ContractsProf Blog

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Valparaiso Univ. Law School

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Saturday, October 22, 2005

Unpaid $241k Tab at Topless Bar Leads to Breach of Contract Action (and Bad Publicity)

American Express filed a lawsuit this week against a chief executive of Savvis Communications, a publicly held telecommunications company.  The complaint, which includes causes of action for breach of contract and unjust enrichment, alleges that the executive and three guests ran up a $241,000 tab at a Scores, a popular "topless" nightclub in Manhattan.  It alleges that he charged the evening's activities on his American Express card, and he has failed to pay the bill.  The executive and Savvis' counsel assert that some of the charges were fraudulent.  Apparently, the Manhattan D.A. is presently investigating alleged overcharges at Scores.

[Meredith R. Miller]

October 22, 2005 in In the News | Permalink | TrackBack (0)

Aquinas on Changing Laws

But, to a certain extent, the mere change of law is of itself prejudicial to the common good: because custom avails much for the observance of laws, seeing that what is done contrary to general custom, even in slight matters, is looked upon as grave. Consequently, when a law is changed, the binding power of the law is diminished, in so far as custom is abolished.  Wherefore human law should never be changed, unless, in some way or other, the common weal be compensated according to the extent of the harm done in this respect.

           St. Thomas Aquinas, Summa Theologica (Benziger Bros. edition, 1947)
           First part of the second part, question 97, article 2

October 22, 2005 in Quotes | Permalink | TrackBack (0)

Kingsfield's Long Shadow

John_houseman The most famous contracts professor of all time isn't Langdell, Williston, Corbin, or Llewellyn.  It's Harvard's Charles W. Kingsfield, Jr., whose larger-than-life persona still broods over the academy more than 30 years after he appears in The Paper Chase

In The Shadow of Professor Kingsfield: Contemporary Dilemmas Facing Women Law Professors, forthcoming in the William & Mary Journal of Women and the Law, Martha Chamallas (Ohio State) looks at "the predicament of women law professors in an era when the representation of women on law faculties has reached a 'critical mass.'"  She "explores three mechanisms for reproducing gender inequality: (1) self-fulfilling stereotypes, (2) gender-specific comparison groups, and (3) the accumulation of small disadvantages."  And she "uses stories from her own and colleagues' experiences to illustrate contemporary forms of bias."

October 22, 2005 in Recent Scholarship | Permalink | TrackBack (0)

Today in History: October 22

1746: Presbyterian divines found the College of New Jersey at Elizabeth to train preachers.  The school will move to Princeton 12 years later and will subsequently change its name to that of the town.

1836: Lawyer, soldier, and politician Sam Houston is named the first President of the Republic of Texas.

1887: The man whose mission in life will be to bring real Soviet-style democracy to the totalitarian United States, John (Ten Days that Shook the World) Reed, is born at Portland, Oregon.

1907: A run on the Knickerbocker Trust Co. forces it to close its doors, triggering the Panic of 1907.  Bank president Charles Barney, whose speculation in copper caused the bank's ruin, will shoot himself.

1910: In one of the most famous murder trials in English history, Dr. Hawley Harvey Crippen is convicted of murdering his wife.  His lover, Ethel le Neve, is acquitted.

1934: Bank robber Charles Arthur Floyd is shot to death by FBI agents at East Liverpool, Ohio.  He disliked the name "Pretty Boy," and once killed two men who called him that.

1966: The Supremes become the first all-female group to have a number-one selling album, with The Supremes a' Go-Go.

1971: President Nixon appoints William Hubbs Rehnquist to the United States Supreme Court.

October 22, 2005 in Today in History | Permalink | TrackBack (0)

Friday, October 21, 2005

UTexas Puts Foreign Judgments on Web

The University of Texas has announced that “nearly 1,000 translated foreign judgments and statutes” have been posted on its Institute of Transnational Law web site.  The materials are (or will be) from France, Germany, Israel, Austria, and Italy.

French commercial law decisions are here.  German contract law cases are here.

[Frank Snyder]

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

Contractual Indemnification Case Decided

The New York Court of Appeals has decided Rodrigues v. N&S Building Contractors, Inc., a contractual indemnification case mentioned in a previous post.

The New York Workers’ Compensation Law disallows third-party indemnification or contribution claims against employers, except where (1) the employee sustains a “grave injury” or (2) the claim is based upon a provision in a written contract “by which the employer had expressly agreed to . . . indemnification.” This case involved the second exception, raising the issue whether an indemnification agreement between a general contractor and subcontractor was specific enough to satisfy the requirements of the Workers’ Compensation Law. At the center of the appeal were competing interpretations of the word “expressly.”

The Appellate Division held that, because the written contract did not explicitly cover the particular project site where the worker was injured, it did not fall within the contract exception to the Workers’ Compensation Law. The New York Court of Appeals disagreed and reversed. The majority held that the written agreement was sufficiently clear and unambiguous, and the Workers’ Compensation Law did not require indemnification provisions to specify the project sites, persons and types of losses covered.

Judge Read dissented, writing that the lack of specificity in these contracts, which are often form contracts, circumvented the purpose of the Workers’ Compensation Law. Concerning the statute’s use of the word “expressly,” she wrote:

Merriam Webster’s Collegiate Dictionary defines “express” as “1a: directly, firmly, and explicitly stated <my ~ orders> b: exact, precise 2a designed for or adapted to its purpose b: of a particular sort: specific <for that ~ purpose>” (410 [10th ed 1997]). As amicus New York State Builders Association, Inc., points out, however, the language in the indemnification provision of the Agreement between the parties in this case “is substantially similar to that used . . . in form-documents prepared by The American Institute of Architects (AIA) and widely used and accepted through the construction industry.” . . . This type of generic indemnification, drafted for use nationwide . . . does not clearly and unambiguously signal an employer’s express agreement for the purposes of [the Workers’ Compensation Law.] Surely an employer must explicitly agree to indemnification . . . [o]therwise, [the Workers’ Compensations Law’s] promise of relief from third-party actions is illusory for large categories of employers – such as subcontractors – that routinely enter into contracts with standard form indemnifications.”

Hat tip: Matthew Lerner (he argued for the appellant).

[Meredith R. Miller]

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

Economics and the Law

OLD BOOKS AND ARTICLES WORTH RECONSIDERING

THE ECONOMICS OF CONTRACT LAW. BY ANTHONY T. KRONMAN AND RICHARD A. POSNER. BOSTON: LITTLE, BROWN & CO. 1979.

It is just over 25 years ago that Little Brown published this book by Posner and Kronman. The book itself is a compilation of essays that considers the economic implications of substantive concepts of contract law. The essays are placed into sections with notes that consider various aspects of contract law under the guide of economic analysis. Given the effect that the economic analysis school has had on contracts and the law, this book is this week's 25 year anniversary memorial. Interestingly, it is sometimes described as having a 1978 publication date and sometimes a 1979 publication date. That issue though is for the copyright lawyers to consider.

[Stephen Safranek]

October 21, 2005 in Books | Permalink | TrackBack (0)

Today in History: October 21

1512: Martin Luther, who dropped out of law school to become a monk, joins the theology faculty at the University of Wittenberg.

1824: The modern concrete age is born as British bricklayer Joseph Aspdin patents a new building material he calls "Portland cement."

1833: Alfred Nobel, the man who will invent dynamite, is born at Stockholm, Sweden, the son of the man who invented plywood.

1877: After $40,000 and 1,200 experiments, a piece of carbonized thread in a glass globe glows for 13 hours -- giving Thomas Edison the breakthrough he's looking for in his electric light.

1945: French women get the vote for the first time.

1959: Solomon R. Guggenheim's new Museum of Non-Objective Painting opens in a building designed by Frank Lloyd Wright.  The only problem with the museum is that it's impossible to hang the works of art correctly on the concave walls in its narrow, curved, shadowed spiral hallways.

1997: In only 37 days, Elton John's tribute to Princess Diana, Candle in the Wind 1997, sells 30.8 million copies to officially passes Bing Crosby's White Christmas and become the biggest-selling single of all time.

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

Thursday, October 20, 2005

Court Enforces AOL's Forum Selection Clause

Elaine Abramson sued America Online in the Northern District of Texas; she claimed that the e-mail address she used for business purposes was used as the purported originator of "thousands of emails . . . with a pornographic or otherwise lascivious content."  AOL moved to dismiss, arguing that, under the forum selection clause in the Member Agreement, Virginia was the exclusive jurisdiction for such disputes.  In response, Abramson argued that the Member Agreement was not enforceable because she did not agree to be bound by it -- her son set up her AOL account for her.  Further, Abramson argued that the forum selection clause should not be enforced because dismissal would result in some of her claims being barred by statutes of limitations, and she would suffer financial hardship if forced to reinitiate her suit in Virginia.

The court denied AOL's motion to dismiss and, instead, transferred the case to the Eastern District of Virginia.

First, the court held that the Member Agreement was enforceable even if Abramson's son set up the account for her.  Abramson's son appeared to be acting as her agent and, even if not, Abramson had ratified the Member Agreement by accepting the benefits of the account.

Next, the court addressed the forum selection clause, and noted that the question was not whether the contract, itself, was the product of fraud or overreaching.  Rather, the focus was "whether the inclusion of the forum selection clause in the contract was fraudulent or coerced." Abramson failed to show fraud or coercion in connection with the forum selection clause.  She argued that the clause was "overreaching because it consist[ed] of a boilerplate provision in a contract of adhesion."  The court, however, held that this allegation was not particular to the forum selection clause:

[t]he form nature of the contract and alleged disparity of bargaining power apply to the Member Agreement as a whole. Abramson has not alleged that Defendant's insertion of the forum selection clause into the Member Agreement was, in isolation, an act of overreaching.

Abramson v. Am. Online, Inc., 2005 U.S. Dist. LEXIS 10095 (May 25, 2005).

[Meredith R. Miller]

October 20, 2005 in E-commerce | Permalink | TrackBack (2)

Wednesday, October 19, 2005

Indefiniteness as Option Contract

Ggeis Geis, George S., "An Embedded Options Theory of Indefinite Contracts" . Minnesota Law Review, Vol. 90, 2006 http://ssrn.com/abstract=817171

In this article, Professor Geis develops an embedded options theory of indefinite contracts, focusing on the proper scope of the indefiniteness doctrine - a core principle of contract law invalidating contracts that are too vague. This approach offers answers to two puzzling questions. First, why do parties write deliberately vague contracts, especially when they can contract with precise, verifiable metrics at a low cost? Second, what should a court do when confronted with an indefinite contract? Should it throw out the entire contract, impose a popular term, or do something else? This Article shows how the use of indefinite terms plus active judicial gap-filling can create an embedded option - the valuable opportunity to take action in the future based on outcomes that are uncertain today. It then argues that these embedded options can be problematic from an economic point of view because they are unlikely to be fully appreciated by both parties to the contract. This means that embedded interpretative options will sometimes distort efficient trade and investment decisions. In short, there are under-explored costs to contractual gap-filling. Ultimately, then, courts should resist the temptation to instinctively plug gaps and recognize that the indefiniteness doctrine has a meaningful role to play in contract law.

October 19, 2005 in Recent Scholarship | Permalink | TrackBack (0)

Good Will Hunting

What is the value of good will in a law firm partnership? The New York courts will be tackling this issue now that a Nassau County judge has denied motions for summary judgment in Bodner v. Hoffman & Baron.

Plaintiff, a partner in Hoffman & Baron, was expelled from the law firm.  At the time he left, plaintiff had a 17% equity interest in the firm. The remaining partners provided plaintiff with an accounting of his partnership interest, and offered plaintiff $374,079.65, payable without interest over a five year period. Plaintiff rejected this calculation and demanded the full value of his interest, which he calculated as $1,519,000. Plaintiff’s calculation included the value of the law firm’s "good will."

When the remaining partners refused to pay plaintiff this amount, he sued for breach of contract and breach of fiduciary duty predicated upon the remaining partners’ "alleged miscalculation of the value of his partnership interest by excluding from the sum an amount as and for the goodwill of the law firm." The plaintiff argues that, by undervaluing his interest, the remaining partners "created a scenario in which they will be able to retain a larger equity stake in the partnership than they are entitled to under the Partnership Agreement."

Both sides moved for summary judgment. In addressing the motions, the court defined "good will" in this context:

[g]oodwill, in its most general sense, is an intangible asset that is comprised of a reputation that will, in all likelihood, generate future business. "When applied to law firms, the term 'good will' refers to the 'ability to attract clients as [a] result of [t]he firm's name, location, or the reputation of its lawyers.'" Dawson v. White & Case, 88 NY2d 666, 670 (1996). In Matter of Brown, 242 NY 1, 6-7 (1926), the Court of Appeals noted that "[g]oodwill when it exists as incidental to the business of a partnership, is presumptively an asset to be accounted for like any other by those who liquidate the business."

The court denied the motions, however, holding that there were triable issues of fact to be resolved at trial.

[Meredith R. Miller]

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

Impossibility Excuses Landowner's Breach

New_york_flag_8 The doctrines of impossibility and mutual mistake saved a landowner from breach of contract after it failed to build a promised road to allow access to another parcel of land, according to a recent decision by the New York Appellate Division.

In the case, the defendant landowner had granted an easement across its property to the adjoining plaintiff landowner and had contracted to build a road on the easement. When the defendant failed to do so, the plaintiff sued. The trial court originally granted specific performance of the promise.  Turns out, however, that the land in question had been impliedly dedicated to the City of Peekskill for a public park back in 1929. Accordingly, the trial court reversed itself on the specific performance issue, but held that the defendant would be liable for damages.

Not so fast, my friend, said the Appellate Division. The land at issue was “impressed with a trust” the moment it was dedicated to the city.  Accordingly, a road could not be built across it by a private developer.  Defendant’s performance was clearly impossible, which would mean that it was not in breach of its contract.  Moreover, to the extent both parties thought the road could be built, there was a mutual mistake which again meant that there was no breach. Accordingly, the complaint hould have been dismissed.

Chateau Rive Corp. v. Enclave Dev. Assoc., 2005 NY Slip Op 7338, 2005 N.Y. App. Div. LEXIS 10596 (2d Dept. Oct. 3, 2005).

[Frank Snyder]

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

Today in History: October 19

1469: Prince Ferdinand of Aragon marries Princess Isabella of Castile.  Their union will ultimately result in the unification of Spain.

1873: The first uniform code of rules for American football is drafted by Columbia, Princeton, Rutgers, and Yale.  It provides for use of a round ball, 30 inches in circumference, and prohibits players from running with or throwing the ball.

1885: Charles Edward Merrill is born at Green Cove Springs, Florida.  After dropping out of law school at the University of Michigan, he'll start a brokerage with his friend Edmund C. Lynch.

1897: Railroad car entrepreneur George Pullman dies at age 66.  He'll be buried in Chicago's Graceland Cemetary, in Pullman sleeping car with crossed steel rails and several tons of concrete on top.

1985: The first Blockbuster Video outlet opens, at Dallas, Texas.  Nine years later Wayne Huizenga will sell the chain to Viacom for $8.4 billion.

1987: On what comes to be known as Black Monday, the Dow Jones Industrial Average drops 22 percent, the biggest one-day drop in history.

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

Tuesday, October 18, 2005

Brotherly Love and Wi-Fi

The City of Philadelphia has awarded a contract for city-wide wireless internet access to Earthlink.  The contract calls for Earthlink to construct a "hot spot" covering over 135 square miles.  The wi-fi area would be the largest wireless internet access zone offered by a municipality to date in the United States.  Residents will be able to subscribe to the service for approximately $20 per month.

[Wayne Barnes]

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

Contractual Arrangement or Human Right?

Is employment merely a contractual arrangement between two parties, or is it a human right?  That question is beginning to take on practical significance, particularly in the EU, given Article 9 of the European Convention on Human Rights.

Does Article 9 govern employment law in the EU countries?  The question is likely to be contentious, and so far British courts, at least, haven’t come up with a solution, according to Christopher Booth of Pinsent Masons in Leeds, in Human Rights Challenge Causes Discord in the Court of Appeal.

[Frank Snyder]

October 18, 2005 in Commentary | Permalink | TrackBack (0)

This Week's New York Court of Appeals Oral Arguments

CrtsideWednesday and Thursday of this week, the New York Court of Appeals will hear oral argument in two interesting contracts cases.

On Wednesday, the court will hear oral argument in Matter of the Estate of Wirth, which addresses the enforceability of a promise to make a charitable contribution, and sounds a lot like Cardozo’s Allegheny College decision.  A previous post about the case: here.

On Thursday, the court will hear oral argument in Srour v. Dwelling Quest Corp.  This case considers when a real estate broker’s job is fully performed (thus entitling the broker to a fee).  A previous post about the case: here.

[Meredith R. Miller]

October 18, 2005 in Recent Cases | Permalink | TrackBack (0)

Today in History: October 18

1009: On orders of Caliph Hakim bi-Amr Allah, the Church of the Holy Sepulcher in Jerusalem is razed down to the bedrock.

1767: Astronomer Charles Mason and surveyor Jeremiah Dixon complete their survey of the boundary between the colonies of Pennsylvania, Delaware, and Maryland.

1851: Richard Bentley of London publishes a new book by Herman Melville called The Whale.  It flops, as does the later American Harper & Bros. edition, called Moby-Dick.

1921: Various British and U.S. electrical companies pool their resources and create the British Broadcasting Co. monopoly, with an office in the General Electric building in London.  It will come under government control as a Crown-chartered non-commercial corporation in 1927.

1931: Thomas Alva Edison, who was once named by Life Magazine as the most important person of the last 1,000 years, dies at West Orange, New Jersey.

1943: CBS Radio debuts a new daily 15-minute program featuring Erle Stanley Gardner's invincible defense attorney, Perry Mason.

1952: Industrial Development Engineering Associates of Indianapolis, Indiana, introduces the Regency  T-1, the first commercial transistor radio.  It's $49.95, battery not included.

1961: Henri Matisse's Le Bateau goes on display at the Museum of Modern Art in New York City.  It's 47 days before someone realizes it's been hung upside-down.

October 18, 2005 in Today in History | Permalink | TrackBack (0)

Monday, October 17, 2005

Weekly Top Ten

Ssrn_logo_28 This week's Top 10 is marked by few changes, with the top three papers staying in place and only one new paper joining the list.  Following are the top ten most-downloaded papers from the SSRN Journal of Contract and Commercial Law for the 60 days ending October 16, 2005.  (Parentheses indicate last week's position.)

1 (1) Risk Management in Long-Term Contracts, Victor P. Goldberg (Columbia).

2 (2) Bargaining Power in Contract Theory, Daniel D. Barnhizer (Michigan State).

3 (3) Katrina's Continuing Impact on Procurement - Emergency Procurement Powers in H.R. 3766, Christopher R. Yukins & Joshua I. Schwartz (Geo. Washington).

4 (5) Are Heuristics a Problem or a Solution?, Douglas A. Kysar (Cornell).

5 (4) Is Forum-Shopping Corrupting America's Bankruptcy Courts?, Todd J. Zywicki (Geo. Mason).

6 (6) Are 'Pay Now, Terms Later' Contracts Worse for Buyers? Evidence from Software License Agreements, Florencia Marotta-Wurgler (NYU).

7 (8) Competition and the Quality of Standard Form Contracts: An Empirical Analysis of Software License Agreements, Florencia Marotta-Wurgler (NYU).

8 (7) Resolving the Paradox of the Consideration Doctrine: The Implications of Inefficient Signaling and of Anti-Commodification Norms, David Scott Gamage (Texas) & Allon Kedem.

9 (9) Credit Card Accountability, Samuel Issacharoff & Erin F. Delaney (NYU).

10 (-) The Myth of the Rational Borrower: Rationality, Behaviorism, and the Misguided 'Reform' of Bankruptcy Law, Susan Block-Lieb (Fordham) & Edward J. Janger (Brooklyn).

[Frank Snyder]

October 17, 2005 in Recent Scholarship | Permalink | TrackBack (0)

Flight Delayed? Be Sure to Review Your Contract of Carriage

Sunday's N.Y. Times Travel section reports that consumers' contracts with bankrupt airlines are enforceable.  Whether or not your airline carrier is in bankruptcy (chances are that it is), you might want to check the contract of carriage the next time your flight is delayed:

The full text of the contract is available on each airline's Web site or from an airline ticket counter. Although no two contracts look exactly the same, they are generally similar.

For short delays of a few hours, a "contract of carriage" might promise to provide customers with "a phone card, an amenity coupon offering the choice of frequent flier miles, a meal at the airport, or a beverage or headset on the aircraft."  For longer delays, the airline might guarantee the next nonstop flight with no extra charges.  The contract likely promises a full refund if the consumer's flight is canceled or the itinerary is significantly changed.

While the contract obligations of bankrupt airlines are enforceable, consumers will likely face a difficult time actually recovering promised refunds.  The article suggests a few avenues consumers might take to obtain the promised refund: file a claim in bankruptcy court (the Bankruptcy Code gives some priority to small unsecured claims), refute the charge if the ticket was purchased with a credit card, or contact the Department of Transportation by e-mail at airconsumer@dot.gov or by telephone at (202) 366-2220.  So, next time you are delayed in the airport, request your meal ticket and free phone card.  Then, pass the time on hold with your credit card company or trapped in the Department of Transportation's automated system. . . or, better yet, contact the unsecured creditors' committee of your airline carrier.

[Meredith R. Miller]

October 17, 2005 in In the News | Permalink | TrackBack (0)

Jump Gun, Lose Job?

The town of Cheswold, Delaware, may have an interesting contracts issue coming up.  Seems the town had a charter provision that prohibited Town Council members from being hired as Town Manager less than one year after they left office. That provision was subsequently repealed by legislation.  But 13 days before the repeal went into effect, the Council hired former Councilman Edward J. Ryan, Jr., to the $51,000-a-year job. Ryan apparently resigned and got the job at the same time, and has been functioning in the job since January.

The council is now facing claims that the contract is void and that Ryan is ineligible for the job.  Is the contract void ab initio as a violation of the prior statute?  If so, does Ryan have any claims against the town?  Can the council re-hire Ryan??  Or is he ineligable until next January?

[Frank Snyder]

October 17, 2005 in In the News | Permalink | TrackBack (0)