[MUSIC] Hi, my name is Tess Wilkinson-Ryan and I'm a law professor at the University of Pennsylvania Law School, which was founded in 1790. I teach contract law and law and psychology. I'm here to talk to you about American contract law. Let's start with what is a contract? A contract is a promissory agreement, a set of promises, that people make to each other and that the law recognizes and enforces. Contract law is the law of exchange, the legal rules that enforce agreements to trade one thing for another. I'm going to start by introducing two foundational facts of contracting that both motivate and explain many of the doctrines I'll discuss in the next hour. I'll call these facts mutual benefit and time. First, voluntary exchanges make people better off. Second, lots of mutually beneficial exchanges take time. Let's start with the idea of mutual benefit. Why do people engage in exchange at all? They trade because it makes them to a person better off. Take a simple example, imagine a world in which I have an oven but no wheat, and my neighbor has wheat, but no oven. Now imagine we contract for an exchange of oven time for wheat. We both like this deal, right? Because we both want to eat bread. My neighbor cannot turn inedible raw wheat into bread without a heat source. And though I have the tool to bake with, I can't make bread dough without wheat. This means that the exchange has value just by trading, we have both gotten something we wanted and didn't have before. If you're inclined to think in terms of utility, you can think of this deal as creating utility or value. It's not just redistributing goods, it's actually creating value where there was none. This holds true for more common market exchanges. Money for goods or services. When I agree to pay the cable company a monthly fee for Internet services, I might complain about the exorbitant rates and the terrible service. And I may not feel like I really profited, but in the end, I'd rather have internet and cable than the money that they're charging. So I part with the money and take the Internet in return, making both me and the cable company better off than we were before the deal. The fact of mutual benefit, gives us some information about the subjects of contract law, that we don't necessarily have about the subjects of other kinds of law. We might know that on average, people prefer laws against theft, or that generally speaking societies function better when there are robust civil protections of property interests. But we don't know that a particular claimant really preferred to be bound by the state's criminal code. All else being equal, or believed himself better off in a legal system that permitted his neighbor to sue for trespass. In contract though, we know that each of the parties prefers this particular legal obligation, and we know it because they chose it. Of course, this is not to say that every party to a contract thinks the terms could not be improved, only if that the parties preferred this contract, the available alternatives including no contract. Now we come to the second foundation of contract which seems very simple on its face and that's time. Contracts can create mutual benefit, but unfortunately contracts cannot create time. Time turns out though, to be an important motivating and complicating factor in life of an exchange. So, take for example, my wheat for oven time exchange. Now, one way that exchange could go, is that every time my neighbor wants to bake bread, he shows up at my house with his bag of wheat, and his bowl of bread dough. And if my oven is free, and I'm in need of wheat, I take the wheat and put it away, and I put his dough in the oven for him. In fact, we don't even need a contract, much less a law of contract to make sure that this exchange happens. We don't need a state enforcement mechanism making us trade. We'll just trade because we both want to. But now imagine for a moment that my neighbor is not going to have any wheat for me until after the next harvest, but need to use my oven in the meantime. He says, I promise to deliver the wheat to you next month, if you will let me use your oven this weekend. This is still an exchange, and it still makes us both better off, but now I, the oven owner, am worried. If I let my neighbor use my oven now, how can I be sure he's going to deliver the wheat as promised later? And this is where contract comes in. The contract is the legal mechanism to enforce my neighbor's promise and give me the assurances I need to participate in this beneficial exchange. It permits me to rely on the deal. In this way, contract law facilitates the creation of mutually beneficial deals. Voluntary exchanges create value are good, but there are lots of reasons that exchanges require planning or multi step performances. In order to protect the party's investments in their deals, contract law enforces their promises to one another. We will see that time makes exchanges better. The ability, for example, to plan to plant more wheat. To know in advance whether or not I'll have Internet service on the day that I need to send an important email. To be able to do what I promised at a ti, at a convenient time, rather than a time that protects me against possible exploitation by my counter party. But of course, time also makes exchanges worse, because it means that things can change. The world might change, with shifts in the market making the deal actually a losing proposition for one of the parties, or the parties' own preferences and goals might change. So that they're no longer interested or benefited in the same way. When those things happen, the law of contracts gives people an essentially revised cost benefit analysis to do. They have to ask themselves whether it's worth it to go back on the deal, in a world in which they'll have to compensate the other party with money. Breach of contract is really about what happens to a deal over time? We're typically not talking about people who have lied about their intentions to participate in a deal, but about people who have changed their mind for one reason or another in time. What I've said about benefit and time, these are really universal. They explain why humans have promissory exchange mechanisms like contracts. But as you know, the title of this talk is An Introduction to American Contract Law. So let me say a couple of things to sort of set up what's distinctive about the evolution and role of American contract law at a very broad level, and then I'll show you how this plays out in particular doctrines. American contract law enforces the right of autonomous agents, that's us, to bind our future selves. In the common law tradition, the will of the party in question is central. Common law courts are very liberal about letting people choose to bind themselves to whatever deals they want, while also protecting them from contractual liability they haven't explicitly undertaken. The second theme of American contract law is the notion that the role of contracts in our society is as an economic tool. The Subject of Contract is economic exchanges. This might seem obvious, given what I have said about beneficial trades. But we'll see how narrowing the analytical framework of contract, from the promissory obligation broadly speaking, to one of economic exchange more narrowly has serious doctrinal implications. So we have both an underlying principle of autonomy and freedom of contract, but with legal enforcement essentially confined to the commercial domain. [MUSIC]
