Political economy and contract law

New Features in Contract Law

Volumn , Issue , 2007, Pages 247-276

  Reitz, John C ^a  

^a UNIVERSITY OF IOWA COLLEGE OF LAW   (United States)

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EID: 72449174960     PISSN: None     EISSN: None     Source Type: Book    
DOI: 10.1515/9783866537262     Document Type: Chapter

References (42)

1. Edward L. Carmody Professor of Law, Associate Dean for International and Comparative Law Programs, University of Iowa College of Law. The author would like to thank Professor and Dean Reiner Schulze of the law faculty of the University of Münster, Germany, for the invitation to speak in the series of lectures that gave rise to this volume; Dean Carolyn Jones and the University of Iowa Law School Foundation for financial support for the researching and writing of this paper; Matthew Morriss for research assistance; and faculty colleagues at Münster and Iowa who attended presentations of the paper for their helpful questions, comments, and suggestions. Unless otherwise noted, all translations are by the author.
2. Comparative analysis has to start with a clear focus on a manageable number of specific jurisdictions. The focus on these four countries is justified because, as the following discussion will show, these four countries alone provide sufficient contrasts in political economy to test the thesis, because they are such economically and politically significant countries that their legal systems have exercised great influence on the development of law elsewhere, and because they have especially well documented and analyzed systems of law. It is also only fair to admit additional practical reasons for this focus. These are the four countries I have spent the most time studying, I read their chief languages fluently, and I have access at Iowa to a magnificent library collection for the law of these four countries. In any event, to the extent that it is necessary to discuss how European Union law has forced a modification of the contract law of the European countries in this group, the paper's coverage will actually be considerably broader.
3. Elaine Sciolino, "Not '68, but French Youths Hear Similar Cry to Rise Up," New York Times, March 17, 2006, at A6; Craig S. Smith, "Opponents of New French Labor Law Step Up Protests," New York Times, March 21, 2006, at A9.
4. § 622 BGB.
5. The Dismissal Protection Act originally applied to establishments employing no more than five employers, but it has been amended to apply only to firms with more than ten employees. Manfred Weiss, Labor Law, in Introduction to German Law 299, 330 (Joachim Zekoll & Mathias Reimann, eds., 2005).
6. Stefan Lingemann, et al., Employment & Labor Law in Germany 28-30 (2003)
7. § 1(2) KSchG.
8. John Bell, et al., Principles of French Law 473-474 (1998)
9. Frédéric-Jérôme Pansier, Droit du travail 207-208 (2d ed. 2000).
10. Reinhard Richardi, et al., Münchener Handbuch zum Arbeitsrecht § 3 Rndnr. 8 (2000). French controls on dismissals date to Liberation in 1945, as indicated above in the text. See also Jean-Claude Javillier, Droit du travail 298-300 § 317 (2d ed. 1981).
11. See generally 2 Mark A. Rothstein, et al., Employment Law 401-506 (3rd ed. 2004); David J. Walsh & Joshua L. Schwarz, State Common Law Wrongful Discharge Doctrines: Up-Date, Refinement, and Rationales, 33 Am. Bus. L.J. 645 (1996); Charles J. Muhl, The Employment-at-will Doctrine: Three Major Exceptions, 124 Monthly Lab. Rev. 3 (2001) (updating the study by Walsh and Schwarz through October 1, 2000). Only Arizona and Montana have adopted comprehensive legislation limiting at will employment. Id. at 11 n.3.
12. Petermann v. Int'l Brotherhood of Teamsters, 344 P.2d 25 (Cal. App. Ct. 1959).
13. Frampton v. Central Indiana Gas Co., 297 N.W.2d 425 (Ind. 1973); Sventko v. Kroger Co., 245 N.W.2d 151 (Mich. App. Ct. 1976); Brown v. Transcon Lines, 588 P.2d 1087 (Or. 1978).
14. Glenn v. Clearman's Golden Cock Inn, Inc., 13 Cal. Rptr. 769 (Cal. App. Ct. 1961).
15. Nees v. Hocks, 536 P.2d 512 (Or.1975); Reuther v. Fowler & Williams, Inc., 386 A.2d 119 (Pa. Super. Ct. 1978).
16. Baltimore Sun reporter Jay Hancock summarizes American attitudes about atwill contracting as follows: "Americans, have accepted [the employer's broad layoff authority] with barely a whimper. People complain about layoffs, and many victims are devastated, but there has been nothing like the manifest outrage of France." Jay Hancock, "Ideas: Tales of the free market's forgotten losers; France seethes over a plan to allow layoffs, but Americans have quietlyaccepted them for years," Baltimore Sun, April 9, 2006, at 1F (review of Louis Uchitelle, The Disposable American: Layoffs and their Consequences (2006)). The primary reaction by Americans to the French riots has been derision for the apparent disregard by the French rioters of the laws of economics. As Robert Samuelson of Newsweek put it, "[a]ll these [job] protections perversely- but predictably-stifle job creation." Robert J. Samuelson, "The Politics of Make-Believe: The student protesters in France think that if they march long enough or burn enough cars, they can make the future go away. No such luck," Newsweek, April 3, 2006, at 29. See also Thomas Sowell, "Legislating a 'right' to a job does not work. Raising costs usually results in fewer purchases," Charleston Daily Mail, March 22, 2006, at 4A ("Student riots in Paris remind us that education at elite academic institutions is not enough to teach either higher morals or basic economies [the students rioting] are too ignorant of economics to realize that [job protections] cost them jobs"). For similar opinions, see Cal Thomas, "Socialism Coming Home to Roost," Augusta Chronicle, March 31, 2006, at A5 (also published as "Capitalism will solve French job funk," Buffalo News, April 1, 2006, A7, and as "The French job funk," Tulsa World, April 2, 2006, at G5); Claire Berlinski, "As always, the mob governs France. Economic ignorance causes widespread misery," Charleston Daily Mail, March 29, 2006, at 4A (also published as "The French riots: They're, oh, so 18th century," Pittsburgh Tribune Review, April 2, 2006).
17. See, e.g., Doubts about Convergence: Political Economy as an Impediment to Globalization,
18. Transnat'l L. & Contemp. Probs. 139-159 (2002); Political Economy as a Major Architectural Principle of Public Law, 75 Tul. L. Rev. 1121-1157 (2001); Political Economy and Abstract Review in Germany, France, and the United States, in Constitutional Dialogues in Comparative Perspective 62-88 (Sally J. Kenney, William M. Reisinger and John C. Reitz, eds., 1999).
19. The following paragraph again draws on the publications listed in the previous footnote.
20. By the eighteenth century, the British had developed a more liberal political economy than any European continental state, but the British experience as an island economy which, unlike the newly minted United States in the eighteenth and nineteenth centuries, had relatively little undeveloped land, led it to be influenced by rather different economic theories. Herbert Hovenkamp, Enterprise and American Law, 1836-1937 183-192 (1991). Since the post-war period, Britain has undergone waves of nationalization and privatization of industry, sometimes engaging in both at the same time. John F. McEldowney, Public Law 424-461 (1998); Andrew Le Sueur, et al., Principles of Public Law 86 (1999). Since the mid-twentieth century, the European Union has exerted strong political, economic, and legal pressure on the United Kingdom to accept the more regulatory approaches to the market. A good illustration of this process concerns the Social Charter of 1989 and the Social Protocol of the Maastricht Treaty, which called for special protections for labor. The UK opposed both of these documents and as a result was exempted in the Maastricht Treaty from coverage of the Protocol or any EU legislation adopted pursuant to it. But after the May 1997 victory of the Labour Party, the UK accepted both the Protocol and EU directives promulgated for all the other EU Member States pursuant to the Protocol, and Treaty of Amsterdam eliminated the "two-tier" nature of the EU on these social policy issues. George Bermann, et al., Cases and Materials on European Union Law 1297-1299 (2d ed. 2002).
21. Craig S. Smith, "French Unrest Reflects Old Faith in Quasi-Socialist Ideals," New York Times, April 9, 2006, at A8.
22. Jean Carbonnier wrote that "[i]n proclaiming the liberty of work, of commerce, and of industry in abolishing all forms of corporation the Revolution appears as a project of massive deregulation." 4 Jean Carbonnier, Droit civil § 74 at 151 (22d ed. 2000). However, after surveying the ways in which the French state has intervened in contractual freedom, starting with the many control measures adopted during and right after the French Revolution as control measures for a wartime economy, Dean Carbonnier pronounced one of the many epigrams for which he is noted: "France, when she is not socialist, is Colbertist, and often both at the same time." Id. § 75 at 153.
23. 16 C.F.R. Part 429 (2006).
24. 16 C.F.R. § 429.2 (b) (2006).
25. 1985 O.J. L372/31.
26. Basil S. Markesinis, et al., The German Law of Contract 265-267 (2d ed. 2006).
27. For EU, German, and U.K. law on the point and comparisons to U.S. law, see generally, id. at 163-180; James R. Maxeiner, Standard-Terms Contracting in the Global Electronic Age: European Alternatives, 28 Yale J. Int'l L. 109 (2003) (arguing that Europe regulates standard terms more than the U.S.).
28. C. civ. arts. 1133 (a contract's cause is illicit when contrary to good morals), 1134 (contracts must be performed in good faith); BGB §§ 138 (juristic act void if contra bonos mores), 157 (contracts interpreted according to good faith), 242 (performance subject to good faith).
29. For EU, German, and U.K. law on the point and comparisons to U.S. law, see generally, id. at 163-180; James R. Maxeiner, Standard-Terms Contracting in the Global Electronic Age: European Alternatives, 28 Yale J. Int'l L. 109 (2003) (arguing that Europe regulates standard terms more than the U.S.).
30. C. civ. arts. 1133 (a contract's cause is illicit when contrary to good morals), 1134 (contracts must be performed in good faith); BGB §§ 138 (juristic act void if contra bonos mores), 157 (contracts interpreted according to good faith), 242 (performance subject to good faith).
31. Maxeiner cites one study that counted just fourteen cases in a ten-year period in which a court found a contract or contract clause invalid under the doctrine of unconscionability. Id. at 121. "The actual number of cases [in which the courts have invalidated a contract or contract clause for unconscionability] is debated, but the fact that the number is in the tens or hundreds rather than in the thousands or higher seems clear." Id. at 121. n. 69.
32. Id. at 119. My colleague Professor Steven Burton identifies and critiques a recent line of cases that has invoked unconscionability to invalidate arbitrationagreements included in employment contracts, on both procedural and substantive grounds. Steven J. Burton, The New Judicial Hostility to Arbitration: Federal Preemption, Contract Unconscionability, and Agreements to Arbitrate, 2006 J. Disp. Resol. - (forthcoming) (manuscript in possession of author). This development is quite new (most of the cases he cites are no older than the late 1990s) and concerns only one specific type of clause in one specific type of contract.
33. 1 E. Allen Farnsworth, Farnsworth on Contracts § 1.6 at 22 (3d ed. 2004).
34. Id. at 79. British contracts treatises may appear not to emphasize the idea of bargain quite as much as the U.S. contract doctrine-they still feature the language of detriment or benefit to a greater extent than in the U.S.-but the approaches are not really distinct because British law insists that the benefit to A or the detriment to B must be given in return for A's promise. So the idea of bargain is merely expressed in other terms. See, e.g., Anson's Law of Contract 88-90 (28th ed. 2002) (J. Beatson, ed.); Chitty on Contracts §§ 3-004 to 3-013, at 217-224 (29th ed., 2004)(H.G. Beale, gen'l ed.).
35. Subject, however, to some form requirements, such as notarial form. See the classic discussion of consideration as a "form" requirement and the possible analogues in French and German law in Arthur Taylor von Mehren, Civil-Law Analogies to Consideration: An Exercise in Comparative Analysis," 72 Harv. L. Rev. 1009 (1959).
36. I am not accusing contracts casebook editors necessarily of promoting neoliberal ideology in this way. Many contracts casebooks suggest a critical stance toward the neo-liberal justifications for contract law, at least through a discussion of standard terms and the problems of adhesion contracts, if not more directly. But my point is that the central symbolic significance for contract law of the bargain theory of consideration subtly conveys to the student the centrality of the neo-liberal view. In this way, it appears to reinforce the American predisposition toward a market-centered political economy.
37. See U.C.C. § 2-306 (imposing duties of good faith and, in the case of exclusive dealing, best efforts to satisfy the consideration doctrine). The common law had already come to the same solution for exclusive dealing arrangements. Wood v. Lucy, Lady Duff-Gordon, 118 N.E. 214 (N.Y. 1917).
38. Id. at 164 (footnote omitted).
39. See, e.g., id. at 388-389.
40. Id. at 388 (discussing § 323 BGB). But creditors must normally give extra time to perform, especially in German law. Id.
41. Art. 450(2) Grazhdanskii Kodeks [Civil Code] RF (GK RF). See also A.L. Makovsky & S.A. Khokhlov, Introductory Commentary to the Civil Code, in The Civil Code of the Russian Federation lvi, xcvi (P. Maggs & A.N. Zhiltsov, eds. & trans., 1997)(explaining the state-centered policy behind Article 450).
42. I explore some of these limits on the degree to which the extreme points in the spectrum of political economy are compatible with democracy and the rule of law in Export of the Rule of Law, 13 Transnat'l. L. & Contemp. Probs. 429, 444- 446 (2003).