Tuesday, August 20, 2013
This is the second in a series of posts in our online symposium on the Contracts Scholarship of Stewart Macaulay. More about the online symposium can be found here. More information about this week's guest bloggers can be found here.
Alan Hyde is Distinguished Professor and Sidney Reitman Scholar at Rutgers University School of Law, Newark, where he writes mostly about labor, employment, and immigration law.
Stewart Macaulay, System Builder
I’ve often wondered whether Stewart Macaulay would have had even more influence if he had used his social science research into business practice to construct theories and systems. In most of his writing, Stewart used empirical research to debunk. Often, there is a specific target. For example, Stewart will take on the idea that business professionals want to be sure that the documents they sign constitute contracts that will be enforceable as such in court. As everyone knows (I hope), Stewart’s research showed, so long ago, that people who did deals cared little about formal enforceability. My impression is that most American contracts teachers know this, and ignore it in their actual teaching practice. The typical contracts class probably spends as much time today on the line between unenforceable agreement, and enforceable contract, as it did before Stewart began writing, or was born.
As a public service, I have synthesized the following Counterstatement (First) of Actual US Contract Law in Action, as Given by the Dealmakers of the US, Under the Interpretation of Stewart Macaulay (Tentative Draft No.1). Casebooks may now cite it—I grant permission-- as an alternative approach (though with precisely the same claim to legal authority as the product of that Institute in Philadelphia, the name of which I do not choose to recall, that is so often treated by contracts teachers today as if it were the Civil Code). Authors can argue with it. For sometimes it takes a system to beat a system. For convenience, I will synthesize this Counterstatement from Stewart’s fabulous casebook (with Kidwell, Whitford, Braucher, and sometimes others), Contracts: Law in Action, because I teach from it every year and thus get the benefit of hearing Stewart’s voice in my head as I teach.
Counterstatement (First) of Actual US Contract Law . . .
Chapter One: Remedies. [Since this is a Stewart Macaulay Counterstatement of Actual US Contract Law, it naturally begins with Remedies]
Section 1: Remedies expected and demanded for failures to meet promises shall reflect the expectations of the parties based on the norms of their industry, and their sense of fairness. Remedies shall not depend on technicalities of formal enforceability as discussed in Chapter Two of this Counterstatement, and in no case shall refer to decisions of courts of law except insofar as these have been incorporated into business norms, which, if parties are rational, would be never. For example, if a machine sold doesn’t work, “this is not something any lawyer could handle without putting you [Seller] out of business. This must be handled on a business basis by a salesperson and the person who bought the machine. We don’t look for legal loopholes to avoid obligations like this. After all, you are selling reliability and your reputation gets around.”
Section 2: Buyer’s cancellation of an order
- A Buyer under a formal or informal arrangement for the sale of goods, whether or not a law court would find it to be a “contract,” may cancel an order when its needs have changed.
- In such a case, the Buyer shall be liable to the Seller for cancellation costs, defined as expenses incurred by the Seller that have been turned to waste by Buyer’s cancellation. Such expenses include completed product scrapped or unsellable after Buyer’s cancellation, and raw materials purchased in order to fulfill Buyer’s order but that cannot be salvaged.
- A seller that sues a cancelling Buyer for profits it thinks it would have made from Buyer’s purchase is probably nuts, especially where that Buyer is a consumer. Such a Seller that sues for lost profits can hardly expect people to continue to deal with it.
- Lawyers can call cancellation of an order “breach of contract,” if they like, but that doesn’t mean that their clients will agree with this characterization.
- On notification by Seller that it is unable to fulfill Buyer’s order, Buyer may purchase any reasonable substitute and bill Seller for the difference.
- If Seller is going to be late, it should try to work things out with the Buyer. If Buyer had enough notice that the Seller would be late, and didn’t do anything to protect itself, nobody is going to give Buyer any damages.
Section 4: Miscellaneous remedies
- All parties understand that failure to keep your word in business is likely to result in people saying bad things about your reputation.
- When things go wrong, try to work things out with your contractual partner. This probably means keeping the lawyers out. “If business had to be done by lawyers as buyers and sellers, the economy would stop. No one would buy or sell anything; they’d just negotiate forever.”
- The party that drafts the documents will probably disclaim any liability, in vague, illegible gobbledy-gook, and courts that are there to protect wealth and privilege will probably let them get away with it, so really all this study of remedies is somewhat beside the point.
Chapter Two: Enforceability [like you care, anyway]
Section 5: Enforceability of promises and arrangements made in family settings
Courts should not hesitate to enforce promises made by one family member to another, if the situation permits the court to play a useful role in sorting things out and restoring harmony, which is rare.
Section 6: Contract formation in general
- Honest people keep their promises without worrying about any technicalities of contract formation. The so-called law of offer-and-acceptance is just a bunch of loopholes that lawyers use to get people out from promises that they plainly made but now feel like getting out of.
- When the parties’ documents do not appear to create what courts think is an enforceable contract, for example by reserving in one party such freedom of action as to raise the question whether it is even committing to anything, try to imagine that maybe they didn’t intend judicial enforcement, preferring to work things out.
- The idea that people have no commitments to each other, and then, after one magic moment (called contract formation), do, is just magical thinking. People should act like moral adults and work out the issues between them, without taking refuge in legal mumbo-jumbo, which is nearly always a very hostile step to take and interpreted by others as such.
Section 7: Consideration
There is no such doctrine. A plaintiff who seeks specific performance of a contract to sell valuable real estate in consideration of one peppercorn (tendered) has a great deal of explaining to do.
Section 8. Excuse.
If you owe $50,000 to a bank, and can’t pay, you are in trouble. But if you owe $50 million to a bank, and can’t pay, the bank is in trouble.
You get the idea, anyway. It’s time for Stewart Macaulay fans to move beyond mere debunking. That Institute in Philadelphia should support the Counterstatement (First) of Actual US Contract Law in Action, as Given by the Dealmakers of the US, Under the Interpretation of Stewart Macaulay. But who should be Chief Reporter?
[Posted, on Alan Hyde's behalf, by JT]