ContractsProf Blog

Violent struggle over spiritual game

If you ever wondered what kind of crime would be too heinous even for the author of such "ultraviolent" nihilist films as Pulp Fiction and Killing Zoe—well, you can stop.  Torture and mass murder are one thing, but don't even think about stealing one of his ideas.

Screenwriter/director/producer Roger Avary (left) has sued Microsoft for bad faith and breach of implied contract, among other things, claiming that the software titan stole his idea for a video game. The weird thing is that it’s not a Pulp Fiction-esqe shoot-’em-up. It’s a yoga video game, under which a "yoga master" leads student through a "virtual fitness studio."

The complaint (the link is on the right side of this blog about the case) is interesting as a textbook illustration of how disputes like this arise—and the overblown language Hollywood people use when they take meetings on "artistic" concepts.  You can learn more about Avary than you’re likely to want to from his web site.

Today in contract history—November 20

1272:  Edward I (known as "Longshanks") succeeds his father Henry III as King of England.  Edward (left) will create the Chancery and the Exchequer, and his reforms for the first time bring substantial commercial disputes into the royal courts.  He also passes laws against the Jews, including prohibiting them from lending money.

1847:  From commercial venture to modern town—trading post at Blacksnake Hills officially changes its name to St. Joseph, Missouri.  The former fur trading post will become one of the most important commercial outfitter for the Western expansion.

1866:  Judge Kenesaw Mountain Landis is born.  As a judge, he presides over the Standard Oil antitrust litigation, and later becomes the first Commissioner of Baseball.  He demands, and gets, a lifetime contract.

1967:  President Johnson announces formation of the National Product Safety Commission.

Fear stalks Florida

A Florida homebuilder is creating a what seems to be a reign of terror through the Sunshine State—by suing customers for breach of contract.

"I'm afraid to talk to my neighbors. I'm afraid to walk my daughter to the bus stop. I'm afraid to talk to you right now," said one victim who was sued by Mercedes Homes, Inc., after she distributed flyers to neighbors complaining about poor home construction. A clause in the Mercedes contract prohibits owners from publicly disparaging the workmanship.

"I feel like I'm in a police state. I can't do anything. I have no avenues. I have nowhere to turn," one homeowner said. The last, at least, is an overstatement, since she was at the moment turning to a TV news reporter and meditating a class action lawsuit.

Ricky Martin settles contract dispute

Singer Ricky Martin and his manager have settled their contract lawsuit.  Martin originally sued Angelo Medina for $2.5 million, accusing Medina of pocketing unearned commissions

In his counterclaim, Medina—who orchestrated Martin’s climb to stardom—charged the pop idol with breach of contract and sought $63.5 million.

Today in contracts history—November 19

1493: Christopher Columbus makes his first landing on Puerto Rico. Columbus is best known as the namesake of of the first modern contracts professor, Christopher Columbus Langdell.

1944: President Roosevelt launches the 6th War Loan Drive to raise $14 billion for the war effort.

1985: Pennzoil wins the largest contract-related jury verdict in history, taking $10.5 billion from Texaco.  The case will later settle for an amount that will make the plaintiff's counsel very rich and, later, the law school at the University of Texas very, very happy.

1951: Charles Falconer, later Baron Falconer of Thoroton, is born. He will become the first English Lord Chancellor to refuse to wear the wig and the robe.  Some people just don’t get tradition.

1850: Former Vice President Richard Mentor Johnson (left) dies.  Johnson’s lasting work as a Congressman was the abolition of imprisonment for debt in 1832.

Surprise: A hockey fight in Canada

The Canadian national anthem, of course, is Oh Canada. But the song that runs a close second up in the Great White North is the theme song to the popular Hockey Night in Canada. That theme has not been heard much lately, what with the National Hockey League shut down by a lockout.  That’s left Canadians with "serious puck withdrawal," and looking as cheerful as George Soros the day after the U.S. election.

But a fight is brewing over the popular theme.  Composer Dolores Claman and the related entities that control the song have sued the Canadian Broadcasting System for for $2.5 million, claiming breach of contract and copyright violation. The suit says that the CBC improperly used the song in broadcasts outside Canada, in violation of the contract.

A big experience in a small country

The chance to see other cultures and interact with faculty and students who have different perspectives is one of the great things about a Fulbright  grant.  In the forthcoming issue of the AALS Contracts Newsletter, Scott Burnham (Montana) talks about his teaching experiences in Uruguay.

Click the link below for the full story.

Great Time in a Small Country:
A Fulbright is a Fine Way to See the World

by Scott Burnham
University of Montana School of Law

Trivia Question: What is the southernmost capital city in South America?

The answer is Montevideo, Uruguay, where I just spent two weeks teaching as a Fulbright scholar. This was my first trip to South America, and an incentive to overcome some of my geographical ignorance. Montevideo is way down there, on a parallel with the Cape of Good Hope and Sydney, Australia—and across the Rio Plata from Buenos Aires, which is a 12-hour flight from the US. You may remember Uruguay as the locus of the 1973 Costa-Gavras film, State of Siege, which revolved around the government’s repression of the left-wing Tupemaros (and in which people inexplicably speak French).

As in Europe, law school in Argentina and Uruguay is a five-year undergraduate program. I was invited by the Universidad de Montevideo (www.um.edu.uy), which is a fairly new private school. After the first year, the students take one course each semester in English that introduces them to U.S. law and international transactions. I taught the third course, "Basic Guidelines on Contracts and Torts."

My students [click on photo at left for a bigger image] were fantastic! I used U.S. teaching methods, assigning students to recite on the cases. Since much of their program consists of rote learning of the code, they enthusiastically embraced the case method. Because they were already familiar with concepts of contract law, they were able to quickly grasp the differences in our system. They weren’t prepared for the flinty-eyed view of autonomous contracting parties. As one student blurted out after we had studied Mills v. Wyman, "You people aren’t responsible to anyone!"

The program that sponsored me is the Fulbright Senior Specialist program, administered by the Council for International Exchange of Scholars (www.cies.org). In theory, after you are qualified, you are put on the roster and the host country finds that you match its needs. In reality, the host country often determines that it wants you and asks you to put yourself on the roster. Once you are chosen, the host country pays your living expenses and Fulbright pays your transportation and a $200/day honorarium for a 2-6 week stint.

My host country could not have been more accommodating. The curriculum coordinator, Juan Manuel Gutierrez, had spent a year at Columbia getting a Masters in Intellectual Property, and is dedicated to building a quality program. He arranged for my 14-year-old daughter to attend school at a private school across the street from the law school. She had a great time, and says she wants to spend a year abroad while she is in high school.

Needless to say, I urge you to take advantage of this program. It truly serves the Fulbright goal of being of mutual benefit to all involved in the program. I am attaching photos of me with my class and with a group of other Fulbrighters [left; click to enlarge] on an outing in Montevideo.

Pragmatism v. idealism in the real world

Most contracts teachers know that the connection between the theories we propound and the things that lawyers do in the business world can be a little tenuous.  In a new paper, Contracts, Contingency and Lawyers as Leaders: Moral Philosophy in Complex Business Transactions, Jeffrey Lipshaw (Senior V.P., Secretary, and General Counsel of Great Lakes Chemical Corp.) argues that pragmatic accounts of law do not line up with the realities of practice in sophisticated transaction, and he turns to philosophical models—particularly that of Kant—for a better account.

ABSTRACT:

In this article, I argue that the prevailing literature on contract theory does not adequately address the way real_world lawyers address uncertainty in complex business transactions. I attribute this to the constraints imposed by thinking in legal models, the dominant tendency to turn to economics for analysis and normative prescription, and the focus on adjudicative issues of hindsight interpretation. Commercial uncertainty, and the law's response to it, is only a subset of the broader philosophical issue of contingency. As an alternative to prevailing thought, I trace philosophical approaches to contingency, utility and morality that have come down to us since the Enlightenment, and how those approaches reveal themselves in modern legal and management theory and practice. In particular, I criticize certain characterizations and applications of legal and philosophic pragmatism. While the leading proponents adopt the name legal pragmatism, I suggest that they have nevertheless opted for a dogmatic economic idealism. Successful business leaders (and lawyers) have a more subtle approach: they envision a world as they want it to be (as it ought to be) but are not consumed by the fact that things do not always work out as they should. I argue that lawyers who are legal or economic dogmatists, seeing the world only as they want it to be, or who are only pragmatic or empirical, and will only acknowledge the world as it is, will be far less effective in the highly contingent environment where contracts create more moral than legal markers. The most effective real_world deal lawyers will be prepared to deal with contingency and counsel their clients pragmatically, but with far more idealism than current proponents of the jurisprudence of legal pragmatism have acknowledged.

A Tale of Two Apples

The battle between Apple Corps, the Beatles' record label, and computer-maker Apple Corp., is a cautionary tale about how changes in technology can undo the most carefully crafted agreements.

In her Contracts in Popular Culture column in the forthcoming issue of the AALS Contracts Newsletter, Rachel Arnow-Richman (Denver) takes a look at the clash of icons.  Click on the link below for the full story.

BEATLES SEEK THIRD
BITE AT THE APPLE

by Rachel Arnow-Richman
University of Denver School of Law

Apple Corps Ltd., the Beatles’ record label, is suing Apple Computer, the Silicon Valley computer company, alleging breach of a 1991 contract settling trademark disputes over the companies’ shared name. In a complaint filed last year in a London court, Apple Corps claims that iTunes Music Store ("iTMS"), Apple Computer’s online venue for downloading songs, violates the parties’ agreement that the record company would have exclusive use of the word "Apple" for the making and marketing of music.

This is the third battle in an aging war between the two Apples that spans two decades, two settlement agreements, and now, two rounds of litigation in the British courts. The first scuffle culminated in a 1981 "trademark coexistence agreement" under which the Macintosh maker coughed up $80,000 for the record label’s permission to use the name "Apple" on computer equipment. As part of the understanding, Apple Computer agreed not to place its name or logo on any products used for the "recording or reproduction of music" or "intended for synthesizing music."

That commitment proved ill-chosen. When computers developed sound capabilities in the mid-1980's, Apple Computer introduced Macs with "Musical Digital Interface," a product that enabled users to input and edit music. Litigation followed. In 1991, Apple Computer settled out of court to the tune of $26.5 million.

The latest hoopla concerns Apple Computer’s launch of iTMS, through which users can purchase individual licensed tracks for $.99 a pop. That move prompted Apple Corps’ second suit against the computer manufacturer, this time alleging breach of the 1991 settlement agreement.

The record label recently emerged victorious from a jurisdictional showdown in London’s Royal Court of Justice. Apparently unable to come to agreement on the point, Apple Corps and Apple Computer did not include a choice of law or choice of forum clause in their 1991 contract. Indeed, lawyers for the parties rigged an elaborate closing procedure—the payoff amount sat in escrow while company principals executed documents simultaneously on both sides of the pond—calculated to avoid contract formation in one country over the other. As Justice Mann put it, in ruling on Apple Computer’s jurisdictional challenge, "If their intention . . .was to create obscurity and difficulty for lawyers to debate in future years, they have succeeded handsomely."

That did not stop the Justice from finding England the appropriate forum and source of law for the litigation, and lawyers for Apple Computer can expect many a hard day’s night in a London hotel should the case go to trial. While the court was unmoved by the alleged inconvenience to Apple Computer of litigating abroad, it seemed persuaded that efficiency and judicial economy favored keeping the case in England. Justice Mann noted that a California proceeding would be far lengthier than a British one, owing to the American state’s famously permissive parol evidence rule.

All the same, the court might have no choice but to consider oral discussions as the case moves forward. The parties’ 1991 agreement is arguably ambiguous on the issue of Apple Computer’s ability to sell musical content. After carving out exclusive "Fields of Use" for Apple Computer and Apple Corps (computers and music, respectively), the contract recognizes that "certain goods and services within the Apple Computer Field of Use are capable of delivering content within the Apple Corps Field of Use." Paragraph 4.3 of the agreement provides that in such instances Apple Computer may use its marks

in connection with goods and services . . . (such as software, hardware, or broadcasting services) used to reproduce, run, play or otherwise deliver such content provided it shall not use [its marks] on or in connection with any physical media delivering pre-recorded content. . . (such as a compact disc of the Rolling Stones music.)

Presumably Apple Computer’s position is that iTMS offers only electronic files and consequently does not run afoul of the prohibition on branding "physical" media. It will say that the word "physical" was chosen with precision, that Apple Corps bargained badly, and the record label should just let it be. But that argument takes an exceedingly narrow view of the agreement. Elsewhere the contract makes clear that the exceptions enumerated in Paragraph 4.3 are the only instances in which the parties can use their trademarks in connection with goods or services falling within the opposing party’s "Field of Use." The list of permissible music-related uses of Apple Computer trademarks does not include the sale of commercially recorded music. If Apple Computer had opened a real brick-and-mortar record store, it is hard to see how they could defend themselves against an action for breach of contract. iTMS is simply an Internet version of the same thing.

Apple v. Apple stands as yet another example of technology outpacing the law. The iTMS product is arguably a "new use" not contemplated by an agreement drafted a decade before the Napster revolution, and the court may need to examine extrinsic evidence to determine the parties’ intent. Neither side has discussed its position publicly, but it seems clear Apple Computer thought it was buying something big when it forked over nearly $27 million to a record label that, at the time, had produced no new material since 1976. That said, if either party was in a position to anticipate the digital music craze and clarify its rights accordingly, it was the computer maker.

For this reason, no one will be surprised if ultimately Apple Computer takes another stroll down Penny Lane. And it won’t be for small change. Apple Computer has sold more than 125 million songs since iTMS’s April 2003 debut and the company should be more than willing to pay the Tax Man to maintain its share of the music download market. Of great interest to fans of both Macintosh and the Beatles will be whether an agreement between the companies will give Apple Computer access to the Beatles’ catalogue. While the Beatles are perhaps the most famous rock band of all time, their music has yet to be made available through any licensed online music provider.

On the other hand, this may be the one fight worth Apple Computer’s time to defend. Despite its jurisdictional protests, the company appears to have landed in the right court. The trial judge admitted during hearings that he owns an iPod.

The Carnival Cruise Song (with apologies to John Denver)

From the files of the Department of Contract Musicology, Cheryl Preston (BYU) offers a ditty about the Supreme Court's most famous standard-form contract case.

Tenors should sing it in the key of G . . . .  Click on the link below for the lyrics.

The Carnival Cruise Song

lyrics by
Cheryl Preston & Dan Nichols

music by
John Denver

[to the tune of Leaving on a Jet Plane]

All my bags are packed
I'm ready to go
I'm standing here outside your door
I hate to wake you up with bad news
But the ticket's here
And its a form
We waive all rights
But that's the norm.
Already I'm so nervous I could cry.

CHORUS
We can't file against Carnival
Even if we slip and fall
Unless we follow our forum selection clause
And we have to get on a jet plane
Florida's where we have to claim
But a court just might let us out!

Well, the decks were wet
We had a slip and fall
But the 'deck' is stacked
There's no reason to call
Carnival never waives its terms at all.

When we got the terms
It was too late
We were way past the refund date
There was no bargaining and no way to know

CHORUS
And we can't get on a jet plane
Florida's too far for our claim
Oh, Court, please just let us out!

There's so many terms that reached too far
So many clauses that seemed too harsh
I tell you now
They shouldn't mean a thing

But the Supreme Court enforces them
Especially when I'm reading them
So we might as well just be on our way

CHORUS
And we can't get on a jet plane
Florida's too far for our claim
Oh, Court, please just let us out!

The Carnival Cruise Song

This date in contracts history—November 18

1477:  William Caxton (left) produces the first English book on a printing press.  Four hundred years later, printing will reach its zenith with the modern law review.

1836:  Sir William S. Gilbert is born.  He will go on to write the libretto for Trial by Jury, perhaps the funniest operetta ever written about a breach of promise action in the Court of Exchequer.

1903:  The United States makes a major land deal, acquiring the Panama Canal Zone for $10 million in the Hay-Bunau Varilla Treaty.

1928:  Mickey Mouse is born with the release of Steamboat Willie.  Seventy-six years later he’s still not in the public domain.

1938: John L. Lewis is elected the first president of the new Congress of Industrial Organizations.

A better approach to teaching damages

The various formulas by which courts purportedly calculate damages can be difficult to teach and confusing to students.  In a forthcoming article in the AALS Contracts Newsletter, Jake Barnes (Seton Hall) and Debbie Zalesne (CUNY) offer a new and improved solution: the "surplus-based" approach to damages.  The article is a handy guide; the theory is set out in an upcoming article in the Syracuse Law Review.

Click the link below for the full text.

Teaching Damages with the
Surplus-Based Approach

David W. Barnes
Seton Hall University School of Law

Deborah Zalesne
CUNY School of Law

We teach our students that all the rules for calculating damages can be summarized in one rule:

When another’s performance does not conform to the contract, an injured party may recover damages as measured by that party’s lost surplus, which is the difference between anticipated surplus and actual surplus.

Because this approach readily lends itself to preparing a list of types of benefits realized and costs suffered as the result of another’s breach, it appeals to students. It is not just mechanical. Because it emphasizes the goal of contract damage rules (putting the injured party in the position the party would have occupied had there been no breach), it focuses students’ attention on the underlying theory. It substitutes for or explains the damage rules in UCC Article 2 and the Restatement and always gives equivalent results.

The only new concept is that of "surplus," which is analogous to "profit" for a business but applies to consumers as well:

An injured party’s anticipated surplus is the difference between the benefit that party would have received as a result of the contract (anticipated revenue) and cost that party would have incurred in relation to the contract had the contract been fully performed (anticipated cost).

An injured party’s actual surplus is the difference between the benefits that party received (actual revenue) and cost that party incurred (actual cost) as a result of the parties’ performances under the contract or from substitute performance arranged by the injured party.

A student only needs to list and organize the various benefits and costs anticipated (those that would be been realized or incurred if the contract had been performed) and actual benefits received and costs incurred in some format like the one in the accompanying table, which shows calculations for a variety of cases. Of course students need to understand that each category is limited by well-known requirements that losses are compensable only to the extent that: (a) the injured party could not have avoided them using reasonable methods; (b) they are reasonably foreseeable in the ordinary course of events or as a result of special circumstances the parties had reason to know; and (c) the fact of the loss and the amount of the loss are provable with reasonable certainty.

The surplus-based approach works for every imaginable case. Consider, for example, a case in which a buyer breaches and the seller sues for lost profits plus costs incurred, such as in Cesco Manufacturing Corp. v. Norcross, Inc., 391 N.E.2d 270 (Mass. App. 1979). In that case, the seller contracted to sell 1,000 customized greeting card display racks for $100,000. After the seller incurred $15,000 of the $50,000 in production costs anticipated, the buyer breached. There was no actual market or salvage value for the unfinished goods. Under the surplus-based rule, the seller’s damages are as follows: Anticipated Surplus, $50,000, equals Anticipated Revenue ($100,000 contract price) less Anticipated Cost ($50,000). Actual Surplus, -$15,000, equals Actual Revenue ($0) less Actual Cost ($15,000). Damages, $65,000, equal Anticipated Surplus ($50,000) minus Actual Surplus (-$15,000). An award of $65,000 provides $15,000 to repay costs incurred plus $50,000 in anticipated surplus.

Where lost profits are too speculative, the surplus-based rule treats anticipated benefits and anticipated costs as equal. For example, in Security Stove & Manufacturing Co. v. American Railway Express Co., 51 S.W.2d 572 (Mo. Ct. App. 1932), a shipper of a stove not delivered on time to an exhibition had incurred $801.50 in charges, fares, hotel bills, wages, and rentals. The court did not award lost profits because they were too speculative. Reliance measure presumes no loss, so anticipated revenues and costs are each treated as equal to $801.50. There was no actual revenue and actual costs were $801.50, resulting in a damage award of $801.50.

Damages for a lost volume seller can also be calculated using the surplus-based rule. In Neri v. Retail Marine, 285 N.E.2d 311 (N.Y. 1972), for example, a buyer deposited $4,250 on a $12,587 boat. The retailer/seller anticipated $10,008 to buy the boat from the manufacturer and prepare it for sale, but also spent $674 to store, maintain and insure the boat after the buyer breached. Seller resold to a third party for same price. The court calculated the seller’s damages without consideration of the resale because the seller was a lost volume seller. Under the surplus-based rule, the seller’s damages are as follows: Anticipated Surplus equals Anticipated Revenue ($12,587 contract price) less Anticipated Cost ($10,008), which comes to $2,579. Actual Surplus equals Actual Revenue (payment of $4,250) less Actual Cost ($0 performance cost, because that cost is associated with the resale, plus the breach-related cost of $674), which comes to $3,576. The Lost Surplus, -$997, is Anticipated Surplus ($2,579) minus Actual Surplus ($3,576); money is payable to the breaching buyer.

Finally, consider a case where an aggrieved buyer seeks damages after a breaching seller has only partly performed. In Pittsburgh Coal Co. v. Northy, 123 N.W. 47 (1909), a seller contracted to sell 1,300 tons of coal to a buyer for $2.45/ton. The buyer intended to resell for $4/ton. The seller delivered 937 tons, which buyer resold as intended. Buyer’s anticipated benefit was $5,200 and anticipated cost was $3,185. Actual revenue was $3,748 and actual cost was $2,295.65. Anticipated surplus less actual surplus (damages) is $562.65.

Case Name	Anticipated	–– Anticipated	–– Actual	+ Actual	Damages
and Type	Benefits	Costs	Benefits	Costs	Equal
Cesco (lost profits + costs incurred)	$100,000.00	$ 50,000.00	$ 0.00	$ 15,000.00	$ 65,000.00
Security Stove ("reliance"; uncertain profits)	$ 801.50	$ 801.50	$ 0.00	$ 801.50	$ 801.50
Neri (resale, lost volume)	$ 12,587.00	$ 10,008.00	$ 4,250.00	$ 674.00	$ (997.00)
Pittsburgh Coal (seller's part performance)	$ 5,200.00	$ 3,185.00	$ 3,748.00	$ 2,295.65	$ 562.65

This table (above) is based on the general formula that comes from the general rule: Damages = Anticipated Surplus – Actual Surplus, which directly compares the injured party’s position before and after breach. Anticipated Surplus equals Anticipated Benefits less Anticipated Costs. Correspondingly, Actual Surplus equals Actual Benefits less Actual Costs. An equivalent approach is: Damages = (Anticipated Benefits – Actual Benefits) – (Anticipated Costs – Actual Costs), which is an easy approach for cases where a buyer or seller arranges a substitute transaction (cover/resale) or additional costs are imposed by the other’s breach of contract or warranty.

Because this approach is so organized and consistent from case to case, it is easy for students to learn. It is also a good way for students to check whether their calculations using traditional approaches are correct. For more illustrations of the computations, see David W. Barnes & Deborah Zalesne, The Shadow Code, 56 S.C. L. Rev. (forthcoming 2004). For a complete discussion of the theoretical reasons for adopting this "surplus-based" approach to contract damages, see David W. Barnes & Deborah Zalesne, A Unifying Theory of Contract Damages, 55 Syracuse L. Rev. (forthcoming 2005).

Cases—Attorneys' Fees—Liquidated amount

A swimming pool contractor who spent $11,000 in legal fees to recover $8,500 from a defaulting buyer will get at least some of that difference back.

A provision in the parties’ contract provided that a prevailing party would be entitled to attorneys’ fees "equal to 20% of the amount [determined to be] owing unless a court sets a smaller or larger fee."  Massachusetts Superior Court Judge Mary-Lou Rup held that under the clause the plaintiff could recover $1,700 in legal fees plus another $370 in costs—leaving plaintiff only $430 worse off than if it had not sued.

Gibraltar Pools Corp. v. Matsuk, 2004 Mass. Super. LEXIS 355 (Mass. Super. Ct. Hampden, Oct. 1, 2004)

Teaching contracts visually

In her regular Teaching Contracts column in the forthcoming AALS Contracts Newsletter, Irma Russell (Memphis) writes about Frank Doti's (Chapman) new book:

I was very impressed with the book . . . [which] uses graphs and flow charts to explain contracts concepts.  For many years in contracts and other classes, I have used Venn Diagrams on the board and "sets" as we learned them in math class long ago.  I have found these to be very helpful for many students.  Some of my students have produced their own charts as well, engaging in the experience of internalizing the process of organizing the concepts.  I asked Frank to write a brief description of his work for this column.

Learning Contracts Visually

by Frank Doti
Chapman University School of Law

As contract law professors, we know that there is no one method of teaching a particular area which is appropriate for all materials. In other words, there is no magic bullet on how to teach contracts. Having also taught a variety of taxation law courses for years, I suspect this is probably true for all law subjects.

I always start off my Contracts I course with Lucy v. Zehmer , in spite of the fact that it is not the first case in our casebook. I do this for two reasons: (1) It is a fun case to launch the course, and (2) It is a quintessential case to apply the Socratic method of teaching. The facts of this case and the objective theory of assent principal applied are ideal for students to begin to learn the law and, more importantly, how to analyze a legal problem.

When I get to the statute of frauds for the sale of goods, as in UCC 2-201(2) dealing with the written confirmation between merchants exception, I use a problem approach to help students learn this provision. I will go over a few hypotheticals with the class to show when the exception applies or does not apply. Even if there is a case dealing with UCC 2-201(2), I do not believe analyzing one would be as effective in learning the provision as hypos. I demonstrate to my students that the exception may or may not apply based on a simple change in one of the facts, such as either of the parties not being a merchant or an oral objection made by the party receiving the confirmation.

My point is obvious—we can use the case and problem approaches interchangeably to teach the same course. It all depends upon the particular rule of law to be learned. In my opinion, the case method seems to work better when we deal with rules of law that are not so clear cut. On the other hand, the problem approach is better when we are dealing with more black letter rules.

Then I have found that there are areas of the law in which both approaches are not entirely adequate to aid the students' learning. One of these is our old friend UCC § 2-207—"The Battle of the Forms." There are about a half dozen cases in our casebook on § 2-207, and I have prepared a handout with six hypotheticals for students to go over prior to class. These approaches help considerably, especially for the stronger students. Nevertheless, I have found that a number of students still have trouble with this exasperating statutory provision even after both approaches are used.

I cover the current version of § 2-207, although revised Article 2 was approved by the ALI and NCCUSL in 2003. I do this for three reasons: (1) No state has yet adopted revised Article 2, (2) The proposed § 2-207 raises more questions in my mind than it was supposed to answer, and (3) I believe that having students learn the current version is a good exercise in learning how to deal with ambiguous statutory construction.

So several years ago I tried a new approach to teaching § 2-207. I developed a flowchart in which students go down a path of alternate questions. It took me several attempts at a flowchart that would cover all the possible intricacies of § 2-207. After passing out the first few versions to students, a sharp student would come and tell me that I forgot to consider an obscure exception to the general rule. So I had to go back to the drawing board, literally.

After a while I was pleasantly surprised to find that more and more students became comfortable with 2-207. In fact, students have told me that they find the § 2-207 flowchart like a game. I suppose the computer game generation might have something to do with that.

I do not substitute the flowchart approach for the case and problem methods, even for § 2-207. I apply all three methodologies for § 2-207 and other areas of contract law which I have found conducive to using flowcharts. In my view, I believe the stronger students use the flowcharts to put it all together. In other words, after having studied the cases and hypotheticals, these students reinforce their understanding of § 2-207 and other tricky subjects with the flowcharts. Other students who have more trouble learning § 2-207 and all of its exceptions, including the varying jurisdictional treatment of the words "different and additional," seem to catch on with a flowchart approach.

I soon found that I was developing more and more flowcharts for other confusing areas including:

The mailbox rule

UCC §§ 2-206 and 2-508 (non-conforming goods and cure)

UCC § 2-209 (oral modification)

UCC § 3-311 (accord and satisfaction)

The parol evidence rule (both common law and UCC § 2-202)

UCC buyers’ and sellers’ remedies

After using the flowcharts as handouts for a number of years, students encouraged me to publish them along with some outlines I had distributed on confusing areas such as promissory estoppel, the statute of frauds, and mistake. As a result, this past summer the first edition of my book, Contract Law Outlines and Flowcharts was published by the Commercial Law Publishing Company.

Since UCC § 2-207 was the inspiration for my flowcharts, I have included it here as an example of how they work. I use a basic hypothetical in which both parties are merchants, there is a conflicting term in one of the documents, and the buyer accepts delivery of the goods. Later there is a dispute based on the conflicting term. Students use the flowchart to determine which of the conflicting terms becomes a part of the contract under UCC § 2-207.

A number of contract law professors who are on the AALS Contract Law Section list serve have already received a complimentary copy of the book. Any professor who does not have a copy and would like one can contact me at fdoti@chapman.edu.

My flowcharts are a work in progress and I plan to refine them and add additional ones. Please let me have your comments on how I can improve them.

At-will associate can pursue "implied contract" claim for bonus

An at-will law firm associate who claims that his proffered $150,000 annual bonus was too small will have his chance to get to a jury.  A New York appellate court has reinstated the claim by former Andreas & Berger associate Kevin Haverty that his work in winning a $3 million fee for the firm should have resulted in a higher bonus.

According to the New York Lawyer, Haverty was making $110,000 a year as an associate. The firm offered him a $150,000 bonus for his work, but Haverty rejected it as too "paltry." When the firm refused to go higher, Haverty quit and sued. Though he had no formal employment contract, the court held that he had the right to try to prove an implied contract for a bonus and to recover on quantum meruit grounds.

Yes, there is a cultural revolution, it’s just not Mao’s

An 11-year-old boy who was promised a computer if he scored above a 94 on his schoolwork sued his mother when she reneged on the promise after he scored a 97.

The kicker is that this scenario didn’t even happen here in The Most Litigious Nation on Earth™—but in China. Apparently capitalism and denim jeans aren’t the only features of American culture that the Chinese are adopting.

Are CEO employment contracts like other employment contracts?

The popular view of CEO employment contracts is that they are one-sided; the sycophants who populate the typical board give the top executive pretty much anything he or she wants.

Yet "despite all the ink spilled about executive compensation," write Stewart Schwab and Randall Thomas in a new paper, hardly anyone has actually examined these contracts systematically. Schwab and Thomas hope to rectify the omission in What Do CEOs Bargain For? An Empirical Study of Key Legal Components of CEO Employment Contracts.  The study finds some things that both support and seem to conflict with the popular view.

ABSTRACT:

In this paper, we examine the key legal characteristics of 375 employment contracts between some of the largest 1500 public corporations and their Chief Executive Officers. We look at the actual language of these contracts, asking whether and in what ways CEO contracts differ from what are thought of as standard employment contract features for other workers. Our data provide some empirical answers to several common assertions or speculations about CEO contracts, and shed light on whether these contracts are negotiated solely to suit the preferences of CEOs or have provisions that insure that the employers' interests are also safeguarded.

After giving an overview of the general characteristics of a CEO employment contract, and the process by which they are negotiated, we focus on five contracting issues: (1) the term "just cause" that defines when an executive can be terminated involuntarily with penalties; (2) the "good reason" termination clauses in the contract that permit an executive to leave voluntarily without financial penalties; (3) the non-competition clauses in the contract; (4) the use of arbitration clauses as a method of resolving contractual disputes; and (5) the contractual restrictions, if any, on the CEO selling stock options. We also discuss some of the less-well known economic terms of these contracts, including their length and the level of perquisites given to CEOs.

Using contracts to perform traditional firm functions

It is a commonplace that similar kinds of activities activities can be organized within firms or between firms, and in the latter situation it is contract law that governs the relationship.  A significant trend over the past twenty years has been the growth in outsourcing—turning to contractual relations to deal with business functions once done within the firm.

A new article from the Wharton Business School explores the process through an examination of IBM, which is trying to reinvent itself as a supplier of outsourcing services to other businesses.

Happy 400th birthday to the Parol Evidence Rule

It is one of the curious things about contract law that some of the most interesting cases involve the dullest of rules.  There are few duller than the Parol Evidence Rule.  And yet, as Hila Keren points out, the case that gave it birth is a fascinating story of love, death, and—well, deer.

Keren marks the 400th anniversary of the Parol Evidence Rule with a fascinating look back at The Countess of Rutland's Case.  Click on the link below for the article.

Textual Harassment: Four Hundred Years
of the Parol Evidence Rule

by Hila Keren

Hebrew University of Jerusalem;
Center for the Study of Law and Society, UC-Berkeley

Even the most experienced contract law teacher, who has taught the parol evidence rule dozens of times, might be surprised to know that this year marks its 400th anniversary. As early as 1893, in the sixth edition of the Harvard Law Review, we were told by the learned J. Thayer that "few things in our law are darker than this, or fuller of subtle difficulties." How was this dark rule born? Remarkably, the answer lies in Tudor England and makes a fine story, full of love, hate, money and . . . deer.

In 1604, not long after the death of Queen Elizabeth, Sir Edward Coke wrote a two-and-a-half page report of The Countess of Rutland’s Case, which had been litigated at the King’s Bench. At the core of the report are the words that have been quoted for centuries as the parol evidence rule: "[I]t would be inconvenient that matters in writing made by advice and on consideration, and which finally import the certain truth of the agreement of the parties should be controlled by averment of the parties to be proved by the uncertain testimony of slippery memory."

Who had the matters in writing? Who offered a competing testimony? Let us go back in time.

From Coke’s report we learn that Isabel, Countess of Rutland (and widow of Edward, 3rd Earl of Rutland) [the arms of the Earls of Rutland are at left], sued her nephew Roger, 5th Earl of Rutland. At the heart of these legal proceedings stood a manor called Eykering House and additional land of unclear nature named the "Lady Park," both located in "the county of Nottingham."   Isabel claimed that the house and the park were promised to her by her husband and blamed Roger for trying to take them from her. She had a deed in which her husband Edward contracted with several trustees that he would convey the property to them in order to ensure that if he died first, Isabel would have the right to use the property for the rest of her life.

More than six months later, however, Edward made another written contract. This one dealt with a much larger parcel of land which contained many properties including Eykering House. But this time, the trustees were supposed to make sure that the specified lands, were transferred in male-tail only—that is, from Edward directly to his male heirs without any rights whatsoever to his widow Isabel.

In the suit, the question was which of the two conflicting contracts should govern. The Countess offered to hear oral testimonies that could support her standpoint while contradicting the later contract.

That is Coke’s tale. But while digging up the context of the legal report I learned that the story behind it is much juicier and yields support for Isabel’s evidence.

Edward and Isabel were a special, even scandalous, couple, especially in a society obsessed with status and hierarchy, as was the England of their times. While Edward was the eldest son and therefore the sole heir of one of the richest aristocratic families in England, Isabel was only the daughter of "the younger son of an undistinguished county landowner." And indeed, the marriage was considered as a mésalliance, "a union between two people that is thought to be unsuitable or inappropriate."

It was a love story. Isabel’s mother claimed "that the Earl was so deeply in love that he was willing to marry the girl even without a marriage portion" (dowry). To top it off, Edward also had put himself and his family at risk by refusing the suggestion to marry the daughter of Lord Burghley, the powerful aristocrat in Elizabethan England—an offer that few would have dared to decline and many would have loved to take up.

The marriage resulted in great rage on the part of Edward’s male heirs, who probably felt robbed by the poor bride. What made things even worse was the birth of a daughter, Elizabeth, who under the old laws couldn’t inherit from Edward and thus deepened the rivalry between his widow and his male heirs.

Since Edward was a gifted legal professional—good enough that the Queen appointed him Lord Chancellor—it is plausible that he calculated the risks to his beloved wife’s future. He therefore chose respected trustees from her family and entrusted them to make sure that she should have an adequate jointure for her widowhood. Against this background the argument that by making the later contract Edward intended to implicitly cancel his written and expressed promise to his wife becomes somewhat unpersuasive.

The characteristics of the disputed land enhance the trustworthiness of the testimonies that subverted the later contract. This land, that was named in Coke’s report as "Eykering" is to be found today in Eakring (note the slight change of spelling), a village in the center of Nottinghamshire. Here, an ancient special survey, preformed in 1604—the year of the Case—allows us a rare peek to the far past. Offering attractive plans of the house and its surroundings, the survey sheds light on the term "Lady Park" as it appears in Coke’s report and provides a serious clue regarding the mysterious result of the Case.

The plan (left, from the Nottinghamshire Archives—click on the picture for a larger version) depicts the Lady Park as full of woods but the text at the lower right hand corner says that the woods were recently sold "so that little profitte is to be made thereof by wood sales for manye yeres." Such account suggests that the Lady Park was significantly more valuable when Edward included it in the contracts he made than later on during the legal debate regarding their interpretation.

One of the most charming explanations for the "lady" in "Lady Park" concerns female deer hunters. It was accepted that the monarch, invariably a man up until the time of Queen Mary and Queen Elizabeth, took part in the exercise of hunting and particularly in the hunting of deer. As this was a very physical activity for which a woman was not considered suited, the Lady Park developed whereby Elizabeth and her ladies would sit in carriages and the deer would be driven past them, allowing the ladies comfortable aim. The Eakring Park was quite small and perhaps particularly suitable for this type of hunting and one can easily imagine Isabel hunting in that manner.

The 1604 survey also suggests that Eykering was a relatively modest estate in view of the Rutlands’ vast possessions at the time, a fact that might explain Edward’s choice of this property as one that could provide decent income to his widow with no considerable harm to his male heirs.

Finally it is worth mentioning that Isabel’s rival, Roger, had a strong external incentive to fight for the property of Eykering, despite its marginal significance. Impetuous as he was known to be Roger found himself in prison for playing an active role in the notorious Essex revolt against Queen Elizabeth, for which he was fined by the Privy Council on May 1601 the enormous sum of £30,000. This punishment added to the disastrous debts of Roger and presumably pushed him to insist on a formal interpretation of the later contract’s text.

One immediate lesson that can be learned from the thicker version of the story is that four hundred years ago the act of establishing a legal rule that crowned text and expelled context was a gender-biased act. Back then the contractual text was totally inaccessible to women, and it was only the wider context that had the potential to carry their voice. Women were in general far less literate and educated than men and needless to say there was no way an early-modern Englishwoman could earn the legal education that would enable her to comprehend, let alone write, a contract. Furthermore, once married a woman could not even be a passive side to a contract, for instance by signing it without reading it, since according to the rule of coverture she had no legal entity of her own.

This last point brings us directly to the gendered impact of rejecting context. Not only insignificant details were left out by focusing only on the text. Rather, as Isabel’s Case beautifully demonstrates, it was for the most part the patriarchal nature of the story that was excluded: Isabel’s inability, as any other married woman’s inability, to hold or control personal property, necessitating third-party contractual arrangements; the difficulty in enforcing these arrangements and fulfilling the intent of a husband who sought to bypass patriarchal inheritance rules in order to secure the future of his wife; the strong resistance to brides who could not bring along hefty dowries; and finally, the need to fight for jointure lands against powerful male heirs of the patriline. Hence, shaping a rule that decidedly gives the text ultimate control over the interpretation of the contracts had (even if unknowingly) a strong patriarchal meaning, creating a source for textual harassment.

Now, in 2004, after the historical reality that made the rule so female-excluding has dramatically changed one might argue that the rule that was "born in sin" is now purified and hence sustainable. But is it?

Cases—Damages—Lost profit claim too speculative

A Burger King franchisee lost on a claim that it was harmed by the nearby arrival of a Wendy’s.  The franchisee had bought land from Seller with a proviso that Seller would not sell land within 1,500 feet of the BK store to a competitor.  But Seller subsequently sold land to a Wendy’s franchisee only 655 feet away.

Seller plainly breached its covenant, said the Florida First District Court of Appeal in a per curiam opinion.  But dismissal of the franchisee’s claim was nevertheless appropriate because its damages evidence was too speculative.  In addition to the new competition, the store’s profits were affected by several other things, including road construction, national marketing problems, and the store’s own internal operating difficulties.

A. R. Holland, Inc. v. Wendco Corp., 2004 Fla. App. LEXIS 14432 (Fla. Civ. App. 1st Dist. Oct. 1, 2004).