ContractsProf Blog

Editor: Myanna Dellinger
University of South Dakota School of Law

Wednesday, June 28, 2006

Revised Article 1 Update

Governor Kathleen Babineaux Blanco signed Act 533 on June 22, making Louisiana the 20th state to have enacted a version of Revised Article 1 (and 22nd to have enacted Revised Article 7).  Like the versions of Revised Article 1 enacted earlier this year in Arizona, Colorado, Kentucky, New Hampshire, and West Virginia, Louisiana Act 533 rejects uniform R1-301 in favor of choice-of-law language tracking pre-revised 1-105.  Like the Colorado, Kentucky, New Hampshire, and West Virginia enactments, Louisiana Act 533 adopts R1-201(b)(20)'s uniform "good faith" definition.  (Arizona's enactment retains the bifurcated good faith standard of pre-revised 1-201(19) and 2-103(1)(b).)

Three other bills remain active -- all of which (in their present forms) adopt uniform R1-201(b)(20) and reject uniform R1-301.

California SB 1481 has passed the Senate and received the unanimous support of the Assembly Judiciary Committee. However, the version of the bill coming out of the Assembly Judiciary Committee is not the same one the Senate passed earlier this month. So, it appears there will be some work to be done even if the Assembly follows the committee's recommendation.

Massachusetts HB 3731, introduced more than a year ago, continues to creep its way through the legislative process. The bill was referred to the Joint Committee on Economic Development and Emerging Technologies, which held a public hearing on October 26, 2005. On March 23, 2006, the Massachusetts House extended the committee’s deadline to report on the bill to June 23, 2006. No further action has been reported as of June 30, 2006.

The North Carolina Senate passed SB 1555 on June 7. The bill is presently before the House Judiciary Committee.

An interesting feature of the current version of California SB 1481 is the addition of a new section to the California Civil Code that would, in essence, create a new statute of frauds to replace the one in pre-revised 1-206 that Revised Article 1 eliminates.

[Keith A. Rowley]

June 28, 2006 in Legislation | Permalink | TrackBack (0)

Monday, June 26, 2006

Those Pesky Termites Aren't Just in Casebooks

399pxformosan_subterranean_termites_1 Here is a Q&A about termites from the Washington Post's "Housing Counsel" column. The response is written by Washington lawyer Benny L. Kass.  It might ring home for some contract profs and students:

Q: Three weeks ago, I signed a contract to buy a single-family house. I had the house inspected, and the inspector advised me to get a termite inspection. The termite company determined that although there were no active termites in the house, there was a lot of damage in the attic and in the basement.

When I discussed these issues with the sellers, they told me that the damage was in the house when they bought it and that they were not going to do anything about it now.

I don't think this is fair, and I don't want to have to  spend a lot of money correcting this damage. What should I do?

A:  How much will it cost to repair the damage? The first thing you should do is get two estimates from licensed contractors. Do not rely on the estimate provided by the termite company, because generally these companies are not in the business of making repairs.

Then, you should read two documents: the seller disclosure statement and your sales contract.

Your sellers clearly knew about the termite damage when they entered into the sales contract. Was this disclosed to you? In some jurisdictions, sellers can disclose conditions in the property or tell you that they are not going to disclose and that you are on your own regarding the house. This latter position is called a "disclaimer," although states still require certain things to be disclosed, such a latent defects.

If your sellers did not disclaim disclosure, then you have the absolute right to insist that they correct the termite damage or give you a cash credit for the amount of the repairs when you go to settlement.

Your sales contract may also help you. If you were using the Regional Sales Contract that is commonly used in the Washington area, look at paragraph 13, titled "Termite Inspection." This paragraph states that "any . . . structural repairs identified in the inspection report will be at seller's expense."

Now you have to determine if the damage that your termite inspector found was "structural." That is why it is important to have a licensed contractor give you an estimate before you approach the seller. Furthermore, if the damage is extensive and will cost a lot of money to repair, you may have to bring in a structural engineer to assist you in this determination.

You have indicated that settlement is scheduled for the end of this month. Clearly, you do not have a lot of time to do your homework. I suggest that you approach the sellers with these alternative proposals:

They can give you a cash credit at settlement in an amount that you negotiate.

You can postpone the settlement for a reasonable time so that the sellers and you can get all the information needed to make intelligent and informed decisions as to the scope of the damage.

You can go to settlement and have the sellers escrow a sum of money from the sale proceeds. The amount should be based on the estimates that you obtained. The settlement attorney will be instructed to pay the contractor when the work has been completed to your satisfaction, and any balance remaining will be returned to the sellers.

What if the sellers remain obstinate and refuse to accept any of these proposals? You then have a business decision to make. If you go to closing without resolving the issues, in most cases you will not lose your right to challenge the seller afterward. Look at paragraph 34 of the Regional Sales Contract, titled "Entire Agreement." This is known in the law as a "non-merger" clause. It says, "The provisions of this contract will survive delivery of the deed and will not be merged therein."

The general rule of law used to be that if you accepted the deed from the seller, you lost all your rights against the seller, even if there was a clear breach of the contract on the part of the seller. But the courts have decided that this is unfair, and many states have abolished this concept. The Regional Sales Contract reinforces this by making it clear that contract obligations and promises will not be lost just because settlement takes place.

As a practical matter, however, after settlement, you have lost your leverage. You will have to sue your sellers, which is time-consuming, potentially expensive and always uncertain.

In fact, your sellers may have moved to the other side of the country, if not to some other part of the world. Even if you win in court, collection could be difficult, so before you go to settlement, make your best effort to reach an amicable resolution.

[Meredith R. Miller]

June 26, 2006 in In the News | Permalink | TrackBack (0)

Sunday, June 25, 2006

But How Much are the Rolaids?

800pxpatscheesesteak Co-blogger Miriam Cherry describes a $100 burger, available in Boca Raton, Florida.  But Boca should instead laud those ubiquitous meatless patties -- Boca Burgers -- as a regional claim to fame.  Why?  Because Philly's own restaurateur Stephen Starr has Boca beat with a kobe cheesesteak, available for $100 at Barclay Prime.  A description of the haute cheesesteak:

Served with a small bottle of champagne, Barclay Prime's cheesesteak is made of sliced Kobe beef, melted Taleggio cheese, shaved truffles, sauteed foie gras, caramelized onions and heirloom shaved tomatoes on a homemade brioche roll brushed with truffle butter and squirted with homemade mustard.

The Wharton Journal described the $100 cheesesteak as a "clever marketing ploy" and explained that it might actually be a value compared to other items on the menu:

though it costs $100 (the rest of the menu entrees average around $36-$48), the cheesesteak is big enough to serve two people and comes with a small bottle of champagne (which would be about $18 if ordered by the glass). By my back of the napkin calculation, the cheesesteak actually cost about $32 per person, well in line with the cost of the other entrées.

So - it doesn't sound like the kobe cheeseteak comes with fries, but it does come with champagne.

[Meredith R. Miller]

June 25, 2006 in Miscellaneous | Permalink | TrackBack (0)

Thursday, June 22, 2006

But How Much Are the Fries?

For the cheap price of only $100, you can get... One, that's one (1), hamburger.  But it's not just ordinary beef.  This story describes the pricey burger in more detail:

The burger debuted Tuesday at the restaurant in the Boca Raton Resort and Club, where a membership costs $40,000 and an additional $3,600 a year.

"We've never had a hamburger on our menu here so we really wanted to go to the extreme," Sherry said, calling it "the most decadent burger in the world."

At about 5 1/2 inches across and 2 1/2 inches thick, the mound of meat is comprised of beef from three continents — American prime beef, Japanese Kobe and Argentine cattle.

The bill for one burger, with garnishing that includes organic greens, exotic mushrooms and tomatoes, comes out to $124.50 with tax and an 18 percent tip included. The restaurant will donate $10 from each sale to the Make-A-Wish Foundation.

And I thought Manhattan was overpriced! 

[Miriam Cherry]

June 22, 2006 in In the News | Permalink | TrackBack (0)

Would you STAY or would you GO?

Today is the eve of the looming deadline for thousands of General Motors workers to decide if they are going to be part of one of the biggest employee buyout programs in corporate history.  The offer in an oversimplified nutshell:

All hourly GM workers are eligible for some form of incentive, whether it's a $35,000 retirement bonus or a $140,000 lump-sum buyout. Retirees would get to retain their health care plans, but those who take the buyout would relinquish their pension and health care plans.

Workers must notify GM of their decisions by Friday.

The decision has many GM workers torn -- interesting descriptions of the risks and rewards being weighed by the workers faced with this decision (and they are both financial and psychological) are here and here.  (Ironically (or not so ironically), today's news reports that GM's "turnaround" has lead to a good Q2). 

So, if you were a long-time GM employee eligible for the $140,000 lump sum payout, would you stay or would you go?  It is estimated that 20,000 employees will accept the offer.

[Meredith R. Miller]

June 22, 2006 in Labor Contracts | Permalink | TrackBack (0)

Monday, June 19, 2006

Twin Cities GLBT Group Sues Newspaper

The Twin Cities Business Journal reports on this "discrimination and breach of contract" lawsuit arising out of the annual Twin Cities Pride event:

The organizer of the Twin Cities Pride Celebration is suing the Star Tribune after the newspaper refused to run advertisements to promote an annual GLBT festival, which showed two men kissing.

GLBT Pride Twin Cities accuses the Star Tribune of discrimination and breach of contract in a lawsuit filed in Hennepin County. The group is an all-volunteer nonprofit organization that plans the annual Twin Cities Pride event, which will be held this Saturday and Sunday. Last year 310,000 people attended the event.

The Star Tribune said it chose not to run the Pride advertisements in adhering to a policy on community standards

The GLBT group said the newspaper used different standards because it has printed images of heterosexual couples kissing.

The lawsuit also said the newspaper breached its contract and failed to publish any of its ads, including one that didn't show same-sex couples kissing.

[Meredith R. Miller]

June 19, 2006 in In the News | Permalink | TrackBack (0)

Sunday, June 18, 2006

Sold: Odd Job's Hat

Isn't it funny how the villians in James Bond movies always capture Bond, incapacitate him, and then, instead of killing him straight off, tell him all the details of their wicked plans, meanwhile giving Bond enough time either to be rescued or to escape from their clutches?  The Austin Powers movies ridicule this cliched plot device repeatedly (to great comic effect).

A propos of this phenomenon (sort of), the AP has news of this interesting auction.  Apparently Bond villian Odd Job's hat fetched over $33,000.

[Miriam Cherry]

June 18, 2006 | Permalink | TrackBack (0)

Thursday, June 15, 2006

Don't Ask Me No [Certified] Questions...

A previous post mentioned King v. Fox, which involved claims by a member of the band Lynyrd Skynyrd against his attorney.  In that case, the Second Circuit certified to the New York Court of Appeals three questions concerning ratification of an attorney's fee agreement. 

(1) Is it possible for a client to ratify an attorney’s fee agreement during a period of continuous representation?

(2) Is it possible for a client to ratify an attorney’s fee agreement during a period of continuous representation if attorney misconduct has occurred during that period? If so, can ratification occur before the attorney has committed the misconduct?

(3) Is it possible for a client to ratify an unconscionable attorney’s fee agreement?

In this recent decision, the New York court answered all three questions "yes, but with significant qualifications."  The decision reads well and the reasoning appears sound, but reference to Lynyrd Skynyrd's Don't Ask Me No Questions would have made it a hit.

[Meredith R. Miller]

June 15, 2006 in Recent Cases | Permalink | TrackBack (0)

Wednesday, June 14, 2006

The Legality of Oral Promises by NBA GMs to Potential NBA Draft Picks

Bb2There's an interesting post on the Sports Law Blog about the apparently standard practice of a team's General Manager promising a draft-eligible player that if he is still on the board when the team selects, the team will draft him.  Jeff Clark of Celtics Blog raised these questions about the practice:

What kind of agreement is in place here? Is it considered an oral contract? What are the ramifications of backing out? I believe the Celtics asked Orien Greene if they could back out of their promise last year when they saw that Amir Johnson was still on the board.

Sports Law Blogger Michael McCann adds the following:

And let's try this hypo: Celtics GM Danny Ainge promises point guard Marcus Williams that if he is still on the board at #7 (when the Celtics pick), Ainge will take him. But on draft night, something strange happens: power forward LaMarcus Aldridge--who, as I note above, is projected by most draft experts to be a top three pick--is still on the board at #7. And Ainge decides to take Aldridge instead.

Can Marcus Williams successfully sue Danny Ainge and the Celtics for breach of contract or detrimental reliance? The answer is probably "no" but not without some decent arguments by Williams.

To check out more of the discussion, go here.

[Carol Chomsky]

June 14, 2006 in In the News | Permalink | TrackBack (0)

Monday, June 12, 2006

Debunking "Tested" Language

Kenneth_adams Contract lawyer and adjunct Penn law professor Ken Adams has a great post over at his AdamsDrafting blog on the fondness for "tested" contract language, in preference to drafting new, explicit language.  He does a nice job of filleting the argument for such "tested" phraseology in a lot of cases.

Just to pile on, there are two other potential problems: (a) the likelihood that a court will later change its mind about what that language means when it surveys the landscape again after a few years, and (b) the likelihood that a court will let in parol evidence (see the previous post!) to show that these two particular parties really, really meant something different than what other people meant when they used the same language.  That latter risk is much more formidable if the parties have used a piece of complex off-the-shelf boilerplate that if they wrote their own explicit language.

Adams, incidentally, is the author of a popular book on the subject, called A Manual of Style for Contract Drafting.

[Frank Snyder]

June 12, 2006 in Commentary | Permalink | TrackBack (0)

Life Without Parol Evidence: A Utopia?

by Hila Keren (Hebrew-Jerusalem)

Sometimes comparative law allows us to play the "what if" game without taking risks. A recent decision of an enlarged panel of the Israeli Supreme Court may have such an effect; so forget about Anglo-American law for a second and make room for lived experience from afar.

Until a decade ago the Israeli contract law had a norm of interpretation very similar to the American parol evidence rule. Then a revolution took place: in a landmark case called Apropim the Israeli court decided to release itself from firm constrains and to allow the use of any source of information -- be it written or oral, pre-contractual or post-contractual -- in order to learn as much as possible about the shared intentions of the parties to a written contract. As any other revolution this one too raised objections and fears.

Lawyers, for example, were said to have pulled their hair with frustration, because they felt that they could no longer ensure their clients that the contracts they draft for them will be interpreted in a way that follows their texts. After all, it has been said, who knows which wild conclusions the courts may arrive at under this new, flexible, open-ended regime of interpretation. By and large Apropim was taken by scholars as bringing new levels of uncertainty to the domain of contractual interpretation. Some judges were suspicious too. One of them, the powerful Supreme Court Judge Heshin, was worried enough to decide, long after Apropim had become the rule of law, that it calls for re-consideration. Using a special procedure of juridical re-examination which is saved for matters of the highest importance, J. Heshin asked his peers to retrospectively assess whether the intentions-based approach established by Apropim (i.e. no parol evidence rule) was an appropriate dismissal of an unhelpful formality or a precarious mistake of the sort which was anticipated by its opponents.

The much-awaited decision in the case of Megadlei Ha'yerakot was announced only a few weeks ago. It is a collage of nine judicial opinions that, albeit being written from diverse perspectives, all embrace Apropim and admit the value of deserting the former rigid rules of interpretation. J. Proccacia beautifully captured this value when she wrote (unofficial translation from Hebrew):

[The Apropim decision] gently makes a way into the depth of the human dynamics and in a nuanced manner gives the written text its appropriate specific gravity under the circumstances that surrounded the parties' contractual engagement. It creates a harmonious tie between words, written or spoken, on the one hand, and the parties' behavior and the external conditions, on the other hand.

Even skeptical J. Heshin, who wrote an elaborate critique of the possible misuses and abuses of Apropim (which he compares to the risk of a Tsunami), acknowledged the basic logic of Apropim: forsaking the traditional model of interpretation in favor of a more flexible search of the contract's meaning.

For those of us who look critically at the Parol Evidence Rule (as I do in a recent paper), this new development has more than a comparative power, it may also be empowering.

June 12, 2006 in Recent Cases | Permalink | TrackBack (0)

Sunday, June 11, 2006

Sex, Truculence, and Alpacas

The June 2006 issue of the ABA Journal devotes a column in its "Obiter Dicta" section to a pending case in Indiana in which the owner (Cathy Crosson) of a registered female alpaca (Peruvian Lily) is suing the owner (Larry Johnson) of a registered male alpaca (Snowmass Casanova) for breach of contract over an alleged date-and-switch.  Crosson claims that Johnson substituted another male alpaca for Snowmass Casanova and that Johnson refuses to disclose the identity of Casanova's stand-in, preventing Crosson from registering the baby.  How does Crosson know that the baby is not Casanova's offspring, you might ask?  She alleges that a blood test has ruled out Casanova as the sire.  The ABA Journal reports that Crosson, who complains that Johnson "is merely being truculent," is seeking specific performance.  (I wonder whether anyone has asked Peruvian Lily how she feels about it.)  Unfortunately, the ABA Journal in not readily available online.  Here's a link to a somewhat shorter story about the affair.

[Keith Rowley]

June 11, 2006 in Recent Cases | Permalink | TrackBack (0)

Saturday, June 10, 2006

Post on Contracting in China

Deborah Post (Touro) sent this intriguing message to the AALS contracts listserve, describing some aspects of contracting in China:

Everybody expects to bargain in China.  At the Great Wall, vendors yell at passing tourists, "tee shirts $1."  But, of course, there are no tee shirts for one dollar.  There are tablecloths, kimonos, place mats, chop sticks, fans, sculptures, bamboo hats, tea pots and all other manner of things tourist for sale.  There are tourists willing to buy, thrilled with the prospect of a real bargain and girded for the contest of wills that bargaining represents. 

Tourists buy souvenirs after they have climbed the Great Wall. Vendors outside the exit from the tram and the base of the steps leading up to the Wall have the advantage of location because the purchase of souvenirs is not an exercise in comparison shopping. The best price is obtained by those with the best skills and the greatest speed.  How low can you go with an offer and get the item you want and still make it back to the bus within the allotted time.

Continue reading

June 10, 2006 in True Contracts | Permalink | TrackBack (0)

Friday, June 9, 2006

Goals at the World Cup: Contracts?

SoccerballThe soccer World Cup begins today and, unlike other tournaments denominated "world championships" (e.g., the "World Series" of American baseball), the World Cup really does have a global sampling of teams, and soccer may even explain the world

For players on the U.S. team, the financial stakes of a stellar performance in Germany are "sky-high."  Soccer still isn't as popular in the U.S., and players in America's fledgling Major League Soccer average $90,000 a year.  Compare that to the average yearly salary in England's Premiership: $1.25 million — excluding "incentive-laden performance bonuses."  Even in the English second division, the average salary is about $375,000 a year.  With scouts watching in the stands at the World Cup, a good game in Germany can lead to a lucrative contract with a second-division English club or a club in Holland, France or Belgium which would "triple the player's base salary overnight."

The pay disparity seems simply explained by the dramatic difference in the popularity of professional soccer among the countries.  Perhaps in that connection, it is also explained by "the economics underlying the U.S. and European leagues":

When it comes to soccer, Europe is the quintessence of free-wheeling capitalism, with billionaire owners like Chelsea's Roman Abramovich bidding up the salaries of top players. The U.S. league is anythi ng but extravagant. After many years of rocky financial results for U.S. soccer, the MLS was set up with tight controls over the teams.

It's the league — not the teams — that negotiate salaries with players, and a salary cap for each team is strictly enforced. The goal is to have a balance of talent so no one team can dominate. The result is that just 22 players out of the 336 active players make more than $200,000. On most teams, there are one or two stars who are highly paid and many who make modest, journeymen salaries. Each team has four or so development players who earn $11,000 a year.

So, if you turn on the tube (or your computer, thanks to the BBC) and take in some of the World Cup fever, don't forget that the players' goals may not simply be matter of wining the games, but lucrative contracts as well.

[Meredith R. Miller]

June 9, 2006 in In the News | Permalink | TrackBack (0)

Wednesday, June 7, 2006

It's a Small, Small World

New_york_flag_10 If you're a business negotiating a contract with someone in New York, keep in mind that if you use the telephone, e-mail, or instant messaging with them -- even in reply -- you're "projecting yourself" into New York and thus subjecting yourself to personal jurisdiction in the Empire State.  The New York Law Journal summarizes a recent decision to that effect by the New York Court of Appeals.  In the case, a Montana state agency that replied to an unsolicited e-mail by a New York bank offering to swap bonds found itself subject to jurisdiction in New York, despite a Montana statute providing for exclusive jurisdictions in Big Sky courts.

[Frank Snyder]

June 7, 2006 in Commentary, Recent Cases | Permalink | TrackBack (0)

Weekly Top 10

Ssrn_logo_61 Two new entries and a new number one this week.  Following are the top ten most-downloaded new papers from the SSRN Journal of Contract and Commercial Law for the 60 days ending June 4, 2006.   (Last week's rank in parentheses.)

1 (2) Corporation and Contract, Henry Hansmann (Yale).

2 (3) Explaining the Value of Transactional Lawyering, Steven L. Schwarcz (Duke).

3 (10) Private Order and Public Justice: Kant and Rawls, Arthur Ripstein (Toronto).

4 (4) Formalism in American Contract Law: Classical and Contemporary, Mark L. Movsesian (Hofstra)

5 (6) Managing Risk on a $25 Million Bet: Venture Capital, Agency Costs, and the False Dichotomy of the Corporation, Robert P. Bartlett (Georgia).

6 (7) Where do You Get Off? A Reply to Courting Failure's Critics, Lynn M. LoPucki (UCLA).

7 (8) The UNCITRAL Electronic Contracts Convention: Will it be Used or Avoided? , Charles H. Martin (UDC).

8 (9) Post-Katrina Reconstruction Liability: Exposing the Inferior Risk-Bearer, Steven L. Schooner & Erin Siuda (Geo. Washington).

9 (-) Bond Covenants and Creditor Protection: Economics and Law, Theory and Practice, Substance and Process, William W. Bratton (Georgetown).

10 (-) Emotional Paternalism, Jeremy A. Blumenthal (Syracuse).

[Frank Snyder]

June 7, 2006 in Recent Scholarship | Permalink | TrackBack (0)

Tuesday, June 6, 2006

Heartbreak Hotel for Geller on Ebay

Apparently, Uri Geller (of "spoon bending magic" fame) had the winning Ebay bid of roughly $905,100 on a house formerly belonging to Elvis (before he moved into Graceland).  However, the seller sold the house to a foundation instead of Geller.  The foundation plans to create a museum out of the house. 

Geller's reaction: "We are absolutely, mind-blown angry.  Of course we're going to sue." 

However, news reports warn that "
the rules of auction website eBay may make it hard for Uri Geller and his business partners, lawyer Pete Gleason and jewellery-maker Lisbeth Silvandersson, to pursue a breach of contract claim."  An Ebay spokewoman stated that "[t]he platform we provide in real estate really serves to generate interest [and] [i]t isn't a legally binding contract."

[Meredith R. Miller]

June 6, 2006 in In the News | Permalink | TrackBack (0)

Defensive Line for Ekuban: Statute of Frauds

The Fifth Circuit recently affirmed a bankruptcy court determination that a series of 36 identical loan guaranty agreements did not satisfy theTexas statute of frauds and, therefore, were not enforceable against the guarantor. 

Ebenezer Ekuban is a professional football player (defensive end for Denver Broncos).  In August 2000, he decided to purchase a block of thirty-six condominiums in Pasadena, Texas. Ekuban secured financing. The transaction was structured as thirty-six separate purchases. On August 14, 2000, in Ekuban’s capacity as president of EBCO (the holding company for his investments), he executed thirty-six sets of promissory notes and related closing documents.  At a separate time, Ekuban received and executed thirty-six identical guaranty agreements, which stated:

Guaranty Agreement

FOR VALUE RECEIVED, I, EBENEZER EKUBAN, individually, do hereby guarantee payment of the hereinabove described note, according to the terms thereof, both as to interest and as to principal, and I do hereby waive demand, all notices including notice of intention to accelerate the maturity, notice of non-payment, presentment for payment, protest, notice of protest, suit, diligence and any notice of or defense on account of the extension of the time of payments or change in methods of payments and consent to any and all renewals and extensions in the time of payment hereof.

The guaranty agreements did not refer to a specific loan or account number that would associate the guaranty with the Pasadena transaction.

The condominiums turned out the be a bad investment, and EBCO defaulted on its loans in the spring of 2002. Ekuban did not honor the alleged guaranty, and both EBCO and he filed for Chapter 7 bankruptcy protection.  The lender filed a timely Proof of Claim for the money loaned in the amount of $1,641,000. Ekuban moved for summary judgment, on the ground, among other things, that the guaranty documents were unenforceable pursuant to the Texas statute of frauds. The bankruptcy court granted Ekuban’s motion for summary judgment, which both the District Court and the Fifth Circuit affirmed.  The Fifth Circuit held:

The guaranty agreements in the instant case cannot satisfy the statute of frauds because they lack the “essential elements” of a guaranty. The essential terms of a guaranty agreement are “(1) the parties involved, (2) a manifestation of intent to guaranty the obligation, and (3) a description of the obligation being guaranteed .” * * * While these guaranty agreements manifest Ekuban's intention to guarantee an obligation, they are in every other aspect deficient. Save Ekuban himself, the guaranties do not identify the parties involved in the transaction or their roles. Nor do the agreements provide a description of the note to be guaranteed or such basic information as dates and the amount of the loan. 

The court rejected the lender’s argument that the court should look beyond the text of guaranty agreements to determine whether they satisfied the statute of frauds:

We decline to do so, noting that although the Texas Supreme Court has in the past looked to multiple documents to determine whether a contract comports with the statute of frauds, it has only done so where, “[a]ll of the instruments were a necessary part of the same transaction, without any one of which the transaction was not complete.” * * * [The lender] asserts that the guaranty was necessary to effectuate the transaction, but as a matter of contractual interpretation, the Pasadena transaction was complete without a guaranty. Further, the guaranty agreements make no reference to the closing documents, and the closing documents do not contemplate the existence of a guaranty. To construe the guarantee agreements as part of the larger financial transaction would thus violate the principle that “where an oral contract is memorialized in more than one writing, one of the writings must refer to the others in order for the writings to be read together.”* * * The bank's contention that the guaranties were an indispensable part of the transaction finds no support within the language of the contracts themselves.

 In re Ekuban, 2006 WL 1049130 (5th Cir. Apr. 19, 2006).

[Meredith R. Miller]

June 6, 2006 in Recent Cases | Permalink | TrackBack (0)

Rationalizing Drennan

One of former California Justice Roger Traynor's best-known contract law opinions is Drennan v. Star Paving Co, in which the former tax professor held that a subcontractor's bid created an irrevocable offer to the prime contractor when the prime uses it in its own bid, even without the prime's payment of an option fee and without any promise that the sub will get the contract.

Drennan has had its critics and its champions.  Two of the latter, Ofer Grosskopf (Tel Aviv) and Barak Medina (Hebrew-Jerusalem), take up the cudgels in Rationalizing Drennan: On Irrevocable Offers, Bid Shopping and Binding Range.  Here's the abstract:

Courts may imply that an offer is irrevocable, based on the offeree's reliance. For instance, following the landmark case of Drennan v. Star Paving Co. (1958), a subcontractor’s price offer is irrevocable once it has been relied upon by the general contractor in computing his overall bid. However, a rule of implied irrevocability raises two main difficulties. First, it seems unfair to commit the offeror but not the offeree. Second, from an ex-ante perspective, the implied irrevocability rule seems to deter parties from submitting low-priced, unqualified offers. These concerns had led several scholars to argue for the application of either contractual or doctrinal provisions, such as implying an early conditional contract or establishing option fees or termination fees. This paper challenges the above concerns and vindicates both the fairness and the efficiency of the implied irrevocability rule.

It is shown that whereas some restrictions on the offeree’s freedom to conduct bid shopping ex-post (i.e. after the uncertainties are resolved) are essential in order to allow him to receive viable price offers ex ante, these restrictions need not be absolute nor legally-enforced. Partial restrictions, in the form of a self-enforced “Binding Range,” may well suffice. The plausible existence of self-enforced “Binding Range” entails that offerors have incentives to submit irrevocable offers, based on their expectation to extract a profit from submitting the best preliminary offer. The paper characterizes the optimal size of the “Binding Range,” and explores what legal provisions should be applied if the self-enforced “Binding Range” is sub-optimal.

[Frank Snyder]

June 6, 2006 in Recent Scholarship | Permalink | TrackBack (0)

Speaking of Faustian Bargains . . .

. . . how about the contract written in blood that's now before a court in Orange County, California?  In the case, Jinsoo Kim says he invested $170,000 in a business owned by Stephen Son.  While the two were at a bar, Son wrote out a promise to repay the money in his own blood.  Son now says that the promise isn't enforceable because he wrote he would repay "to the best of my ability."

Fordham's Joe Perillo is quoted by the AP as saying it's the first contract written in human blood he's run across in forty years of reading contract cases.  And he's read a lot of cases.

[Keith Rowley points out that he blogged on this case earlier, which is what comes from me being out of touch for a week.]

[Frank Snyder]

[Frank: Some of us have been -- or at least have been accused of being -- "out of touch" for much more than a week.  <g>  Anyway, your link was to a beefier version of the story than mine.  Keith]

June 6, 2006 in In the News | Permalink | TrackBack (0)