Weaponizing Article 2 in the Classroom and the Courtroom
Part I
Sidney W. DeLong
How can a system of law, a system of ideas whose hypothesis it is that rules are constant, adapt itself to a changing world? It has not been the ordered development of the jurist or the legislator, of men thinking about law for its own sake. It has been the rough free enterprise in argument of practitioners thinking about nothing beyond the immediate interest of each client; and the strength of the system has been in the doggedness, always insensitive and often unscrupulous, with which ideas have been used as weapons. The life of the common law has been in the unceasing abuse of its elementary ideas.
S.F.C. Milsom, Historical Foundations of the Common Law xi (1969) quoted in Grant Gilmore, The Ages of American Law 2 (1977).
Milsom’s observation holds as true for the evolution of twenty-first century American sales law as it did for nineteenth-century English common law. Article 2 has not been adapted to a rapidly changing world by jurists or legislators (or the ULC) “thinking about law for its own sake.” Article 2 by design has evolved through the rough free enterprise in argument of commercial lawyers thinking about nothing beyond the immediate interests of their buyer and seller clients. Their dogged, insensitive and often unscrupulous use of the rules of Article 2 as weapons has brought about all the recent innovations and developments of Article 2: lawyered and rolling contracts; shrinkwrap contracts; trojan horse invoices; and the new economic loss rule, to name a few.
The architects and engineers of this continuous process of change include both litigators and transaction lawyers, who advise merchants in the formation, performance, and enforcement of sales contracts. These two lawyer roles in this process are complementary. A litigator’s win or loss of a case can incidentally move sales law a bit in one direction or the other. After the decision is announced, a transaction lawyer can modify a merchant’s contracts and procedures to win future disputes over the litigated issue. And those standard form contracts are propagated throughout the marketplace to effect rapid change in commercial practices.
But the transaction lawyer need not be only reactive. Thinking about the rules of Article 2 creatively and imaginatively may lead to the discovery of a novel strategy in contract formation, performance, or enforcement enabling a merchant to exploit hidden possibilities completely unforeseen by the drafters of Article 2. Whether the innovation will be successful will ultimately be tested in court or arbitration, where litigators will support and attack it. While courts will have the ultimate power to determine the course of Article 2, all of the impetus, direction, and shape of new sales law come from practicing lawyers.
This process is accelerated in times of rapid technological, social, and economic change, when legislative and administrative adaptation and regulation are impossibly slow to understand and respond to it. Milsom rightly foresaw lawyers as the primary agents of legal adaptation to societal change and the corresponding change in business practices.
Law students studying Article 2 should learn about the critical roles they will play as practitioners and as law makers. The typical law school classroom, however, does not even hint at this dimension of practice.
What the Student Learns About Article 2 In the Classroom
The life of the common law has been in the unceasing abuse of its elementary ideas. Discovering the one-right-answer trains the student to take a neutral, unbiased position of the sort that is appropriate to a judge or arbitrator. In the traditional law school classroom, for a law student to adopt an advocate’s state of mind, perhaps because of sympathy for one of the parties in the hypothetical, is to fall into the professor’s trap. They learn that Article 2, like all law, should be applied only by disinterested minds. Unfortunately, in law school “disinterested” often means “uninterested,” because the outcomes of purely hypothetical puzzles rarely seem important, especially after the first terrifying year.
What the Law Student Learns After Graduation: Article 2 in the Courtroom.
But after becoming a commercial lawyer, i.e. In Real Life (IRL) the ex-law student immediately learns that law is always properly understood from a biased perspective, i.e. the client’s. The lawyer’s job is not to use IRAC to arrive at the one right answer to an imaginary factual scenario. Instead, IRL, the commercial litigator’s job is to steer through the text of Article 2 seeking best arguments it affords on behalf of a client whose circumstances are always far messier and more ambiguous than those in a law-school hypothetical. More importantly, the advocate learns that he is expected to win the legal contests framed by the rules of Article 2, not just to declare who the winner ought to be. The rule has to be made to work in the client’s favor, even if it must be twisted, spun, manipulated, forced, or beguiled into the right shape to satisfy a judge or arbitrator. And unlike law school, the advocate must achieve this victory in the face of an equally determined opponent working directly against him using the same techniques.
Similarly, IRL the new commercial transaction lawyer learns that the point of learning about Article 2’s rule on the “battle of the forms” is to learn how to win that battle, not just to give an “A+” analysis of offer and acceptance. How, for example, can the formation process be structured so that the client is always the offeror, rather than the offeree? But IRL the lawyer must also learn to play defense, refuting an adversary’s “creative” use of Article 2 as opportunistic and invalid. Both frames of mind quickly become second nature.
In the classroom, the student learned about how to choose among alternative ways of addressing legal issues to find the “best” analysis, i.e. the one preferred by the professor. But IRL the commercial lawyer becomes like a seasoned forensic debater, equally adept when arguing either side of any familiar legal issue. Depending on the client’s interest in the matter at hand, the litigator can persuasively argue for either Corbin’s or Williston’s view on the effect of a merger clause under the parol evidence rule ( § 2-202); can argue for either White’s or Summers’ view on whether the first-shot rule or the knock-out rule should apply under § 2-207 (2); can side either with Easterbrook or with Wisdom or with Vratil on the enforceability of layered or rolling contracts or shrinkwrap as modes of contract formation under §$ 2-204 and 2-206; and may endorse either the arguments of Posner or those of Easterbrook on when an attempt at modification becomes a waiver under § 2-209.
Even long-held philosophical positions about language and meaning will melt easily away when the philosopher moves from the classroom to the courtroom. For example, newly-minted commercial lawyers who must use the shield of the parol evidence rule to protect their client’s carefully drafted contract language discover that they have become more aligned with stodgy old Willistonian plain-meaning formalism than with the liberal Corbinian contextualism that they applauded in Contracts class. IRL they are as likely to boo as to cheer Judge Traynor’s playful attack on plain meaning in Pacific Gas and Electric Co. v G.W. Thomas Drayage & Rigging Co. 442 P.2d 641 (Cal. 1968).
Article 2 becomes far more interesting to the advocate than it was for the law student. Even a mundane rule like the statute of limitations that did not merit attention in Sales class can become fascinating when its subtleties have multi-million-dollar consequence, perhaps illustrating Dr. Johnson’s observation: “Depend upon it, sir, when a man knows he is to be hanged in a fortnight, it concentrates his mind wonderfully.”
A different kind of wisdom also grows with professional experience. Lawyers who brief and argue appeals gain a critical insight into the true source of appellate case law. The critical language in decisive appellate opinions often echoes the arguments made in the briefs and arguments of counsel, which may be based on greater research and deeper analysis than a court’s clerk can provide. Appellate advocates do make law.
The UCC is unique in that it anticipates and encourages its own continuous development in the course.
The Uniform Commercial Code must be liberally construed and applied to promote its underlying purposes and policies, which are: 1 to simplify, clarify, and modernize the law governing commercial transactions, 2 to permit the continued expansion of commercial practices through custom, usage, and agreement of the parties . . .” UCC § 1-103.
“The Uniform Commercial Code is drawn to provide flexibility so that, since it is intended to be a semi-permanent and infrequently-amended piece of legislation, it will provide its own machinery for expansion of commercial practices. It is intended to make it possible for the law embodied in the Uniform Commercial Code to be applied by the courts in the light of unforeseen and new circumstances and practices.” Id. O.Cmt. 1
When an innovation such as layered contract is successful, the successful lawyers are applauded as imaginative and creative. As with layered contract theory, initial success of new ideas usually depends on counting noses: the winner is the argument that persuaded the majority rather than the dissent. And sometimes virtue must be its own reward, as when a litigator’s argument must waste its sweetness on the desert air of an unreported arbitrator’s ruling.
But when an attempt at weaponizing the Code is unsuccessful, a challenge to established understandings of Article 2 may be denounced as “gaming the system,” “weaponizing the law,” as it was in former times condemned as “pettifogging.” Milsom frankly acknowledged that the single-minded pursuit of a client’s goals will always tempt lawyers to “abuse” legal principles in their quest, and this is no less true of Article 2 than it is for the common law, as will be shown below. Both litigators and transaction lawyers can push the rules about, seeking advantages that the drafters did not intend. Happily, the equally single-minded lawyers on the other side will usually point such excess out, forcing the court or arbitrator to decide whether the game is being played according to the rules.
The consequences of successful innovation. An appellate decision such as Gateway that validates a novel Article 2 strategy will have uncertain consequences as merchants adapt their procedures to take advantage of the ruling or to avoid its consequences. In the long term, an equilibrium will usually be reached that restores the bargaining power that the ruling may have briefly disrupted. Sometimes an innovative business strategy is validated by a successful litigator. The precedent may, in turn, have effects on law that are unpredictable. They will almost never alter the balance of power between buyers and sellers in the long run. Even though future parties will attempt the successful technique, other parties will immediately devise counter-strategies, most often by the simple addition of contract provisions or, more rarely, changing business methods or practices so as to avoid the new pitfall. Inevitably, the long term effect of an unsettling courtroom victory is a return to the status quo ante as a new equilibrium is reached by merchants who are wise to the new gimmick. But Article 2 is changed forever, an ever-evolving organism adapting to the conditions of an ever-evolving business and technological environment. As Milsom foresaw, the agents of change are the litigators striving for advantage for their merchant clients rather than disinterested law reformers like judges and legislators.
Some Comparisons Between Classroom Lessons and Those Learned IRL.
It is impossible to predict the strategy and tactics of a game like basketball or chess just by studying the rules of the game. It is doubtful that one could predict that the intentional foul was integral to the game of basketball just from looking at the rules of the game, just as it is doubtful that one could predict the tactical advantages of putting a man en prise in checkers, forcing a jump, just from a study of its rules.
What is true of games is also true of the rules of the game of buying and selling goods. One can never appreciate the actual dynamics created by a rule-bound contest unless and until one has played the game extensively. The endless contests between merchant buyers and sellers of goods requires skill in manipulating and exploiting the rules of Article 2, not in just “obeying” them. A form of “trade usage” grows as all the players grow to understand how the game is played. The drafters of Article 2 modestly recognized the primacy of trade usage over formal academic or legislative descriptions of the process and wisely subordinated the general rules of Article 2 to the trade usages upon which merchants relied. Experience as a commercial lawyer includes familiarity with that unwritten legal and economic order.
When a practitioner encounters Article 2 IRL, the lessons can be dramatically different from what was learned as a law student:
The Student learns a buyer may reject a delivery under § 2-602 only if it is non-conforming.
IRL, a Practitioner learns a buyer should reject even conforming deliveries strategically in order not to become liable for the price under § 2-606 and to shift the burden of proving conformity under § 2-607,
The Student learns that the terms of a sale contract are fixed by the language of the offer and acceptance expressed in §§ 2-204, -206, and -207.
IRL, a Practitioner learns that the terms of a sale contract can always be modified under § 1-303 by course of performance without any change in contract language.
The Student learns that the express terms of a sale contract are fixed by the offer and acceptance.
IRL, a Practitioner learns that the battle of the forms never ends and that the agreed terms of a contract are always vulnerable to modification under § 2-209 by expressions contained in invoices and other multi-use documents.
The Student learns that installment contracts under § 2-612 serve relational values by making rejection of deliveries and cancellation more difficult
IRL, a Practitioner learns that installment contracts impose unacceptable risks on buyers and that § 2-612 should be repealed by contract.
The Student learns that under § 2-206 (2) shipment accepts a buyer’s offer to buy for immediate delivery.
IRL, a Practitioner learns to recharacterize such shipment as an “accommodation,” an offer of new terms that a buyer accepts by retaining the shipped goods that it ordered.
The Student learns that the statute of limitations runs four years after breach.
IRL, a Practitioner learns that the statute is tolled by various actions the defendant might have taken.
The Student learns that the statute of frauds, § 2-201 requires that contracts be evidenced by a signed writing.
IRL, a Practitioner learns that a party who does not obtain a signed writing from the counterparty can satisfy the statute of frauds in many other ways, including stealth confirmations, writings obtained during discovery, videotaped and digital recordings, deposition testimony, and partial performance.
The Student learns that notice of breach under § 2-607 (3) is necessary to a claim of breach with respect to accepted goods.
IRL, a Practitioner learns to argue that “notice of breach” has a special formalized meaning that differs from official comment 1 and from the Code’s definition of “notice.”
The Student learns that under § 2-202 when parties adopt a record as a complete integration, it will supersede all prior agreements.
IRL, a Practitioner learns that a dishonest seller can obtain a buyer’s assent to an integration in order to nullify its own prior oral warranties.
The Student learns that under § 2-204, an offer requires no formality.
IRL, a Practitioner learns to hide offers on the backs of “Trojan horse” invoices that appear to be only shipping documents or to bury the contract language on a website accessible only through links given to the buyer.
The Student learns that a party will be bound under the objective theory of contract if it chooses to express blanket assent to unread contract terms.
IRL, a Practitioner learns to hide unreadable terms in a website to which a buyer expresses assent by mere use or to which it assents by doing nothing at all after receiving delivery of goods.
The Student learns that acceptance of an offer is a manifestation of assent.
IRL, a Practioner learns that merely removing the wrapping from the goods ordered will be construed as assent to new, unread terms.
The second part of this post will illustrate the strategic use of Article 2 in two reported decisions.
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