aaron S. Edlin and Stefan Reichelstein, Holdups, Standard Breach Remedies, and Optimal Investment, 86 AM. ECON. REV. 478 (1996).
35. See. e.g., Oliver Hart and John Moore, Incomplete Contracts and Renegotiation, 56 ECONOMETRICA 755 (1988); Philippe Aghion, Mathias Dewatripont, and Patrick Rey, Renegotiation Design with Unverifiable Information, 62 ECONOMETRlCA 257 (1994); Aaron S. Edlin and Stefan Reichelstein, Holdups, Standard Breach Remedies, and Optimal Investment, 86 AM. ECON. REV. 478 (1996).
36. See. e.g., Oliver Hart and John Moore, Incomplete Contracts and Renegotiation, 56 ECONOMETRICA 755 (1988); Philippe Aghion, Mathias Dewatripont, and Patrick Rey, Renegotiation Design with Unverifiable Information, 62 ECONOMETRlCA 257 (1994); Aaron S. Edlin and Stefan Reichelstein, Holdups, Standard Breach Remedies, and Optimal Investment, 86 AM. ECON. REV. 478 (1996).
37. See Karen Eggleston, Eric A. Posner, and Richard Zeckhauser, The Design and Interpretation of Contracts: Why Complexity Matters, 95 NW. U. L. REV. (forthcoming 2000).
38. See, e.g., JANET T. LANDA, TRUST, ETHNICITY AND IDENTITY: BEYOND THE NEW INSTITUTIONAL ECONOMICS OF ETHNIC TRADING NETWORKS, CONTRACT LAW, AND GIFT EXCHANGE (1994); ELINOR OSTROM, GOVERNING THE COMMONS: THE EVOLUTION OF INSTITUTIONS FOR COLLECTIVE ACTION (1990); Avner Greif, Contract Enforceability and Economic Institutions in Early Trade: The Maghribi Traders Coalition, 83 AM. ECON. REV. 525 (1993); Avner Greif et al., Coordination, Commitment, and Enforcement: The Case of the Merchant Guild, 102 J. POL. ECON. 745 (1994); Eric A. Posner, The Regulation of Groups: The Influence of Legal and Nonlegal Sanctions on Collective Action, 63 U. CHI. L. REV. 133 (1996) [hereinafter Posner, Regulation of Groups].
39. See, e.g., JANET T. LANDA, TRUST, ETHNICITY AND IDENTITY: BEYOND THE NEW INSTITUTIONAL ECONOMICS OF ETHNIC TRADING NETWORKS, CONTRACT LAW, AND GIFT EXCHANGE (1994); ELINOR OSTROM, GOVERNING THE COMMONS: THE EVOLUTION OF INSTITUTIONS FOR COLLECTIVE ACTION (1990); Avner Greif, Contract Enforceability and Economic Institutions in Early Trade: The Maghribi Traders Coalition, 83 AM. ECON. REV. 525 (1993); Avner Greif et al., Coordination, Commitment, and Enforcement: The Case of the Merchant Guild, 102 J. POL. ECON. 745 (1994); Eric A. Posner, The Regulation of Groups: The Influence of Legal and Nonlegal Sanctions on Collective Action, 63 U. CHI. L. REV. 133 (1996) [hereinafter Posner, Regulation of Groups].
40. See, e.g., JANET T. LANDA, TRUST, ETHNICITY AND IDENTITY: BEYOND THE NEW INSTITUTIONAL ECONOMICS OF ETHNIC TRADING NETWORKS, CONTRACT LAW, AND GIFT EXCHANGE (1994); ELINOR OSTROM, GOVERNING THE COMMONS: THE EVOLUTION OF INSTITUTIONS FOR COLLECTIVE ACTION (1990); Avner Greif, Contract Enforceability and Economic Institutions in Early Trade: The Maghribi Traders Coalition, 83 AM. ECON. REV. 525 (1993); Avner Greif et al., Coordination, Commitment, and Enforcement: The Case of the Merchant Guild, 102 J. POL. ECON. 745 (1994); Eric A. Posner, The Regulation of Groups: The Influence of Legal and Nonlegal Sanctions on Collective Action, 63 U. CHI. L. REV. 133 (1996) [hereinafter Posner, Regulation of Groups].
41. See, e.g., JANET T. LANDA, TRUST, ETHNICITY AND IDENTITY: BEYOND THE NEW INSTITUTIONAL ECONOMICS OF ETHNIC TRADING NETWORKS, CONTRACT LAW, AND GIFT EXCHANGE (1994); ELINOR OSTROM, GOVERNING THE COMMONS: THE EVOLUTION OF INSTITUTIONS FOR COLLECTIVE ACTION (1990); Avner Greif, Contract Enforceability and Economic Institutions in Early Trade: The Maghribi Traders Coalition, 83 AM. ECON. REV. 525 (1993); Avner Greif et al., Coordination, Commitment, and Enforcement: The Case of the Merchant Guild, 102 J. POL. ECON. 745 (1994); Eric A. Posner, The Regulation of Groups: The Influence of Legal and Nonlegal Sanctions on Collective Action, 63 U. CHI. L. REV. 133 (1996) [hereinafter Posner, Regulation of Groups].
42. See, e.g., JANET T. LANDA, TRUST, ETHNICITY AND IDENTITY: BEYOND THE NEW INSTITUTIONAL ECONOMICS OF ETHNIC TRADING NETWORKS, CONTRACT LAW, AND GIFT EXCHANGE (1994); ELINOR OSTROM, GOVERNING THE COMMONS: THE EVOLUTION OF INSTITUTIONS FOR COLLECTIVE ACTION (1990); Avner Greif, Contract Enforceability and Economic Institutions in Early Trade: The Maghribi Traders Coalition, 83 AM. ECON. REV. 525 (1993); Avner Greif et al., Coordination, Commitment, and Enforcement: The Case of the Merchant Guild, 102 J. POL. ECON. 745 (1994); Eric A. Posner, The Regulation of Groups: The Influence of Legal and Nonlegal Sanctions on Collective Action, 63 U. CHI. L. REV. 133 (1996) [hereinafter Posner, Regulation of Groups].
43. See Benjamin Klein & Keith B. Leffler, The Role of Market Forces in Assuring Contractual Performance, 89 J. POL. ECON. 615 (1981).
44. But see Louis A. Komhauser, Reliance, Reputation, and Breach of Contract, 26 J.L. & ECON. 691 (1983).
45. Robyn Meredith, Strip Clubs Under Siege as Salesman's Havens, N.Y. TIMES, Sept 20, 1997, at Al.
46. Lisa Bernstein, Private Commercial Law in the Cotton Industry: Value Creation Through Rules, Norms, and Institutions, at 16 (unpublished manuscript) (quoting merchant, brackets and ellipses in original).
47. Id. at 20-21.
48. See Schwartz, Incomplete Contracts, supra note 11.
49. Jeffrey E. Allen & Robert J. Staaf, The Nexus Between Usury, "Time Price," and Unconscionability in Installment Sales, 14 UCC L.J. 219 (1982).
50. The term, and the basic insight, come from THOMAS C. SCHELLING, THE STRATEGY OF CONFLICT 24-28 (1960).
51. "Discount rate" refers to the extent to which a person values future payoffs relative to current payoffs. A person with a high discount rate values future payoffs much less than current payoffs; a person with a low discount rate values future payoffs only a little less than current payoffs.
52. See Posner, Regulation of Groups, supra note 14, at 155-61.
53. See ERIC A. POSNER, LAW AND SOCIAL NORMS (forthcoming 2000); Eric A. Posner, Symbols, Signals, and Social Norms in Politics and the Law, 27 J. LEGAL STUD. 765 (1998).
54. See ERIC A. POSNER, LAW AND SOCIAL NORMS (forthcoming 2000); Eric A. Posner, Symbols, Signals, and Social Norms in Politics and the Law, 27 J. LEGAL STUD. 765 (1998).
55. The argument is in the spirit of Williamson, who also assumes that contracts are not enforceable. See Oliver E. Williamson, THE ECONOMIC INSTITUTIONS OF CAPITALISM 168-69 (1985). But Williamson focuses on private ordering, and does not have any specific ideas about the role of courts. Id. at 400-01.
56. Existing work on judicial error does not make such an extreme assumption. See, e.g., Richard Craswell & John E. Calfee, Deterrence and Uncertain Legal Standards, 2 J.L. ECON. AND ORG. 279 (1986); Gillian Hadfield, Judicial Competence and the Interpretation of Incomplete Contracts, 23 J. LEGAL STUD. 159 (1994).
57. Existing work on judicial error does not make such an extreme assumption. See, e.g., Richard Craswell & John E. Calfee, Deterrence and Uncertain Legal Standards, 2 J.L. ECON. AND ORG. 279 (1986); Gillian Hadfield, Judicial Competence and the Interpretation of Incomplete Contracts, 23 J. LEGAL STUD. 159 (1994).
58. I assume away a number of complications that are well rehearsed in the literature. The most lucid discussion remains Richard Craswell, Contract Remedies, Renegotiation, and the Theory of Efficient Breach, 61 S. CAL. L. REV. 630 (1988).
59. One might make different assumptions about how much information the third parties have. In the simplest case, the third parties know who cheated. By hypothesis, this knowledge does not deter Buyer from cheating because Buyer has a high-value opportunity. But it is enough to give Seller an incentive to sue, and the suit is what deters Buyer. (Imagine that Seller deals with these third parties more than Buyer does, or that Buyer's gain from cheating is high compared to Seller's loss.) In the other extreme, third parties do not know whether Buyer cheated. If that is the case, in the current model Seller may have no incentive to sue, because third parties do not know whether Seller is suing because Buyer cheated her or in order to persuade them that she is tough. But real cases no doubt fall between the two extremes. In such cases, third parties have more information about Buyer's actions than courts do but less than Buyer and Seller do. The consequence of such partial information is to blunt the reputation effect on which the model relies but not to eliminate it.
60. Seller will enter the contract, and Buyer will not cheat, when R > C, P > D - C, and P > 0. It follows that contracts will occur when D < P + R. When D > P + R, Seller does not enter the contract in round 0 because she knows that the threat to sue will not deter Buyer from cheating in round 2. To sum up, there are three possibilities. (1) D < P, in which case contracting is possible because Buyer either gains little from defecting or because nonlegal sanctions are effective ("low-value opportunism"); (2) P < D < P + R, in which case contracting is possible because of incompetent courts; and (3) D > P + R, in which case contracts are not possible.
61. The contrast is a bit overstated. Courts do state that certain promises will be interpreted in certain ways. For example, they often say that if an employment contract does not provide expressly for tenure or termination for cause, it will be interpreted as employment at will.
62. See Warren F. Schwartz et al., The Duel: Can These Gentlemen Be Acting Efficiently?, 13 J. LEGAL STUD. 321 (1984).
63. See WILLIAM IAN MILLER, BLOODTAKING AND PEACEMAKING: FEUD, LAW, AND SOCIETY IN SAGA ICELAND (1990).
64. See V.G. KIERNAN, THE DUEL IN EUROPEAN HISTORY: HONOR AND THE REIGN OF ARISTOCRACY (1988).
65. See generally Melvin A. Eisenberg, The Bargain Principle and Its Limits, 95 HARV. L. REV. 741 (1982).
66. See, e.g., Ayres & Gertner, Filling Gaps, supra note 2; Louis Kaplow, Rules Versus Standards: An Economic Analysis, 42 DUKE L.J. 557 (1992).
67. See, e.g., Ayres & Gertner, Filling Gaps, supra note 2; Louis Kaplow, Rules Versus Standards: An Economic Analysis, 42 DUKE L.J. 557 (1992).
68. See OLIVER WENDELL HOLMES, THE COMMON LAW (M. Howe ed., 1963). Hand's most famous remark on this subject can be found in Hotchkiss v. National City Bank of New York, 200 F. 287, 293 (S.D.N.Y. 1911): A contract has, strictly speaking, nothing to do with the personal, or individual, intent of the parties. A contract is an obligation attached by the mere force of law to certain acts of the parties, usually words, which ordinarily accompany and represent a known intent. If, however, it were proved by twenty bishops that either party, when he used the words, intended something else than the usual meaning which the law imposes upon them, he would still be held, unless there were some mutual mistake, or something else of the sort. Of course, if it appear by other words, or acts, of the parties, that they attribute a peculiar meaning to such words as they use in the contract, that meaning will prevail, but only by virtue of the other words, and not because of their unexpressed intent.
69. See Eric A. Posner, The Decline of Formality in Contract Law, in THE FALL AND RISE OF FREEDOM OF CONTRACT 61 (F. H. Buckley ed. 1999).
70. See JOHN P. DAWSON ET AL., CONTRACTS: CASES AND COMMENT 195-99 (7th ed. 1998).
71. This is an implication of the literature on this topic, cited above. See supra note 36.
72. 133 N.W.2d 267 (Wis. 1965).
73. As noted above, technically this behavior is off the equilibrium path, but would occur in a model in which the parties (more realistically) have imperfect information and make mistakes.
74. Alan Schwartz, The Myth that Promisees Prefer Supracompensatory Remedies: An Analysis of Contracting for Damage Measures, 100 YALE L.J. 369 (1990).
75. The argument assumes that Seller obtains R simply if she sues Buyer after Buyer cheats. One might alternatively assume that R is an increasing function of C, because future parties are more likely to be impressed by Seller's toughness when Seller spends a lot on litigation rather than a little.
76. See Edward B. Rock, Saints and Sinners: How Does Delaware Corporate Law Work?, 44 UCLA L. REV. 1009 (1997).