Academic journal article Journal of Corporation Law

Contract Lore

Academic journal article Journal of Corporation Law

Contract Lore

Article excerpt

David Vernon was one of my important mentors. When I came to the Iowa Law School to teach contracts in 1975, David was already an established star in the constellation of contracts scholars and the inspirational leader of the Iowa faculty. Yet no one was more available to help me as I tried to find my way as a teacher and scholar. David's style was humorous, sometimes cantankerous, even sarcastic, but his advice was always right on the mark, given generously, and extremely helpful. I soon learned that I could count on him when the going got tough. Although I am now more than twenty years removed from Iowa City, I acutely sense the void in the Iowa Law School left by David's passing. For these reasons and more, it is a great honor for me to participate in this symposium for David Vernon, already a legend at the Iowa Law School.

Speaking of legends, let me explain the title of this Article. A legend is one kind of a people's folklore. Folklore constitutes "the traditional beliefs, legends, customs, etc., of a people"1 and "represents a people's image of themselves."2 I want to write about some of the "traditional beliefs" about contract law that "contracts people"-judges, lawyers, and scholars applying and writing about contract law-employ so routinely and confidently that the principles shed light on how we perceive contract law today. What makes these principles so interesting is that none of them are even close to true and, when pressed, most contracts people would admit it. I want to investigate why contracts people invoke these "traditional beliefs and legends" even though they are, in reality, nothing more than contract lore.

This Article examines three examples of contract lore. First, contracts people do not hesitate to declare that the purpose of expectancy damages is to "put the plaintiff in the position he would be in if the contract had been performed ...."3 But the injured party cannot recover prejudgment interest, attorney's fees, unforeseeable consequential damages, uncertain losses, and so on and so on. Consequently, expectancy damages virtually never put the injured party in as good a position as if the contract were performed.4 Second, contracts people recite that the reasons for a breach, whether willful, negligent, or unavoidable, are irrelevant to the rules of performance and remedies. However, the reasons for a breach matter mightily in, among other things, how courts determine whether a party has materially breached, the formula for determining damages, and the availability of restitutionary relief.5 Third, contracts people recite how contract formation and interpretation focus on the parties' actual intentions and assent, when in reality contract enforcement does not depend on these at all. Instead, enforcement focuses on whether a promisee reasonably believed the promisor intended to contract and what constitutes a reasonable interpretation of the language of a contract.6

My goal here is not to reveal these dichotomies, which constitute open secrets. Furthermore, I do not want to take issue with the explanations for the manner in which contract law actually operates, although this Article contains some discussion and evaluation of these explanations. My principal aim is to investigate what, in the aggregate, the existence of contract lore tells us about the nature of contract law in this new century. I posit that a better appreciation and understanding of the meaning of contract lore leads to a clearer comprehension of contract law. Part I of this Article briefly discusses the three examples of contract lore mentioned in the introduction. Part II presents my views on why contract lore persists and its ramifications.

I. CONTRACT LORE

A. Expectancy Damages

As mentioned, the stated goal of expectancy damages is to make the injured party whole. Most analysts explain the expectancy approach as the best method of creating incentives for parties to contract and to rely on their contracts. …

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