Thursday, March 23, 2006
Is potential business insolvency an “irreparable harm” that will justify an injunction in a breach of contract case? Yes, said the Michigan Court of Appeals in a recent 2-1 decision of first impression. Bizarrely, the next case to raise the issue will also be one of first impression, since despite the fact that there is no other Michigan authority on the issue, the court for some reason issued the opinion as “unpublished” and state rules hold that it has no precedential value. In the case, a per curiam two-judge majority held:
This Court has found no case law in Michigan that addresses whether a business’ potential insolvency is an injury that could equate with irreparable harm. Although potential insolvency is a type of economic injury, unlike straight damages for breach of a contract or loss of business, the potential insolvency and bankruptcy of plaintiff’s business cannot be necessarily and easily measured and cannot be easily compensated at law. The United States Court of Appeals for the Sixth Circuit has concluded that “impending loss or financial ruin” of a plaintiff’s business constitutes irreparable harm. Performance Unlimited, Inc. v. Questar Publishers, Inc, 52 F.3d 1373, 1382 (CA 6 1995). The court noted that loss of business is the type of irreparable harm that an injunction serves to protect against, as further litigation would becoming “meaningless or hollow” without a preservation of the status quo. Id. The court recognized that generally a preliminary injunction is not appropriate when potential harm to the movant is financial. However, the court found that “an exception exists where the potential economic loss is so great as to threaten the existence of the movant’s business.” Id. n2 If a plaintiff’s business becomes insolvent and ceases to exist, money damages cannot compensate the plaintiff and there is no adequate remedy at law. A judgment for the plaintiff would be “meaningless or hollow” if the purpose of the suit was an attempt to stay in business and while the case was pending, the plaintiff ceased to exist as a viable business. Therefore, we agree with the analysis of the Sixth Circuit in Performance Unlimited and conclude that the potential insolvency of a business could constitute irreparable harm.
In dissent, Judge Stephen Borrello argued for the traditional rule that “because plaintiff has an adequate remedy by law,” no injunction should issue. He also claimed that “the majority opinion opens a new venue for the financially disabled corporation - claim your competition could cause your company to file for bankruptcy and thereafter enjoin your competition from doing business.” That would only happen, though, if someone were permitted to cite to this opinion, but they can't.
Northern Warehousing, Inc. v. State, 2006 Mich. App. LEXIS 593 (March 7, 2006).
Where at the time of the breach the only remaining duties of performance are those of the party in breach and are for the payment of money in installments not related to one another, his breach by non-performance as to less than the whole, whether or not accompanied or followed by a repudiation, does not give rise to a claim for damages for total breach.
What this is usually thought to mean is that if both parties still have obligations to perform, a repudiation by one allows the other party to sue immediately for total breach. But if the non-breaching party has fully performed and the repudiating party's only remaining duties are to make installment payments, the breach isn't "total" and the other party can only sue after each payment, or all the payments, are missed.
Why the difference? Tom W. Bell (Chapman) raises that question and tries to work through the potential policy arguments over at his blog, Agoraphilia.
Wednesday, March 22, 2006
The artist formerly known as "the artist formerly known as Prince" has gotten into some difficulty with his landlord, NBA star and Utah Jazz forward Carlos Boozer. Boozer filed suit in January claiming that Prince violated his $70,000 a month lease of a Los Angeles mansion by "painting the exterior of the [house] with purple striping, Prince symbol and numbers 3121" and installing monogrammed purple carpeting in the master bedroom and a water system "for beauty salon chairs" in a downstairs bedroom. According to TheSmokingGun which posted a copy of Boozer's complaint, the lawsuit has been dropped for now but could be refiled. Following in the footsteps of Willy Wonka, Prince has also placed 7 presumably purple tickets in copies of his newly released "3121" CD, entitling the buyer to a private concert in his home -- but maybe not in the purple striped mansion, under the circumstances.
Another law school is already celebrating a basketball championship, though. On a three-point shot by senior Ben Hunt with 0.6 seconds left to play (left), Texas Wesleyan University beat Oklahoma City University 67-65 Monday to win the NAIA national basketball title. (Image: Texas Wesleyan University)
Okay, it has nothing to do with contracts, but Ram fans are happy anyway.
We’re all familiar with the classic, one could even say seminal, case on mistake, Sherwood v. Walker, 33 N.W. 919 (1887). There, the parties contracted for the purchase and sale of Rose the Second of Aberlone, a supposedly barren cow. After the contract was inked, Rose was discovered with calf. Turns out Rose was worth almost ten times as much as a breeder than she would have been as steak. The Michigan Supreme Court allowed the defendant-sellers to rescind.
Today I read this news story, which raises some of the same issues, but with horses. Here, it was the stallion’s reproductive capacity that was at issue:
“A German court ordered Viagra to be given to a stallion after his new owner claimed he was impotent and refused to pay the full asking price.
The buyer of the horse named Vedor paid just a tenth of the price of over $4,900, claiming it had only one testicle and failed to get frisky with a female pony.
A vet found the testicle after an examination, said Egbert Simons, a spokesman for the court in the eastern town of Neuruppin.
And when the stallion was given the potency drug, it emerged he was fully functional, he added.
The court ordered the buyer to pay the full price.”
No more bad puns (they are simply too easy with this story). But definitely a creative solution to a contractual dispute.
[Miriam Cherry / Hat-tip: Shirley Wang]
"Holder in due course" is a concept that varies a bit from legal system to legal system. In a new paper, Holder and Holder in Due Course -- A Comparative Analysis of the Bills of Exchange Act (U.K.) and the Negotiable Instruments Act (India), forthcoming in the Company Law Review, Bhupender Singh of the National Law University, Jodhpur, takes a comparative look at Indian and British rules, and suggests some changes to the former. Here's the abstract:
Present paper is based on the Comparative Analysis of the Bills of Exchange Act (U.K.) and the Negotiable Instruments Act (India). The author has tried to enumerate the various anomalies which the Negotiable Instruments Act contains and which should be removed as per the Bills of
Exchange Act. Even the Law Commission of India has said in its 11th Report that it would be better if India adopts the concept of Holder and Holder in Due Course as it exists in U.K. since any divergence from the Bills of Exchange Act would lead to various legal hazards. At the same time this paper talks about the rights and privileges of the Holder in Due Course as in the Negotiable Instruments Act and the Bills of Exchange Act.
In the case, Robert Brown owned 1,000 acres of land at Coal City Hollow. He sold some land to Larry and Martha Watson, but that parcel could be reached only be reached if there were a bridge across Coal City Creek. As part of the sale, he agreed to build a bridge. His first effort -- sinking empty fuel tanks in the creek to build a culvert -- washed away. He then agreed to have Watson build the bridge. The contract prepared by a lawyer provided that Watson would get two pieces of property, tracts 14 and 15 (five acres each), as compensation for the bridge. When Brown got the agreement, he put in an attachment that changed it to “tract 14 or 15 (his choice),” and initialed it. He hand-wrote on the first page of the contract, “see attached agreement,” but the other parties who signed the agreement said that this notice was not on the contract they signed, nor was there any attachment. The bridge was built, disputes arose, and Brown did not convey the property. Watson sued for specific performance and got a jury verdict granting him both tracts.
On appeal, Brown argued that there was no writing signed by him to transfer both tracts, and thus that the SOF barred the claim. He also argued that parol evidence of the two tracts could not be introduced to counter the single tract specified in the written contract. The first one was easy: the court noted that part performance is an exception to the SOF, and thus Watson’s construction of the bridge opened the door to enforcement even if there were no writing.
The second one was harder, although the court gave it short shrift. Since the contract was a land conveyance prepared by a lawyer and signed by all the parties, and it included the addendum, the court could only get around the one-tract limit by listening to parol evidence that the addendum hadn’t been there when the other parties signed. Having heard that parol evidence, the court used it to find that the contract was ambiguous. With ambiguity in hand, the court could proceed to listen to parol evidence about the original oral agreement.
Investment Properties Co. v. Watson, 2006 Ga. App. LEXIS 255 (March 7, 2006)
Is a "designer baby" -- a child whose genes have been deliberately modified to meet parents' specifications -- a good or a service for purposes of Article 2? That's an interesting question -- the child might be "specially manufactured goods" under 2-105(1) -- but we expect it won't be one of those addressed at Designer Babies, a symposium scheduled for March 30 at the University of Pittsburgh. Panelists appear to be focusing on less compelling topics, like the medical, ethical, and moral issues involved in the business. Still, it sounds interesting.
Faculty from some 30 schools will be gathering in Waco next week for the Sixth Annual Conference of Religiously Affiliated Law Schools. The theme is Justice Through the Lens of Faith , and it will be hosted by Baylor Law School. Information on the event is here.
Tuesday, March 21, 2006
After a week off the chart, Peter Alces' Moral Impossibility of Contract bounces back, along with new papers by Henry Smith and Richard Bales. Following are the ten most-downloaded recent articles from the SSRN Journal of Contract and Commercial Law for the 60 days ending March 19, 2006.
1 (1) A Model Regime of Privacy Protection (Version 3.0), Daniel J. Solove (Geo. Washington) & Chris Jay Hoofnagle (EPIC).
2 (3) Emerging Policy and Practice Issues (2005), Steven L. Schooner & Christopher R. Yukins (Geo. Washington).
3 (4) Contract as Statute, Stephen J. Choi (NYU) & G. Mitu Gulati (Georgetown).
4 (7) Legal Infrastructure, Judicial Independence, and Economic Development, Daniel Klerman (Southern Cal).
5 (8) Bundling and Consumer Misperception, Oren Bar-Gill (NYU).
6 (10) The Best Puffery Article Ever, David A. Hoffman (Temple).
7 (10) Reading Wood v. Lucy, Lady Duff-Gordon with Help from the Kewpie Dolls, Victor P. Goldberg (Columbia).
8 (-) The Moral Impossibility of Contract, Peter A. Alces (Wm. & Mary).
9-tie (-) Contract Formation Issues in Employment Arbitration, Richard A. Bales (Northern Kentucky).
9-tie (-) Modularity in Contracts: Boilerplate and Information Flow, Henry E. Smith (Yale).
University of Chicago economist Fernando Alvarez has a new paper looking at the growing use of fixed term employment contracts as a way of dealing with high employment-protection legal regimes. It's called Fixed Term Employment Contracts in an Equilibrium Search Model. Here's the abstract:
Fixed term employment contracts have been introduced in a number of European countries as a way to provide flexibility to economies with high employment protection levels. We introduce these contracts into the equilibrium search model in Alvarez and Veracierto (1999), a version of the Lucas and Prescott island model, adapted to have undirected search and variable labor force participation. We model a contract of length J as a tax on separations of workers with tenure higher than J. We show a version of the welfare theorems, and characterize the efficient allocations. This requires solving a control problem, whose solution is characterized by two dimensional inaction sets. For J = 1 these contracts are equivalent to the case of firing taxes, and for large J they are equivalent to the laissez-faire case. In a calibrated version of the model, we evaluate to what extent contract lengths similar to those observed in Europe, close the gap between these two extremes.
Speaking of the AALS, warm if belated congratulations to the law schools at Chapman University (left) and Roger Williams University (right), who have become the latest schools admitted to the Official Learned Society of Legal Education.
Both schools joined the organization after relatively brief histories. Chapman admitted its first class in 1995 and got full ABA accreditation only in 2002. Roger Williams isn't much older, having admitted its first class in 1993 and earned full accreditation in 1997. The AALS resolution specifically notes the strong faculties each of the schools has managed to build. Kudos to all.
In case anyone still thinks law schools in general suffer from a "trade school mentality," it's worth noting that our beloved Mother Ship, the Association of American Law Schools, is focusing its annual meeting on scholarship for the fourth consecutive year. In 2003 it was Scholarship; in 2004 it was Engaged Scholarship; in 2005 it was Empirical Scholarship; and this year it's going to be Expansion of Knowledge and Serving Our Communities.
New prez Judith Areen (Georgetown), writing in the new issue of aalsnews, also wants to juice up the meeting by having more sections do panels featuring new peer-reviewed scholarship, which she hopes will open the meetings to wider participation as well as make the panels more interesting.
Insurance is meant to manage risk, and hedge against potential loss. We here in the U.S. are quite familiar with the concept: auto insurance, renter’s or homeowner’s insurance, life insurance. But what about buying a terrorism policy? According to the NY Times, in Iraq -- presently a very violent place -- the Iraq Insurance Company is offering terrorism insurance. The state-run company has reportedly sold 200 policies, in what the NY Times describes as a “bloom[ing] business.”
Terrorism insurance looks like an ordinary life insurance policy, but with a one-page rider adding coverage for:
the following dangers: 1) explosions caused by weapons of war and car bombs; 2) assassinations; 3) terrorist attacks.
The article explains:
That guarantee appears to be the first off-the-shelf terrorism policy in the world, insurance experts say. In most countries, of course, there is no need for it: death by terrorism is rare enough that it is usually covered by ordinary accident insurance. In Iraq it is not, partly because the state used to compensate the families of war victims directly. So the Iraq Insurance Company began stepping into the gap about a year ago.
The N.Y. Times mentions 23-year-old Muhammed Said, who works part-time as bodyguard for his father, a city councilman. Said bought a terrorism policy after two assassination attempts. The policy cost him 125,000 dinars (about $90) and the payout, if he dies, is five million dinars (around $3,500). But, according to some U.S. insurance experts:
the policy [is] a novel one, but . . . they would hardly call it a good deal. "In an American context, it's very overpriced," said Robert Hunter, the director of insurance for the Consumer Federation of America, an association of consumer rights groups. "In America, you could probably get $100,000 worth of life insurance coverage for maybe $125 to $150," especially a healthy 23-year-old, he said. "And that would cover you no matter how you died."
But, according to an executive for the Iraq Insurance Company: “The contract is a good luck charm.” And, indeed, that psychological benefit alone is likely priceless in a state where the risk of explosions, assassinations and attacks is comparatively very great.
[Meredith R. Miller]
Monday, March 20, 2006
So I’ve been doing some travel to conferences recently – first to the spectacular, extraordinary, fabulous first annual International Contracts Conference, and then to Law & Humanities. On one of these trips, my luggage was lost for about seven hours.
I’m sad to report that I’m not alone in having had this happen. A recent study has shown that thirty million bags (some of them conceivably alligator, see message directly below) go missing every year. But, as a consumer, you do have some recourse if your bag goes astray:
“On domestic flights, the airline baggage liability is capped at $2,800 per person. For international flights, the limit is $9.07 per pound (or $20 per kilogram) for checked baggage, and $400 per person for carry-ons. You may need to produce receipts. If you have them, include copies in any documentation you send to the airline. You can purchase "excess valuation" protection if your checked baggage is worth more than these limits.”
Although I never visited it, there is a store that sells the items from lost bags in Scottsboro, Alabama. There is also now a website where you can purchase various items. Just two words for you: Carry On.
This weekend's print Wall Street Journal (in its "Pursuits" section) had an interesting article on the use of alligator skin in handbags and designer purses. Apparently, no one knows exactly what the effects of Hurricane Katrina will be on the future supply:
"Big-name designers are jockeying to lock up supplies. The swamps of Louisiana provide an estimated 85% of the world's gator skins. Though the harvest was close to normal last fall, state wildlife officials say salt water floods damaged foliage that alligators use to build nests.
Fewer nests could translate to fewer gators laying eggs this summer. That could reduce the harvest in future years - making it tougher for handbag makers to bag the skins they need...
Now Ralph Lauren is exploring longer-term contracts to ensure access to the skins it needs. Speculators have bought up extra hides, which local farmers say has pushed prices up. Other designers are monitoring the market and even switching to crocodile."
Perhaps someone could harvest the alligators that roam the sewers of New York City? ;)
Got to catch up this weekend at the Law & Society conference with ContractsProf's own Frank Snyder. This year the conference was in Syracuse (it snowed!) and while the turnout was somewhat lower than the year before (in Texas) I had the opportunity to see some great panels. I was presenting on marriage and divorce in Edith Wharton's fiction, and we had some interesting discussion about the marriage contract in her novel Summer considered as void, or as voidable. Meanwhile, Frank was chairing a panel on the Law and Harry Potter. And a good time was had by all!
Thursday, March 16, 2006
According to CNN.com, Chelsea High School in Chelsea, MA, is paying students for their classroom attendance. Perfect attendance in a quarter leads to a $25 reward, with a $25 bonus for perfect attendance all year long. All told, perfect attendance for the full four years nets a student $500.
The news report also featured other schools, which were raffling off cars, scholarships, and even cash prizes for students with perfect attendance.
I questioned where public schools – already strapped for money – would come up with these extra funds. Perhaps foundations or local businesses are throwing some money that way to encourage student attendance. My own experiences as an educator provide at least anecdotal evidence that the students that come to class generally tend to do much better than the chronic absentees.
But would the occasional grant really provide all this largesse? I think there’s a missing piece of the incentive story that the CNN clip doesn’t discuss. At the large Miami public high school I attended, I know that they received a set amount of funds from the state for each student that was there every day. A large number of absentees reduced the funds received. Now, back in the day, teachers and administrators relied on moral suasion and exhortation. I suppose today we have incentives and attendance contracts.
I’m not sure what I think of it. One the one hand, it would encourage high school students to come to class, and therefore to learn. It might also reduce drop out rates. And it might encourage students to think of school kind of like a job – important from a financial perspective. On the other hand, it’s rather demeaning of the education provided, which is valuable in and of itself; and perhaps it stresses attendance over all else (who wants someone in school who has a contagious flu?)
[Miriam A. Cherry]
Have you ever noticed how Con Law and Litigation types sometimes think you really can get something for nothing? Business law folks know better.
This blog, for example, exists without any financial support from the AALS Section on Contracts, which is a good thing, since the entire Section budget -- the pittance we get from our beloved Mother Ship -- wouldn't keep David Snyder and me in alcoholic beverages for a month. And most of that the Section has to spend renting A/V equipment for the Annual Program, anyway.
Lexis/Nexis has been a generous sponsor. All the money we've received (and will receive) goes to pay for this blog and to support the International Contracts Conference series. It's now time for the Blog Network's sponsorship contract renewal, and you all know what that means. If we want more money for better programs, WE NEED TO CONVINCE SPONSORS THAT THEY SHOULD GIVE US LOTS MORE MONEY!
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One of the important purposes of commemorating an agreement in writing is to avoid potential lawsuits by clearly defining the rights and obligations of the parties. Thus, a delicately crafted contract is priceless in the sense that it has the ability to prevent costly litigation. This recognition, however, has created somewhat of a paradox. In an attempt to account for every conceivable possibility and to encompass and include every contingency, contracts often become increasingly complex and convoluted. The paradox then, is that contracts, originally designed to prevent lawsuits, are increasingly becoming the source of litigation. This paradox is aptly demonstrated by this controversy arising out of an alleged violation of a covenant not to compete contained in an employment agreement executed between the parties. As this court once again attempts to describe and interpret the intricate and complex nuances of this lawsuit . . . the pricelessness of a precisely drafted, yet simplistic, contract becomes rapidly apparent.
Here is the factual context for the "paradox": an employee works as a veterinarian for a company that provides embryo transfer services for cattle producers. The employee (who also happens to be a shareholder in the company) has an employment agreement with the company containing, among other things, a non-compete clause. The agreement also has a clause requiring prior written consent before the agreement may be assigned by either party.
[Click on "continue reading" for the rest of the story . . . .]