Colonial America and 19th Century Changes

Mercantilism (1600-1800)

• Major governmental economic theory in Britain.
• Different from laissez-faire economics (hands-off approach).
• State as a commonwealth: promoting the economy of the state.
• Focus on general good, not individual good.
• Protection of specific groups (e.g., English manufacturers) over others.

Types of Mercantilism within Colonies

• External: Imposed by Parliament (not covered).
• Internal: Regulations within colonies for their own interests.
• Civil authorities directed economic affairs, including setting "just prices".

Internal Mercantilism: New York to Georgia

• New York, New Jersey, Delaware, Maryland, Virginia, Carolinas, Georgia.
• Four major dimensions:
  • Market: Specific places for buying/selling goods; government mandated.
  • Licensed Traders: Only licensed traders could sell at the market.
  • Fixed Prices: Prices fixed by statute; no commercial transactions beyond the market.
  • Prosecutions: Hundreds of prosecutions for trading outside the market.

Internal Mercantilism: New England

• New Hampshire, Connecticut, Massachusetts, Rhode Island.
• More freedom:
  • No entry restrictions for trade.
  • No fixed prices.
  • No specific trading places.
• Prices had to be just; jury determination.

Common Law Crimes for Restraint of Trade

• Forestalling: Producers curtailing the normal flow of goods to increase demand.
• Engrossing: Merchants trying to corner the sale of a specific product (monopoly).
  • Example: Bunker Hunt trying to buy up all the silver.
• Regrating: Buying something at a low price and reselling it in the same market (or within four miles) at a higher price.

Colonial Government Objectives

• Wanted unity, harmony, and stability.
• Discouraged competition.
• Few suits about contract law.
• William Blackstone: Only 40 pages on contract law in his commentaries.
• Law didn't provide for risk-taking or speculative investments.
• No expectation damages for breach of contract.

Types of Suits in Colonial America

• Indebtedness Assumption:
  • Promise to buy/sell a good or service.
  • Plaintiff conferred a benefit on the defendant.
  • Defendant didn't pay.
  • Plaintiff gets customary price, not agreed price.
  • Juries controlled damages.
  • No speculative damages.
• Quantum Meruit (Delivered Services) and Quantum Valebant (Delivered Goods):
  • No specific contract, but defendant uses plaintiff's goods or services.
  • Court invents a contract for the customary price.
  • Example: Painting the wrong house.
  • Example: Delivering wood to the wrong person, who uses it.
• Special Assumpsit:
  • Written contract, sealed, notarized with a penal bond.
  • Rare, for really important contracts.

Shift Away from Mercantilism

• 1776: Adam Smith writes "The Wealth of Nations".
  • Argues mercantilism restricts liberty and economy.
  • Advocates laissez-faire economics.
  • Government needs a reason to interfere with the economy.
• American Revolution: Expanded on liberty.
• 1780s: American states reject British mercantilist system.
• By 1800: Only the price of bread was regulated by statute.
• Prices of goods/services subject to market forces.
• Rejection of "just price" theory.

Changes in Contract Law (1800-1850)

• Contract law becomes a major area of law.
• Joseph Story and William Wetmore Story: Major treatises on contract law.
• Shift from equitable/just price theory to will theory of contract.
• Will Theory: Focus on intent of both sides, not justice or equity.
• Fits republican rhetoric, popular sovereignty, and laissez-faire.
• Law allows for risk taking and speculative investments.
• No more quantum meruit or quantum valebant (no invented contracts).

Expectation Damages

• Awarded if a contract is breached.
• Sands vs. Taylor (1810): New York case involving wheat.
  • Buyer accepts part of wheat shipment but refuses the rest, as they can buy it cheaper elsewhere.
  • Seller sells the remainder at a loss and sues for the difference.
  • Court allows the suit, focusing on the will of the parties, not just price.

Issues of Law vs. Issues of Fact

• Issues of law decided by judges, not juries.
• Judges determine if a contract existed, preventing jury nullification.

Consideration

• Quid pro quo (this for that).
• Previously, consideration had to be adequate (just price).
• Now, courts don't look at the adequacy of consideration; only that it exists.
• Consideration can be as small as a peppercorn.
• Seymour vs. Delancey: Selling two farms for part of a city lot.
  • James Kent, chancellor in equity, initially ruled that consideration had to be of equal value.
  • New York Court reversed, stating equity should not interfere with contracts.
• White vs. Flora and Cherry: Tennessee case.
  • Old Mr. Flora (revolutionary war soldier) gets a land grant and wills it to his son, young Mr. Flora.
  • Young Mister Flora contracts White to find the land, promising half the value and opportunity to buy the other half if he does.
  • White finds the land, after which Flora sells the tract to Cherry.
  • Court disagrees that White shouldn't recover because of doing next to nothing - court does not look at the adequacy of consideration.

Withholding Information

• Laidlaw vs. Organ (1817): US Supreme Court Case.
  • Organ (New Orleans merchant) learns about the Treaty of Ghent before the public.
  • Buys tobacco in Virginia, knowing prices will rise.
  • Laidlaw (seller) withholds selling tobacco, then after public learns of treaty, they refuse to go through with the sale because Organ did not say he knew the treaty.
  • Court says Organ is not at fault, and Laidlaw must fulfil the sale.

Caveat Emptor

• Buyer beware (Latin).
• If no fraud or breach of warranty, buyer buys at own risk.
• Different from the old rule that merchandise had to be "sound".
• Sextus vs. Woods: Buyer cannot recover from a seller who unknowingly sells defective goods.
• McFarlane vs. Newman: Horse bleeding through the nose.
  • Seller said it was "ordinary distemper" (like a cold).
  • Turned out to be glanders (serious disease).
  • Pennsylvania Supreme Court overturned jury verdict for buyer.
  • Gibson: "He who is so simple as to contract without a specification of the terms is not a fit subject for judicial guardianship."
• Goulding vs. Skinner: Advertisement for machine cards.
  • Advertised as "equal to any in America".
  • Didn't work.
    • Massachusetts Supreme Court: Mere puffery; no warranty.

Parole Evidence Rule

• If there is a written contract, the court will not look at any other outside evidence to show that the intention of the parties was different from what's actually specifically in the written contract.
• Mumford vs. McPherson: Buying/selling a ship.
  • Contract didn't specify copper fastening.
  • Buyer said seller told him it was completely copper fastened.
  • Court only considered what's in the contract.

Statute of Frauds

• Passed by British Parliament in 1677.
• Adopted by every American state (with minor changes).
• Certain contracts must be in writing to be enforceable.
  • Contracts to sell land.
  • Contracts to buy/sell goods over a certain amount (e.g., $500).
  • Contracts that take over a year to perform.
• Helped with orderly transference of land.

No Quantum Meruit/Valement

• With will theory of contracts, courts do not invent contracts or give compensation for partial performance and require complete contract fulfillment.
• Lougherty vs. Parks: Contract to work for 12 months for $10/month.
  • Worked for 10.5 months, then quit.
  • Court did not enforce a 10.5 month contract.
• Black Boy Smith vs. Brady: Contract to plow 20 acres.
  • Only plowed 19 acres.
  • Couldn't recover anything, as issue is law and is not left up to jury.

Overall Impact

• These doctrines foster stability and uniformity to commercial transactions.
• Help the growth of the national market economy.
• Split between morality/equity and the will theory.
• Will theory assumes everyone is an equal partner.