ContractsProf Blog

Editor: Myanna Dellinger
University of South Dakota School of Law

Saturday, May 21, 2005

Cases: Should have pleaded breach of K

Arkansas_flag A plaintiff who pleaded fraud and deceptive trade practices arising out of a Ford Explorer SUV that rolled over found himself tossed out, because he should have proceeded on a contract theory, according to a recent decision by the Arkansas Supreme Court.

In the case, Buddy Wallis had bought a Ford Explorer, a vehicle that subsequently developed a reputation for rolling over.  Wallis’s Explorer didn’t roll, but he brought a class action anyway, claiming that the SUV’s propensity for rolling had led to a diminution in its value.  Ford moved to dismiss, arguing that he had suffered no cognizable injury from the alleged fraud since his vehicle worked just fine.  The trial court dismissed the action.

The supreme court began by noting that in a common-law fraud action, one measure of damages is the benefit of the bargain.  In an automobile case, that ordinarily means the difference between the value of the vehicle as represented and the actual value of the vehicle.  But the court drew a sharp distinction between so-called “contract” cases (where the claim is that the vehicle wasn’t what was promised) and so-called “products liability” cases (where the claim essentially is that the product is defective).  In the former case, the “benefit of the bargain” is a proper measure of fraud damages, but in the latter it is not, unless the defect has resulted in some actual damage.

Since Wallis did not plead diminution of value for breach of contract, and had suffered no injury as a result of the defect, he lost both his fraud and his deceptive trade practices claims.

Wallis v. Ford Motor Co., 2005 Ark. LEXIS 301 (May 12, 2005).

May 21, 2005 in Recent Cases | Permalink | TrackBack (0)

K breach as human rights violation

In America, employment law has traditionally been viewed as a more or less private matter, rooted in contract.  That's changed to some extent, of course, but the trend toward seeing it as a status is still more pronounced in Europe than here.  In the U.K., for example, there seems to be a growing view of employment as an aspect of “human rights” law.

In a new client advisory, Jennifer Armstrong of London’s Bristows notes the growing use of the European Convention on Human Rights and Fundamental Freedoms as a tool for challenging employment actions that don’t involve racial or ethnic discrimination.

May 21, 2005 in Commentary | Permalink | TrackBack (0)

Help Wanted: Business School

The Ross School of Business at the University of Michigan is looking for an entry-level or lateral professor to teach business ethics and business law.  Click on the "continue reading" link for the announcement.

Continue reading

May 21, 2005 in Miscellaneous | Permalink | TrackBack (0)

Today in history—May 21

1676: John III Sobieski is elected King of Poland.  His defeat of the last great Muslim invasion of Europe at Vienna in 1683 will make him the only real person to have a constellation named in his honor, Scutum, or Sobieski’s Shield.

1688: Alexander Pope, the first English poet to make a decent living from sales of his own writings, is born at London.  About this time of year law professors learn the truth of his maxim, “A little learning is a dang’rous thing.”

1832: The first Democratic National Convention opens in Baltimore.  It will, not surprisingly, renominate Andrew Jackson, but it dumps Vice President John C. Calhoun in favor of Martin Van Buren.

1856: Pro-slavery government forces led by the U.S. Marshal sack Lawrence, Kansas, burn the Free State Hotel, and throw the town’s newspaper presses into the river.

1881: Clara Barton founds the American Red Cross.  John D. Rockefeller pays for its headquarters building in Washington, D.C.

1886: Hiram Walker’s agent refuses to turn over the cow Rose 2d to banker T.C. Sherwood, which will lead to a subsequent lawsuit and Sherwood v. Walker.

1894: Queen Victoria opens the Manchester Ship Canal, which allows ocean-going vessels to reach Manchester from the Irish Sea.  It’s the brainchild of boiler manufacturer Daniel Adamson, whose goal is to reverse the city’s decline.

1898: Financier Armand Hammer is born in New York City.  His father names him for the symbol of the Socialist Labor Party (of which he is an officer), not the baking soda.

1917: Actor Raymond “Perry Mason” Burr is born at New Westminster, British Columbia.

1941: The Seas Shipping Co.’s freighter Robin Moor, en route from New York to Cape Town, becomes the first American merchant ship to be sunk by a U-boat in World War II.

May 21, 2005 in Today in History | Permalink | TrackBack (0)

Friday, May 20, 2005

Quotes: Kathy Ireland on Money and Art

"Because modeling is lucrative, I'm able to save up and be more particular about the acting roles I take."

        Kathy Ireland
        star of Alien from L.A., Danger Island,
        and Miami Hustle

May 20, 2005 in Quotes | Permalink | TrackBack (0)

Cases: Military stop-loss isn't breach of contract

Us_flag_1 A serviceman who challenged the military’s stop-loss regulation, which unilaterally changed the term of his contract, has no contract claim, says the Ninth Circuit.

Plaintiff Emiliano Santiago enlisted in the Army National Guard in June 1996 for eight years.  In June 2004, while attending what he thought was his last weekend training session, he learned that he was being mobilized for active duty in Afghanistan.

Under the contract claim, Santiago argued that the enlistment contract clearly stated his end date, which could not be changed without certain exceptions like declared war.  He argued that forcing him to continue service clearly violated the terms of the contract.  The court disagreed, noting that a clause in the contract allowed the government to change the existing terms, even if they were contradictory to the terms he agreed to.  Since the new stop-loss regulation was enacted after the formation of his contract, and since it did not violate the terms of his contract, Santiago was bound by it.

Santiago v. Rumsfeld, 2005 U.S. App. LEXIS 8461 (9th Cir. May 13, 2005).

May 20, 2005 in Recent Cases | Permalink | TrackBack (0)

Bridging the retail-office divide

Retail tenants and office tenants have different needs.  And when retail tenants go into office buildings, there are any number of possible grounds for dispute that need to be settled up front, according to a new client letter from Holland & Knight LLP.  Author Irwin J. Fayne runs down some of the most common problems and offers his take on them.

May 20, 2005 in Commentary | Permalink | TrackBack (0)

Program: Managing contract risk

Those who do contracting in the oil and gas industry will be gathering next week in Houston for the 10th Annual Program on Contract Risk Management in the Oil & Gas Industry. The event, sponsored by the Strategic Research Institute, is slated for Monday and Tuesday, May 23-24 at the Marriott Houston West Loop.

The big issue this year is how operators ought to handle liability risks related to drilling consultants, a problem with potential "gigantic" liability exposure that insurers don’t want to cover.  The right contracts, say the organizers, can create a "win win win" situation for the operator, the consultant, and the insurer.

May 20, 2005 in Conferences | Permalink | TrackBack (0)

SLU professorship honors Immel

Vincent_immel St. Louis University and donor Tom Keele have honored former contracts professor and dean Vincent C. Immel again, by creating a second professorship in his honor. Immel (left), who taught at SLU from 1958 to 2004, is an institution in the Gateway City; the entrance to the law school is the "Vincent C. Immel Atrium."

May 20, 2005 in Contract Profs | Permalink | TrackBack (0)

Today in history—May 20

325: The first Christian ecumenical council opens its meeting at Nicaea, in what is now Turkey. The "Nicene Creed" it developed is still the basic creed of Catholic and Orthodox Christians.

1293: Sancho IV of Aragon creates a new school at Alcalá de Henares, which in 1499 will become the great Universidad Complutense de Madrid.

1504: Christopher Columbus, who insists to the last that he reached Asia, dies at Valladolid in Spain.

1570: Abraham Ortelius of Antwerp creates the first modern world atlas, although the term won’t come into general use until later.

1806: Utilitarian philosopher John Stuart Mill is born at London. By the age of 10 he will have read all the standard classic works assigned in English universities, in the original tongues.

1845: Two ships and 134 men under Sir John Franklin set sail from England on a voyage to find the Northwest Passage. None will return.

1862: President Lincoln signs the Homestead Act, which gives federal land to farmers who will live on it and cultivate it.

1873: Levi Strauss and Jacob Davis receive a patent for denim work pants reinforced by copper rivets.

1920: Station XWA in Montréal begins what is considered to be the first regularly scheduled radio broadcasts in North America.

1993: The long-running television show Cheers closes its doors after 11 years.

May 20, 2005 in Today in History | Permalink | TrackBack (0)

The Holdup Game in the Merger and Acquisition Context

Hotchkiss, Edith S., Qian, Jun and Song, Weihong, "Holdups, Renegotiation, and Deal Protection in Mergers" (April 2005)

This paper fits neatly with the previous post in discussing the holdup game in mergers and acquisitions.


This paper examines the contracting and negotiation process in mergers. Within the incomplete contracts framework, our multi-period model allows for the arrival of new information and renegotiation subsequent to the signing of an initial merger agreement. We show that a properly designed initial contract solves the holdup problem and induces higher deal-specific effort that increases expected payoffs from the merger. The contract grants an option to the target to terminate the merger, while the strike on the option compensates the acquirer's effort without imposing excessive costs on the target for pursuing non-merger alternatives. The option strike can be implemented by the use of deal protection devices, such as a target termination fee or an acquirer lockup. Employing a large sample of stock mergers, we find evidence supporting model predictions for the renegotiation of contracts, deal outcomes, and the use of deal protection devices.

May 20, 2005 in Recent Scholarship | Permalink | TrackBack (0)

Thursday, May 19, 2005

News in brief

The jury took four hours to conclude that Morgan Stanley must pay $850 million in punitive damages to billionaire Ron Perelman, on top of the $604 million it awarded in compensatory damages.

A New York judge has dismissed rapper Jay Z's counterclaims in the $75 million breach of contract action brought against him by R. Kelly, his co-star on a major concert tour.

Both parties have signed the anticipated new agreement extending Cricket Australia's broadcast contract with the Australian Broadcasting Co. for another five years.

A Massachusetts appellate court has upheld a $22.5 million breach-of-contract verdict won by a Holocaust survivor against the house that published her memoir.

A Chicago businessman who admitted to lying to get $120 million in business supposedly set-aside for minority- and women-owned businesses, has been given 10 years in prison.  It's a misdemeanor in California to remove graffiti without a license.

Sweden's Ericsson has been given the contract to manage field operations for Brazil's largest mobile phone operator, Vivo.

Stalled contract talks may lead to a lock-out of National Basketball Association players July 1.

One of "the most historic college football match-ups in the South" will resume next year, as Tulane and Louisiana State sign a ten-year contract to play each other in a home-and-home series.

America's Home Depot will get its store operations software from Germany, after SAP won a bidding war for the contract against a division of Oracle Corp.

The Boys & Girls Club of the San Gabriel Valley may lose the graffiti removal contract it's had with the city of West Covina for 20 years, because it's not a licensed state contractor.

Manchester United and Lyn Oslo have filed a complaint with FIFA over some cloudy contract issues related to 18-year-old Nigerian star John Obi Mikel.

May 19, 2005 in In the News | Permalink | TrackBack (0)

Cases: Just a little bit illegal

New_york_flag_5 An interesting illegality issue has surfaced in a case from Brooklyn, New York.  Actually, it's about the appropriate remedy in an illegality situation where an innocent party has received the benefit of the deal.

In Lewin v. The Law Offices of Godfrey G. Brown, lawyer Brown and client Lewin agreed to a $15,000 fee to represent Lewin's relative on a criminal charge.  Brown took half the fee, $7.500, up front as a retainer.  There was no signed retainer agreement, however.  After Brown negotiated what sounds like a pretty good plea bargain, Lewin balked, and demanded disgorgement of the fee already paid.

New York law prohibits a lawyer from collecting fees in a case where the lawyer has failed to get a signed, written agreement.  Thus Brown could not recover the rest of his fee, according to Judge Arlene Bluth.  But the fees already paid were a different matter.  Bluth held that Brown had no obligation to return that part of the fee already paid when the representation had been completed.

May 19, 2005 in Recent Cases | Permalink | TrackBack (0)

Bridgeman selected for Junior Forum

Curtis_bridgeman_1 Florida State’s Curtis Bridgeman has been named one of the sixteen scholars invited to present papers at the 2005 Stanford/Yale Junior Faculty Forum.  Bridgeman, who’ll present his Strict Liability and the Fault Standard in Corrective Justice Accounts of Contract, is just wrapping up his first year of teaching at Tallahassee, where he was voted Professor of the Year by the student body.  He earned his J.D. and Ph.D. at Vanderbilt.

May 19, 2005 in Contract Profs | Permalink | TrackBack (0)

You must be present to win

Texas_state_seal Minority- and women-owned businesses interested in getting a piece of the Texas state procurement pie are gathered in Dallas today and tomorrow for the Texas Spot Bid Contract Fair. At the innovative annual forum, the state awards $5 million in contracts to the businesses who show up and demonstrate what they can do.

May 19, 2005 in Government Contracting | Permalink | TrackBack (0)

Sears, CSC, in battle over contract termination

In what's shaping up as a classic "bad faith" case, retailer Sears Roebuck and IT provider Computer Services Corp. are battling over a $1.6 billion computer services contract.  Sears has announced that it is canceling the contract "for cause," noting various defalcations by CSC.  CSC claims that Sears’s real reason is that it wants to avoid the millions of dollars in early termination fees that the contract provides for, and is hoping to ditch the contract before its upcoming merger with K-Mart.

May 19, 2005 in In the News | Permalink | TrackBack (0)

Today in history—May 19

1536: Illustrating the proverb, "Put not your faith in princes," Anne Boleyn is beheaded at the order of her husband, Henry VIII, ostensibly for adultery but in reality for not bearing a live male child.

1649: Parliament declares that England, whose king was executed five months earlier, is now a Commonwealth:

Be it declared and enacted by this present Parliament and by the Authoritie of the same
That the People of England and of all the Dominions and Territoryes thereunto belonging are and shall be and are hereby constituted, made, established, and confirmed to be a Commonwealth and free State
And shall from henceforth be Governed as a Commonwealth and Free State by the supreame Authoritie of this Nation, the Representatives of the People in Parliam[ent] and by such as they shall appoint and constitute as Officers and Ministers under them for the good of the People and that without any King or House of Lords.

1749: King George II issues a charter to a number of Virginians for the Ohio Company. The Company is granted 200,000 acres of land on the western side of the Appalachians on condition that it survey and settle the region.  It will later fail.

1762: Idealist philosopher Johann Gottlieb Fichte is born at Rammenau, in Saxony.

1780: A queer, deep morning darkness descends over New England and part of the Middle Atlantic states, causing chickens to return to their roosts and schoolteachers unable to see their book.  It is darkest in the area between Boston and Portland.  It has never been satisfactorily explained.

1795: Future merchant, distiller, and railroad speculator Johns Hopkins is born at Anne Arundel County, Maryland.  He will die without heirs and leave his money to found a university because he will be unable to marry the woman he loves—his first cousin, Mary.

1828: President Adams signs the Tariff Act of 1828, which Southerners will call the "Tariff of Abominations." It protects Northern woolen mills but leads to lower exports of Southern cotton and higher prices for everyone.

1885: Jan Ernst Matzeliger, the Suriname-born son of a Dutch engineer and an African slave, begins the first mass-production of shoes in the U.S. at Lynn, Massachusetts, using a new machine he invented.

1910: Entrepreneurs hawk "Comet Pills" to protect against predicted cyanogen poisoning as the Earth passes through the tail of Halley's Comet.  They apparently work, as no one dies.

May 19, 2005 in Today in History | Permalink | TrackBack (0)

Alaska Packers and the Holdup Game Is Alive

"Contracts, Holdup, and Legal Intervention" (March 2005)

Harvard Law and Economics Discussion Paper No. 508.

Steven Shavell

This interesting article provides a modern discussion of the classic holdup problem.



This article develops the point that the problems associated with contractual holdup may justify legal intervention in theory, and the article relates this conclusion to legal intervention in practice. Contractual holdup is considered for both fresh contracts and for modifications of contracts.

The law can in principle alleviate the incentive and risk-bearing problems due to holdup in two ways. One approach is for the law simply to void agreements made in certain circumstances, since that will remove the prospect of profit from holdup. This policy may be desirable when the events that permit holdup are engineered, for these events would not have been instigated if they would not have resulted in enforceable contracts. When situations of need are not engineered (bad weather puts a ship in jeopardy), flat voiding of contracts is undesirable, since contracts for aid in situations of need (to tow a ship) are often socially beneficial. In these circumstances, the policy of controlling the contract price is preferable, as that policy can reduce the problems of holdup but still allow contracts to be made.

Both types of legal intervention in contracts and their modifications - voiding without regard to price and control of price - are used by courts to counter problems of pronounced holdup. Also, various price control regulations appear to serve the same objective, at least in part, for instance maximum price ordinances for car towing services, emergency price regulations, and the historically important rule of laesio enormis of the Middle Ages.

May 19, 2005 in Recent Scholarship | Permalink | TrackBack (1)

Wednesday, May 18, 2005

$10,000 motorcycle may cost $40 million

It looks like would-be football star Kellen "The Chosen One" Winslow is likely to say goodbye to at least part and maybe all of his $40 million contract with the Cleveland Browns, says Steve Sugarman (Cal-Berkeley) in a story reported in the Orange County Register.

Winslow injured himself riding a $10,000 motorcycle in a parking lot May 1.  His contract prohibits him from riding a motorcycle, and provides that breach of the contract will result in a required refund of his signing bonus as well as the future compensation under the contract.  The tight end's lawyers will be scanning the document for angles, but Matt Mitten, who heads the Sports Law Program at Marquette, seems to agree that he’s probably toast: '"This is a case where Winslow voluntarily engaged in novice motorcycling that was forbidden by his contract, and his conduct impaired the value of his services."

May 18, 2005 in In the News | Permalink | TrackBack (0)

Mutually assured destruction?

The National Law Journal has an interesting piece on the "arms race" among law schools in their fund-raising activities.  Not everybody can match the half-billion a year that Harvard and Stanford can rake in, but even the humblest are hitting the hustings in search of cash.

May 18, 2005 in Miscellaneous | Permalink | TrackBack (0)