Chapter 1
Congratulations! Because you are reading this book (or at least perusing it), you must be interested in contract law. Most likely, you are a first-year law student studying the subject or you are a recent law graduate studying for the bar exam. I extend my congratulations because your study of contract law is time well spent—contract law is the most interesting legal field and, by far, the best law school subject. You don’t believe me? Here’s what two law professors have to say about the issue:
For lots of reasons, contract law is by far the best law school subject to teach and to learn. What other subject contains such a wealth of theory, doctrine, and substantive reasoning? What other subject focuses so clearly on essential components of economic and other organization in our society, namely private agreements and exchange transactions? What subject better exemplifies the power of general theory, the functions and limits of the common law, the rise of statutory law, the interaction of right and remedy, and the role of various legal actors in our system (including transactors, lawyers in their various roles, judges, and lawmakers)?1
OK, if you looked at footnote 1, you know that I am one of the authors of this quotation. And the quotation is pretty abstract. But I still think I can convince you that contract law is a great subject and that you will enjoy learning it and even enjoy reading this book.
At its core, contract law answers two basic, but immensely interesting and important, questions (see, I told you): What promises does society enforce, and why does it enforce them? By enforcement, I mean that society will devote its resources to ensuring that a promisor performs or pays damages to the promisee for failing to perform. (Throughout this book, the promisor is the party who makes the promise at issue and the promisee is the party who receives the promise.) For example, suppose you (the promisor) promise to give your piano to your neighbor, Alice (the promisee). You will learn that if you break your promise before Alice reasonably has relied on the promise, she has no legal recourse against you, although she legitimately may be very disappointed in you. On the other hand, if you promise to give Alice the piano in exchange for her promise to give you $400, both of your promises would be legally enforceable even without any reliance on them. You could go to court and recover money damages if you were ready to perform but Alice broke her promise to pay (and she could recover from you if you broke your promise and Alice did not). Of course, the issue of promise enforcement does not relate only to simple promises and exchanges for small amounts between neighbors. Contract law also applies to mammoth deals between huge companies in the business world, and everything in between. By studying contract law, you will learn how to determine what promises contract law enforces, and understand why society enforces them.
Such questions are not insignificant. By enforcing people’s private promises and agreements, contract law recognizes the power of parties to order their own affairs without the intrusion of the government. Contract law allows you and Alice to create your own private law, every bit as legal and significant as enactments of a legislature that define, for example, what conduct is punishable under criminal law. This recognition of “freedom of contract” constitutes one of the core principles of our free-market economy and is a fundamental precept of our political philosophy. Ironically, contract law marshals the resources of government to enforce contracts against contract breakers in order to facilitate parties’ private lawmaking.
Moreover, contract law’s enforcement of private agreements, such as the exchange of the piano for the $400, benefits both parties—you valued the $400 more than the piano and Alice valued the piano more than $400. Otherwise, neither of you would have made the agreement. Because both of you have improved your position, society benefits as well by getting the most out of its resources. Of course, it is another story if you were aware that the piano was seriously defective and therefore worthless and Alice was reasonably unaware of this, or if you were a large piano dealer with all of the bargaining power and insisted on terms that were unfair to Alice. The study of contract law also includes a consideration of the many factors that may lead to non-enforcement of defective private exchanges.
A. SCOPE OF THIS BOOK
The scope of this book is easy to describe. The book covers the main topics of contract law typically treated in a first-year course on the subject. A short synopsis of each chapter follows (at the risk of raising more questions than can be answered at this point). By reading this short summary, you will get a flavor for contract law’s response to the questions of what promises society enforces and why it enforces them.
Chapter 2: Bargain Theory for Enforcing Promises and the Requirement of an Agreement. This chapter first covers the principal ground for the enforcement of promises, known as a “bargained-for exchange.” You will learn in detail about the difference between a bargained-for exchange, such as an agreement for the exchange of your piano for $400, which is legally enforceable, and a simple promise to make a gift of the piano, which is not enforceable (in the absence of reasonable reliance on the promise). In a bargained-for exchange, a promise is said to be “supported by consideration” because the promisor gets something in exchange for her promise. You will also read about the reasons contract law settled on this distinction between enforceable bargained-for exchanges and unenforceable gift promises.
Chapter 2 also covers the equally important concept of “agreement.” A party seeking the enforcement of a bargained-for exchange must show that the parties actually reached an agreement for the exchange. Suppose you casually mentioned to Alice that you were thinking of selling your piano for $400 and, before you could utter another word, she announced that she accepted your offer and would pick up the piano immediately (she’s very strong). Obviously, if you refused to give up your piano and she sued you for breach of contract, you would hope to be able to defeat her claim by insisting that you hadn’t offered to sell in the first place. Although this may be an easy example, the law of agreement enforcement requires difficult line drawing as well. Consider newspaper advertisements. When should contract law treat these as offers that, without more, the reading public can accept to form enforceable agreements and when should contract law consider advertisements as mere invitations to the public to negotiate further? (In other words, if you see an advertisement for a 2009 Ferrari for $30,000, can you call the owner and accept, thereby forming a legally enforceable agreement? Stay tuned.)
The popularity of electronic communication (you know, via computers), including contract-making, creates new challenges for contract law. We’ll consider these in Chapter 2 also.
Chapter 3: Additional Theories for Enforcing Promises. Chapter 3 covers theories for enforcing promises in addition to a bargained-for exchange. The chapter first takes up the doctrine of promissory estoppel, which boils down to the legal enforcement of promises if the promisor reasonably should understand that her promise will induce the promisee to rely and the promisee does rely. For example, suppose you promise to give Alice your piano as a gift with full knowledge that, induced by your promise, she will forgo an opportunity to purchase another piano at a significant discount. In fact, Alice does pass up that opportunity. If you fail to keep your promise you may be liable to Alice based on promissory estoppel.
Many analysts support promissory estoppel because of the perceived injustice of failing to enforce promises that induce reasonable detrimental reliance (reliance that injures the promisee). On the other hand, promissory estoppel was bound to be controversial because it expanded promissory liability beyond the traditional theory of bargained-for exchange. Nevertheless, promissory estoppel is now a well-established theory for enforcing promises. Moreover, promissory estoppel no longer is restricted to gift-promise situations. Courts have applied it to statements made during pre-contract negotiations (although this use of promissory estoppel is quite controversial) and to agreements that are unenforceable because of some defense, such as a failure to put the agreement in writing. (Some, but not all, agreements must be in writing to be enforceable under what is called the “statute of frauds.” See Chapter 4.) Although the scope of application of promissory estoppel is broad and some analysts predicted that it would “swallow up” the bargained-for exchange theory, promissory estoppel has met with only limited success in the courts.2
Chapter 3 also takes up the theory of unjust enrichment. This theory has lots of uses and names in various contexts, but, in general, it applies when a party confers a benefit on another party and it would be unjust for the recipient to retain the benefit without paying for it. Unjust enrichment law imposes an obligation on the recipient to pay or return the benefit. Unjust enrichment issues arise in promissory situations in at least three distinct ways. You are probably thinking “pianos” right now, but put that aside and think of another deal between you and Alice: You and Alice agree to an arrangement in which you will care for her lawn for monetary compensation, but you fail to specify either orally or in writing how often you will work for her, the amount she will pay you, or the duration of the arrangement. Contract law may decline to enforce such an agreement because it is too uncertain—how would a court determine the appropriate measure of damages for a breach when the parties have not specified the amount of compensation or duration? Suppose, however, that you have already worked for Alice for a total of three days. You have conferred a benefit on Alice that would be unjust for her to keep without compensation. Courts allow you to recover the fair market value of your services under the doctrine of unjust enrichment.
Unjust enrichment issues also arise after a breach of an enforceable contract. Contract law generally allows an injured promisee to sue either for breach of contract or for unjust enrichment. If you and Alice had agreed to the amount of compensation and the duration of the yard work, say $20 per hour for the total hours worked, and Alice wrongfully refused to pay for ten hours of work, you could recover $200 for breach of contract. In the alternative, you could sue for unjust enrichment based on the fair market value of the ten hours of work performed (which may be the same amount as the contract price, $20 per hour, or, if one of you was a good bargainer, may be larger or smaller than $20). Obviously, you would want to use the unjust enrichment theory if the benefit you conferred was greater than $20 per hour.
A third use of unjust enrichment in the realm of promissory activity involves a party who confers a benefit in a business setting, not intended as a gift, but the conferral is not pursuant to a formal contract. Such a situation arises, for example, when someone, whom we’ll imaginatively call X, helps arrange a lucrative business transaction for two other parties and then seeks a “finder’s fee” for putting the parties together. If neither X nor the business parties had discussed compensation for X, the question is whether the business parties are unjustly enriched by X’s services. After all, the business context suggests that X was not donating the services. The term “quasi contract” is especially relevant here, because, as the name suggests, the parties did not enter an actual contract with X, but the relationship was “like” a contract.
Chapter 3 also covers warranties for the sale of goods. These warranties are found in the Uniform Commercial Code (UCC throughout this book), which has been adopted by the state legislatures as state law. (I introduce the UCC in Part B of this chapter.) When you go to Walmart and purchase an air conditioner, but the air conditioner is defective, your rights depend in large part on your sales contract and the warranty provisions of the UCC. So you’ll want to pay attention to this part of Chapter 3.
Chapter 4: The Statute of Frauds. Certain agreements must be in writing to be enforceable under what is called the “statute of frauds.” The idea is that the writing requirement deters people from fraudulently asserting that the parties made an enforceable oral agreement. Chapter 4 takes up the categories of agreements that must be in writing to be enforceable. The chapter also considers what kind of writings satisfy the statute of frauds and exceptions to the writing requirement when the statute of frauds would otherwise apply. Perhaps the most interesting question we consider is whether the statute of frauds induces more fraud than it discourages because it sometimes enables a promisor who has made an otherwise enforceable oral agreement to avoid her obligation.
Chapter 5: Remedies. Chapter 5 covers the remedies for breach of contract, promissory estoppel, and unjust enrichment. Although these remedies sometimes overlap, they also can differ significantly. The most important remedy for breach of contract is called “expectancy damages,” designed to put the injured party in as good a position as if the contract had been performed. Assume an enforceable contract, in which you have performed ten hours of yard work for Alice for $20 per hour. You can recover $200 for breach of contract if Alice fails to pay you anything because that would put you in the position you would have been in had Alice performed. Imaginative readers might wonder whether you can recover damages for the delay in payment or for other adverse consequences of Alice’s breach. (OK, maybe you are imaginative even if you didn’t think of this. I don’t want us to start off on the wrong foot.) We will see that, with certain limitations, courts do award such “consequential damages” because they are necessary to put you in the same position as if Alice had performed.
In some cases, an injured party may be granted the remedy of “specific performance” instead of expectancy damages. Specific performance is a court order requiring the breaching party to perform the contract. If Alice has an enforceable contract to purchase your piano, for example, specific performance would constitute a judicial decree ordering you to deliver the piano to her. If you fail to obey the order, believe it or not, the court can fine you or throw you in jail. So sell her the damn piano.
Some contracts include a “liquidated” (also called an “agreed”) damages provision. Such a provision spells out in the contract the amount of damages upon a breach. Liquidated damages provisions are not always enforceable, with enforcement generally depending on, at the time of contracting, how accurately the provision approximates a promisee’s potential damages and how difficult actual damages would be to measure. We will investigate the not-always clear application of these principles as part of a broader discussion of the wisdom of enforcing or striking liquidated damages clauses.
Chapter 5 also takes up the measure of damages in promissory estoppel cases. This topic is controversial. Some analysts believe that damages should compensate the relying party only for the detriment she suffers. After all, the crux of the theory is that a promise induced detrimental reliance. For example, you promise to give Alice your piano (worth $500) as a gift, with full knowledge that your promise will induce Alice to forgo an opportunity to purchase an equivalent piano (also worth $500) from a music store for $250. You should be liable to Alice for $250, which is the difference between the market value and purchase price of the music store piano, because that is what she lost by relying on your promise. Another possible measure, endorsed by other analysts, is to compensate Alice for the full value of your promise. After all, you broke your promise to give Alice your piano. The value of your promise to Alice is, of course, $500 because that is the value of the piano you promised her.
Finally in Chapter 5, I consider the remedial goal in unjust enrichment cases, mainly to give the injured party the fair value of the benefit conferred. This is also challenging because courts must decide precisely what constitutes a benefit and how to measure it. For example, a court could measure the benefit based on its market value, its value to the party receiving it, or the cost of the benefit to the party conferring it (or some variation of these). Chapter 5 takes up these measurement issues in detail.
Chapter 6: Policing Contracts. This chapter discusses various “policing” doctrines, which are rules and principles that focus on the fairness of the contracting process and of the resulting terms. Policing doctrines include duress, fraud, unconscionability, and more. The challenge for courts applying these doctrines is to sort out fair bargaining from unfair overreaching and reasonable terms from “unconscionable” ones. Put another way, courts engaged in policing contracts must determine when “freedom of contract” ends and appropriate regulation of contracts begins. Moreover, the problem extends over a wide range of transactions, from important business deals that included lots of negotiation, to standard-form contracts between businesses and consumers, to simple contracts between neighbors. In fact, drawing the line between enforceable and unenforceable agreements constitutes a daunting challenge for lawmakers and, therefore, an interesting subject matter for you. For example, suppose you and Alice are negotiating the sale of your piano. Alice is a piano teacher and you know that she needs your piano to give lessons and cannot get another piano in time. You insist on a price of $600, even though the market value of the piano is only $200. Should contract law enforce the $600 deal if Alice promises to pay $600? You will see that decisions on this and similar issues are not always consistent. In fact, cases dealing with policing issues help illustrate the reality that in hard cases the rules of contract law may not produce definitive results. Judges must rely on the equities of the case and policy objectives in combination with contract principles in order to reach a desirable result.
Chapter 7: The Parol Evidence Rule and Contract Interpretation. Please note the spelling of “parol” in the parol evidence rule. You will score high marks with your professors and with partners in law firms if you spell parol correctly (yes, there is no “e” at the end—when you write “parole” you are talking about what an inmate in a correctional facility sometimes gets at the end of a prison term). “Parol” means “expressed or evidenced by speech only; not expressed by writing.”3 The parol evidence rule bars the admissibility of evidence of prior or contemporaneous oral agreements or promises that vary or contradict a written term that the parties intended to be complete with respect to that term. A simple example may clarify this mouthful. Suppose you and Alice make a written contract for the sale of your piano and you include all of the pertinent terms, including a price of $500. Alice refuses to pay any more than $300, and claims that, prior to signing the written contract, you orally agreed to accept $300 for the piano. She explains that you listed the purchase price as $500 only because you thought that your mother would be angry with you for selling the piano for as little as $300. You go to trial and Alice seeks to introduce this evidence. The traditional parol evidence rule bars the evidence because it contradicts the signed writing. In this way, the rule is supposed to protect written contracts from untruthful attacks on their veracity. People who sign written contracts intended as complete and comprehensive are bound to the terms.
For now, only two additional caveats about the parol evidence rule. First, we will see that it is full of exceptions. Courts created these exceptions in cases where they strongly suspected that the parties did agree to terms that contradict a writing. For example, perhaps you really did tell Alice that you would accept $300 and you both forgot to change a previously typed $500 price term. Judges who believe this are understandably reluctant to enforce the contract as written. Second, the parol evidence rule usually applies to prior written drafts as well as oral agreements. So why call the rule the parol (oral) evidence rule? Whatever the reason, the wisdom of treating prior written drafts the same way as prior oral agreements makes sense if one believes that the parol evidence rule performs a service by protecting the final written product.
Chapter 7 also treats the law of contract interpretation. Once we decide what evidence is admissible (by applying the parol evidence rule), we next must apply rules to ascertain the meaning of the language in the contract. This is the process of contract interpretation. For example, we will see that contract law utilizes an “objective” approach to interpretation, meaning that the law enforces a reasonable interpretation of language, not what one party may have subjectively and secretly meant by the language. ($500 means just that, not $300.)
Chapter 7 also takes up how courts fill gaps in incomplete contracts. (But note that if a contract leaves too many gaps, it will be unenforceable.) Contracts may be incomplete for many reasons. The parties may not foresee an event that affects performance. Alternatively, the parties may choose not to deal with a particularly thorny issue or with a problem that is unlikely to occur. We will discuss the various sources of rules to fill gaps that arise in these and other ways. For example, one judicial strategy is to fill gaps with the term the parties would have wanted had they contracted concerning the issue. Champions of freedom of contract approve of this approach because it is consistent with the idea that parties, and not courts, should be the principal drafters of contracts. Further, lawyer-economists see this strategy of gap filling as the best way to reduce the costs of bargaining over terms. Parties can omit terms if drafting them is too costly (for example, in time and lawyers’ fees) because courts will fill gaps with the terms they would have wanted anyway. Obviously, the wisdom of this judicial gap-filling strategy depends on the reliability of the judicial process that determines what the parties would have wanted. We will see that courts also resort to other gap-filling strategies, sometimes because they cannot confidently predict what the parties would have wanted.
Chapter 8: Conditions and Breach. After parties make an agreement, hopefully everything will go smoothly. You promise to mow Alice’s lawn on Saturday and Alice promises to pay you $40 on condition that you do the job. You mow, she pays. Unfortunately, sometimes things don’t go so well. You fail to mow, or complete only part of the job. She refuses to pay all or some of the $40. You dispute whether you are supposed to mow first, or she is supposed to pay before you mow, or if you have a duty to mow even if it is raining.
Chapter 8 discusses how courts resolve these issues using the rules of conditions and breach. The chapter also shows how good drafters can avoid disputes and litigation. For example, suppose you and Alice did a fine job drafting a term with respect to the order of performance. You promised to mow and Alice promised to pay you $40 on condition that you mow. You have expressly set the order of performance in the contract. We will see that contract law calls your promise to mow an “express promissory condition precedent” to Alice’s duty to pay. The order of performance is so clear that a reasonable person would not go to court to dispute the issue.
But now let’s suppose you and Alice simply agreed that you would mow and she would pay and your contract omits any express conditions. Things are not so clear-cut if you dispute who must perform first. Further, if you cannot resolve the dispute amicably, a court cannot simply enforce the contract as written. Courts must use the tools of interpretation and gap filling presented in Chapter 7 to determine the “implied” or “constructive” conditions in your contract. Do the circumstances show that you agreed to mow on condition that Alice pays you first, or is it the other way around? If the circumstances shed little light on the issue, what gap filler with respect to the order of performance does contract law supply? Chapter 8 discusses how courts resolve such issues.
Chapter 8 deals with more than order-of-performance problems. Another frequent dispute involves the quality of performance. Suppose Alice promises to pay you for mowing on condition that she is satisfied with the quality of your performance. Unfortunately, your mower drips gasoline on several areas of Alice’s lawn, which kills the grass in those areas. You may have little to quarrel about if Alice doesn’t pay you because of the express satisfaction clause in your contract. Suppose, however, that your contract omits any express reference to the quality of performance, but she still refuses to pay you. A court resolving this dispute must determine the content of any implied conditions precedent to Alice’s duty to pay you. We will see that contract law’s usual answer is that Alice must pay you if you have “substantially performed” (or if you have not “materially breached,” which means the same thing). The challenge, of course, is determining just what constitutes substantial performance in a particular situation.
Chapter 9: Grounds for Excusing Performance. Chapter 9 covers various grounds for excusing performance of a contract either because the circumstances turn out to be very different from what both parties assumed at the time of contracting (called the mistake doctrine) or because the circumstances change dramatically after the parties form their contract (the impossibility, impracticability, and frustration of purpose doctrines). All of these excuse doctrines are controversial because they release parties from otherwise enforceable contracts.
Obviously, if too generous, the excuse doctrines threaten the institution of contracting. You won’t want to make contracts if you can’t rely on the other party’s performance. Alice cannot assert a defense to the piano contract, discussed previously, simply because she changed her mind, because contracts would not be worth the paper they were written on if she could. Instead, contract law assumes that once Alice promises to take and pay for the piano, she must perform the contract.
On the other hand, if parties reasonably did not contemplate certain important facts or did not foresee a change of circumstances that dramatically increases the cost of performance, one can argue that they did not allocate the risk of the new circumstances. Suppose an energy supplier promises to deliver oil to an electric utility under a long-term supply contract for $15 per barrel. Prices of oil then skyrocket to ten times that amount because of an unforeseeable world crisis. The energy supplier will soon go bankrupt if forced to honor the contract. Contract law must consider whether the energy supplier is entitled to relief under the impracticability doctrine because performance is so different from what the parties contemplated.
Consider another example involving the mistake doctrine. Suppose both parties to a sale of jewelry reasonably thought the seller was selling a worthless stone for $1, but the “stone” turns out to be a diamond worth $50,000. Clearly, the parties did not contract for the sale of a diamond and the buyer will receive what is arguably a windfall if the court enforces the sale. The challenge, of course, is to draw the difficult line between enforcing contracts freely made and overturning contracts that create what is called a forfeiture for one party and a windfall for the other. No challenge is too great for us and we’ll take up all of this in Chapter 9.
Chapter 10: Third Parties. Up to this point in this introductory chapter, virtually all of the discussion of the legal rights of parties involves just two parties, namely the contracting parties themselves. But contracts can affect third parties in many ways. A contract between a city and a manufacturer can regulate the amount of pollution raining (literally) down on the citizenry. A husband and wife can contract for the inclusion of terms in the husband’s will that will benefit a family member. A small local hardware store can sell to a national chain, such as True-Value, the hardware store’s contract right to the delivery of inventory from a wholesaler. Chapter 10 investigates the rights of these and other third parties. For example, can the citizens group sue the manufacturer directly if it is exceeding the pollution limits set in the contract with the city or must the group wait until the city itself sues? In the second example, what are the rights of the family member if the husband breaks the contract and does not include the family member in his will? In these first two examples, the citizens group and the family member are called third-party beneficiaries of the contract and the issue is whether they should have the right to sue directly. We will see that the answer depends in large part on whether the contracting parties intended to confer on these third parties the right to sue in case of a breach of contract. Without such intent, contract law bars third parties from suing and therefore avoids the flood of litigation that would result from another approach. Imagine, for example, if contract law allowed you to sue a television network for cancelling your favorite show, “Homeland,” in violation, you thought, of the network’s contract with the show’s producer.
The third example is different because True-Value actually purchased the local hardware store’s contract right to the delivery of hardware by the wholesaler. The sale of the contract right by the hardware store is called an “assignment of rights,” and issues arise, among other things, over whether the wholesaler must sell to True-Value instead of the hardware store. You may think that the wholesaler should not care who it sells to and who pays it. But suppose the wholesaler had promised the local hardware store to supply all of its needs for one year and the hardware store assigned this right to True-Value. Does the wholesaler have to honor this obligation by delivering to True-Value all of its needs? After all, the needs of the local hardware store may be very different from the needs of True-Value.
We will see in Chapter 10 how contract law sorts out the various rights of all of these third parties.
B. SOURCES OF CONTRACT LAW
The contract law you will study in this book comes from the common law and statutory law. Restatements, treatises, and law review articles play a role too. Common law is judge-made law arising from judicial opinions that resolve disputes. Suppose Alice brings an action against you to get her money back because she has decided that your piano is too large for her living room. A judge deciding this case might look at previous opinions dealing with the issue of a party’s change of mind and write an opinion stating that this is not an adequate reason for refusing to perform an otherwise enforceable contract. Lawyers and judges in subsequent cases could look to this new “precedent” too in deciding that similar changes of mind do not constitute sufficient reasons for failing to perform enforceable agreements.
Although contract law is predominantly judge-made, statutory law (law enacted by legislatures) also plays a role. For example, Article 2 of the UCC governs “transactions in goods.”4 Goods are “all things * * * which are movable at the time of identification to the contract for sale * * *.”5 Because this definition of goods and many other sections of Article 2 refer specifically to sales of goods, the scope of Article 2 is mainly sales of goods, such as the sale of your piano to Alice.
The UCC was a joint project of the American Law Institute and the National Conference of Commissioners on Uniform State Laws (at the risk of anesthetizing you with too many acronyms, ALI and NCCUSL, respectively). These bodies sought to unify and improve commercial law in all of the states by drafting the UCC and by urging each state to enact it. They were highly successful and now all fifty states’ legislatures have enacted at least portions of the UCC (with only some non-uniform amendments). For the most part, then, lawyers can be confident that uniform sales law will govern their clients’ interstate transactions. In the 1990’s, ALI and NCCUSL promulgated amendments to Article 2, but they were not adopted (for various reasons not worth mentioning here). Nonetheless, I will discuss them occasionally on the theory that some of their good ideas may ultimately see the light of day.
The technological revolution of the twenty-first century raises the issues of whether Article 2 can still effectively govern sales transactions and whether lawmakers should consider amendments once again. After all, the Internet, smart phones, and so-called “smart contracts,” among other technological changes, create new issues, including the enforcement of digital consumer standard-form agreements.6 Amendments may be premature, however, if technology is rapidly changing and likely to create new legal issues in the near future.
One further caveat about Article 2. As mentioned, Article 2 governs the sale of goods and we will be referring to it throughout this book. However, the book does not cover Article 2 exhaustively because many of its provisions are treated in upper-class commercial law courses. For now, understand that when an issue arises with respect to a contract for the sale of goods, Article 2 applies. However, if the specific rules of Article 2 fail to govern an issue, common law contract law principles still apply.7 For example, a judge would refer to the common law to decide the validity of the defense to a claim of breach of contract that a seller or buyer has changed his mind because Article 2 does not address the point. In addition, judges interpret the express rules of Article 2, which may be vague or ambiguous as applied in a particular context. These judicial decisions that interpret the provisions of Article 2 help us to understand its meaning.
As I mentioned, Restatements, treatises, and law review articles also influence contract law. ALI published the Restatement of Contracts in 1932 and followed this up with the Restatement (Second) of Contracts in 1981. In 2010, ALI published Principles of the Law of Software Contracts. As of this writing, ALI is working on a new Restatement of Consumer Contracts. Each of the Restatements and Principles sets forth a series of rules and comments that synthesize the learning of existing case law and, to some extent, present the drafters’ views of what the law should be. These ALI promulgations are not state law in that they have not been enacted by any state legislature. However, if a court pronounces that it is following a particular ALI rule it becomes part of the common law of that state.
Lawyers sometimes rely on and cite treatises and law review articles as persuasive authority for points they wish to make in litigation. We will cite and discuss material from these sources too.
C. CONTRACT LAWYERS’ VARIOUS ROLES
You will learn lots of rules and principles of contract law in this book and in your contracts course. You will also learn the reasons behind these rules and you will be asked to evaluate these reasons. Equally important, you should begin to form a sense of how lawyers actually use the rules and principles you encounter. For example, lawyers do more than go to court and try to recover money for an injured client, although this is an important role. Lawyers also apply contract law when they advise clients about the wisdom of entering a contract and about appropriate terms. Further, lawyers draft contracts after taking into account the goals and circumstances of their clients. Lawyers also negotiate with the other side about appropriate terms and about rights and obligations when something goes wrong, or circumstances change, or a dispute arises. Because the rules and principles of contract law guide the lawyer in all of these roles, it is helpful to ask yourself how you would use a particular rule to plan, draft, or negotiate a contract, as well how you would use the rule in a lawsuit.
D. CONCLUSION
Now that you have had a taste of what follows, it is time to dig in and learn the details of the best law school subject. One last thought before you proceed: This book is entitled “Principles of Contract Law,” and its goal is to help you learn the subject. Based on the philosophy that learning should be fun and interesting, indeed with the view that learning is enhanced by these attributes, I will make every effort to explain the principles clearly and succinctly, to offer many clarifying illustrations, and even to make you laugh once in a while.
1Robert A. Hillman and Robert S. Summers, The Best Law School Subject, 21 Seattle U. L. Rev. 735, 735 (1998).
2Grant Gilmore predicted that promissory estoppel would “swallow up” the bargain theory in his great book, The Death of Contract (Ronald K. L. Collins ed., 2d ed. 1995). For an article (not quite as great) questioning Gilmore’s thesis, see Robert A. Hillman, Questioning the “New Consensus” on Promissory Estoppel: An Empirical and Theoretical Study, 98 Colum. L. Rev. 580 (1998).
3Black’s Law Dictionary 1273 (rev. 4th ed. 1968). Of course, there are more recent legal dictionaries, but, for sentimental reasons, I wanted to cite the dictionary I used in law school (just this once).
4UCC § 2–102.
5UCC § 2–105(1).
6See Chapter 6, Section (E)(3) for a discussion of electronic standard forms. See Chapter 2, Section (B)(6)(b) for a discussion of smart contracts.
7UCC § 1–103(b).