Contracts Class Notes 10/2/03


Tomorrow, we’re going to take an exam.  You can bring your casebook and source book.  You can also bring notes that you’ve made and printed out.  You can’t bring other published materials.


You have to bring a pencil and a pen.


Arbitration and equitable remedies


Often when parties make a contract they agree to arbitration in the case of a dispute.  What motivates parties to agree to arbitration?


The vast majority of arbitrators are lawyers who are not experts on anything but the law.  When a lawyer is an arbitrator, they settle the controversy so people can get along with their lives.  Lay people have a lot of trouble with this.


When you agree to arbitration, you rarely know who the arbitrator is going to be.  The arbitrator is picked randomly.  You have no clue whether the arbitrator is going to have expertise or not.


But what are the big reasons for arbitration?  It’s faster and cheaper.  In a pinch, you can get arbitrators’ decisions sometimes in three or four days, and usually less than six months.


When you have an arbitrator, there is no jury.  You don’t have to spend money to persuade lay people, which may be difficult.  You’re persuading someone with law training.


Perhaps the biggest factor is that there is no possibility for appeal.  This can be both an advantage and a disadvantage, but the advantage is that once the matter is settled, it’s really settled.  Appeals, on the other hand, take time and money.


Arbitration offers a trade-off: you get less due process, but you get it over with much cheaper and faster.


If you are a repeat litigator, arbitration may leave you much better off after twelve disputes even if some of them don’t go your way or aren’t fair.


Arbitrators are private citizens.  They can make an award, but they have no way to enforce any judgment.  If the losing party doesn’t comply with the arbitrator’s award, they have to go to court to get the award enforced.  Courts are the basis for enforcing awards.  This leads to a conflict.


Courts aren’t supposed to review the arbitrator’s award, but they must enforce them.  Sometimes, the court is going to say that they cannot enforce the award because it goes against some strong policy.  The judge has a conscience!


Let’s say the arbitrator forces an employee to go back to work.  Will the court enforce this?  It will probably not, because this goes against a strong presumption against involuntary servitude.  Sometimes, the judge is called upon to enforce an award that is found to be unconscionable.


If the arbitrator does something that no court would have done, yet the court is called upon by statute to enforce the order, what should the court do?


If you’re a good arbitrator, will you only issue awards that courts will enforce?  Sure, but you don’t have to follow the law.  Some arbitration agreements provide that the arbitrator must follow the law of a certain jurisdiction.


99% of the time, enforcement of the arbitration award is “like rolling off a log”.


Arbitration agreements are a way to “bargain out of the law”.


Modern arbitration statutes will quickly stop a suit that flies in the face of a previously agreed to arbitration clause.


Many, if not most arbitration awards are voluntarily complied with.


Grayson-Robinson Stores v. Iris Constr. Corp.


This case started out in arbitration, and an order was made that the courts themselves would not and could not have made as a matter of law.


Why did we do remedies first?  Clients want to know: “What can this guy to do me?  What I can do to this guy?  What good is this agreement going to do me?  What harm is this agreement going to do me?  Do we really want to do this?  If we do, how do we want to do it?”


What promises ought to be enforced?


Chapter 2 is about what promises ought to be enforced.  Chapter 3 is about finding out whether a contract has really been created.


Imagine if the sanction for breach of contract was capital punishment.  In this case, people wouldn’t make contracts, and courts would be very reluctant to enforce them.  On the other hand, if the cost of breaching a contract was $5, people would make contracts all the time because they would be cheap.


Karl Llewellyn says that once upon a time, the enforcement of promises was rare, but now, the enforcement of promises is usual.  We will enforce almost all promises.


Cohen says that sometimes it’s good to have someone change their mind about performing a contract.


We will not enforce any promises unless there is a “doctrinal peg on which we can hang our hat” that says “this is an enforceable promise”.


Congregation Kadimah Toras-Moshe v. DeLeo


The court found that DeLeo’s promise to give money to the congregation was unenforceable.  It was found that there is no legally acceptable reason to enforce the promise.  His estate can “change his mind” on his behalf.


Is there doubt that the promise was made?  No, he made the promise four or five times in the presence of witnesses.  There is no doubt that he made this promise.  There is also no doubt that he broke his promise.


Reasons to enforce promises: Consideration


·        This is an idea that is so simple that it is difficult.  You get something that you bargained for in return for your promise.  The promisor wants it and, in exchange, the promisee gives it.

·        If nothing is traded or exchanged for the promise, we won’t enforce the promise unless we can find another legal basis to enforce the promise.

·        We used to talk about this a different way: “Benefit to the promisor or detriment to the promisee would make a promise enforceable.”  This is 82% right, and the drafters of the Restatement have changed it.


Sometimes, a contract consists of a promise in exchange for something else other than a promise.  More often, a contract is “a promise for a promise”.


The congregation claimed that it promised to name a library after DeLeo.  If DeLeo had been seeking to have that library named after him and gave the $25,000 for that, there would be consideration.


Reasons to enforce promises: Reliance and Restatement § 90


§ 90 is the most famous and important section in the whole Restatement.  It applies to contracts without consideration.  § 90 will make a promise enforceable if it induces some action on the part of the promisee such that it would be unjust not to enforce it.


In the above case, the congregation did not rely on DeLeo’s promise.


Reasons to enforce promises: Charitable subscriptions


When you promise to give money to charity, you may be bound simply on the fact that the promisee is a charity.


Why didn’t what DeLeo did constitute a charitable subscription?  He did not write down his pledge.


So if you write down a pledge to give money to charity even if there is no consideration, it may be enforceable as a charitable subscription.


When should we enforce charitable subscriptions?  This is a controversial idea.  In Massachusetts and almost everywhere else, we want to see a formality before we enforce a charitable subscription.


This opinion also rules that to enforce this opinion would be against public policy.  What the heck was the court talking about?  This was not only oral, but it was also a deathbed promise.  Was it coaxed from the dying person?  Was this an extravagant gesture?  Does the widow need the money?  These are considerations that come up in cases of charitable subscriptions.


We have lots of policies in favor of charities, but there are also some reasons we may want to have second thoughts about these promises.


Reasons to enforce promises: Formality


If DeLeo made a promise under seal in Massachusetts, it would have been enforceable.  Ohio, on the other hand, has abolished the seal.


What is the seal?


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