ContractsProf Blog

BP's Full-Page Ad

BP is upset that bogus claims are being filed against it in connection with its settlement of claims relating to the Deepwater Horizon explosion (pictured) and oil spill.  It has responded with a full-page ad in major newspapers (which you can view on Forbes's website).  According to the ad, BP negotiated a settlement three years ago relating to claims arising out of the Deepwater Horizon incident.   BP now claims that claims are being paid out to businesses that did not suffer damages relating to the incident.  

Responses range from Forbes's allegations that BP is suffering "buyer's remorse" to Business Insider's suggestions that some parties (often identified as "plaintiffs' lawyers") are seeking to feed at the trough of a potentially large fund available to anyone with a colorable claim on it.  The Wall Street Journal blog provides some insights here.

[JT]

Ninth Circuit Finds No Waiver in Delayed Assertion of Right to Compel Arbitration

Michelle Richards brought a class acction lawsuit in Federal District Court against her former employer Ernst & Young (E&Y).  After her claim was consolidated with similar claims brought by other former E&Y employees, E&Y filed a motion to compel arbitration.  The District Court ruled that E&Y had waived its right to compel by not asserting that right in the other cases.  

On August 21st, the Ninth Circuit reversed.  Courts disfavor a finding that a party has waived its contractual right to arbitrate.  In order to establish a waiver, a party must show:

(1) knowledge of an existing right to compel arbitration; (2) acts inconsistent with that existing right; and (3) prejudice to the party opposing arbitration resulting from such inconsistent acts.

Although Richards claimed that she had been prejudiced, because the District Court had already ruled on some of her claims, the Ninth Circuit rejected that argument because the District Court had not decided any of her claims on the merits.  One claim was dismissed without prejudice; another was dismissed for lack of standing.  

Richards also claimed that she had been prejudiced by the expenses incurred during years of litigation prior to E&Y's motion to compel.  The Ninth Circuit found that she had not been prejudiced because she had not alleged that E&Y sought discovery of information that could not have been obtained in arbitration.  In addition, the Ninth Circuit will not find prejudice when expenses are "self-inflicted," and here the expenses were self-inflicted because Richards chose to bring her claim in "an improper forum, in contravention of" her agreement with E&Y to arbitrate her claims.  

Finally, the Ninth Circuit rejected Richards' argument that her claim under the National Labor Relations Act should not be arbitrated on the ground that (oh, the irony!) she had not raised it in a timely manner.  In any case, that claim was doomed under Italian Colors.  

In a final footnote, the Ninth Circuit also reverses the Distirct Court's grant of class certification, since (you guessed it!) the arbitration agreement precludes class arbitrations.

[JT, with hat tip to former blog intern, Justin Berggren]

The Minimester and Assessment

As I mentioned before here and here, we at the Valparaiso University Law School have divided our semesters into two, seven-week minimesters.  This change does not affect every course, but it does affect every first-year course.  The minimester system gives us greater flexibility in our curriculum, and we have experimented quite a bit this year.  Civil Procedure is now taught in the first and the last minimesters, Torts and Criminal Law are taught in the second and third minimesters, Constitutional Law has been moved to the second year to make room a new, two-credit Damages and Equity course, as well as two new courses, Foundations and Praxis.  

One advantage of the minimesters is that our students get a meaningful sense of where they stand relative to their peers after just seven weeks of law school.  In addition, faculty members are encouraged to give students frequent assessments throughout the minimester.  In my contracts course (you can check out my syllabus on the court LibGuide), students have their first assessment this week.  It is just a short multiple choice exam, but it gives them a taste of the sort of multiple choice questions they will face on the bar exam.  

My assessments this year will all be multiple choice,* which is far from optimal, but that is because I have 140 students in two sections this year, and I cannot grade that many essay exams or other forms of written exercises in a timely way for so many students (unless I were to give up blogging, and that's not happening!).   But I am supplementing these graded assessments with non-graded assignments that we go over in class and which students are encouraged to discuss with me one-on-one during office hours.  In order to encourage them to do so, I am having lunch in our school cafeteria three days a week.  I am hoping that conversations about contracts, the law and life in general will ensue in the normal course of things.

The jury is still out of course and will remain out until I receive the anonymous student evaluations, but there is a marked up-tick in the number of students who are coming to ask me substantive questions during my office hours.  We are only in the second week of the minisemester, so usually at this point all I get is the occasional social call by a student who wants to make a personal, one-on-one introduction (which is a great idea), but this year students are coming to show my their case briefs and to make sure they are getting the concepts.  

This is how I always imagined teaching would be, but over the past few years, student traffic to my office had declined radically, until I started thinking of "office hours" as the hours of largely uninterrupted time when I get work done in my office or meet informally with colleagues.   I think my students' increased diligence is also explained in part by the fact that we now have a Foundations course in which students focus on the basic skills they need to develop in order to survive in law school and succeed as attorneys.  We are engaging in a bit of libertarian paternalism and nudging our students in the direction we want them to take.  And that direction leads to my office door (or my table in the cafe).

[JT] 

*I add the following clarification -- my assessments during the minimester are multiple choice.  There is still an essay component to the final exam.

Revisiting the Contracts Scholarship of Stewart Macaulay, Post VI: Jonathan Lipson

This is the sixth 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. 

Jonathan Lipson is the Harold E. Kohn Professor of Law at Temple University's Beasley School of Law.

Relational Reorganization

Although Stewart Macaulay’s contributions to the literature on relational contracting cannot be overstated—for practical purposes, he invented the field—its insights have been absent from an equally important body of literature that also looks at contracts in action:  That of bankruptcy reorganization.

At first glance, the reasons for the disconnect may seem obvious.  Relational contracting is concerned with, well, ongoing relationships.  Bankruptcy reorganization, by contrast, implies the termination or fundamental alteration of those relationships.  Relational contracting imagines a world in which formal law is subordinate to actual custom and practice.  Bankruptcy reorganization, again in contrast, is sometimes said to be the “acid test” for the enforceability (or not) of contracts, where there will be pressure to use special (formal) legal powers to avoid or break those that are burdensome to the debtor and less than “perfect” (in both UCC Article 9 and more general respects) in order to increase recoveries for creditors whose contracts do pass muster.

And, yet it seems to me that relational contracting literature has much to offer those who think about bankruptcy reorganization, and corporate reorganization generally (that is, outside of a formal bankruptcy process). 

Corporate reorganization is usually the response to a cascade of actual or potential contractual breakdowns—general financial default.  In most cases, it would seem that practice follows Macaulay’s observations:  creditors do not race to court to enforce broken debt contracts.  Instead, as I have discussed elsewhere, the parties—the debtor and its major creditors—usually jawbone.  Sometimes (most times, I would venture) they renegotiate the contracts and go on about life.  While the original debt contracts may have provided all sorts of elaborate remedies for the creditor, she will ignore them if she receives a satisfactory substitute promise not contemplated by the original agreements.

When that doesn’t work, whether because some of the debtor’s creditors hold out, or the debtor’s management can’t get its act together, or the debtor defaults on the substitute promises, a formal bankruptcy filing under chapter 11 may ensue.  Chapter 11 creates a complex environment in which both formal law and informal relationships have high salience.  Chapter 11 can be seen as a form of institutional “braiding,” to paraphrase Gilson, Sabel and Scott, in which courts, markets, communities and legislatures (Congress), weave together sets of protocols for rewriting en masse the corporate debtor’s debt (and other) contracts.  Relational contracting is vital to the effectiveness of these protocols, even as the larger environment that uses and creates these protocols is undergoing major change.  Consider three examples.

First, there is the relational contract among the corporate debtor and its many stakeholders.  When Congress enacted chapter 11 in 1978, it probably had an intuitive sense of the relationships it wanted to preserve:  Those between workers, managers and corporate stakeholders. Thus, unlike prior law, chapter 11 presumed that management would remain in possession and control of the debtor while it formulated a reorganization plan that would keep the debtor a going concern (and thus its basic relationships intact). If the plan gained sufficient support (evidenced by creditor voting as well as a number of other formal criteria) it could be confirmed by the bankruptcy court. If not, a trustee might replace management and/or the debtor would be liquidated (thus likely terminating the relational contract).

In order to reach a consensual plan, a significant amount of bargaining would have to occur.  Reorganization is, per Galanter, a “litigotiation”: constant bargaining on courthouse steps (virtual or actual).  A lawyer I knew once referred to chapter 11 as “New York’s largest floating craps game.”  This, in turn, bespeaks a second example of relational contracting in chapter 11: that among the lawyers who manage the process. 

An important goal of the 1978 Bankruptcy Code (which is still in effect) was to remove the stigma associated with bankruptcy practice.  Large law firms were quick to recognize that this practice could be lucrative.  A sophisticated bar of bankruptcy practitioners in high profile cases emerged in New York and Delaware.  This community creates bargaining networks in which repeat players seem to have both a strong sense of formal (e.g., bankruptcy and commercial) law and the capacity and temperament to compromise in order to produce a plan if possible, and to resolve the case otherwise (e.g., through liquidation) if not.

Yet, even as Congress may have imagined that reorganization would preserve a certain class of long-term relationships involving the corporate debtor and its stakeholders, change was afoot.  At about the time the current Bankruptcy Code was coming into force, a market in “claims trading” was beginning to develop.  “Claims trading” is the practice whereby “distress investors” (often private equity or hedge funds) will purchase claims against debtors. 

You might wonder why anyone would want to purchase defaulted debt.  The answer, in most cases, is to make money, either on the spread between what the claims trader buys the claim for and what it ends up being worth in the bankruptcy, or because the trader ends up with a controlling position in the debtor’s bankruptcy (as noted above, claimants often get to vote on the chapter 11 plan).

Claims trading began as an obscure corner of chapter 11, but has now become very important.  Billions of dollars in claims trade regularly.  It seems safe to say that professional claims traders take significant positions in most large corporate reorganizations.

What does claims trading have to do with relational contracting?  The world of distress investors is small, insular and bespoke, a club of sophisticated players in what I have characterized elsewhere as an unregulated secondary securities market.  While little is known about the actual contracting (or extra-contractual, promissory) practices of claims traders, it would appear that they are by and large repeat players. Their relationships increasingly influence the formal and informal contracts that determine the outcome of the chapter 11 process. 

            This transformation bespeaks a third example of relational contracting in reorganization:  professional distress investors bound by complex ties, tensions, and loyalties in contracts of varying degrees of formality. Increasingly, and to some disturbingly, the incentives of this group are to dismantle or auction the debtor rather than to reorganize it internally, as Congress seems to have envisioned in 1978.  The relational contract of distress investors effectively replaces the relational contract of the debtor, its employees, and other stakeholders. 

This third relational contract also suggests that lawyers may play an increasingly subordinate role, executing investors’ strategies, but not necessarily devising or negotiating them.  That many claims traders were once bankruptcy lawyers may in part explain this shift:  even if they have become “clients,” distress investors often know as much formal (and informal) law as their lawyers.

The relational contract in reorganization is, like all other contracting environments, neither purely formal nor purely informal.  That this literature has not influenced the large—and frequently “contractual”—literature on reorganization is not a knock on Macaulay’s contribution or the subject of this Symposium, Revisiting the Contracts Scholarship of Stewart Macaulay: On the Empirical and the Lyrical. 

Rather, my goal here is to suggest ways to use his work, and that of the excellent contributions to Revisiting, in a related and important context. Although Stewart Macaulay’s work has not yet been formally introduced to the world of corporate reorganization, it seems to me it could be the basis of a beautiful relationship.

[Posted, on Jonathan Lipson's behalf, by JT]

Support the Blog By Doing What You Would Do Anyway!

We would like to let you in on a dirty little secret.  This blog is a money-making operation.  

Yup.  We're as surprised as you are.  But don't worry.  So far we have been investing all proceeds back into legal scholarship by supporting the annual International Conferences on Contracts like the one this past February in Fort Worth.  With the added revenues derived from the re-design of the blog and the re-organization of the Law Professor Blog Network, of which we are a part, we hope to contribute in a more substantial way in years to come.

If you would like to support the ContractsProf Blog, please consider making purchases from Amazon through links on the blog (via the Shop Amazon tab on the top navigation bar, the Search Amazon box in the right column, and links embedded in selected individual). As an "Amazon Affiliate," a portion of any purchases you make will be credited to ContractsProf Blog, at no cost to you.

[JT]

Weekly Top Tens from the Social Science Research Network

RECENT HITS (for all papers announced in the last 60 days) 
TOP 10 Papers for Journal of Contracts & Commercial Law eJournal 
June 28, 2013 to August 27, 2013

Rank	Downloads	Paper Title
1	4016	Multimodal Bill of Lading: The Problem of Party Liability  Nadezda Alexandrovna Butakova,  Russian Presidential Academy of National Economy and Public Administration (RANEPA)
2	72	Catalyzing Fans  Howard M. Wasserman, Dan Markel, Michael McCann,  Florida State University College of Law, University of New Hampshire School of Law, Florida International University (FIU) - College of Law
3	70	Sticky Covenants  Gus De Franco, Florin P. Vasvari, Regina Wittenberg Moerman, Dushyantkumar Vyas,  University of Toronto - Rotman School of Management, London Business School, University of Toronto - Rotman School of Management, University of Chicago - Booth School of Business
4	67	'Sticky' Arbitration Clauses?: The Use of Arbitration Clauses after Concepcion and Amex  Christopher R. Drahozal, Peter B. Rutledge,  University of Georgia - School of Law, University of Kansas School of Law
5	63	Duties of Love and Self-Perfection: Moses Mendelssohn's Theory of Contract  Helge Dedek,  McGill University - Faculty of Law,  Date posted to database: June 25, 2013  Last Revised: June 25, 2013
6	61	The Law and Economics of Norms  Juliet P. Kostritsky,  Case Western Reserve University School of Law,
7	59	A Theory of Contract Formation  Allan Beever,  School of Law, University of South Australia
8	55	Carve-Outs and Contractual Procedure  Erin A. O'Hara O'Connor, Christopher R. Drahozal,  Vanderbilt University - Law School, University of Kansas School of Law
9	43	'Frustration' in the Court of Appeal  David McLauchlan,  Victoria University of Wellington - Faculty of Law
10	43	Improving Contract Quality: Modularity, Technology, and Innovation in Contract Design  George G. Triantis,  Stanford University - Law School,

RECENT HITS (for all papers announced in the last 60 days) 
TOP 10 Papers for Journal of LSN: Contracts (Topic)  
June 28, 2013 to August 27, 2013

Rank	Downloads	Paper Title
1	4016	Multimodal Bill of Lading: The Problem of Party Liability  Nadezda Alexandrovna Butakova,  Russian Presidential Academy of National Economy and Public Administration (RANEPA)
2	119	Lex Mercatoria, International Arbitration and Independent Guarantees: Transnational Law and How Nation States Lost the Monopoly of Legitimate Enforcement  Cristián Gimenez-Corte,  United Nations
3	70	Sticky Covenants  Gus De Franco, Florin P. Vasvari, Regina Wittenberg Moerman, Dushyantkumar Vyas,  University of Toronto - Rotman School of Management, London Business School, University of Toronto - Rotman School of Management, University of Chicago - Booth School of Business
4	66	'Sticky' Arbitration Clauses?: The Use of Arbitration Clauses after Concepcion and Amex  Christopher R. Drahozal, Peter B. Rutledge,  University of Georgia - School of Law, University of Kansas School of Law
5	59	A Theory of Contract Formation  Allan Beever,  School of Law, University of South Australia
6	43	'Frustration' in the Court of Appeal  David McLauchlan,  Victoria University of Wellington - Faculty of Law
7	42	State Contract Law and Debt Contracting  Gil Sadka, Sharon P. Katz, Colleen Honigsberg,  Columbia University - Columbia Business School, Columbia University - Accounting, Business Law & Taxation Last Revised: July 12, 2013
8	37	In Defense of Surrogacy Agreements: A Modern Contract Law Perspective  Yehezkel Margalit,  Tel-Aviv University
9	36	Revisiting the Efficiency Theory of Non-Contemplated Contingencies in Contract Law  Yuval Procaccia,  IDC Herzliya - Radzyner School of Law
10	35	Trust v. Law (In a Box): Do Organizational Forms Make a Difference?  Jeffrey M. Lipshaw,  Suffolk University - Law School

[JT]

Revisiting the Contracts Scholarship of Stewart Macaulay, Post V: Gillian Hadfield

This is the fifth 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. 

Gillian K. Hadfield is the Richard L. and Antoinette Schamoi Kirtland professor of law and professor of economics at the University of Southern California. 

Maybe Contract Law Isn't Dead After All

In 1963 Stewart Macaulay asked:  what good is contract law?  His interviews with business(men) in a range of companies—including giants like General Electric, S.C. Johnson and Harley-Davidson—suggested the answer was “not much.”  He was repeatedly told that in practice, formal contracts were rarely drawn up for transactions (and that the boilerplate purchase orders and acknowledgements that might be exchanged weren’t really even seen as “contracts”.)  Any formal contracts that did come into existence were largely ignored, almost never pulled out of the drawer to help resolve transactional problems that might occur along the way.  And the idea of litigating, or even threatening to litigate, to resolve a dispute was dismissed almost entirely.  

A dramatic set of findings.  They earned Stewart (pictured), in Grant Gilmore’s famous formulation, the title of “Lord High Executioner” of contract law, sounding the death knell of lawyers’ taken-for-granted assumption that they were essential to doing business.  Economists—introduced to the article fifteen years after it was published in two of the seminal papers in transaction cost economics, Klein, Crawford and Alchian (1978) and Williamson (1979)—were energized.  A great flood of work, much of it game-theoretic, soon followed to explain the puzzle of how business deals were held together without law.  Soon we had a standard distinction in the economics literature:  between formal—court-enforceable—contracts and informal ones—those enforced only by threats of the loss of a valuable long-term relationship or reputational standing.

Given how important Macaulay’s work has been to economists, my co-author Iva Bozovic and I were surprised to find out that almost no-one has attempted to replicate Stewart’s self-styled “preliminary study.”  So we decided to try.  So much had changed in industry since the early 1960s when Stewart did his research (Mad Men anyone?) we wondered whether contract law still was as irrelevant to contracting as it seemed to be back then.  We were particularly interested in the impact of a much more innovation-oriented economy on contracting.  And it was hard to predict how Macaulay’s findings might carry over.  On the one hand, in relationships that are focused on innovation—think collaboration between Facebook and Skype to integrate video chat and social networking, for example—so much is changing so rapidly that often the parties don’t have much of a clue how their relationship is going to develop.  That implies it’s really hard to write complete contracts that can be easily enforced in court.  On the other hand, there is so much novelty that there is almost no time for industry standards to stabilize giving parties guidance about how gaps in contracts are to be filled in.  This is a part of Macaulay’s findings often overlooked among economists (although it is dear to the heart of law and society folks):  in Macaulay’s study, the parties didn’t need well-drafted contracts because they had well-established industry norms to look to for guidance on how problems should be dealt with.  Breach of those norms was bad for business in a stable environment with lots of alternative contracting partners. 

So if parties to high-velocity innovative business relationships don’t have established industry norms to look to and it’s so hard to write relatively complete court-enforceable contracts, what do they do? 

We set out to study this question by interviewing companies in the San Francisco Bay Area and Los Angeles about their use of contracts.  We first asked our respondents—all of whom were senior level executives, almost all of whom were not lawyers—whether they considered their business to be innovative in any way.  Perhaps surprisingly, in our initial random sample of firms, many answered “no”.  We then supplemented our sample with firms we were pretty sure were innovative. In the end we spoke with 30 companies—12 who identified as ‘not innovative’ and 18 who identified as ‘innovative.’  We asked the innovators to talk to us about a relationship with another firm that was important to them for innovation.  We asked the non-innovators to talk to us about a relationship with another firm that was important to them for business success. 

Here’s what we found out.  The non-innovators told us essentially what Macaulay’s respondents told him:  we don’t draft formal contracts, we ignore any that do get drafted, and we never look to litigation as a threat or source of enforcement.  The fascinating twist was from the innovators; only one of Macaulay’s findings held up.  Yes, we spend a lot of time and lawyer money on drafting formal contracts.  Yes, we haul the contracts out of the drawer to consult when trying to resolve transactional problems along the way.  BUT:  no, we never look to litigation as a threat or source of enforcement.  This isn’t because they settle their disputes in the shadow of the law.  It is because a litigation threat is just not credible:  it’s too expensive, takes too long, is too unpredictable and kills precious reputation. 

Our sample, like Macaulay’s “preliminary study,” is small.  It’s not necessarily representative.  But, like Macaulay, we have unearthed a fascinating puzzle:  why draft and consult formal contracts if you have no expectation of ever enforcing contracts in court?  According to the relational contracting literature that economists produced in response to Macaulay’s puzzle (if not contract, then what?), the only reason to write a formal contract is to get the benefit of formal court enforcement. 

Our answer, drawing on work I’ve done with Barry Weingast (see here and here) about the function of law, is that formal contracting serves to coordinate beliefs about what constitutes a breach of a highly ambiguous set of obligations.  This makes relational enforcement mechanisms—loss of a valuable relationship, bad reputation—more effective than they would have been in the absence of a shared template for interpreting events.  We call this scaffolding:  formal contract law and reasoning—implemented by lawyers who share similar interpretation methods and materials that are common knowledge among them—helps to span the (large) gaps in relational mechanisms that arise when ambiguity is high.  It’s not that formal legal reasoning from a formal contract to decide whether a contracting partner is in “breach” is open-and-shut in these settings—there’s still lots of ambiguity to go around.  But our point is that the extent of ambiguity when the parties have at least designated a common methodology for classifying conduct as breach or not is much less than it would be otherwise.  We think the reason law gets singled out to play this role is because it is, as my work with Weingast emphasizes, expressly designed to perform this kind of an ambiguity-reducing and coordinating role—with its emphasis on comprehensive coverage, clarity and the presence of an authoritative steward (eg. courts) that is recognized as the final word on interpretation. 

Our paper (which we wanted to work on more after the conference so it does not appear in the book whose publication this Symposium celebrates) provides lots of quotes from the businesspeople with whom we talked to support our analysis.  It’s hardly the last word on the subject—there’s that “preliminary” again—but it moves our understanding of the role of contract law a little further down the field on which Stewart first called the game—what good is contract law?  Our answer: quite a bit actually, even if almost nobody plans on going to court.  

[Posted, on Gillian Hadfield's behalf, by JT]

New York Times Reports on the Contract that Brought Dvorak to New York

What at thrill to see a contracts story on the front page of the Saturday New York Times Arts Section above the fold!  The occasion is a public exhibition by the Dvorak American Heritage Association, which will display the actual contract that brought Antonin Dvorak (pictured contemplating a move to America) to New York for three years beginning in 1892.

According to the Times, Jeanette Thurber, wealthy patron of the National Conservatory of Music of America, agreed to pay Dvorak $15,000 -- 25 times what he was getting in Prage -- in return for his agreement to keep regular hours (well, three hours a day), teaching six days a week at her school.  She did give him summers off.  He was also contractually obligated to give up to six concertns a year.  It's not clear whether that means that he was himself to perform or if he was to conduct an orchestra or chamber music group composed of the Conservatory's students.

The Times reports that the panic of 1893 made it difficult for Mrs. Thurber to keep up with the payments she owed Dvorak.  He may have gone back to Prague a few thousand dollars short.  

[JT]

Reminder: CSLSA Conference Upcoming in October

The annual Central States Law Schools Association conference is coming up.  The conference is not subject specific, but usually includes panels on contracts and commerial law.  In my experience, it provides a very pleasant, intimate, and collegial setting in which to present one's scholarship.

Although CSLSA is a regional association of law schools, membership is not a prerequisite to attend and present.  Faculty from all schools are welcome.  

[JT]

View this email in your browser President Elizabeth Young Associate Professor of Law University of Arkansas School of Law [email protected] Vice President Missy Lonegrass Associate Professor of Law Louisiana State University Law Center [email protected] Secretary Eric Chaffee Professor of Law University of Toledo School of Law [email protected] Treasurer Carolyn Dessin Professor of Law Akron School of Law [email protected] The Central States Law Schools Association 2013 Scholarship Conference will be held October 4 and 5 at the University of Arkansas School of Law in Fayetteville, Arkansas.  We invite law faculty from across the country to submit proposals to present papers or works in progress. The purpose of CSLSA is to foster scholarly exchanges among law faculty across legal disciplines.  The annual CSLSA conference is a forum for legal scholars, especially more junior scholars, to present working papers or finished articles on any law-related topic in a relaxed and supportive setting where junior and senior scholars from various disciplines are available to comment.  More mature scholars have an opportunity to test new ideas in a less formal setting than is generally available for their work.  Please visit our website to register and view the tentative schedule and planned activities.   The deadline for registration is September 2, 2013.  After registration has concluded an updated schedule complete with presentation times will be made available online.    In keeping with tradition, CSLSA is able to pay for one night’s lodging for presenters from member schools.  Dues invoices are mailed to member schools on an annual basis in late August.  Representatives of schools interested in joining CSLSA should contact Carolyn Dessin at [email protected] in September to request an invoice. We look forward to seeing you in Fayetteville! Sincerely, The 2013 CSLSA Board For more information about CSLSA, visit our website athttp://cslsa.us/ or contact a board member.

Revisiting the Contracts Scholarship of Stewart Macaulay: The Second Week's Contributors

We continue our online symposium inspired by Revisiting the Contracts Scholarship of Stewart Macaulay: On the Empirical and the Lyrical (Jean Braucher, John Kidwell, and William C. Whitford, eds., Hart Publishing 2013) with two posts this week. All of this made possible through the organizational genius of Jean Braucher, who recruited the participants in this symposium.  So we at the blog are all very grateful to her.

Gillian K. Hadfield is the Richard L. and Antoinette Schamoi Kirtland professor of law and professor of economics at the University of Southern California. She studies the design of legal and dispute resolution systems; contracting; and the performance and regulation of legal markets and the legal profession. 

Her recent publications include “What is Law:  A Coordination Model of the Characteristics of Legal Order” (with Barry Weingast, Journal of Legal Analysis 2012); "The Dynamic Quality of Law: Judicial Incentives, Legal Human Capital and the Adaptation of Law (Journal of Economic Behavior and Organization 2011); "Legal Infrastructure for the New Economy” (I/S:  Journal of Law and Policy for the Information Society 2012) and "Higher Demand, Lower Supply? A Comparative Assessment of the Legal Resource Landscape for Ordinary Americans" (Fordham Urban Law Journal 2010).

Professor Hadfield holds a B.A.H. from Queen’s University, a J.D. from Stanford Law School and Ph.D. in economics from Stanford University. She served as clerk to Chief Judge Patricia Wald on the U.S. Court of Appeals, D.C. Circuit. She has been a visiting professor at Harvard, Columbia and NYU law schools, a fellow of the Center for Advanced Study in the Behavioral Sciences at Stanford, and a National Fellow at the Hoover Institution. She is a member of the American Law Institute, director of the American Law and Economics Association and the International Society for New Institutional Economics and past president of the Canadian Law and Economics Association.  She serves on advisory boards for the Hague Institute for the Internationalisation of Law, LegalZoom, Pearl.com, and Educating Tomorrow’s Lawyers, and on the Editorial Committee of the Annual Review of Law and Social Science.  

More of Professor Hadfield's publications can be found here.

 Jonathan Lipson is the Harold E. Kohn Professor of Law at Temple University's Beasley School of Law.  Professor Lipson teaches commercial, corporate and bankruptcy law courses, including a deal-based simulation. From 2010-2012, he was the Foley & Lardner Professor of Law at the University of Wisconsin Law School.

His research focuses on business failure systems, with a particular emphasis on the role that information forcing rules play in influencing outcomes. He has written a number of articles about the informational aspects of the U.S. secured credit system, the bankruptcy system, and the role that lawyers play in designing and implementing transactions under the risk of financial failure. He is an occasional empiricist, having authored the first qualitative empirical study of lawyers’ practice of writing third-party closing opinions (which was selected for presentation at the 2005 Yale/Stanford Junior Faculty Forum). He has also developed a unique data set on the use of examiners in large Chapter 11 bankruptcy cases. 

He has a side expertise on constitutional issues in bankruptcy. He has authored papers on, among other things, the Catholic diocese bankruptcies, sovereign immunity defenses in bankruptcy, and the larger structural questions presented by the Bankruptcy Clause of the United States Constitution.

Before beginning a teaching career, Professor Lipson practiced corporate, commercial and bankruptcy law in Boston, with the firm of Hill & Barlow (1995 – 1999), and in New York with Kirkland & Ellis (1992 – 1995) and Milbank Tweed (1990-1992). 

He holds several leadership positions in the Business Law Section of the American Bar Association, where he is a Section Content Officer.  Previously, he was Chair of the Publications Board, and Chair of the Committee on Business Law Education. He was the Chair of the Section on Commercial and Related Consumer Law of the Association of American Law Schools (2002-2003). He was elected in 2005 to the American Law Institute.   Professor Lipson speaks and blogs frequently on business law subjects, including corporate reorganization and business law education. He also served as an expert witness in certain complex reorganizations including, most prominently, Enron’s bankruptcy.

His work has appeared in, among others, the UCLA Law Review, the Boston University Law Review, the Notre Dame Law Review, the Business Lawyer, the University of Southern California Law Review, the Washington University Law Review, the Minnesota Law Review and the Wisconsin Law Review . 

More of Professor Lipson's publications can be found here.

Below are links to last week's posts:

An introduction to the symposium

Biographical information about last week's contributors

Jay Feinman, Ambitition and Humility in Contract Law

Alan Hyde, Stewart Macaulay, System Builder

Kate O'Neill, The Mess We're In

Deborah Post, One Contracts Professor's Preference for State Court Decisions

We look forward to another lively week of contributions.

[JT]

Freedom Not to Contract: In New Mexico, Not So Much

Friday's New York Times included this story that might be of interest to Hurly v. Eddingfield fans.  As readers of this blog should recall, Hurley is a case about a doctor who refused to see his deathly ill patient, giving no reason and despite a proffer of payment and having no excuse for his refusal.  We have blogged about the case previously here and here.  The point of the case is that the doctor is not contractually obligated to come to the aid of his patient, and the law will not impose on him an obligation to enter into such a contractual obligation unwillingly.   

As many of my students find it a bad state of affairs if a doctor cannot be compelled to treat her patient, when she is the only doctor available and she has no reason for refusing to do so, I assure them that there are non-contractual mechanisms -- state or professional codes -- for that may address Hurley's facts.  Friday's story in the Times illustrates how this can work.

Vanessa Willock (Willock) contacted Elane Photography, LLC (Elane), to determine whether Elane would be available to photograph her commitment ceremony/wedding to another woman.  (New Mexico's Supreme Court explains that although Willock at first referred to the ceremony as a commitment ceremony, the parties also referred to the event as a wedding, and the court used the terms interchangeably.)  Elane's lead photographer is opposed to same-sex marriage and will not photoraph events that violate her religious beliefs.  

Represented by the Washington-based Alliance Defending Freedom, Willock sued, citing New Mexico's constitutional Human Rights Act, which was revised in 1972 to prohibit discrimination on the basis of sexual orientation.  Elane claimed that forcing it to photograph Willock's commitment ceremony/wedding violated its First Amendment Rights.  Eugene Volokh has blogged extensively on the case (e.g., here), and he filed an amicus brief in the case.  Volokh characterized his position and that of his fellow amici as follows: "All the signers of the brief support same-sex marriage rights; our objection is not to same-sex marriages, but to compelling photographers and other speakers works that they don’t want to create."

New Mexico's Supreme Court (and all other courts that heard the case) ruled in favor of Willock. Willock sought only a declaratory judgment that Elane had violated New Mexico's Human Rights Act.  Willock sought no other remedy.  We leave the constitutional issues to Volokh and others with greater claims of expertise.  We note, however, that the effect of the ruling is that New Mexico's constitutional interest in prohibiting discrimination trumps the common law contractual principle of freedom of contract.  Unlike the doctor in Hurley, Elane's must contract with people with whom it does not want to contract, even though, also unlike doctor in Hurley, Elane's has grounds for its unwillingness to contract sounding in constitutional principles of freedom of speech and freedom of religion.  

The Times provides the full text of the case, Elane Photograhpy, LLC v. Willock.

[JT]

Our Re-Design

If you are reading this post, and if it is not the first post you have ever read on the ContractsProf Blog, then you have noticed that we have a new look.  All of this is thanks to a global re-design at the Law Professor Blog Network (LPBN), headed up by Paul Caron (pictured).

This is our third day with the new look, and the impact on our readership has been dramatic!  Of course, the uptick in our readership is also explained in part by the advent of a new semester, always a good time for people to check in, and by the very exciting symposium on the contracts scholarship of Stewart Macaulay, which ought to be attracting some new readers.  Still, our daily readership has tripled since the re-design, and we have never had results like that either at the beginning of a new academic year or in connection with one of our virtual symposia.  So, we think a great deal of the credit has to go to the re-design.

The re-design includes a bunch of new features with which we ourselves are not yet fully aware.  We will tell you more about them as we play around with the platform and discover its nuances.  Paul Caron has himself explained the purposes behind the redesign in this piece that is availabe on SSRN.  Here is an excerpt from the abstract:

The re-design will (1) optimize each blog for viewing across a variety of platforms (desktop, laptop, tablet, and smart phone); (2) better integrate social media; (3) provide more robust analytics with richer and more accurate readership data; and (4) strengthen our partnership with Wolters Kluwer/Aspen Publishers and provide additional avenues for monetization

We here at the ContractsProf Blog cannot equal the expertise of the TaxProfs in money matters, but our interpretation of the last line of Paul's abstract is that the re-design is going to make us all rich!

[JT]

Revisiting the Contracts Scholarship of Stewart Macaulay, Post IV: Deborah Post

This is the fourth 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. 

Deborah Post is Associate Dean for Academic Affairs and Faculty Development and Professor of Law at Touro College Jacob D. Fuchsberg Law Center. 

One Contracts Professor’s Preference for State Court Decisions

In the essay that I contributed to Revisiting the Scholarship of Stewart Macaulay: On the Empirical and the Lyrical, I gave vent to the frustration I experienced over the years reading decisions written by the 7^th Circuit Judges Richard Posner and Frank Easterbrook. Stewart wrote to me recently and in two sentences, appropriately lyrical, summed up the source of my frustration:  “In theory, of course, the court applies state law in a diversity situation.  About the one thing that you can expect is that Judges Posner and Easterbrook will be off on a frolic of their own.”

I have a healthy respect these days, and a strong preference for, the decisions of state courts. I try to use the best of these to teach contract law to my students.  I admire the tenacity of state courts that insist, for example, that the commentary to the UCC matters in interpreting that statute.  See e.g. Simcala Inc. v. American Coal Trade, Inc. 821 So.2d 197 (Ala. 2001) (the word “center” in comment 3 to UCC section 2-306 means something when used to describe the way a stated estimate limits the “intended elasticity” of an output or requirements contract). 

I am particularly gratified by the persistence of courts that have used the unconscionability doctrine to invalidate boilerplate arbitration clauses.  Implicit in these cases is a duality. Oppression exists on two levels.  The terms of the transactions are oppressive and unconscionable, and the terms of the arbitration agreement are oppressive. Two cases I discussed previously at the 8^th Annual International Contracts Conference at Texas A & M University Law School.

In Brewer v. Missouri Title Loans, 364 S.W.3d 486 (Mo. 2012), the Missouri Supreme Court describes the terms of a loan agreement. Ms. Brewer borrowed $2,215 and paid back $2000, at which point she had reduced the principal balance on the loan by $.06.  The interest rate on that loan was 300%.  Ms. Brewer brought suit under the Missouri consumer protection statute, the Missouri Merchandising Practices Statute.

In Tillman v. Commercial Credit Loans Inc., 655 S.E.2d 362 (N.C. 2008), Ms. Tillman and Ms. Richardson, the named plaintiffs in a class action, purchased single premium credit insurance from a lender.  Within a year the North Carolina legislature made this species of loan illegal, but the statute was not retroactive.  Ms. Tillman and Ms. Richardson sued under the North Carolina Unfair and Deceptive Trade Practices Act.  The North Carolina Supreme Court found the arbitration clause in the contract, which barred class actions, unconscionable in a 3-2-2 decision.

When the United States Supreme Court vacated the decision in the Brewer case and remanded it to the Missouri court for reconsideration in light of A.T.& T. Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011), Chief Justice Richard Teitelman, responded that the unconscionability doctrine in Missouri law was not an “obstacle to the accomplishment of the act’s objectives.”  The arbitration agreement was unconscionable because there was expert testimony that no consumer would pursue a claim against the Title Company.  The cost was too high.  The Tillman court made much the same point.  Of the 68,000 loans that Citifinancial made in North Carolina, no borrower ever pursued arbitration of a claim.  Citifinancial on the other hand, had reserved its right to go to court and had exercised that privilege over 3,000 times in civil suits and foreclosure actions.  The Tillman court also provided information about the actual cost of arbitration, a factual discussion that is missing in a lot of these cases.  It turns out that arbitration is cost prohibitive for most low income consumers. 

Exploitive or predatory contracts saturate the market for credit, housing, furniture for the least well off in our society.  The Montana Supreme Court recently held a payday loan and its arbitration provision unconscionable.  Kelker v. Geneva-Roth Ventures, Inc., 303 P.3d 777 ( Mont. 2013)(780% APR was violation of Montana Consumer Loan Act). If the U.S. Supreme Court grants certiorari in Kelker, the decision in that payday loan case will probably meet the fate of its progenitors, Casarotto v. Lombardi, 886 P.2d 931 (Mont. 1994)(Casarotto I) and Casarotto v. Lombardi, 901 P.2d 596 (Mont. 1995)(Casarotto II). Justice Trieweiler maintained in Casarotto I that the Federal Arbitration Act had not pre-empted state laws addressing arbitration because the federal statute had not addressed every aspect or possibility with respect to arbitration agreements. In Casarotto II he argued that the U.S. Supreme Court’s decision to strike down an Alabama statute that made pre-dispute arbitration agreements unenforceable was irrelevant to the decision in Casarotto I.  He was reversed in an opinion written by none other than Justice Ginsberg. 

Justice Terry N. Trieweiler, the twice rebuked but unrepentant Montana Supreme Court jurist, actually wrote three Casarotto opinions.  He penned a special concurring opinion in Casarotto I to address “those federal judges who consider forced arbitration as the panacea for their “heavy caseloads” and to single out for criticism Judge Bruce M. Selya, First Circuit Court of Appeals, who called the prevalence in state courts of “traditional notions of fairness” an “anachronism.”  886 P.2d at 940. Justice Trieweiler’s  rejoinder was that some federal judges are arrogant. I think of it as hubris.

The number of cases challenging arbitration agreements has not diminished over time.  I can think of at least two reasons for this phenomenon. One is ever expanding disparity in wealth and power in the United States in this post-industrial society.  There are very few ways individuals can challenge those who have power over them or expose what they feel to be an injustice that has been done to them.  We are conditioned to believe that there is “equal justice under the law” and to believe that a citizen may seek redress in court.  The second reason is the failure of federal courts to recognize that the FAA is indefensible when it is applied in consumer cases. That was the subject of the last series of blog posts discussing Margaret Radin’s book, Boilerplate.   The FAA is a statute frozen in time, applied to transactions almost ninety years after Congress held those hearings on the resistance of state courts to arbitration and used to enforce arbitration “agreements” in contracts that were not even dreamed of when the FAA was passed -- online, clickwrap contracts such as the contract in Kelker.  Contract defenses that police agreements where there is no real consent and no real bargaining are rendered impotent by the FAA.  It does not matter if Certiorari is denied in Kelker, because the 9^th Circuit has already used a pre-emption argument to defeat the Montana court’s use of “reasonable expectations” and unconscionability doctrines to invalidate arbitration provisions. Mortensen v. Bresnen Communications, LLC,  2013 U.S. App. Lexis 14211.

This past weekend I had the pleasure of meeting the judge who wrote the plurality opinion in the Tillman case, Justice Patricia Timmons-Goodson (pictured), who retired from the North Carolina Supreme Court in December 2012.   I did not plan this meeting.  It was completely serendipitous.  I was looking for the meeting room where the Task Force on the Future of Legal Education was discussing the end of law school as we know it.  I asked her for directions, and then I glanced at her name tag. It took me a moment to realize who she was.  I was told by Judge James Wynn, who is now on the 4^th Circuit U.S. Court of Appeals, but who once served with Judge Timmons-Goodson on the North Carolina Court of Appeals and the Supreme Court, that she was a recent recipient of the Legend in the Law award at Charlotte School of Law.

I knew that Justice Timmons-Goodson was a black woman. I looked for background information when I decided to write about the case. I knew, courtesy of North Carolina’s Lawyers Weekly, that two lawyers from Raleigh, John Alan Jones and G. Christopher Olson, obtained a judgment in Tillman and two companion cases in the amount of $81.25 million.  Of the borrowers represented in the Tillman case, 759 received approximately $31,291 each.  Another 9,670 received $544 each.

Taking the admonition of Stewart Macaulay seriously, striving to do something that looks like empirical research, I asked Justice Timmons-Goodson if she would consent to an interview. She hasn’t agreed yet, but I hope she will. I would like to know more about the process that she used to reach a decision in the Tillman case; how she persuaded enough of her colleagues to agree that the contract and the arbitration clause were unconscionable, even if two of them relied on a “totality of the circumstances” analysis that they thought sufficiently different from her opinion to merit a separate concurring opinion. Two justices signed her opinion relying on substantive unconscionability; two joined in finding the arbitration clause unconscionable but stressed the importance of deference to the fact-finding of the trial judge under a “totality of the circumstances” approach, and two justices dissented.

The Justice writing the dissenting opinion, appears to believe that the unconscionabiity doctrine is somehow illegitimate.   He noted that it had never been used in North Carolina to invalidate a contract or a term in a contract. If I do interview Justice Timmons-Goodman, I will ask her about her reaction to the most recent U. S. Supreme Court decisions. She has herself written about the importance of state court judges at every level, particularly in the trial courts. 

I am not sure that she would call her own acts as a justice on the Supreme Court “resistance.”  She might simply say that logic and adherence to an ethic of principled decision-making impelled her to write the decision in Tillman as she did. I cannot be sure that she believes, as I do, that the drafters of the FAA never intended to completely pre-empt state law, especially those contract doctrines that are designed to control avarice and unscrupulous behavior.  I do think, however, she will enjoy discussing the decisions of Justice Trieweiler.  

[Posted, on Deborah Post's behalf, by JT]

Revisiting the Contracts Scholarship of Stewart Macaulay, Post III: Kate O'Neill

This is the third 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. 

Kate O'Neill's is Professor of Law at the University of Washington School of Law.  Her principal interests are contracts, copyright, legal rhetoric, and law school teaching.

The Mess We're In

These essays present enlightening, provocative, and well-written analyses of relational contract theory, contract doctrine, legal practice, and social justice.  The editors have sequenced and grouped them skillfully so that the reader can clearly see how the authors’ ideas intersect and diverge.  As a result, the collection is more than its parts.

I want to draw readers’ attention to a problem the collection suggests but doesn’t address directly.  What are we going to do about the contracts course in law school?

Several essays suggest, and Robert Scott’s expressly argues for, an emerging consensus that Macaulay’s original insights remain valid and are foundational for both law & economics and law & society theorists and that these warring camps may have more in common than either has yet recognized.  If Scott and Macaulay are right, then I would wager that most contract courses not only fail to reflect the consensus but camouflage its most promising lessons.

The consensus seems to include two major points of agreement.  First, unmessy doctrine can be handy (“Messy,” of course, was Macaulay’s description of much contract doctrine). Some “sophisticated” contracting parties should be able to make binding commitments on precisely the terms that they negotiate and, in case of dispute, they should be able to limit a judge’s interpretative discretion to alter their allocations of risk.  In particular, they should be able to preclude the judge from resorting to “context” to alter the (presumably) plain meaning of the terms.

Second, consumers and employees should not necessarily be bound by all of the commitments purportedly imposed upon them by adhesion documents. Here, we can see fruit borne from Macaulay’s distinction between the real deal and the paper deal. Terms that are reasonable, typical, or expected are part of the deal; terms that are not are not. The expected nature of the relationship dictates the real contract terms; the paper contract terms do not necessarily govern the relationship. We are freed from the mutually exclusive and entirely fictional alternatives that either a contract was formed on the paper terms or it was not formed at all. 

On the other hand, the collection makes clear that a fundamental policy issue remains contested especially in the consumer context – how much contract law should intervene in the market.  The familiar alternatives are reflected:  1) let the market discipline bad actors even if there are a few casualties before the market works its magic because there is no agency more capable than the market in determining best (read, efficient?) practices; 2) let judges intervene to strike down bad terms – especially those that limit access to courts and class actions – because doing so will hasten market discipline of bad actors and will also relieve hardship in at least a few cases; or  3) regulate certain kinds of terms out of existence.

All the authors think that empirical data could help resolve the policy dispute. Edward Rubin, in particular, suggests that we think of contract law as a management tool.  If we were to focus on whether the tool works well to achieve whatever objectives we set, then the legal system could essentially be taught to treat empirical evidence as intrinsic to the development of law.  This is  encouraging stuff.  A systemic devotion to empiricism within the legal system might enable us, and the body politic, to clarify debates about what laws are fair and efficacious.

So far, so good, but here is the question that keeps troubling me.  If we all are relationists and empiricists now, and we could use data to make contracting law and practice both fairer and more efficient (or whatever other goals we might conceivably agree upon), what and how we should teach law students?

Macaulay has taught us that contract law has relatively little explanatory power for many of the actual practices involved in the formation, performance, and modification of exchanges, or even the practices involved in resolving disputes.  Serious attention to the nature of exchange relationships makes it hard to characterize contract law as unified, coherent and consistent or if it is unified theoretically, the unity operates at such a high level of abstraction that will matter little to judges or practitioners.

We praise these and other insights from empiricism both for what they tell us about law and society now and what they might teach us about alternatives. Yet most lawyers and judges plod on, oblivious or dismissive. Are we in part responsible? Look at our casebooks, listen to our classroom discussions!  Traditional doctrinal analysis is alive, well, and I suspect dominant. Economic analysis “lite” has crept in, but attention to empirical methods, much less data on context or consequences, is scant. I suspect that even those of us who assign “law & society” contracts casebooks, like the ones edited by Macaulay and Deborah Post, still devote the bulk of class time to doctrinal analysis.

Perhaps this must be.  Perhaps doctrinal analysis is our discipline’s unique identifier and must be taught first because it is foundational; perhaps we need to train litigators to understand the elements of a claim for breach; perhaps there is some utility in using the same basic case method in all 1L courses; or perhaps we are simply boxed in by student expectations, bar examiners, tradition, or confusion about what else to do?

Although there certainly are barriers to changing what and how we teach, I wonder if the core problem is that the work that needs to be done is profoundly interdisciplinary, challenging, and time-consuming.  Many of us lack the skills to do it alone, and the scholarship, promotion standards, and instructional traditions at many law schools still make collaborations difficult.

Contracts teachers may alert law students to Macaulay’s insights, but I don’t think we give students sufficient tools to help clients and or work effectively on big systemic problems.  Stewart might say that’s because we kinda like the mess the way it is.

[Posted, on Kate O'Neill's behalf, by JT]

New in Print: A Special Offer for Our Readers

Contract Law – 2nd Edition 

An Introduction to the English Law of Contract for the Civil Lawyer

By John Cartwright

This book gives an introduction to the English law of contract. In this new and fully updated edition the book retains the primary focus of the first edition: it is designed to introduce the lawyer trained in a civil law jurisdiction to the method of reasoning in the common law, and in particular to the English law of contract. It is written for the lawyer-whether student or practitioner-from another jurisdiction who already has an understanding of a (different) law of contract, but who wishes to discover the way in which an English lawyer views a contract. However, setting English contract law generally in the context of other European and international approaches, the book forms an introductory text for the English student, who can see not only how English contract law works but also get a glimpse of different ways of thinking about some of the fundamental rules of contract law. After a general introduction to the common law system-how a common lawyer reasons and finds the law-the book explains the principles of the law of contract in English law covering all the aspects of a contract from its formation to the remedies available for breach, whilst directing attention in particular to those areas where the approach of English law is in marked contrast to that taken in many civil law systems. 

The Author

John Cartwright is Professor of the Law of Contract at the University of Oxford, Tutor in Law at Christ Church, Oxford, Professor of Anglo-American Private Law at the University of Leiden, and a Solicitor. 

August  2013   362pp   Pbk   9781849464796

RSP: £25 / €33  / US$50

20% DISCOUNT PRICE: £20 / €26.40 / US $40

Order Online in the US

If you would like to place an order you can do so through the Hart Publishing website (link below). To receive the discount please mention ref: ‘CONTRACTSPROFBLOG’ in the special instructions field. Please note that the discount will not be shown on your order but will be applied when your order is processed.

US website: http://www.hartpublishingusa.com/books/details.asp?ISBN=9781849464796

Order Online in the UK, EU and Rest of World

If you would like to place an order you can do so through the Hart Publishing website (link below). To receive the discount please type the reference ‘CONTRACTSPROFBLOG’ in the voucher code field and click ‘apply’.

UK, EU and ROW website: http://www.hartpub.co.uk/BookDetails.aspx?ISBN=9781849464796

[JT]

Revisiting the Contracts Scholarship of Stewart Macaulay, Post II: Alan Hyde

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

1. 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.
2. 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.
3. 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.
4. 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.

Section 3: Seller’s cancellation or late delivery

1. 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.
2. 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

1. All parties understand that failure to keep your word in business is likely to result in people saying bad things about your reputation.
2. 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.”
3. 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

1. 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.
2. 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.
3. 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]

Weekly Top Tens from the Social Science Research Network

The summer fad for scholarship on multimodal bills of lading seems to have withered rather quickly.  After its shocking debut two weeks ago with exactly 4000 downloads, interest in our top paper seems to have stagnated.  Academia can be so fickle!

So, although Butakova put up a strong performance, we're going to have to go with our gut and name Daft Punk's Get Lucky our song of the summer:

The Colbert Report
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RECENT HITS (for all papers announced in the last 60 days) 
TOP 10 Papers for Journal of Contracts & Commercial Law eJournal 
June 20, 2013 to August 19, 2013

Rank	Downloads	Paper Title
1	4007	Multimodal Bill of Lading: The Problem of Party Liability  Nadezda Alexandrovna Butakova,  Russian Presidential Academy of National Economy and Public Administration (RANEPA)
2	70	Catalyzing Fans  Howard M. Wasserman, Dan Markel, Michael McCann,  Florida State University College of Law, University of New Hampshire School of Law, Florida International University (FIU) - College of Law
3	61	Duties of Love and Self-Perfection: Moses Mendelssohn's Theory of Contract  Helge Dedek,  McGill University - Faculty of Law
4	58	The Law and Economics of Norms  Juliet P. Kostritsky,  Case Western Reserve University School of Law
5	56	Sticky Covenants  Gus De Franco, Florin P. Vasvari, Regina Wittenberg Moerman, Dushyantkumar Vyas,  University of Toronto - Rotman School of Management, London Business School, University of Toronto - Rotman School of Management, University of Chicago - Booth School of Business
6	56	A Theory of Contract Formation  Allan Beever,  School of Law, University of South Australia
7	52	Carve-Outs and Contractual Procedure  Erin A. O'Hara O'Connor, Christopher R. Drahozal,  Vanderbilt University - Law School, University of Kansas School of Law
8	41	State Contract Law and Debt Contracting  Gil Sadka, Sharon P. Katz, Colleen Honigsberg,  Columbia University - Columbia Business School, Columbia University - Accounting, Business Law & Taxation, Columbia University - Accounting, Business Law & Taxation
9	37	Improving Contract Quality: Modularity, Technology, and Innovation in Contract Design  George G. Triantis,  Stanford University - Law School
10	36	Revisiting the Efficiency Theory of Non-Contemplated Contingencies in Contract Law  Yuval Procaccia,  IDC Herzliya - Radzyner School of Law

RECENT HITS (for all papers announced in the last 60 days) 
TOP 10 Papers for Journal of LSN: Contracts (Topic)  
June 20, 2013 to August 19, 2013

Rank	Downloads	Paper Title
1	4007	Multimodal Bill of Lading: The Problem of Party Liability  Nadezda Alexandrovna Butakova,  Russian Presidential Academy of National Economy and Public Administration (RANEPA)
2	111	Lex Mercatoria, International Arbitration and Independent Guarantees: Transnational Law and How Nation States Lost the Monopoly of Legitimate Enforcement  Cristián Gimenez-Corte,  United Nations
3	56	Sticky Covenants  Gus De Franco, Florin P. Vasvari, Regina Wittenberg Moerman, Dushyantkumar Vyas,  University of Toronto - Rotman School of Management, London Business School, University of Toronto - Rotman School of Management, University of Chicago - Booth School of Business
4	56	A Theory of Contract Formation  Allan Beever,  School of Law, University of South Australia
5	40	State Contract Law and Debt Contracting  Gil Sadka, Sharon P. Katz, Colleen Honigsberg,  Columbia University - Columbia Business School, Columbia University - Accounting, Business Law & Taxation, Columbia University - Accounting, Business Law & Taxation,
6	36	Revisiting the Efficiency Theory of Non-Contemplated Contingencies in Contract Law  Yuval Procaccia,  IDC Herzliya - Radzyner School of Law
7	35	'Sticky' Arbitration Clauses?: The Use of Arbitration Clauses after Concepcion and Amex  Christopher R. Drahozal, Peter B. Rutledge,  University of Georgia - School of Law, University of Kansas School of Law
8	34	'Frustration' in the Court of Appeal  David McLauchlan,  Victoria University of Wellington - Faculty of Law
9	34	In Defense of Surrogacy Agreements: A Modern Contract Law Perspective  Yehezkel Margalit,  Tel-Aviv University
10	34	Trust v. Law (In a Box): Do Organizational Forms Make a Difference?  Jeffrey M. Lipshaw,  Suffolk University - Law School

[JT]

Revisiting the Contracts Scholarship of Stewart Macaulay, Post I: Jay Feinman, Ambition & Humility

This is the first 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. 

Jay Feinman is Distinguished Professor of Law at Rutgers School of Law‒Camden. 

My contribution to Revisiting the Contracts Scholarship of Stewart Macaulay: On the Empirical and the Lyrical is a chapter entitled “Ambition and Humility in Contract Law.” The chapter focuses on several of Macaulay’s articles in the 1960s in which he presented an organization of the fundamental policies underlying contract law, the structures through which contract law acts, and some policies of the legal system that influence the fundamental and structural policies. The organization encapsulates in a remarkable 2x2 matrix the essential issues of contract law.

Here is the matrix, which separates the substantive policies that contract law serves (market and other-than-market goals) from the ways in which the legal system can realize those goals (through rules or case-by-case adjudication). (As Macaulay recognizes, the elements of the matrix are actually ends of continua rather than discrete categories.)

	Market goals	Other-than-market goals
Generalizing approach (‘rules’)	market-functioning policy	social (or economic) planning policy
Particularizing approach (‘case-by-case’)	transactional policy	relief-of-hardship policy

 Macaulay’s organization clearly and powerfully expresses the underpinnings and operations of the field.  For mainstream scholars, the identification of policies and approaches provides a framework that clarifies analysis in legislation, adjudication, and scholarship. But the matrix also contains the seeds of a critique that demonstrated that contract law is at best badly confused and at worst incoherent and largely ineffective. In that way, Macaulay’s work contributed to critical legal studies’ account of private law through its influence on Duncan Kennedy’s monumental “Form and Substance In Private Law Adjudication,” 89 Harv. L. Rev. 1685 (1976) and other works.

Consider just one instance of the way in which the organization reveals these problems, in the relationship between market and other-than-market goals.

For contract law, the market is the primary social institution, so market goals predominate.  Macaulay’s framing of market-promoting goals as primary and market-correcting goals as secondary correctly states the customary objectives of contract law as ambition tempered with humility.  But that framing makes apparent why contract law needs to temper its ambition of serving the market with a large dose of humility.

First, the conflicting market and non-market goals need to be balanced, and the measures for doing so are controversial.  The case law and literature offer a variety of mechanisms for carrying out this balancing.  Courts employ different tropes including avoidance by doctrinal formalism, casual policy analysis, and ad hoc paternalism.  The Restatement Second frequently lists factors to be balanced without specifying the techniques of balancing.  Economic analysis aims for efficient results, variously defined and sought.  In his later reflections on the systematic presentation of contract law policies, Macaulay recognized the inadequacy of these efforts and the difficulty, perhaps impossibility of this balancing process.  There he entitles the matrix “The Contradictions of Contract Law” and comments that contract law “inconsistently rests on policies that both promote the market and those that attempt to blunt it.”  Macaulay, “Klein and the Contradictions of Corporate Law, 2 Berkeley Bus.  L. J.  119  (2005).

Second, the hierarchy and separation between market and non-market goals needs to be established in practice.  Consider the choice between a rule-oriented market functioning policy and a case-by-case transactional policy.  One of the substantive contract policies Macaulay identifies is self-reliance.  In the conception of the market as private, individual, and self-actuating, self-reliance is crucial.  Macaulay writes of promoting self-reliance by encouraging or requiring parties to look out for themselves, in a world in which the law will rigidly enforce apparent bargains they have made, through a market-functioning or transactional policy.

But implicit in this construction is the illogic of simply promoting the market by promoting self-reliance through a body of contract law that rewards initiative and punishes dependence.  Instead, the law can further self-reliance in either of two opposite ways—by creating a minimal body of contract law that puts parties at risk or an aggressively interventionist body of law that provides parties with security.  A body of contract that provides relief from one’s ill-informed or ill-fated promises encourages self-reliant action by assuring that the consequences of action will not be too severe.  The risk of intervention or non-intervention in this way protects all economic actors, as all are potentially subject to bad decisions or bad luck, although the weak probably more so than the strong.

Stewart Macaulay

Therefore, a combination of the transactional policy and the relief of hardship policy—determining the enforceability of contracts, or not, on a case-by-case basis—may maximize social welfare; whether the social welfare so produced is greater or lesser than that generated by the rule-based market functioning policy ameliorated with social or economic planning policy is an empirical question for which no theoretical answer exists.

Third, as the theoretical conflict about self-reliance illustrates, it is problematic even to attempt to define market and non-market goals as separate.  Inherent in the separation is the conception that market goals involve the facilitation of private activity, a process that is distinct from the imposition of public values such as redressing inequality.  Private activity is fundamentally individual, whereas public goals are collective.  Courts in private law cases are primarily a forum for the adjudication of private disputes; legislatures are the arena in which public goals are primarily enunciated.  And so on.

But these dichotomies are exaggerated.  There is no institution of the market separate from and preexisting non-market activity, just as there is no private law not constituted by public values.  The exchange of goods may be a private activity, but the exchange of goods that the law has made the subject of property and which exchange is enforceable by law is an essentially public activity.  Law constitutes the market for reasons of the public good, so supporting the market through contract law is only another way of advancing the public good, and not a particularly distinct way at that.

Because the market is not distinctively private, the hierarchy of market goals and the need for self-reliance in the service of those goals are not evident.  The justification for contract law and its rules must rest elsewhere than on a claim that the market is distinctive and distinctively important.  And that is a claim that is assumed but seldom justified in the case law or literature.  Part of the power of Macaulay’s organization is the way in which it makes clear the great defects of contract law’s ambition.

[Posted, on Jay Feinman's behalf, by JT]

First Day of the First Minimester

When I started graduate school in 1986, people were saying that the early 90s were going to be a great time for newly minted history Ph.D.s.  Universities had exploded in the 60s, and a lot of tenured faculty members were due to retire.  There were going to be a lot of openings in a lot of fields.  And of course, none of us graduate students were worried in any case because we were young and indestructable -- all brilliant and all certain to continue to be at the top of our fields.  

But the people who were hired in the 60s didn't retire, and many of those who did retire were not replaced or were replaced in non-traditional fields.  The year I got my Ph.D. (1993) ended up being pretty dismal for newly minted Ph.D.s, and I never found a tenure-track job in history.  I never came close.  I was on the market for five years and never even got an on-campus interview for a tenure track job at any of the hundreds of universities, colleges, technical colleges and private high schools to which I applied.

When I tried repeatedly and failed repeatedly to get a job teaching history, there were structural problems with gradaute programs in history.  Lots of programs were admitting far too many students.  They were doing so because gradaute students were a cheap labor supply for teaching (or T.A.ing) undergraduate courses and because faculty members wanted to have graduate students to work with.  History departments wanted to develop their Ph.D. programs because that enhanced the reputation of the program and of the university.  But there weren't enough jobs, and history programs were not really training people to get jobs, since graduate students were either taking obscure upper-level courses or were working on their far more obscure dissertations that they were hoping to publish as scholarly monographs that only libraries would buy and only other professional historians in their narrow sub-field would read.  That remains the model for doctoral programs in history, and the model remains broken.  I have no idea why the typical history doctoral student in this country spends at least five years working on a book that almost nobody will read when they could just as easily devote their time to writing 3-5 historical essays of publishable quality which, when published, will eventually be in a database where they will be full-text searchable and actually of use to other scholars and laypeople alike.  Harumph!

Contrast that with the feverish if not frenzied innovation that is currently underway in the legal academy.  Schools are experimenting in every imaginable way -- reducing faculty and administrative staff, decreasing class size, and most importantly, adjusting the curriculum to better prepare today's students so that they can pass the bar and also be ready to start practice in a legal environment where more seasoned lawyers have very little time to train new attorneys.  Those who criticize law schools for being slow to react to the new market for attorneys need some context.  The legal academy has been incredibly responsive, and the only questions are whether they have resopnded in the right ways and whether they have correctly identified as either long-term or merely cyclical the problems in the market for attorneys. 

My Law School (Valparaiso) is no different, but it is unique.  That is, we have been scrambling to figure out better ways to serve our students (just like everyone else), but we have come up with a new curriculum that is unlike any other that I have heard about.  On the blog, I just want to talk about how we are transforming the contracts course, but there is a lot more to our new curriculum.

I have already blogged about our LibGuide, which is being curated by our librarian, Jesse Bowman (pictured).  I will have a great deal more to say about the LibGuide as it continues to develop, but today I want to talk about our new seven-week minimesters.

Today is the first day of our first minimester.  We will be teaching a two-credit Contracts I course for seven weeks.  We will then have a break for exams, to be followed by another two-credit, seven-week course, Contracts II.  One purpose of the minimester system is to enable us to assess our students and give them meaningful feedback as early as possible in the course of their legal education.  So, rather than having a huge exam at the end of the semester, with very little sense of their chances of success on the exam, our students will have frequent assessment throughout the minimester and an exam at the end.  The final exam will still be important, but it will only account for part of their grade in a two-credit course, and they should have some notice, based on assessment throughout the semester of where they likely will fall relative to their peers. Since no minimester course counts for more than two-credits, we will not have the phenomenon that sometimes occurs at schools where Property or Civ. Pro are five-credit, one-semester courses, and students neglect other courses in favor of hunting the semester's big game.  

At the same time, my doctrinal colleagues and I are working closely with our skills faculty (and there is a great deal of overlap) to coordinate exercises and assessments in doctrinal courses with the subject-matter of our skills courses.  Those too have been re-conceived and re-configured from the ground up based on our assessment of where our students are in terms of their preparation for law school and what they need to get them ready for practice.

I will be blogging throughout the semester about the LibGuide and the minimester system.  I am really excited about this experiment and eager to see how it works for our students.

[JT] 

Back to School on Monday

Touro Law starts up on Monday.  Around this time of year, I am always reminded of this Rodney Dangerfield clip from the movie Back to School:

Dangerfield to Econ Prof: "What's a widget?"

Econ Prof: "It is a fictional product.  It doesn't matter."

Dangerfield: "Doesn't matter? Tell that to the bank."

Have a great semester!

[Meredith R. Miller]