The Case for Formalism in Contract Law Adjudication

Abstract

Formalism has a bad name. It is often seen as a naive and unsophisticated approach to the adjudication of legal disputes. This negative view of formalism is widespread in American legal culture, and has been particularly influential in contract law. This Article goes against this prevailing view, and argues that a formalist theory of adjudication is the best approach to resolve contractual disputes. The argument of the Article starts from the assumption that contract law is not morally justified because of its enforcement of promissory rights or some other dimension of interpersonal morality. Instead, like contemporary law and economics, this Article assumes as its starting point that the law of contracts is an instrumentally justified legal institution, i.e. an institution justified because of its valuable social consequences. Starting from this assumption, the Article asks what approach to the adjudication of contractual disputes facilitates the achievement of contract law’s instrumental goals. The answer, against what is commonly assumed, is that a formalist approach—the specific contours of which are set out by the Article—would be instrumentally best. The reason for this is that formalism, with its commitment to an ex post, rule-bound, doctrinalist, and modest approach to legal adjudication, has important instrumental benefits. Formalism contributes to simple, generalizable, and cost-effective decision-making; it is consistent with the institutional competence of courts; reduces the risks and overall costs of legal mistakes; and increases predictability, protecting contractual parties’ legitimate expectations. Moreover, formalism is an adequate means to deal with value pluralism, and is consistent with the main values served by the law of contracts, such as autonomy and efficiency. Thus, encouraging judges to make socially optimal decisions in contractual disputes might not be the optimal strategy. The overall socially optimal outcome might, instead, be achieved through a decision procedure that deliberately recommends judges not to pursue the aim of reaching socially optimal outcomes in each and every case, but rather to decide by applying pre-existing doctrine and expanding it incrementally. If that is the case, then, despite their disagreement about contract law’s foundations, instrumentalist and formalist theorists might agree about the narrower question of how judges should decide contractual disputes.