Saturday, November 19, 2005
Basketball star Stephon Marbury has been sued for breach of contract by a New York City security firm. SafirRosetti LLC says it provided 454 hours of "personal protection services" for the Knicks guard, for a total bill of $42,312. According to the court papers, Marbury paid only $8,000 of the bill. (Image: PR Photo, Wikipedia)
Oliver Wendell Holmes famously noted that there is no moral component to contract law; that a contract was a mere option either to perform what was promised or to pay damages for failing to do so. Some of the recent work of Ian Ayres (Yale) has focused on an idea that Holmes presumably would have scorned: that taking such an option with knowledge that it won't be exercised ought to lead to penalties for fraud.
Now Yale University Press is releasing Insincere Promises: The Law of Misrepresented Intent, by Ayres and New York attorney Gregory Klass. Click on "continue reading" for the description.
(As an aside, it's ironic (if "ironic" is the word I want) that, given Ayres's views, published on the Yale web site, about the insensitivity of professors to the price their students pay for books, Yale University Press will nevertheless give you a free copy if you make ten of your students buy one. Looks like they've decided not to follow his suggestions in New Haven.)
Fifty years ago today, on February 19, 1955, "Tennessee" Ernie Ford’s Sixteen Tons, in only its third week on the Cashbox charts, hit number two, making it the fastest-rising single in the country.
I was born one morning when the sun didn’t shine
I picked up my shovel and I walked to the mine
I loaded Sixteen Tons of Number Nine coal
And the straw boss said, “Well, bless my soul!”
You load Sixteen Tons, and what do you get?
Another day older, and deeper in debt.
St. Peter, don’t you call me, ‘cause I can’t go -
I owe my soul to the company store
One of the interesting things about the song, with its folk-song sound and hardscrabble lyrics, is that it originated in a Capitol Records talent scout's deadline pressure to get out an album quickly:
Cliffie Stone, then an assistant producer and talent scout for Capitol Records, called Merle Travis (a Capitol hitmaker at that time) about recording a 78 rpm album (four discs in a binder) of folk songs. Capitol, seeing the success of a Burl Ives album, wanted their own folk music album. Merle told Cliffie he figured, "Ives has sung every folk song." Stone suggested Travis write some new songs that sounded folky, and to do so quickly; the first four-song session was scheduled for the next day. Travis recalled the traditional Nine Pound Hammer and wrote three songs that night about life in Muhlenberg County, Kentucky's coal mines, where his father worked. One was Dark As A Dungeon, the other, Sixteen Tons.
Friday, November 18, 2005
George R. Whaley had been a poultry farmer for some 35 years. For 20 of those years, under oral contract, Whaley supplied turkeys to H&H Poultry Co., a poultry processor. Whaley would pay for the poults, feed and labor, and would provide the necessary housing and equipment. In return, H&H compensated Whaley on a per pound live weight basis on the date of pickup, at a price determined by a day to day variable market value in the turkey growing Shenandoah Valley area of Virginia and North Carolina. (Image source: Wikipedia).
Whaley would routinely call H&H in the spring to determine how many turkeys H&H wanted and, without more details, would buy the poults and raise them. For the six years before the dispute arose, for the Thanksgiving market, Whaley grew 24,000 turkeys for H&H.
One year in the late 1970’s, Whaley made his spring telephone call to H&H. H&H had a new controlling stockholder and chairman of the board, Mr. Gouge (yes, that was his name). Whaley testified that Mr. Gouge put in an order for 24,000 turkeys. After the conversation, Whaley purchased 24,000 poults, built 40 new rain shelters at $2000 each, purchased 60 feeders for $6000 each, and installed an underground pipe which he otherwise would not have needed. Come November, Whaley called Mr. Gouge to remind him it was time to weigh a cross section of the turkeys to see what size they were. Mr. Gouge denied making the order.
Mr. Gouge died before he could be deposed. The president of H&H denied emphatically that H&H told Whatley to grow turkeys that year. The president testified that “Whaley was told that if he put turkeys in, he was on his own.” H&H claimed that it had completely changed its processing equipment and building, and could no longer process turkeys.
From the bench, the trial court issued a ruling concerning whether an enforceable contract existed:
Gentlemen, I have determined that I could not get any better of a feeling for a close case, where I believe people may sincerely feel they are telling the story as it is, than I have now, and there is no need to deliberate on the matter. I am convinced that judgment must be and shall be entered in favor of the plaintiff in this case.
The trial court awarded Whaley damages (the difference between what Whaley would have received under the oral contract with H&H the day after the breach and the amounts he received from another poultry processor, plus loading costs usually borne by H&H).
The Delaware Supreme Court affirmed the determination that an enforceable contract existed and affirmed the damages award.
Likewise, the Delaware Supreme Court affirmed the trial court’s denial of H&H’s motion to amend its answer to include the statute of frauds as an affirmative defense. H&H had waited three years to move to amend, and this inexcusable neglect would prejudice Whaley – especially because of Mr. Gouge’s death before his deposition.
H&H Poultry Co. v. Whaley, 408 A.2d 289 (Del. 1979).
[Meredith R. Miller]
An arbitrator’s decision that a contract is unenforceable because it was not signed by the defendant collaterally estops the plaintiff from raising issues under the contract in a subsequent court proceeding, according to a new unpublished decision by the California Court of Appeals. But it can raise non-contract-based theories that arise out of the same transaction.
In the case, plaintiff Ultimate Experience sold a ride simulator to defendant Castle Rock, an amusement park. When a dispute arose, Ultimate sought arbitration. The three arbitrators subsequently agreed unanimously that the contract had never been validly signed and executed by Castle Rock. Accordingly, they issued a “take nothing” order against Ultimate. Ultimate then sued in state court, arguing in effect that if there was no valid contract with Castle Rock, there was no valid arbitration clause. If there was no valid arbitration clause, then Ultimate had not agreed to arbitrate. If it had not agreed to arbitrate, it was free to bring an action in state court on its contract claims.
Wrong, said the court. The determination that the contract is unenforceable was validly before the arbitrators, and its decision that plaintiffs cannot claim under the contract -- made on whatever ground -- collaterally estops the plaintiffs from recovering. But that doesn’t end the inquiry. Here,
Ultimate alleges that Castle Park had possession of its property (the simulator and accessory equipment) and was so careless about storing it that losses were suffered due to exposure to the elements, vandalism, and theft. It also alleges that Castle Park refused to return the property, retaining it for its own use.
These aren’t contractual claims, and the arbitrators did not rule on them. Therefore the determination that the contract was unenforceable does not prevent Ultimate from bringing an action in state court.
Ultimate Experience v. Raging Waters Group, 2005 Cal. App. Unpub. LEXIS 10277 (2d Dist. Nov. 9, 2005)
Thursday, November 17, 2005
Like most (all?) "reality" TV shows, the Apprentice TV show imposes a contractual gag order on participants covering every aspect of the participant's experience. The contract couples that covenant with a liquidated damages clause requiring participant-breachers to pay $5 million plus attorneys' fees and disgorge their profits.
In 2001, a similar clause was invoked in a Survivor dispute (Survivor and Apprentice are both produced by Mark Burnett). Then, last week, this clause was invoked again agaist two Apprentice participants (Markus and Jennifer W.) due to their public claims that the show's editing is misleading and that The Donald is sexist.
I've always found the gag order + liquidated damages clause in these reality TV show agreements problematic for three reasons:
1) The $5M liquidated damages should be prima facie unenforceable because it does not vary with the type of breach. There's a wide range of public disclosures that might occur, some significant (blowing the entire season by preannouncing the winner) and some trivial (such as a snarky comment about Trump's choice of ties). A one-size-fits-all liquidated damages clause does not appear to represent a reasonable estimate of the damages in these different contexts.
Even if the clause is not a penalty, I wonder if it violates public policy. There's no question that the agreement could protect the producers' trade secrets, but the clauses often go far beyond that, limiting participants' abilities to discuss their experiences, criticize the show or even enforce their legal rights. At some point, extensive gag orders violate public policy. See, e.g., People v. Network Associates, Inc., 195 Misc. 2d 384 (N.Y. Sup. Ct. Jan 6, 2003) (enjoining the use of a clause prohibiting product reviews and product comparisons of anti-virus software).
2) Liquidating the damages has the perhaps-unintended consequence of capping the TV show producer's damages. If a participant disclosure really blew the entire season, would $5M be enough?
3) I believe that liquidating damages significantly reduces the likelihood of getting injunctive relief. (After all, it's hard to argue that damages are insufficient if the parties have agreed upon damages in the contract). So, if the TV show producers ever tried to stop publication of unwanted disclosures, I wonder if the liquidated damages clause would sink any chance of equitable relief.
For these reasons, I would think the TV show producers (and their lawyers) would know better than to include such a high-risk clause in their contracts. On the other hand, despite its legal shakiness (and its even-more-dubious prospects for producing judgments that could be collected), the clause nevertheless may be effective at deterring unwanted behavior. After all, what participant wants to test the clause at the peril of being wrong and on the hook for $5M?
Meanwhile, despite the draconian threat, information has dribbled out about the behind-the-scenes shenanigans of reality TV shows. My favorite article discusses life on "Loser Island."
During the last round of law review submissions, my colleague Brannon Denning and I were musing about stressful the process was. Perhaps we were also reading too much legal theory and drinking too much coffee, but the angsty (and hopefully humorous) result was “The Five Stages of Law Review Submission.”
In this piece, we discuss the process of getting an offer of publication, and compare it to the five stages of grief described by Elisabeth Kubler-Ross (denial, anger, bargaining, depression, acceptance). Acceptance, in this context, does not mean ultimate publication of your work, but instead, coming to terms with the offers you want, the offers you have, and the wisdom to know the difference. Here’s a sample:
A Serenity Prayer for Law Review Authors
(With apologies to Reinhold Niebuhr)
Editor-in-Chief of the Universe,
Grant me the serenity to accept the things I cannot change—
like the U.S. News rankings of the law reviews that give me offers, the public law bias of law review editors, the idiosyncratic article selection processes of the elite law reviews, the fact that article selection editors don’t appreciate how important my topic is, and the timing of law review editorial board elections;
the courage to change things I can—
like tailoring my articles to the latest academic fad no matter how tenuous the connection, using cutesy titles for articles, and staggering my submissions in order to get expedited review from a highly-ranked law review;
and wisdom to know whether it is better to accept an offer from an elite school’s specialty journal, as opposed to the general journal of a lower-ranked school, or vice-versa.
Living one article at a time;
Enjoying one publication at a time;
Accepting rejection letters and placements at lower-ranked journals as the pathway to peace.
Taking the submissions process
As it is, not as I would have it;
Trusting that the editors will make things right
If I surrender to their will;
That I may be reasonably happy with this placement
And supremely happy with the next.
Need to bone up on the difference between Type I, Type II and Type III contract indemnity clauses? Click here for a blog post at "May It Please the Court" that gives the details on a recent California case which delved into the subject.
Jacobsen had a contract with Tozai Co., a turkey supplier. Under the contract, Tozai agreed to deliver between 200 and 1,200 turkeys between November 5 and Thanksgiving. The offer for the sale of turkeys provided:
Cal.Colusa, Nov. 5, 1917.
We agree to sell Jacobson Reimers Co. of S. F. at twenty-seven and half cents per pound for choice dressed turkeys f. o. b. station numbering from Two hundred head up to Twelve hundred between now and Thanksgiving. Hens to weigh seven pounds and over and gobblers twelve pounds and over per piece.
By K. HAYASHI.
When Jacobsen accepted within the provided time period by demanding that Tozai deliver 1,200 turkeys, Tozai refused to delivery any turkeys. Apparently, the market price for turkeys had increased from 27 to 42 cents per pound. Tozai conceded that it had not delivered any turkeys. The issue was whether Jacobsen’s damages should be based on Tozai’s failure to deliver the minimum 200 turkeys (totaling roughly $77) or, alternatively, based on Tozai’s failure to deliver the maximum 1,200 turkeys (totaling roughly $615).
The court held that Jacobsen’s damages should be calculated based on Tozai’s failure to deliver the maximum amount of turkeys, and awarded Jacobsen roughly $615. The court wrote:
What, then, is the rule governing alternative obligations? Counsel seem to have explored the cases and the text-books with diligence for light, and the written opinion of the learned trial judge shows that he examined with much care the authorities upon the question.
* * *
Referring to the number of turkeys to be delivered, the language of the obligation is, "numbering from two hundred head up to twelve hundred," and as to the time of delivery the obligation is, "between now [its date] and Thanksgiving" (November 29th). Plainly, the statute gave defendants the right to deliver any number of turkeys from two hundred to twelve hundred "between" the date of the obligation and November 29th. Defendants, admittedly, neither offered to nor did deliver any number of turkeys "between now and Thanksgiving," or at all, but, as the court found, refused to deliver any. In such case, by the terms of the statute, "the right of selection passes to the other party." It is not necessary to resort to text-books or to the decisions of the courts.
The court affirmed the opinion of “the learned trial court” based on certain provisions of the civil code, the trial court had written:
In this case there being no pretention that performance was even as much as attempted, it seems that under well-recognized principles of equity the defendant should not be permitted to limit his liability to the minimum delivery required by this agreement. To do so would allow the most flagrant abuse of such an agreement.
Jacobsen-Reimers Co. v. Tozai Co., 42 Cal. App. 178 (Cal. App. 3d Dist. 1919).
[Meredith R. Miller]
Looking for a good picture of a Red Owl store to illustrate Hoffman v. Red Owl Stores? Well, we don't have pictures of what Hoffman's store would have looked like, but the good folks at Squid’s Market have given us permission to publish a photo of Mike’s Red Owl in Greenbush, Minnesota, a typical small-town upper-Midwest Red Owl franchise from that period. The store was one of the predecessors of Squid's.
Permission is granted for classroom use. A link to a photo that can be downloaded is here. (Photo: Courtesy Mike Korczak).
The good folks at the Social Science Research Network are continuing their project to get previously published law review materials on the site to make them freely accessible. A recent and welcome addition is Toward a Prudential and Credibility-Centered Parol Evidence Rule, 68 U. Cin. L. Rev. 269 (2000), by Lawrence A. Cunningham (Boston College). Here's the Abstract:
The most influential judicial voices on the parol evidence rule are Roger Traynor and Richard Posner. Traynor pieced together aspects of positions championed by the antipodal titans of contracts, Arthur Corbin and Samuel Williston. Posner cuts through tangled doctrinal webs to show how the unifying talisman of the doctrine is credibility. Everything in parol evidence rule doctrine, in this formulation, can be understood in terms of two categories of evidence: subjective and objective. While the Traynor composite blended aspects of the titans of contracts into an incoherent stew, the Posner composite unites the central theme of the titans' positions, holding some promise of at last bringing clarity to a seemingly intractable body of contract law.
Costs associated with various formulations of the parol evidence rule and tradeoffs they entail include costs of perfect drafting compared to costs of judicial error from imperfect drafting. While such a comparative cost approach to thinking about the parol evidence rule may be sound in theory, it is impractical and paradoxical in operation. It requires a judge to evaluate simultaneously costs of perfect drafting and the risk that she or he will commit an error in applying the parol evidence rule. A credibility-centered parol evidence rule can enhance judicial understanding of both sides of this calculus while sidestepping the paradox.
Insurance contracting practices in Britain are "inadequate," "uncertain," and "unacceptable," and the Financial Services Authority has launched a major effort to increase "contract certainty" -- practices that (it's hoped, at least) will allow companies and their insureds to better understand exactly what everyone is agreeing to.
Nick Paul and Maxine Cupitt of London's CMS Cameron McKenna LLP offer a rundown of the new Contract Certainty Code of Practice.
Wednesday, November 16, 2005
On this day in 1949, the Texas Civil Court of Appeals in El Paso released its decision in Batsakis v. Demotsis, the casebook staple on the issue of inadequate consideration.
The case begins in Piraeus, Greece, in April, 1942. It's just a year since German troops invaded and conquered Greece, and perhaps the high water mark for the Axis powers in World War II. The British have been driven from Norway and Crete, and London is under continuing bombardment. German troops have driven deep into Russia and will shortly annihilate another Soviet army at Kharkov. Rommel's Afrika Corps, with Tobruk under siege, is on the verge of driving the British all the way back to Egypt. Much of the U.S. Pacific Fleet has been destroyed at Pearl Harbor, the Japanese have overrun the whole of the East Indies, the Philippines, Burma, and Singapore, and are threatening Ceylon and Australia.
At this dark hour, Eugenia Demotsis finds herself trapped in occupied Greece. Times are brutal; a major famine is wracking the country. More than 300,000 Greek civilians will die in the war, mainly from the famine. Inflation is raging; in some places the price of a loaf of bread will later reach 2 million drachmas, and there will be stories of individuals trading their homes for a bottle of olive oil. (Image: Starving children on the cover of Famine and Death in Occupied Greece, 1941–1944, by Violetta Hionidou.) Demotsis isn't poor. She has substantial property in the United States, but it's impossible for her to arrange to get her U.S. assets transferred to a Nazi-occupied country. She has a family to feed, and she needs money.
Enter George Batsakis. On April 2, 1942 -- the day that the Luftwaffe begins its initial assault on Malta -- he agrees to give her 500,000 drachmas, which at that point are worth about US$25. But he won't turn the money over unless Demotsis signs an agreement to pay him $2,000 if and when the war ends and she's able to get back to America to get her property. She agrees. When the war ends and she gets back to America and claims her property down in San Antonio, Texas, he comes to claim his money. Demotsis offers him $25 -- the fair value of the drachmas -- plus interest. He sues. Click on "continue reading" for the rest of the story.
With businesses subject to the ever-increasing risk of damages from “long-tailed risks” -- harms that can arise decades after the act that caused them -- it’s often important to figure out what insurance policies were in force in, say, 1942 for a plant that may have closed in 1955. Hardly anyone keeps documents that long, but the need to try to tap those old insurers has led to the rise of “insurance archaeologists,” modern Lara Crofts who do their tomb raiding in the dark corners of the business world in search of lost policies. (Image: Wikipedia)
Lawyer David F. Klein of D.C.’s Swidler Berlin LLP describes their rise in Indiana Jones and the Lost Insurance Policy: Adventures in Insurance Archaeology.
When a seller puts a car up on an online auction site and announces it will take the highest bid for the car, is that on offer to sell, an invitation for bid, or an advance acceptance of the as-yet-to-be-made highest offer?
Well, it doesn't matter in Germany, because the seller's statement is a declaration of will by the seller which, after a reciprocal declaration of will by the buyer, results in a contract. Thus, in BGH NJW, where a buyer's 26,350 DM bid for a new Volkswagen Passat, made eight seconds before the auction closed, was the high bid, the seller was bound to seller the car, regardless of whether it claimed it intended to or not.
Tuesday, November 15, 2005
The new crew -- average age 26 -- was comprised of two mates, a carpenter, boatswain, steward, and cook, together with thirteen seamen and six apprentices. The Peerless didn't put to sea for another four days. The delay, suggests Brian Simpson, "may well have been designed to allow [the] crew to sober up." In the lore of Raffles v. Wichelhaus, this particular vessel, will be known as the "October" Peerless.
This Friday, November 18, is the deadline for proposals for the inaugural Spring Contracts Conference, which will be held in Fort Worth, Texas, on February 24-25, 2006. Papers dealing with any aspect of contract law or theory are welcome. Proposals submitted after the deadline can be considered only on a space-available basis. Here's the Call for Papers.
Richard Craswell (Stanford) has a new paper out, Taking Information Seriously: Misrepresentation and Nondisclosure in Contract Law and Elsewhere. Here's the abstract:
Contract law attempts in various ways to regulate the information that contracting parties exchange. However, most contract law doctrines (and most contract law scholars) have yet to come to grips with the practical issues involved in regulating information. For instance, the disclosure of information can produce costs as well as benefits, by distracting parties from other, more important information; so it is often hard to decide which information should have been disclosed in any given case. Similar costs and benefits are often involved even in cases involving false statements (misrepresentations), where liability might seem less controversial.
While these issues are underappreciated in contract law, they are much more familiar in federal cosumer protection law, especially in cases involving false advertising; and they are beginning to be recognized in products liability cases involving the duty to warn. This paper suggests various ways to improve contract law's handling of misrepresentation and nondisclosure, all of which involve closer attention to the relevant costs and benefits.
An employer’s “progressive discipline” system outlined in its handbook does not convert at-will employment into one where notice or cause is required for termination, according to a recent decision by the Mississippi Court of Appeals.
In the case, plaintiff John Senseney was hired by the Mississippi Power Co. The employment application that Senseney signed provided:
4. No obligation to hire/Employment At Will. I understand . . . and agree that nothing in this employment application, in the Company's policy statements, personnel guidelines or employee handbook is intended to create an offer of employment and compensation with the Company or an employment contract between the Company and me. I understand and agree that employment with the Company will be on an at-will basis, meaning that my employment will be for no definite duration and can be terminated, with or without cause and with or without prior notice, at any time, at the option of either the Company or myself. Further, I understand that, except for an officer of the Company, no supervisor or manager may alter or amend my at will employment status and only an officer, of the Company has the authority to enter into any agreement for employment for a specified period of time and any such agreement must be in writing and executed by the Company and me. My signature below certifies that I understand that the foregoing is the sole and entire understanding between the Company and me concerning the duration of my employment and the circumstances under which my employment may be terminated and supersedes all prior arrangements, understandings and representations concerning my employment with the Company.
After Senseney was hired, he received the company guidelines for “progressive employee discipline,” which outlined a system under which employees were to be given notice of problems with their work and a chance to correct it. After Senseney was fired without warning and without cause, he sued.
And lost, said the court. Mississippi has previously held that where an employment agreement is otherwise silent, an employer’s discipline guidelines become part of the contract. But here, the contract between the parties specifically provided for employment at will, and put Senseney on notice that the guidelines will not alter that status. Accordingly, said the court, his complaint was correctly dismissed.
Senseney v. Mississippi Power Co., 2005 Miss. App. LEXIS 798 (Nov. 1, 2005).