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Filling the gaps

I should add that more sophisticated variations on the basic theme fares no better. For instance, Alan Schwartz inclines to think that the law-and-economics approach is helpful not only when the gap to be filled in is due to inevitable limitations of language or to party inadvertence, but also when it stems from the costs of creating contract terms because this cause for incompleteness can obtain when the information on which typical parties want to condition is verifiable, that is both observable and worth proving to outsiders like a court. But, in my opinion, the fact that the court can frequently complete the contract with an efficient term leaves unresolved a fundamental question: which efficiency, and for whom? The consciousness that someone else will be able ex post to devise the optimal deal which is, and keeps being, precluded to me offers no confort to my disappointment, made more acute by the perception that the lesson won't work for the future. The exercise is as elegant as sterile.

To make things worse, Schwartz adopts the same perspective in order to validate the passive strategy --to treat incomplete contracts as if those contracts were complete-- commonly resorted to by the courts when dealing with the issue of commercial impracticability with regard to relational contracts. His complex argument cannot be summarized in a few lines; for want of better alternatives, I will jump directly to the relevant conclusions. Theory predicts, and the available data confirm, that: 1) seller-impracticability cases should arise under long-term contracts; 2) courts should rarely excuse in seller-impracticability cases, mainly because relational contracts, being incomplete as a consequence of asymmetric information, should be filled by legal rules that have to condition on unverifiable or unobservable information, rules which are unacceptable to typical parties and unusable by later courts. This set of propositions stands as a refutation of the "new synthesis" advanced by UCC 2-615, which, according to E. Allan Farnsworth, promises to have a substantial influence on the general law of contract .

I must confess this new synthesis, though plagued by a distressing vagueness, fascinates me. Its gist, as I perceive it, is the extension of the impossibility excuse beyond the boundaries of physical impossibility, which represents much more than a mechanical adjustment, since it contains the still shy recognition that contracts projecting their effects in a prolonged time span cannot be sensibly governed by the same parameters divised for spot transactions. Actually, it is quite difficult, for me, to understand why a disrupting and unanticipated event, which makes the performance phisically impossible, should be excused liberally, whereas an exogenous event, which causes performance to become commercially impracticable, id est exceedingly onerous, is not entitled to an analogous treatment. In both cases, the crucial paradigm should be whether the supervening and upsetting contingency was to be rationally foreseen, or not. And even if I am prepared to admit that the scrutiny, in the second set of circumstances, should be strict, because the longer the contract period, the more likely bad things will happen, it cannot be overlooked that "the longer the performance will take --and bear in mind that in performance we must include the entire stream of future services that the exchange contemplates--, the harder will be for the parties to foresee the various contingencies that might affect performance" (Posner). Just another way of saying that the rational expectation of a changing future is more than offset by its endemic unforeseeability. This dominating feature cannot be reconciled with the coventional wisdom, that would perforce bring every determination back to the making of the contract, possibly by way of backward recursion. In this vein, renegotiation is seen as a dynamic danger, to be short-circuited by terms that are "renegotiation-proof" in order to preserve the static identity of the contract. There is something really paradoxical in the pretense of collapsing an indomable future into a definitely exhaustive ex ante project. Yet, it won't take too much to realize that the arrogant paradox barely conceals the pragmatic fear of opportunism. Were we able to exclude it, the supervenience of changed economic conditions would drive the parties to recontract to their mutual advantage, with the committed blessing of the sacred, and most inflexible, repositories of efficiency-above-all.

True enough, to ascertain what is impracticable may turn out to be a tricky endeavour (so tricky as to convince Schwatz himself to drop, in the second half of his seminal 1976 article on sales law and inflation, the appealing proposals he had advanced in the first half). But this is hardly a way of answering to the fundamental question which represents, once again, the very core of the problem: why should a party bear a risk it did not agree to assume, it was not economically --that is, rationally- obliged to shoulder and for which it got no retribution? Important as it may be, practical convenience in the adjuducatory process does not seem so compelling as to induce disregard for what, after all, is the critical point. I would also point out that the so called passive strategy is not that passive. "Enforce as is written" is, given the circumstances, another way of supplying a default rule (allocate the unforeseeable risk on the promisor!), one which, by the way, rings of immutability and, at any rate, would face consistent difficulties in passing the test of acceptability, deemed crucial by Schwartz in his illuminating, though desperately reductionist, analysis of the requisites for the viability of the default rules. This might be the appropriate time for recalling judge Teitelbaum' caveat, in the famous/ominous Alcoa v. Essex opinion, about the uneasy fate of the long-term contract: "If the law refused an appropriate remedy when a prudently drafted long term contract goes badly awry, the risks attending such contracts would increase. Prudent business people would avoid using this sensible business tool". In a word: the twinlight of efficiency?

Despite what might be implied from the citation of the Alcoa case, I am not endorsing the view that courts should impose conditions they think are in the long-term interests of the parties. It would be all too easy to show that of wonderful intentions are paved less than commendable roads. Moreover, I do agree that courts should enforce the terms, as written, if the parties have been able to create the appropriate climate for renegotiation in their original contract. I simply contend that the passive strategy is not the winning one, whenever sticking to the original obligations, outmoded by an unexpected contingengy, would offer nice chances for renegotiating under the pressure of legalized blackmail. Confronted with such a situation, I would prefer judicial attivism in the form of excuse liberally granted to the aggrieved party, as a first step toward a balanced recontracting (that, incindentally, might be tentatively assisted by the court itself: I am thinking of the pioneering work, alas isolated, of Richard Speidel and Norbert Horne, and of the sensitive stance of the judge N. in the only uranium case which was not settled before litigation) and a new perspective, revolving around the tenet that long-term dealings deserve a separate treatment. In the Alcoa case, for example, the alternative was not confined to authoritative reformation of the price index, which is doomed to spur comprehensible reluctancy, or rigid enforcement: a better shortcut to the desirable renegotiation (that, nonetheless, occurred) would have been to exhonerate the burdened promisee.

The standard economic approach has not followed the path I prefer. In so doing, it has ignored the many stimuli circulating among its followers and left the hot area of long-term contracts to relational contract scholars, which is, admittedly, too bad. This sounds as a rather dramatic failure.

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