Part IPart I

Course Introduction andCourse Introduction and

Governing LawGoverning Law

Course IntroductionCourse Introduction

For lots of reasons, contract law is by far the best law school For lots of reasons, contract law is by far the best law school subject .... What other subject contains such a wealth of theory, subject .... What other subject contains such a wealth of theory, doctrine, and substantive reasoning? What other subject doctrine, and substantive reasoning? What other subject focuses so clearly on essential components of economic and focuses so clearly on essential components of economic and other organization in our society, namely private agreements other organization in our society, namely private agreements and exchange transactions? What subject better exemplifies and exchange transactions? What subject better exemplifies the power of general theory, the functions and limits of the the power of general theory, the functions and limits of the common law, the rise of statutory law, the interaction of right common law, the rise of statutory law, the interaction of right and remedy, and the role of various legal actors in our system and remedy, and the role of various legal actors in our system (including transactors, lawyers in their various roles, judges, (including transactors, lawyers in their various roles, judges, and lawmakers)?and lawmakers)?

Robert A. Hillman & Robert S. Summers, Robert A. Hillman & Robert S. Summers, The Best Law School The Best Law School SubjectSubject, 21 Seattle U. L. Rev. 735, 735 (1998) (footnote , 21 Seattle U. L. Rev. 735, 735 (1998) (footnote omitted).omitted).

What is a Contract?What is a Contract?

♦♦ ““[A] promise or set of promises that [A] promise or set of promises that the law will the law will enforceenforce.” EMP p. 1.” EMP p. 1

♦♦ ““A A promisepromise or a set of promises for the or a set of promises for the breachbreach of which of which the law gives a the law gives a remedyremedy, or the performance of which the , or the performance of which the law in some way recognizes as a law in some way recognizes as a dutyduty.” R2K § 1.” R2K § 1

♦♦ ““[T]he total legal obligation that results from the [T]he total legal obligation that results from the parties’ parties’ agreementagreement as as determined bydetermined by [the UCC] as [the UCC] as supplemented by any other applicable law.” UCC § 1-supplemented by any other applicable law.” UCC § 1-201(b)(11).201(b)(11).

Holmes on ContractHolmes on Contract

The only universal consequence of a legally binding The only universal consequence of a legally binding promise is, that the law makes the promisor pay promise is, that the law makes the promisor pay damages if the promised event does not come to damages if the promised event does not come to pass.pass.

Oliver W. Holmes, Jr., The Common Law 301 Oliver W. Holmes, Jr., The Common Law 301 (1881).(1881).

Holmes’s statement has become the basis for an approach to Holmes’s statement has become the basis for an approach to contract law that allows a party to breach yet escape legal contract law that allows a party to breach yet escape legal characterization as a wrongdoer. Such a party does not break a characterization as a wrongdoer. Such a party does not break a promise but rather exercises an option to fulfill one promise over promise but rather exercises an option to fulfill one promise over another: the payment of damages, if any, rather than another: the payment of damages, if any, rather than performance of the activity specified. As expressed by Justice performance of the activity specified. As expressed by Justice Scalia: “Virtually every contract operates, not as a guarantee of Scalia: “Virtually every contract operates, not as a guarantee of particular future conduct, but as an assumption of liability in the particular future conduct, but as an assumption of liability in the event of nonperformance ....” Or, in the words of Judge Posner: event of nonperformance ....” Or, in the words of Judge Posner: “In Holmes's vivid formulation, the obligation created by a “In Holmes's vivid formulation, the obligation created by a contract is an obligation to perform or pay damages for contract is an obligation to perform or pay damages for nonperformance, ... and if the second alternative remains, then, nonperformance, ... and if the second alternative remains, then, since it is an alternative, the obligation created by the contract is since it is an alternative, the obligation created by the contract is not impaired.”not impaired.”

Barry E. Adler, Barry E. Adler, Efficient Breach Theory Through the Looking Efficient Breach Theory Through the Looking GlassGlass, 83 NYU L. Rev. 1679, 1685 (2008) (footnotes omitted)., 83 NYU L. Rev. 1679, 1685 (2008) (footnotes omitted).

Aspects of ContractAspects of Contract

Agreement-in-Fact vs. Agreement-as-ExpressedAgreement-in-Fact vs. Agreement-as-Expressed

Intent vs. ManifestationIntent vs. Manifestation

Subjective vs. Objective vs. “Modified Objective”Subjective vs. Objective vs. “Modified Objective”

Duties, Rights, and RemediesDuties, Rights, and Remedies

Functions of Contract LawFunctions of Contract Law

Protecting Property RightsProtecting Property Rights

Promoting ExchangePromoting Exchange

Promoting Equitable Distribution of Resources (?)Promoting Equitable Distribution of Resources (?)

Assessing Contract LawAssessing Contract Law

Positive: Positive: WhatWhat does the case or statute say the law is? does the case or statute say the law is?

Analytic: Analytic: WhyWhy is the law is what it is? is the law is what it is?

How does the court or legislature explain it?How does the court or legislature explain it?

What (other) factors (help) explain it?What (other) factors (help) explain it?

Normative: Normative: ShouldShould the law be what it is? the law be what it is?

Nine QuestionsNine Questions

1.1. What What lawlaw governs the (proposed) transaction between governs the (proposed) transaction between or among the parties?or among the parties?

2.2. Did the parties form a Did the parties form a contractcontract – that is, a consensual – that is, a consensual agreement?agreement?

♦♦ Did one party make an Did one party make an offeroffer??

♦♦ Did another party Did another party accept accept the offer?the offer?

♦♦ Did the party who made the offer (the Did the party who made the offer (the offerorofferor) ) receive receive considerationconsideration??

Nine QuestionsNine Questions

3.3. If the parties formed a contract, is it If the parties formed a contract, is it enforceableenforceable? The ? The parties may have reached an agreement they think is parties may have reached an agreement they think is binding, but it may not be because of some binding, but it may not be because of some formation formation defensedefense ( (e.g.e.g., incapacity, mistake) or because they , incapacity, mistake) or because they failed to satisfy some failed to satisfy some formalityformality ( (e.g.e.g., the statute of , the statute of frauds).frauds).

4.4. If the parties failed to form an enforceable contract, If the parties failed to form an enforceable contract, does contract law afford them any does contract law afford them any alternative theories alternative theories of reliefof relief??

Nine QuestionsNine Questions

5.5. If there is an enforceable contract, what are its If there is an enforceable contract, what are its termsterms – – i.e., what are the parties’ rights and obligations?i.e., what are the parties’ rights and obligations?

6.6. Has a party Has a party breachedbreached the contract? the contract?

7.7. Does the breaching party have a valid Does the breaching party have a valid defensedefense or or excuseexcuse to or from its obligation to fully perform? to or from its obligation to fully perform?

8.8. What What remedyremedy, if any, is available to the injured party?, if any, is available to the injured party?

9.9. What rights or obligations, if any, does one or more What rights or obligations, if any, does one or more third party(-ies)third party(-ies) have as a result of the contract? have as a result of the contract?

Contract Remedies in a NutshellContract Remedies in a Nutshell

1.1. Expectation Damages:Expectation Damages: the difference between the the difference between the value of the benefit the plaintiff reasonably expected value of the benefit the plaintiff reasonably expected and the value she actually received (a.k.a., and the value she actually received (a.k.a., benefit of benefit of the bargain damagesthe bargain damages).).

2.2. Reliance DamagesReliance Damages reimburse the plaintiff for any costs reimburse the plaintiff for any costs incurred in preparing to perform or performing her part incurred in preparing to perform or performing her part of the contract (of the contract (out-of-pocket damagesout-of-pocket damages).).

3.3. Restitutionary Damages:Restitutionary Damages: require the defendant to require the defendant to disgorge any benefit received on account of the disgorge any benefit received on account of the contract, in order to prevent contract, in order to prevent unjust enrichmentunjust enrichment..

Contract Remedies in a NutshellContract Remedies in a Nutshell

4.4. Rescission:Rescission: “Undo” the contract – “Undo” the contract – i.e.i.e., return both , return both parties to their pre-contractual situation.parties to their pre-contractual situation.

5.5. Specific Performance:Specific Performance: Order the defendant to perform Order the defendant to perform as agreed.as agreed.

6.6. Injunctive Relief:Injunctive Relief: Order the defendant to do/refrain Order the defendant to do/refrain from doing a particular act.from doing a particular act.

7.7. Liquidated DamagesLiquidated Damages: Enforce the remedy the parties : Enforce the remedy the parties agreed to when they first entered into their contract, agreed to when they first entered into their contract, provided that the agreed remedy is not unduly harsh.provided that the agreed remedy is not unduly harsh.

Governing LawGoverning Law

Aspects of Governing LawAspects of Governing Law

WhatWhat: What is the subject of the transaction or dispute?: What is the subject of the transaction or dispute?

WhereWhere: What jurisdiction’s law governs the transaction : What jurisdiction’s law governs the transaction or dispute?or dispute?

HowHow did the parties enter into or perform the did the parties enter into or perform the transaction?transaction?

WhoWho: Is one or more party to the contract subject to a : Is one or more party to the contract subject to a particular body of law or subset of legal rules?particular body of law or subset of legal rules?

WhenWhen did the parties enter into or perform the did the parties enter into or perform the transaction?transaction?

SERVICESSERVICES

REAL PROPERTYREAL PROPERTY

PERSONAL PROPERTYPERSONAL PROPERTY

SERVICESSERVICES

REAL PROPERTYREAL PROPERTY

GOODSGOODS

NON-GOODSNON-GOODS

Scope of UCC Article 2Scope of UCC Article 2

§ 2-102: Article 2 governs § 2-102: Article 2 governs transactionstransactions (other than (other than those intended solely for security) in goods.those intended solely for security) in goods.

§ 2-106(1): Article 2 governs present or future § 2-106(1): Article 2 governs present or future salessales (passing title from the seller to the buyer for a price) (passing title from the seller to the buyer for a price) of goods.of goods.

UCC § 2-102UCC § 2-102

Unless the context otherwise requires, [Article 2] Unless the context otherwise requires, [Article 2] applies to applies to transactions in goodstransactions in goods; it does not apply to ; it does not apply to any transaction which although in the form of an any transaction which although in the form of an unconditional contract to sell or present sale is intended unconditional contract to sell or present sale is intended to operate only as a security transaction nor does this to operate only as a security transaction nor does this division impair or repeal any statute regulating sales to division impair or repeal any statute regulating sales to consumers, farmers, or other specified classes of consumers, farmers, or other specified classes of buyers.buyers.

UCC § 2-106(1)UCC § 2-106(1)

[U]nless the context otherwise requires “[U]nless the context otherwise requires “contractcontract” and ” and ““agreementagreement” are limited to those relating to the present ” are limited to those relating to the present or future sale of goods. “or future sale of goods. “Contract for saleContract for sale” includes ” includes both a present sale of goods and a contract to sell goods both a present sale of goods and a contract to sell goods at a future time. A “at a future time. A “salesale” consists in the passing of title ” consists in the passing of title from the seller to the buyer for a price (Section 2-401). from the seller to the buyer for a price (Section 2-401). A “A “present salepresent sale” means a sale which is accomplished ” means a sale which is accomplished by the making of the contract.by the making of the contract.

UCC § 2-105(1)UCC § 2-105(1)

““GoodsGoods” means all things (including specially ” means all things (including specially manufactured goods) which are movable at the time manufactured goods) which are movable at the time of identification to the contract for sale other than the of identification to the contract for sale other than the money in which the price is to be paid, investment money in which the price is to be paid, investment securities (Article 8) and things in action. “Goods” securities (Article 8) and things in action. “Goods” also includes the unborn young of animals and also includes the unborn young of animals and growing crops and other identified things attached to growing crops and other identified things attached to realty as described in [§ 2-107].realty as described in [§ 2-107].

UCC § 2-107UCC § 2-107

(1)(1) A contract for the sale of A contract for the sale of minerals or the like (including oil minerals or the like (including oil and gas) or a structure or its materials to be removed from and gas) or a structure or its materials to be removed from realtyrealty is a contract for the sale of goods … is a contract for the sale of goods … if they are to be if they are to be severed by the sellersevered by the seller …. ….

(2)(2) A contract for the sale apart from the land of growing crops or A contract for the sale apart from the land of growing crops or other things attached to realty and capable of severance other things attached to realty and capable of severance without material harm theretowithout material harm thereto but not described in but not described in Subsection (1) Subsection (1) or of timber to be cutor of timber to be cut is a contract for the sale is a contract for the sale of goods … of goods … whether the subject matter is to be severed by whether the subject matter is to be severed by the buyer or by the sellerthe buyer or by the seller even though it forms part of the even though it forms part of the realty at the time of contracting, and the parties can by realty at the time of contracting, and the parties can by identification effect a present sale before severance.identification effect a present sale before severance.

UCC § 9-102(41)UCC § 9-102(41)

““Fixtures” means goods that have become so related to Fixtures” means goods that have become so related to particular real property that particular real property that an interest in them arises an interest in them arises under real property lawunder real property law..

““Mixed” ContractsMixed” Contracts

Courts determine whether UCC Article 2 governs a Courts determine whether UCC Article 2 governs a transaction or dispute involving a contract for goods and transaction or dispute involving a contract for goods and either non-goods personal property or services using one either non-goods personal property or services using one of two tests:of two tests:

Predominant purposePredominant purpose

Gravamen of the actionGravamen of the action

UCC § 1-103(b)UCC § 1-103(b)

Unless displaced by the particular provisions of [the Unless displaced by the particular provisions of [the UCC], the principles of law and equity, including ... The UCC], the principles of law and equity, including ... The law relative to capacity to contract, principal and agent, law relative to capacity to contract, principal and agent, estoppel, fraud, misrepresentation, duress, coercion, estoppel, fraud, misrepresentation, duress, coercion, mistake, bankruptcy, and other validating or mistake, bankruptcy, and other validating or invalidating cause supplement [the UCC’s] provisions.invalidating cause supplement [the UCC’s] provisions.

UCC § 2-104(1)UCC § 2-104(1)

““Merchant” means a person who Merchant” means a person who deals in goods of the deals in goods of the kindkind or otherwise by his occupation holds himself out or otherwise by his occupation holds himself out as as having knowledge or skill peculiar to the practices having knowledge or skill peculiar to the practices or goods involvedor goods involved in the transaction or to whom such in the transaction or to whom such knowledge or skill knowledge or skill may be attributed by his may be attributed by his employment of an agent or broker or other employment of an agent or broker or other intermediaryintermediary who by his occupation holds himself out who by his occupation holds himself out as having such knowledge or skill.as having such knowledge or skill.

R2 Conflict of Laws § 188(1)R2 Conflict of Laws § 188(1)

[In the absence of an effective choice of law by the [In the absence of an effective choice of law by the parties (see parties (see § 187), t]he rights and duties of the parties ), t]he rights and duties of the parties with respect to an issue in contract are determined by the with respect to an issue in contract are determined by the local law of the state which … has the most significant local law of the state which … has the most significant relationship to the transaction and the parties ….relationship to the transaction and the parties ….

R2 Conflict of Laws § 187(2)R2 Conflict of Laws § 187(2)

The law of the state chosen by the parties to govern their The law of the state chosen by the parties to govern their contractual rights and duties will be applied … unless …contractual rights and duties will be applied … unless …

(a)(a) the chosen state has no substantial relationship to the chosen state has no substantial relationship to the parties or the transaction and there is no other the parties or the transaction and there is no other reasonable basis for the parties’ choice, orreasonable basis for the parties’ choice, or

(b)(b) application of the law of the chosen state would be application of the law of the chosen state would be contrary to a fundamental policy of a state … which, contrary to a fundamental policy of a state … which, under the rule of under the rule of § 188, would be the state of the applicable law in the absence of an effective choice of law by the parties.

UCC § 1-301UCC § 1-301

(a)(a) Except as otherwise provided in this section, when a Except as otherwise provided in this section, when a transaction bears a reasonable relation to this state and transaction bears a reasonable relation to this state and also to another state or nation the parties may agree also to another state or nation the parties may agree that the law either of this state or of such other state or that the law either of this state or of such other state or nation shall govern their rights and duties.nation shall govern their rights and duties.

(b)(b) In the absence of an agreement effective under In the absence of an agreement effective under subsection (a), and except as provided in subsection subsection (a), and except as provided in subsection (c), [this state’s UCC] applies to transactions bearing (c), [this state’s UCC] applies to transactions bearing an appropriate relation to this state.an appropriate relation to this state.

……..

CISG art. 1CISG art. 1

(1)(1) This Convention applies to contracts of sale of goods This Convention applies to contracts of sale of goods between parties whose between parties whose places of businessplaces of business are in are in differentdifferent States: States:

(a) when the States are (a) when the States are Contracting States …. ….

(2)(2) The fact that the parties have their places of business in The fact that the parties have their places of business in different States is to be disregarded whenever this fact different States is to be disregarded whenever this fact does not appear either from the contract or from does not appear either from the contract or from any dealings between, or from information disclosed any dealings between, or from information disclosed by, the partiesby, the parties at any time before or at the conclusion at any time before or at the conclusion of the contract….of the contract….

CISG art. 10CISG art. 10

(a) if a party has more than one place of business, the (a) if a party has more than one place of business, the place of business is that which has the place of business is that which has the closest closest relationship to the contract and its performancerelationship to the contract and its performance , , having regard to the circumstances known to or having regard to the circumstances known to or contemplated by the parties at any time contemplated by the parties at any time before or at before or at the conclusion of the contractthe conclusion of the contract;;

(b)(b) if a party does not have a place of business, reference if a party does not have a place of business, reference is to be made to his habitual residence.is to be made to his habitual residence.

CISG art. 2(a)CISG art. 2(a)

This Convention This Convention doesdoes notnot apply to sales of goods apply to sales of goods bought for bought for personal, family or household usepersonal, family or household use, unless , unless the seller, at any time before or at the conclusion of the seller, at any time before or at the conclusion of the contract, neither knew nor ought to have known the contract, neither knew nor ought to have known that the goods were bought for any such use ….that the goods were bought for any such use ….

CISG art. 2(b)-(f)CISG art. 2(b)-(f)

The CISG The CISG doesdoes notnot apply to sales: apply to sales:

• by auction;by auction;

• by authority of law;by authority of law;

• of stocks, shares, investment securities, negotiable of stocks, shares, investment securities, negotiable instruments, or money;instruments, or money;

• of ships, vessels, hovercraft, or aircraft;of ships, vessels, hovercraft, or aircraft;

• of electricity.of electricity.

CISG Art. 3(2)CISG Art. 3(2)

The CISG “does not apply to contracts in which the The CISG “does not apply to contracts in which the preponderant partpreponderant part of the obligations of the party who of the obligations of the party who furnishes the goods consists in the supply of labor or furnishes the goods consists in the supply of labor or other services.”other services.”

CISG Art. 3(1)CISG Art. 3(1)

The CISG The CISG doesdoes apply to contracts “for the supply of apply to contracts “for the supply of goods to be manufactured or produced … goods to be manufactured or produced … unlessunless the the party who orders the goods undertakes to supply a party who orders the goods undertakes to supply a substantial part of the materials necessary for such substantial part of the materials necessary for such manufacture or production.”manufacture or production.”

Scope of the CISG: RecapScope of the CISG: Recap

The CISG generally applies to sales of goods between The CISG generally applies to sales of goods between parties whose places of business or habitual residences parties whose places of business or habitual residences are in two Contracting States, are in two Contracting States, unlessunless

(a)(a) either party doesn’t know or have reason to know either party doesn’t know or have reason to know that the other party’s place of business is in another that the other party’s place of business is in another country;country;

(b) the buyer is purchasing the goods for personal, (b) the buyer is purchasing the goods for personal, family, or household use and the seller knows or has family, or household use and the seller knows or has reason to know the buyer’s intended use of the goods or reason to know the buyer’s intended use of the goods or the sale is excluded by Article 2(b)-(f); orthe sale is excluded by Article 2(b)-(f); or

(c) the seller is primarily supplying labor or other (c) the seller is primarily supplying labor or other services, to which the goods provided are incidental.services, to which the goods provided are incidental.

Contracting Out of the CISGContracting Out of the CISG

Article 6 permits the parties to “exclude the Article 6 permits the parties to “exclude the application of [the CISG] or, subject to article 12, application of [the CISG] or, subject to article 12, derogate from or vary the effect of any of its derogate from or vary the effect of any of its provisions.”provisions.”

With one exception, U.S. courts have consistently With one exception, U.S. courts have consistently required the parties to expressly disavow the CISG; required the parties to expressly disavow the CISG; simply choosing the domestic law of a jurisdiction simply choosing the domestic law of a jurisdiction will not suffice.will not suffice.

UETA’s Scope (§ 3)UETA’s Scope (§ 3)

(a)(a) Except as otherwise provided in Subsection (b), Except as otherwise provided in Subsection (b), [UETA] applies to electronic records and electronic [UETA] applies to electronic records and electronic signatures relating to a transaction.signatures relating to a transaction.

(b)(b) [UETA] does not apply to a transaction to the extent [UETA] does not apply to a transaction to the extent it is governed by:it is governed by:

……

(2) the Uniform Commercial Code, other than (2) the Uniform Commercial Code, other than Sections 1-107 and 1-206 and Chapters 2 and 2A. Sections 1-107 and 1-206 and Chapters 2 and 2A.

UETA’s Scope (§ 3)UETA’s Scope (§ 3)

(c)(c) [UETA] applies to an electronic record or electronic [UETA] applies to an electronic record or electronic signature otherwise excluded from the application of signature otherwise excluded from the application of this chapter under Subsection (b) when used for a this chapter under Subsection (b) when used for a transaction subject to a law other than those transaction subject to a law other than those specified in Subsection (b).specified in Subsection (b).

(d)(d) A transaction subject to [UETA] is also subject to A transaction subject to [UETA] is also subject to other applicable substantive law. other applicable substantive law.

““Opting In” to UETA (§ 5)Opting In” to UETA (§ 5)

(b)(b) [UETA] applies only to transactions between parties [UETA] applies only to transactions between parties each of which has agreed to conduct transactions by each of which has agreed to conduct transactions by electronic means. Whether the parties agree to electronic means. Whether the parties agree to conduct a transaction by electronic means is conduct a transaction by electronic means is determined from the context and surrounding determined from the context and surrounding circumstances, including the parties’ conduct.circumstances, including the parties’ conduct.

(c)(c) A party that agrees to conduct a transaction by A party that agrees to conduct a transaction by electronic means may refuse to conduct other electronic means may refuse to conduct other transactions by electronic means. The right granted by transactions by electronic means. The right granted by this division may not be waived by agreement.this division may not be waived by agreement.

15 U.S.C. § 7001(a)15 U.S.C. § 7001(a)

Notwithstanding any statute, regulation, or other rule of Notwithstanding any statute, regulation, or other rule of law …, with respect to any transaction in or affecting law …, with respect to any transaction in or affecting interstate or foreign commerceinterstate or foreign commerce

(1)(1) a signature, contract, or other record … may not be a signature, contract, or other record … may not be denied legal effect, validity, or enforceability solely denied legal effect, validity, or enforceability solely because it is in electronic form; andbecause it is in electronic form; and

(2)(2) a contract … may not be denied legal effect, a contract … may not be denied legal effect, validity, or enforceability solely because an electronic validity, or enforceability solely because an electronic signature or electronic record was used in its formation.signature or electronic record was used in its formation.

15 U.S.C. § 7002(a)15 U.S.C. § 7002(a)

A state statute, regulation, or other rule of law may modify, A state statute, regulation, or other rule of law may modify, limit, or supersede [E-SIGN] with respect to state law only limit, or supersede [E-SIGN] with respect to state law only if such statute, regulation, or rule of lawif such statute, regulation, or rule of law

(1) constitutes an enactment or adoption of [UETA] …; or(1) constitutes an enactment or adoption of [UETA] …; or

(2)(A) specifies ... alternative procedures or requirements (2)(A) specifies ... alternative procedures or requirements for the use or acceptance (or both) of electronic records or for the use or acceptance (or both) of electronic records or electronic signatures to establish the legal effect, validity, electronic signatures to establish the legal effect, validity, or enforceability of contracts or other records, if (i) such or enforceability of contracts or other records, if (i) such alternative procedures or requirements are consistent with alternative procedures or requirements are consistent with this [Act] ….this [Act] ….