November 14, 2005
Jabba the Hutt on Contracts
Intergalactic criminal Jabba the Hutt, the huge slug-like villain from Star Wars, had his own unique philosophy of contract remedies. Jabba’s former employee, Han Solo, was smuggling spices for Jabba’s operation. To save himself from capture, Han Solo had to dump the spices. But then Han made a big mistake: he never made restitution to Jabba for the lost value of the cargo.
HAN: Hey, Jabba. Look, Jabba, I was just on my way to pay you back, but I got a little sidetracked. It's not my fault.
JABBA [in Huttese subtitled]: It's too late for that, Solo. You may have been a good smuggler, but now you're Bantha fodder.
HAN: Look . . .
JABBA [cont. Huttese subtitled]: Take him away!
[The guards grab Han and start to lead him away.]
HAN: Jabba... I'll pay you triple! You're throwing away a fortune here. Don't be a fool!
Of course, the contract between Han and Jabba is per se void as against public policy, as it involves illegal activity. But Jabba rebuffs any attempt by Han simply to make restitution by paying him off. One could, of course, argue that Jabba the Hutt is not a rational economic actor. Perhaps the better explanation is that Jabba has a certain reputation to uphold in the criminal underworld of his home planet. If you enter into a contract with Jabba, you had better be prepared to stick by it. [Hat-Tip: Scott Perlman]
[Add -- Frank Snyder: Jabba probably knows that Han's offer to pay triple won't be enforceable.]
Stambovsky v. Ackley Case Resources
Stambovsky v. Ackley, 572 N.Y.S.2d 672 (NY App. Div. 1991), is the famous "haunted house" case where the buyers sought rescission because the seller failed to disclose that the house was haunted. Although I couldn't time it quite right this semester, this case would be fun to teach on or around Halloween.
Among other remarkable aspects, the court proceeds from the legally unprecendented proposition that the house was haunted as a matter of law. In support of this legal conclusion, the case cites two news articles where the seller had claimed the house was haunted. Accordingly, I had a research assistant pull one of them--Helen Herdman Ackley, Our Haunted House on the Hudson, Reader's Digest, May 1977, at 217 (unfortunately, I couldn't a copy in electronic form anywhere).
At the end of that article was a little box that read: "The Reader's Digest continues to offer $3000 for 2500-word chronicles of original experiences in the field of psychic phenomena, which can be verified through witnesses and appropriate documentation." I think this box helps explain why the court held the seller's out-of-litigation admissions against the seller. The seller had been paid $3,000 for making a "verified" claim that the house was haunted. If the seller now claimed in the litigation that the house wasn't haunted, the seller would have been caught in a $3,000 lie to Reader's Digest.
Some resources that may enhance teaching this case:
* The Kavanaugh Website. This page was authored by a person who claims to be married to a person who lived in the house. Among other things, there are several photos of the house (this one is my favorite).
* It's easy to map the location of the house (1 Laveta Place, Nyack, NY), whuch clearly shows its prime location on the Hudson River. I haven't tried to find it using Google Earth, but I assume that is now possible as well.
* Many contemporaneous stories were written about the court decisions, but one story in particular caught my attention: James Barron, Phones Ringing (Eerily?) For Nyack Spook Home, N.Y. Times, March 20, 1990, at B2 (through Westlaw, you can pull the article up at 1990 WLNR 3010114). According to this article, after the initial lower court ruling, many people called up real estate agents in the area desperate to buy the house...but only if it was, in fact, haunted. I love this anecdote because it shows that (a) people have idiosyncratic preferences, so one person's defect is another person's must-have attribute, and (b) the seller's real estate agent may have initially done a poor job marketing the house!
The court opinion makes several references to the 1984 movie Ghost Busters (with Bill Murray, Dan Aykroyd, Sigourney Weaver and others) and the associated song by Ray Parker Jr. (which was #1 on the pop charts for 3 weeks in 1984). I had a minor generational crisis when I realized that some of my students were not born when the movie and song came out, so some of the movie/song references may not be self-explanatory to the students. A few clips from the movie, or playing the song in class, might get some good laughs.
Weekly Top Ten
Four papers have joined this edition of the Weekly Top Ten, led by a return to the charts of Gilo and Porat's look at boilerplate. Following are the top ten most-downloaded papers from the SSRN Journal of Contract and Commercial Law for the 60 days ending November 13, 2005.
1 (1) Risk Management in Long-Term Contracts, Victor P. Goldberg (Columbia).
2 (2) Katrina's Continuing Impact on Procurement - Emergency Procurement Powers in H.R. 3766, Christopher R. Yukins & Joshua I. Schwartz (Geo. Washington).
3 (5) Resolving the Paradox of the Consideration Doctrine: The Implications of Inefficient Signaling and of Anti-Commodification Norms, David Scott Gamage (Texas) & Allon Kedem (Independent).
4 (7) In Memoriam, John Cibinic, Jr., Ralph C. Nash (Geo. Washington), et al.
5 (8) Rethinking Spyware: Questioning the Propriety of Contractual Consent to Online Surveillance, Wayne Barnes (Texas Wesleyan).
6 (6) Are Heuristics a Problem or a Solution?, Douglas A. Kysar (Cornell).
7 (-) The Hidden Roles of Boilerplate and Standard Form Contracts: Strategic Imposition of Transaction Costs, Segmentation of Consumers and Anticompetitive Effects, David Gilo & Ariel Porat (Tel Aviv).
8 (-) Contracting in the Shadow of the Law, Nicola Gennaioli (IIES-Stockholm).
9 (-) Effective vs. Nominal Valuations in Venture Capital Investing, Michael Woronoff (Proskauer Rose) & Jonathan Rosen (Shelter Capital).
10 (-) The Evolution of Boilerplate Contracts: Evidence from the Sovereign Debt Market, Stephen J. Choi (NYU) & G. Mitu Gulati (Georgetown).
Madison on "Social Software"
Contracts scholars, as Lon Fuller demonstrated, tend to come at jurisprudential issues from a perspective different than those who work in more state-oriented fields, like constitutional, criminal, and administrative law. That's nicely illustrated by a new piece by Michael J. Madison (Pitt), who's written extensively on software licensing, intellectual property, and the Internet. His Social Software, Groups, and Law, is a fascinating read on what the law can learn from the kind of private-ordering mechanisms we find in informal groups. Here's the abstract:
Formal groups play an important role in the law. Informal groups largely lie outside it. Should the law be more attentive to informal groups? The paper argues that this and related questions are appearing more frequently as a number of computer technologies, which I collect under the heading social software, increase the salience of groups. In turn, that salience raises important questions about both the significance and the benefits of informal groups. The paper suggests that there may be important social benefits associated with informal groups, and that the law should move towards a framework for encouraging and recognizing them. Such a framework may be organized along three dimensions by which groups arise and sustain themselves: regulating places, things, and stories.
Playing Dirty with Laundry Room Contracts
For a company that leases and provides laundry room services to apartment buildings, this is apparently a common business strategy: in the middle of the “miscellaneous” section of the contract, retain a “right of first refusal” to match any offer made by a competing company, and retain the indefinite right to remain in the building past the expiration of the lease, until presented with the right to match the competitor’s offer. Based on such a clause, Coinmach, a North Carolina laundry room company, refused to vacate the premises of a Manhattan apartment building after its lease expired, until it was given the right to match a competitor’s bid for a new lease.
A New York trial court invalidated the clause and, recently, an intermediate appellate court affirmed. The appellate court held that “permitting defendant such a temporally unrestricted right would constitute an unreasonable restraint upon the alienation of property, and is not justifiable by reference to some salutary underlying purpose, for none is evident.” (internal citations omitted). The court “perceive[d] no beneficial purpose to be served by effectively requiring [the residential apartment building] to retain defendant's laundry room services indefinitely, regardless of their quality.”
A lawyer, and chairman of the Council of New York Cooperatives and Condominiums, told the N.Y. Times that this “right of first refusal” clause was commonly used in Coinmach’s contracts. He said that he routinely eliminated the clause when negotiating a contract with Coinmach, and Coinmach rarely objected. However, most buildings do not have counsel review these types contracts, which seem straightforward and simple. As a result, many buildings entered into Coinmach contracts with this clause – and once the contract was executed, Coinmach had not been as willing remove the clause. In all events, after the recent decision invalidating the clause, buildings will be “free to negotiate” with other laundry companies.
[Meredith R. Miller]
Employee Privacy, French Style
Can employers look at “personal” files on employees’ company-owned computers? The French courts originally said “non,” even if the employer had specifically forbidden employees to use computers for personal use. Now, according to Joël Grangé of Paris’s Gide Loyrette Nouel, the answer is “peut-être.”
November 13, 2005
Today in History: Mrs. Carlill Reads the Paper
It was Friday, November 13, 1891 -- 114 years ago today -- and influenza was rife in London. Only a year or two before, the great influenza epidemic that spread west from Russia had killed 250,000 people in Europe in 1889-90. But help was at hand. Every contracts teacher knows that on the evening of that fateful Friday the 13th, Mrs. Louisa Elizabeth Carlill opened her copy of the Pall Mall Gazette and saw an ad for a product that promised not only to "positively cure" the scourge, but to prevent users from contracting it in the first place: the Carbolic Smoke Ball. The manufacturer was so sure of its usefulness that it included the following statement:
£100 REWARD WILL BE PAID BY THE CARBOLIC SMOKE BALL CO. to any Person who contracts the Increasing Epidemic,INFLUENZA . . . after having used the CARBOLIC SMOKE BALL according to the printed directions supplied with each Ball. £1000 IS DEPOSITED with the ALLIANCE BANK, Regent Street, showing our sincerity in the matter.
Shortly thereafter, Mrs. Carlill bought one of the grenade-sized devices and began using it three times a day, beginning November 20. She continued to use it three time a day, as directed, and by January 15, 1892 was presumably counting her blessings as she read the the Queen's grandson, Prince Albert Victor, had died of the disease that day. Her luck ran out two days later, though, when she came down with the disease. In her case it wasn't fatal. But three days later -- the same day that the Prince's remains were laid to rest -- her husband wrote to the Carbolic Smoke Ball Co. demanding the reward.
The company refused to pay, and the story of the subsequent case, Carlill v. Carbolic Smoke Ball Co., is a staple of virtually every contract law casebook. The company, as we all know, had to pay.
What may be less well known is how the company responded. In a subsequent advertisement, on February 15, 1893, the sellers were back to their extravagant claims:
£100 REWARD was recently offered by the CARBOLIC SMOKE BALL CO. to anyone who contracted influenza [or various other diseases] after having used the Carbolic Smoke Ball according to the printed directions. Many thousand Carbolic Smoke Balls were sold, but only three persons claimed the reward of £100, thus proving conclusively that this invaluable remedy will prevent and cure the above-mentioned diseases.
THE CARBOLIC SMOKE BALL CO., Ltd., now offer £200 REWARD to the person who purchases a Carbolic Smoke Ball and and afterwards contracts any of the following diseases, viz, INFLUENZA . . . . or any disease caused by taking cold while using the Carbolic Smoke Ball.
But this time it's clear they got the lawyers involved:
This offer is made to those who have purchased a Carbolic Smoke Ball since January 1, 1893, and is subject to conditions to be obtained upon application, a duplicate of which must be signed and deposited with the Company in London by the applicant before commencing the treatment specified in the conditions. [Which included having to take the three doses each day at corporate headquarters.] This offer will remain open only until March 31, 1893.
The story of the case is detailed in Janice Dickin McGinnis's entertaining Carlill v. Carbolic Smoke Ball Company: Influenza, Quackery, and the Unilateral Contract. A site with reproductions of the ads and a photograph of Mrs. Carlill is here.
[Val Ricks of South Texas justly reminds us that the "gold standard" for coverage of Smoke Ball is A.W.B. Simpson, Quackery and Contract Law: The Case of the Carbolic Smoke Ball, 14 J. Legal Stud. 345 (1985), which also features in his Leading Cases in the Common Law (1995).]
D'Amato on Infield Flies
Okay, it's not really about contracts, but baseball fans will likely enjoy The Contribution of the Infield Fly Rule to Western Civilization (and Vice Versa) by Northwestern's Anthony D'Amato. Here's the abstract:
Baseball's Infield Fly Rule is one of the most hotly contested topics in American law today. A recent major-league addition to the burgeoning literature is Neil B. Cohen and Spencer Weber Waller's thorough and exhausting analysis of the rule's conceptual roots in the jurisprudence of the past one hundred years. Yet their assumption that nothing of significance happened prior to the twentieth century ignores much significance that happened prior to the twentieth century. For example, despite the fact that the authors are technically correct in noting that baseball itself is not mentioned in the Bible, they overlook the more specific Biblical reference to the Infield Fly Rule. They also miss the historic contributions of Zeno, Plato, Aristotle, Aquinas, Voltaire, Leibniz, and Riemann, among others.
Although the Cohen-Waller errors are those of omission and not of commission, the pre-1900 void they have left open cries out for coverage by an erudite Article that is impeccably researched and brilliantly reasoned -- one that is nothing short of a grand-slam contribution to Western thought. The present Article scores on all counts.
Just Cause, Philippines Style
Employees in the Philippines can be terminated only for cause. Philippine law apparently provides for two broad categories, those based on defalcations by the employee and those based on economic motives. There are separate "due process" procedures that must be followed depending on the motives.
So what happens when an employer has valid cause to fire an employee but fails to follow the due process procedures? Ernesto Caluya of Makati City's Jimenez Gonzales Liwanag Bello Valdez Caluya & Fernandez outlines two recent decisions in which the Supreme Court has set out the penalties.