June 09, 2011
Contracts Roundtable: The problem with Contracts
Posted by Gillian Hadfield

The questions Erik poses in his opening post focus a fair bit on the question of whether and how people introduce transactional perspectives in the first year Contracts course.  My own sense is that while it is important to broaden the first year focus beyond litigation, the problem is not the absence of transactional issues.  Nor is it the absence of more sophisticated materials about the financial crisis or economic analysis of law or international perspectives or even statutes that regulate contracts.  It is the absence of sustained opportunities to practice the actual application of legal reasoning to develop advice for a client--whether it is advice about whether breaking off a relationship could trigger a claim for breach or what the options are to resolve a dispute.   I'm wondering if other people have observed this in their first or upper year classes. 

Frankly, I only found this out when some accidental diagnostics were introduced in an upper year course.  I designed an Advanced Contracts course in the mid-90s that was intended to give students a fair bit of economic theory they could use to develop richer arguments in contracts cases.  For example, I gave them materials about sunk costs, opportunism and the economics of franchising and then I gave them a case study--based on an actual case with disguised parties and documents--involving the renewal of a franchise contract.  I had assumed they would use the theory to develop sophisticated arguments for how to interpret the renewal provision which stated that the franchisees were entitled to renew for a ten year period provided they executed "the form of franchise agreement then in use."  But the case study was introduced using an experiential teaching method:  I just gave students, who were working in teams, a narrative describing the history of the relationship, the story of what was happening (at renewal the franchisor was seeking to double the royalty rate to bring it into line with the rate now implemented for new franchisees in the system), and copies of the original letter agreement, original franchise agreement with the renewal provision and the proposed new agreement.  The franchisees were approaching a lawyer for advice about whether to sign (with the added details about failed negotiations with the franchisor to keep the royalty rate at existing levels and the decision by the clients to stop paying their royalty fees or sign the new agreement--the prior having now expired.) The assignment was "advise the client."

What I found out what quite shocking, frankly, for a first-year contracts professor who assumes--as I think we all assume--that the students who have completed a first year course know how to do "basic" legal analysis and are ready for sophisticated approaches (such as when we introduce transactional and theoretical materials.)  I discovered the students--who were excellent and highly motivated--really had no clue what the job was that they were expected to do.  They could write beautiful memos reporting on legal research about good faith or cases enforcing renewal provisions; they might even think to go find out whether there were franchise regulations that impacted the exercise of renewal powers.  But they didn't really understand how to figure out what the client needed or how to dig into the facts, and potential facts (what will happen if the franchisees continue not to pay?) to give advice--sign, don't sign; pay don't pay, etc.  In fact, without my having put a flashing light over the language of the renewal clause the vast majority of student teams didn't even realize that the major question they needed to figure out was what they thought that language meant and how it might impact their client's situation.  I've taught that case probably 8 times now over the past 15 years--exactly the same materials--and I would say that even now only a small minority wade through the fog to see what they need to work on.  Most (this is a case early in the course) do what they were taught to do in first year Contracts:  they spot 15 different issues, specifically differences between the original and the renewal agreement, and provide a sentence or two about each.  They don't weigh the issues, decide what might matter most to the clients; they don't make judgments.  They say things like "the test for good faith is a fact-based inquiry and the judge will decide."  Really.  Most strikingly even if they look at the renewal language they read it once and say "oh, well the client's stuck--they have to sign the new document to renew and the new document has a 10% royalty rate." 

When I dig into their mode of reasoning to find out why they "miss" the interpretive issue (the "form" of agreement--does that mean the boilerplate that makes a franchise system consistent? or does it include the substantive commercial terms that can vary across outlets without affecting the consistency of franchise presentation to the customer or the cost of monitoring or supervision?) they look at me blankly; it's as if they didn't realize that interpretation was anything different for a lawyer as it is for anyone else.  They read it; it says execute the existing agreement; what else is there to say ?  They don't read carefully.  In fact, in the most recent experience teaching this case, several groups of students told me they didn't realize that interpreting a contract meant identifying specific words or clauses for interpretation--they thought you interpret "the contract" as a whole. 

Last year, at the end of my upper year course, one student said to me:  "You know, before I took this course, I had no idea WHY we read all those cases in first year."  To him, it seemed like an unnecessarily roundabout way of conveying the rules.  He didn't realize that the cases were about the construction and possibilities of argument--even though, of course, his first year classes had involved lots of hypothetical and socratic dialogue.  But what he needed for his first year exams was a quick hit list of rules to rapidly tick off issues--so all that argument was just for show, I guess. And of course throughout the course, all he saw were facts taken as fact; not "facts" that could be spun together in multiple ways to present different issues, different arguments, different outcomes.  He didn't realize that the majority of legal work involves working with what 'facts' could or might or should look like; he thought it was knowing the rules and how they would handled nicely packaged facts that were (no longer) contested.

So that was the wake up call for me:  our students come out of first year in our traditional courses, maybe, with an ability to spit out a set of rules (a contract must have consideration to be enforceable; the parol evidence excludes the use of extrinsic materials beyond the four corners of the document) but they haven't learned how to "DO" contract analysis.  (Is it a good strategy to pose the consideration issue? How can we argue this document is "integrated" and how strong will the counterarguments be?) My own view, then, is that in first year we need to introduce methods to move students beyond a set of rules to an orientation to the basic tasks of legal analysis.  Yes, this should include transactional frameworks, but that's besides the point.  The first year course should not be loaded up with new "stuff"--lots of exposure to real contracts, transactional negotiations, materials on the financial crisis, even my beloved economic analysis of contracts.  It should focus on actually teaching students to do what we need them to be able to do in order to make use in upper years of those more advanced materials and insights:  basic legal analysis in the context of advising a client on the basis of a presentation of mutable facts, uncertainty, multiple issues and strategic options, etc.  I think we flatter ourselves in our traditional classes when we say that our existing methods do a good job of teaching students to "think like a lawyer" and the basics of legal analysis and doctrine.  They don't in my view.

That's why I"ve redesigned my first year course to involve extensive use of teams and situated problem-solving throughout the semester (students earn 40% of their first year grade in my course from team-based problems completed and graded and discussed throughout the course.)  I"ll discuss the details of that course in future posts (or you can look at my recent article Equipping the Garage Guys in Law--Maryland Law Review 2011) but for now I'm interested in whether other have experience with intentional or accidental diagnostics about what students actually take away from our traditional first year course in Contracts.  What do you know about what students are actually taking away from first year courses?

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