October 16, 2012
Larry Cunningham's Contracts in the Real World
Posted by Erik Gerding

Concurring Opinions is hosting an online symposium on Larry Cunningham's new book, Contracts in the Real World (Cambridge).  Here is my contribution:

Let me start out with a criticism of Larry’s book: it is too much fun. I had a hard time breaking off just a chunk of Contracts in the Real World to write about and found myself spending several hours reading one interesting vignette after another on famous and infamous contracts.

The book will make a wonderful companion text to a traditional contracts casebook. Its value is not just in its engaging account of contract stories or in giving context to chestnut cases, but in providing a very intuitive framework for understanding contract law. The traditional contracts course, perhaps by virtue of having the doctrine of consideration at its heart, can be one of the most confusing in the One-L year. Students are often left to divine the inner structure (or lack thereof) of contract law on their own, likely while cramming for finals. Sometimes the epiphany comes. For many students it does not.

Larry has a real genius for laying out the doctrinal building blocks in a very thoughtful and accessible structure. He groups cases around a rough life cycle of contracts, with chapters devoted to “Getting In: Contract Formation,” to “Facing Limits: Unenforceable Bargains,” to “Paying Up: Remedies.” The layout of the book combined with its lucid writing demystifies contracts.

The layout may at first appear to make this book an ill fit as a companion text to many case books, because many of the cases appear in Contracts in the Real World under a different doctrinal heading than in a particular case book. For example, in the case book I currently use Batsakis v. Demotsis appears in the chapter on “consideration.” Larry places this classic next to cases on unconscionability. I also teach Lucy, Lady Duff Gordon in consideration, while Larry situates it in “Performing: Duties, Modification, Good Faith.”

These differences actually demonstrate a strength of the book. Some disconnect between the organization of a primary case book and a companion text forces students to move beyond a facile understanding of contract law in terms of rigid doctrines. Seeing cases in different contexts and fitting into different doctrinal boxes can help students see that lawyering involves more than memorizing black letter rules and putting issues into the right doctrinal box. Indeed, sometimes different doctrinal boxes can apply to the same problem and lead to the same result (witness rules on past consideration and duress). At other times, the choice of the doctrinal box makes a huge difference (see those same two doctrines). Accomplished students can move from memorizing blackletter law to seeing the possibility of creative lawyering. Larry’s organization – both intuitive and surprising – will help students at both stages.

One final strength of the book is Larry’s choice to include not only court cases but many contemporary contract disputes that never reached the courtroom (such as the dispute between NBC and Conan O’Brien). This brings into the classroom a wider panorama of how lawyers encounter and shape contractual problems in practice. After all, few contracts and few lawyers find their way into a courtroom. Most disputes are resolved in the shadow of law.

I also have a wish list for Larry’s next project (from personal experience, I can tell you how invigorating it is for an author who has just finished a book to be asked “what’s next?’). One of the limitations of the traditional contracts curriculum is how rarely students read and interpret – let alone negotiate or draft – actual contracts. It would be incredibly helpful as a professor to have some of the source contracts behind these stories. Although some of these contracts are already contained in a judicial opinion (Carbolic Smoke Ball) and many will not be public (Conan’s deal with NBC), others might be available with some digging. Having real and full contracts would allow professors to meet many of the items on Professor Collins’ wish list, such as transactional perspectives and drafting exercises. Although some lawyers litigate over failed contractual relationships, many more help parties plan prospectively – including by drafting and negotiating deals. For most attorneys, contracts are not an autopsy subject, to be dissected in a court opinion, but a living thing.

Professor Cunningham’s book provides a joyful reminder of the life in contracts.

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October 12, 2012
Call for Papers: International Association of Consumer Law
Posted by Erik Gerding
The 14th Annual Meeting of the International Association of Consumer Law will take place from July 1-4, 2013 at the University of Sydney in Australia.  See the conference announcment and call for papers here.

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August 31, 2012
Weekend Reading: Contracts in Hollywood
Posted by Erik Gerding

I am getting ready to teach MGM v. Scheider next week in Contracts. The case (347 N.Y.S.2d. 755) involves whether a series of communications between a Hollywood studio and actor Roy Scheider (who would later star in JAWS) constituted a contract that bound the star to act in an ABC tv series. [Note: should any of my contract students read this post, the foregoing is not an example of a good case brief.]

When going over the aftermath of this case in class, the inevitable question comes up: “Why didn’t the lawyers insist on a more formal, written, and executed contract?” The same answers surface: sloppiness, lack of sophistication, time pressure. It makes for an easy moral for law students (“be tougher and more careful”), but one that I find increasingly less satisfying and nutritious. Sloppiness just seems too pat an answer to explain this or many of the other lawyer “mistakes” that populate a Contracts case book.

Fortunately, Jonathan Barnett (USC Law) has a new working paper that provides a much more nuanced answer. Barnett’s “Hollywood Deals: Soft Contracts for Hard Markets” explores why many contracts between Hollywood studios and star level talent (both sides usually represented by experienced lawyers) fall into this netherworld of “soft contracts” – that is agreements of questionable status as enforceable contracts. Barnett’s explanation involves both parties navigating two different risks – project risk (the risk a film won’t happen or will flop) and hold-up risk (the risk that a necessary party to a film will back out, possibly to hold the project hostage). The studio system used to provide a way to balance these two risks.  The decline of this sytem, according to Barnett, gave rise to a growing use of “soft contracts.” Here is the abstract:

Hollywood film studios, talent and other deal participants regularly commit to, and undertake production of, high-stakes film projects on the basis of unsigned “deal memos,” informal communications or draft agreements whose legal enforceability is uncertain. These “soft contracts” constitute a hybrid instrument that addresses a challenging transactional environment where neither formal contract nor reputation effects adequately protect parties against the holdup risk and project risk inherent to a film project. Parties negotiate the degree of contractual formality, which correlates with legal enforceability, as a proxy for allocating these risks at a transaction-cost savings relative to a fully formalized and specified instrument. Uncertainly enforceable contracts embed an implicit termination option that provides some protection against project risk while maintaining a threat of legal liability that provides some protection against holdup risk. Historical evidence suggests that soft contracts substitute for the vertically integrated structures that allocated these risks in the “studio system” era.

The very accessible paper is worth a read – not only for Contracts scholars and teachers, but also for those interested in the theory of the firm. For a different, stimulating approach to supplementing the teaching of contracts (Hollywood and otherwise), Larry Cunningham’s new book, Contracts in the Real World: Stories of Popular Contracts and Why They Matter is out from Cambridge University Press. Larry gave a preview of the book and his approaching to teaching the subject in our Conglomerate forum on teaching contracts last summer. The book is chock full of very useful stories on chestnut casebook opinions, as well as contracts straight out of Variety involving stars from Eminem to Jane Fonda.

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February 15, 2012
Van Halen and Those Brown M&Ms
Posted by Usha Rodrigues

Others have blogged about the Van Halen brown M&M clause (no brown M&Ms backstage), attributed to rock star over-indulgence and egocentrism.   There's another, more rational explanation available here

Brown M&Ms from Van Halen on Vimeo.

 

 

 

Jeremy Telman doesn't buy David Lee Roth's explanation.   But it's so much fun!

Update: I thought the Glom had posted on this story back in the day, but I couldn't find it in our archives.  Here's Gordon back in 2009.

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December 16, 2011
Educating Today’s Law Students to Be Tomorrow’s Counselors and Gatekeepers
Posted by Marcia Narine

Law schools are under attack. Depending upon the source, between 20-50% of corporate counsel won’t pay for junior associate work at big firms. Practicing lawyers, academics, law students and members of the general public have weighed in publicly and vehemently about the perceived failure of America’s law schools to prepare students for the real world.

Admittedly, before I joined academia a few months ago, I held some of the same views about lack of preparedness. Having worked with law students and new graduates as outside and in house counsel, I was often unimpressed with the level of skills of these well-meaning, very bright new graduates. I didn’t expect them to know the details of every law, but I did want them to know how to research effectively, write clearly, and be able to influence the clients and me.  The first two requirements aren’t too much to expect, and schools have greatly improved here.  But many young attorneys still leave school without the ability to balance different points of view, articulate a position in plain English, and influence others.

To be fair, unlike MBAs, most law students don’t have a lot of work experience, and generally, very little experience in a legal environment before they graduate.  Assuming they know the substantive area of the law, they don’t have any context as to what may be relevant to their clients. 

How can law schools help?

First, regardless of the area in which a student believes s/he wants to specialize, schools should require them to take business associations, tax, and a basic finance or accounting course.  No lawyer can be effective without understanding business, whether s/he wants to focus on mom and pop clients, estate planning, family law, nonprofit, government or corporate law. More important, students have no idea where they will end up after graduation or ten years later.  Trying to learn finance when they already have a job wastes the graduate’s and the employer’s time.

Of course, many law schools already require tax and business organizations courses, but how many of those schools also show students an actual proxy statement or simulate a shareholder’s meeting to provide some real world flavor? Do students really understand what it means to be a fiducuiary?

Second and on a related point, in the core courses, students may not need to draft interrogatories in a basic civil procedure course, but they should at least read a complaint and a motion for summary judgment, and perhaps spend some time making the arguments to their brethren in the classroom on a current case on a docket. No one can learn effectively by simply reading appellate cases. Why not have  students redraft contract clauses? When I co-taught professional responsibility this semester, students simulated client conversations, examined do-it-yourself legal service websites for violations of state law, and wrote client letters so that the work came alive.

When possible, schools should also re-evaluate their core requirements to see if they can add more clinicals (which are admittedly expensive) or labs for negotiation, client consultation or transactional drafting (like my employer UMKC offers). I’m not convinced that law school needs to last for three years, but I am convinced that more of the time needs to be spent marrying the doctrinal and theoretical work to practical skills into the current curriculum.

Third, schools can look to their communities. In addition to using adjuncts to bring practical experience to the classroom, schools, the public and private sector should develop partnerships where students can intern more frequently and easily for school credit in the area of their choice, including nonprofit work, local government, criminal law, in house work and of course, firm work of all sizes.  Current Department of Labor rules unnecessarily complicate internship processes and those rules should change.

This broader range of opportunities will provide students with practical experience, a more realistic idea of the market, and will also help address access to justice issues affecting underserved communities, for example by allowing supervised students to draft by-laws for a 501(c)(3). I’ll leave the discussion of high student loans, misleading career statistics from law schools and the oversupply of lawyers to others who have spoken on these hot topics issues recently.

Fourth, law schools should integrate the cataclysmic changes that the legal profession is undergoing into as many classes as they can. Law professors actually need to learn this as well.  How are we preparing students for the commoditization of legal services through the rise of technology, the calls for de-regulation, outsourcing, and the emerging competition from global firms who can integrate legal and other professional services in ways that the US won’t currently allow?

Finally and most important, what are we teaching students about managing and appreciating risk? While this may not be relevant in every class, it can certainly be part of the discussions in many. Perhaps students will learn more from using a combination of reading law school cases and using the business school case method.

If students don’t understand how to recognize, measure, monitor and mitigate risk, how will they advise their clients? If they plan to work in house, as I did, they serve an additional gatekeeper role and increasingly face SEC investigations and jail terms.  As more general counsels start hiring people directly from law schools, junior lawyers will face these complexities even earlier in their careers. Even if they counsel external clients, understanding risk appetite is essential in an increasingly complex, litigious and regulated world.

When I teach my course on corporate governance, compliance and social responsibility next spring, my students will look at SEC comment letters, critically scrutinize corporate social responsibility reports, read blogs, draft board minutes, dissect legislation, compare international developments and role play as regulators, legislators, board members, labor organizations, NGOs and executives to understand all perspectives and practice influencing each other. Learning what Sarbanes-Oxley or Dodd-Frank says without understanding what it means in practice is useless.

The good news is that more schools are starting to look at those kinds of issues. The Carnegie Model of legal education “supports courses and curricula that integrate three sets of values or ‘apprenticeships’: knowledge, practice and professionalism.” Educating Tomorrow’s Lawyers is a growing consortium of law schools which recommends “an integrated, three-part curriculum: (1) the teaching of legal doctrine and analysis, which provides the basis for professional growth; (2) introduction to the several facets of practice included under the rubric of lawyering, leading to acting with responsibility for clients; and (3) exploration and assumption of the identity, values and dispositions consonant with the fundamental purposes of the legal profession.”  The University of Miami’s innovative LawWithoutWalls program brings students, academics, entrepreneurs and practitioners from around the world together to examine the fundamental shifts in legal practice and education and develop viable solutions.

The problems facing the legal profession are huge, but not insurmountable. The question is whether more law schools and professors are able to leave their comfort zones, law students are able to think more globally and long term, and the popular press and public are willing to credit those who are already moving in the right direction.  I’m no expert, but as a former consumer of these legal services, I’m ready to do my part.

 

 

 

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December 14, 2011
Does a Corporation Have a Conscience and Can It Tempt Ethical People to Do Bad Things?
Posted by Marcia Narine

Time Magazine’s “person of the year” is the “protestor.” Occupy Wall Street’s participants have generated discussion unprecedented in recent years about the role of corporations and their executives in society. The movement has influenced workers and unemployed alike around the world and has clearly shaped the political debate.

But how does a corporation really act? Doesn’t it act through its people? And do those people behave like the members of the homo economicus species acting rationally, selfishly for their greatest material advantage and without consideration about morality, ethics or other people? If so, can a corporation really have a conscience?

In her book Cultivating Conscience: How Good Laws Make Good People, Lynn Stout, a corporate and securities professor at UCLA School of Law argues that the homo economicus model does a poor job of predicting behavior within corporations. Stout takes aim at Oliver Wendell Holmes’ theory of the “bad man” (which forms the basis of homo economicus), Hobbes’ approach in Leviathan, John Stuart Mill’s theory of political economy, and those judges, law professors, regulators and policymakers who focus solely on the law and economics theory that material incentives are the only things that matter.

Citing hundreds of sociological studies that have been replicated around the world over the past fifty years, evolutionary biology, and experimental gaming theory, she concludes that  people do not generally behave like the “rational maximizers” that ecomonic theory would predict. In fact other than the 1-3% of the population who are psychopaths, people are “prosocial, ” meaning that they sacrifice to follow ethical rules, or to help or avoid harming others (although interestingly in student studies, economics majors tended to be less prosocial than others). 

She recommends a three-factor model for judges, regulators and legislators who want to shape human behavior:

 “Unselfish prosocial behavior toward strangers, including unselfish compliance with legal and ethical rules, is triggered by social context, including especially:

(1)         instructions from authority

(2)         beliefs about others’ prosocial behavior; and

(3)         the magnitude of the benefits to others.

Prosocial behavior declines, however, as the personal cost of acting prosocially increases.”

While she focuses on tort, contract and criminal law, her model and criticisms of the homo economicus model may be particularly helpful in the context of understanding corporate behavior. Corporations clearly influence how their people act. Professor Pamela Bucy, for example, argues that government should only be able to convict a corporation if it proves that the corporate ethos encouraged agents of the corporation to commit the criminal act. That corporate ethos results from individuals working together toward corporate goals.

Stout observes that an entire generation of business and political leaders has been taught that people only respond to material incentives, which leads to poor planning that can have devastating results by steering naturally prosocial people to toward unethical or illegal behavior. She warns against “rais[ing] the cost of conscience,” stating that “if we want people to be good, we must not tempt them to be bad.”

In her forthcoming article “Killing Conscience: The Unintended Behavioral Consequences of ‘Pay for Performance,’” she applies behavioral science to incentive based-pay. She points to the savings and loans crisis of the 80's, the recent teacher cheating scandals on standardized tests, Enron, Worldcom, the 2008 credit crisis, which stemmed in part from performance-based bonuses that tempted brokers to approve risky loans, and Bear Sterns and AIG executives who bet on risky derivatives. She disagrees with those who say that that those incentive plans were poorly designed, arguing instead that excessive reliance on even well designed ex-ante incentive plans can “snuff out” or suppress conscience and create “psycopathogenic” environments, and has done so as evidenced by “a disturbing outbreak of executive-driven corporate frauds, scandals and failures.” She further notes that the pay for performance movement has produced less than stellar improvement in the performance and profitability of most US companies.  

She advocates instead for trust-based” compensation arrangements, which take into account the parties’ capacity for prosocial behavior rather than leading employees to believe that the employer rewards selfish behavior. This is especially true if that reward tempts employees to engage in fraudulent or opportunistic behavior if that is the only way to realistically achieve the performance metric.

Applying her three factor model looks like this: Does the company’s messaging tell employees that it doesn’t care about ethics? Is it rewarding other people to act in the same way? And is it signaling that there is nothing wrong with unethical behavior or that there are no victims? This theory fits in nicely with the Bucy corporate ethos paradigm described above.

Stout proposes modest, nonmaterial rewards such as greater job responsibilities, public recognition, and more reasonable cash awards based upon subjective, ex post evaluations on the employee’s performance, and cites studies indicating that most employees thrive and are more creative in environments that don’t focus on ex ante monetary incentives. She yearns for the pre 162(m) days when the tax code didn’t require corporations to tie executive pay over one million dollars to performance metrics.

Stout’s application of these behavioral science theories provide guidance that lawmakers and others may want to consider as they look at legislation to prevent or at least mitigate the next corporate scandal. She also provides food for thought for those in corporate America who want to change the dynamics and trust factors within their organizations, and by extension their employee base, shareholders and the general population.

 

 

 

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October 22, 2011
"Empirical and Lyrical: Revisiting the Contracts Scholarship of Stewart Macaulay"
Posted by Gordon Smith

I am sitting in Lubar Commons at the University of Wisconsin Law School, attending the excellent conference honoring the work of Stewart Macaulay. (If you want to access Stewart's papers, you can find them here.) I have written about Stewart's famous 1963 paper on several occasions (see, e.g., here and here), and my contribution to this symposium returns to that work, although with a slightly different focus. In the "Social Dimensions of Opportunism," I argue that contract law serves the valuable function of boundary enforcement. Rather than regulating all of the deviations and adjustments that are common in contractual relationships, an important role of contract law is to constrain extreme deviations from social norms, thus reinforcing agreements precisely in contexts where informal social sanctions are weakest.

While many of the presenters are focusing on the 1963 paper, I am enjoying the chance to become more closely acquainted with Stewart's other works. My contribution and the contribution of my co-panelist, Bob Scott, both depend significantly on Stewart's 2003 paper, The Real and the Paper Deal, which should resonate with those who write about incomplete contracts. By the way, Bob is concerned about the decline of relational scholarship in the legal academy, and he calls for a reconciliation of economically and sociologically oriented relational contract scholars. Good stuff.

Ethan Leib has written an interesting analysis of consumer contracts ("What is a Relational Theory of Consumer Form Contract?"), using Stewart's 1966 paper, Private Legislation and the Duty to Read -- Business by IBM Machine, the Law of Contracts and Credit Cards, as a springboard. And I am particularly interested in a paper by Gillian Hadfield and Iva Božović entitled "Scaffolding: Using Formal Contracts to Build Informal Relations to Support Innovation." The authors have done a rough replication of Macaulay's 1963 study, interviewing California business people rather than Wisconsin people. In this paper, the authors argue that formal contracts and contract doctrine serve as "scaffolding" for the development of the contracting relationship.

The conference is still going -- and someday these papers will appear in a conference volume -- but this has been another great production by the Wisconsin contracts group. 

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July 08, 2011
Contracts Roundtable: Contracts as a Transactional Course
Posted by Erik Gerding

This post comes to us from Erin O'Hara, Professor of Law and FedEx Research Professor at Vanderbilt University Law School.  The post is a follow-up to our Roundtable on Teaching Contracts.  You can view all the posts in this Roundtable here.

In the Fall of 2007, I undertook to teach my Contracts course in a way that helps students to develop transactional skills. It seemed shameful that most students leave the first-year course without ever seeing an actual contract. I wanted to expose students early to the work of transactional attorneys, especially given that about one third of practicing lawyers earn their livelihood in this way.

Like the earlier contributors to this discussion, I began to think about changing the course on the margin. Maybe I could show the students some real contracts or add a negotiation or drafting exercise, but as mentioned already in this discussion, it was indeed difficult to add materials to an already crammed four-hour course. When I expressed frustration to my then dean Ed Rubin, he responded by suggesting that I needed to throw out the traditional contracts course and start over in order to make room for a modern approach to the subject. The suggestion seemed ludicrous to me at first, but once the message had time to sink in, I realized that Ed was right.

Contracts may be the only law school course that spends nearly all of the semester at the edge of the subject and almost no time at the subject’s center. Professors teach about distinctions: the difference between promise and contract, between contract and tort, between contract and property, and between enforceable and unenforceable promises. With all of these topics, the course attempts to define the boundaries of the subject matter of contract, and in the end students learn far more about what contract is not than they do about what contract is. Ed convinced me to start at the center of contract and move outward from there.

The center of contract is about negotiating and drafting an agreement and/or a change in anticipation of the fact that one day the parties (with or without the aid of a court or arbitrator) will have to determine what that contract means. The vast majority of contracts that lawyers draft do not result in formal disputes, and, when they do, the parties fight much more often about what the contract provides than they do about whether they have a contract. These are the issues that should dominate in Contracts.

These issues are difficult issues for first-year students to grapple with because most have no experience with the subject matter at hand. Stories about hairy hands and Harrier jets and promises to marry resonate with the students, but warranties and conditions and due diligence seem far more remote. Students needed context to begin to grapple with these issues, so I began to look for a simple story that could draw the students into the world of transactions and the role of the lawyer and the contract in that transaction.

Claire Hill provided me with the best possible story: a play that comprised the last chapter of James Freund’s book, Anatomy of a Merger. The play enabled the students to imagine the transactional setting and to begin to understand the role of the lawyer in that setting. The play enabled the students to better grapple with the concepts of risk assignment and conditions and warranties. It gave the students an appreciation for the importance of carefully crafting contractual language and of gently focusing the client on possible problems that can be avoided or minimized with contract language. This play, along with some supplemental materials, provided the basis for a short one-week unit introducing students to The Contracting Environment.

Unit II focused on Contract Interpretation, a subject we covered for 4-5 weeks. We focused on the distinction between promise and condition early and often in this course. I will confess that I left my first-year Contracts course not really understanding what a condition was. In contrast, my students truly understood their function by the end of the semester. We explored the difficulties that can arise with ambiguous contract language, and in the process covered the canons of construction and the use of evidence outside the writing. We then covered default rules and explored the difficulties and benefits of silence in contract drafting. Finally, we covered change and modification and the good faith obligations.

Unit III covered Breach and Remedies (including both damages and self-help provisions). Unit IV covered Contracts of Adhesion. The syllabus included a separate unit on these contracts because in the first several weeks of the course we had studied the negotiation and drafting of contracts by sophisticated commercial parties and their lawyers, and I wanted the students to focus on the important differences between the two contract settings. A final unit, about 3 weeks long, explored contracts/promises that are not enforced. We covered lack of agreement, lack of consideration, formalities, public policy, and impossibility, impracticability, and frustration of purpose in this last unit. In the end, the students were exposed to virtually all of the concepts that they need for their upper-level courses and for bar-exam study (we unfortunately did not cover third-party rights).

Throughout the course we looked at actual contract provisions. In addition, three exercises were used to force the students to apply the course concepts. In week 4 students critiqued a very basic band booking agreement (this is Nashville!), in week 7 students drafted a simple requirements agreement (after giving them a detailed factual scenario), and in week 10 they negotiated and drafted a provision covering the circumstances under which the tenant could withhold rent from the landlord in a commercial lease setting. In week 12 students were invited to attend a lunchtime panel with 5 transactional lawyers who described their practices and talked with students about the world of transactional lawyering. Some of the panelists have served as mentors to the students interested in a transactional practice. The final exam asked students to critique and propose changes to two different contracts. In one, the lawyer was representing the client who was one of the parties to a commercial transaction where the other party had produced the first draft. In the other, the student was placed in the role of new in-house counsel asked to explain to a corporate officer the significance of the provisions in her predecessor’s draft sales agreement and to comment on any provisions that might not be legally valid (many of the customers were ordinary consumers).

I expected the students to excoriate me in their evaluations at the end of the semester. Surely the students would conclude that they had been turned into guinea pigs for some strange pedagogical experiment that robbed them of the sense of comfort that accompanies their reliance on textbooks and study aids (not to mention my old Contracts exams). I was prepared for the beating because I believed in the worth of the course change. In fact, however, I received the highest teaching ratings I have ever received at Vanderbilt. Students completely understood that 21st century law practice was based much more closely on the materials to which they were exposed than they were on the cases studied in the other Contracts section. Student comments indicated that they believed that the innovation was valuable and that their professor was working extremely hard to deliver to them a better educational experience.

The students did not just appreciate the effort being made to reform the course. They actively engaged the materials in a manner that showed that they understood what could be exciting and rewarding and yet difficult about transactional legal practice. For example, a number of students raised practice-relevant ethical issues during the course of the semester, including the circumstances under which the client should be advised to disclose disadvantageous information to the other party. And several expressed interest in transactional practice because it seems like a positive sum game. Others have written about how law schools manage to turn student excitement into cynicism and depression in just one year of law school. The causes for dissatisfaction with the prospect of practicing law are many, but one surely is that litigation is at best a zero-sum game and often a negative sum game. A transactional course enables the students to envision a legal practice in which the parties that they represent can all benefit from the transaction and the lawyers’ efforts. For several of my students, this was both comforting and energizing. I didn’t intend to engage the students on ethical issues or career satisfaction, but the approach of the course did produce these consequences. Enrollment in our upper-level transactional courses has skyrocketed, and my students tell me that they feel much more comfortable in these courses than do the students who were not exposed to a transactional perspective in Contracts.

The materials assigned were terrible in the sense that they required both the students and the professor to work harder than necessary. I assigned the Farnsworth hornbook to give the students a sense of the black letter law that they would need to respond to with their contracts. Unfortunately, however, the extensive detail of the hornbook when used as primary material rather than as review material caused unnecessary stress for the students and countless hours of explanation back in my office. Those materials were supplemented with Restatement and UCC provisions as well as a few cases. (I left to the other first-year professors the task of learning to read a case to distill its legal principles and instead primarily used the cases in Contracts to show students some of the situations that can arise and the ways that courts can treat contract language in addressing those situations.) Nothing tied these materials together, so I wrote a series of unit memos to provide them with needed thematic direction.

At Vanderbilt I had the luxury of being granted a semester’s research leave as my reward for my investment in the course. Without that bargain I frankly would have continued to muddle along with the traditional casebooks because the cost to my research while revising the course was significant and I needed to know that I would get that research time back somehow. My goal in the next two years is to produce the course materials necessary for others to teach Contracts from a transactional perspective without giving up substantial research time. Currently available course materials make it possible to add transactional garnish to a litigation-based course, but we can and should provide out students with more than just a garnish in the first year.

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June 10, 2011
Contracts Roundtable: Closing the Deal
Posted by Erik Gerding

Usha and I would like to thank our guest panelists in this Roundtable on Teaching Contracts:  Larry Cunningham (George Washington), Gillian Hadfield (Univ. of Southern California), and Claire Hill (Minnesota). Erin O’Hara (Vanderbilt) will be making some follow-up comments on the roundtable later in the summer.

They have provided a marvelous discussion and some wonderful insights on teaching.  You can access the entire roundtable here.

This coming Thursday and Friday, June 16-17, the Conglomerate will be hosting our second Teaching Roundtable ofthe summer.  We are delighted that a new cast of law professors will be discussing teaching the course in Banking Law/Financial Institutions.

 

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Contracts Roundtable: Teaching Resources
Posted by Erik Gerding

One comment to the Roundtable asked for suggestions for exercises in contract interpretation, analysis, and drafting. It is a great question, because being able to pull things off the shelf makes the upfront costs of innovating in the classroom a lot lower.

Gillian already mentioned the exercises available on her web site. I already mentioned the Harvard Program on Negotiation clearinghouse for negotiation exercises. I'd be interested to hear if our panelists have other suggestions.

We wanted to keep the summer roundtables away from discussions of which case book is better. But, without endorsing any of the following, here is a very incomplete list of books and resources that offer contract simulations and exercises (this list is just based on what I have in my office; my apologies if I leave someone's book out):

  • Tina Stark, Drafting Contracts: How and Why Lawyers Do What they Do;
  • Sue Payne, Basic Contract Drafting Assignments;
  • David Zarfes & Michael L. Bloom: Contracts: a Transactional Approach;
  • Thomas R. Haggard, Contract Law from a Drafting Perspective: An Introduction to Contract Drafting for Law Students;
  • Thomas R. Haggard & George W. Kuney, Legal Drafting: Process, Techniques, and Exercises;
  • Scott J. Burnham, Drafting and Analyzing Contracts.

(Please note: none of these authors have asked me to recommend their books. If others have alternative suggestions, please leave them in the comments. Since case book authors take quite a bit of pride in their work, professors are understandably reluctant to offer reviews or criticisms online).

Tina Stark has also organized an exchange for transactional teaching materials on Emory's web site. I confess to not having asked for a password for this exchange yet.

Prawfsblawg had a great series of guest posts last summer on advice on teaching various courses (Things You Oughta Know if You Teach X). Jeff Lipshaw authored a great post on teaching contracts, in which he makes additional suggestions for resources.

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Imagination and identification
Posted by Gillian Hadfield

I agree completely with Claire that a) we can do less doctrine in first year contracts and b) a key goal is to get students to not leave so much of their own experiences and pre-law way of seeing the world at the door.  And she's right that the main goal is to get them thinking about what a client is trying to accomplish--and what other parties are trying to accomplish--and to use that as the framework for analysis.  That's one reason I like to give students the fact scenario for their first two assignments on day one of the course.  To emphasize that they want to start thinking about this problem like any person would.  And because before they are clouded with doctrine, they connect with a much wider range of considerations. We are of course training them to be able to apply legal filters to sort issues in ways non-lawyers don't--but I find it really helps for them to see how their analysis of the problem shifts as they start to learn some rules.  This also gives them some additional motivation in the course as they can see what they are learning.  As for thinking about client goals, this is what I emphasize in the explicit teaching of judgment as a framework.  Judgment for a lawyer means making choices about what to focus on, what alternative theories of the case to go with, which facts to emphasize , which to downplay--all within the context of achieving goals.  Hence my students learn that it's poor judgment to focus on an issue that gets the client $50 (breach of a low-value term--however nifty the theory is or however great an application of the parol evidence rule...) when there's another strategy that secures $50,000.  Or to focus on a strategy that depends on an argument that faces killer counterarguments.  I really felt like I had done my job a few years ago when at least half of the final exams dealing with the fact scenario involving mortgages, refinancing pressure and a horse farm started out with a few notes by the student under the heading "What does Maggie want?"  And a sizeable number then sketched 4 or 5 possible strategies/theories of her situation.  I don't grade that stuff but it tells me right up front that the stuff I do grade--what issues did they identify in their outline and how well; what issue did they choose as important; how well did they execute detailed analysis of that issue--was done within a framework that gave them a running start out of the gates.

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Contracts Roundtable: More on simulations, and on preventing osmosis
Posted by Claire Hill

I haven't taught contracts for a few years, but I hope, when I do so again, to do something along the lines that have been discussed in this Forum. I envision refashioning the course so that it has much less doctrine, some (simple) theory, and some simulation. (I have taught advanced transactional courses along these lines, with considerable simulation and some theory.) I think contracts students don't need as much doctrine as the traditional course gives them (except for the bar-- and they can get that in the bar review.) I think law school is a terrific place to get students to intuit theory from experiences of their own ('if you were buying a car, what would you worry about, and why' to 'what sorts of things potentially benefit sellers at the expense of buyers.') Indeed, by theory, all I mean is a way to understand what parties might worry about and try to deal with in contract documents. I know this was needed when I went to law school and started practice, admittedly quite a long time ago; I am told by law firm partners that many new associates are still trying to learn by osmosis, figuring out 'what contracting parties typically do' rather than starting with 'what the parties might be trying to do.' I think it would be great to do simulations involving both subject matters that may be more familiar to students, and subject matters that seem far less familiar, like buying a company. In my experience, students sometimes take more to heart the 'we will teach you to think' 'legal reasoning is a new and different skill, one you didn't have before' mantras than is good for them. They may never have bought a business before, but stepping back and considering how it compares to things that have done can get them a certain ways, I think, and build much-needed confidence.

One thing I've seen somebody else do that I thought worked quite well: students were given the broad outlines of a deal a "client" was interested in. The "client" came to class, and the students interviewed him, asking him specifics about the deal as he envisioned it, and asking him his view about various issues they saw in what he said or what they knew of the deal.

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Contracts Roundtable: The Least Dangerous Course
Posted by Lawrence Cunningham

Contracts is the least political course in the first year of law school, perhaps all of law school.  I say keep it that way, and share that with students, despite how visionaries on the far left and far right may wish otherwise.   I also think the course and its content should be made as clear and straightforward as possible for the students, not bogging down in every exception within the exception.  

I agree that tailoring the contracts course to suit is no harder than any other professional task lawyers appointed to the job have handled. Start with getting samples of syllabi from senior colleagues, at your own school or from around the internet. Most books are packed with a combination of cases, notes, problems, drafting excecises, and so on.  There are separate dedicated books chock full of drafting problems. 

Review all these.  Evaluate them with your specific situation in mind: your strengths and weaknesses as a teacher, your student's backgrounds and prospects, your school's needs and expectations for you given its standing and curriculum. 

Rank them from best to worst and, then, as Ohio State's Doug Whaley once quipped, assign the second-best one and keep the best one for yourself. Assign small bits at a time and discuss everything that is assigned.

Concerning eschewing the political, each chapter in my book, Contracts in the Real World, ends with a short synthesis contending how contract doctrine occupies what I call the "sensible center" in law. Following is that from Chapter 2, entitled "Facing Limits: Unenforceable Bargains."

As a matter of policy to promote freedom of contract, courts usually enforce contracts as written, without specific review of the terms. If terms show a contract was formed, courts enforce them. Fairness is not a court’s concern in contract cases. Some deals, however, are struck on surprisingly lopsided terms, like a simultaneous exchange of different amounts of money or as the product of extortionate threats.

Courts struggle with whether to enforce bargains that appear in unconventional settings, such as parenting, or romance, where bargains are unlikely; or involve activities that are illegal, like gambling or prostitution, or unsavory, like adultery. Deals suggesting lack of true bargain or verging on illegality provoke judicial attention—and are often ruled unenforceable, sometimes by declaring they lack consideration.

Visionaries on the left and right alike object to this balanced approach. Devotees of a greater formalism rebuke any judicial second-guessing of the bargains people make. It should be irrelevant whether a trade is made of different amounts of money or for nominal consideration like $1. People should be free to strike bargains on any subjects they wish with equal dignity—whether deals about paternity, parenting, palimony, adultery or gambling.

Promoters of a greater contextualism would give judges broader license to police not only bargains signaled to be suspect by the form or amount of consideration but a wider range of terms deemed objectionable. That could include authorizing a more probing evaluation, on the grounds of public policy, of contracts not only that may be the product of extortion but about babies, among paramours or between adulterers or sisters playing slots.

These stances are problematic in opposite ways. Greater formalism has the virtue of promoting freedom of contract and increasing the security of exchanges. But expand that freedom infinitely and lose any space for social control. It is difficult to deny that there is at least some utility in some avenues of social control—almost certainly for anti-extortion laws but probably for the regulation of other activities strongly affecting the public interest.

In contrast, excessive zeal for social control constricts a desirable space for freedom of contract. By inviting judicial second-guessing of all bargains, such zealotry would destroy certainty about the security of exchanges. Reasonable people may differ about where to draw the line between freedom of contract and social control.

Contract law’s exact division may not always be clear and can be contested on any given issue. But it seems pragmatic and prudent to enable a wide scope for freedom of contract accompanied by a modicum of oversight to thwart extremes and police gray areas. That, in any event, is the best description of prevailing contract law. And these are not the only tools available to mediate between the extremes. Just because people make a valid contract does not mean it must be performed come hell or high water, as the next chapter shows.

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Contracts Roundtable: Negotiations
Posted by Erik Gerding

One thing I have tried in many of my classes including Contracts is to add a small negotiation simulation component. It has been more of an experiment than a fully integrated part of the Contracts course.

My goals have been fairly modest. Among them: to expose students to a regular aspect of legal practice. (I remember in my 1L desperately looking for some other niche other than appellate advocacy.) I also want to get students to understand in a very hands-on way how contracts get made and to look at them as more than just exhibits in a lawsuit. I want to provide a corrective to my own tendency to focus too much of the classroom discussion on what lawyers in given case did wrong. As I have mentioned in posts several months ago, conducting an autopsy of cases may lead students to be too conservative in practice. Contract drafting exercises give students an appreciation for how difficult the lawyer’s craft can be.

Contract negotiation exercises add an extra dimension that may be under-emphasized in the business law curriculum generally. I have seen a lot of great exercises and simulations in various courses that involve planning and drafting for a client. There are a lot fewer that require students to engage in the even more difficult process of planning and drafting while sitting across the table from a counterparty. When do you compromise? When do you specify standards or remedies in a contract?  When do you fall back on default rules or more general language?  It sounds platitudinous, but the essence of contract is that it takes two to contract (unless you are drafting a unilateral contract for smoke balls). The negotiation dimension makes the discussion of any class involving private ordering a lot richer and more complex.  (And I agree with Usha, the Contracts may play a special role in bringing private ordering into the first year.) 

And to be honest, I add a negotiation exercise not only to give students a sense of the difficulties of contract negotiation, but also its pure fun.

In other courses, I have found good negotiation exercises and simulations in case books (some suggestions in a subsequent post) or developed them myself. In Contracts, I have generally bought some of the simpler contract negotiation exercises that are available in the large offerings of the Harvard Program on Negotiation clearinghouse.

There have been some hitches. First, the Harvard materials are largely designed for teaching negotiation skills, not necessarily for use in a doctrinal class. Many of the exercises might be made better by reworking them to add more doctrinally relevant facts. It would also be wonderful if a clearinghouse had exercises designed for use in doctrinal classes.

Second, again, the limits of class time force us all to make hard choices about our teaching objectives. My aim in Contracts and in other courses is to give a taste of negotiation, but not to replicate a Negotiations course on the cheap. It is important to focus on what I want students to get out of the exercise.  This means carefully planning (but not scripting) the class in which we do the post-negotiation debriefing.

Third, it has been hard to figure out when to hold the simulation and how to integrate it into the semester. It seems a little odd to have a negotiation when we are still discussing contract formation and formation defenses. Some students tend to get tripped up trying hard not to make or accept an offer inadvertently rather than focus on the simulation. In an ideal plan for the course, I would have a negotiation exercise before we talk about parol evidence and contract interpretation to allow the negotiation pairs to take a fresh look at what they wrote before to spot potential ambiguities that might create litigation exposure.

Despite these hitches and occasional glitches, adding a negotiation dimension to Contracts (and other business law courses) has seemed rewarding for the student. Can I admit that I have fun too?

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June 09, 2011
Contracts Roundtable: Changing your first year Contracts course is not hard
Posted by Gillian Hadfield

I know that many law professors are worried that there is just no feasible way to revamp a first year course (or any other course!) to better meet all the critiques of traditional teaching, at least not without jeapordizing time available for research, colleagues, sleep, etc.  But the changes I have made in the first year course are absolutely NOT time consuming; indeed, I'm very sure I spend the same amount of time teaching this way as I do in any traditional course.  This comes from an integrated approach to change.  You can download a package of sample materials from my course at my webpage (where you can also find articles I manage to write while teaching this way).  Here is the basic outline of how this works and how I manage time constraints--my own and the number of classes in a 4 hour semester course.

1. Begin by establishing a clear understanding that a first year course can't and shouldn't do everything.  My only goals in this course are for students to be adept at identiyfing issues, seeing how they relate, evaluating ambiguous facts, constructing fact-rich arguments and counter-arguments, exercising judgment, making strategic choices and generating conclusions about the relative strength of different strategies to achieve client goals.  I do not try to teach a lot of theory or expose students to all the materials they should be exposed to over the course of a 3 year degree.

2.  Then start with the end:  the final exam.  My final exam reflects the above goals.  It is a single 3 page fact scenario.  For half of the points (50) the students are asked to create an outline of the issues--no analysis, just organization into issues and sub-issues.  Then they are asked to select one issue that they judge to be important to the advice they have to give; their choise is graded out of 20 points.  Then they analyze that selected issue in depth, for 30 points.  I can grade 6-8 of these an hour--and could easily give 70% of the grading to a TA with a grading sheet--because the outline of issues is just ticking off issues on the list I generate before I grade (I look over the outline of about 10 exams first as well to make sure I haven't missed something the students focused on) and the judgment score for any issue they might select is also pre-determined.  Then I can evaluate their legal reasoning and analysis in depth in what turns out to be a short and focused section of prose.  There are two more reasons this is quick to grade.  First, the structure creates consistency across papers, so I never have to go back and readjust.  Second, because as you'll see, the students have answered questions exactly like this in this format during the course--with feedback, class discussion and loads of peer discussion--the students are by and large all presenting coherent answers in form and substance.  The differences that emerge reflect depth of understanding, creativity and analysis, not the randomness of realizing that I don't want them to focus on every issue--just what matters, (for example.)

3.  Give the students 3 fact scenarios as the basis for 4 assignments during the semester.  This requires creating 2 new fact scenarios each time I teach the course--because I always use last year's exam as assignment 4.  I give them scenario 1 the first day of class and use it for the first two assignments.

4. Pare back your syllabus to make room for the work both you and they will do on assignments.  You can see my syllabus in the materials on my website.  (Keep in mind on the syllabus that I teach the course in an every-other-week structure so my classes for a given day are double-dose.) You'll see I cover all the highlights of a regular class but I don't teach all the cases on the doctrine--so maybe only one example each of liquidated damages and specific performance.  I also find a few days for some theory, but it is just to give them a taste for future years. 

5. Approach the problem-solving work by having students form in the first week or so into groups of 4 (if you have an odd number, you may need a few groups of 3--they get the option of not being graded on one of the assignments although they still complete it and hand it in for feedback.)  I do this in a class of, say, 80 students.  That's 20 groups of 4.  This is the key to success for them and you:  they benefit from the deep engagement with a group in solving problems and learning how ambiguos and variable perceptions of fact and argument can be; and you benefit because instead of grading 80 x 4 memos over the semester, you grade 20 x 4.  And remember that your time spent grading is the time  you would have spent preparing for two regular classes (because we devote two classes to discussing the problems after they're finished), and is reducing the time you spend grading the exam.

6.  The first assignment is to create an issue outline for the problem -- drawing only on the rules and cases they have studied up to the date of the assignment.  This is where you discover as an instructor that students don't naturally know what is a "legal" issue and they learn to start organizing their thinking into legal categories and logical relationships between issues (sub-issues).  Everybody posts their groups memos online and all are required to read every other groups outline.  You give them detailed margin notes and feedback to help them learn how to think in terms of issues, talk like a lawyer and see the logic of rules. Then you hold two classes (one of my doubled-up classes) discussing the memos.  Asking groups to state what they thought was a sub-issue or not.  Collecting votes on the board for which issues were included.  I emphasize that an "issue" is a legal question that could plausibly come out both ways--not a checklist of the 3 required elements for the formation of a contract or a catalogue of all possible defenses.  So they worry about what is an "issue"--how do they know what could be "plausibly" argued?  I facilitate discussion of their ideas about this in class.  They start to get it.  I post my commented versions of all memos online for all to read and provide a general feedback memo with discussion of troublesome issues and pointing them to good examples for specific ways to handle something. 

7.  The second assignment is to choose an issue (they can expand their outline to include issues based on rules covered since the last assignment) that they judge to be important to the advice the client is seeking and analyze that one in depth.  They struggle like crazy to get you tell them how they're supposed to know what's important.  But the way they learn is by talking in their groups.  Then they just have to pick something.  Then they post their memos for all to read.  Then we spend a double-class discussing--collecting the issues the groups chose, getting them to tell me how strong they concluded the client's position was on the issue they chose and why.  They see the exercise of judgment; they develop their own.  They see (aha!) why it wasn't such a hot idea to write about that really cool misrepresentation issue--because the client wants to enforce the contract.

8.  Assignments 3 and 4 require them to do all three things:  Prepare an outline, choose an important issue and analyze just that issue in depth.  All are commented in detail, posted, discussed in class.  You can see why students tell me that they are the least stressed about my final exam because they know exactly what I'm going to ask them to do; and that's also why it's fast and easy and consistent and fair to grade.

9.  NOw the question you've all been dying to ask:  groups and grading.  Groups remain the same during the semester--students need the sense of a repeated relationship to invest in learning how to be a good team player.  Yes, there are sometimes group conflicts but real problems are very rare (maybe 1 per semester).  I collect confidential 'self and peer assessment' forms from each student (deposited in an online dropbox) after each assignment--students get a chance to tell me what's going on in their groups which helps them feel less frustrated if they are, gives me a heads up for fixing any brewing problems, and generally reveals that the majority of students are delighted to discover that the group work they thought they would hate, they love.  They respect the intelligence and hard work and professionalism of their colleagues.  Grading:  Each group member takes a turn being the "point person" for a memo.  The memo is graded out of 15 points.  The point person gets the score out of 15 (eg. 12) and the others in the group get a pro rate score out of 5 (eg. 4).  At the end of the semester each person has 15 points for "their" memo and 15 points for work on the other memos.  Then I assign 10 professionalism points at the end of the semester for contributions in class and group--based on what I can glean from group interactions and feedback.  The exam is worth 60 points although I use what flexibility I have in the grading curve to increase the weight on the final if it is significantly better than the in-course grade. 

10.  Students gain observable mastery over the course of the semester--and I can see as I go along what they are learning and what they are struggling with; this can vary from year to year.  But I can see that while they struggle to organize issues at the beginning, they are competent at the end.  While they don't see what's wrong with just throwing out pro-client arguments at the beginning, they do by the end.  They may present what they think are arguments but are really just assertions ("she will argue this was reasonable") at the beginning, but few do at the end.  They figure out--it turns out to be very hard--that a counterargument is not just another argument the other side could make; it responds directly and in a fact-rich way to an argument presented.  If A says the history of the relationship of helping each other out makes it reasonable to believe that the statement "we're on" was a manifestation of intent to be bound, then B's counterargument has to address why it's not reasonable to conclude that from the history cited (because helping each other out in the past is about friendship, not contract--for example.)  And whereas they are mightily distressed early in the course at the idea they will ever figure out what it means to say that's an "issue" (ie. something a lawyer needs to consider in crafting strategy) and which of the many issues they've identified is "important" to the advice they have to give, by the end very few are including non-issues in their outlines and on a recent exam 80% got full marks for their exercise of judgment. 

I really like teaching this course this way--it's very engaging for both professor and student; and you really can see the impact of your teaching and adjust it to produce a better result as you go along.  I now could not possibly teach a course in which I had no systematic way to see during the semester what the students are 'getting' and what they are missing.  Try this out for one assignment in your course:  you will be amazed (distressed?) to find out what you thought they were learning while you were talking about efficient breach and the minority rule in Minnesota.

 

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