ContractsProf Blog

Editor: Jeremy Telman
Oklahoma City University
School of Law

Thursday, May 21, 2020

Alan White Insists on Continuing to Make Sense

The following is a guest post (our first in the new era!) by Alan White.

Alan

Many thanks to Jeremy for his excellent summary of Stop Teaching Consideration, as usual written with more clarity and wit than I can manage.

I’ll begin my response by explaining the two motivations that led me to write this article. The first motivation grew out of consulting with lawyers around the country litigating mortgage foreclosures after the 2008 crisis, and in particular, litigating the practice of financial institutions systematically reneging on promises to modify loan terms to assist homeowners in default on their loans. When confronted with written modification agreements that lenders were later refusing to honor, lenders’ clever attorneys were arguing, and often persuading courts, that these loan modifications lacked consideration and could therefore not be enforced by the homeowners.

Zombies
The zombie-like resilience of the pre-existing duty rule 

As I discussed these arguments with homeowner attorneys I naively asked why they didn’t simply rely on Restatement 2nd of Contracts Section 89, which calls for contract modifications to be enforced regardless of consideration when they reflect voluntary adjustments based on changed circumstances (in the event, a 30% nationwide decline in home values) not anticipated by the parties. To my surprise I learned how few state high courts had adopted, or even considered, Restatement 2nd Section 89. I dispatched an excellent research assistant to undertake the dreaded 50-state survey, and learned of the zombie-like resilience of the pre-existing duty rule.

This first motivation led to a related, second motivation. Year after year, my students rebel at the notion that there can be more than one contract law rule to govern a particular issue, and ask which rule they must memorize for the final exam. I sometimes respond vaguely that there may be a majority rule and minority rule, or perhaps an old rule and a modern rule, and if I have taught more than one, they should discuss more than one, and for full credit, the competing values behind the rules.

Answering these student questions often prompted me to consult the casebook or treatises to confirm which rule was in fact the dominant rule in the case law, only to find very uncertain or dated guidance. So, I committed myself one summer to canvassing the case law not only on the modification/pre-existing duty rule, but for all the other consideration-derived rules. I made the task manageable by arbitrarily limiting my survey to 3 years, partly because of Westlaw’s search filtering options, although for some consideration topics I went back as far as the 1980’s adoption date of the Restatement Second. What I found was considerably more confusion and misapplication of consideration doctrine, or even of the word “consideration,” than, as Jeremy puts it, my Marie Condo taste for tidiness could tolerate.

I have to grant much of what Jeremy says in his critique, that is to say, that one cannot responsibly ignore consideration doctrine completely in teaching contracts law, because of its regrettable persistence in the minds of lawyers and judges. On the other hand, this seems to me a vicious cycle of legal conservatism, if we must continue teaching a completely unsatisfactory doctrine and set of rules merely because we were taught them. So despite my categorical title, I am proposing a transition rather than a clean break, by reducing the prominence of consideration doctrine in the first-year class, not offering it as a unified theory, and teaching modern Restatement and UCC rules first rather than second.

My call I suppose is to cabin the theoretical discussion of consideration by identifying it as marginal in the real world of contract drafting, negotiation, and litigation. What I imagine is devoting most of classes to contract formation, enforceability defenses, and remedies, postponing the discussion of bargain theory, reliance, restitution and gift. Certainly students should not be ignorant of consideration, but they should be fully equipped with all the by now well-known critiques.

Jeremy makes the point that absence of consideration may serve as a simpler defense for litigators, perhaps even grounds for a motion to dismiss, compared with say unconscionability or public policy arguments. My response is that in the hundreds of cases I reviewed, I don’t think there was a single example where a court would not either have had better alternative grounds for dismissal, such as the absence or indefiniteness of a promise, or would have needed to resolve factual issues to decide the consideration defense.

As for the nostalgia for teaching Hamer v. Sidway and Dougherty v Salt, I would urge Jeremy to look at the dozens of contemporary cases surveyed in the article, many of which are at least as entertaining and certainly more accessible for our students than Victorian-era tales of wealthy white men. The alienation experienced by many law students often begins when we first confront them with these ancient yet oddly ahistorical texts. I prefer instead to use for a first reading a case featuring struggles between the powerful and the underdog, say Peevyhouse or Alaska Packers, cases that connect economic struggles of the past to controversies of our time.

Peevyhouse

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