ContractsProf Blog

What makes a good dean?

Over at our sister blog, Leiter's Law School Reports, the topic is "what makes a good dean"?  We're firmly convinced the key is sincerity.  If a dean can fake that, the rest is easy.

Good practices for consumer contracts

Britain's Financial Services Authority recently issued some "good practices" guidance for firms that engage in consumer contracts.  Lawyers Paul Edmondson, Suzanne Bailey, and Jean Price of London's CMS Cameron McKenna LLP outline the new rules.

Today in History: August 13

1521: The Aztec imperial capital of Tenochtitlán falls to a coalition of Spaniards and rebel tribes led by Hernán Cortés.

1899: Felix Heinrich Wankel is born at Lahr, Germany.  Almost entirely self-educated, he'll get the idea for his rotary engine in 1924, but won't get a chance to develop it until he's working for NSU Motorenwerke AG in 1957.

1913: Circus acrobat Otto Witte, impersonating the nephew of the Sultan, has himself crowned king of newly independent Albania.  He'll rule for five days and declare war on Montenegro before the ruse is discovered, and then flee with much of the treasury.

1913: Harry Brearley of Sheffield, England, produces the first batch of a new alloy that he calls "rustless steel" but will become better known under the snappier "stainless steel."

1918: Opha Mae Johnson becomes the first woman to enlist in the United States Marine Corps.  Some 300 are inducted the same day.

1923: The first ocean-going vessel arrives at the new port complex at Gdinya, built as a Polish rival to the Free City of Gdansk.

1942: RKO Radio Pictures releases Walt Disney's newest animated film, Bambi.

1946: Herbert George Wells dies at London.  He won't be the last person who thinks that being really famous makes you an expert on everything.

2004: Julia Child, the most famous American cook since Hector Boiardi (Chef Boyardee) dies at Santa Barbara, California.

Law firm compensation disputes on the rise

There are few mysteries deeper than the compensation system at any given law firm.  Traditionally these things have been sorted out within the firm, but the number of contract disputes making their way into court is growing.  The New York Law Journal has a story about one partner’s battle with his old firm, which he says violated his contract by reducing his compensation as he passed retirement age.

Contract 1, Tort 0

Whatever the trend toward subsuming contract claims into tort may be elsewhere, the line still has some meaning in New York.  In a decision last year, Carvel Corp. v. Noonan, 3 N.Y.3d 182, 818 N.E.2d 1100, 785 N.Y.S.2d 359 (2004), the Court of Appeals held that a franchisee with a breach of contract claim against a franchisor couldn't also recover on a claim for tortious interference with contract.   Zachary D. Silbersher of New York's Torys LLP offers a summary of the case and its implications.

Today in History: August 12

1099: The First Crusade ends with a Christian victory over a larger Fatimid army at the Battle of Ascalon, thus ensuring that Jerusalem would stay in Crusader hands.

1676: Indian John Alderman shoots and kills Metacomet (a/k/a “King Philip”) of the Wampanoags, ending what comes to be known as King Philip’s War.  Alderman is awarded the head as a trophy, which he sells for 30 shillings.

1848: George Stephenson, who started work in a coal mine and eventually became the “Father of British Steam Railways,” dies at Chesterfield, England.

1908: Ford Motor Co. builds the first Model T, which will go into production a month later.  At $850, it will sell for less than half as much as comparable vehicles.

1930: George Soros, whose skill in currency speculation was honed trading black market currency in Hungary after World War II, is born at Budapest.

1960: Echo I, a 100-foot-diameter polyester balloon, goes into orbit to become the world’s first communications satellite.

1989: The man who did more to create Silicon Valley than anyone else, William Bradford Shockley, dies at age 79.

1994: Woodstock ’94 proves that Thomas Wolfe was right: You can’t go home again.

Van Halen and Orioles slug it out

About a year ago, Van Halen sued the Baltimore Orioles for breach of contract, claiming that the Orioles backed out of a deal for the band to play its first-ever concert inside Camden Yards.  Last week, U.S. District Judge William Matthew Byrne denied the Orioles' motion for summary judgment and the case is going to trial.

Coincidentally, Van Halen has another legendary association with the law of contracts.  The band pioneered the way for musicians with its very extensive use of the contract rider.  The band's rider contained an infamous clause which required the removal of brown M&Ms from the backstage candy bowl.  Apparently, this clause is no longer in the band’s contract rider, though it does still contain detailed food and booze requirements.

[Meredith R. Miller]

Stockmeyer named head of Scribes

Norman Otto Stockmeyer (Thomas Cooley) has been named president of Scribes, the American Society of Writers on Legal Subjects.  An emeritus professor at the Lansing school, he was named to the post at the society's annual meeting in Chicago last week.

Stockmeyer earned his A.B. at Oberlin and J.D. at Michigan, and before teaching spent 12 years as commissioner and director of research for the Michigan Court of Appeals.  He joined the Cooley faculty in 1977, and has taught as a visitor at Cal Western and Mercer.  He's the author or editor of more than 150 books, chapters, and articles, including the authoritative Michigan Law of Damages, and is a past president of the Michigan State Bar Foundation.  He's won numerous teaching awards at Cooley and in 1985 was named the nation's outstanding law professor by Delta Theta Phi.  Click on "continue reading" to see the official news release.

STOCKMEYER ELECTED
PRESIDENT OF SCRIBES

Norman Otto Stockmeyer of East Lansing, Michigan, was elected President of Scribes, the American Society of Writers on Legal Subjects, at the society's annual luncheon in Chicago on August 6.  Scribes is a national association of published lawyers, judges, law professors and legal editors who support Scribes' goal of promoting and recognizing excellence in legal writing.

An emeritus professor at Thomas M. Cooley Law School, Stockmeyer is the author of more than 150 articles, book reviews and columns published in a wide variety of legal journals and newsletters.  He is the second member from Michigan to head Scribes in the organization's 52-year history.  Judge Charles Joiner, then a University of Michigan law professor, was president in 1963-64. 

To promote excellence in legal writing, Scribes publishes The Scribes Journal of Legal Writing and a quarterly newsletter, The Scrivener, and co-sponsors legal-writing programs at American Bar Association meetings.   It also conducts three award programs annually:

- The Scribes Book Award, presented at the ABA annual meeting, for the best work of legal scholarship,

- The Scribes Law-Review Award, presented at the National Conference of Law Reviews' annual meeting, for the best student writing in a law review, and

- The Scribes Brief-Writing Award, presented at the ABA annual meeting, for the best student brief entered in a national moot-court competition.

Membership in Scribes is open to any member of the legal profession who has published a book on a legal subject, published two or more articles on legal subjects, edited a legal publication, or published two or more decisions as a judge or administrative hearing officer.  More information is available at www.scribes.org

Punitive damages for breach of contract

We've previously mentioned the important California case of Robinson Helicopter v. Dana, where the California Supreme Court greatly expanded the availability of punitive damages for contract breach.  Now Christine A. Scheuneman of Pillsbury Winthrop Shaw Pittman LLP takes a look at the case and gives a warning to manufacturers:  "written and oral representations about performance, including products and services, might expose them to liability for tort damages."

Today in History: August 11

3114 B.C.: The Mayan calendar starts.

480 B.C.: Spartans under Leonidas, facing a force 25 times their size, are wiped out at the Battle of Thermopylae, but not before giving the Persians such losses that their invasion of Greece will ultimately fail.

1492: Rodrigo Borgia, who took his legal training at Bologna, becomes Pope as Alexander VI.

1919: Germany adopts the Weimar Constitution.

1919: Andrew Carnegie, who rose from bobbin boy in a cotton mill to become the founder of the modern American steel industry, dies at Leonx, Massachusetts.

1950: Stephen Wozniak is born at San Jose, California.  In 1975, he and Steve Jobs will launch the personal computer revolution with $1,300 and a garage workroom.

1956: Jackson Pollock ceases abruptly to be the “greatest living American artist” when he gets drunk and crashes his car, killing himself and a passenger.

1965: Rioting breaks out in the Los Angeles neighborhood of Watts.  It will, among other things, destroy $100 million in property, mostly that of local businesses.

1987: Alan Greenspan becomes Chair of the Federal Reserve Board.

1991: Nickelodeon unveils its first cartoon series: Doug, Rugrats, and Ren and Stimpy.

Jackson in Court Again

Michael Jackson was recently hauled into court again, this time over contractual obligations to Prescient Acquisition Group, Inc., a company providing financial advice and specializing in asset acquisition.  The lawsuit, filed in federal district court in Manhattan, alleges that Jackson hired the firm to advise him in November 2004, and also to arrange for new financing to save Jackson's interest in the crown jewel of his holdings -- the Beatles song catalog.

The complaint states that Prescient did, in fact, facilitate Jackson's refinancing of $272 million of debt with Bank of America.  Not only that, the lawsuit claims that Prescient arranged for Jackson to obtain $537 million in financing from Fortress Investment Group, LLC, for the purposes of paying off Jackson's other debt, and exercising an option to buy the remaining 50% of the Beatles catalog.  The suit claims that Prescient's fees of over $28 million are currently due and unpaid.

Cases: Copyright license must be in writing

The requirement that a copyright license be in writing doomed a distributor's claim for rights to exclusive distribution, even though the parties had been performing under an oral agreement for several years, according to a new case from the U.S. Court of Appeals for the Fifth Circuit.

The case involved the popular VeggieTales children's video series, which was created by Phil Vischer and owned by Big Idea Productions.  The videos were originally sold through Christian bookstores, but after they became popular Big Idea was approached by Lyrick Studios, of Barney and Bob the Builder fame.  Lyrick proposed to take over distribution of VeggieTales.  Its proposal provided that nothing would be binding until a final agreement were reached.

The parties continued to negotiate; Lyrick sent a fax outlining issues still to be resolved.  The parties finally spoke and the telephone and allegedly worked out all the details.  A 16-page contract was prepared but never signed.  The parties nevertheless proceeded, and Lyrick began distributing the videos.  A few years later, Big Idea decided to change distributors, and Lyrick sued, claiming breach of contract.  Lyrick won an $11 million jury verdict.

The problem with the contract claim, said the Fifth Circuit, is that an exclusive copyright license must be in writing to be effective.  At trial, Lyrick relied on an internal Big Idea memo which stated, "[W]e agreed over the phone to this contract. I would say that we have an agreement in force."  Lyrick had never seen this memo until the litigation was in progress.  After looking at the meager precedent, the court held that such an internal memo was not sufficient to satisfy the writing requirement.  Faxes between the parties suggested that negotiations were still going on, and this memo was not intended either as a memo of the agreement or as a communication to the other party.  Therefore it did not suffice for a copyright license.  The jury verdict was reversed and the case dismissed.

Lyrick Studios, Inc. v. Big Idea Productions, Inc., 2005 U.S. App. LEXIS 16164 (5th Cir., August 5, 2005).

EU businesses not enthusiastic about mandatory code

One of the insights of the Legal Realists is that a law of commercial transactions ought to take into account what business people really want.  So with all this talk of a pan-European contract law across the EU -- do European businesses want it?

Well, yes and no, according to a new survey of 175 businesses in eight countries by London's Clifford Chance.  Some 65 percent of respondents say that there are still problems with cross-border transactions, and a majority would favor some kind of EU contract law, but only if it's optional.  Only 20 percent of respondents favored a new EU law that would displace existing national contract laws for cross-border transactions, because they would still prefer to specify their own domestic law.  That figure varied greatly from country to country, though -- 97 percent of British businesses prefer U.K. law, while only 43 percent of those in the Netherlands do.

Today in History: August 10

612 B.C.: Ninevah is sacked and razed to the ground, ending the 600-year-old Assyrian Empire.

258 A.D.: The patron of librarians, St. Lawrence, is roasted to death on a grill by Imperial authorities at Rome.

1519: Ferdinand Magellan and five ships set sail from Seville for a voyage around the world.  Only one ship and 18 crew members will complete the voyage.

1792: A mob fomented by the Paris authorities storms the Tuileries Palace and takes King Louis XVI prisoner.

1821: Missouri is admitted to the Union as the 24th state.

1821: Financier Jay Cooke is born at Sandusky, Ohio.  He will go bankrupt in the Panic of 1873, but will eventually pay back every nickel he owed and make a second fortune.

1893: Rudolf Diesel successfully tests the first prototype of the new engine that bears his name.

1909: Clarence Leonidas "Leo" Fender is born at Fullerton, California.  His "Precision" electric bass will revolutionize the music business.

1948: The precursor of modern "reality television" hits ABC Television with Allen Funt's Candid Microphone.  The name will be changed to Candid Camera a year later when it moves to NBC.

1954: Ground is broken at Massena, New York, for the proposed St. Lawrence Seaway.

1972: Actress Angie Harmon (Assistant DA Abbie Carmichael on TV's Law and Order) is born at Highland Park, Texas.

News in brief

Actress/model Pamela Anderson has been sued for breach of contract; allegedly for repeatedly refuses to take part in promotions and other deals worked out for her by the company that had an exclusive licensing deal with her.

The New York Jets have signed defector Ty Law from the rival New England Patriots in a deal that could be worth $50 million.

First Tasmania, now New Zealand potato farmers are being hit with cuts in the contract quantities needed by McDonald's of Australia as the region is being flooded by North American spuds.

Britain's Harrod's department store has terminated its contract with a Welsh puppy farm after a BBC undercover investigation found conditions in the place "absolutely horrific."

China's People's Bank says it has licensed more than 130 banks, including some foreign ones, to trade forward contracts on the yuan.

Cases: No duty to investigate forged signature

An insurance company has no duty to investigate whether the signature of a policy holder on a change-of-beneficiary form is genuine or not, and its duty to pay is satisfied when it turns over the policy proceeds to the fraudulent beneficiary, according to a new decision by the Alabama Supreme Court.

In the case, Jay D. Pinkley had a $100,000 life insurance contract with Fortis Insurance Co.  He listed his wife, Bertha, as the beneficiary and his stepson, Sanford, as the contingent beneficiary.  The insurance contract stated that, should Jay wish to change the beneficiary, he would have to fill out a form and it would not be in effect until it was filed and recorded by Fortis.  Later, someone called Fortis, pretending to be Jay, and requested a change-of-beneficiary form.  The form was filled out and the signature was forged to change the beneficiary to Sanford.  When Jay died, Fortis paid the proceeds of the policy to Sanford and his wife.  Two years later, Bertha tried to get the money from Fortis, but Fortis claimed it had discharged its contractual duties when it paid the money to Sanford.  Bertha sued Fortis for negligence, wantonness, breach of contract, and bad-faith failure to pay a claim.

The question on appeal was whether the insurance company had a duty to investigate the authenticity of a signature before paying benefits to the designated beneficiary.  Bertha argued that under the contract only Jay, the policy owner, had the authority to change the beneficiary, and he hadn't done so.  Therefore the insurer was in breach of contract.  The court, noting that statutes governing payment by insurance companies made no distinction between forged and legitimate forms, rejected the argument.  To burden every insurer with an obligation to make sure that all the signatures in its file were genuine would be unreasonable.  The court remanded the case with instructions to grant summary judgment to Fortis.

Fortis Benefits Insurance Co. v. Pinkley, 2005 Ala. LEXIS 119 (July 29, 2005).

Today in History: August 9

803: Empress Irene, the former ruler of Byzantium banished and forced to work at a spinning wheel for her bread, dies at Lesbos.

1173: Construction begins on one of the world's most famous engineering mistakes, the Tower of Pisa.

1842: The Webster-Ashburton Treaty is signed, fixing the northern border of the U.S. east of the Rockies and providing for cooperation in exterminating the slave trade on the high seas.

1899: Author Pamela Lyndon Travers is born at Maryborough, Queensland.  It will take Walt Disney more than 20 years to convince her to sell him the film rights to her Mary Poppins.

1910: Alva A. Fisher of Chicago, Illinois, receives a patent for the first electric washing machine.

1944: The U.S. Forest Service begins a new advertising campaign featuring "Smokey the Bear."

1974: Richard Nixon, the first U.S. president to lose his law license for misconduct, resigns from office.

1988: The Edmonton Oilers trade the greatest hockey player in history, Wayne Gretzky, to the Los Angeles Kings, for two players, three draft picks, and $15 million.

Weekly Top 10

Three new papers join the Weekly Top 10 list this week.  Following are the top ten most-downloaded papers from the SSRN Journal of Contract and Commercial Law for the 60 days ending August 7, 2005.

1 (1) Understanding the Current Wave of Procurement Reform - Devolution of the Contracting Function, Christopher R. Yukins (Geo. Washington)

2 (3) Decisionmaking & the Limits of Disclosure: The Problem of Predatory Lending, Lauren E. Willis (Loyola-L.A.)

3 (4) The Comparative Law and Economics of Pure Economic Loss, Francesco Parisi (Geo. Mason), Vernon V. Palmer (Tulane) & Mauro Bussani (Trieste)

4 (6) Freedom, Compulsion, Compliance and Mystery: Reflections on the Duty Not to Enforce a Promise, Jeffrey M. Lipshaw (Wake Forest)

•5 (-) Explicit Evidence on an Implicit Contract, Andrew T. Young (Mississippi Econ) & Daniel Levy (Bar Ilan Econ)

•6 (-) The Posthumous Life of the Postal Rule Requiem and Revival of Adams v. Lindsell, Peter Goodrich (Cardozo) (left)

7 (7) Better than Cash? Consumer Protection and the Global Debit Card Deluge, Arnold S. Rosenberg (Thos. Jefferson)

8 (8) Private Dispute Resolution in the Card Context: Structure, Reputation, and Incentives, Andrew P. Morriss & Jason Korosec (Case Western)
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9 (-) Friends in High Places: Amity and Agreement in Alsatia, Peter Goodrich (Cardozo)

10 (9) Evolving Business and Social Norms and Interpretation Rules: The Need for a Dynamic Approach to Contract Disputes, Nancy Kim (Cal Western)

Cases: Judge can’t rewrite terms of prenup

Absent ambiguity, the plain meaning of a prenuptial contract controls even where it might make things more difficult for a court and a litigant, according to a recent decision by the Appeals Court of Massachusetts.

The case involved an antenuptial agreement between Jay Korff, a financial advisor at Morgan Stanley, and his wife, Jill.  In the agreement, the couple had provided for a sliding scale for alimony, which provided that Jill would receive certain percentages of Jay’s income as alimony depending on the length of the marriage.  The marriage lasted 129 months, which under the formula entitled Jill to 21 percent of Jay’s income going forward.

Jay’s annual income, based largely on commissions and production bonuses, fluctuated greatly, ranging over a five-year span between $500,000 to about $1.6 million.  At trial, Justice Spencer Kagan concluded that Jay had not been entirely candid about his income and may have deliberately tried to keep his current compensation down to reduce Jill’s share.  The appellate court found no evidence for that claim, noting that lower compensation in the most recent year appeared due to loss of a major account and a downturn in the market.  But Kagan nevertheless decided to average the previous five years and give Jill a fixed monthly alimony payment of $ 14,625.24.

Wrong, said the appeals court.  Even if there had been evidence of such activities, the agreement was clear that Jill would be entitled to a percentage of Jay’s annual income, determined annually:

Thus, anticipating ongoing, future, annual breaches by the husband, the judge instituted preventive measures by fixing a set amount of alimony to be paid over the life of the agreement, in direct conflict with its clear language that alimony was to be determined annually. Although, based on the record, the judge's displeasure with the husband's conduct is understandable .  .  . , the solution was, nonetheless, legally impermissible.

Since Jay's income is all verifiable, in the form of his compensation from Morgan Stanley, Justice Marc Kantrowitz's opinion noted that it should not be difficult to agree on annual figures.  If for some reason the parties can't agree, however, they are free to come back to court.

Korff v. Korff, 64 Mass. App. Ct. 94, 831 N.E.2d 385, 2005 Mass. App. LEXIS 702 (July 22, 2005).

Econ conference call for papers

The decision whether to organize production by contracts among firms, or by relationship within the firm, is one of the topics that's likely to be discussed at the upcoming conference on The Law and Economics of Organizations, scheduled for the University of Virginia School of Law on February 24-25, 2006.  The conference has issued a call for papers -- click on "continue reading" to see it.

                            CALL FOR PAPERS

          John M. Olin Program in Law and Economics
                 University of Virginia School of Law

                            CONFERENCE ON
   "THE LAW AND ECONOMICS OF ORGANIZATIONS"

                            February 24-25, 2006

Since Coase's seminal article on the theory of the firm in 1937, both legal and economic scholars have critically examined various aspects of modern organization: including an organization's economic and legal boundary, its hierarchical structure, incentive and promotion within an organization, and control within and across organizations. This conference aims to bring together scholars from the allied fields to examine the recent developments in the field and also to provide a more holistic view of the modern organization theory.

PAPER SUBMISSIONS:

This call for papers invites scholars in economics, business and law to submit papers. The papers can be theoretical or empirical, and more or less technical.

SUBMISSION PROCEDURE:

Submissions of working papers or precis should be sent to the following address by Wednesday, August 31, 2005.

CONTACT:
Albert H. Choi
Associate Professor of Law
University of Virginia School of Law
580 Massie Road
Charlottesville, VA 22903

Electronic copies may be sent to this e-mail address.

Authors of papers selected for the conference will be informed by the end of September.