ContractsProf Blog

Today in History: Baron Alderson

On this day 175 years ago, November 12, 1830, Edward Hall Alderson was named to the Court of King’s Bench.  A native of Norfolk, the 43-year-old Alderson had been one of the most brilliant students in the history of Cambridge, one of only two men ever to finish first in his class in both mathematics (Senior Wrangler) and classics, and winning the top prizes for both physics and Greek odes.  A friend and protégé of Lord Brougham, he went on to enjoy great success on the Northern Circuit, representing the great landowners and the Canal and Turnpike Trusts in their battles against the new railroads.

Alderson had frequently been mentioned as a likely future Lord Chancellor, but the death from overwork of his brother-in-law Lord Gifford (who had been Chief Judge, Attorney General, and Master of the Rolls) in 1826, following closely on the death of his eldest daughter and his own growing involvement in what would come to be called the Oxford Movement in the Church of England, led him to think seriously about the relative comforts and advantages of a simple puisne judgeship.

As it happened, the ascension of William IV in June 1830, led Parliament to create three new judgeships, one each on the Exchequer, the King’s Bench, and the Common Pleas.  The Prime Minister, the Duke of Wellington, was a Tory.  Alderson, though he had been raised in and around the radical Whig circles in Norwich and was particularly close to his radical cousin, the novelist Amelia Alderson Opie, had become a staunch High Church Tory while still in school.  And he now decided he wanted one of those slots.

Nothing could be done, though, until the Parliamentary elections of July and August were sorted out.  The House of Commons had become badly fractured.  Most people assumed that Wellington would continue his ministry.  On November 12, Alderson -- who had not yet taken the silk gown of a King’s Counsel -- was nevertheless named a Judge of the King’s Bench, the youngest judge in England.  As it turned out, he got through just in time.  Three days later, on November 15, the Wellington government unexpectedly lost a test vote on a minor civil list bill, and the King called on Earl Grey to form the first Whig cabinet in a quarter-century. Two days later Alderson received his knighthood.

Of course, Sir Edward Hall Alderson did not make his name on the King’s Bench. During the brief five-month stretch of Sir Robert Peel’s Tory government -- a rare window in a period of Whig rule -- he was translated to the Court of Exchequer in 1834, where his superior knowledge of equity was thought to make him of more value.  He remained on the bench, a happy judge surrounded by a large family, whose home was a prominent gathering place for Tory intellectuals, until his death in 1857.

And so it was from the Exchequer bench in 1854, the 67-year-old Baron Alderson would announce the decision in one of the most celebrated contracts cases of all time, Hadley v. Baxendale.

[Frank Snyder]

Rights of Second and Third Refusal?

A recent Ontario decision interpreting a “right of first refusal” clause in a shareholder agreement raises a nice issue of contract interpretation.  Lawyer Stephen T.C. Warnett of of Toronto’s Borden Ladner Gervais LLP offers a nice rundown of the issues in BNY Capital Corp. v. Katotakis.

[Frank Snyder]

Kaplow on Pareto

The Pareto Principle -- the idea that a solution is preferred if it makes some people better off and makes no one worse off -- has played a significant role in scholarship about contract law.  In Pareto Principle and Competing Principles, forthcoming in the second edition of The New Palgrave Dictionary of Economics and the Law, Harvard's Louis Kaplow argues that sometimes this just isn't so.  Here's the abstract:

The Pareto principle, the seemingly incontrovertible dictum that if all individuals prefer some regime to another then so should society, may conflict with competing principles. Arrow's impossibility theorem and Sen's liberal paradox are two notable examples. Subsequent work indicates more broadly that the Pareto principle conflicts with all non-welfarist principles. This essay surveys these results, including various extensions thereof, and offers perspectives on the conflict, drawing on classical and contemporary work in political economy and economic psychology.

[Frank Snyder]

Tribe Immune from Employee Suit

A California Indian tribe that operates a casino is protected by sovereign immunity from breach of contract actions by casino employees, according to a new decision by the California Court of Appeals.

In the case, various employees had signed contracts with the tribe which contained provisions for severance pay and arbitration clauses.  After they were fired without cause and without severance, they sued in state court.  The tribe demurred.  It claimed sovereign immunity from suit.  The employees argued that the arbitration clauses waived sovereign immunity.  The court disagreed:

“[T]o relinquish its immunity, a tribe’s waiver must be ‘clear.’”  Waivers are “strictly construed,” and there is a “strong presumption” against them. “Because a waiver of immunity is altogether voluntary on the part of [a tribe], it follows that [a tribe] may prescribe the terms and conditions on which it consents to be sued, and the manner in which the suit shall be conducted."   [Citations omitted.]

Here, the reference to arbitration could not be read as agreement to be sued in state court, and the complaint should have been dismissed.

Big Valley Band of Pomo Indians v. Superior Court, 2005 Cal. App. LEXIS 1700 (1st Dist. Nov. 1, 2005).

[Frank Snyder]

Floating Choice of Law Held Invalid

Is a "floating" choice of law clause -- one which provides that the contract will be governed by the law of a future assignee of the agreement -- effective under UCC Article 2A?  A New York trial judge, in a recent opinion, ruled that it does not.

In the case, NorVergence, Inc., of New Jersey was a lessor of telecommunications systems.  It leased systems to Kings Manor Estates in Florida.  The contract contained the following choice-of-law provision:

This agreement shall be governed by, construed and enforced in accordance with the laws of the State in which the Rentor's principal offices are located [i.e. New Jersey] or, if the lease is assigned by Rentor, the laws of the state in which the assignee's principal offices are located, without regard to such State's choice of law considerations . . . .

NorVergence assigned the lease contracts to Sterling Bank, whose principal offices were in New York.  NorVergence's operations were subsequently uncovered as a massive fraud scheme and the company went bankrupt.  Sterling sued the lessee and the lease guarantor, claiming a right to be paid under the agreement's hell-or-high-water clause.

Sterling claimed that New York law applied, since it was the assignee.  Manhattan supreme court Justice Diane Lebedeff rejected the claim.  Under the UCC, she noted, where the contract bears a "reasonable relation to this State and also to another state . . . the parties may agree that the law of either . . . shall govern their rights and duties."  The problem here is that at the time of contracting, the parties could not have specified New York law.  At the time of formation New York did not bear a "reasonable relation" to the contract.  The subsequent action of one party could not retroactively change that fact.  Moreover, it is hard to say that the parties had a meeting of the minds on a choice of law provision that make it entirely uncertain what law would apply.  Since New Jersey had a reasonable relationship to the contract, and the original clause specified New Jersey law, the court concluded that New Jersey law should govern the transaction.

Sterling National Bank v. Kings Manor Estates, LLC,  2005 NY Slip Op 51604(U) (Civ. Ct. N.Y. Cty., Oct. 6, 2005).

[Frank Snyder]

Badgers Win Unconscionability Battle

Law clinic students at the University of Wisconsin have apparently won a legal battle over whether pre-dispute arbitration clauses in credit card contracts are unconscionable.  According to a release from the school, the students sued a credit card lender for making abusive telephone calls to collect debts.  The company responded by invoking the arbitration clause in its contract, which said that it was governed by Delaware law.

The students apparently convinced a Dane County circuit judge that the specification of Delaware law, which ostensibly deprived customers of the protections of Wisconsin consumer law, was unconscionable.

[Frank Snyder]

Contracts in the News

Cyclist Lance Armstrong has settled various contract and tort claims brought against him by a former assistant who cleaned his house and maintained his bicycles.

France's Dassault Aviation SA has sued America’s Honeywell, claiming $60 million in damages for late deliveries on a contract.

Bank One and the securities firm of Jones Lang LaSalle have settled their long-standing fraud and breach of contract battle; terms were not disclosed.

[Frank Snyder]

Cases: Substantial Performance

A contractor who deliberately used cheaper rock in creating a driveway and put it in the wrong place was nevertheless entitled to recover under the doctrine of substantial performance, according to a recent decision by the North Carolina Court of Appeals.

In the case, two parties, Reaves and Hayes, agreed to a consent order under which, among other things, Hayes’s property would get a right-of-way across Reaves’s.  Hayes agreed to pay for a driveway across the property, and the agreement provided that if Hayes did not do so, Reaves would, and charge Hayes for the costs.  Reaves subsequently built the driveway, but did not put it exactly where the agreement specified.  The agreement also had specified a “6 inch crush and run” driveway, but Reaves deliberately used a cheaper sandrock and washed stone method.  When Hayes refused to pay, Reaves sued.

A consent order, said the court, is simply a contract entered on the books of a court, and must be interpreted like any other contract.  The fact that Reaves did not comply precisely with the contract did not excuse Hayes.  Under the doctrine of substantial performance, Reaves may still be able to recover if the type of road material and the location of the road were “dependent covenants” that did not go to the heart of the deal.   Here, the road was plainly usable, even if not exactly where it was supposed to be, and even if not made from the right stone.  Both of those requirements, said the court, were dependent covenants.  Since Hayes got a usable driveway, he was not excused from the requirement to pay.

Reaves v. Hayes, 2005 N.C. App. LEXIS 2401 (Nov. 1, 2005).

[Frank Snyder]

Teaching Small Sections

Over at PrawfsBlawg, Marcy Peek (Whittier) has a nice post about the joys of teaching contracts in small sections.

[Frank Snyder]

Today in History: Varney v. Ditmars

Ninety-four years ago today, on November 11, 1911, New York City architect Isaac Edward Ditmars fired one of his employees, a decision that would lead to a casebook staple on the “indefiniteness” doctrine in contract law, Varney v. Ditmars.

Ditmars was a native Nova Scotian who at age 35 had become a partner with prominent New York City architect William Schickel in a Park Avenue office.  Schickel & Ditmars did a great deal of work, much of it institutional or ecclesiastical, including the Church of St. Ignatius Loyola on Park Avenue (“a remarkable jewel of fin-de-siecle artistry”); The Chelsea Mercantile on 7th Avenue; Our Lady of Perpetual Help in Roxbury, Mass.; Stuyvesant Polyclinic Hospital, and St. Joseph’s Seminary.

In 1907 Schickel died and Ditmars continued the business on his own.  The firm had several important commissions in progress, including the Main Building at the Lenox Hill Hospital, and the Cathedral of the Sacred Heart in Newark, N.J.  By 1910, the Cathedral job was in trouble; after considerable construction delays the builder had been fired in February and work was again underway.  (Upper left: The Cathedral in 1910)

In October, 1910, Ditmars hired George A. Varney, an architect and draftsman, as an assistant at $35 a week (about $3,000 in 2003 wages using the unskilled labor comparison).  From Varney’s account of things, in early 1911 Varney was offered a better job, and Ditmars gave him a raise.  He was so pleased with the work of Varney and a colleague that he said, “You boys go on and continue the work you are doing and the first of January next year I will close my books and give you a fair share of my profits.”  When Varney was later fired and refused a share, he sued, and the question for the court was whether such a vague promise was enforceable.  Held: No, the promise was too indefinite to be enforced.  Click on “continue reading” for the opinion.

[Frank Snyder]

George A.  Varney, Appellant, v.  Isaac E.  Ditmars, Respondent
                         Court of Appeals of New York
                         217 N.Y.  223; 111 N.E.  822

December 15, 1915, Argued; February 22, 1916, Decided

CHASE, J., with whom COLLIN, CUDDEBACK, and POUND, JJ., concur

This is an action brought for an alleged wrongful discharge of an employee.  The defendant is an  architect employing engineers, draftsmen and other assistants.  The plaintiff is an architect and draftsman.  In October, 1910, he applied to the defendant for employment and when asked what wages he wanted, replied that he would start for $40 per week.  He was employed at $35 per week.  A short time thereafter he informed the defendant that he had another position offered to him and the defendant said that if he would remain with him and help him through the work in his office he thought he could offer him a better future than anybody else.  He continued in the employ of the defendant and became acquainted with a designer in the office and said designer and the plaintiff from time to time prior to the 1st of February, 1911, talked with the defendant about the work in his office.  On that day by arrangement the two remained with the defendant after the regular office hours and the defendant said: “I am going to give you $5 more a week; if you boys will go on and continue the way you have been and get me out of this trouble and get these jobs started that were in the office three years, on the first of next January I will close my books and give you a fair share of my profits.  That was the result of the conversation.  That was all of that conversation.” The plaintiff was given charge of the drafting.  Thereafter suggestions were made by the plaintiff and said designer about discharging many of the defendant’s employees and employing new men and such suggestions were carried out and the two worked in the defendant’s office over time and many Sundays and holidays.  At least one piece of work that the defendant said had been in his office for three years was completed.  The plaintiff on his cross-examination told the story of the employment of himself and said designer as follows: “And he says at that time ‘I am going to give you $5 more a week starting this week.’  This was about Thursday.  He says ‘You boys go on and continue the work you are doing and the first of January next year I will close my books and give you a fair share of my profits.’  Those were his exact words.”

Thereafter the plaintiff was paid $40 a week.  On November 6, 1911, the night before the general election in this state, the defendant requested that all of his employees that could do so, should work on election day.  The plaintiff told the defendant that he wanted to remain at home to attend an election in the village where he lived.  About four o’clock in the afternoon of election day he was taken ill and remained at his house ill until a time that as nearly as can be stated from the evidence was subsequent to December 1, 1911.  On Saturday, November 11, the defendant caused to be delivered to the plaintiff a letter in which he said:

“I am sending you herewith your pay for one day’s work of seven hours, performed on Monday, the 6th inst.  On Monday night, I made it my special duty to inform you that the office would be open all day Election Day and that I expected you and all the men to report for work.  Much to my surprise and indignation, on Tuesday you made no appearance and all the men remained away, in obedience of your instructions to them of the previous evening.  An act of this kind I consider one of extreme disloyalty and insubordination and I therefore am obliged to dispense with your services.”

After the plaintiff had recovered from his illness and was able to do so he went to the defendant’s office (the date does not appear) and told him that he was ready, willing and able to continue his services under the agreement.  The defendant denied that he had any agreement with him and refused to permit him to continue in his service.  Thereafter and prior to January 1, 1912, the plaintiff received for special work about $50.

The plaintiff seeks to recover in this action for services from November 7, 1911, to December 31, 1911, inclusive, at $40 per week and for a fair and reasonable percentage of the net profits of the defendant’s business from February 1, 1911, to January 1, 1912, and demands judgment for $1,680.

At the trial he was the only witness sworn as to the alleged contract and at the close of his case the complaint was dismissed.

The statement alleged to have been made by the defendant about giving the plaintiff and said designer a fair share of his profits is vague, indefinite and uncertain and the amount cannot be computed from anything that was said by the parties or by reference to any document, paper or other transaction.  The minds of the parties never met upon any particular share of the defendant’s profits to be given the employees or upon any plan by which such share could be computed or determined.  The contract so far as it related to the special promise or inducement was never consummated.  It was left subject to the will of the defendant or for further negotiation.  It is urged that the defendant by the use of the word “fair” in referring to a share of his profits, was as certain and definite as people are in the purchase and sale of a chattel when the price is not expressly agreed upon, and that if the agreement in question is declared to be too indefinite and uncertain to be enforced a similar conclusion must be reached in every case where a chattel is sold without expressly fixing the price therefor.

The question whether the words “fair” and “reasonable” have a definite and enforceable meaning when used in business transactions is dependent upon the intention of the parties in the use of such words and upon the subject-matter to which they refer.  In cases of merchandising and in the purchase and sale of chattels the parties may use the words “fair and reasonable value” as synonymous with “market value.” A promise to pay the fair market value of goods may be inferred from what is expressly agreed by the parties.  The fair, reasonable or market value of goods can be shown by direct testimony of those competent to give such testimony.  The competency to speak grows out of experience and knowledge.  The testimony of such witnesses does not rest upon conjecture.  The opinion of this court in United Press v. N.Y. Press Co. (164 N.Y. 406) was not intended to assert that a contract of sale is unenforceable unless the price is expressly mentioned and determined.

In the case of a contract for the sale of goods or for hire without a fixed price or consideration being named it will be presumed that a reasonable price or consideration is intended and the person who enters into such a contract for goods or service is liable therefor as on an implied contract.  Such contracts are common, and when there is nothing therein to limit or prevent an implication as to the price, they are, so far as the terms of the contract are concerned, binding obligations.

The contract in question, so far as it relates to a share of the defendant’s profits, is not only uncertain but it is necessarily affected by so many other facts that are in themselves indefinite and uncertain that the intention of the parties is pure conjecture.  A fair share of the defendant’s profits may be any amount from a nominal sum to a material part according to the particular views of the person whose guess is considered.  Such an executory contract must rest for performance upon the honor and good faith of the parties making it.  The courts cannot aid parties in such a case when they are unable or unwilling to agree upon the terms of their proposed contract.

It is elementary in the law that, for the validity of a contract, the promise, or the agreement, of the parties to it must be certain and explicit and that their full intention may be ascertained to a reasonable degree of certainty.  Their agreement must be neither vague nor indefinite, and, if thus defective, parol proof cannot be resorted to.  (United Press v. N.Y. Press Co., supra, and cases cited; Ruling Case Law, vol. 6, 644.)

The courts in this state, in reliance upon and approval of the rule as stated in the United Press case, have decided  many cases involving the same rule.  Thus, in Mackintosh v.  Thompson (58 App. Div. 25) and again in Mackintosh v. Kimball (101 App. Div. 494) the plaintiff sought to recover compensation in addition to a stated salary which he had received and which additional amount rested upon a claim by him that while he was employed by the defendants he informed them that he intended to leave their employ unless he was given an increase in salary, and that one of the defendants said to him that they would make it worth his while if he would stay on, and would increase his salary, and that his idea was to give him an interest in the profits on certain buildings that they were then erecting.  The plaintiff further alleges that he asked what would be the amount of the increase and was told, “You can depend upon me; I will see that you get a satisfactory amount.”  The court held that the arrangement was too indefinite to form the basis of any obligation on the part of the defendants.

In Bluemner v. Garvin (120 App. Div. 29) the plaintiff and defendant were architects, and the plaintiff alleged that he drew plans for a public building in accordance with a contract held by the defendant and pursuant to a special agreement that if the plans were accepted the defendant would give him a fair share of the commissions to be received by him.  The court held that a good cause of action was stated on quantum meruit, but that the contract was too vague and indefinite to be enforced.

A similar rule has been adopted in many other states.  I mention a few of them.  In Fairplay School Township v. O’Neal (127 Ind. 95) a verbal contract between a school trustee and a teacher, in which the latter undertook to teach school for a term in the district, and the trustee promised to pay her “good wages,” it was held that the alleged contract was void for uncertainty as to compensation, and that the school township was not liable for its breach.

In Dayton v. Stone (111 Mich. 196) the plaintiff had sold to the defendant her stock of goods and fixtures, and by the contract of sale the undamaged goods were to be inventoried and taken at cost price, and the damaged goods at prices to be agreed upon.  In an action for breach of contract it was held that the contract was an entire one, and that so far as it left the price of the damaged goods to be fixed and determined it was uncertain and incomplete, and not one which could be enforced against the defendant.

In Wittkowsky v. Wasson (71 N.C. 451) it was held that where the price of certain property was to be fixed by agreement between the parties after the time of the agreement and they did not agree upon the price that the title to the property did not pass.

In Adams v. Adams (26 Ala. 272) a promise by a defendant for a valuable consideration to give his daughter a “full share of his property” which then and there was worth $25,000 was held to be too indefinite and uncertain to support an action.

In Van Slyke v. Broadway Ins. Co. (115 Cal. 644) a contract between an insurance agent and the insurance company for a contingent commission of 5% which did not give the facts upon which the contingency depended nor state the sum on which the 5% was to be computed was held unenforceable and also that it could not be aided by parol.

In Marvel v. Standard Oil Co. (169 Mass. 553) a contract by which the defendant agreed to sell the plaintiff its oil on such reasonable terms as to enable him to compete successfully with other parties selling in the same territory was held to be too indefinite and too general to be enforceable as a contract.

In Burks v. Stam (65 Mo. App. 455) a contract for the sale of two race horses for a specified sum and providing for a further payment of a fixed sum by the purchaser if he did well and had no bad luck with the horses was held too vague to admit of enforcement.

In Butler v.  Kemmerer (218 Pa. St. 242) the plaintiff was in the employ of the defendant at a regular salary and the defendant promised him that if there were any profits in the business he would divide them with the plaintiff “upon a very liberal basis.”  The action was brought to recover a part of the profits of the business and the court held that the contract was never made complete and that there was no standard by which to measure the degree of liberality with which the defendant should regard the plaintiff.

The only cases called to our attention that tend to sustain the appellant’s position are Noble v. Joseph Burnett Co. (208 Mass. 75) and Silver v. Graves (210 Mass. 26).  The first at least of such cases is distinguishable from the case under consideration, but in any event the decisions therein should not be held sufficient to sustain the plaintiff’s contention in view of the authorities in this state.

The rule stated from the United Press case does not prevent a recovery upon quantum meruit in case one party to an alleged contract has performed in reliance upon the terms thereof, vague, indefinite and uncertain though they are.  In such case the law will presume a promise to pay the reasonable value of the services.  Judge Gray, who wrote the opinion in the United Press case, said therein: “I entertain no doubt that, where work has been done, or articles have been furnished, a recovery may be based upon quantum meruit, or quantum valebant; but, where a contract is of an executory character and requires performance over a future period of time, as here, and it is silent as to the price which is to be paid to the plaintiff during its term, I do not think that it possesses binding force.  As the parties had omitted to make the price a subject of covenant, in the nature of things, it would have to be the subject of future agreement, or stipulation.” (p.  412.)

In Petze v. Morse Dry Dock & Repair Co. (125 App. Div. 267, 270) the court says: “There is no contract so long as any essential element is open to negotiation.”  In that case a contract was made by which an employee in addition to certain specified compensation was to receive 5% of the net distributable profits of a business and it was further provided that “the method of accounting to determine the net distributable profits is to be agreed upon later when the company’s accounts have developed for a better understanding.”  The parties never agreed as to the method of determining the net profits and the plaintiff was discharged before the expiration of the term.  The court in the opinion say that “the plaintiff could recover for what he had done on a quantum meruit, and the employment must be deemed to have commenced with a full understanding on the part of both parties that that was the situation.”  The judgment of the Appellate Division was unanimously affirmed without opinion in this court.  (195 N.Y. 584.)

So, in this case, while I do not think that the plaintiff can recover anything as extra work, yet if the work actually performed as stated was worth more than $40 per week, he having performed until November 7, 1910, could, on a proper complaint, recover its value less the amount received.  (See Bluemner v. Garvin, supra; S.C., 124 App. Div. 491; King v. Broadhurst, 164 App. Div.  689.)

The plaintiff claims that he at least should have been allowed to go to the jury on the question as to whether he was entitled to recover at the rate of $40 per week from November 7, 1911, to December 31, 1911, inclusive.  He did not perform any services for the defendant from November 6 until some time after December 1st, by reason of his illness.  He has not shown just when he offered to return.  It appears that between the time when he offered to return and January 1st he received $50 for other services.

The amount that the plaintiff could recover, therefore, if any, based upon the agreement to pay $40 per week would be very small, and he did not present to the court facts from which it could be computed.  His employment by the defendant was conditional upon his continuing the way he had been working, getting the defendant out of his trouble and getting certain unenumerated jobs that were in the office three years, started.  There was nothing in the contract specifying the length of service except as stated.  It was not an unqualified agreement to continue the plaintiff in his service until the first of January, and it does not appear whether or not the special conditions upon which the contract was made had been performed.  Even apart from the question whether the plaintiff’s absence from the defendant’s office by reason of his illness would permit the defendant to refuse to take him back into his employ, I do not think that on the testimony as it appears before us it was error to refuse to leave to the jury the question whether the plaintiff was entitled to recover anything at the rate of $40 per week.

The judgment should be affirmed, with costs.

CARDOZO, J., with whom WILLARD BARTLETT, Ch.  J., and HOGAN, J., concur, dissenting

I do not think it is true that a promise to pay an employee a fair share of the profits in addition to his salary is always and of necessity too vague to be enforced (Noble v. Joseph Burnett Co., 208 Mass. 75; Silver v. Graves, 210 Mass. 26; Brennan v.  Employers Liability Assurance Corp., Ltd., 213 Mass. 365; Joy v. St. Louis, 138 U.S. 1, 43).  The promise must, of course, appear to have been made with contractual intent (Henderson Bridge Co. v. McGrath, 134 U.S. 260, 275).  But if that intent is present, it cannot be said from the mere form of the promise that the estimate of the reward is inherently impossible.  The data essential to measurement may be lacking in the particular instance, and yet they may conceivably be supplied.  It is possible, for example, that in some occupations an employee would be able to prove a percentage regulated by custom.  The difficulty in this case is  not so much in the contract as in the evidence.  Even if the data required for computation might conceivably have been supplied, the plaintiff did not supply them.  He would not have supplied them if all the evidence which he offered, and which the court excluded, had been received.  He has not failed because the nature of the contract is such that damages are of necessity incapable of proof.  He has failed because he did not prove them.

There is nothing inconsistent with this view in United Press v. N.Y. Press Co. (164 N.Y. 406).  The case is often cited as authority for the proposition that an agreement to buy merchandise at a fair and reasonable price is so indefinite that an action may not be maintained for its breach in so far as it is still executory.  Nothing of the kind was decided, or with reason could have been.  What the court did was to construe a particular agreement, and to hold that the parties intended to reserve the price for future adjustment.  If instead of reserving the price for future adjustment, they had manifested an intent on the one hand to pay and on the other to accept a fair price, the case is far from holding that a jury could not determine what such a price would be and assess the damages accordingly.  Such an intent, moreover, might be manifested not only through express words, but also through reasonable implication.  It was because there was neither an express statement nor a reasonable implication of such an intent that the court held the agreement void to the extent that it had not been executed.

On the ground that the plaintiff failed to supply the data essential to computation, I concur in the conclusion that profits were not to be included as an element of damage.  I do not concur, however, in the conclusion that he failed to make out a case of damage to the extent of his loss of salary.  The amount may be small, but none the less it belongs to him.  The hiring was not at will (Watson v. Gugino, 204 N.Y. 535; Martin v. N.Y. Life Ins. Co., 148 N.Y. 117).  The plain implication was that it should continue until the end of the year when the books were to be closed.  The evidence would permit the jury to find that the plaintiff was discharged without cause, and he is entitled to damages measured by his salary for the unexpired term.

The judgment should be reversed and a new trial granted, with costs to abide the event.

Carbolic Smoke Devices

Oh, and as long as we're talking about famous cases, we should note that the notorious Carbolic Smoke Ball (of Carlill v. Carbolic Smoke Ball Co.) wasn't a complete quack remedy.  There were, it turns out, versions of carbolic acid sprayers and inhalers actually used by the medical profession.  You can see one of them here.

[Frank Snyder]

For Sale: Nice House, Wife Included

I'm told it can be hard for accomplished, attractive women in their 40s to find the right guy.  Many of us are self-absorbed jerks who are battling a mid-life crisis and can't commit to a relationship, while too many of the rest of us are too fat, wear our pants too high, and are starting to get hair growing in our ears.

An enterprising Denver woman, the CEO of her own company, has come up with a novel way to deal with the problem:  A web site called "House With A Bride."  She's offering to sell her $600,000 home to a single man, age 40 to 60 -- on the condition that she go along with it.

The prospective buyer should be “well educated and well spoken, and [have] a professional career. . . .  Other important traits include love of travel and adventure, a good conversationalist, and a lover of animals. . . . It is important to me that a man be open and caring, kind in words and deeds, spontaneous to a certain extent, and takes pride in his appearance."

Sounds like a contracts professor would be ideal for her.  Photos of the house are here, and photos of seller Deborah Hale are here.

[Frank Snyder -- thanks to Kevin Greene and Ben Templin (Thos. Jefferson) for the tip]

Contracts in the News

In a case involving what is almost certainly the world’s most expensive roll of toilet paper, the manufacturer is suing its client, a marketing firm, for the allegedly unpaid half of the $137,139 bill.

The developer of the Roller Coaster Tycoon video game is suing Atari, the publisher, claiming  $5 million in unpaid royalties.

Donald Trump has won a $3-4 million breach of contract suit against an excavating company that walked off the job after he refused to make further payments.

[Frank Snyder]

Today in History: Clark v. West

On this date in 1908, the famous Case of the Drunken Law Professor enters the pantheon of contracts classics, as the New York Court of Appeals decides the case of Clark v. West, 193 N.Y. 349; 86 N.E. 1 (1908).

William Lawrence Clark, Jr. (1863-1918), was a prolific legal writer.  In 1894, West published the first edition of his Handbook of the Law of Contracts, a book still going strong over a half-century later when the 4th edition  was relied on by the Virginia Supreme Court in Lucy v. Zehmer (1954).  In 1897, he wrote the first edition of his popular Handbook of the Law of Private Corporations, which was published by West.  Two years later he was hired to teach at the law school at Washington & Lee.  His career hit a major speed bump a few weeks into his term at W&L, when he was fired because he was found to be “addicted to drinking” to such an extent that his carouses had made the New York papers.

Publisher John B. West wanted a new edition of Clark on Corporations.  Clark agreed to do one, and the parties signed a contract under which Clark was to be paid $2 a page if he drank alcoholic beverages and $6 a page if he totally abstained.  Clark, as might be supposed, did not stay long on the wagon.  The book was published in 1907 but West refused to pay him more than $2 a page.  Clark sued and won, in an opinion (click on "Continue Reading" to read it) that is still used to mystify students about what exactly a “waiver” is.

[Frank Snyder]

William L Clark, Appellant v. John B. West, Respondent

                    Court of Appeals of New York
                       193 N.Y. 349; 86 N.E. 1

September 28, 1908, Argued; November 10, 1908, Decided

WERNER, J.

The contract before us, stripped of all superfluous verbiage, binds the plaintiff to total abstention from the use of intoxicating liquors during the continuance of the work which he was employed to do.  The stipulations relating to the plaintiff's compensation provide that if he does not observe this condition he is to be paid at the rate of $2 per page, and if he does comply therewith he is to receive $6 per page.  The plaintiff has written one book under the contract known as "Clark & Marshall on Corporations," which has been accepted, published and copies sold in large numbers by the defendant. The plaintiff admits that while he was at work on this book he did not entirely abstain from the use of intoxicating liquors.  He has been paid only $2 per page for the work he has done.  He claims that, despite his breach of this condition, he is entitled to the full compensation of $6 per page because the defendant, with full knowledge of plaintiff's non-observance of this stipulation as to total abstinence, has waived the breach thereof and cannot now insist upon strict performance in this regard. This plea of waiver presents the underlying question which determines the answers to the questions certified.

Briefly stated, the defendant's position is that the stipulation as to plaintiff's total abstinence is the consideration for the payment of the difference between $2 and $6 per page and therefore could not be waived except by a new agreement to that effect based upon a good consideration; that the so-called waiver alleged by the plaintiff is not a waiver but a modification of the contract in respect of its consideration.  The plaintiff on the other hand argues that the stipulation for his total abstinence was merely a condition precedent intended to work a forfeiture of the additional compensation in case of a breach and that it could be waived without any formal agreement to that effect based upon a new consideration.

The subject-matter of the contract was the writing of books by the plaintiff for the defendant.  The duration of the contract was the time necessary to complete them all.  The work was to be done to the satisfaction of the defendant, and the plaintiff was not to write any other books except those covered by the contract unless requested so to do by the defendant, in which latter event he was to be paid for that particular work by the year. The compensation for the work specified in the contract was to be $6 per page, unless the plaintiff failed to totally abstain from the use of intoxicating liquors during the continuance of the contract, in which event he was to receive only $2 per page.  That is the obvious import of the contract construed in the light of the purpose for which it was made, and in accordance with the ordinary meaning of plain language.  It is not a contract to write books  in order that the plaintiff shall keep sober, but a contract containing a stipulation that he shall keep sober so that he may write satisfactory books.  When we view the contract from this standpoint it will readily be perceived that the particular stipulation is not the consideration for the contract, but simply one of its conditions which fits in with those relating to time and method of delivery of manuscript, revision of proof, citation of cases, assignment of copyrights, keeping track of new cases and citations for new editions, and other details which might be waived by the defendant, if he saw fit to do so.  This is made clear, it seems to us, by the provision that, "In consideration of the above promises," the defendant agrees to pay the  plaintiff $2 per page on each book prepared by him, and if he "abstains from the use of intoxicating liquor and otherwise fulfills his agreements as hereinbefore set forth, he shall be paid an additional $4 per page in manner hereinbefore stated."  The compensation of $2 per page, not to exceed $250 per month, was an advance or partial payment of the whole price of $6 per page, and the payment of the two-thirds which was to be withheld pending the performance of the contract, was simply made contingent upon the plaintiff's total abstention from the use of intoxicants during the life of the contract.  It is possible, of course, by segregating that clause of the contract from the context, to give it a wider meaning and a different aspect than it has when read in conjunction with other stipulations.  But this is also true of other paragraphs of the contract.  The paragraph, for instance, which provides that after the publication of any of the books written by the plaintiff he is to receive an amount equal to one-sixth of the net receipts from the combined sales of all the books which shall have been published by the defendant under the contract, less any and all payments previously made, "until the amount of $6 per page of each book shall have been paid, after which the first party (plaintiff) shall have no right, title or interest in said books or the receipts from the sales thereof."  That section of the contract standing alone would indicate that the plaintiff was to be entitled in any event to the $6 per page to be paid out of the net receipts of the copies of the book sold.  The contract read as a whole, however, shows that it is modified by the preceding provisions making the compensation in excess of the $2 per page dependent upon the plaintiff's total abstinence, and upon the performance by him of the other conditions of the contract.  It is obvious that the parties thought that the plaintiff's normal work was worth $6 per page.  That was the sum to be paid for the work done by the plaintiff and not for total abstinence.  If the plaintiff did not keep to the condition as to total abstinence, he was to lose part of that sum.  Precisely the same situation would have risen if the plaintiff had disregarded any of the other essential conditions of the contract.  The fact that the particular stipulation was emphasized did not change its character.  It was still a condition which the defendant could have insisted upon, as he has apparently done in regard to some others, and one which he could waive just as he might have waived those relating to the amount of the advance payments, or the number of pages to be written each month.  A breach of any of the substantial conditions of the contract would have entailed a loss or forfeiture similar to that consequent upon a breach of the one relating to total abstinence, in case of the defendant's insistence upon his right to take advantage of them.  This, we think, is the fair interpretation of the contract, and it follows that the stipulation as to the plaintiff's total abstinence was nothing more nor less than a condition precedent.

If that conclusion is well founded there can be no escape from the corollary that this condition could be waived; and if it was waived the defendant is clearly not in a position to insist upon the forfeiture which his waiver was intended to annihilate.  The forfeiture must stand or fall with the condition.  If the latter was waived, the former is no longer a part of the contract.  Defendant still has the right to counterclaim for any damages which he may have sustained in consequence of the plaintiff's breach, but he cannot insist upon strict performance. (Dunn v. Steubing, 120 N. Y. 232; Parke v. Franco-American Trading Co., Id. 51, 56; Brady v. Cassidy, 145 id. 171.)

This whole discussion is predicated of course upon the theory of an express waiver.  We assume that no waiver could be implied from the defendant's mere acceptance of the books and his payment of the sum of $2 per page without objection.  It was the defendant's duty to pay that amount in any event after acceptance of the work.  The plaintiff must stand upon his allegation of an express waiver and if he fails to establish that he cannot maintain his action.

The theory upon which the defendant's attitude seems to be based is that even if he has represented to the plaintiff that he would not insist upon the condition that the latter should observe total abstinence from intoxicants, he can still refuse to pay the full contract price for his work.  The inequity of this position becomes apparent when we consider that this contract was to run for a period of years, during a large portion of which the plaintiff was to be entitled only to the advance payment of $2 per page, the balance being contingent, among other things, upon publication of the books and returns from sales.  Upon this theory the defendant might have waived the condition while the first book was in process of production, and yet when the whole work was completed, he would still be in a position to insist upon the forfeiture because there had not been strict performance.  Such a situation is possible in a case where the subject of the waiver is the very consideration of a contract (Organ v. Stewart, 60 N. Y. 413, 420), but not where the waiver relates to something that can be waived.  In the case at bar, as we have seen, the waiver is not of the consideration or subject-matter, but of an incident to the method of performance.  The consideration remains the same.  The defendant has had the work he bargained for, and it is alleged that he has waived one of the conditions as to the manner in which it was to have been done. He might have insisted upon literal performance and then he could have stood upon the letter of his contract.  If, however, he has waived that incidental condition, he has created a situation to which the doctrine of waiver very precisely applies.

The cases which present the most familiar phases of the doctrine of waiver are those which have arisen out of litigation over insurance policies where the defendants have claimed a forfeiture because of the breach of some condition in the contract (Insurance Co. v. Norton, 96 U.S. 234; Titus v. Glens Falls Ins. Co., 81 N. Y. 410; Kiernan v. Dutchess Co. Mut. Insurance Co., 150 id. 190), but it is a doctrine of general application which is confined to no particular class of cases.

A waiver has been defined to be the intentional relinquishment of a known right.  It is voluntary and implies an election to dispense with something of value, or forego some advantage which the party waiving it might at its option have demanded or insisted upon (Herman on Estoppel & Res Adjudicata, vol. 2, p. 954; Cowenhoven v. Ball, 118 N. Y. 234), and this definition is supported by many cases in this and other states.  In the recent case of Draper v. Oswego Co. Fire R. Assn. (190 N. Y. 12, 16) Chief Judge Cullen, in speaking for the court upon this subject, said: "While that doctrine and the doctrine of equitable estoppel are often confused in insurance litigation, there is a clear distinction between the two.  A waiver is the voluntary abandonment or relinquishment by a party of some right or advantage.  As said by my brother Vann in the Kiernan Case (150 N. Y. 190):  'The law of waiver seems to be a technical doctrine, introduced and applied by the court for the purpose of defeating forfeitures. * * *  While the principle may not be easily classified, it is well established that if the words and acts of the insurer reasonably justify the conclusion that with full knowledge of all the facts it intended to abandon or not to insist upon the particular defense afterwards relied upon, a verdict or finding to that effect establishes a waiver, which, if it once exists, can never be revoked.  The doctrine of equitable  estoppel, or estoppel in pais, is that a party may be precluded by his acts and conduct from asserting a right to the detriment of another party who, entitled to rely on such conduct, has acted upon it. * * *  As already said, the doctrine of waiver is to relieve against forfeiture; it requires no consideration for a waiver, nor any prejudice or injury to the other party." To the same effect, see Knarston v. Manhattan Life Ins. Co. (140 Cal. 57).

It remains to be determined whether the plaintiff has alleged facts which, if proven, will be sufficient to establish his claim of an express waiver by the defendant of the plaintiff's breach of the condition to observe total abstinence.  In the 12th paragraph of the complaint, the plaintiff alleges facts and circumstances which we think, if established, would prove defendant's waiver of plaintiff's performance of that contract stipulation.  These facts and circumstances are that long before the plaintiff had completed the manuscript of the first book undertaken under the contract, the defendant had full knowledge of the plaintiff's non-observance of that stipulation, and that with such knowledge he not only accepted the completed manuscript without objection, but "repeatedly avowed and represented to the plaintiff that he was entitled to and would receive said royalty payments (i. e., the additional $4 per page), and plaintiff believed and relied upon such representations * * * and at all times during the writing of said treatise on corporations, and after as well as before publication thereof as aforesaid, it was mutually understood, agreed and intended by the parties hereto that notwithstanding plaintiff's said use of intoxicating liquors, he was nevertheless entitled to receive and would receive said royalty as the same accrued under said contract."

The demurrer not only admits the truth of these allegations, but also all that can by reasonable and fair intendment be implied therefrom. (Marie v. Garrison, 83 N. Y. 14; Standard Fashion Co. v. Siegel-Cooper Co., 157 id. 60; Ahrens v. Jones, 169 id. 555, 559.)  Under the modern rule pleadings are not to be construed against the pleader, but averments which sufficiently point out the nature of the plaintiff's claim are sufficient, if under them he would be entitled to give the necessary evidence.  (Rochester Ry. Co. v. Robinson, 133 N. Y. 242, 246; Coatsworth v. Lehigh Valley R. R. Co., 156 id. 451.)  Tested by these rules, we think it cannot be doubted that the allegations contained in the 12th paragraph of the complaint, if proved upon the trial, would be sufficient to establish an express waiver by the defendant of the stipulation in regard to plaintiff's  total abstinence.

The three questions certified should be answered in the affirmative, the order of the Appellate Division reversed, the interlocutory judgment of the Special Term affirmed, with costs in both courts, and the defendant be permitted to answer the complaint within twenty days upon payment of costs.
       
CULLEN, Ch. J., EDWARD T. BARTLETT, HAIGHT, VANN, HISCOCK, and CHASE, JJ., concur.

Contract Interpretation: Sovereignty or Geography?

When a forum selection clause calls for the resolution of disputes in the "courts of the State of Colorado," does that include the federal court sitting in Colorado? In other words, is the "of" meant to designate sovereignty or geography? If the language refers to the state courts to the exclusion of the federal courts, it is a term of sovereignty. Otherwise, if the language encompasses Colorado state courts and the federal court sitting in Colorado, it is a term of geography. The Tenth Circuit recently held that the language refers to sovereignty, and concluded that the contract did not designate the federal courts sitting in Colorado as a forum.

The Tenth Circuit followed a Fifth Circuit decision in a similar case which involved a forum selection clause designating the "Courts of Texas." The court looked to Black’s Law Dictionary, which defined "of" as a term "denoting that from which anything proceeds; indicating origin, source, descent, and the like." The Fifth Circuit reasoned that "[f]ederal courts indisputably proceed from, and find their origin in, the federal government, though located in particular geographic regions."

American Soda, LLP v. U.S. Filter Wastewater Group, Inc., __ F.3d __ (10th Cir. Nov. 7, 2005).

[Meredith R. Miller]

Cherry on Teaching With Dinosaurs

Not all of the great cases for teaching contract law are in the casebooks.  A perfect example is the battle fifteen years ago over the rights to a South Dakota dinosaur named "Sue" (left) now on display at the Field Museum in Chicago.  (Image: Ancheta Wis, Creative Commons License)

The case, Black Hills Institute of Geological Research v. South Dakota School of Mines, 12 F.3d 737 (8th Cir. 1993), never actually reached the potential contract issues in the case.  But, as Hofstra's Miriam Cherry argues in A Tyrannosaurus-Rex Aptly Named 'Sue': Using a Disputed Dinosaur to Teach Contract Defenses, it's a wonderful fact pattern for teaching contracts defenses.  Here's the abstract:

This piece focuses on the discovery of a T-Rex skeleton, and the contract formed between the private fossil collectors and the Native American rancher who ostensibly owned the land where the fossil was situated. Although the fossil was eventually sold at auction for over eight million dollars, the fossil collectors paid the rancher only $5,000 for its excavation. In addition to the rancher, the Sioux tribe and the Department of Justice also became involved in the case.

As described in my work, the law school Socratic method has come under attack in recent years. In response to such criticisms, the lesson that I describe provides a constructive alternative, using problem-based learning and technology. When discussing the contract between the rancher and the fossil hunters, my students effectively analyzed the doctrines of unilateral mistake, unequal bargaining power, unconscionability, and the failure of a condition. Using the T-Rex case is a great way to get law students excited about learning contract defenses.

[Frank Snyder]

Contracts In the News

A group of independent cable companies is suing OLN (the former Outdoor Life Network), claiming that the network has unilaterally changed the terms of its agreements with the cable companies.

A former top executive of Caesar's Entertainment is suing Harrah's, claiming that the $47 million severance package he got as a result of Harrah's $9 billion takeover of Caesar's short-changed him.

The mother of teen star Hilary (Lizzie McGuire) Duff has been sued by a clothing manufacturer, who claims she violated an exclusive merchandising deal involving the "Stuff by Hilary Duff” clothing line.

A former member of the Sixties rock band Guess Who is suing his former bandmates, claiming they owe him money from at TV reunion special and subsequent recordings.

[Frank Snyder]

Do Contracts Have Authors?

Philosopher Michel Foucault apparently said that a contract is a text with no "author."  But then he probably never had to actually write one himself.

In a new article, What is a Contract?: The Absent Author of the Written Contract and the Function of Certain Conventions of Drafting and Construction, Princeton's Tal Krastner considers the thought.   Here's the abstract:

This paper considers the concept of the "author" and its role in defining the nature of a text in light of Michel Foucault's essay "What is an Author?" Taking up his suggestion that the fictional, constructed author of literature functions to limit the possibilities of meaning of a text, the paper explores how it might apply to the genre of contracts. While Foucault explicitly identifies contracts as authorless texts, this paper aims to identify other generic manifestations of the "author function" that attempt to stabilize meaning in contracts' written forms. Specifically, this paper examines prevalent boilerplate provisions and conventions of drafting and construction that have emerged in written contracts in the absence of an author. In doing so, the paper considers the relationship between the agreement and the written contract in contract law and interpretation, with an eye to the importance of delimiting the meaning of language in the law, and in the texts of contracts, in particular, as ostensible manifestations of consensus. By examining the contemporary form of the written contract in terms of boilerplate and other drafting conventions that often inscribe fictions of stability or limitation of meaning into the contractual text, the paper seeks to further an understanding of the written contract as a genre in which the author function or an analogous limiting principle manifests itself without reference to the individual. Such an analysis seeks to shed light not only on the nature and function of the written contract but on the nature of the discourse of the law more generally and the ways in which it defines itself in contrast to that of literature.

[Frank Snyder]

Louisiana Looks at Four Corners

Article 2046 of the Louisiana Civil Code provides that “When the words of a contract are clear and explicit and lead to no absurd consequences, no further interpretation may be made in search of the parties’ intent.”  An inventor who claimed a residual interest in some patents he’d transferred found that the rule means exactly what it says, in a recent decision by the U.S. Court of Appeals for the Fifth Circuit.

It’s a complicated case with a variety of claims, but one of them was inventor Tommy Condrey’s claim that he had a right to reclaim patents he had assigned to Harrell Equipment Co., after Harrell’s assets were sold to a third party.  Condrey and a Harrell employee both submitted affidavits claiming that this was the “understanding” of the parties at the time the original agreement was made.  Trouble was, the agreement itself, though detailed, contained no such provision.  The magistrate judge refused to consider the evidence.

Louisiana law allows for certain exceptions to Article 2046, said the Fifth Circuit.  Parol evidence is admissible where it goes to the interpretation of ambiguous terms, or where the contract is incomplete, or where there is a claimed subsequent agreements.  None of those apply here, though.  The agreement is six pages long, carefully worded, and written very broadly.  It contains a clause providing that it is the entire agreement of the parties.  Since it’s fully integrated, parol evidence is inadmissible.

Condrey v. Suntrust Bank of Georgia, 2005 U.S. App. LEXIS 23721 (5th Cir. Nov. 1, 2005).

[Frank Snyder]

Sex Sells

Yesterday's post entitled Sex and Contracts wasn't really about sex, but it certainly did wonders for our readership.  Usually we run around 400-500 visitors on a weekday, but a single-sentence reference to the post on the Instapundit site netted us about 2,000 visitors within two hours, and a total of nearly 5,000 for the day.  Click on the graph at left for a graphic representation.

That's well below our all-time daily record, though.  We once got 24,000 visits in 24 hours for this post about a contract clause dealing with Kate Beckinsale's breast implants.  There's a lesson there.

[Frank Snyder]