Contingency and Contracts: A Philosophy of Complex Business Transactions
70 Pages Posted: 20 Jan 2005
In this article, I argue that the prevailing literature on contract theory does not adequately address the way real-world lawyers address uncertainty in complex business transactions. I attribute this to the constraints imposed by thinking in legal models, the dominant tendency to turn to economics for analysis and normative prescription, and the focus on adjudicative issues of hindsight interpretation. Commercial uncertainty, and the law's response to it, is only a subset of the broader philosophical issue of contingency. As an alternative to prevailing thought, I trace philosophical approaches to contingency, utility and morality that have come down to us since the Enlightenment, and how those approaches reveal themselves in modern legal and management theory and practice. In particular, I criticize certain characterizations and applications of legal and philosophic pragmatism. While the leading proponents adopt the name legal pragmatism, I suggest that they have nevertheless opted for a dogmatic economic idealism. Successful business leaders (and lawyers) have a more subtle approach: they envision a world as they want it to be (as it ought to be) but are not consumed by the fact that things do not always work out as they should. I argue that lawyers who are legal or economic dogmatists, seeing the world only as they want it to be, or who are only pragmatic or empirical, and will only acknowledge the world as it is, will be far less effective in the highly contingent environment where contracts create more moral than legal markers. The most effective real-world deal lawyers will be prepared to deal with contingency and counsel their clients pragmatically, but with far more idealism than current proponents of the jurisprudence of legal pragmatism have acknowledged.
Keywords: Contracts, contingency, Hume, Kant, venture capital, mergers, acquisitions, philosophy, economics, rational actor, idealism, skepticism
JEL Classification: K12, K22
Suggested Citation: Suggested Citation