Should the Law Ignore Commercial Norms? A Comment on the Bernstein Conjuncture and Its Relevance for Contract Law Theory and Reform

Authors

Jason Scott Johnston, University of Pennsylvania Law SchoolFollow

Abstract

Professor Bernstein's study of the interaction between private law and norms in the cotton industry is the latest installment in her ongoing investigation into the relationship between law and norms in trades ranging from the diamond market to grain and feed markets. Her incredibly detailed and thorough exploration of private lawmaking and commercial norms - and their interaction - stands as one of the most significant contributions to contract and commercial law scholarship made in the last half-century. The cotton industry study upon which I focus in this Comment not only reports fascinating findings about dispute resolution practices, but also presents a number of intriguing and complementary theoretical insights into those practices. Bernstein's empirical findings call into question some of the fundamental results in the economic analysis of contract law, such as the theory that expectation damages induce efficient breach of contract. Her central induction from her discoveries about cotton industry practices is that the best way for the law to encourage the development of extralegal norms of commercial reasonableness and the enforcement of those norms via commercial reputation may be, paradoxically, to make those norms irrelevant in formal dispute resolution. This hypothesis - which I dub the "Bernstein Conjecture" - suggests that the underlying methodological supposition in Article 2 of the Uniform Commercial Code - that the law should mirror or reflect actual commercial norms - may in fact be destructive of the very norms it seeks to incorporate. This is no small implication. For this reason, after beginning with a few methodological quibbles, the bulk of this Comment focuses on the Bernstein Conjecture. I first develop an informal but quite general analysis of the role of the law in deterring commercial opportunism, and I then focus more precisely on identifying the social and market context in which the Bernstein Conjecture is likely to hold.

Recommended Citation

Jason S. Johnston, Should the Law Ignore Commercial Norms? A Comment on the Bernstein Conjuncture and Its Relevance for Contract Law Theory and Reform, 99 Mich. L. Rev. 1791 (2001).
Available at: https://repository.law.umich.edu/mlr/vol99/iss7/4