ContractsProf Blog

Editor: Myanna Dellinger
University of South Dakota School of Law

Tuesday, January 4, 2005

Cases—Novation—Later option deal rendered earlier promise unenforceable

Rhode_island_flag An employee who failed to get the 2,000 options he was promised as part of his employment, but later took and exercised 6,000 options (with different terms) could not recover on the original promise because the later deal worked a novation, according to the Rhode Island Supreme Court.

Plaintiff Scott Weaver went to work for American Power Conversion Corp., on a promise that he would get 2,000 options.  Through an apparent error, the company failed to give him the options, but promised he would be given 6,000 less valuable options the next year.  Weaver objected because he thought the deal as not as good as the one originally proposed, but he later took the 6,000 and exercised them, making about $400,000.  After leaving APC’s employment, Weaver sued based on the original offer of 2,000 shares.

No, said the court in a per curiam opinion. The court was dubious about whether what happened was a novation or an accord and satisfaction, but concluded that the distinction was unimportant—the question was whether the 6,000 shares were intended to extinguish the prior obligation and substitute a new one.  Since the testimony was that the 6,000 shares were offered as a replacement for the original 2,000, plaintiff had the burden of showing that it was not a novation, and he failed to do so.  Weaver v. American Power Conversion Corp., 2004 R.I. LEXIS 201 (Sup. Ct. Dec. 15, 2004).

January 4, 2005 in Recent Cases | Permalink | Comments (0) | TrackBack (0)

Town claims its planning law overrides its contract covenants

Red_rooster An Australian city council is trying to have its cake and eat it, too.  Or rather, its chicken.

The Goulburn-Mulwaree City Council sold a parcel of land to a McDonald’s hamburger franchise.  It promised, as part of the deal, that no part of the larger lot that included the parcel would be used for a fast-food restaurant.  But it now wants to permit a Red Rooster chicken franchise to build on the lot.  Red Rooster is Australia's largest BBQ chicken franchise.

McDonald’s says it’s a clear breach of contract.  Lawyers for the council say that the town’s planning law supersedes any real estate covenants. But the council is holding off on a decision for now, until it gets a clear legal opinion.

January 4, 2005 in In the News | Permalink | Comments (0) | TrackBack (0)

Monday, January 3, 2005

Debbie Reynolds sued in shopping center museum dispute

Debbie_reynolds Actress Debbie Reynolds (left) has been sued by a Hollywood shopping center and entertainment complex after she backed out of a deal to display her $30 million film memorabilia collection in the center.

The center’s owner, TrizecHahn Hollywood, says the actress and her son had agreed to lease space for a memorabilia museum.  Reynolds claims that structural limitations with the building made it impossible to build the museum as planned.  TrizecHahn is seeking $2 million in compensatory damages, plus punitives.  (Why public policy requires that she be punished for not adding another Hollywood memorabilia museum to the world's stock is not explained.)

January 3, 2005 in In the News | Permalink | Comments (0) | TrackBack (0)

Today in history—January 3

1871: Henry W. Bradley of Binghamton, New York, gets a patent for oleomargarine. Pressure from the dairy lobby will lead to regulations that prevent it being colored yellow to keep it from competing with butter.  Minnesota will go so far as to create a new agency, the Minnesota Department of Agriculture, whose chief duty is preventing its sale.

Tolkien 1892: John Ronald Reuel Tolkien (left), the man whose studies of Anglo-Saxon myths will eventually generate more gold than Bilbo and the dwarves found in Smaug’s cave, is born at Bloemfontein, South Africa.  His day job will be Professor of Anglo-Saxon, and then later Merton Professor of English at Oxford.

1911: Joseph L. Rauh, Jr., the Democratic politician, UAW lawyer, and civil rights leader who will help found the law school at the University of the District of Columbia, is born in Cincinnati, Ohio.

1956: Mel Columcille Gerard Gibson is born at Peekskill, New York.  After being turned down by every major studio, his self-financed Passion of the Christ will become the ninth highest grossing film in U.S. history—and he gets to keep most of it.  On making a film in Latin and Aramaic: "They think I'm crazy, and maybe I am. But maybe I’m a genius."

1957: The Hamilton Watch Company introduces the first electric watch.

1959: Alaska enters the Union as the 49th state.

1973: The Columbia Broadcasting System exits the baseball business by selling its New York Yankees for $10 million to a group headed by the chair of Cleveland’s American Shipbuilding Company, George Steinbrenner.

Double_fantasy 1981: Death sells, as John Lennon’s (Just Like) Starting Over and the album Double Fantasy (left) hit the top of the charts just weeks after his murder.

1986: The Capital Cities group of stations buys the American Broadcasting Company for $3.5 billion. ABC started as the "NBC Blue Network," a joint venture between RCA and General Electric, but was spun off by order of the Justice Department.

1991: Japan’s Matsushita Electric Company buys the MCA film studio group for $6.9 billion.

January 3, 2005 in Today in History | Permalink | Comments (0) | TrackBack (0)

Cases—Formation—Lawyer’s suggested changes constituted counteroffer

New_york_flag_4 A would-be joint venturer whose lawyer responded to a written offer letter by sending back suggested changes could not later claim a contract based on the original offer, because it had been terminated by a counter-offer, according to a federal court in New York City.

Greico Bros. was a struggling clothing manufacturer.  It was approached by another manufacturer, GFT, which suggested a joint venture.  After a few rounds of negotiation, GFT sent a letter agreement to Greico.  After talking with his clients, Greico’s lawyer sent a "fine tuned" and "redlined" version back to GFT, incorporating "some changes."  The client, however, later testified that he had never authorized the lawyer to suggest substantive changes.  When GFT backed away from the deal, Greico sued.

There was no contract here, wrote Judge George B. Daniels. "A counteroffer which modifies the offer constitutes an absolute rejection of that offer. . . . If the acceptance is even slightly at variance with the terms of the offer, it constitutes a rejection and termination of the initially offered terms."  Here, despite claims that the lawyer was never authorized to offer substantive changes, the court found that he had authority to negotiate and therefore to make a counter-offer.  The counter-offer made the original letter of intent "a nullity."  Summary judgment was appropriate for GFT. Southwick Clothing LLC v. GFT (USA) Corp., 2004 U.S. Dist. LEXIS 25336 (S.D.N.Y. Dec. 15, 2004).

January 3, 2005 in Recent Cases | Permalink | Comments (0) | TrackBack (0)

Sunday, January 2, 2005

Tobacco settlement bars match cover advertising

Marlboro The $10 billion settlement between the various states and the tobacco industry prohibits tobacco advertising on matchbook covers, according to the Ohio Supreme Court.

The settlement had barred companies from advertising on "merchandise" except in adults-only environments.  The tobacco companies, which had stopped advertising pending the outcome of the case, had argued that matchbooks ordinarily are given away with cigarette purchases. and were therefore not "merchandise."

The court disagreed.  "Matchbooks are indisputably in the stream of commerce," the court said, "and once the plunge into that stream is made, the items remain merchandise.  Metaphorically speaking, an item cannot enter the stream of commerce without getting wet."  And wet matches are, well . . . .

January 2, 2005 in In the News | Permalink | Comments (0) | TrackBack (0)

Today in history—January 2

1788: Georgia becomes the fourth state to ratify the U.S. Constitution.

Charles_ellet 1842: The world’s first cable suspension bridge opens to traffic across the Schuylkill River at Fairmount, Pennsylvania. It’s built by promoter Charles Ellet, Jr. (left), a largely self-taught former canal surveyor.  It's his first bridge project.

1870: Speaking of bridges, construction begins on the Brooklyn Bridge.

1872: Albert Coombes Barnes, a chemist who will turn the discovery of the anaesthetic Argyrol into a successful business and will amass one of the world’s great private art collections, is born in a poor section of South Philadelphia.  In his factories, workers on eight hour days did six hours on the production line, followed by two hours of instruction in art and aesthetics.

Chicago_sanitary_canal 1900: The Chicago Sanitary and Ship Canal opens, connecting the south branch of the Chicago River with the Des Plains River at Lockport, Illinois.  Its goal is to cause the Chicago River to flow backwards, pulling Chicago sewage out of Lake Michigan and shipping it downstate. There’s a metapor there.

1965: Alabama's Joe Namath signs a record rookie contract for a football player, getting $400,000 from the New York Jets of the upstart American Football League.

1972: Management science expert Lillian Evelyn Gilbreth dies. The mother in the true-life Cheaper By the Dozen was a co-founder of the science of motion studies in industry—the units are called "therbligs" which is "Gilbreth" sort of backwards.

January 2, 2005 in Today in History | Permalink | Comments (0) | TrackBack (0)

Cases—Arbitration clause—Term in employment agreement continues beyond end of original contract period

Virgin_islands_flag An arbitration agreement in a written one-year employment contract continues to apply to the employment relationship after the one year expires, according to the U.S. Court of Appeals for the Third Circuit.

Todd Bolinger was hired as an executive by VITEL in 1999.  The parties signed a one-year employment agreement that contained an AAA arbitration clause.  The contract provided for a one-year renewal at VITEL’s option, provided notice was given to Bolinger. VITEL never gave the notice, but near the end of the agreement promoted Bolinger to a new job.  Employment continued for a year and a half after the initial contract ended, when Bolinger was terminated. Bolinger signed a release of his claims for $20,800, but later sued, claiming that it was signed under "extreme duress." VITEL moved to compel arbitration. The district court granted it.

The Third Circuit, reviewing the determination de novo, nevertheless adopted the trial court’s opinion.  The trial court, applying Virgin Islands law, had found that since the parties continued performing as if the contract were still in existence, its terms continued to apply.  The court was also unimpressed with the argument that arbitration would be too expensive. Bolinger v. Virgin Islands Telephone Corp., 2004 U.S. App. LEXIS 25939 (3d Cir. Dec. 15, 2004), affirming 293 F. Supp. 2d 559 (D.V.I. 2003).

January 2, 2005 in Recent Cases | Permalink | Comments (0) | TrackBack (0)