ContractsProf Blog

Not Our Fault, Really

Typepad, the outfit who hosts this blog, experienced some technical difficulties Friday. But for the display of images, we are now back in business.

[Frank Snyder] 

New Issue of Polley's MIRLN

The new issue of Vincent Polley's invaluable Miscellaneous IT Related Legal News is out.  Some highlights for contracts folks:

*  An Oregon court holds that the Communications Decency Act bars a contract claim based on an ISP's promise to remove material.

*  The U.N. General Assembly officially approved UNCITRAL's new Convention on Electronic Communications in Contract, which will be signed next June.

*  BellSouth has withdrawn its offer to give a damaged building to the City of New Orleans for use as a police station after the city announced plans to build a city-owned wireless network that would be free for everyone.

*  A California appellate court has held Earthlink's arbitration and forum selection clauses in its click-through agreement are invalid as against public policy.

[Frank Snyder]

Today in History: Kent's House is Supposed to be Finished

On this date, December 15, 1913, construction was supposed to be finished on the home of George Edward Kent and his wife Lillias Grace Kent at the Long Island hamlet of Jericho in the town of Oyster Bay, New York.  But Kent and his builders, Jacob & Youngs, had agreed to additional work, so they subsequently agreed to a contract modification extending the completion date indefinitely.  It was going to be an expensive house: about $80,000 for construction.  (That's about $1.5 million today using the consumer price index, but $24 million using relative share of GDP.)  After construction was finished, of course, a dispute would arise because the contractor used the wrong pipe, leading to the decision one of Cardozo's tours-de-force in Jacob & Youngs v. Kent.

Jericho at the time was a rural hamlet of less than 600 people, chiefly Quaker farmers.  (Pictured: Two scenes of Jericho, 1909).  It lay on the Jericho Turnpike, an ancient road that connected Jamaica to New York City, which made it convenient for a lawyer like Kent who kept an office in the City.  Other famous residents found the area pleasant, including Theodore Roosevelt, whose Summer White House was at nearby Sagamore Hill.

The Kent residence has not survived.  Some information about it, including an image of the site plan, is available from the Philadelphia Athanaeum's web site, which reports that the building, including the extensive gardens by the Olmstead Brothers, were subsequently demolished.

[Frank Snyder] 

Yale May Be Violating Your Civil Rights

In the latest issue of the Yale Law Journal's "Pocket Part" feature, Professor John Goldberg of Vanderbilt argues in The Constitutional Status of Tort Law that there are constitutional limitations on the ability of legislatures to regulate and restrict tort causes of action, at least for consumers.

We here don't know much about the merits of tort reform, but the bright student editors of the YLR seem to.  The piece is accompanied by the following on the YLJ web site:

Welcome to The Pocket Part, The Yale Law Journal's online publication. The Pocket Part is governed by these Terms of Use, as they may be amended, from time to time ("Terms").  BY USING THE SITE, YOU AGREE TO BE BOUND BY THE TERMS.

      .  .  .

NO WARRANTIES. THE YALE LAW JOURNAL COMPANY, INC. MAKES NO REPRSENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, WITH RESPECT TO THE POCKET PART, INCLUDING ANY OF THE CONTENT OR INFORMATION CONTAINED ON THE SITE. ALL CONTENT IS PROVIDED ON AN "AS IS" BASIS. THERE IS NO WARRANTY AGAINST INTERFERENCE WITH YOUR ENJOYMENT OF THE SITE, OR OF UNINTERUPTED SERVICE OR OTHER FUNCTIONALITY, INCLUDING LINKS TO OTHER WEBSITES, NOR ANY WARRANTY THAT THE SITE IS FREE OF DEFECTS, VIRUSES OR OTHER HARMFUL COMPONENTS.

NO LIABILITY. IN NO EVENT SHALL YALE UNIVERSITY, THE YALE LAW JOURNAL COMPANY, INC., THEIR EMPLOYEEES, AGENTS, EDITORS OR ANY OTHER PARTY, THAT HAS BEEN INVOLVED IN THE CREATION, PRODUCTION AND/OR DELIVERY OF THE POCKET PART BE LIABLE FOR ANY CLAIMS, LIABILITIES, LOSSES OR EXPENSES OF ANY KIND INCLUDING WITHOUT LIMITATION, ANY DIRECT, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES, SUCH AS, BUT NOT LIMITED TO: LOSS OF ANTICIPATED PROFITS, BENEFITS, OR USE OF DATA, EVEN IF ANY OF THEM HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES AND EVEN IN THE EVENT OF FAULT, TORT (INCLUDING NEGLIGENCE) OR STRICT OR PRODUCTS LIABILITY OR MISREPRESENTATION.

[Frank Snyder]

Celebrity Pre-Nuptial Agreements

In the wake of the Jessica Simpson/Nick Lachey breakup, the Associated Press ran a story about celebrity pre-nuptial agreements.  It turns out that Simpson and Lachey don't have one, which means that Simpson is probably going to be writing a big check to Lachey at some point.

More interestingly, the article discusses wacky clauses that celebrities have put into their pre-nup contracts, such as:

• Limiting the wife's weight to 120 pounds or she must relinquish $100,000 of her separate property.
• Allowing a spouse to perform random drug tests, with financial penalties for positive results.
• Requiring a husband to pay $10,000 each time he is rude to his wife's parents.
• No mother-in-law sleepovers.
• Only one football game per Sunday.
• Mandatory sexual positions.

I often wonder if clauses like these have enforceable remedies.  I can see judges potentially enforcing the first three covenants because they are coupled with liquidated damages clauses (although a judge might think it's unreasonable to award $100k award for going 1 pound over 120).  In contrast, I think the last example might be a good illustration of a remediless covenant.  Without getting too vulgar, I'm skeptical that a judge would assess damages for breach, and I'm 100% confident that a judge will not order specific performance!

[Eric Goldman]

"Time at Large" and Reasonableness

When two parties have entered into a contract to carry out some sort of work, they usually agree to a final date for performance.  During performance, however, they may agree to change the requirements.  What happens if they agree to a change, but don't address the issue of the final date of performance?  The building project in Jacob & Youngs v. Kent (see next entry) was one of these kinds of deals.

In the U.K., this is dealt with by the concept of "time at large," which usually means the work must be done in a "reasonable" time.  Adrian Bell of London's CMS Cameron McKenna LLP offers a rundown in "Time at large" and Termination of Contracts for Delay.

[Frank Snyder]

Today in History

On this day in …

1791, the Bill of Rights went into effect following ratification by Virginia

1916, the French defeated the Germans in the World War I battle of Verdun

1938, groundbreaking ceremonies for the Jefferson Memorial took place in Washington, D.C.

1965, two U.S. manned spacecraft, Gemini 6 and Gemini 7, maneuvered to within 10 feet of each other while in orbit

[Wayne Barnes]

Michigan Court Enforces Employment Contract Shortening Statute of Limitations

A Michigan appellate court recently enforced the following provision in Robert Clark's employment contract with DiamlerChrysler:

I agree that any claim or lawsuit relating to my service with [DiamlerChrysler] or any of its subsidiaries must be filed no more than six (6) months after the date of the employment action that is the subject of the claim or lawsuit. I waive any statute of limitations to the contrary.

In 2001, the company had forced Clark into early retirement as part of a "salaried workforce reduction."  He worked his last day on  August 31, 2001.  On  September 8, 2003, Clark filed an action against the company, alleging age discrimination.  The trial court applied the shortened 6-month statute of limitations in Clark's employment contract and dismissed the action.  The appellate court affirmed. The court rejected Clark's argument that the agreement was an unenforceable contract of adhesion, and rejected his argument that it was unconscionable because Clark had " failed to present any evidence that he had no realistic alternative to employment with [DaimlerChrysler]."

Judge Neff dissented; she would have held that the contract provision was both procedurally and substantively unconscionable. 

[Meredith R. Miller]

Judge Neff wrote that:

[the majority's] analysis fails to give proper consideration to whether procedural unconscionability exists in the context of this case. Unlike other contracts contexts, "an employer and employee often do not deal at arm's length when negotiating contract terms. An employee [in plaintiff's position] has only two options: (1) sign the employment contract as drafted by the employer or (2) lose the job."

Defendant claims that plaintiff is contractually bound by a provision for a shortened period of limitations in defendant's employment application form that plaintiff filled out when applying for a job, five months before he was hired. The preprinted form was similar to other preprinted job application forms and required plaintiff to provide his personal information, educational background, employment history, positions for which he was qualified, and expected rate/salary. On the second page, immediately above plaintiff's signature, the employment application contained the following provisions in a two-column format:

READ CAREFULLY BEFORE SIGNING:

1. I have read and do understand the statements contained herein and certify that they are true.

2. I understand that false or incomplete statements herein or in any resume I have supplied are grounds for dismissal.

3. I hereby authorize that previous employers contacted by Chrysler Corporation or any of its subsidiaries in connection with this application fully respond to all inquiries concerning such previous employment and specifically waive prior written notice of disclosure of my personnel record information, including disciplinary reports, letters of reprimand or other disciplinary action. I also authorize educational institutions to release information relative to claimed degrees and achievements. In consideration of the acceptance of my application, I release Chrysler Corporation or any of its subsidiaries previous employers, and educational institutions of any claimed liability arising out of such response and disclosure.

4. I understand that employment is conditioned upon the results of a physical examination by a physician selected by Chrysler Corporation or any of its subsidiaries conducted after an offer of employment is made or the results of a drug test conducted in accordance with Chrysler Corporation's policy.

5. In the event that I am employed by Chrysler Corporation or any of its subsidiaries, I agree to comply with all its orders, rules, and regulations and acknowledge that said orders, rules, and regulations do not constitute terms of employment contrary to paragraph 6.

6. I hereby acknowledge that this application is for an employment of indefinite duration, terminable at will, for any reason either by myself or by Chrysler, except as otherwise provided by the terms of a collective bargaining agreement, if any, applicable to me.

7. I understand that the terms of paragraph 6 cannot be altered except by written agreement executed by an Officer of Chrysler Corporation.

8. I agree that any claim or lawsuit relating to my service with Chrysler Corporation or any of its subsidiaries must be filed no more than six (6) months after the date of the employment action that is the subject of the claim or lawsuit. I waive any statute of limitations to the contrary.

NOTE: A photocopy of this statement shall be as valid as the original.

Beneath the eight provisions, the application requested the applicant's signature and date. Just below the signature line, the application stated in smaller print:

(This application will be considered active for twelve (12) months from the date filed. If you are hired, it becomes part of your official employment record.)

Given the manner in which defendant obtained "agreement" to the terms stated in the employment application, plaintiff clearly had no realistic alternative to the contractually shortened limitations period. There was "an absence of meaningful choice," a hallmark of unconscionability. Further, the provision concerning a shortened limitations period also "takes advantage of or surprises the victim of the clause," underscoring the procedural unfairness in this case.

While the principles of freedom of contract may support upholding a bargained-for term shortening the period of limitations, the nondescript provision imposed in paragraph eight in defendant's employment application form cannot realistically be claimed to be a "bargained-for" term. First, it is unlikely that an applicant seeking a job from an employer would engage in bargaining these terms at the time of signing the application form. If the applicant is sufficiently aware of the implications of any particular term, such as the six-month limitations period, the applicant is surely also aware that objection to the provision will thwart any offer of a job from the prospective employer. Second, it is unlikely that at the time of hiring, in this case five months after plaintiff completed the application form, an applicant would recall the limitations provision or recognize its broad curtailment of legal rights, such that the applicant would then negotiate different terms.

The shortened limitations period provision in this case cannot be sanctioned as a bargained-for term under the freedom of contract principles. . . .

* * *

Defendant does not contend that it actually bargained for the shortened limitations period in hiring plaintiff. Defendant merely seeks to impose a contractual limitations period via the boilerplate provisions on the job application form. It certainly cannot be said that plaintiff had a meaningful choice about "whether and how to enter" into the agreement for a six-month limitations period. The manner in which defendant acquired plaintiff's acquiescence to the shortened limitations period is procedurally unconscionable.

The dissent then reasoned that the imposition of a 6-month limitations period was substantively unreasonable because:

[t]he Legislature has determined that the appropriate limitations period applicable in this action is three years. The shortened six-month period imposed by defendant places plaintiff at a severe disadvantage in seeking redress for wrongs and is unquestionably advantageous to defendant by permitting it to wholly avoid employee claims.

The dissent also would have held that the provision violated public policy.

Clark v. DaimlerChrysler Corp., __ N.W.2d __ (Mich. Ct. of Apps. Sept. 13, 2005)

Give the Gift of Boilerplate

Speaking of gifts, are you looking for that perfect gift for the contracts professor on our list?  Instead of that tacky "Contracts Professors Do It With Consideration" mug, how about a nice piece of classic boilerplate?

An eBay seller is offering three nice, vintage boiler plates, all from Saskatchewan in the 1930s.  These are genuine, official, and date from 1933, 1934, and 1935 (pictured).  (Click on image for larger picture.)  But hurry!  Auction ends Friday.

For those looking for a more upscale version, another seller has got an elegant set of Victorian boiler plates from the D.M. Dillon Boiler Works in Fitchburg, Massachusetts.

[Frank Snyder]

Williams Sisters' Battle of the Sexes Suit Ends in Mistrial

Yesterday, the judge declared a mistrial in the breach of contract suit against Venus and Serena Williams.  As mentioned in a previous post, the lawsuit claims that the sisters reneged on a contract to participate in a "Battle of the Sexes" tennis spectacle.  (Aside: sounds a lot like Andy Kaufman's bit about being "Inter-Gender Wrestling Champion.") 

[Meredith R. Miller]

More on Coin-Op Laundry Contracts

A previous post discussed Inwood Park Apts., Inc. v. Coinmach Indus. Co., which involved a coin-op laundry room company, Coinmach, and an apartment building in New York City.  In that case, a New York appellate court invalidated Coinmach's “right of first refusal” clause, which retained 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.  (Image Source: Wikipedia).

Well, Coinmach is in the news again over a laundry contract, but this time it is on the offensive.  Coinmach has sued the Marion County Housing Authority in the Southern District of Illinois, apparently claiming "it had a contract to occupy the laundry rooms of 13 residential properties containing 281 units pursuant to the lease signed in 1994 for the operation of coin-operated clothes washing and drying equipment."  Apparently, the Housing Authority sent Coinmach a notice of cancellation of the lease, but Coinmach claims that it was entitled to two 7-year renewal periods.  The Madison Record reports:

The suit claims that the lease did not provide MCHA the ability to cancel the lease on a six-month notice and the only provision which allowed cancellation would be if Coinmach failed to correct service problems within 30 days of notice.

According to Coinmach, it notified MCHA that it did not possess the power to cancel the lease and stated the cancellation was void and without effect. However, in the first part of August, MCHA forcibly and without legal right disconnected its equipment and removed it from the laundry rooms, dispossessing them from its leasehold.

Coinmach is seeking the loss of net laundry revenues it would have received from consumer use if it was not removed, plus future revenues it would have received, an amount they claim to be in excess of $75,000.

It is not certain whether the right of first refusal clause which was invalidated in the New York case is being invoked by Coinmach in the Illinois case.

[Meredith R. Miller]
 

Birds of a Feather

In preparation for exams, many of my students have been emailing me questions about specific cases.  One student (who gave me his permission to post this) wrote to me with a question about the “Red Parrot” case.  When I wrote back to ask whether he meant the “Red Owl” case, the student profusely apologized for using the wrong casename.  As he told me “I’m from Brooklyn, so the only birds I know about are pigeons.”

Well, it actually turns out that not only does a tree grow in Brooklyn, but parrots inhabit Brooklyn as well.  Proving that truth is stranger than fiction, yes, there is a large colony of wild parrots that live on the campus of Brooklyn College.  The Brooklyn Parrots website asks the intriguing question of how the parrots got there.  Was there an escape of parrots from a shipment at JFK airport?  Were they released from a pet store on Flatbush Avenue that was going out of business?  Did a truck carrying parrots overturn on the highway?  These hardy birds continue to inhabit the wilds of Brooklyn, despite the cold climate. 

And, yes, this officially continues my fixation with the Hoffman v. Red Owl; earlier I posted an entry about Red Owl collectible toys.  Perfect for the picky contracts prof on your Christmas or Hanukkah list. 

[Miriam Cherry]

NYLS Gets New Dorm

Congratulations to New York Law School, which after 114 years has finally got its first dormitory.  The new building was dedicated in a ceremony last week.  The size of the two- and three-bedroom apartments, and its location in the heart of the East Village, will likely make it extremely popular with students.

You can get a virtual tour here.

[Frank Snyder]

Expensive Yacht Only "Incidental" to Oral Sex

Here's a nice contract interpretation problem, from Buy This Book or We'll Sue You, by Laura & Attila Benko.  The case is Peters v. Firemen's Insurance Co., 67 Cal. App. 4th 808, 79 Cal. Rptr. 2d 326 (2d Dist. 1998).

Seems a Southern California man, appropriately named Peters, had a 42-foot yacht (no, this isn't it, it's just for illustration), which he used primarily to impress women.  "His large pleasure craft," he told the court, "was 'a sign of his wealth and status' which 'fostered romance and sexual conduct.'"  The yacht was covered by a Firemen's Insurance policy.  Peters took a woman on a "sex-filled sailing adventure" to Catalina Island.  Although he had been having sex with the woman for two months, it was the opulence of the boat and the romantic sale that, he said, finally led her to consent to mutual oral sex.

Unfortunately, the oral sex resulted in genital herpes.  She sued.  Peters claimed coverage from the insurer, citing the policy provision that covered any "claim or suit covered under this policy for bodily injury or property damage for which any insured person becomes legally liable through the ownership, maintenance or use of the insured boat."  Peters argued, naturally enough, that herpes is a bodily injury and that on-board sex was incurred in his "use" of the vessel.

A trial court dismissed the claim and the California Court of Appeals ultimately affirmed:

Applying the Kohl standard [regarding the meaning if "use" in insurance policies] to the case at bench, it is apparent that the extrinsic facts raised by appellant do not come within the "use" provision of his yacht policy.  Neither the movement of appellant's yacht nor the manner of its operation had anything to do with the transmission of the herpes virus from appellant to Susan L.  Appellant is not claiming that his yacht plunged into a wave trough, causing him to stumble and fall, mouth open, onto Susan L.'s vagina.  Rather, the yacht merely provided a situs -- along with appellant's house and Susan L.'s house -- wherein appellant executed his plan to engage in a variety of "very free sexual activities" with Susan L. This is not the type of boat "use" contemplated by appellant's yacht policy.

The insured didn't give up with a fight, though:

Appellant [hypothesizes] that the disease may have been transmitted if "he helped steady [Susan L.] on the rocky boat" or if the amorous couple hit an ocean swell causing them to fall and a herpes infection on his finger caused a herpes infection on her finger which was then somehow transferred to her vagina.  Apart from its absurdity, appellant's speculation is unsupported by the record.  There is no proof that appellant ever steadied Susan L. on the boat, and certainly not by grabbing her crotch.  Moreover, there is no proof that either appellant or Susan had open herpes lesions on their hands.  Appellant is simply fabricating outlandish theories.

[Frank Snyder]

Insurance Coverage for Construction Defects

On any given construction project, there are many different insurance policies.  There may be builder's risk insurance, surety bonds, and commercial general liability insurance.  So who's liable when the claim involves defective construction?

Trial lawyer R. Douglas Rees of Dallas's Cooper & Scully, P.C., does an excellent job of analyzing the Texas law on the various claims that might be brought (with a good many citations to out-of-state decisions) in Insurance Coverage for Construction Defects.

Today in History: The Case of the Axe-Wielding Wife

Sixty years ago today, on December 12, 1945, the North Carolina Supreme Court issued its brief decision in the quintessential "rescuer" case, Harrington v. Taylor, 225 N.C. 690, 36 S.E.2d 227 (1945).

In the case the defendant husband had assaulted his wife, who took refuge in the house of a neighbor, the plaintiff.  The next day the husband entered the neighbor's house and started to assault his wife again.  This time, the wife grabbed an axe and knocked the husband down.  She was on the point of cleaving his skull with the axe when the neighbor intervened to save his life, deflecting the blade, which mutilated her hand.  The grateful husband promised to pay the neighbor her damages, but soon (as you'd expect him to do) reneged.  The neighbor sued.

Held:  The husband's promise was gratuitous and was not supported by consideration, since the neighbor had saved his life before the promise was made, and therefore it was not bargained-for.  There was no contract and thus no obligation to pay.  (Image: Wikipedia)

[Frank Snyder]

Weekly Top Ten

Just one new paper on the list this week, Robert Abdieh's take on boilerplate, which clocks in at number ten.  Following are the top ten most-downloaded papers from the SSRN Journal of Contract and Commercial Law for the sixty days ending December 11, 2005.

1 (4) Taking Information Seriously: Misrepresentation and Nondisclosure in Contract Law and Elsewhere, Richard Craswell (Stanford).

2 (5) Contracting in the Shadow of the Law, Nicola Gennaioli (IIES-Stockholm).

3 (3) Rethinking Spyware: Questioning the Propriety of Contractual Consent to Online Surveillance, Wayne Barnes (Texas Wesleyan).

4 (2) In Memoriam, John Cibinic, Jr.. Ralph C. Nash (Geo. Washington), et al.

5 (9) One-Sided Contracts in Competitive Consumer Markets, Lucian Arye Bebchuk (Harvard) & Richard A. Posner (7th Circuit).

6 (6) From St. Ives to Cyberspace: The Modern Distortion of the Medieval 'Law Merchant,' Stephen E. Sachs (Yale).

7 (7) Hurricane Katrina's Tangled Impact on U.S. Procurement, Christopher R. Yukins (Geo. Washington).

8 (8) An Embedded Options Theory of Indefinite Contracts, George S. Geis (Alabama).

9 (10) How Law Affects Lending, Rainer F.H. Haselmann (Leipzig-Business), Katharina Pistor (Columbia) & Vikrant Vig (Columbia-Business).

10 (-) The Strategy of Boilerplate, Robert B. Ahdieh (Emory).

[Frank Snyder]

Shopping and Contract Theory

'Tis the season for . . . shopping.  The malls and the superstores are full of customers looking for that special gift at that perfect price.  What does the act of shopping tell us about contract theory?  Nate Oman has some thoughts over at Concurring Opinions, in a post called The Power of Shopping.

[Frank Snyder]

Contract Interpretation: "All Collection Costs"

Does a contract provision allowing for “all collection costs” include attorneys’ fees? No, according to a recent Illinois appellate decision.

 Pursuant to a contract, a cleaning company performed services for an apartment building. When the building did not pay for the services, the cleaning company tried to collect. Eventually, after repeated collection efforts, the building paid for the services. However, the parties went to court over attorneys’ fees. The contract, which was prepared by the cleaning company, included a provision stating, “If the undersigned fails to pay for services rendered and collection efforts become necessary, the undersigned agrees to be responsible for all collection costs incurred.” (emphasis added).

The cleaning company argued that the contract provision allowing for “all collection costs” included attorneys’ fees. On the other hand, the building argued that the contract did not specifically provide a basis for awarding attorneys' fees. The court agreed with the building, holding that, because Illinois is an “American Rule” jurisdiction, the “all collection costs” provision was not sufficiently specific to encompass attorneys’ fees.

Negro Nest, LLC, v. Mid-Northern Management, Inc. (Dec. 1, 2005 Ill. App. 4 Dist.)

[Meredith R. Miller]

Today in History: Chancellor Kent

On this date, December 12, 1847, seventy-four year-old James Kent, known to history as "Chancellor Kent," dies in New York City.  A graduate of Yale, Kent had apprenticed in a law office and then practiced commercial law in Poughkeepsie, New York.  He served briefly in the state assembly before moving to New York City in 1793, where he was appointed the first professor of law at Colubmia.  He had been highly recommended for the post by Governor (and former U.S. Chief Justice) John Jay.

He would subsequently become Chief Justice of New York and, later, Chancellor of its Court of Chancery.  His Commentaries on American Law (1826), which included a chapter on the contract for sale, marked the first American attempt to integrate contract law into a larger system of American jurisprudence.  (Image: New York Court of Appeals)

[Frank Snyder]