When Should Contract Law Supply a Liability Rule or Term?: Framing a Principle of Unification for Contracts

To demonstrate the need for a unified instrumental framework for deciding gaps and implying liability rules, Part II of this Article will first describe the competing visions of the role of law in contract gap-filling. Although each vision has expanded the ways in which we think about contracts and has offered more realistic models of bargaining, each still fails to offer a unified framework for deciding how courts should decide *1290 incomplete contracts. Part III of the Article outlines the methodological framework for unifying judicial approaches to law-supplied terms or rules. The framework will incorporate a: (1) realistic model of human behavior; and (2) a comparative net benefit framework to assess law-supplied interventions. Part IV traces the origin of the unifying comparative net benefit method to new institutional economics. Part IV analyzes how the failure to advert to the problems of uncertainty (and other bargaining impediments) has impaired the development of a complete comparative cost structure outlined in this Article and hampered the analysis of precontractual liability. Commentators compound these problems by employing overly restrictive cost/benefit analyses which fail to provide promisees with the optimal incentives to rely. Current analyses of reliance ignore the important issues of the problem of opportunistic expropriation of reliance investments. Accounting for these issues and applying the suggested methodology to reliance issues would improve results. Part IV applies the theory to several prototypical reliance cases. Part V explores two frameworks for dealing with incomplete contracts: a hypothetical bargain and penalty default rules. Since both approaches lack a comparative cost framework, neither can fully justify a law-supplied liability rule or term. Part VI applies the unified comparative net benefit framework to determine whether and in what fashion the law should intervene to protect the general contractor\u27s reliance on a subcontractor\u27s offer and concludes that the protections of Drennan should be modified using the framework outlined here. Part VII uses the unified framework to rationalize a myriad of cases of law-supplied interventions in contract. The section will address Professor Alan Schwartz\u27s theory for explaining judicial strategies of intervention in incomplete contracts.Part VIII offers a final assessment of why a comparative net benefit framework matters and outlines its advantages