The Anti-Theoretical Nature of Civil Law Contract
Scholarship and the Need for an Economic Theory
Aristides N. Hatzis
?
Abstract
The absence of theories developed for Roman law and the absence of grand
theories in Civil contract law scholarship were outcomes of a particularistic ap-
proach to the problems created by the deficiencies of markets and driven by the
need for the construction of a legal framework conducive to economic progress.
The generation of efficient results by Civil law through the selection of efficient
rules and standards was completed over the course of several centuries and stabi-
lized after the great codifications. Common law had for centuries attempted to
develop a similar construct that would be stable enough to facilitate economic
relations. Borrowing ideas and solutions from Civil law was the easy way out.
Despite the numerous legal transplants, the Common law fought hard to preserve
a false independence and a parallel dilapidated coherence by building unified,
conclusive, but dogmatic theories. The mimicking of Civil law has led to some
efficient solutions, but with many islands of “inefficiency” trapped in the sea of
rigid theories (bargain theory, privity, etc.). On the other hand, Civil law scholar-
ship and practice has found it increasingly difficult to respond to the fast-
changing economic circumstances. For the first time in history, economic rela-
tions have become so complicated that it is impossible for a judge endowed only
with common sense to solve problems created by the dysfunctions of markets.
Economic expertise is not only helpful, but also required. A responsive eco-
nomic theory of contract law is almost imperative if Civil law is to continue
playing the role that it has successfully performed for centuries: providing the
legal framework that helps the economy function.
?
Lecturer of Philosophy of Law & Theory of Institutions, University of Athens
(LL.B. 1989, LL.M. 1993, Aristotle University of Thessaloniki, Faculty of Law;
LL.M. 1994, J.S.D. 1999, University of Chicago Law School). An earlier draft
of this paper was presented at the 14
th
Annual Conference of the European Asso-
ciation of Law & Economics held at Barcelona, September 4-6, 1997. I wish to
thank the participants for their helpful suggestions, as well as Prof. Katharina
Pistor and Dr. Aspasia Tsaoussis. Thanks are also due to the many members of
the Legal Studies Network (SSRN-LSN) who sent me their comments and re-
lated work. Email: ahatzis@phs.uoa.gr. Copyright ? 2003 by Aristides N. Hat-
zis.
Hatzis: The Anti-Theoretical Nature of Civil Law Contract
Scholarship and the Need for an Economic Theory
2
Table of Contents
1. The Absence of Theory: Civil vs. Common Contract Law
1.1. Too Much Theory or Too Little Certainty?
1.2. The “Efficiency” of Roman Law and of Contempo-
rary Civil Contract Law
2. Economic Analysis for a “Civil” Contract Law
2.1. From the Absence of Theory to the Neoclassical
Consensus
2.2. The Application of Economic Analysis to Greek
Contract Law: Problems and Considerations
2.3. Contract Law and Distributive Justice
3. Conclusion
4. Bibliography
Commentaries on Law & Economics, Vol. 2 ( 2002)
3
What the Romans did not have were treatises on the law
of contracts in general. We have them to superfluity. But
then our day is much given to Total Theories Which Ex-
plain Everything (Except What Doesn't Fit).
Tony Weir (1992: 1646)
1. The Absence of Theory: Civil vs. Common Contract Law
1.1. Too Much Theory or Too Little Certainty?
I. A monograph was published in 1997 under the title The
Richness of Contract Law by the well-known American contract
law scholar and Professor at Cornell Law School Robert Hillman.
The subtitle of the book, “An Analysis and Critique of Contempo-
rary Theories of Contract Law” refers to a number of theories de-
veloped in the Common law world (and especially in the United
States) on contract law, a field of law ironically declared dead three
decades ago (Gilmore 1974). However, in this paper, we will be
discussing neither the thesis of the said book
1
nor the problem of
the life or death of contract.
2
We will rather be dealing with a question that is quite dis-
turbing for European scholars who comparatively approach Ameri-
can Common law, and that arises often as they browse through the
voluminous literature on the theory of Common contract law of the
past one hundred years (see mainly Hillman 1997, but also Barnett
1984 and 1989, Rakoff 1996 and esp. Cheffins 1999). This ques-
tion is the following: Why isn't there a similarly rich literature or a
1
“[O]n the whole, contract law suitably promotes the formation and enforce-
ment of private arrangements and ensures some degree of fairness in the ex-
change process. Moreover, contract law largely succeeds because it is the prod-
uct of the legal system's reasonable and practical compromises over conflicting
values and interests.” (Hillman 1997: 2).
2
But see Farnsworth (1992) and also the symposium on The Death of Contract
in 90 Nw. U. L. Rev. 1 (1995).
Hatzis: The Anti-Theoretical Nature of Civil Law Contract
Scholarship and the Need for an Economic Theory
4
similar number of theories developed for civil contract law?
3
What
this question calls attention to is the absence of contemporary
4
grand theories (cf. Gazes 1995: 36 n.59; 1997), that is, theories
which purport to describe, interpret and even modify contract law
in congruence with major philosophical, sociological, historical,
political or economic theories and which claim universality. By
undermining the formalistic mentality that permeates law as a sup-
posedly autonomous discipline, grand theorizing has the potential
of transforming legal theory from an anti-theoretical, parochial,
interpretative technique into a science of social control.
If we look over the impressive literature published on con-
tract law over the last two decades in the numerous Common law
(especially American) journals and law reviews, we will discover
that the purely doctrinal studies have been confined to the low-
ranking journals and universities, to the “developments and sur-
veys of the law” sections and to the comments and notes of student
law review editors. Nearly all the well-known American contract
scholars (and there are many) can be easily categorized according
to their adherence to a specific theory, most of them being either
“neoclassical”
5
or “economists”.
6
All of them discuss broadly theo-
3
According to Gazes (1995: 20, n.20 and 26, n.32), codification symbolizes the
end of law's development (or at least of its flourishing). For the problems related
to codification in the field of contracts, see generally Hellner (1990) and Lontai
(1990). See also K?tz (1983).
4
Before World War II, and especially in the era of the major codifications, a
significant but dated discussion had taken place in continental Europe (esp.
Germany). The work of Friedrich Carl von Savigny's historical school and Georg
Friedrich Puchta's conceptual jurisprudence (and also the less influential, more
liberal and with no essential differences thought of Thibaut and Welcker) are
examples of theoretical discussions that are absent today in continental Europe.
See mainly Reimann (1990) and Whitman (1990), and also Reimann (1991),
Klenner (1989), Ruckert (1989), Herget & Wallace (1987) and Joerges (1994).
5
When applied to contract law theory, the term “neoclassical” signifies some-
thing quite different from “neoclassical economics”, a term widely used to de-
scribe mainstream economics. See Heijdra & Lowenberg (1988), Lowenberg
(1990), Medema & Samuels (1996), and D'Autume & Cartelier (1997). How-
Commentaries on Law & Economics, Vol. 2 ( 2002)
5
retical issues, even when they set out to solve particular doctrinal
problems (cf. Cheffins 1999: 199-200).
7
ever, the similarities go beyond the mainstream status. I would characterize the
neoclassical theory of contracts as a rather amateurish attempt on the part of con-
tract scholars (in Common law under the legacy of “equity” and in Roman Civil
law of ius praetorium) to keep in touch with the developments of economic the-
ory after World War II (i.e. economic neoclassicism) rather than to “socialize”
contract law. This is mostly true for the U.S.A., but also for Europe. See Hatzis
(2000c).
6
From an ongoing citation study on American contract law which I am currently
conducting, some preliminary findings are characteristic: In over 250 contract
law articles, books or chapters most of which have been published after 1980,
the scholars with more than fifty citations are [in alphabetical order, since the
findings are preliminary and although there is a vast disparity of almost 140 cita-
tions between the first scholar (190) and the last]: Patrick Atiyah (Neoclassical),
Randy Barnett (Consent/Libertarianism), Ronald Coase (Economics/Neo-
Institutionalism), Arthur Corbin (Neoclassical), Melvin Aron Eisenberg (Neo-
classical), Richard Epstein (Libertarianism/Economics), Grant Gilmore (Neo-
classical/“Death of Contract” theory), E. Allan Farnsworth (Neoclassical), Lon
Fuller (Neoclassical), Duncan Kennedy (CLS), Friedrich Kessler (Neoclassical),
Anthony Kronman (Economics→Neoclassical), Stewart Macaulay (Relational-
Empirical-Sociological), Ian Macneil (Relational), Oliver W. Holmes (Classi-
cal), Richard Posner (Economics), Alan Schwartz (Economics), Robert Scott
(Economics), Michael Trebilcock (Economics), Samuel Williston (Classical).
The authors who immediately follow have also been heavily influenced by the
theory of others or have formulated theories of their own (Calabresi, Feinman,
Fried, Friedman, Goetz, Horwitz, Leff, Llewellyn, Williamson, etc.). Below
them on this list, there are about 20 other scholars with more than 25 citations,
the “less theoretical” among them being Robert Hillman, Robert Summers and
Richard Speidel, who are of course not innocent of theory! The first three books
cited are (in alphabetical order): Fried's Contract as Promise, Gilmore's The
Death of Contract and Posner's Economic Analysis of Law. The treatises of
Corbin and Williston follow. The first four articles are (in alphabetical order):
Coase's “The Problem of Social Cost”, Epstein's “Unconscionability”, Fuller &
Perdue's “The Reliance Interest in Contract Damages” (cf. Barnett 1995: 3) and
Macaulay's “Non-Contractual Relations in Business.” Any comments are redun-
dant.
7
In a broadly discussed and much-disputed essay, Judge Edwards accused con-
temporary American legal theory of being impractical and overly theoretical,
thus neglecting the two important functions of the law school: to teach students
Hatzis: The Anti-Theoretical Nature of Civil Law Contract
Scholarship and the Need for an Economic Theory
6
The most typical example of this approach is American con-
tract law, where the battle of the theories is worse than the battle of
the forms (cf. Gordley 1991: 230 and Cheffins 1999: 202-206).
However, in other Common law countries, the situation is not
much different. For example, in England, theories like classical
bargain theory and doctrines like privity are often so rigidly applied
that they defy even common sense itself (see generally Collins
1993; 1999).
8
On the other hand, contract scholars in Civil law countries
adopt a very different approach (see generally Merryman 1990).
The great majority of studies are purely doctrinal, there are very
few references to philosophical, economic or other theories (and
when there are, they are largely outdated) and the topics are ex-
tremely restricted, since the discussion on many issues seems to
have come to a conclusion and the interpretation of the statutes ap-
pears to be exhausted.
9
With the exception of certain “new” issues
of some interest, like collective bargaining agreements, standard
form contracts and electronic commerce, the rest of the law review
articles are analogous to their counterparts in the low-ranking
American law reviews and the specialized ABA journals.
Why is there such a marked difference? What is the reason
for this almost total absence of theoretical discussion on contract
the black-letter law and to train ethical practitioners. See relatively the reactions
to his essay in the Symposium (1993), esp. Posner (1993) (even though much of
the scholarly output is trivial and ephemeral, this is the unavoidable price of a
body of creative scholarship that has more practical relevance and value as the-
ory compared to the doctrinal formalistic scholarship).
8
In the major English and Canadian law journals, there is also an ongoing lively
theoretical debate. See also the contents of the Australian Journal of Contract
Law, the only specialized journal in the field. See particularly Cheffins (1999:
passim, esp. 200-202).
9
This is also true of treatises. The new editions do not contain any significant
changes. They usually have just more cases to report (supporting a particular
interpretation) and new law review articles to cite, or a more detailed treatment
of new developments to include.
Commentaries on Law & Economics, Vol. 2 ( 2002)
7
law
10
in Civil law countries? How can we account for such stagna-
tion when there is such intellectual orgasm in the Common law?
Are theoretical problems considered resolved in continental
Europe? Is there an indifference towards theory and a predilection
towards results in the Civil law countries, or is it just technical
conservatism? Or is civil contract law dead? Killed not by its two
implacable enemies, torts and restitution, but by its own children
(commercial law, labor law, corporate law, insurance law, antitrust
law, consumer protection law, law of sales, etc.) that have grown
immensely by eating the flesh of their father?
II. All of the above are more or less true. Contract law in
Civil law countries is not what it used to be. However, it remains
the core of any Civil code (jus commune), the model of most legal
relationships and of course the basis of the Law of Obligations
(and, in some jurisdictions, of the General Principles of Civil Law).
In addition, it seems that a renaissance of contract law has occurred
10
To be fair, there is some theoretical discussion on contract law; however, it is
rather occasional and restricted to the journals specializing in legal theory and
philosophy of law and is usually undertaken by the scholars who have the rela-
tive tenure (professors of philosophy or sociology of law). Their debate concerns
mainly themselves, since the overwhelming majority of legal scholars do not
take part in this dialogue, because they consider Justice or Fairness as separate
from “positive law” and they regard philosophy of law as distinct from the law's
dogmatic elaboration. This is a result of the increasing specialization and segre-
gation within Civil law scholarship. Professors of philosophy of law cannot teach
contracts (or vice versa) and they are usually supposed to occupy themselves
with the great philosophical problems (“what is law?”) rather than with the ap-
plication of legal theory towards solving particular doctrinal problems that are
considered to lie within the territory of doctrinal scholars. In turn, doctrinalists,
occupied with the practical problems of interpretation, see the broader philoso-
phical discussion as irrelevant, if not completely worthless (for similar observa-
tions but different conclusions, see Gordley 1991). Thus, leafing through the
various specialized and general Civil law reviews, one can find references, pres-
entations, even critiques of particular theories developed in the United States or
elsewhere, but there is little chance of seeing such discussions in the context of
particular legal questions (of course, with a few exceptions). The situation has
slowly started to change after the emergence of Law & Economics in Europe and
the challenges it has posed to mainstream scholarship.
Hatzis: The Anti-Theoretical Nature of Civil Law Contract
Scholarship and the Need for an Economic Theory
8
in the last decade, for two reasons: (a) the triumph of the free mar-
ket and capitalism in Europe-at-large which led, in Eastern Europe,
to a drafting or revision of civil codes (esp. contract and property
law) that are better-suited for free market economies and more
conducive to economic development (Ostas 1992; Ostas & Leete
1995 and Rubin 1994; 1997; cf. Atiyah 1995: 27-34), and (b) the
growing concern of the European Union for the unification of
European private law in general and contract law in particular, as
well as the trend toward the internationalization of contract law
(Farnsworth 1990: 227-230).
11
Therefore, European contract law is not dead. It is wounded,
but alive and it seems that it has a good chance of recovery. How-
ever, the continuing absence of general theories developed in
Europe or influenced by the ones developed in Common law do-
mains seems puzzling for Common law scholars, until they realize
what the most plausible explanation of this phenomenon is: in
Civil law there is no need for theories since the legislator, mainly
through the codes, has proclaimed what the law should be and the
judge is (supposedly) a mere interpreter, useful only for accommo-
dating trivial twists of facts. In such a static universe, where is the
need for theory?
11
See esp. Lando & Beale (1995), Hondius (1989; 1994a; 1994b), Hartkamp et
al. (1994), Hartkamp (1998), as well as the papers in the Symposium (1997). For
international developments towards unification, see also Kozyris (1989), Vis-
casillas (1996), Honka (1996) and the Symposium (1995) on “The UNIDROIT
Principles of International Commercial Contracts” and Hartkamp (1994) for a
comparison of the UNIDROIT and European law principles of contract law with
CISG. See also Ruston & Works (1980), Bennett (1980), Williams (1986) and
Lando (1987) on the “1980 European Community Convention on the Law Ap-
plicable to Contractual Obligations.” But see the pessimistic remarks by Horla-
cher (1994). More generally, on the problem of the unification of national laws,
see Gazes (1997: 41-67, esp. 59 n.109). Sykes (1999) is also a skeptic concern-
ing regulatory harmonization, preferring a legal system that tolerates regulatory
differences subject to legal constraints, and that relies on mutual recognition
where appropriate.
Commentaries on Law & Economics, Vol. 2 ( 2002)
9
By contrast, in Common law, theory is necessary even today,
since there are no Codes (capable of offering not only solutions to
particular problems, but also -and most significantly- a unified ap-
proach). The need for theories has evolved in Common law (esp. at
the end of the 19th century) in order to provide a sense of security
to the contracting parties who did not place any trust in the caprices
of individual judges and were looking for a more objective basis
for their economic relationships (see generally Atiyah 1979).
Common law has for centuries been (and today continues to
be) in the process of its formation and Common law judges have
tried to resolve issues by borrowing ideas, rules, and even theories,
from multiple sources (Roman law, Civil law, law merchant,
Canon law, etc.).
12
With the advent of the industrial revolution and
the pressure applied by novel commercial relations, and society in
general, judges and scholars increasingly felt the need to inject the
law with a theory that would provide a sense of stability and secu-
rity to the contracting parties. The classical bargain theory that de-
veloped and flourished in the 19th century was then considered
(given the socio-economic conditions and the prevalent ideology of
the time) the perfect theory for a capitalist economy.
13
A typical characteristic of Common law theories, that is also
a good illustration of our point, is the desperate attempt of Com-
mon law scholars to prove that their theories and their approaches
12
Despite the maxim (in Latin!) nolumus Angliae leges mutare. Above all, see
the prodigious work by Gordley (1990 and 1991) and also, for England, Nicho-
las (1974), Simpson (1975b), de Zullieta & Stein (1990), Donahue (1992) and
Seipp (1993). For the United States, see Helmholz (1992), Hoeflich (1992),
Whitman (1987), Riesenfield (1989) and Joerges (1994). See also, more gener-
ally, Helmholz (1990), Stein (1992) and Reimann (1993). The influence of Civil
law touches even upon Australian Common law (Ladbury & Paterson 1997). In
Greek bibliography, see Zepos (1937), but also Gazes (1997: 32-33, with cita-
tions to opposing views).
13
For this era, see generally (among others) Lindley (1993), esp. on the impact
of economic change on contract law (id. 13-25 and 281-295) (a capital-intensive
economy inevitably produces large concentrations of economic power that
threaten contract's social utility).
Hatzis: The Anti-Theoretical Nature of Civil Law Contract
Scholarship and the Need for an Economic Theory
10
are not only better normative theories, but also perfect positive
ones (Ulen 1996: 793). As a result, a rather strange phenomenon
occurs in Common contract law review articles: after the exposi-
tion of a theoretical framework, the rebuttal of opposite theories
and the discussion of several cases which are characteristic for
their “compatibility” with the theory expounded, the author exam-
ines a number of controversial cases with the purpose of demon-
strating that, deep down, these “irregular” cases are compatible
with his theory, despite the opposite wording or even outcome.
14
Only in extreme cases is a decision characterized as forth-
right wrong or (at least) opposed to the theory developed, and is
consequently dismissed. Of course, another scholar may easily
support a theory that is in diametric contradiction, and may inter-
pret the decisions accordingly.
15
This need for an “approval” by the
already adjudicated cases (!) signifies the insecurity and the des-
perate need for coherency in Common law and is telling of the de-
finitive power of precedent even today.
16
This phenomenon of
“procrusteanism” in Common law theory leads, according to one of
the leading legal historians and Common law scholars, A.W.B.
Simpson, to a sort of “doctrinal monism”:
17
“[T]here has always in
the common law been a tendency towards a sort of doctrinal mo-
nism -there must be one test for the formation of contract (offer
14
For a typical example (in otherwise excellent studies), see Yorio & Thel's
(1991) general approach or Remington's (1999: 646) ambitious approach to the
tort of interference: “No hint of this approach is to be found in judicial opinions;
yet it does such a remarkable job of explaining the outcomes of cases that one
can only suspect that it comes closer to describing the intuitions of judges than
the judges' own explanations of what they are doing.” [the emphasis is ours].
15
See e.g. Hillman (1997: 60-74) and compare with Yorio & Thel (1991). A
characteristic historical example of this problem is the famous scene between
Samuel Williston and Arthur Corbin in a session of the first Restatement drafting
committee, as described by Gilmore (1974: 62-63). See also the excellent obser-
vations in Weir (1992).
16
For recent critiques of the Common law process, see Ulen (1996: 805-806)
and Hillman (1997: 164-166); see also Gazes (1997: 33-34).
17
“Monotheorism” for Weir (1992).
Commentaries on Law & Economics, Vol. 2 ( 2002)
11
and acceptance), one principle governing possession, one test for
the action-ability of promises.” (Simpson 1975a: 325).
1.2. The “Efficiency” of Roman Law and of Contemporary
Civil Contract Law
I. In stark contrast with Common law's century-long struggle
for coherency, Roman law in continental Europe was so compre-
hensive, successful,
18
coherent (esp. after its elaboration by the Pan-
dectist school--see generally Whitman 1990, Coing 1989 and also
Gazes 1995)
19
and abstract, as to offer judges useful guidelines for
the regulation of economic activities with no serious conflicts with
the needs of economic life,
20
despite the age of the statutes.
21
It is
characteristic that the history of contract theory developed by
Common law within the last two centuries was, to a great extent,
18
Most Roman institutions related to the law of obligations are still alive in all
major European codifications. It is characteristic that the contemporary law of
sales in the continental legal systems is nearly identical to Roman law. For the
reasons behind the success of Roman law, see generally Gazes (1995, esp. 19-
29) and the citations therein.
19
Before the Pandectists, numerous scholars had elaborated on Roman law. In
Western Europe, Roman law was developed by the 12th-century Glossators, the
14th and 15th centuries Commentators, led by Bartolus and Baldus, the 16
th
-
century Humanists led by Hugo Donellus, the late Scholastic, Spanish natural
law school and the early modern Romanists (see generally Watson 1981; Gord-
ley 1990 and 1991, as well as Stein 1993) and in Southeastern Europe, by a host
of eminent Byzantine scholars for over a thousand years (see generally Panta-
zopoulos 1974i: 199-294; 1979ii: 79-167; 1979iii: 90-195 and Troianos 1999).
20
According to Phourkiotes (1964: 30, n.1), Roman lawyers were particularly
interested in the relationship between law and economy and the consequences of
legal rules on economic life. Thus, the Roman Praetors and other Roman lawyers
were often more interested in the efficient regulation of commercial relations
than in developing a conceptual or moral system.
21
James Whitman has developed a theory according to which this compatibility
was to a great extent “helped” in the 19th century by the theoretical constructs of
a number of German professors of liberal political ideology, mainly of Jhering.
See Whitman (1990: passim and also 229-243). See also Rolland (1990: 143-
145).
Hatzis: The Anti-Theoretical Nature of Civil Law Contract
Scholarship and the Need for an Economic Theory
12
the history of the adoption and development of concepts that were
part of Civil law's contract theory and practice since Roman times
(or at least since the major codifications in Western Europe).
The codification of Roman law by Justinian and the subse-
quent development of this law (see Watson 1981 and Stein 1993),
always within the boundaries of the great codifications, and, at the
same time, the successful and uninterrupted application of Civil
law in continental Europe and elsewhere, has offered the contract-
ing parties in Civil law countries a stable, coherent and positive
legal framework, including a set of default rules that they can bar-
gain around (and thus further develop) (cf. Mattei 1997: 207-208).
Its usage has also created a tradition of a particularistic elabo-
ration of issues and economic relations, which is based not on a
case-by-case treatment, that needs a general theory in order to re-
main stable and coherent, but on a regulation of special types or
categories of contractual relationships
22
by means of a unified set of
rules imprinted in the Civil codes. These rules have for centuries
been the object of further treatment, elaboration and improvement
by judges, scholars, and of course, the contracting parties them-
selves. This “fermentation” process has shaped legal orders that are
time-honored and thus highly sophisticated. Therefore, it is no co-
incidence that Roman law was a decisive factor for the creation of
the first commercial societies in Europe and for the rise of capital-
ism.
23
22
Alan Watson describes Roman law as comprised of numerous self-contained
“blocks” (Watson 1981: 18-20).
23
For the relation of Roman law with commerce and its contribution to the crea-
tion of the first “commercial societies”, see Whitman (1994 and 1996). Roman
economy was essentially a market economy. According to Wacke (1993: 2):
The ground rule of the Roman emperors with regard to private eco-
nomic activity may be described (in line with Rostovtzeff and Heichel-
heim, the “Classicists” of ancient economic and social history) as lais-
sez-faire liberalism, which only sought to regulate to a limited extent
the production of mainly agrarian and household goods, as well as their
distribution on the predominantly small-scale markets [...] The market-
economy principle of free competition remained, by and large, undis-
Commentaries on Law & Economics, Vol. 2 ( 2002)
13
It is illustrative of the contribution of Roman law to the eco-
nomic development and the modernization of European legal sys-
tems that the enemies of Roman law in Germany attacked it as a
law that was “rationalistic”,
24
“commercial” and “materialistic” (see
Whitman 1994: 228). In a series of papers and books, Prof. James
Whitman has established the close relation between the reemer-
gence of Roman law and the birth of the first commercial society in
Holland. Its “moral menace” feature proved quite useful in the bat-
tle of commercial needs with the prevalent native “Christian law”,
that was unsuitable for commercial development. According to
Whitman, “Roman law did not cause the rise of a new commercial
morality in seventeenth-century Holland; it helped justify the rise
of a new commercial morality” (Whitman 1996: 1845; see also
Koschaker 1938).
25
II. The major codifications that started in the beginning of
the 19th century and ended in the early 20th century offered a
modernized version of Roman law,
26
especially under the sway of
turbed by these state activities, which were important, but which re-
mained peripheral to the general economic system.
As a result, its ius civile (as well as its ius gentium for its subjects) was devel-
oped in order to meet commercial needs and to regulate an advanced commercial
society and transactions (see e.g. Gazes 1995: 19; above n.19). See also the in-
teresting concurring comments by Phourkiotes (1964: 2) and the citations
therein.
24
Watson (1981: 23) adopts Max Weber's “logically formal rationality” to de-
scribe the rationalistic character of Roman law. For Trubek (1972: 730; also
cited by Watson), “logically formal rationality” operates through a highly logical
systemization, making the resolution of specific problems depend on processes
of specialized deductive logic proceeding from previously established rules or
principles.
25
For a similar conflict that took place in Greece between the German-educated
proponents of Roman law (as taught by the Pandectists) and the advocates of the
historical school who supported the preservation of the “popular” native Greek
customary law, see Pantazopoulos (1945).
26
See mainly Zimmermann (1990). However, see Stein (1992: 1591-1594):
“The Roman law of the classical period, the first two centuries A.D. when it
reached its highest point of technical development, is in many respects closer in
Hatzis: The Anti-Theoretical Nature of Civil Law Contract
Scholarship and the Need for an Economic Theory
14
the German historical school (whose influence was greater than
generally believed
27
and which effectively connected law in books
with law in action in the Continent). These codifications rendered
the law more compatible, in certain respects, with the economic
developments of the period. Further, they were the product of an
extensive theoretical discussion and were greatly influenced by the
social and economic theories that prevailed at the time, which were
not very different from the present mainstream ones (Whitman
1994).
Following the tradition of Roman law,
28
the new Civil Codes
have not espoused any particular theory, especially in the area of
Contract Law (with the exception of a modified will theory for
contract formation, that was essentially an idealistic/liberal cover
for the actually dominant objective theory of consent, itself a later
development, but under the influence of Roman law's general ap-
proach).
29
The main concern for the codifiers was to solve all major
theoretical and practical problems
30
by choosing the best possible
character to the common law than it is to modern civil-law systems that are de-
rived from Roman law.” See also Stein (1993: 14). This is, to a certain extent,
true, as Stein aptly demonstrates. But this similarity between classical Roman
law and modern Common law is rather an indication of the immaturity of the
latter than a sign of the deviation of Civil law from its historical roots. See e.g.
Gazes (1997: 33, n.30). See also Zepos (1937, esp. 473-474). This does not
mean that the progress of Civil law since Roman times has consistently been an
improvement process. See esp. Stein (1992: 1600-1601).
27
See Whitman (1990: 200-228), Joerges (1994), Ruckert (1989), Klenner
(1989) and also Ascheri (1996) and Gazes (1995: 34-35). The influence of the
historical school on the drafting of the German Civil Code was also definitive for
other European legal systems.
28
For Dawson (1982: 596), problem solving rather than high-level speculation
was the great skill of Roman jurists (as this is evident in the Digesta).
29
For the theory of consent as the covert basis of contractual obligation in
Greek contract law, see Hatzis (1999a: 134-169).
30
Roman lawyers cared little for the sweep of general principle. Theirs
was a nominalist world of particulars, principally particular types of
transactions [...] The Romans eschewed any effort at system or
wide-ranging organizational principle. This left them at something of a
Commentaries on Law & Economics, Vol. 2 ( 2002)
15
solution for the welfare of the parties (see K?tz 1983), as this wel-
fare was perceived under the liberal ideology of the day, which was
also heavily influenced by Christian ethics (esp. equity), and cer-
tainly within the boundaries set by the rules, standards and princi-
ples that had proven successful for many centuries.
Consequently, in the Civil Codes one can find answers to
almost all the doctrinal and theoretical problems which have pre-
occupied and still preoccupy Common law theory (e.g. the basis of
contract, the rigidity of the “privity” doctrine, the enforcement of
penal clauses, liquidated damages or third-party beneficiary con-
tracts, the choice between different types of damages and specific
performance, the problem of quasi contracts and unjust enrichment,
the puzzle of precontractual liability, the controversial unconscion-
ability defense, the nature of the “good faith” requirement, the
compensation paradox, the differentiation between commercial
impracticability with other similar cases of frustrations of contract,
etc.). Civil law thus provided definitive and authoritative solutions
to all the aforementioned problems, but without restricting the par-
ties by heavily regulating their contract.
In addition, most of the clauses in Civil Law Codes (esp. in
the Law of Obligations books) are default, non-mandatory (op-
tional) rules. The Codes routinely endow the judges with broad
discretion by way of a series of general standards (see e.g. recently
Hartkamp 1992). Regardless of the practice of Civil law judges,
their independence is not similar in nature to that of their Common
law colleagues, since they need not be creators but interpreters of
loss when questions arose as to why certain rules had the content they
did. Little in Roman law was explained by reference to something more
abstract, something “underlying” the play of the rules. The only re-
sponse was “That is the way we do things.” [Patterson 1991: 1433, the
emphasis is mine].
See also Gazes (1995: 23): “[Romans] [u]sed concepts, solutions and institutions
only for practical needs and never for theoretical purposes.” See, however, a
different approach by Watson (1981: 83-84).
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 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.
This 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
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 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 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)
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 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?
III. We have elsewhere (Hatzis 1999a; 2000b, 2002b) ex-
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.
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 Wat-
son (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-
tially 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 & K?tz (1992: 161), Yiannopoulos (1996) and Hatzis
(1999a: 1-21).
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 prag-
matic approach of the Roman and Civil law (Zimmermann 1990:
921) has proven to be more efficient
37
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)
38
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),
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 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).
38
American law could not resist the allure of codification. The Uniform Com-
mercial 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). 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 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
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)
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 eco-
nomic (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 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.
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, sug-
gesting that the most appropriate theory is an economic theory for
contract law, based on the currently mainstream neoclassical eco-
nomics.
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 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 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.
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 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
result of a natural evolution of legal rules and practices that threw
into disuse a number of worthless institutions and insignificant for-
malities.
41
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.
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 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.
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
Commentaries on Law & Economics, Vol. 2 ( 2002)
21
Therefore, we could characterize e.g. mainstream Greek con-
tract theory as similar in many respects to the American “neoclas-
sical school” of contract scholars. This movement from freedom to
control is clearly evidenced in Greek contract law, as this has been
constructed by contemporary interpretation (Hatzis 1999a: 21-64).
According to Alan Schwartz (1986), this trend has changed the
face of contract law:
Through such doctrines as unconscionability, contract law
today is attempting to perform its traditional function of in-
suring justice in the marketplace, not by permitting people to
do what they want to do, but by preventing them -in certain
circumstances- from doing what they have agreed to do.
(Schwartz 1986: 108).
Schwartz successfully identifies the confusion plaguing American
(and for that matter Greek) neoclassical legal scholarship. Legal
scholars cannot easily discern the real nature of the problem. The
critique towards the freedom of contract principle by Greek legal
scholars aims mainly at three targets: (a) the problems created by
the initial inequality of bargaining power between contracting par-
ties, (b) the problems created by the subsequent inequality of bar-
gaining power (due to the sequential character of economic activ-
ity-performance), and (c) the distributive consequences of contract
law in general (see generally Papanikolaou 1991: 183-245). For
Greek legal scholars, the three aforementioned targets are one and
the same: the free market mechanism (as it is supported by contract
law rules and especially by the “freedom of contracts” principle in
valuable delineation. For an early (both chronologically and scientifically) and
thus primitive attempt by Karl Llewellyn to apply economic analysis to the regu-
lation of contracts (within the boundaries of early economic neoclassicism), see
Schwartz (1997). Analogous attempts by Greek scholars and judges to use eco-
nomic analysis are also doomed to failure for similar reasons, that is, for lack of
economic sophistication (see mainly Hatzis 2000c; cf. Schwartz 1997: 48-49).
For Germany, see Pieck (1996) and for European law in general, see Browns-
word et al. (1994).
Hatzis: The Anti-Theoretical Nature of Civil Law Contract
Scholarship and the Need for an Economic Theory
22
a “society of inequality”), that purportedly has devastating distribu-
tional consequences for the weaker parties in transactions, since
there is no perfect competition and the stronger contractual parties
can easily impose the terms that are more favorable to them.
44
However, this approach does not seem to differentiate be-
tween the two essentially different aspects of the market mecha-
nism, i.e. its distributive consequences and its inefficiencies.
45
Re-
gardless of the distributional problems and the social consequences
of (even perfect) competition, contract law deals (and it should ex-
clusively deal) with problems created by free market failures, that
is, by inefficient markets. But for most Greek (and European) legal
scholars, contract law can be used both as an instrument for cor-
recting market failures and as an instrument of social justice
(Stathopoulos 1999). We believe that this view is not only errone-
ous, but also dangerous.
2.2. The Application of Economic Analysis to Greek Contract
Law: Problems and Considerations
In this paper, we are only interested in the first function of
contract law (in how it deals with market failures), since contract
law is ill suited for the second function, as we will argue in the
next section. We contend that the economic theory of contracts, as
this has been developed by the proponents of economic analysis of
law over the past twenty-five years,
46
provides the best general the-
44
See Hatzis (1999a: 34-38) for a more detailed presentation and many cita-
tions to contemporary Greek legal bibliography.
45
This does not imply that market failures do not have distributive conse-
quences. However, the distributive consequences of perfect and imperfect com-
petition are very different from a qualitative point of view, even for political
philosophers. See Rawls (1971) and Nozick (1974) for the definitive treatment
of the problem in liberal and libertarian political philosophy. See also Hatzis
(1997).
46
Mainly by lawyers, since for most economists, the concepts of contract law
were terra incognita and were considered the given institutional framework. See
Veljanovski (1979 and 1982: 76-77) and also Romani (1986: 121-125). Even
Commentaries on Law & Economics, Vol. 2 ( 2002)
23
ory and analytical tools for the interpretation of Greek contract law
(and any other Civil contract law, for that matter).
47
Virtually all the
principles of Greek contract law can be restated in economic terms
(Posner 1990a: 361 and esp. Harris & Veljanovski 1986), without
losing their normative implications (see e.g. Cooter & Ulen 2000:
205-212). Hence, an economic analysis of Greek contract law
could be successful for many reasons. Some of them are the fol-
lowing:
I. Contract law is a body of rules created and developed in
order to help the market function efficiently (by regulating ex-
changes), and to act as a prerequisite for the very existence of a
market suited to the needs of more developed societies - i.e. as an
institutional framework.
48
The economic role of contract law (its
today, economists are more interested in “contracts” theory as part of the “theory
of the firm” analysis in industrial organization (Salanié 1997), and/or as one of
the methods of economic organization (the other two being regulation and verti-
cal integration) than in the “economic analysis of contract law” as a collaborative
effort by lawyers and economists to design efficient default legal rules and regu-
lations (mandatory rules or rules of “public policy” in legal terminology) that
should govern contractual relations. See characteristically Coase (in Kitch 1983:
192): “I have no interest in lawyers or legal education [...] My interest is in eco-
nomics,” Coase (1988) and the critique towards the mainstream “new” law &
economics by Williamson (1996). See also Kronman & Posner (1979: 6, n.6 and
also 1979: 7: “we were struck by the paucity of economic writings on con-
tracts.”).
47
See e.g. Mattei & Pardolesi (1991) and Ostas & Leete (1995). Based on simi-
lar arguments, Reinhard Zimmermann advocates a unified approach “that uses
the common past as the most obvious, and natural, point of reference for analyz-
ing and understanding the development of modern law” (Zimmermann 1994:
222), an approach reminiscent of the historical school.
48
See Kronman & Posner (1979: 1), Stephen (1988: 155), Murphy & Coleman
(1990: 162), Harrison (1995: 90-93), Hirsch (1999: 105-108), etc. For a slightly
different version of the role of contract law, see Craswell (1995). For Craswell
“[m]ost of contract law consists of default rules, or rules that apply when parties
fail to address a topic one way or the other in their contracts.” In this view, the
economic exchanges by the parties are, in essence, privately regulated and con-
tract law plays merely an auxiliary role and not the role of general framework.
Hatzis: The Anti-Theoretical Nature of Civil Law Contract
Scholarship and the Need for an Economic Theory
24
fundamental purpose) is to facilitate transactions, to help parties
achieve their private ends (thus creating value through exchange),
and to encourage rational planning by the parties. The enforcement
of promises helps people achieve their private ends by enabling
them to rely upon each other and thus to coordinate their actions. In
this manner, the law of contracts provides a framework within
which private citizens set the terms of voluntary associations with
each other, hence creating a sphere of private governance. A theory
of contract law should facilitate this pursuit of private ends through
voluntary agreements (Cooter & Ulen 2000: 184-189; see also
Posner 1990b: 93-94 and Epstein 1997: 33).
If we view economics as “the study of the general methods
by which men co-operate to meet their material needs”,
49
then it
goes without saying that the findings of economic analysis are
valuable for the study of contract law as a human invention that
facilitates the “meeting of material needs” by men and women.
Contract law and microeconomics
50
thus have the same subject
matter:
51
market transactions as cooperation mechanisms - that is,
exchange. Consequently, their collaboration is imperative for so-
cieties as complex as ours, especially in their market element.
52
This approach seems quite germane to the relational theory of contract (see
Macneil 1978). See, however, Legrand (1988).
49
The famous definition belongs to Sir William Beveridge. We could use a less
ambitious definition and still have the same results.
50
Informed, of course, by game theory. See esp. Baird et al. (1994).
51
“Since buying and selling -and related transactions, such as leasing and bor-
rowing, which are also governed by contract law- are quintessentially economic
activities, it would seem that economics should have something useful to say to
students of contract law.” (Kronman & Posner 1979: 1). In Greek legal bibliog-
raphy, see the excellent discussion in Phourkiotes (1964: 5-6, 26-36, esp. 32).
52
The primary role of economic analysis is to explore the efficiency of the ex-
isting (optional) default and mandatory rules and to propose new ones in cases of
inefficiency. Any other role that can be assumed as a basic element in a moral or
political theory will not be discussed here. But see Posner (1980, 1983: 48-115;
1990a: 353-392, 460; 1995a: 11-21, 403-404), for the most well known exposi-
Commentaries on Law & Economics, Vol. 2 ( 2002)
25
Accordingly, the problems of contract law are certainly legal
problems, but they are first and foremost economic problems. This
is not the place to argue for the relevance of contract law to eco-
nomic life in general or to support the more debatable assumption
that economic considerations are far more important than the re-
gard for the integrity of any legal theory or idea in an area that is so
deeply interwoven with economic life. No one would deny that a
legal theory is tested to a great degree by its application within a
particular society; in our case, a theory of contracts is tested in the
market.
II. Although the “economic theory of contracts” has been de-
signed for Common law systems,
53
there is sufficient evidence of
its relevance as a basis for the construction of similar theories for
Civil law systems.
54
According to a recent statement of the goals of economic
analysis by Judge Posner (1998a: 2-3):
The economic analysis of law [...] has both positive (that is,
descriptive) and normative aspects. It tries to explain and
predict the behavior of participants in and persons regulated
by the law. It also tries to improve law by pointing out re-
tion of such a normative theory and the subsequent distancing from its contro-
versial original version, as well as Hatzis (1993).
53
However, regardless of the now old-fashioned “schism” between Civil and
Common law, American intellectual leadership in Western law will be decisive,
also taking into consideration the pervasiveness of law and economics in Ameri-
can legal theory, as this is illustrated in the mainstream textbooks, treatises,
casebooks, as well as citation studies. See esp. Mattei (1994a: 203-218), Landes
& Posner (1993) and also Polinsky (1989: 148). For the dominance of the Eng-
lish language in legal science, see Gazes (1997: 65, n.126).
54
See e.g. Posner (1983: 101-102, 105-106). See the suggestions for an expla-
nation of the implicit economic logic of Common law in Posner (1992: 254-
255). Almost all of them are valid for Civil law (esp. 1, 3, 4) and, as we have
supported elsewhere, sometimes Civil law is conditioned by economic logic in
circumstances where Common law is not (Hatzis 1994; 1997; 1999a; 2000b,
2002b). For views parallel to ours, see the arguments (although somewhat tenta-
tive) by Goldberg (1989: x), Van den Bergh (1988; 1992), Cooter & Ulen (2000:
ix-x) and Posner (1997a). See also Hatzis (1993).
Hatzis: The Anti-Theoretical Nature of Civil Law Contract
Scholarship and the Need for an Economic Theory
26
spects in which existing or proposed laws have unintended or
undesirable consequences, whether on economic efficiency,
or the distribution of income and wealth, or other values.
To sum up:
(a) An economic theory of contracts could become a guide
for the legislator who wishes to enact a statute that is as efficient as
possible, given the restraints posed by the other normative objec-
tives of the particular statute. And it could be a perfect tool for the
legislator who aspires to create nothing more than an economically
efficient contract law, leaving out the normative and distributive
considerations to be dealt with by taxation, or any other kind of
state legal and economic intervention. The transformation of the
former socialist countries of Eastern Europe is a typical example,
since one basic concern for the new democratic regimes is the con-
struction of legal institutions and, more particularly, the creation of
a contract law suitable for a market economy.
55
(b) In addition, we should here emphasize that judges play a
very decisive role in Civil law systems, despite the mainstream
view in Common law typifying them as bureaucrats.
56
Although
55
See Ostas (1992), Ostas & Leete (1995), Brietzke (1994), Hay et al. (1996),
Jiang (1996), Rubin (1994; 1997), Butler (1998), Posner (1996d; 1997b; 1998c)
and Hatzis (1999b). See also generally Easterbrook (1989).
56
The prevalent view in the Common law world is that “[t]raditionally the
civil-law judge is a fungible person, one of a group of anonymous, almost color-
less, individuals who hide their personality behind the collegiate responsibility of
the court. Their duty is to apply the written law, and the meaning of that law is to
be discovered from the writings of its academic exponents.” (Stein 1992: 1597).
Cf. Posner (1997a: 3-5). Although these remarks contain some elements of truth,
they hardly do justice to the Civil law judge, especially in the case of higher
judges (of appellate and supreme courts). See e.g. Alivizatos (1995) (over the
past twenty years the judiciary in Western Europe has taken on an increasingly
significant role in national decision making processes), but also Georgakopoulos
(1999) for contrary views.
Commentaries on Law & Economics, Vol. 2 ( 2002)
27
judicial decisions do not constitute a source of law comparable to
statutory law, in practice they are considered de facto equivalent.
57
In Greek legal scholarship, there is an ongoing controversy
surrounding the nature of judge-made legal rules
58
and the relation
of stare decisis to custom. According to Papantoniou (1983: 43),
“[t]oday the primary source for the creation of custom is the bind-
ing precedent that courts follow faithfully.”
59
The persistence on
judicial precedent, especially by Areios Pagos (Greece's Supreme
Court for private law) and the major appellate courts, certifies the
existence of opinio necessitatis, that is a basic requirement for the
emergence of custom. If we take into consideration that under the
mainstream view, a custom can modify or even revoke a statute
under certain circumstances (Papantoniou 1983: 42 and esp.
Vavouskos 1984: 44), we can fully grasp the extent of the (de
facto) law-making power of judges in the Greek Civil law system,
although this is in practice applied mainly in Areios Pagos and in
the major Courts of Appeal.
60
However, Stathopoulos (1995: 23) disagrees with the equa-
tion of stare decisis with custom: “In administering justice, [the
57
In Greek bibliography, see esp. the discussion in Papantoniou (1983: 45-49)
and Papasteriou (1994: 27-31).
58
For the role of the judge in interpreting the Greek Civil Code and in legislat-
ing within statutory limits, see the discussion in Bales (1940), Maridakes (1949:
214-217) and recently Ap. Georgiades (1996: 131). In the original draft of the
Book of the General Principles, there was a section (unfortunately later deleted)
that read: “The Judge, in cases where there is no relevant rule in the law or in the
custom, decides (implementing the general principles of law) according to the
rule which the legislator would have decreed if he could have foreseen the situa-
tion.” See Draft of the General Principles, art. 1. Similarly, see Zimmermann's
(1994: 220 §xiii) comments on the BGB.
59
See also Papantoniou (1983: 45-46), and for concurrent views, Vavouskos
(1984: 43-44) and Spyridakes (1985: 26). See also the opinion of Vathrakokoiles
(1989: 22), a Judge in Areios Pagos (then an Appellate Judge).
60
See e.g. Grammatikake-Alexiou (1993: 15) and Stathopoulos (1996a: 135-
143, esp. 143) for examples from judicial practice.
Hatzis: The Anti-Theoretical Nature of Civil Law Contract
Scholarship and the Need for an Economic Theory
28
judge] implements the law, he does not legislate”.
61
And he goes on
to develop Fr. Gény's view of court decisions as “introducers of
custom:”
62
Only if any constant practice of courts creates a sense of a
general binding rule (opinio juris) in the citizens is a rule of
customary law generated. But the reason for the legal force
of this rule, and therefore the source of production of law, is
not the court decision, but the custom. [italics by the author].
Nonetheless, the aforementioned theory does not result in a cur-
tailment of judicial discretionary authority and law-making power,
since judges are always free to pursue their own interpretations. In
any case, the original intent of the legislator as a guideline for
statutory interpretation does not have the same authority in Greece
as it does in the United States (see e.g. Papantoniou 1983: 57). The
mainstream “objective” theory of interpretation holds that the pur-
pose of interpretation is the discovery of the “essence of the law”
(or rather, of its ratio legis) and not the will of the legislator. The
will of the legislator is superseded by the will of the enforcer of the
law (Papantoniou 1983: 57). This is particularly true of Areios Pa-
gos and the major Courts of Appeal that can easily create custom-
ary law via binding precedent, and do so regularly (see generally
Papasteriou 1994: 27-31). Consequently, the characterization of a
particular judicial practice as custom has little practical signifi-
cance, because what ultimately matters is the verification that the
practice already exists and produces legal results.
63
61
Stathopoulos (1992: 40-41) is not much friendlier to customs, stating that
they are often conservative, outdated, biased and irrational. See also Stathopou-
los (1979: §2 for customs in the law of obligations).
62
See also Stathopoulos (1992: 48-49 and esp. 54-55).
63
See Ap. Georgiades (1997: 25-26), who discusses the role of judicial prece-
dent in the creation of law, and also Gazes (1997: 62-63, n.117) and even
Stathopoulos (1992: 54), who characterizes the work of judges as one of “shap-
ing the law.” For Papasteriou (1994: 28-29), there are three different ways in
which a judge can “shape” the law: (a) the authoritative interpretation of legal
Commentaries on Law & Economics, Vol. 2 ( 2002)
29
The single most important factor that determines the broad
discretionary power of courts in Greece, and in the Civil law world
in general,
64
is the existence of very general standards that leave the
judge with a vast territory over which to exercise (even legislative)
power. This is particularly true of contract law, where there are a
great number of standards and concepts whose interpretation and
application is decisive (Ap. Georgiades 1997: 24-25; for further
analysis, see Alexandridou 1987-1988).
The numerous and important general standards
65
in the Greek
Civil Code rendered Greek Civil law a ius aequum and not strictum
to such a degree that the Code was considered internationally
unique.
66
However, the use of these standards by the judges should
be based not on subjective criteria or personal opinions and views,
but on the general principles of law as they are imprinted in the
body of legislation (from the Constitution to the special laws) and
the widely accepted and respected social norms (Stathopoulos
1992: 63-64; Papasteriou 1994: 8-9). The mainstream approach to
rules that has an indisputably normative character, (b) the application of general
standards and general legal concepts in particular cases, and (c) the “filling-in”
of the gaps in the law with analogical reasoning (see also id. 104-105). See espe-
cially Litzeropoulos (1932); see also Papantoniou (1983: 45-46) and Georga-
kopoulos (1997: 476, n.4). An act that was decisive for the future of the relation
between law and custom in Greece was the Royal Decree of February 23rd, 1835
(see Pantazopoulos 1945: 473-482) (a custom cannot revoke a written law ex-
pressing public policy).
64
See the divergent, conflicting views of Watt (1997) and Sales (1997) on
French law. For France, see also the excellent study by Lasser (1995).
65
According to Triantaphyllopoulos (1956: 227), there are eighteen such stan-
dards in the Greek Civil Code, for example “good faith,” “trade usage,” “moral
standards,” “social purpose” and/or “economic purpose,” “serious grounds,”
“reasonable compensation,” “equitable criteria,” etc.
66
See Stathopoulos (1992: 62-63, 65-66; 1996a: 135, 144-145; 1998: 9), Zepos
(1946: 71), Papantoniou (1983: 46-50), Ap. Georgiades (1997: 45) and also Pan-
tazopoulos (1974i: 177-191) for the history of the standards created by ancient
Greek legal theory (equity, freedom of contracts, unjust enrichment, good faith
and utility) and their influence on Roman law (Velissaropoulou-Karakosta
1993).
Hatzis: The Anti-Theoretical Nature of Civil Law Contract
Scholarship and the Need for an Economic Theory
30
standards in Greek legal scholarship could not find a better descrip-
tion than the one provided by Duxbury (1995: 259), writing on the
American school of “process jurisprudence:” “Standards are legal
directives which entail a qualitative or moral appraisal of human
behavior by reference to supposedly ideal behavior in a comparable
situation.”
67
Thus, judges can make the most of the high level of
abstraction and use the wide discretionary authority created by the
standards,
68
in order to employ a cost-benefit analysis in their deci-
sions.
69
(c) The main obstacle to economic analysis in Civil law
countries
70
might be the absence of an intellectual tradition similar
to that of Common law countries (i.e. a tradition of respect for in-
67
For the economic role of standards, see particularly Posner (1990a: 42-51),
Kaplow (1992) and also Hillman (1997: 125-171).
68
According to Mantzoufas (1954: 21-22), the general standards were inserted
by the drafters in order to open a window to economic reality.
69
This is not so unusual in Civil law judicial practice, even though cost-benefit
analysis is most often disguised as common sense or pragmatism (e.g. see Papan-
toniou 1983: 55). See also Schwartz (1997: 12) for Llewellyn's concurrent
views. The mainstream interpretation theory is teleological (instrumentalist), in
the sense that it emphasizes the objective of the law as a manifestation of its
meaning (Liakopoulos 1982: 117; Papantoniou 1983: 61-62; Stathopoulos 1992:
88 and especially Zepos 1955: 11). But see also the discussion in Gemtos (1999:
11-12). In the realm of contract law, Greek courts have been known to pursue
different and quite contradictory objectives: efficiency and social justice (Papan-
toniou, id.). This “contradiction” (indeterminacy) is not unknown to American
contract law, being the favorite target of scholars of the Critical Legal Studies
school. See esp. Kennedy (1982).
70
The difficulties for the institutionalization of law and economics in Europe
are well known, although the situation is rapidly beginning to turn around. See
generally Mattei & Pardolesi (1991), Kirchner (1991) and the other articles in
the Symposium (1991). See also Van den Bergh (1992) and Hatzis (2000a). Not
surprisingly, the reaction against Law & Economics in Europe is identical with
the one against the “moral menace” of Roman law. The account by Whitman
(1996) will sound familiar to Law & Economics scholars.
Commentaries on Law & Economics, Vol. 2 ( 2002)
31
dividualism and/or economic efficiency).
71
One could point to cer-
tain readily identifiable cultural and historical reasons that have
played an important (negative) role in the prevalence of a concept
like wealth-maximization.
72
But we should not overestimate these
culturally-specific conditions, especially after taking into consid-
eration the trends in international economic relations, the global-
ization of economic activity (see esp. Gazes 1997: 48-54, 62, 64),
the deregulation influx and the discrediting of political theories that
could create a hostile environment for the growth of economic
analysis.
73
We dare suggest that a Civil law country has even better
prospects for the application of such theories than a Common law
country. Currently, in most Civil law countries (at least in
71
Which in turn is based mainly on a utilitarian or pragmatic philosophical tra-
dition. See generally Atiyah (1979) and recently Mattei (1997: 85-88). See also
the remarks by Zepos (1937: 474-475) and Schwartz (1986: 107, n.1 and also
1997). For Greece, see generally Zepos (1978: 917), Meinardus (1991) and
Kitromelides (1994). However, see the work of James Whitman (1990; 1994;
1996) on the materialistic, rationalistic and commerce-boosting character of
Roman law.
72
We should not forget that “wealth maximization” as a judicial policy guide
was ferociously attacked by the majority of legal scholars in the United States
and by many economists, not because it is so harsh in and of itself, but because it
sounds harsh, even when it is a pre-existing policy under a different name. But
the truth is that it also found many adherents. See Hatzis (1993) for relevant cita-
tions and discussion.
73
It is characteristic that the two most distinguished professors of Civil law at
the University of Athens, Apostolos Georgiades (1997: 67-68) and Michael
Stathopoulos (1998: 10-12), present economic analysis of law in their textbooks.
Although both presentations are brief and, to a certain degree, critical (esp. by
Stathopoulos), the phenomenon can be characterized as nothing short of extraor-
dinary, since it is the first time that a modern interdisciplinary theory is presented
in a similar “mainstream” textbook and that the authors make no reference to any
other grand theory. See further in Hatzis (2000a). See also Papasteriou (1994:
35-36).
Hatzis: The Anti-Theoretical Nature of Civil Law Contract
Scholarship and the Need for an Economic Theory
32
Europe),
74
any attempt to deregulate economic life and to create an
economically efficient law comes primarily from the state and not
from the judicial system or the legal scholarship. Thus, the timing
is perfect for the sophistication of contract law in these countries.
Specifically, as concerns the European Union, the attempt to
unify the private law of member states in recent years, the publica-
tion of tentative drafts (especially the Principles of European Con-
tract Law, in Lando & Beale 1995) and the enactment of many di-
rectives on contracts issued by the EU, present a golden opportu-
nity for modernization based on economic analysis (cf. Ap. Geor-
giades 1999: 7-8).
III. An economic theory of contract law should construct le-
gal rules that will accommodate -rather than interfere with- exist-
ing business practices (Hay et al. 1996). A corollary of this postu-
late is that the first principle of an economic theory of contracts
should be “freedom of contracts.”
75
The great majority of contract theorists in Greece, and in
continental Civil law countries in general, accept the basic princi-
ple of “freedom of contracts” at least initially
76
and with some
qualifications. The reason is that this principle is not only a mani-
festation of freedom, but also of formal equality. Most of them
support it (even in its curtailed versions) as an essential basis for
the contract law of a market economy. All the restrictions they
have imposed on this principle are based on the economic consid-
erations of their proponents (although crudely articulated). The ba-
sic argument on the inequality of the bargaining power of the par-
74
Especially the countries that are current or prospective member-states of the
European Union.
75
“"[O]wnership" without the privilege of transferability is only a limited form
of ownership” (Goetz 1984: 38). For Posner (1995b: 266), “[t]he important thing
for capitalism may be the enforcement of freedom of contract by reasonably dis-
interested judges rather than the exact degree of clarity and coherence of the
legal rules.”
76
For Stathopoulos (1996b: 53), the principle of freedom of contracts is the
“soul” of contract law. For similar views in Germany, see Rolland (1990).
Commentaries on Law & Economics, Vol. 2 ( 2002)
33
ties, as well as any other “fairness” consideration, is grounded on
the ambition to provide the parties with the “equality environment”
of perfect competition (e.g. Zepos 1955: 103; Papantoniou 1983:
261-262, etc., cf. Burrows 1995) and not to promote any specific
distributive concerns.
77
Very few scholars would straightforwardly support a redis-
tributive function for contract law;
78
on the other hand, most of
them would arguably welcome an economic theory (e.g. Papaste-
riou 1994: 35-36; Ap. Georgiades 1997: 68; Stathopoulos 1998:
10-11) that could soothe their worries over the new economic real-
ity created by the infamous “inequality of bargaining power,”
which precludes the unrestrained enforcement of freedom of con-
tracts (Clark 1989: 1726). Legal scholars and ambitious judges,
with very limited knowledge of the functioning of a market econ-
omy, share a basic weakness: They can observe the distortions of a
market economy (the market failures), but they cannot understand
their origins and consequently they cannot correct or deal with
them consistently (Ichino 1998: 310). They can feel
79
the need for a
new coherent theory of contract law,
80
but they cannot build one.
77
See Gazes (1970: 41): “The socialization of Civil law would be its adultera-
tion.”
78
At least in Greece, even radical scholars lack such an ambition. Their dis-
course (or rather especially that) includes economic arguments and a concern for
the distortion of the market economy by market failures. See especially Kazakos
(1987: 31-41). See more generally Kronman (1980), Posner (1992: 95, 97-98,
263-264) and Harrison (1995: 109-126).
79
“He [Friedrich Kessler] viewed the courts as accomplices throughout, well
meaning but naive, clinging by rote to tired doctrines of promise and assent,
yielding to an instinct for justice in a confused manner and without regard to
developing a coherent theory of contractual interpretation.” (Priest 1995: 2146).
See also Duxbury (1995: 144-145) for Llewellyn, as well as Gazes (1997: 67-
70).
80
See e.g. Stathopoulos (1995: 37-38, 43, 76; 1999). For concurring thoughts
and similar examples taken from American law, see Schwartz (1997: 67), but
also Mattei (1994b) (equity and efficiency are of equal use to lawyers as tech-
niques of legal argument).
Hatzis: The Anti-Theoretical Nature of Civil Law Contract
Scholarship and the Need for an Economic Theory
34
IV. As we have previously noted, a typical characteristic of
Greek Civil law theory (and more generally, of its European coun-
terparts) is the absence of an underlying general theory (a grand
theory). This is also a defining feature of Roman law and one could
say that it is an indication of an effort to resolve all practical mat-
ters particularistically, and not with the use of grand theories.
One could then wonder about the need for a theory, and es-
pecially for an economic theory, and about its place in a construct
such as the Greek Civil code, that has preserved its “intellectual
autonomy” quite successfully until today.
81
Some general reasons
were already mentioned. To them, one could add the increasing
complexity of economic and social relations that renders the eco-
nomic illiteracy of legal scholars unacceptable for modern capital-
ist societies. The process of legal modernization can no longer be
based on the age-old, albeit successful evolution (and “natural se-
lection”) of legal rules.
82
The economic theory that was developed expressly for
Common law but was grounded on neoclassical economic theory
(which is international and not parochial),
83
is not only a perfect
intellectual vehicle for understanding the internal structure, the de-
velopment and the essence of the Greek Civil Code,
84
but it can
81
If we use as a criterion the fact that there has been no major or even minor
revision (or proposal for revision) of the chapters regulating contractual rela-
tions. The only indirect revision was the implementation of the European Union
directives. See generally Stathopoulos et al. (1995) and Karakostas (1997).
82
According to Mahoney (2000), recent finance scholarship finds that countries
with legal systems based on common law provide better investor protections and
have more developed financial markets than civil law countries.
83
See Mattei & Pardolesi (1991: 266); see also Mattei (1994a: 217-218) and
Gemtos (1999: 12-13).
84
See similar remarks on the usefulness of economic analysis to the Anglo-
American Common law of contracts by Howard Gensler: “A command of this
economic theory not only illuminates contract law for the student by providing a
powerful pedagogical paradigm, but is also invaluable for the attorney who must
convince an appellate court of the policy implications and structural merit of an
argument.” (Gensler 1994: 384).
Commentaries on Law & Economics, Vol. 2 ( 2002)
35
also provide the tools needed to modernize a construct that has the
potential of becoming even more fitting to deal with economic re-
lations.
85
Today, these tools cannot be offered by legal scholarship
in the technical doctrinal sense,
86
but by a legal science informed by
the social sciences in general and by economics in particular.
87
Any attempts made by Greek legal scholars to place special
emphasis on the problem of disparity in the bargaining power be-
tween the parties have failed because of their methodology. The
intervention of the Judge in a contractual relationship is too sensi-
tive a matter to be left to lawyers with no knowledge of economics
(see esp. Phourkiotes 1964: 35-36); and this is so because this in-
tervention is actually a form of government intervention in the
sphere of market activity.
88
If this intervention is to be justified, es-
pecially today, it must be based on the sophisticated market failure
analysis of modern microeconomics, as this has been transformed
by the recent political, economic and technological developments
and the progress of economic science over the last two decades
(Hatzis 2002a, also Gemtos 1999: 10-11). Economic analysis can
offer its methodology to lawyers seeking congruence between their
interpretation of legal rules or legal standards and the economic
reality these rules and standards regulate.
Nonetheless, as we observed earlier, the various grand theo-
ries developed for Common law have failed to offer a coherent and
85
“The great strength of law and economics [...] lies in its bringing to the study
of the law a skill (deductive theorizing) that is complementary to the great induc-
tive concern with facts and distinctions that characterize the best doctrinal schol-
arship.” (Ulen 1996: 791, emphasis by the author). Ulen refers mainly to Com-
mon law, but his description fits Civil law perfectly.
86
This is so for many reasons, which cannot and need not be elaborated here.
For a classic statement of the end of law's autonomy, see Posner (1987).
87
See Cooter (1995) for related views, but from another perspective (after the
triumph of economic analysis of law in the U.S.A.), and Williamson (1996).
88
“Do not compare the imperfect market against a perfect government. Gov-
ernment has its own costs - and fewer self-correcting mechanisms, such as com-
petition.” (Easterbrook 1989: 22).
Hatzis: The Anti-Theoretical Nature of Civil Law Contract
Scholarship and the Need for an Economic Theory
36
stable theoretical framework. One then wonders: what is so differ-
ent about an economic theory since it could also lead to a similar
failure?
The fundamental difference between an economic theory and
a philosophical or doctrinal theory is that an economic theory aims
at facilitating the exchange of rights according to people's wishes -
and not at regulating contracts according to a moral theory (Fried
1981), a political and/or social theory,
89
a “recovered” lost philoso-
phical tradition (Gordley 1991), or a doctrinal construction.
90
The
aforementioned theories are based on the legitimate need of theo-
rists to explain contract law and to incorporate it in a perfect, all-
inclusive, formalistic conceptual world. Their errors are basically
two:
(a) They try to accommodate commercial relationships in a
preexisting conceptual framework designed ex ante and not based
on any empirical research. When social and economic reality con-
tradicts the theory, they either dismiss the former or modify the
theoretical framework to such an extent that it becomes trivial.
(b) They are inattentive to the needs of the parties as eco-
nomic actors.
91
All these theories are grounded on concepts created
by philosophers, legal theorists and other eminent scholars who
have “intuitively” discovered what is moral, liberating, socially
just, “caring,” or “relational” in the exchanges between people and
89
For an example of a theory of contracts based on libertarianism, see Mack
(1981) and Rothbard (1982); on socialism, see Wilhelmsson (1993; also 1995);
on feminism, see esp. Frug (1985, 1992).
90
These theories are predicated on the futile basis of “prediction” of judicial
decisions (in Common law) or on a shabby and retrogressive conceptualism (in
Civil Law). Characteristic examples are “bargain” theory and reliance theory.
91
For the critique of conceptualism, see Gazes (1995: 37-38) and citations
therein. See also Gemtos (1999: 2) for a perspective that is more congenial to
ours. According to Judge Posner: “The pragmatist thinks that concepts should be
subservient to human need and therefore wants law always to consider the possi-
bility of adjusting its categories to fit the practices of the nonlegal community.”
(Posner 1995a: 399).
Commentaries on Law & Economics, Vol. 2 ( 2002)
37
have decided that a theory is needed to somehow regulate these
exchanges according to their wise musings. Without denying their
good intentions or the value and the descriptive (even exegetic)
power of their scholarship, we should observe that these theories
usually overlook the fact that most of the times social actors are the
best judges of where their interests lie (and even if they do not,
nothing can assure us that someone else knows better) and conse-
quently, they may have long-term unfavorable consequences on the
lives of the actors in question.
92
In the words of one of the leading
Greek civil law scholars, Apostolos Georgiades (1997: 68): “The
employment of methods and concepts borrowed from economic
science can contribute to the law's deliverance from metaphysical
prejudices and it can also shed light on the real incentives of indi-
viduals in the process of the formation of legal rules.”
93
If there is (or there should be) a defining characteristic that
separates economic theory from all other theories, this is the lack
of procrusteanism. Economics begin with the fundamental axiom
that each individual is the best judge of his or her own interest.
This methodology or theory of “rational choice” permeates modern
economics and all modern economic approaches to social phenom-
ena like law. Rational choice (or economic) theory of law
94
cher-
ishes the freedom of contracts and values the keeping of promises,
not for political, philosophical or moral reasons, but as means to
the achievement of the welfare of the parties as they perceive it
(which is also the reason they engage in contractual relationships in
the first place).
95
The limited intervention in these relationships ad-
92
The mega-example in American legal theory is Williams v. Walker-Thomas
Furniture Co., 350 F.2d 445 (D.C. Cir. 1965). See also Veljanovski (1990: 39-
40) and relatively, but from another perspective, Macneil (1983) (for the prob-
lem of external values and the distortions they can create).
93
See also similar (and more enthusiastic) comments by Gemtos (1999: 12-13).
94
See Ulen (1994) and the remarks by Easterbrook (1989: 5-6).
95
“The ideal of freedom of contract is not a celebration of mutual exchanges for
cash; it is a celebration of voluntary association on whatever terms and condi-
Hatzis: The Anti-Theoretical Nature of Civil Law Contract
Scholarship and the Need for an Economic Theory
38
vocated by economists is based on a meta-ethical and positive the-
ory on the failure of the rational choice process (cf. Gauthier 1986:
83-112). This theory is not based on substantive and subjective, but
on procedural and objective factors (for such a theory, see Hatzis
1999a).
V. For these reasons, it becomes obvious that Greek contract
law scholarship is in urgent need of a theory
96
that will unify and
purify the widely accepted principles found in the Civil Code or
fabricated by the scholars, the general concepts (or “standards”)
underlying and defining the default rules, the concerns of the
“pragmatic-minded” judges, the need for adjustment to the reality
of economic life, and especially the parties’ desire for certainty of
law and security of business transactions. This theory should en-
compass, to the greatest extent possible, the semi-theoretical con-
structs of scholars and courts, in order to have increased chances of
being accepted by the mainstream (or at least of influencing it con-
siderably). It should also be sensitive to the needs of the contract-
ing parties that are a lot more “contract-wise” than scholars and
judges (Schwartz 1996: 37).
Moreover, this theory is necessary for interpreting a Code
that has started to show signs of aging and needs a reaffirmation of
its initial mission
97
to support and help the market function effi-
ciently and fairly. A Code that was constructed with a view of a
Greek economy based on agriculture, small businesses and a pater-
nalistic capitalism, despite its overall success in the past fifty seven
tions the parties to the transaction see fit.” (Epstein 1995: 709). See also Collins
(1993: 143).
96
For Gazes (1997: 30), the doctrine “has turned into stagnant waters” (citing F.
Wieacker).
97
Andreas Gazes (one of the preeminent Greek legal scholars, with a career in
law spanning seventy years), feels the pressing need for the invigoration of legal
science and concludes in an important and profound essay (Gazes 1997: 69):
“Therefore, the future objectives of legal science are these two: the reconstruc-
tion of the system; and the creation of a jus gentium commune, mainly in
Europe, but also in international legal science.”
Commentaries on Law & Economics, Vol. 2 ( 2002)
39
years, begs for a reconstructive interpretation if it is to remain at-
tuned to the fast-changing social and economic conditions.
98
A theory that is insensitive to the needs of the parties, such as
the legal “neoclassical theory” currently being intuitively devel-
oped in an amateurish and fragmented manner (see Hatzis 2000c),
99
could prove catastrophic for any economy (and for the Greek econ-
omy in particular),
100
despite the manifested ability of the parties to
98
A new code is not needed for two reasons: (a) Roman law possesses the prop-
erty of adjustability even today, owing to its abstract construction and its market-
friendliness, and (b) The process towards a European Civil Code has been initi-
ated, and it will hopefully be accelerated by the European Monetary Integration.
The first draft of the Principles of European Contract Law is very similar to
Greek contract law. See the text of ECC and comments in Lando & Beale
(1995). See also Lando (1992), as well as Kerameus (1994) for an informative
comparison between the ECC and Greek Contract Law.
99
See Zimmermann (1994) for similar remarks but different conclusions on
European (Union) private law.
100
See the recent study by Keefer & Knack (1997) (deficient institutions under-
lie the divergence between poor and wealthy countries, one of the most impor-
tant indicators of institutional quality being the risk of expropriation and contract
repudiation). See also generally Barro (1997). Although Greece is a wealthy
country, the risk of falling behind is always lurking, especially at a time when
Greece's main economic target is to catch up with the wealthiest countries of the
European Union, by developing faster than the EU average growth rate. For the
importance of institutional arrangements, see the classic work of Douglass North
(1990). See also Dixit & Olson (1996: 39-40):
The structure of incentives in the political system and the economic un-
derstanding of a nation's elite have, in spite of special-interests pressures
and rational ignorance, a major impact on the economic policy a country
chooses. If outcomes were not much dependent on economic policies and
on the institutional structures and elite opinions that help to determine
them, then per-capita incomes across the countries of the world would, to
an approximation, be given by each country's inherent endowments of
natural resources and human capital. But per-capita incomes are decid-
edly not determined mostly by endowments: the more than twenty-fold
differences in per capita incomes across countries are due in large part to
differences in their institutions and economic policies.
Hatzis: The Anti-Theoretical Nature of Civil Law Contract
Scholarship and the Need for an Economic Theory
40
find ways to circumvent inefficient legal rules.
101
This development
could also prove detrimental to Greek Civil law, since this sketchy
theory seems to have inherited the worst characteristics of extreme
particularism (mainly, the indifference to long-term consequences)
and of theoretical doctrinalism (especially rigidity).
2.3. Contract Law and Distributive Justice
In this last section, we will deal briefly with the relation be-
tween social justice and efficiency and especially with the question
of contract law's suitability for pursuing and achieving social jus-
tice.
102
Although this is a nearly exhausted issue
103
that we will not
scrutinize here, we wish to call attention to two points:
(a) Contract is simply an ingenious mechanism for the trans-
fer of scarce resources and not a legal fiction, a Platonic Form, a
“preexisting entity of fixed dimensions” (Posner 1990a: 250)
101
See Kronman & Posner (1979: 6). However, the parties often do not wish to
bargain around an inappropriate default rule (even when it would make sense for
them to do so), for strategic reasons of their own: if they did bargain, they would
have communicated information which they did not want to reveal to the other
party (esp. the lack of trust for the other party or apprehension about their ability
to perform as the other party wishes) or they would have made the other party
feel uneasy and distrustful. See Baird (1992: 4-5) and also Macaulay (1963), for
a relevant much-discussed empirical study. There is also the problem of the cost
of writing more complete contracts.
102
For the much-discussed issue of the divergence of autonomy and welfare,
see generally Trebilcock (1993), but also the work of Hadfield (1995; 1996)
inspired by Trebilcock. For the relation between efficiency and social justice in
contract law, see Hatzis (1997). For the notions of fairness, see Kaplow & Shav-
ell (1999) (ascribing importance to any notion of fairness will sometimes lead to
a conflict with the Pareto principle). See also Posner (1997b) (average incomes
in a society, rather than the equality or inequality of the income distribution, in-
crease political stability).
103
For an overview of the issues of paternalism and freedom of contract, see
Kronman & Posner (1979: 230-267) and for further elaboration, see Kennedy
(1982), Kronman (1983) and Zamir (1998). See also Mattei (1997: 1-25).
Commentaries on Law & Economics, Vol. 2 ( 2002)
41
where economic relations should fit into in a procrustean way,
104
or
even worse, an all-encompassing concept of civil/political organi-
zation applicable to every social and/or economic relationship.
105
The role of contract law and more generally the state's role should
be to help this mechanism operate smoothly - and nothing else be-
yond that. Many pseudo-problems of contract law are in fact the
result of the rigidity of theories
106
and not of insoluble practical is-
sues.
According to economic theory, when applying their discre-
tionary powers in order to resolve thorny issues, judges should not
rely on analogical reasoning or their intuition (or even their sense
of justice),
107
but they should rather examine the business practice
104
“Contract law exists, not to prevent our doing things, but rather to facilitate
our doing things - to make our agreements binding, regularized, predictable, and
stable. Law is here not some kind of necessary evil [...] but is rather one of the
factors that makes for civilized life and complex institutions.” (Murphy & Cole-
man 1990: 27; see also 161-162 for the “double privateness” of contract law).
See generally Holmes (1897: 458). Conceptualism can be equally dangerous and
procrustean, even in the particularistic Civil law. See Dellios (1992: passim, esp.
1209) and the apt comments by Phourkiotes (1964: 15, n.86 and also 29).
105
Let's keep in mind that Procrustes had two “specializations.” The “elonga-
tion” of the concept of contract (which is as dangerous as its “abbreviation”) led
to the phenomenon of the expansion of contractual liability during the 19th cen-
tury, when an endeavor by judges and theorists of Common law to characterize a
number of varying and different obligations as deriving from implicit quasi-
contracts, failed (Gilmore 1974; see also Lindley 1993 for a broader perspec-
tive). This venture by liberal-minded legal scholars, aiming to protect and deify
freedom of contracts as a source of utility and liberty, resulted in the falsification
of the principle. The gravest error of these scholars was that they tried desper-
ately to fit economic relations into their theoretical framework (but this is hardly
a liberal attitude), denying the existence of different sources of obligation, thus
failing to serve the needs of economic life and the social order. See De Geest
(1995) and contra Hatzis (2000b). See also Scheiber (1999).
106
E.g. the theory that bases the enforcement of contract on the promise as a
source of moral obligation (Fried 1981).
107
For the dangers, see Posner (1996c: 61).
Hatzis: The Anti-Theoretical Nature of Civil Law Contract
Scholarship and the Need for an Economic Theory
42
and the context of the particular situation,
108
having only one con-
cern in mind: to realize the wishes of the parties, given their rea-
sonable expectations and viewing their actions as revealed prefer-
ences (Holmes 1881: 289-307).
109
This is the only way for legal
theory, and economic analysis of law for that matter, to serve the
main objective of contract law: the facilitation of economic ex-
changes, that is, the enforcement of private arrangements (see also
Easterbrook & Fischel 1991: vii).
The most reliable method for a contract law to achieve effi-
ciency is for it to enforce the parties' deals and to “reconstruct”
these deals when necessary, employing as tools the usage of trade
and the prevalent business ethics. One should not have to resort to
theories of bounded rationality or of relational contracting to ac-
knowledge the importance of the parties' ability to find the less
costly solution to their problems (Schwartz 1997: 14).
These observations should not be taken to suggest that there
is no place for the intervention of the state and of judges in particu-
lar. This intervention seems necessary and inevitable in those cases
where the disparities in bargaining power are conspicuous. But
such intervention should have as its only purpose to enforce and
thus facilitate exchanges and to create, to the greatest extent possi-
ble, a “perfect market environment,” by helping the market correct
its failures (mainly the problems generated by significant transac-
tion costs and imperfect information), and not by patronizing the
parties.
110
It is true that on many occasions the failures of the market
108
We believe that this is also the essence of Karl Llewellyn's “contract-as-
framework” versus “contract-as-legal rules” (see Llewellyn 1931 and Schwartz
1997).
109
According to the former President of Areios Pagos, Judge Andreas Touses
(1978: 569, n.2), a contract is binding not only for the two contracting parties but
also for the judge himself, who is obligated to interpret it according to the ex-
pressed or implied “declared will” of the parties.
110
According to Parisi (1994: 223): “The patronizing is rationalized as an at-
tempt to prevent people from harming themselves or as an encouragement to be
Commentaries on Law & Economics, Vol. 2 ( 2002)
43
can lead to unfair outcomes, resulting from highly unequal bargain-
ing positions. But this is not always so. Most of the times, this ine-
quality does not have any effects on the contractual relationship,
especially in conditions of (practically) perfect competition. As
Allan Schwartz put it: If “[consumer markets] do work well, there
is little to worry about in terms of justice -that is, justice in the
sense of allowing people to do the best they can for themselves un-
der given circumstances.” (Schwartz 1986: 110).
111
(b) The state has numerous other opportunities for correcting
injustices and pursuing “social justice” without distorting the mar-
ket and harming people.
112
Even if one doubts that the sole purpose
of contract law is efficiency and the realization of the parties'
wishes, one could more readily accept that other methods for the
implementation of distributive
113
justice are more efficient and
more considerate of collective social values. The idea is that individuals should
have less freedom to make mistakes than they currently have.”
111
Similarly, Easterbrook & Fischel (1991: 21) and Schwartz (1996: 38).
112
The prevailing view among economists is that contract law is not the right
vehicle for social justice: “Why is that? Because not enforcing contract clauses,
which is all judges can do, tends to make people poorer rather than richer.”
(Schwartz 1986: 115). Karl Llewellyn also believed that distributional goals
have no place in contract theory for many reasons and also because of the multi-
plicity of roles (Schwartz 1997: 7, 13-14).
113
Anthony Kronman (1980) made a strong case for the inevitable distributive
consequences of contract law as enforcement (or non-enforcement) of advan-
tage-taking. However, his arguments apply mostly to the libertarian (but see the
critiques of Wang 1982 and Alexander & Wang 1984; see also Murphy &
Coleman 1990: 165-175) and not to the economic theory of contracts. One could
characterize his treatment of advantage-taking as quite compatible with eco-
nomic theory. Here we should be reminded that economic theory does not disre-
gard that every contract (and every judicial intervention) always has distributive
consequences, that are sometimes enormous. The distributive effects are always
hidden behind the veil of efficiency in both versions (positive and normative) of
the Coase theorem.
Hatzis: The Anti-Theoretical Nature of Civil Law Contract
Scholarship and the Need for an Economic Theory
44
more fair,
114
like taxation. “[J]udges can, despite appearances, do
little to redistribute wealth [...] Legislatures, however, have by vir-
tue of their taxing and spending powers powerful tools for redis-
tributing wealth.” (Posner 1990a: 359-360; cf. Gazes 1997: 67).
Without doubt, the pursuit of social justice by legislative bodies
115
and not by the courts is not only more efficient, but also more
comprehensive, democratic and impartial.
116
3. Conclusion
In this paper, we determined that the absence of theories de-
veloped for Roman contract law and the absence of grand theories
developed in Civil contract law scholarship were outcomes of a
particularistic approach to the problems created by the deficiencies
of markets. This approach was driven by the need for a construc-
tion of a legal framework conducive to economic progress. The
generation of efficient results by Civil law through the selection of
efficient rules and standards was completed over the course of sev-
eral centuries and stabilized after the great codifications (basically
the French-Napoleonic Civil Code and the German Civil Code).
114
See Fried (1981: 105-106). If we understand this correctly, this is also
Rawls's (1971) idea (voluntary transactions and redistribution via taxation and
welfare). However, Kronman (1980) questions the efficiency of tax law.
115
See e.g. §15 of Law 1483/1984, pursuant to which the discharge of a woman
who is pregnant or has given birth within one year prior to the discharge, is void
(except in the cases where there are other important reasons). See also decision
3275/1998 of the Thessaloniki Court of Appeals.
116
For the clash between efficiency and social justice, see the classic work by
Okun (1975). But see recently Swygert & Yanes (1998) (justice requires that
legal rules consider both fairness and efficiency, thus a unified theory of justice
should consider the question of what agreements parties would enter into if they
could bargain costlessly ex ante without knowledge of which side of the bargain
they would ultimately obtain). But see critiques of their thesis in Korobkin &
Ulen (1998) and Zerbe (1998).
Commentaries on Law & Economics, Vol. 2 ( 2002)
45
Common law had for centuries attempted to develop a simi-
lar construct that would be stable enough to facilitate economic
relations. The borrowing of ideas and solutions from Civil law was
the easy way out. Despite the numerous legal transplants, Common
law fought hard to preserve a false independence and a parallel di-
lapidated coherence by building unified, conclusive, but dogmatic
theories. As a result, it offered legitimate arguments to Critical le-
gal theorists (see esp. Kennedy 1976; 1982). The mimicking of
Civil law has no doubt led to some efficient results, but with many
islands of “inefficiency” (Collins 1991: 398 and more generally,
Epstein 1982) trapped in the sea of rigid theories (bargain theory,
privity, etc.). Nevertheless, the process for the civilification of
Common law is already under way.
117
On the other hand, Civil law scholarship and practice has
found it increasingly difficult to respond to the fast-changing eco-
nomic circumstances. For the first time in history, economic rela-
tions have become so complicated that it is impossible for a judge
endowed only with common sense to solve problems created by the
dysfunctions of markets (Easterbrook 1989: 4). Economic expertise
is not only helpful, but absolutely necessary. Of course, judges are
not expected to invent the wheel; but they should definitely learn
how to use it. A responsive economic theory of contract law is al-
most imperative if Civil law is to continue playing the role that it
has successfully performed for centuries: providing the legal
framework that helps the economy function.
Thus, the mainstream construction of the European Civil
codes, which is primarily a reflection of the doctrine of freedom of
contracts (that should be reconstructively interpreted in order to
protect the parties who are disadvantaged in cases of unequal bar-
117
In the United States, it is almost half way there. See Crystal (1979) and
Gordley (1981). In the United Kingdom, European Union law appears as its
Nemesis. See the recent studies by Lewis (1995/96), Ogilvie (1996) and Neate
(1996). For Canada, see Gonthier (1993). For observations on this trend, see as
early as in Zepos (1937: 472, 474-475) and more recently in Posner (1996b: 20-
37).
Hatzis: The Anti-Theoretical Nature of Civil Law Contract
Scholarship and the Need for an Economic Theory
46
gaining power), is interestingly compatible with the economic the-
ory we have here advocated. We need only to incorporate contract
law doctrines in the perfect/imperfect markets/contracts dis-
course.
118
This would be invigorating not only for Continental legal
theory, but also for economic analysis of law and for Civil law in
general.
119
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| 课件名称： | 国外法律相关参考资料合集（英文） |
| 课件分类： | 法学 |
| 课件类型： | 电子教案 |
| 文件大小： | 1.84MB |
| 下载次数： | 1 |
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