Brian Blum Contracts 3rd Ed Examples Explanations

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Brian A. Blum

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CONTRACTSExamples and Explanations

EDITORIAL ADVISORSErwin ChemerinskyS,vdney N{. Irmas Prolessor

of Public Interest Larv, Legal Etbics,

and Political Science

Universiq'of Chicago Richard A. Bpstein lames Parker Hall Distinguished Service Professor of Larv Universitv of ChicagoPeter and Kirsten Bedfbrd Senior Fellou' The Hoover Institution Stanford Universigv

Ronald

f.

Gilson

Charles f . Me,vers Professor of lau,and Business Stantbrci Universitv Marc and Eva Stern Profi:ssor of Law and Business

Columbia Universiq, fames E. Krier Earl Warren Delano Professor of Larv Universiw of Michigan

Richard

I(

Neumann,

|r

Professor of l,arv

Hofitra University School of Law Kent D. SlwerudDean and Garner Anthony Professor Vanclerbilt Universitv Larv School

Elizabeth Warren Lco Gorrlicb Prolcssor of LauHarr.ard Universiw

EMERITUS EDITORTAL ADVISORSE. Allan Farnsworth Alfrcd I{cCormack Prof-essor of LarvColumbia Universiq'

Geoffrey C. Hazard, |r.Trustee Professor olLanUniversitv of lennsy'lvania

Bernard WolfrnanFessenden Professor of Law

Harvard University

CONTRACTSExamples and ExplanationsThi,rd Ed.iti,on.

Brian A. BlumProfessor of Law

Lewis

(t

Clnrh Law Scbool

/TSPENPUBLISHERSll85Avenue of the Americas, Nerv York, NY 10036 www.aspenpublishers.com

O 2004 Brian A. Blum

All rights reserved. No part of this publication rnar. be reproduced ortransmitted in anv form or bv an,v means, electronic or mechanical, including photocopv, recording, or anv infbrmation storage and retrieval svstem, u.ithout permission in writing from thc publisher. Requests tbr pcrmission to make copies of anv part of this publication should be mailed to:Pcrmissions Aspen Publishers

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t234567890rsBN 0-7355 -3969-3

Library of Congress Cataloging-in-Publication DataBlum, Brian A. Contracts : examples and explanations / Brian A. p. cnl. Includes index. rsBN 0-7355 -3969-3 l. Contracts-United States. I. Titte.

Blum.- 3rd ed.

KFBOI.B58 2004346.7302

-

dc22

2003063938

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Aspen PublishersA Wolters Kluwer Company

To

Helen, Tt epor, and. Sbelley, with Lope

Surnrnery of ContentsContentsPreface Achnowled.gncentsNt,

xxi,ii

rwii

l. 2, 3. 4,5.

The Me aning of "Contract" and the Basic Attributes of the Contractual Relationship Facets of the Larv of Contract and the Source of Its Rules, Processes, and Traditions The Doctrine of Precedent and a Contract Case Analysis The Objective Test and Common Larv Oflbrand Acceptance

I\73551

Options and Firm Offers

101

6. 7.8.

Offer and Acceptance Under the UCC, and the "Battle of the Forms"Consideration Promissory Estoppel as the Basis for Enforcing Promises Restitution: Unjust Enrichmentand "Moral Obligation" Interpretation and Construction: Resolving Meaning and Dealing with Uncertainry in Agreements

It9r45191

9.

t0.

22r253 301 327

lL 12. f 3. 14. 15. 16. 17. 18. I9.

The Statute of Frauds The Parol Evidence Rule The ludicial Regulation of Improper Bargaining and of Violations of Law and Public Policl' Incapaciq' Mistake, Impracticability, and Frustration of Purpose

36r423

44r485 541 593687 729751

Conditions and PromisesBreach and Repudiation Remedies for Breach of Contract Assignment, Delegation, and Third-Party BeneficiariesGlossaryInd.e.x

ContentsPrefoce

xxiiixxvii

Acknowledgrnents

t.

The Meaning of 6'Contract" and the Basic Attributes of the Contractual Relationship

S1.l Sl.2

IntroductionThe Legal Meaning of "Contracr" 51.2.1 An Oral or Written Agreement Between

t1

2I c

S1.3St

4

Promise Legal Recognition of Enforceability Contract as a General Body of Law Applicable to Diversc Transactions The Fundamental Policies and Values of Contract Law

.2.2 SI.2.3 $1.2.4Sf

Two or More Persons An Exchange Relationship

4 4 79 9

S1.4.1 S1.4.2

SI.4.3 Sf .4.4 Sf .4.5S1.4.62. Facets

Freedom of Contract The Morality of Promise-Pacta Swnt Serpand.a Accountability for Conduct and Reliance Social Justice and the Protection of the UnderdogFairness

IO

tl

T2

13

I313

The Economic Aspect of Contract Law

of the Law of Contract and the Source of Its Rules, Processes, and Traditions

L7T7

52.t 52.2 52.3S2.4

The Purpose of This Chapter The Historical Perspective of Conrract Law Classical and Contemporary Contract Law 52.3.1 Classical Contract Lau. 52.3.2 Contemporary Contract Law The Meaning of "Common Law"

t7 I818 19

20

52.4.1

"Common Law" IJsed to Designate OurLegal Systemas a

Whole

2I2T

S2.5 52.6

52.4.2 "Common Law" IJsed to Denote the |udge-Made Component of Our Legal System 52.4.3 "Common Larv" Used to Denote a Process or Approach to Legal Analysis The Distinction Bet\&'een Lal'and EquiryState Law Governs Contracts

22 22 24

Contents

52.7

$2.8

The Uniform Commercial Code iL]CC) 52.7.I The UCC as a Unitbrm Modei Statute and State Legislation 52.7.2 The Use and Applicarion of UCC Article 2 52.7.3 The Influence of Article 2 in Cases Involving Contracts Other Than Sales of Goods \44rat Is the RssrarnrlrNr (SEcoNn) or CoNrna.crsf

25 25 27

29 30

3. The Doctrine of Precedent and a Contract Case Analysis 53.1 Studying Contract Through Appellate CasesAn Introduction and

3535 37 37J/

53.2

a Note on Perspective How Judges Make Contract Law: Judicial Precedent

53.3

What Is Precedentf 53.2.2 Who Is Bound by Precedentf $3.2.3 The Drawbacks of the System of Precedent The Anatomy of a Judicial Opinion

S3.2.f

39

(kule or Holding) and Obiter Dictwm S3.3.f The Process of Inductive and Deductive Reasoning $3.3.2 in the Creation and Application of Legal Rules 53.3.3 The Use of Authority and Supporting Rationale in Judicial OpinionsRatioDecid.end.i

40 40

4t42

4. The Objective Test and Common Law Offer and Acceptance 5l 5I S4.1 Interpretation and the Objective Test 5I 54.f .l The Communication of Contractual Intent54.1.2

54.I.354

Assent and Accountability: Subjective and Objective Tests of Assent The Operation of the Objective Test

52 5355 55

2

in Contemporary The Offer and Acceptance

S4.3 S4.4 S4.554

6

The Rules of Offer and Acceptance The Nature of an Offer, as Distinct from a Preliminary Proposal The Expiry of the Offer by Passage of Time 6l 6t S4.5.I The Specified or Reasonable Duration of the Offer 62 54.5.2 The Effect of a Late Attempt to Accept Termination of the Offer Before Its Expiry by Lapse of Time 62

54.2.1 Introduction 54.2.2 \44-ren Are Offer and Acceptance 54.2.3 The Basic Model

Law Model

Issues

Presentedf

57 57 58 58

54.7 S4.8

The Nature and Effect ofAcceptance Qualified or Equivocal Acceptance S4.8.1 The General Rule That an Acceptance tr{ust Correspond to the Offer

54.6.1 Rejection 54.6.2 Counteroffer 54.6.3 The Offeror's Death or Mental Disabilitv 54.6.4 Revocation

62 62 62 63 64 65 65

xll

Contents

Silence or Inacrion as Acceptance $4.11 The Effective Date ofAcceptancc and thc ,,Mailbox" Ruic $4.12 Acceptance by Promise or Perfbrmance: Bilateral and Unilatcral Contracts 54.12.1 The Distinction in Perspective 54.12.2 The Offer for a Bilateral Contract 54.12.3 The Oflbr fbr a Unilateral Contract 54.1,2.4 When the Offer Does Not Clearly Prescribe Performance as the Exclusive Mode of Acceptancc 54.12.5 When the Offer Does Not Clearlv Prescribe Promise as the Exclusive Mode ofAcceptance 54.12.6 Acceptance by a Pcrfbrmance That (lannotBe Accomplished Instantly

S4.9 54.f 0

S4.8.2

The Legal Effect of a Non-Conforming Response The Mode of Acceptance

66 68 69 70 72 72 72 74 75 76 77 79 80

54.I2.7 Notice When an Offcr Is Accepted by Perfbrmar-rce 54.12.8 Reverse Unilateral Contracrs5.

Options and Firm Offers

55.l 55.2S5 55

3

4 55 5

Introductory Note on thc Application of the Doctrines of Consideration and Promissorl, Estoppel The Validity of Options ar Common Lau' and Consideration Doctrine Reliance on an Option Without Consideration: The Application of Promissorv Estoppel to Promises of Irrevocability Tlie Effect of an Option Finn Offers Under UCC 52.205

r0ll0t101

106 107

r08

Offer and Acceptance lJnder the UCC, and the "Battle of the Forms"

I19t19 \20 T2I

56.f 56.2 $6.356

4 5

General Principles of Offer and Acceptance in the UCC The Scope and Purpose of UCC 52.207 The Problem Tackled bv $2.207: The Common Law. "Mirror Image " and "Last Shot" Rules "Expression ofAcceptance" and "Confirmation,"

56

the Trvo Distinct Situations Covered bv Existing 52.207 Offer and Acceptance Under Existing 52.207 56.5.1 Existing $2.207 (l): Acceprance, Rejection,and

r24\25

Counteroffer

I25I27

56.5.2 56.5.3

in an Acceptancc Existing $2.207(3): The Effect of Mutual PerformanceWhen No Contracr Is Formed by the

Existing $2.207(2): The Treatment of Proposals

Parties'Writings l3lt3Z

56.656

7

Written Confirmation Follorving an Oral or Infbrmal Conrracr Under Existing 52.207(I) and (2) The 2003 Revision of S2.207

n4xlil

Contents

7.

Consideration

I 57 .2 57.3$7

L45145

57.4 S7.5

$7.6 57.7 Past Performance $7.8 False or Nominal Consideration S7.9 The Quality of a Promise as Consideration:

Consideration as the Basis of Contract Obligation The Essence and Scope of Consideration The Elements of Consideration: Detriment, Benefit, and Bargained-for Exchange 57.3.1 What Is a "Detriment"f 57.3.2 How Does Benefit to the Promisor Fit Inl S7.3.3 The Bargained-for Exchange The Purpose and Function of Consideration Doctrine 57.4.1 Formal Functions of Considerarion 57.4.2 The Substantive Basis for Consideration Deuiment and "Pre-Existing Duty" S7.5.1 The Basic Rule 57 .5.2 The Justification for the Rule Where the Duty Is Owed to the Promisor: Coerced Modifications 57.5.3 Pre-Existing Duty to a Third Party The Measurcment of Detriment: Adequacy of Consideration

r46I48148 150

I51 r52153

r54156 156

r57159 160 161 ).62

"Mutuality of

Obligation," Illusory, Conditional, and Alternative Promises S7.9.f Mutuality and Illusory Promises 57 .9 .2 Interpretation and the Use of Implied Terms to Cure an Apparently Illusory Promise 57.9.3 "Mutuality" in Requirements and Output Conrracts Under UCC 52.306 57.9.4 Conditional Promises S7.9.5 Promises ofAlternative Performances 8.

r641.64

165

r67 r69

t70

Promissory Estoppel as the Basis for Enforcing Promises 58.1 Introduction

19r

l9l

58.2

58.3$8.4

$8.5$8

6

The Nature of Promissory Estoppel as an Independent Basis for Relief or as a Consideration Substitute The Difference in Remedial Emphasis Berrveen Contract and Promissory Estoppel An Introduction to Equitable Estoppel and Its Link to Promissory Estoppel The Range of Promissory Estoppel: Gifts and Commercial Transactions The Elements of Promissory Estoppel 58.6.1 Introduction and Oven'iew of the Elements

192

t93193

r95

t97197 198

58.6.2 A Promise Must F{ave Been Made 58.6.3 The Promisor Should Reasonablv Har.e Expected

58.6.4

the Promise to Induce Action or Forbearance by the Promisee The Promise Must Flave Induced Justitiable Action or Forbearance by the Promisee

199 199

Contents

SB.79.

The Promise Is Binding if Injustice Can Be Avoided Onlv by Its Enforcement The Remedy When Promissory Estoppel Is Applied

58.6.5

200 201

Restitution: Unjust Enrichment and "Moral Obligation"

I 59 2 59.3 $9.4 59 5$9

Introduction Unjust Enrichment, the Basis for Restitution The Relationship Berween Unjust Enrichment and Contract The Meaning of "Quasi-Contract)' The Elements of Unjust Enrichment

22r221

22r222 226 227 228228

59.6

$9.5.1 Enrichment S9.5.2 When Is Enrichment 59.6.2 59.6.3 59.6.4 59.6.5

Unjustf

Measurement of Benefit 59.6.1 The Remedial Aim of Restitution

23r

23I231232ZJJ

59.7

Alternative Methods for Measuring Enrichment Market Value The Recipient's Ner Gain Choosing Among Market Value, Objective, or Subjective Net Gain "Moral Obligation": Restitution When a Promise Is Based on a Prior Benefit

234 236 236zJ/

59.7.1 59.7.2 59.7.359.7

IntroductionTerminology The Traditional Scope of "Moral Obligation" The Broad "Material Benefit" Rule

.4

237 239

10. Interpretation and Construction: Resolving Meaningand Dealing with lJncertainty in Agreements $10.f The Problem of Indefiniteness in an Agreement $10.2 The Appropriate Judicial Response to Problems of Indefiniteness S10.3 Diffbrent Forms of Indefiniteness Sl0.3.I lJnclear Terms: Vagueness and Ambiguiry S10.3.2 Omitted Terms

253253 254 255 256 257 257

$10.4 Acertaining the Meaning of an Agreement: Interpretation Distinguished from Construction S10.4.1 Inrroduction to the Distinction 510.4.2 The Distinction in Perspective $f 0.5 Who Ascertains Meaning: )udge or |uryf $10.6 Interpretation: Deriving Meaning from Evidence S10.6.1 The Meaning of "Interpreration,, S10.6.2 The Sources of Evidence Used in Interpretarion $f 0.7 General Rules of Interpreration (or Construction) S10.8 Gap Fillers-Implication by Law to Effectuate the Parties' Reasonable Intent

S10.3.3 Unresolved

Terms

258 258259 260

261

26I262 269 270xv

Contents

SI0.8.1S10.8.2 S10.8.3$f

Introduction Gap Fillers That Supply General Obligations Gap Fillers That Supply More Specific Rightsand Duties

270 272 273 274 274 275 276 276 277 277 277 279 280

0.9 Implication in Law Irrespective of the Intent of the Parties

SI0.9.t510.9.2

Supplementary Terms That Cannot Be Excludedby Agreement

Construed Terms That Can Be Excluded Only by Express or Specific Language 510.10 Terms Left for Future Determination S10.10.I Determination by an Objective Standard 51,0.10.2 Determination Within the Discretion of One of the Parties $10.10.3 Omission of the Term S10.f 0.4 Deliberate Deferral ofAgreement: "Agreement to Agree" or to Negotiate in Good Faith S10.1f Agreements to Record in Writing S10.12 Misunderstanding: Total Ambiguity

ll.

The Statute of FraudsSl I.l 511.2

30r30r303

IntroductionThe First Inquiry: Is the Contract of a Type that Falls Within the Statutef SII.2.f Contracts for the Sale of Land or an Interest in Land .2.2 Contracts That Cannot Be Performed Within a Year SIf Sf I.2.3 Contracts for the Sale of Goods The Second Inquiry: If the Statute Applies, Is the ContractReflected in a Writing That Satisfies Its Requirementsf The Third Inquiry: If the Statute Applies and Is Not Complied with, Does the Oral Contract Fall

304304305

511.3Slf .4

306

Within Any of Its

Sll.5 Slf .6

SII.4.I The Part Performance Exception 511.4.2 The Judicial Admission Exceprion Sf I.4.3 The Protection of Reliance: Estoppel and Promissory Estoppel The Impact of Non-Compliance with the Statute The Effect of the Statute of Frauds on Modifications of a Contract

Exceptionsl

310

310311

312515

3r4 327

L2. The Parol Evidence Rule $12.f The Relationship Between

the Parol Er-idence Rule.'tZ

and Interpretation A Basic Statement of the Rationale and Content 512.2 of the Rule What Is Parol Evidencef Sf2.3xvi

/

328 328

Contents

S12.4 A Closer Look

at the Purpose and Premise 330

of the Parol Evidence Rule S12.5 The Degree of Finality of the Writing: Total and Partial Integration Sf 2.6 The Process of Dealing with Parol Evidence 512.7 Determining the Question of Integration $12.8 Distinguishing Consistency from Contradiction $12.9 The Effect of the Rule on Evidence of Trade Usage, Course of Dealing, and Course of Performance SI2.f 0 Exceptions to the Parol Evidence Rule: Evidence to Establish Grounds for Avoidance or Invalidiq', or to Show a Condition Precedent 512.1 f The "Collateral Agreement" Rule S12.12 Restrictions on Oral Modification

33455D

JJ/

34r343

345 346 347

r3.

The Iudicial Regulation of Improper Bargaining and of Violations of Law and Public Policy

36r361 363 364 364 365 365 365

S13.1 Introduction 513.2 The Objective Test and the Viability of Apparent Asent S13.3 General Note on Remedy: Avoidance and Restitutionor Adjustment of the Contract 513.3.1 Avoidance and Restitution S13.3.2 Excision or Modification of the Offending Term $I3.3.3 The Availability of Damages 513.4 The Nature and Relationship of the Doctrines Regulating Bargaining Sf 3.5 Misrepresentation Generally: The Meaning of "Misrepresentation" and the Disrinction Between Fraudulent and Non-Fraudulent Misrepre se ntations S13.6 Fraudulent MisrepresentationSf

3.6.1 513.6.2 SI3.6.3513.6.4Sf

Introduction A False Representation of Fact Knowledge of Falsity and Intent to Inducethe Contract Deception of the Victim, ]ustifiable Inducement, and the Significance of theMisrepresented Fact

366 368 368 368

37r

371.

S13.7 SI3.8

Injury or Deriment and the Remedies of Rescission or Damages Negligent or Innocent MisrepresentationDuress

3.6.5

3/ Z 373 374

SI3.8.fS

S13.8.2I

The Nature of Duress The Threat

374375 377

3.8.3 Impropriety S13.8.4 Inducement Sf 3.8.5 Remedy

377 378xvii

Contents

S13.9Sf

Duress in the Modification of an Existing Contract

378380

513.10 Undue Influence3.l

l

Sl3.l2 Sl3.t3

Unconscionabiliw 513.11.1 The Rolc of Unconscionabiliqv $f 3.11.2 The Nature and Origins of Unconscionability Sf 3.ll.3 The Elements of Unconscionabiliq' S13.I1.4 Procedural Unconscionability Sl3.f f .5 Substanrivc lJnconscionabiiity S13.f f .6 The Remedv for Unconsciurabiliw S13.11.7 Thc Temptatiort to Overuse UnconscionabiliW Doctrine: A Final Note on Perspectivc Standard Forms and Contracts of Adhesion: The Roie of Unconscionability in Redressing a Por,vcr Imbalance Policing Contracts fbr Illegalir,v or Contravention of'Public Policv S13.13.1 lllegaliq,, Public Policl', and Freedorn of ContracrSf

382 382 3825d5

384385 387 388 388391

39I391 392

3.3 i 3. f 3 .4 $$13.f

3.13.2 Illegal Conrracrs

Contracts Contrarv to Public Policy The Effect of Contracts that Are Illegal or Contrary to Public Policv

393

L4. Incapacity $14.f The Scope and Focus of the Doctrines Discussedin This Chapter

423423 424

S14.2 Minority

514.3

The Basis and Natnre of a Minor's Contractual Incapacin' 424 5I4.2.2 Situations in \\4rich a Minor Mav Incur Legal Liabiliry 425 514.2.3 Restitution or Other Relief Following Disaffirmation 426 Mental Incapaciw 427 514.3.1 The Basis and Nature of Voidabiliry Due to Mental Incapacitv 427 428 S14.3.2 The Test for Mental Incapacin' 429 S14.3.3 Avoidance and Its Consequences 430 Sf 4.3.4 Incapacity Induced b], Alcohol or Drug Abuse

SI4.2.f

15. Mistake, Impracticability,$15.1 $15.2

and Frustration of purpose

44L441 443 443 445 447 449

515.3 515.4 515.5

The Comrnon Thcmes and the Ditlbrences Bet\\'cen Mistake, Lnpracticabilitv, and F'rustrarion ol Purpose Thc Meaning of Mistake and the Distincrion Bent,een Mutual and Unilateral Mistake S15.2.1 Tlic Legal Meaning of N,Iistirke: An Error of Fact 515.2.2 Mutual and Unilateral Mist;rke The Elements of Mutual Mistake The Elements of Unilateral MistakeRelief fbr

N{istakc

4il.

Contents

515.6

$I5.7

Impracticability 515.7.4 5.8 Frustration of Purpose SfRelief for

Mistake in Transcription: Reformation Impracticability of Performance Sf 5.7.t The Nature of Impracticability Doctrine, Contrasted with Mistake 5.7.2 The Early Form of the Docrrine: Lnpossibiliq' Sf of Performance 5.7.3 The Contemporary Doctrine of Impracticability Sf of Performance

452

454 454455 456 462 462

16.

Conditions and

Promises

485485 488 489 489 490 491 492 494 496 498500 500

St6.t516.2 516.3

The Structure of a Contract: An Introduction to Promisesand

The Meaning and Scope of "Uncertain Event" The Intent to Create a Condition: Express, Implied, and Construed Conditions

Conditions

S16.4 A Condition of One Party's Performance, as Distinct

516.3.1 Express Conditions 516.3.2 Conditions Implied in Fact 516.3.3 Constructive Conditions

516.5Sf

6.6 6.8

a Condition of the Contract as a S4role Pure Conditions and Promissory Conditions The Time Sequence: Conditions Precedent

from

516.7Sf

and Concurrent Conditions Conditions Precedent and Subsequent The Purpose of Using Conditions in a Contract 516.8.l The Use of a Condition as a Complete or Partial "Escape Clause" The Use of a Condition to Permit the S16.8.2 Exercise of Judgment by One of the Parties

orS 16.8

a

Third

.3

Party

502503

The Use of a Condition to Provide for Alternative

Performances

S16.9Sf 6.f

0

Sf 6.il

516.8.4 The Use of a Condition to Regulate the Sequence of Performance Strict or Substantial Compliance with a Condition: The Different Rules of Interpretation Governing Express and Construed Conditions Distinguishing a Condition from an Event that Sets the Time for Performance The Excuse of Conditions: Wrongful Prevention, Waiver or Estoppel, and Forfeiture S f 6. f f . f The Party Favored by the Condition Wrongfully Prevents or Hinders Its Fulfillment 6.l f .2 Estoppel or Waiver Sf

504

5ll5I3514

5145

Sf6.fI.3 Forfeiture

f6

5I9xlx

Contents

L7.

Breach and Repudiation

54L54L 543 543 543 546547 548 550

S17.1

The Scope of This Chapter: Non-Fulfillment

of a Promise

S\7.2S17.3

The Nature of Breach The Significance of a Breach: Material Breach or Substantial Performance, and Total or Partial Breach S17.3.1 Introduction to the Distinction SI7.3.2 \4/hat Makes a Breach Materialf

S17.3.3 S17.3.4Sf

Substantial Performance Relief for Substantial Performance and

SI7.4S17.5

Adjustment to Avoid Unfair Forfbiture Partial Breach and Cr.rre Thc Relationship Between the Mareriality of Breach

7.3.5

Si7.6

and thc Non-Fulfillmenr of a Condition Substantial Perfonnance Under UCC Article 2: Perfect Tender and Cure The Breaching Party's Recovery Following Material Breach and the Concept of Divisibility 517.6.1 The Forfeiture of Contractual Rights by a Partv

55r552555 555

Who Breaches

Materially

517.6.2 Restitution in Favor of a Party Who Has

Materially

Breached5S5

517.7

\\4ren the Conrracr Is Divisible A.nticipatory Repudiation SI7.7.l The Distinction Between Breach and Repudiation 5I7.7.2 The Purpose and Value of the Doctrine of Anticipatory Repudiation 517.7.3 The Response to a Repudiation 517.7.4 The Elements of Repudiation 517.7.5 The Dangers of Dealing with Possible Repudiation 5I7.7.6 Retraction of Repudiation Sl7 .7.7 Prospective Non-Performance and AssuranceSf

S17.6.3 The Enforcement Rights of a Material

Breacher 557 559 559 560 562 562 565

566 567569

7.7.8

of Performance Transactions Involving Installments

f

8.

Remedies for Breach of Contract S18.1 The Scope of this Chapter S18.2 The Basic Goal of Remedies for Breach: Enforcement of the Expectation Interest S18.2.1 The Narure of the Expecration Interest S18.2.2 An Introduction to the Means of Enfbrcement: The Primacy of Monetarv Compensation over Specific Relief Fundarnental Principles of Erpectation Relief SI8.2.3 S18.2.4 The Enforcement of a Damage As-arc1

593593

594594

595 597

S18.3

The Calculation of Expecration Damages

600 600

Contents

S18.4 An

Overview of Expectation Damages Under UCC Article 2

S18.4.1 518.4.2 $18.4.3

The Basic Principles The Seller's Remedies The Buyer's Remedies

609 609 609

610

S18.5 S18.6

The Distinction Between Direct and ConsequentialDamages

6t2The Nature and Goals of the Limitations

Limitations on Expectation Recovery

518.6.I

614 614615

S18.6.2 Foreseeability S18.6.3 Mitigation S18.6.4 Causation 518.6.5 Reasonable Certainty $18.6.6 Unfair Forfeiture

619 624625

S18.7 S18.8

SI8.9518.f

0

Reliance and Restitution as Alternatives to Expectation Reliance Damages SL8.8.I The Distinction Between Essential and Incidental Reliance S18.8.2 Essential Reliance Damages S18.8.3 Incidental Reliance Damages Restitutionary Damages Equitable Remedies: Specific Performance and Injunctions S18.10.1 Specific Performance

628 629 632 632 633 635 636 638638

518.f I

SI8.10.2 Injunctions Liquidated (Agreed) Damages

641642

Anticipated Harm-Evaluation of the Liquidated Damages as at the Time of Contracting 8.f f .2 Actual l{arm-Comparison Between Sf Anticipated and Actual Loss Incidental Damages, Attorney's Fees, and Interest 518.12 $18.12.1 Interest 518.12.2 Incidental Damages

SI8.1I.I

644 646 647 647 648 648 649 649 650

S18.f 3 Non-Economic Damages and Punitives SI8.I3.I Non-Economic Damages

SI8.12.3 Attorney's

Fees

Si8.13.2 Punitive Damages

r9.

Assignment, Delegation, and Third-Party Beneficiaries S19.1 Introduction

687687

S19.2 Third-Party Beneficiaries S19.2.1 The DistinctionBeneficiaries

688Betrveen Intended and Incidental

688 690692xxi

519.2.2 TheSf 9.2.3

Essence of Intended Beneficiary Status:

The Right of Independent Enforcement The Intent to Confer an Independent Right of Enforcement

Contents

519.3

The Relevance of the Relationship Berween the Promisee and the Beneficiary: Creditor and Donee Beneficiaries Vesting of the Benefit and the Parties, power S19.2.5 to Modify or Terminate It S19.2.6 The Promisee's Parallel Rights of Enforcement Against the Promisor S\9.2.7 The Promisor's Ability to Raise Defenses Against the Beneficiary 519.2.8 The Beneficiary's Rights Against the Promisee in the Event of the Promisor's Non-Performance $19.2.9 Citizens' Claims as Intended Beneficiaries of Government Contracts Assignrnent and Delegation S19.3.1 The Basic Concept and Terminology 519.3.2 The Nature of an Assignment 519.3.3 Restrictions on Assignment Sf9.3.4 The Effect of Assignment Sf 9.3.5 Defenses Against the Assignee S19.3.6 Delegation S19.3.7 "Assignment" of the Contract: The Assignment of Rights and Delegation of Duties 519.3.8 Grounds for Insecurity Following Assignment or DelegationSfGlossoyy

9.2.4

693 695 696697

697 698699 699

701703

704706

707 709

7r0729751

Index

xxl1

PrefnceI expect that most readers of this book will be first-year law students who will use it as a resource to assist in learning and understanding the law of contracts-to prepare for class, to unravel and supplement class materials and discussion, and to review and prepare for exams. In deciding on the scope, depth, and approach of the book's coverage) I have aimed at their needs. My focus has been on what is likely to be most appropriate and helpful to a person who approaches contract law as a novice and is trying to assimilate and understand not only the details, but also the larger issues ofthis complex subject. In revising this book for its third edition, I have renewed my efforts to provide an accessible and helpful treatment of the law of contracts. I have not changed the focus or approach ofthe prior editions, nor the extent or nature of its coverage. Instead, I have concentrated on matters of detail, altering text and diagrams only to the extent necessary to update the materials and to add clarity, adding fresh examples and explanations and cases, and changing or remo'i'ing those original examples and explanations that called for refinement.

The Treatment of tbe Sale of Good.s in tbe Thiyd, Ed,ition: The Revisions of UCC Atnticles I and. 2Article 2 of the Uniform Commercial Code (UCC), which governs contracts for the sale of goods, is an important part of the contracts course. Since the second edition of this book, there have been two significant changes to the UCC as it relates to sales of goods. Article I was revised a short while ago, andArticle 2 is in the final stages of revision. (The process of revision is described in Section 2.7.I). Although the revisions of Article I have not been widely enacted at the time of writing this third edition, and the revisions of Article 2 have not yet become law in any state, that process is already under way. This edition continues to base its discussion of sales of goods on the current provisions ofArticles I and 2, but also explains, throughout the book, what changes have been made in the revisions of Articles 1 and 2. These explanations are integrated into the text, usually in the form of explanatoryfootnotes.

xxiii

Preface

Tloe Style,

Apltroach, nnd. Pwrpose 0f Tllis Booh

Like many other lau'school courses, contract larv is qpically taught bv mcans of discussing and debating cases and odrer materials that have been assigned for reading in advance of the class session. A terrible flood of infbrmation is unleashed by this process, and few students can assimilate and appreciate it all bv simply studying the casebook and listening in class. Supplementarv read-

ing is indispensable to understanding and digesting r,vhat is covered in class. To be most useful, such a supplementary text should be u,ritten u'ith an awareness of the cor.erage, depth, and scope of most contracts courses, and rvith a sense of r'r'hat students are likelv to need b,v u'av of additional reading. In n'riting this book, I have tried to keep that goal in mind. Rel,ving on myorvn experience as a teacher of contract lar,v, and on the content of casebooks, I have tried to maintain the discussion in this book at the level that rnav be expected in a qpical contracts class. To achier.e this purpose, it is not enough to outline legal rules or to state doctrine. Although it is surel.v one of the aims of a contracts class to teach tire current rules of lar.r'got'erning contracts, a knotvledge of current legal rules is onlv one of the components of an adequate understar-rding of contract law. Students are also expected to le arn the derivation and det elopment of the

rules, their historical and contemporary rationale, the public policies that thcv are mcant to serve, and the rvay in r,vhich ther. coalesce to fbrm a cohcrent bod,v of lar,v. Because neither rulcs nor their underlying policies arc static, and are often Llnsettled and tl.re subjcct of contror.ersy, students must also be exposed to the uncertainties of the lau.and must learn to dcvelop thc abiliry to evaluatc criticalll, and to fbrm judgmenrs. In addition, like scr manv other courses in lalv school, a contracts course serves the goal ofexposing students

to broader

issues

of legal process, legal analvsis, dispute

resolution, and lavyering skills such as drafting, advising, and er.'ali,rating the strength of a case. This book attempts to encompass this range oflearning.

Although this book contains uruch tcxtual discr.rssion of the rules andpolicies of contract lau'and of the themes mcntioned above. it is not a traditional treatisc. Its purpose is not ro pro'ide a highlv detailed and comprehen, sive exposition of the lau'of contracts, q'irh crhaustir,e citation of authority. Its principal aim is the clear and accessible erplanarion of the fundamentals of the larv, u,ith a particular concentration on *'har infbrmation is likelv to be helpful for a student u'ho approaches the sr-rbjecr fbr the first time. For this reason, it tries to articulate assumptior-rs .rnc1 to e\press doctrine and polic_v accurately, r'r.hile avoiding finicky distinctions and qualifications that are more Iikeh'to conhrse than to elucidate. As part of the effort to clarifi' Iesal principlcs and tl-re relatio'ships benveen contracting parties, I have used diagranrs errensivehr I believe that visr.ral re preserltations can be a great help in clenn ing and reinforcir-rg verbalexpositior.r.

Preface

Tbe Use of Exnm,ples and. Explorontionsis difficult to learn tie law by studying abstract principle. Concrete examples are needed to place doctrine in context and to show hor,v it operates to affect

It

behavior and to resolve disputes. Examples are therefore used extensively in the text itself to illustrate concepts under discussion. In addition, a disrinctive feature of this book is the use of "examples and explanations," which take up a substantial part of each chapter. Their purpose is nor only to provide further illustration and wider discussion of the subject marter of the text, but also to give students a means of self-testing on the topics covered. The examples pose questions based on hypothetical facts, and the explanations analyze and offer a resolution of the problems. As a general rule, the examples and explanations do more than simply provide a means of reviewing what has been stated in the text. To resolve them adequately, one firust use reasoned argument and must thoughtfully apply the principles set out in the text. You will therefore benefit the most from them if you do not merely read through them, but rather rake the time to formulate your own answer to an example before reading its explanation. This will allow you to test ,vour knowledge and understanding of the material, to practice identifying issues, and to develop skills in composing and organizing answers to the kind of questions commonly found in exams.

The Orgnnizntion of Tltis Book to Towr Contrncts Cowrse

in Relation

There are a number of different ways to organize a contracts course, and the casebooks reflect quite a diverse approach to the sequence in r.vhich material may be covered in class. It is therefore quite possible that your contracts course will not follow the same sequence as the chapters in this book. (For example, some courses begin with remedies for breach of contract, rvhich is not covered here until Chapter 18, and some begin with consideration doctrine, which is not reached until Chapter 7.) This book has been written with an eye on the divergent ways in which the topics of contract law are presented in class, so a student should have no trouble reading chapters out of order. To use this book in the same sequence as your contracts course, simply refer to the table of contents or index to find the part of the book that deals with the subject under discussion in class. Cross-references are included in each chapter to help give you an idea of where to find allied topics or further reference to the subject under discussion.

A Recorwnenda.tion aboatnnd the Glossaryyou read Chapters

Chapters 7 through 3

Irrespective of the organization of your class, I do recommend, hou'ever, that I,2,and 3 as soon as possible. These short chapters are

Preface

as an introduction to some of the root principles of contract law and legal analvsis. They contain basic information and guidance on core concepts,

intended

terminology, and case analysis that may not be articulated fully or at all in your class materials or discussion. A litde time spent in working through these chapters at the beginning of the semester may save you needless puzzlement and confusion. Also, 1,ou should refer to the glossary at the end of the book for short definitions of terms that may be unfamiliar to you.

The Use and

Citntion

ofas

Awthority in This BoohIhave kept citation

To make this book

readable and accessible as possible,

of authority to a minimum. You will find none of the detailed footnotes and citations that you'ivould expect in a treatise or law revier,v article. Flolvever, some sources of authority are such an integral part of the process of learning contract law that to omit them would impede understanding. These sources are referred to constantly throughout the book. They are:

l

The RrsrarrnE'Nr (SrcoNn) or CoNrnncrs (referred to in the book inabbreviated form as Restatement Second), a compendious and high\,

2.J.

influential formulation of the rules of contract law. Article 2 of the Uniform Commercial Code (UCC), a sratute governing contracts for the sale of goods. Court opinions, a vital solrrce of larv in our system. Although a case (or string of cases) could be cited for (and often against) almost every proposition in this book, I have been verv selective in using caselaur Inthe text itself, I refer only to a handful of cases that have achieved monumental status in the latv of contracts. I cite and discuss cases regularll, but selectively in the explanations. These cases are not used simply to support conclusions, but have been chosen either because they are good

illustrations of the issue under discussion or because they provide an interesting contrast to the facts of the problem. Because I feel that it is helpftil for students to be familiar u'ith at least some of the cases used in the explanations, I have preferred cases that are included in casebooks, and especially those that are important or popular enough to be found in several casebooks. You should therefbre not be surprised to find that you have studied a number of the cases discussed in this book. Brian A. BlwrnJonuart, 2004

xxvl

Acknowled,grnentsI owe thanks to many people who have helped me with successive editions of this book. I have received support for the original edition and the revisions through summer research grants from Lewis & Clark Law School. I have had able research assistance from a number of Lewis & Clark larv students for each edition ofthis book. I have also benefitted from the guidance and careful editorial work of several members of the staff ofAspen Publishers. Finally, I am grateful to the many students and professors who have used this book and who have offered comments and suggestions.

xxvtl

CONTRACTSExamples and Explanations

IMenning of "Contrnctt' nnd the Bnsic Anributes of the Contrnctunl RelntionshipThesr.tIntroductionSome contracts courses may begin with material that provides students u'ith background information on the law of contracts. Others mav launch immediately into the study of substantive principles of contract law. Whatever form your contracts course takes, you may find it helpful to read the first three chapters of this book right at the beginning of your course. They introduce and articulate basic concepts about contract larv and our legal system that you will lind very helpful as you begin your studies. Many of the principles and concepts introduced in these three initial chapters will appear fiequentlv throughout the book, so this will not be the only time that you read about them. Flowever, this first encounter r,vill set the stage for your studies and will enable you to begin to understand legal analysis and identill'themes that run through contract law. You will find immediately that the discussion goes well beyond the exposition of rules of law. Even if one assllmes that it is possible to articulate a clear and settled body of rules (an assumption that you will quickly find to be false), the rules are jusr one component of what

SI.2

Contracts: Examples and Explanations

to be studied in learning the law. Rules do not exist in a vacuum, but must be understood in light of historical perspective, public policy, legalneeds

theory, and the legal process. We begin our introductory survey in this chapter by defining what is meant by a contract. This discussion gives you a brief overview of a number of the central themes of contract law and it broadly sketches the contractual relationship. Chapter 2 describes some of the fundamental concepts and distinctions that are essential to a comprehension of contract law in the context of our legal system as a whole. It explains the importance of historical perspective and legal theory, describes the nature of our common law system, and introduces the crucial distinction between judge-made law and statutory law, with particular reference to the statute that pervades contract lau', Article 2 of the Uniform Commercial Code. Chapter 3 concentrates on

the nature and composition of judicial opinions and on the method of analyzing and gleaning legal rules from them. Its primary purpose is to explain the doctrine of precedent as it applies in contract law and in our legal system as a rvhole. The Examples in Chapter 3 offer a specimen opinion, constructed to provide an exercise in reading, understanding, and applying the precedent of a judicial decision. Because contract law is commonly taught through the study of court decisions, you will become familiar with the methodology of case analysis as you use it throughout the contracts course. However, Chapter 3 provides an early opportunity for you to focus on and to begin to understand how to approach caselaw and case analysis.

Sl.2

The Legal Meaning of "Contract"By the time they reach law school, most people have a good idea of what a contract is. Nevertheless, lay usage of a legal term such as "contract" is likely to be less exacting than the legal definition, and so we must begin by defining and describing the elements of contract. It is not easy to provide a simple and accurate definition of a legal relationship as complex as contract) and the following definition is necessarily an oversimplification. F{owever, it serves as a starting point for discussion and allows us to focus on the crucial elements of the relationship. A contract may be defined as an exchange relationship created by oral or written agreement between two or more persons, containing at least one promise, and recognized in law as enforceable. This definition reflectsseveral essential elements:

1. 2. 3. 4.

An oral or written agreement between two or more persons An exchange relationship

At least one promiseEnforceability

The Meaning of "Contract"

sr.2.lbe

The central concept of cach of these elerncnts is introduced be returned to in greater detail later in tl-re book.

lovv and r.vill

51.2,1 An Oral

oy Written Agreeruent Between Two or More Persons

Probablv the nrost importar-rt attribute of contract is that tt is a rrolutttary, consenswal relationship. There need only be two parties to a contract, but there is no limit on the number of parties that could be involved in the transaction. A contract is created onll' [s.*m. the parties, acting rvith free u,.ill and intent to be bound, reach agreement on the essential terms of their relationship. It is the element of agreement that distinguishes contractual obli-

gation from many other kinds of legal duty (such as rhe obiigation to compensate for negligent injury or to pay taxes) that arise bv operation of law from some act or event, rvithout the need lbr assent. Although voluntary agreement berween the parties is essential ro rhe creation of contract, "agreement" in the legal sense is subject to an important qualification. The law does not require that the parties reach true agreement, in a subjective sense-that their minds are in accord. It is enough that the rvords and conduct ofa party, evaluated on an objective standard, u-ould lead the other party reasonably to understand that agreemenr u'as reached. (The reason for using this objective standard is explained in sections l.-1.3 and 4.1.) Also, volition should not be taken too literalh'. \\t assunre that a party may not be acting with completely free rvill in entering inro a contracr. He may feel some compulsion to make the contract as a result oi n-r.rrker forces, the persuasiveness of the other party, necessin,, or the lack ola more attracti\re alternative. Hor,vever, volition does at least mcan that a partrcannot be improperly coerccd or tricked into making a contract) and the las' has principles and standards (covered in Chapters 13 and 14) to distinguish r.vhcn pressure to make a contract is no longer acceptable, and has so undermined the party's will as to defeat his volition. Note that our definition refers to an oral or written agreement. In common terminology, people often use the word "contract" to refer to a rvritten document that records the parties' agreement. Flolever, it is important to understand that "contract" describes a relationship that mav not be recorded in a document. As a general rule, a contract docs not have to be in r.r.riting to be a binding and enforceable legal obligation. (Under a legal rule called the statute of frauds, thcre are some types of contract that rnust be recorded in a signed writir.rg to be enforceable. This is discr-rssed in Chapter 1L. Holvever, most contracts are not covered by the statute of fi'auds, and are binding as soon as oral agreement has been reached.) Of course, it rnav be harder to prove an oral contract than one that has been recordecl in u'riting, but do not confuse problems of proof with the more firndarnental question of enfbrceability.

Sf

.2.2


51.2.2 An Exchnnge RelationshipAs mentioned earlier, a contract is a relationshep. By entering into the agreement, the parties bind themselves to each other for the common purpose of the

contract. Some contractual relationships last only a short time and require minimal interaction. For example) a contract for a haircut invoh'es a fairly quick performance by the hairdresser, followed by the fulfillment of the customer's payment obligation. Other contractual relationships, such as leases or long-term employment or supply contracts, could span many years and require constant dealings between the parties, regulated by detailed provisions in the agreement. The essential purpose of the contract relationship is exchange. The trade in property, services, and intangible rights is fundamental to our economy and society, and the primary function of contract is to facilitate and regulate these exchanges. The concept of exchange (discussed more fully in Chapter 7) means that the very essence of contract is a reciprocalrelationship in which each party gives up something to get something. These "somethings" are as varied as one could imagine: The owner of a car could sell it for cash or barter it for other goods; a celebrity's butler may promise to reveal his employer's dark secrets to a tabloid for cold hard cash; an inventor may trade the rights to her idea for a promise by a manufacturer to develop the idea for mutual profit; a fond uncle may promise his nephew money in exchange for an undertaking not to drink, smoke, and gamble. These situations vary greatly. Some involve tangible things, others intangible rights. Some of the promises have economic value, others do not. Yet their basic format is the same-a bargain has been reached leading to a reciprocal exchange for the betterment (real or perceived) of both parties. As discussed in Chapters 7,8, and 9, the modern concept of contract embraces some transactions in which exchange in the traditional sense is tenuous. Nevertheless, exchange continues to be the principal motivation for contracting and the guiding rationale for the rules of contract law.

51.2.3 ProrniseBecause a contract is a relationship, the law ofcontracts is not concerned with passing encounters that do not create relationships. Instantaneous exchanges, although they are consensual and do involve a trade, do not constitute contracts. For a contract to exist, there must be a promise-that is, some commitment for the future, some assumption of liability lasting beyond the instant of agreement. This is because if neither party makes a commitment, there is nothing to enforce and no need for the law of contracts to be concerned with the exchange.

The concept of promise or commitment needs explanation and refinement. A promise is an undertaking to act or refrain from acting in a


s1.2.3

specilied way at some future time. This promise may be made in clear and express words, or it could be implied-that is, inferred from conduct or from the circumstances of the transaction. Furthermore, as the definition indicates, only one promise needs to be made for a contract to come into existence. It may sound a little odd to say this, having just characterized contract as a reciprocal relationship. FIowever, this does not detract fiom the principle of reciprocity because one party may exchange an instantaneous performance (and hence make no promise) for a promise of future action by the other. \Arhere, at the instant of contracting, promises remain outstanding on both sides, the contract is called bilateral. Where, at the instant of conuacting, one party has ftilly performed and all that remains is a promise by the other, the contract is called unilateral. (This distinction is explored in section 4.12.) A few examples may make this abstract concept more concrete:

An Instantaneous Bxchange: No ContractWhere an exchange is entirely instantaneous, and neither partv makes anv promise to the other, their exchange is not regarded as a contract. For erample, say that Eddy M. Mersion was sitting on the shore next to his kavak. Rockl' Rapids approached him, took $400 in cash out of his pocket and ot-tered to buv the kayak fiom Eddy "as is" (that is, without any warrantv tiom Eddv as to its condition or quality). Eddy accepted the cash, and Rockv climbed inro the kayak and paddled off. At this point, there is a simple, instantir.ncous exchange. Rocky has paid cash and Eddy has delivered the kavak to him without any promise as to its quality or any other ftiture commitment. L,ach party has fully performed, and no promise has been made . The transaction is not a contract. In contract law, it is described as an executed exchange.

b.

A Promissory Bxchange: Bilateral ContractChange the facts in Illustration l: Rocky said to Eddy, 'I will buy that kayak lrom you provided that it is watertight. I will give you a check for $400 immediately." Eddy replied, "It is watertight. I accept. Give me the check and take the kayak." Even though the parties immediately exchange the check and kayak, the delivery does not end their duty of performance. By

sr.2.3


giving his undertaking Eddy has made a promise concerning the kayak's condition, which will allow recourse if it does not meet the agreed standard. Similarly, Rocky's check is not an immediate payment, but is a commitment that his bank will pay the money upon presentation of the check. Thus, promises exist on both sides after the moment of agreement, and a bilateral contract exists. This is called an executory exchange.

c.

A Promissory Exchange by Implication: Bilateral ContractIn Illustration 2 Eddy made an express promise that the kayak was watertight. F{owever, it is not always necessary for promises to be stated in express terms. Often, the circumstances of the transaction, the conventions of the marketplace, or the policy of the law imply a promise even in the absence of promissory language in the agreement. Therefore, if the law or the conventions of the market impose on the seller the obligation to warrant the fitness of r,vhat he sells, a simple exchange, without any express words relating to the kayak's condition, will give rise to an implied promise that the kayak is watertight.

d.

A Promise for Performance: IJnilateral ContractFinally, say that Rocky offered to buy the kayak for $400 and tendered his check. Eddy agreed to sell it "as is," making it clear that he made no promise about its condition or quality. Rocky agreed, handed the check to Eddy, and paddled away. l{ere Eddy's performance is instanraneous, but Rocky has made a promise of future performance (payment on presentation of the check). When, at the point of contract formation, only one party has a promise outstanding, the contract is called unilateral.l It is nevertheless a contract because only one promise is needed to classify the transaction as a contract rather than an instantaneous exchange.

l.

As noted abor.e, this concepr is discussed more fuilv in section 4.12


s

1.2.4

checkpromise of paymer.rt

- - -

pi.orntse outstil.nd.tng

To sum up, for a contract to exist, there must be at least one promise outstanding upon execution of the agreement. This promise couid be stated expressly or it could arise by implication. As vou may have realized in considering the above examples, in modern society the purely instantaneous exchange is a rarity. Even when it seems that an exchange is instantaneous, such as a simple cash purchase at a store, there is a strong possibility that an implied promise (such as a r'varranty) will be found on at least one side. Of course, many of the most important exchanges are, b), their nature, incapable of being instantane ous, simply because the performance of at least oneof the parties cannot be completed immediately.

51.2.4 l-egal Recognition of Enforcea.bilitttThe previous section made the point that an agreement rvithout a promise is not a contract. FIowever, when a promise does exist, so that contract comes into being, it is the fundamental role of contract law to ensure drat the promrse is upheld. The importance of this task cannot be stressed too stronglr'. In a

world in which promises were not taken seriousl,v, only

instantaneous exchanges could occur. There could be no building, manufacturing, stable emplovment, or frequent flyer programs. The resulting rvasteland would be far $'orse than anv porffayed in the nastiest post-apocalyptic science fiction movie. Contracting is often described as an acr of private lawmaking by which persons create a kind ofpersonalized "statute" to govern their relationship. One can only envisage contract as private legislation if it has the attribute ofany law-recognition and enforcement through the compulsive power of the state, acting through its courts. It is therefore a hallmark of contract that it creates law binding on the parties and confers on them rights and obligations cognizable in law. Of course, this does not mean that a party has to resort to the compulsive power of the law in every contractual relationship. In most cases, parties to contracts perform because they want to. They voluntarily entered the transaction because they desired its benefits, and nothing has happened to change this. Even in cases rvhen the exchange has become less desirable or

sr.2.4

Contracts: Examples and Erplanadons

more burdensome, a parr\-mav still make the effbrt to perform as promised out of a sense of moral dutv or because it values its reputation for reliability or the goodu.ill of the other partv. Sometimes the power of legal enforcement has an indirect influence in deterring breach, because a reluctant party knows that failure of performance could result in litigation. F{owever, in those cases in which the promise is broken, the power of legal enforcement enables the disappointed party to sue. In the first instance, the role ofthe court is to adjudicate any questions concerning the existence ofa valid contract and to resolve any disputes over its terms and their breach. Once it isestablished that a contract was entered into and breached, the court will enlbrce it by giving a remedy for the breach. This leads us ro consider a vital and pervasive issue in contract law-the determination of what remedy is available to the victim of a breach. The most obvious form of remedy may seem to be for the court to force the breacher to do what was promised. For example, say that Eddy did not give immediate possession of the kavak to Rocky but promised to deliver it the next day in exchange for $400 cash. The next day, when Rocky arrived with the $400 in hand, Eddy said he had changed his mind and refused to go through with the sale. This is a breach of the contract. If Rocky sued Eddy, one might assume that the primary mode of legal enforcement of the contract would be a court order compelling Eddy to hand over the kayak against payment of the $400.

Flowever, it is a firm principle of contract law (for reasons explaine d in Chapter 18) that the primary remedy for breach of contract is not such specific enforcement of the promise. An order compelling performance is available in only exceptional situations. Rather, it is a judgment awarding compensatory damages to the disappointed parry. That is, the disappointed party mlrst prove that the breach caused financial loss, and the court will award judgment against the breacher to compensate for that financial loss. Thus, Rocky u'ould have to show that he had lost money as a result of the breach. For example, he may testifv that following Eddy's refusal to deliver, he sought to buy another kayak of a similar rvpe and condition, and could not find one of equivalent quality for less than $450. Rocky's damages are $50. The court will award him a money judgment in this amount. If Eddy fails to pay the judgment voluntarily, Rockv r.r'ill attempt ro recover the debt through aprocess called execution. IJnder this procedure) a court official (usually called a sheriff) is commanded by the court (in a document called a writ) to try to seize property of Eddy's and to sell it at public aucrion to raise the money

needed to satisfi/ the judgment. If the sheriff is unable to find any property, the judgment debt remains unsarisfied. There is little further rhat can be done.

The purpose of sketching this enfbrcemenr process here is to make the point that legal enforcemenr seldom entails judicial compulsion of performance. In most cases, the plaintiff's r-icton-in court is nothing more than a determination that the defendant o*'es him a stated amount of money. This does not end the marter because the plainrifTno*'has to collect the debt. If


st.4

the breacher has no means of paying the judgment, the process of trving to enfbrce the contract could in'n'olve additional cost and inconvenience, and still end in frustration. This is an important perspective to take u'ith ),ou as .vou begin to study the lau'clf contracts.

Sf .3 Contract as a General Body of Law Applicable to Diverse Transactionsa wide range of r.erv different transactions-lcascs and saies of real and personal propergv, cmplol,rnent, credit, insurance, construc-

Contract law covers

tion, and so ol1. These many and diverse types of contract each have their own attributes and concerns, so it stands to reason that there cannot be a single and unifbrm body of legal rules that applies to all of them. With each type ofcontract, special rules develop to respond to distinct features ofthe transaction or particular needs or issues in the commcrcial contcxt. For example, a whole body of lar,r' has developed to protect consumers u.ho purchase goods or seek credit and is not applicable when the purchaser or borror,ver is a commercial entity; employment contracts are subject to rules designed to protect the rights of workers; a construction or procllrt:ment contract lvith the government is subject to regulations not fbund clscrvhere; insurance and banking contracts are also controlled bv spccific regulatious. This recital cor-rld continue for son're length. Although cach oltirese cate gories of contract has its specialized rules, they all share common grcluntl ancl are based on similar general principles that are encompassed u'ithir-r a gcncr.rl lau' of contracts. The larv of contracts is the comrlon core of rules and principies applicable to all contracts and it govcrns except to the extent that it has bccn |ariecl by laws specific to the transaction. This specific law mav have been creatcd bv statutc or by judicial decisior.r, or both. You rviil therefore find, as yor'r rcad through this book and your class materials, that all kinds of dif-ferent contracts are considered. In most cascs, because we are considering this common core of rules and principles, the tvpe of contract involved is not of

overrvhelming significance. The larv discussed is usuallv relevant to other tVpes of contract. llowever, this is not alr.vays so, and one must ahvays be on the lookout for variations, whether statutory or judge-made, based upon the particular features ofthe contract in issue.

SI.4

The Fundamental Policies and Values of Contract LawAlthough contract larv is not usually at the center of political debate and contracts profbssors are almost never invited to discuss their lvork on talk

Sl.4.f


it would be a mistake to think of it as purely technical and bloodless. There are a number of strongly held ideological values at the bottom ofshows,

contract law and its rules are motivated by conscious and deliberate public policy. Some aspects of the ideology and policy of contract law have already been intimated in section I.2 and they will be raised throughout the book. An understanding of the law's basic goals and assumptions is essential to a full appreciation of legal rules and so it is useful to identily and articulate significant policy themes from the outset. This section introduces them briefly.

51.4.1

Freed.orn of

Contract

The consensual and voluntary nature of contract was stressed in section 1.3. The power to enter contracts and to formulate the terms of the contractual relationship is regarded in our legal system as an exercise of individual autonomy-an integral part of personal liberty. The converse is also true: Because contracting is an exercise of personal liberty, no one may be bound in contract in the absence of that person's assent. In the united state s, the power ofcontracting has been elevated to a status higher than that accorded it under English common law because it is guaranteed by the constitution. (The due process clause, u.S. const. amends. v and XrV, and the conrracts clause, u.s. const. art. 1 $10, provide the constitutional safeguards of liberty of contract.) Liberty of contract is augmented by another right protected bv the due process clause-the right to hold and deal with properry. contracts involve the exchange of economic values, whether in the form of tangible properry, services, or intangible rights. These are property rights and the porver to use or dispose of them, or to choose not to do so necessarily brings into play their constitutional protection. Furthermore, rvhere the contract involves the rendition of personal services by an individual, that person,s right to dispose of her labor or to withhold ir unless she wishes to dispose of it is

protected by the prohibition on involuntary servitude in the Thirteenth Amendment. The ideological basis of contract freedom is reinforced bv the pragrnatic consid.erntion that economic intercourse is most efficient rvhen its participants desire it and are free to bargain with each other to reach mutually desirable terms.

while freedom of contract is a fundamental value, the exercise of this freedom by one person cannot be untrammelled. Like other liberties, it is delimited by corresponding rights held by other persons, ancl bv the statets legitimate interest in appropriate regulation. It stands to reason that the absolute exercise of contract freedom by a clominant party will diminish or defeat the exercise of similar freedom by the weaker party. To avoid this happening, the courts or Iegislature must pro'ide rules that protect the weaker party from being overwhelmed by the free exercise of l0


sr.4.2

contractual power bv the stronger. Therefbre, for example, a large insurance companv or an employer may have its freedom of action curtailed so that it cannot impose harsh or one-sided terms on an insured or an employee. The problem of dealing with the imbalance of contract power and other aspects of unfair imposition is dealt with fully in Chapter 13. Quite apart from the problem of ensuring a proper balance in the contractllal fteedom of the parties, the state may have an important interest

in reaching an accommodation between freedom of contract and otherfundamental values. For example, policies prohibiting criminal enterprise, protecting the environment) or forbidding anticompetitive behavior may require restrictions on the right to make certain contracts or on including certain terms in them. Once again, these issues will be discussed in detail later. For the pres-ent it is enough to note that while contract liberty is an important value, it is subject to a variety of limitations that are justified either by the protection of corresponding rights in other persons or by the demands of other public interests.

51.4.2

Tbe

Moyality of Prornise-Pacta Sunt Servandapa.cta. sunt seryanda (agreements

The Latin maxim

must be kept) comes from Canon law.2 It reflects a longstanding moral dimension of contracr in our law-that there is an ethical as well as a legal obligation to keep one's contractual promises. Contracts should be honored not onh'because reliability is necessary to fbster economic interaction, as discussed in section 1.4.3, but simply because it is morallywrong to break them. The role that this basic moral value plays in contract law is subtle. You will see later rhat courts and scholars often underplay the moral aspect of keeping promises and deal with breach of contract in purely economic terms. It is often suggested, for example, that breach of contract is an acceptable economic choice, provided that the breacher pays monetarv compensation. Nevertheless, it rvould be a mistake to assume that society or courts are indifferent to the ethical implications of dishonoring contracts. Courts do react with express disfhvor to deliberate breaches, particularly if motivated by bad faith,and rules of law have developed to cater at least to the more extreme situations.

Even rvhere no moral judgment is articulated, the choice of applicable rules sometimes reflects disapprobation of wrongful conduct. Outside of the realm

2. Canon law is a system of ecclesiastical law developed from Roman law by the medieval Catholic church. Although it is not part of the English common law, itexisted as a parallel system in England, governing marrers within the church's jurisdiction, until the English church broke away from Rome. As a result of their long period of co-existence , manv principles of Canon law inf'luenced the common law.

ll

sr.4.3

Contracts: Examplcs and Explanations

of litigation, social pressure ancl business relationships frequendv provide disincentives to treat contractuai undertakings in a cavalier fashion.

51.4.3 Accowntability for

Cond.uct and. Reliance

The objective test of assent rvas introduced in scction L2.In determining r'r'hether or not a person agreed to a contract or specific contractual terms) the person's manif-ested conduct b,v u'ords or action is given more u'cight than her testimonv about her actual intentions. Ar-r emphasis on tlle objec-

tive a;rpearance of assent is important not onl,v because of evidentiary considerations (that is, it is easier to prove because it is observable) but alsclbecause one of the fundamental values of contract lar,v is that a person should

be held accountable for rvords or acts reasonablrr manifesting intent to contract, and that the other parfir) acting reasonablv. should be cntitled to relr,. sn that manifbstation of assent. (Note that the perception of tl-re conduct b,v the other party is also subject to an objective test of reasonableness. One rvho places an unreasonable and idiosyncratic inrerpretation on conduct has no right to expect protection ofthat unreasonable reliance.) Thus, the principles of accountabilifl' and reliance qualifv the value of voluntariness-r.olition is not measured bv the true and actual state of mind of a partv. but bv that state of mind as made apparent to the outside.w'orld. Even if a person does not reallv r.vish to enter a contract, if she behaves as if tl-recontract is desired and intended, that conduct is binding, and evidence ofan1.

mental reservation is likely to be disregarded. (Of course, this rule is not absolute. As lve see later, u'here the manifestation of assent is induced b,v trickerl', coercion, or other illegitimate mealls, there are grounds fbr going behind it.) The value of protecting reasonable reliance is pervasive in contract lan'. It has both a specific and a general aspect. It is specific in that a persorl rvho has entered a contract has the right to relv on tl-re undertakings that have been given. If they are breached, the larv rnust enfbrce them. It is general because r'vhen parties in numerous specific situations fbel secure in relving on promises, the expectation arises in societt. as a r.vhole that contracts can be reliedon, and that legal recourse is available fbr breach. This general sense of reliance, sometimes called ttsecurity of contracts" or ttsecurity of transactionsr" is indispensable to economic interacrion. If it did not exist, there would be little incentive to make contracts, r,vhich r.vould not be u'orth the paper on n'hichtl-re\t are

written.

In summarv. accountabilitv fbr conduct that induces reasonable reliance is a r''ital goal of contract larv. This is tempered br.the consideration that in somernanilbsted conduct is induced br.illegitirnate rtealls) and one u.ho uses such means cannot trul1, be regarded as having relied on thc apparent assent.cases

t2


s1.4.6

51.4.4

Social Justice ond. the Pyotectizn 0f the (Jnd.erd.oghas already been suggested, in connection with both freeclom of contract and reliance, that modern contract law is sensitive to the imposition of contractual obligations as a result of coercion, dishonesty. or lack of mean_ ingful choice resulting fiom power imbalance. Much of the material later in the book deals with the issue of balancing freedom of conrract and accountability for manifested conduct against the need to protect r,rrlnerable parties from unfair imposition. Because this is so pervasive a concern, it should at least be acknowledged in this oven'iew of contract policy.

It

51.4.5 FairnessFairness is such a loose concept that it cannot be discussed in the abstract. The fhirness of any result can only be measure d in the context of societal standards and expectations. In the contract setting, it ntust also be evaluated

in light of the various goals and policies mentioned in this section.Nevertheless,

it would be remiss not to at least drar.v to your attelltion that

courts do not mechanically apply rules of law. Judges and juries are sensitive to the equities of individual cases and the circumstances of the parties, and rvhere a mechanical application of rules achieves a result that seems ro be unjust, there is likely to be some adjustment or even manipulation of the rule to avoid it. Contract law has some express doctrines that address the quesrion ot unfhirness, such as the doctrines of unconscionabilitv and good taith. llowever, even where there is no clear and specilic doctrine, vou s'ill frnd manv cases in which the court's desire (and duty) to achieve a just result mat' have the effect of diverting or evading a resolution called fbr b),a doctrinaireapproach to the issues.

51.4.6

The Econornic Aspect of

Contract Law

Because contracts are concerned with economic exchanges, contract lar.v must inevitablv be quintessentially economic in its purpose. Its goal is to facilitate trade and commerce, to regulate the manner in which people deal with each other ir-r the marketplace, and to enforce commercial obligations. It should therefore be no surprise that this body of law, concerned with economic relationships, should respond to and reflect the prevailing economic conditions and philosophy. In the United Stares, this basic philosophy has alwavs been c&pxtalist and geared towards the ideal of afree warhet.Indeed, the political value of fieedom of contract is direcdv related to this economic ideology.

t3

Sf

.4.6

Contracts: Exar-r-rplcs and Explanations

The extent to rvhich market forces should be allou'ed to rcign free, and the degrcc tcl u.hich the courts or legislature should rcgulate tl-rern is a source of ongoing debatc betu,een so-called "conserl,atil'e" and "liberal" econo-

mists. and the relative influence of one or the othcr of these schools of thought tends to dominate during particular periods and in particular jurisdictions. Contemporarv contract iarv has tcndcd to mo\re ar,r'ay ftom the strong laissez-fhire approach of the late nintcenth and earh' twentieth centuries, but there continues to be a livelv exclrange of vielvs betu,een those u'ho stress economic values such as efficiency and those u'ho adr.ocate a greater emphasis ol1 other social or moral values. The concept of economic efhciencv and its balancing against other values is raised in ser,eral parts of this book but is most stronglv f-eatr.rred in the discussion of ren-redies in Chapter 18. The point to be made in this introductorr, note is that economic considerations are likely to be intertrvined rvith the other goals and aspirations set out here.

EXAMPLE

S

Claire Basement held a garage sale at her home last Saturdar,. She placed price tags on all the itcms oftbred fbr sale ar-rd set them out in her garage and on her drivervar'. She posted a largc sign at thc front of her propertv proclaiming "Mammoth garage salel All sales are final. All items sold as is." The sign r,vas prominent and rvas undisputedlv seen and understood bv all buvers before thev made their purchases. Claire cntered into the following transactiolls. Based on the attributes of contract in section 1.1, rvhich of them appear to quralifv as contractsi (Note that u.ith the exception of the first, all the transactions belou'relate to sales of goods. Thev u'ould therefore be subject to Article 2 of thc Uniform Conrmercial Code. This statute is introdr.rced in section 2.7 and u'ill be referred to frequentlv througl-rout the book. Holever, vou do not need to apply it or to knorv about it to answer these questions.) L On the morning of the sale, Claire realizcd that she r,vould need son.re help. She sau' her neighbor in his fiont vard, called him or,er and offbred him $50 if he u.ould assist her at the sale for the dar,. -Ihe r-reighbor agrecd to do so provided that Claire paid him in advance. Claire gal'e hirn $50 in cash and he in-rmediately took up position in the garage, r,vaiting fcrr the first clrstomcr. 2. Customer I picked out a sofa priced ar $50. He gar.e Claire a $50 bill, loaded the sofa onto his pickup, and drove au,ay. 3. Would the ansl.er to Example 2 change if Customer t had givenClaire a chcck ftrr $50 rather than cashf 4. Customer 2 bought a large fish tank tor $45 and paid cash to Claire. Because the tank lvas hearn, Customer 2 reversed her pickup or-rto Claire's drir.eu.av so that she r,vor-rld not have to carrv it far. In backing the vehicle14

The Nleaning of "Contract"

s1.4.6

onto the driveu'ay, she failed to notice a table of glass*'are, which she knocked over, smashing the table and all the glass. Claire claims that Customer 2 has bought the glass in accordance with the rvell-knou,n maxim"You break, you take." Does this seem likea fair argumentf

Customer 3 liked a lamp but wanted his wife to see it before he bought it. He asked Claire to set it aside and not to sell it before he could rerurn with his wife. Claire obliged and placed the lamp in the house . Customer 3 never returned. By removing the lamp from the sale, Claire lost the opportunity of selling it to someone else. Does Customer 3 have a contractual obligation to Clairef

5.

6. Customer 4 expressed interest in buying a stereo for $300. He had no car) so he agreed with Claire that Claire would deliver it to his home at the end of the day and would collect his payment at rhe same rime. 7. At the end of the da1,, Claire had a pile of things that had not been sold. She called a charitable thrift store and offered to donate these items. The store agreed to accept them and undertook to collect them on Monday.

EXPLANATIl

ONS

Claire's agreement with her neighbor satisfies all the attributes of contract: The nvo of them agreed to enter into a relationship in n'hich claire exchanged money for the neighbor's sen'ices. (The example does not make it clear exactlv rvhat these services entailed, but the issue of determininqthe precise terms of the relationship is deferred for notr'. ) Claire's pertbrnance was instantaneous-it was complete at the time of contact. and she has no

future commitment. However, the neighbor's performance, br- its nature. cannot be performed instantaneously but will last the s.hole dar'. There tore.at the time of contracting the neighbor has made a commitment-a pronrisc. For a contract to exist, it is sufficient that onlv one of the parties has rnade a promise, creating a unilateral contract.

2. Both Customer I and Claire have performed instantaneouslydeliverv of the goods was exchanged for payment of the cash. Because thereare no outstanding obligations at the time of agreement, this is nota

contract. (Claire would have assumed an obligation if she had warranted the sofa, but she did not. She did not expressly give any warranty, and her sign on the larvn made it clear that all goods rvere sold as is. This should be enough to preclude any warran$3) 3. The answer would change if Customer I had paid by check. Unlike cash, a check is not a completed act of payment but merely an instruction by

Customer

I to his bank to pay Claire

upon presenration of the check.

3. The issue of when a warranty is give n in a sale of goods and horv rvarrantie s may be disclaimed can get compiicated. The question is certainlv beyond our scope here.

l5

sr.4.6


In other words, this is a credit transaction in rvhich Customer I impliedlv promises that funds wiil be available to pav the check when it is deposited. Customer I has therefore made a future commitment, lvhich makes this a unilateral contract. 4. The purchase ofthe fish tank is another instantaneous exchange. With regard to the broken table and glassware, Claire argues, in effect, that custom creates an implied contract to pay for broken goods. It is possible for a contract to arise by implication from conduct in light of rvell-accepted custom or usage. If Claire can prove such a custom (rvhich must be done b_v witnesses who qualifir as experts in the field of activitv) she mav be able to establish an implied contract) even tholrgh there is uo express exchange agreement. More likelv, if Customer 2 has anv liability to Claire, it is for negligence in tort, based on her failure to exercise care in reversing her truck. 5. It may sound as if a contract was created betrveen Claire and Custorner 3, and this rvould be so if Claire promised to reserve the lamp in exchange fbr a promise by Customer 3 to return. Whether or not such binding commitments were made is a matter of interpretation-to be determined in light of u'hat the parties said, and any general usage u'ith u'hich the1. pgx5.^.b11. should be familiar. On the brief fhcts given here, it is probably unlikely that Customer 3 did make anv binding commitment to return and cannot therefore be liable fbr any lost opportunitv suflbred b_v Claire. 6. The transaction with Customer 4 appears to satisfv all the attributes of contract. Unlike the contracts in Examples I and 3, this one contains unperformed promises by both parries at rhe time of agreement, and is bilateral. 7. Even if Claire and the thrift store each rnade promises respectivelv ro donate and collect the goods, there is no contract here because the elen-rent of exchange is missing. The thrilt store ga\re nothing to Claire in exchange for the goods. This is a one-sided transaction-a donation-and the store's undertaking to collect the goods is not exchanged for the goods. It is merelv a means of taking possession of the gift. In technical terms, this transaction is not a contract because it lacks consideration-a concept discussed fulit,in Chapter 7.

l6

Fncets of the Law of Contract nnd, the Source of Its Rules,Processes)

nnd Trnditions52.IThe Purpose of This ChapterChapter I introduced the legal concept of contract and outlined the policies and ideological values of contract larv. This chapter continues the introduction to contract by explaining a number of basic attributes of contract law, e arlv knor,vledge of which will greatly assist in the full appreciation of course materials.

It

begins

addresses some

with a short note on historical perspective and then of the questions that are likelv to puzzle students as thev

encounter unfamiliar terms and allusions in cases and other rvritings.

s2.2

The Historical Perspective of Contract LawThe primary purpose of the contracts course is to teach you the contemporar1, lar,v of contract. Flos'el'er, \'ou cannot fulh. applsciate the current law u'ithout some sense of its histon.. Indeed, the verv process by which the law is decided involves some degree of historical analysis, as the discussion of

t7

s2.3

Contracts: Examplcs and Erpler-rations

precedent in Chapter 3 shon's. I{ost of the rules and principles of contract larv u'ere developed in the past. Sone of them have remained relativel.v unchanged n'hile others have been adapted or overruled as thev irave become superannuated. 'Ihese changes tend to be er.olutionary and incremental, built upon a traditional frameu'ork that is still apparent. In this respect, contract larv is like a great and ancient cathedral, rvhose contemPorary appearance reflects millennia of building, destruction, rebuilding, and addition. T'herefore, although the contracts course is not a course in legal histor\') modern doctrine must be studied and evaluated in its historical perspective. It is onlv in this rvay that current lau'can be fullv understood, and a reasonablrr 1slix61. prediction of the future course of the lar.v can be made. Because a laul,er's rvork often centers on a prediction of hou'a coLrrt may decide an issue that could arise in the transaction, the abilitv to gauge the direction of the law is invaluable . Although an understanding of the substantive lau'is one of the prir-rcipal purposes of studving cases throllgh the historical spectrum, this is not the or-rly insight to be gained. The historical progression of caselarl'is at thc verv heart of our common law svstem of jurisprudence. Bv tracing the development of legal rules ovcr time) the student learus about the process of legal

evolution. Familiariw u'ith this process is essential to the analysis of court opinions and other lcgal materials. The common latv and its rulemaldng process are cxamined in section 2 .4 and Chapter 3.

S2.3 Classical and Contemporary52.3.1 Classicnl Contract Low

Contract Law

Although the common las' of contracts is man-v centuries old, it did not become a svstematic, intem,or.en body of doctrine until relativelv recendy. Prior to the eighteenti centurl, the lau' of contract was seen not so much as a cohesive svstem of rules, linked by general principles, but as a collection ofdiscrete rules, each specificallv applicable to various particular 6pes of tlansactions. From the eighteenth centurv) English legal scholars began to think of contract la$' in lnore svstematic terms. Tl-rey began to recognize that the specific rules reflected a general approach to contracts that could be identified and formulated as broader doctrine. This trend developed in both England and America during the nineteer-rth centurv. at a time when economic and industrial expansion called fbr a more sopl-risticated and comprehensive svstem of contract lalv. It reached its zenith in u'hat is referred to as the classical period. \44-rile one could quibble about the eract dates, the classical period can be thought of as spanning the last decades of tl-re nineteenth centurv and the beginning of the twentieth. The Restatement, Contracts, published in theIB

t

Facets

of the Larv of Contract

s\2.3.2

1930s (introduced in section 2.8) reflects the mature thir-rking of thc classical school, but bv that stage the classical conception had alreaclv begun theprocess of change that leads

into thc c()ntemporan.period.

To find a general doctrine of contract, thc classicists examir-red dccided cases) extracting from them a set of coherent and *'ell-detrncd rulcs, rvhich thev then used as the basis fbr constructing more abstract gcneral principles. Tl-re general principles fbrmed a fiamcrvork fbr organizing and linking thc rules into a bodv of doctrine. Some classicists u'ent so trar as to conceir.,e of law ns a science in rvhich certain and consistcnt results could be acl.rieved in the resolution of cascs b,v the rather mcchanical process of selecting the right rule from the body of doctrine and applying it to the facts.The classical school rcflects the priorities of its age, r,vhich greatlv valued

fice enterprise, private autonom)! and a laissez-fhire approach to economic activiQ,. Classical theor,v therefbre stressed thc facilitation of conrractual relationships and thvored a strictly objective approach. If parties manifbstedcontractual intent, the classicists far.ored enfbrccment of the transaction. Tl-rey were not inclined to probe the actr-ral state of understanding of either parnr This meant that they were not especially sensitive to thc impact rhat enf()rcement of an apparent contract might have on a parqv u'hose exercise of free uill may have been irnpaired bv economic impotence or lack of sophistication. The classical approach rvas also hear.ilv influenced by the legal pl"rilosopll' of positivism, ll.hich stressed dre primacv of legal rules and considcreci the court's principal role to be finding and applying those rules to dre flcts of indir''idual cases. Because of its emphasis on clear rules and its belief in a scientific approach to adjudication, classicism tends to be relativelv forrnalistic and rigid.

52.3.2 Conternporary

Contra.ct Law

As thc nventieth centur\/ wore on, tl-rc classical conception of contract lau., began to erode. Enthusiasm fbr thc free market was tempered bv a grou'ing rccognition of thc nced to regulate the fi'eedom of powerfirl contractors, to safeguard the rights of rveaker parties, and to affect social polio' concem'nglnatters such as consllmer protection, emplovee rights, and business ethics. The formalism of the classical approach came to be perceived as too rigid and to that the n-rle mav be treated as governing the second case as u,ell. As ,vou can imagine , thcrc are manv instances in r,l'hich the opposite alsc-r occllrs. When a court does not favor appl

Documents

Brian Blum Contracts 3rd Ed Examples Explanations