Reviewing Larry DiMatteo and Irma Russell & Barbara K. Bucholtz, Part IV

After a long hiatus, I am back with more in my serial review of these two books. Lesson learned. Don’t try to review books during the semester. Too many other things going on.  So the plan is to get it all drafted over the break to go up during the coming semester.

This is the fourth post in my series on  Larry Di Matteo's Principles of Contract Law and Theory (Principles) and Irma Russell and Barbara K. Bucholtz's Mastering Contract Law (Mastering).  The aim is to call some attention to these two books while using them to stimulate my thinking as I once again consider how to teach contracts law to first-year students.  The two books are very different.  Principles is a scholarly textbook addressing advanced topics at a very high level of sophistication.  Mastering is a study-guide for first-year students. They both have their charms, but they are very different.  Each entry in this series will cover a chapter in each book, with some splitting of chapters because the books don't have the same number of chapters. Most weeks, the chapters will not cover corresponding subject-matters.  So be it.

Chapter four of Principles covers formalism, which Professor DiMatteo defines as “mandatory rules or requirements that apply without the need to provide substantive reasons or rationales for their application.” (77) The chapter covers topics ranging from seals, to the statute of frauds and the parol evidence rule, to formal elements of consideration and distinctions among specialized types of contracts. He begins, as he often does, with a brief but informative historical and comparative review of why formal mechanisms developed as they did. (77-78) In general, he is sensitive to the ways in which, formal elements of contract law, once established, tend to outlive their usefulness. (81)

For example, Professor DiMatteo takes note of the welcome development that many courts, favoring substance over form, “will go to great lengths to avoid the application of the statute of frauds.” (83) He uses the famous Nanakuli case to illustrate that modern rules on the admissibility of extrinsic evidence permit a court to avoid the formalism of holding parties to “plain meaning” while avoiding the need to find that a party has acted in bad faith. (85)

Professor DiMatteo addresses consideration as a formal element of contract formation, but he also discusses it as a means of protecting and promoting the intent of the parties. (86-87) He maintains that the statute of frauds and consideration are alike in this regard (87), and while I agree that they share a common goal, I regard the statute of frauds as an example of a legal formalism that has outlived its usefulness and is now as likely to frustrate the intentions of the parties as promote it. Sophisticated parties can use the statute of frauds to evade their legal obligations vis a vis parties who were not aware of the need to memorialize that agreement in a writing. Consideration is substantive in that there must be an actual bargain. A mere recitation of consideration does not suffice, with the frustrating exception of R.2d § 87(1)(a), which enforces options based on "purported consideration."

The chapter concludes with a discussion of specialized rules for different types of contract. The UCC, for example, creates special rules a variety of sub-categories of contracts. The common law recognizes special rules for exclusive distribution agreements, as well as for franchise agreements and employment contracts. (87-89) This discussion is interesting and thought-provoking, but I am not sure whether to characterize these specialized rules as  formal or substantive developments of the law.

I have a quibble about Professor DiMatteo’s handling of extrinsic evidence. He quotes UCC § 2-202 for the proposition that "outside evidence" is barred only if it contradicts the written agreement. (84) I think it is important to distinguish among types of extrinsic evidence. “Parol” evidence is evidence of words — written or oral. The language to which Professor DiMatteo refers is from UCC § 2-202(b), which is addressed to parol. Other types of extrinsic evidence, that is course of performance, course of dealing, and usage of trade evidence (what the authors of Corbin on Contracts call “invisible evidence”), are addressed in § 2-202(a) and are admissible unless “carefully negated.” As Professor DiMatteo’s discussion of Nanakuli illustrates (84-85), invisible evidence comes in so long as it can be “reconciled” with the text, even if, on its face, it seems to contradict that text. It will depend on the court, of course, but I don’t think it is quite right to say that “invisible” intrinsic evidence is barred if it contradicts the written agreement. It comes in, but a court will give it no weight if it cannot find a way to reconcile text and invisible evidence.

Chapter four of Mastering, on formation, covers a lot of material, so this post will just summarize its first half, up to options. 

The chapter begins with a discussion of capacity to contract. (35-42) I organize the material differently when I teach, grouping incapacity with defenses, but I can see the appeal of introducing capacity here as a necessary pre-requisite to formation. Professors Russell and Bucholtz (the Authors) begin by helpfully noting that incapacity can be incapacitating for the beneficiary of the doctrine. Married women long lacked the capacity to contract (35), a major impediment to their enjoyment of the rights of citizenship.

The coverage of infancy includes a lengthy exploration of exceptions for necessaries, for emancipated minors, as well as a handy list of carve-outs for contracts relating to enlistment in the armed forces, student loans, and child support. (38-39) The section on mental incapacity begins with the oft-ignored distinction between those adjudicated incompetent and non-adjudicated incompetents. The former get overlooked because their condition rarely leads to litigation, as potential counterparties tend to be on notice of adjudicated incapacity. (40-41)

The Authors then move on to a discussion of formation. They present it in the form of a formula O + A + C = K (offer, acceptance, and consideration = contract). They then provide a detailed discussion with illustrative examples of our objective approach to contract formation, and on the way they highlight the difference between voluntary contractual obligations and those imposed automatically in the world of tort. (43-45)

There follows a discussion of offer and acceptance, including an unpacking of the significance of the slogan “the offeror is the master of the offer” (47), and a refreshingly brief discussion of the mailbox rule. (47-48) I say "refreshingly brief” because, in our era of instantaneous communications, the rule is of vanishingly small significance in the real world. Alas, last I checked, the bar is still obsessed with the mailbox rule. The Authors note that silence is not ordinarily acceptance (48), and they provide an example of when silence might be treated as acceptance. (49) In our world, in which transactions are often governed by terms of service that vendors can change with notice, I would have liked to see more emphasis on how frequently employees and consumers are bound by their silence or inaction.

Finally, the Authors provide a very clear discussion of the five ways of terminating offers: rejection/counter-offer, lapse of time, revocation by the offeror, death or incapacity of either party, and acceptance. The section is fleshed out with numerous helpful illustrations, including examples of borderline cases. (49-55) The Authors' fifth mode of termination, acceptance, is not included in the Restatement's list of modes of termination (54-55). The Authors have a point. Once the offer is accepted, we no longer have an offer; we have a contract, and the power of termination ends. However, it is not always the case that acceptance terminates an offer. If there are multiple offerees, acceptance only terminates the offer with respect to one offeree. The others can still accept the offer until they receive notice of its revocation.

The first post in this series can be found here
Part II is here.
Part III is here.