Hatis: The Anti-Theoretical Nature of Civil Law Contract Scholarship and the Need for an Economic Theory the law. Consequently, there is no urgent need for unifying theo- ries resembling those that were developed in Common law, since Civil law judges are not expected to create law in the manner re- quired of Common law judges his particularistic approach of Civil Law has proven quite successful for a long time, if we judge by the absence of major in- tellectual controversies among Civil law scholars (at least in the area of contract law), similar to those taking place in Common law Since this is a phenomenon common to nearly all European Civil law systems, we could safely say that it is not the outcome of a consensus based on"intellectual laziness, conservatism or igno rance, but the result of (a) the lack of major doctrinal problems created by the rise and fall of opposing philosophical paradigms (b)a parallel absence of major economic or social distortions cre- ated by the application of rigid legal theories, and finally(c)a guided interpretation as a technical skeleton key. " sacy) shared common-sense pragmatism(a Roman law legacy) that has An indication of the superiority of Civil law, especially in the field of contracts, is that over the last two centuries, as we implied earlier, Common law has incessantly copied the institutions of 31 See however Zepos 1967: 931, for the"creative and law-creating efforts of the greek judge. " See also below under 2. 2. llb 2 See characteristically the views of Ernst Cohn, a London barrister practicing a practitioner who has grasped the rules of the first book of the German Civil Code and those of the first part of the second book is thereby alone well equipped to deal satisfactorily with an astonishingly large number of everyday problems. a question which would require a com- mon law practitioner to search in books of reference for one or several quarters of an hour could be solved by his Continental colleague com- pletely satisfactorily in as many minutes.( Cohn 1960: 586) Similarly, in a recent letter to the editor from"a retired American lawyer living in France":"French contracts tend to be extraordinarily short and simple by American standards [ This is partly because parties to business contracts usu- ally dont try to anticipate every situation that could conceivably arise but are content to abide by the Code Civil. " (Himel 1997: 5). See also Pound (1942: 42) However, see Hatzis(1999a: 21-47 and 2000c)
Hatzis: The Anti-Theoretical Nature of Civil Law Contract Scholarship and the Need for an Economic Theory 16 the law.31 Consequently, there is no urgent need for unifying theories resembling those that were developed in Common law, since Civil law judges are not expected to create law in the manner required of Common law judges. This particularistic approach of Civil Law has proven quite successful for a long time, if we judge by the absence of major intellectual controversies among Civil law scholars (at least in the area of contract law), similar to those taking place in Common law. Since this is a phenomenon common to nearly all European Civil law systems, we could safely say that it is not the outcome of a consensus based on “intellectual laziness,” conservatism or ignorance, but the result of (a) the lack of major doctrinal problems created by the rise and fall of opposing philosophical paradigms, (b) a parallel absence of major economic or social distortions created by the application of rigid legal theories, and finally (c) a shared common-sense pragmatism (a Roman law legacy) that has guided interpretation as a technical skeleton key.32 An indication of the superiority of Civil law, especially in the field of contracts, is that over the last two centuries, as we implied earlier, Common law has incessantly copied the institutions of 31 See however Zepos 1967: 931, for the “creative and law-creating efforts of the Greek judge.” See also below under 2.2.IIb. 32 See characteristically the views of Ernst Cohn, a London barrister practicing in both Germany and England, who wrote: A practitioner who has grasped the rules of the first book of the German Civil Code and those of the first part of the second book is thereby alone well equipped to deal satisfactorily with an astonishingly large number of everyday problems. A question which would require a common law practitioner to search in books of reference for one or several quarters of an hour could be solved by his Continental colleague completely satisfactorily in as many minutes. (Cohn 1960: 586). Similarly, in a recent letter to the editor from “a retired American lawyer living in France”: “French contracts tend to be extraordinarily short and simple by American standards [...] This is partly because parties to business contracts usually don't try to anticipate every situation that could conceivably arise but are content to abide by the Code Civil.” (Himel 1997: 5). See also Pound (1942: 42). However, see Hatzis (1999a: 21-47 and 2000c)
Commentaries on Law Economics, Vol 2(2002) Civil law. However, even today, Common law and Civil law have many dissimilarities in the field of contract law. These should not be exaggerated. since the similarities between them are numerous and more important, given the tendency of Common law to bor row solutions from Civil law(but see Mattei 1994a: 199). Never theless, it would be interesting to explore the differences in the light of economic analysis, in order to test the success of both sys- tems. Which system of law is more efficient in those areas where such differences exist? Il. We have elsewhere(Hatzis 1999a; 2000b, 2002b) plored five areas where there are marked differences between Civil and Common law. These areas are contract formation. the en- forcement of liquidated damages and penal clauses, third party beneficiaries, frustration of performance and efficient breach. We used American contract law and greek contract law as typical ex amples for our study. American law is the most important Com- mon law system in the world and greek law is one of the most typical German-influenced legal systems rooted in roman law. As our research showed, the solution provided by the civil law systems in these five areas where major differences are ob 33 E.g."[T]he influence [of the Napoleonic Code Civil in England and the United States was far from superficial but reached deep and long lasting layer of the law(Mattei 1994a: 202). See also Schwartz( 1956) 34"It is, however, becoming more and more obvious today that the prevailing idea of the English Common law as constituting an entirely autochthonous achievement is a myth. For in reality, England was never entirely cut off from continental legal culture. (Zimmermann 1994: 220). See generally, Zepos (1937), Merryman(1981), Bell(1995)and Mattei(1997: 77-81); see also Wat- on(1990:248) 35 The Greek Civil Code took effect in 1946 and was drafted during the 1930s by scholars who were greatly influenced by German law. From 1821 when Greece was liberated from the Ottoman yoke until 1946, Byzantine law(essen- ially the Corpus luis Civilis) was the applicable Civil law with few major modifications by special laws. See Zepos(1946), Maridakes (1959),Watson (1991: 87-88), Zweigert Kotz(1992: 161), Yiannopoulos(1996)and Hatzis (1999:1-21)
Commentaries on Law & Economics, Vol. 2 ( 2002) 17 Civil law.33 However, even today, Common law and Civil law have many dissimilarities in the field of contract law. These should not be exaggerated, since the similarities between them are numerous and more important,34 given the tendency of Common law to borrow solutions from Civil law (but see Mattei 1994a: 199). Nevertheless, it would be interesting to explore the differences in the light of economic analysis, in order to test the success of both systems. Which system of law is more efficient in those areas where such differences exist? III. We have elsewhere (Hatzis 1999a; 2000b, 2002b) explored five areas where there are marked differences between Civil and Common law. These areas are contract formation, the enforcement of liquidated damages and penal clauses, third party beneficiaries, frustration of performance and efficient breach. We used American contract law and Greek contract law as typical examples for our study. American law is the most important Common law system in the world and Greek law is one of the most typical German-influenced legal systems rooted in Roman law.35 As our research showed, the solution provided by the Civil law systems in these five areas where major differences are ob- 33 E.g. “[T]he influence [of the Napoleonic Code Civil] in England and the United States was far from superficial but reached deep and long lasting layers of the law” (Mattei 1994a: 202). See also Schwartz (1956). 34 “It is, however, becoming more and more obvious today that the prevailing idea of the English Common law as constituting an entirely autochthonous achievement is a myth. For in reality, England was never entirely cut off from continental legal culture.” (Zimmermann 1994: 220). See generally, Zepos (1937), Merryman (1981), Bell (1995) and Mattei (1997: 77-81); see also Watson (1990: 248). 35 The Greek Civil Code took effect in 1946 and was drafted during the 1930s by scholars who were greatly influenced by German law. From 1821 when Greece was liberated from the Ottoman yoke until 1946, Byzantine law (essentially the Corpus Iuris Civilis) was the applicable Civil law with few major modifications by special laws. See Zepos (1946), Maridakes (1959), Watson (1991: 87-88), Zweigert & Kötz (1992: 161), Yiannopoulos (1996) and Hatzis (1999a: 1-21)
Hatzis. Th Nature of Civil Law Co Scholarship and the Need for an Economic Theory served, is more congenial to the one advocated by economists as The particularist matic approach of the Roman and Civil law(zimmermann 1990 921) has proven to be more efficient than that of the rigid theo- retical Common law, whose reluctance to adopt all the successful solutions given by the Civil law(although it has already adopted most of them) is primarily due to the futile attempt of Common law scholars to create unified theories based not on economic effi ciency(the real and primary purpose of contract law), but on phi- 36 See generally Hatzis(1993)for the applicability of positive economic theory and even of the normative function of the wealth-maximization principle in Civil aw countries. See also Mattei(1997: 179-199). However, the prevalent theory in law economics maintains that the Common law process is the primary rea- son for the generation of efficient rules. See characteristically Rubin(1977; also 1994: 9-11)and the work of Richard Posner in general, mainly his treatise Eco- nomic Analysis of Law(Posner 1998b, also 1980). For a contrary view, see Backhaus (1989). For the"official" Chicago school statements of the efficiency of tort law, see Landes Posner(1987), and of corporate law, see Easterbrook fischel (1989), as well as Ribstein(1999) 37 Of course, the terms are relevant and they are applicable only in the context of the relationship between Civil and Common law. But see Georgakopoulos (1997,esp.485-487) American law could not resist the allure of codification The Uniform Com ercial Code is the prime example. Karl Llewellyn, the U.C. C,s main author (and a great enthusiast of the Common law process)believed(in a"New Deal spirit")that commercial law rules are best created by administrative agencies or specialized law reform organizations( Schwartz 1997: 12, 22-27). He also main- tained that the rules of contract law should come at least in part from outside the Common law system in order for them to be efficient(Schwartz 1997: 31).C. Shavell (1987: 277-290). Restatements have also started to assume the role of codes or statutes(Barnett 1996: 528 ): Courts are increasingly treating the Re- statement as a statute. Judges typically look to the Restatement, rather than to even very practical and accessible legal scholarship, to ascertain the prevailing contract doctrine. They are unwilling to move beyond the safe-haven framework provides 39 For the definition of efficiency, we employ the Kaldor-Hicks criterion of wealth maximization. For a policy to be Kaldor-Hicks efficient, those individuals made better off by a new policy or change of policy, would have to be made suf-
Hatzis: The Anti-Theoretical Nature of Civil Law Contract Scholarship and the Need for an Economic Theory 18 served, is more congenial to the one advocated by economists as the most efficient one.36 The particularistic (casuistic) and pragmatic approach of the Roman and Civil law (Zimmermann 1990: 921) has proven to be more efficient37 than that of the rigid theoretical Common law, whose reluctance to adopt all the successful solutions given by the Civil law (although it has already adopted most of them)38 is primarily due to the futile attempt of Common law scholars to create unified theories, based not on economic efficiency (the real and primary purpose of contract law),39 but on phi- 36 See generally Hatzis (1993) for the applicability of positive economic theory and even of the normative function of the wealth-maximization principle in Civil law countries. See also Mattei (1997: 179-199). However, the prevalent theory in law & economics maintains that the Common law process is the primary reason for the generation of efficient rules. See characteristically Rubin (1977; also 1994: 9-11) and the work of Richard Posner in general, mainly his treatise Economic Analysis of Law (Posner 1998b; also 1980). For a contrary view, see Backhaus (1989). For the “official” Chicago school statements of the efficiency of tort law, see Landes & Posner (1987), and of corporate law, see Easterbrook & Fischel (1989), as well as Ribstein (1999). 37 Of course, the terms are relevant and they are applicable only in the context of the relationship between Civil and Common law. But see Georgakopoulos (1997, esp. 485-487). 38 American law could not resist the allure of codification. The Uniform Commercial Code is the prime example. Karl Llewellyn, the U.C.C.'s main author (and a great enthusiast of the Common law process) believed (in a “New Deal spirit”) that commercial law rules are best created by administrative agencies or specialized law reform organizations (Schwartz 1997: 12, 22-27). He also maintained that the rules of contract law should come at least in part from outside the Common law system in order for them to be efficient (Schwartz 1997: 31). Cf. Shavell (1987: 277-290). Restatements have also started to assume the role of codes or statutes (Barnett 1996: 528): “Courts are increasingly treating the Restatement as a statute. Judges typically look to the Restatement, rather than to even very practical and accessible legal scholarship, to ascertain the prevailing contract doctrine. They are unwilling to move beyond the safe-haven framework it provides.” More generally, see Calabresi (1982). 39 For the definition of efficiency, we employ the Kaldor-Hicks criterion of wealth maximization. For a policy to be Kaldor-Hicks efficient, those individuals made better off by a new policy or change of policy, would have to be made suf-
Commentaries on Law Economics, Vol 2(2002) losophical and moral ideals that are irrelevant to the parties' wishes and welfare This does not signify that Civil laws underlying logic is eco- nomic(a feature that Judge Posner and other law economics scholars attribute to Common Law). But it does make the point that he long process from Roman Law times to the modern Civil Codes which we have briefly described above, and the parallel test- ing of its rules by a host of legal scholars, judges and lay people in diverse social and economic settings, have shaped institutions that regulate the market efficiently Nevertheless, we will show that today even Civil law needs a theory. USing Greece as an example, we will discuss the attempts of mainstream scholars to cope with its absence and will explore the reasons for their failure to satisfy the aims of contract law, sug- gesting that the most appropriate theory is an economic theory for ontract law, based on the currently mainstream neoclassical eco- nomIcs 2. Economic Analysis for aCivil"Contract Law 2.1. From the Absence of Theory to the Neoclassical Consensus ficiently better off that they could compensate those who are made worse off, the compensation being potential and not actual( Harrison 1995: 34). See Kaldor (1939)and Hicks(1939)and also Posner(1992: 13-16). More generally on effi- ciency concepts, see Murphy Coleman(1990: 182-187) 40 Of course, this does not imply that countries with civil law systems are wealthier or more efficiency-oriented than common law countries. The evidence signifies that rather the opposite is true. See esp. Mahoney(2000)(common lav countries experienced faster economic growth than civil law countries during the period 1960-1992; the difference reflects the common laws greater orientation toward private economic activity and the civil laws greater orientation toward government intervention ). However, we believe that this disparity should rather be attributed to different cultural traditions and historical circumstances. See below under 2.2.Il.c
Commentaries on Law & Economics, Vol. 2 ( 2002) 19 losophical and moral ideals that are irrelevant to the parties' wishes and welfare. This does not signify that Civil Law's underlying logic is economic (a feature that Judge Posner and other law & economics scholars attribute to Common Law). But it does make the point that the long process from Roman Law times to the modern Civil Codes which we have briefly described above, and the parallel testing of its rules by a host of legal scholars, judges and lay people in diverse social and economic settings, have shaped institutions that regulate the market efficiently.40 Nevertheless, we will show that today even Civil law needs a theory. Using Greece as an example, we will discuss the attempts of mainstream scholars to cope with its absence and will explore the reasons for their failure to satisfy the aims of contract law, suggesting that the most appropriate theory is an economic theory for contract law, based on the currently mainstream neoclassical economics. 2. Economic Analysis for a “Civil” Contract Law 2.1. From the Absence of Theory to the Neoclassical Consensus ficiently better off that they could compensate those who are made worse off, the compensation being potential and not actual (Harrison 1995: 34). See Kaldor (1939) and Hicks (1939) and also Posner (1992: 13-16). More generally on efficiency concepts, see Murphy & Coleman (1990: 182-187). 40 Of course, this does not imply that countries with civil law systems are wealthier or more efficiency-oriented than common law countries. The evidence signifies that rather the opposite is true. See esp. Mahoney (2000) (common law countries experienced faster economic growth than civil law countries during the period 1960-1992; the difference reflects the common law's greater orientation toward private economic activity and the civil law's greater orientation toward government intervention). However, we believe that this disparity should rather be attributed to different cultural traditions and historical circumstances. See below under 2.2.II.c
Hatis: The Anti-Theoretical Nature of Civil Law Contract Scholarship and the Need for an Economic Theory As we emphasized in the first part of this paper, the euro- pean Civil Codes have proven overall successful after many dec ades of constructive implementation. Their particularistic approach towards contract law and the absence of rigidity contributed to the facilitation of economic life and to the realization of the parties wishes more successfully compared to Common law. This was the esult of a natural evolution of legal rules and practices that threw into disuse a number of worthless institutions and insignificant for malities. It was also the result of the judges respect for the principle of freedom of contracts and the absence of an active judi ciary. similar to the one in the United States However. the essential devotion of legal scholars to the spirit of equality,, which is inherent in the freedom of contracts principle, inevitably raised concerns about genuine consent, about he substance of the contract and consequently about the conditions required for the autonomous will to be freely and voluntarily ex- pressed through contract (thus bringing about just but also truly efficient results). Civil law scholars have increasingly focused on the problem of inequality of bargaining power in a contractual rela- tionship and of informational asymmetries( sometimes even the protection of risk averse persons). This intellectual process has led to theorizing that bears many similarities to the one undertaken by American neoclassical contract law scholarship 4l This process was precipitated by the struggle between the historical school and Roman law, a struggle that resulted in the creation of a"legal spontaneous order, purified by the rationality of Roman law. See generally Klenner(1989) 42 As we implied earlier, Civil law judges are active in developing the law, not changing it. And they are always free from precedent. For relevant remarks, see generally Gordley(1981), Alivizatos(1995: 578-580) and Posner(1996c: 60- 43 For an account of this development in American contract law, see Slawson (1996). See Hellner(1991) for a similar movement initiated in the context of the Scandinavian legal realist school. See also Hillman(1997)and Sharma(1999), and in Greek, the very good historical introduction to the"rise"and"decline"of contract(spanning the period from ancient Greek law to Gilmore and Atiyah)by Velissaropoulou-Karakosta(1993). See also Macneil (1978)for an earlier and
Hatzis: The Anti-Theoretical Nature of Civil Law Contract Scholarship and the Need for an Economic Theory 20 As we emphasized in the first part of this paper, the European Civil Codes have proven overall successful after many decades of constructive implementation. Their particularistic approach towards contract law and the absence of rigidity contributed to the facilitation of economic life and to the realization of the parties' wishes more successfully compared to Common law. This was the result of a natural evolution of legal rules and practices that threw into disuse a number of worthless institutions and insignificant formalities.41 It was also the result of the judges' respect for the principle of freedom of contracts and the absence of an active judiciary, similar to the one in the United States.42 However, the essential devotion of legal scholars to the “spirit of equality”, which is inherent in the freedom of contracts principle, inevitably raised concerns about genuine consent, about the substance of the contract and consequently about the conditions required for the autonomous will to be freely and voluntarily expressed through contract (thus bringing about just but also truly efficient results). Civil law scholars have increasingly focused on the problem of inequality of bargaining power in a contractual relationship and of informational asymmetries (sometimes even the protection of risk averse persons). This intellectual process has led to theorizing that bears many similarities to the one undertaken by American neoclassical contract law scholarship.43 41 This process was precipitated by the struggle between the historical school and Roman law, a struggle that resulted in the creation of a “legal spontaneous order,” purified by the rationality of Roman law. See generally Klenner (1989). 42 As we implied earlier, Civil law judges are active in developing the law, not changing it. And they are always free from precedent. For relevant remarks, see generally Gordley (1981), Alivizatos (1995: 578-580) and Posner (1996c: 60- 61). 43 For an account of this development in American contract law, see Slawson (1996). See Hellner (1991) for a similar movement initiated in the context of the Scandinavian legal realist school. See also Hillman (1997) and Sharma (1999), and in Greek, the very good historical introduction to the “rise” and “decline” of contract (spanning the period from ancient Greek law to Gilmore and Atiyah) by Velissaropoulou-Karakosta (1993). See also Macneil (1978) for an earlier and