August 24, 2006
Gotanda on International Damages
The most practically important part of contract law is the law on damages. How much damage the plaintiff has actually suffered, and how much of that damage the defendant will have to make good, is an issue in virtually ever litigated dispute. Yet the rules vary from jurisdiction to jurisdiction. Sometimes they vary a little, sometimes a lot.
So those who teach or litigate damages should welcome a new primer from John Gotanda (Villanova), Damages in Lieu of Performance Because of Breach of Contract, which is included in a forthcoming book from the Hague Academy of International Law, Damages in Private International Law. Here's the abstract:
In contract disputes between transnational contracting parties, damages are often awarded to compensate a claimant for loss, injury or detriment resulting from a respondent’s failure to perform the agreement. In fact, damages may be the principal means of substituting for performance or they may complement other remedies, such as rescission or specific performance.
Damages for breach of contract typically serve to protect one of three interests of a claimant: (1) performance interest (also known as expectation interest); (2) reliance interest; or (3) restitution interest. The primary goal of damages in most jurisdictions is to fulfill a claimant’s performance interest by giving the claimant the substitute remedy of the benefit of the bargain monetarily. This typically includes compensation for actual loss incurred as a result of the breach and for net gains, including lost profits, that the claimant was precluded from because of the respondent’s actions.
All legal systems place limitations on damage awards. The most common limitations are causation, foreseeability, certainty, fault, and avoidability. In order to obtain damages, there must be a causal connection between the respondent’s breach and the claimant’s loss. In addition, the claimant must show that the loss was foreseeable or not too remote. Further, the claimant is required to show with reasonable certainty the amount of the damage. Many civil law countries also require, as a prerequisite to an award of damages for breach of contract, that the respondent be at fault in breaching the agreement. Damages may also be limited by the doctrine of avoidability, which provides that damages which could have been avoided without undue risk, burden, or humiliation are not recoverable.
The rules concerning damages for breach of contract are complex and vary greatly from country to country. Furthermore, in some federal countries, such as the United States and Canada, the applicable rules differ among states and provinces. This chapter, which is part of a comprehensive study of the awarding of damages in private international law, focuses on the general rules concerning damages awarded in lieu of performance because of a breach of contract (performance damages). It begins with an overview of the purposes served by awarding damages. It then examines performance damages for breach of contract in common law and civil law countries. The study subsequently analyzes the awarding of damages under the Convention on the International Sale of Goods (CISG), general principles of law, and principles of equity and fairness.
Contracts Prof Weekly Spotlight: Gregory Duhl
B.A., Yale College
J.D., Harvard University
LL.M, Temple University
From 2002-2004, Professor Duhl was an Abraham L. Freedman Fellow and Lecturer-in-Law at Temple University's James E. Beasley School of Law where he co-taught Contracts with his two mentors, Bill Woodward and Amy Boss. He then visited for two years at the Southern Illinois University School of Law.
Professor Duhl graduated from Yale College (B.A. 1991) and Harvard Law School (J.D. 1995), practiced law at Mayer, Brown in Chicago, Brown & Bain, P.A. in Phoenix, and Schiff, Hardin & Waite in Chicago, and then gave up big firm practice to represent tenants in Chicago Eviction Court before entering law teaching.
Professor Duhl writes in the areas of Agency & Partnership, Contracts, and Property, and is beginning an investigation of the payday lending industry as well as an empirical study of how courts have developed a substantive body of law for limited liability companies. He also edits the Unincorporated Business Law Prof blog.
Professor Duhl grew up north of Chicago and never thought that he would find himself living in Oklahoma. He lives there with his wife Michelle and their two dogs, Midnight and Kinsey (named after Kinsey Millhone - the protagonist in Sue Grafton's mysteries). His favorite job was teaching at a stodgy, private boys secondary school in Sydney, Australia, after graduating from college, where he relived the role of Robin Williams in Dead Poet's Society. He still encourages students to stand on the desk at the front of the room and yell if they are afraid to speak in class.
[To have your profile featured in the weekly ContractsProf Spotlight or recommend someone to be featured, please email Meredith Miller]
August 23, 2006
Revised Article 1 Legislative Roundup
With the 2006 legislative season drawing to a close (indeed, it's been over for months in some states), and the 2006-07 academic year about to being (or having just begun at many law schools), here's a wrap-up of legislative action on Revised Article 1 this year:
Seven states -- Arizona, Colorado, Kentucky, Louisiana, New Hampshire, North Carolina, and West Virginia -- have enacted Revised Article 1 thus far this year. This is the same number of states that enacted Revised Article 1 in 2005 and the aggregate number of states that enacted Revised Article 1 before 2005. Bringing the total number of enacting states to 21.
Kentucky's, Louisiana's, and West Virginia's revisions are already in effect. Colorado's take effect on Sept. 1, 2006. Arizona's take effect on or about Sept. 21, 2006. North Carolina's takes effect on Oct. 1, 2006. New Hampshire's takes effect on Jan. 1, 2007.
California appears poised to become the 22nd enacting state. Just yesterday, the California Senate approved SB 1481 as amended by the Assembly. That bill is now set for enrollment and should be sent to Governor Schwarzenegger in relatively short order. Barring a veto, California will become the 22nd state (out of 22) to reject uniform R1-301 and the 16th state to adopt the uniform R1-201(b)(20) good faith definition. If enacted California's amendments will take effect Jan. 1, 2007. One interesting aspect about the California bill is the addition, by amendment, of a new non-UCC statutory provision that will have the essential effect of recodifying pre-revised 1-206 to preserve a statute of frauds for sales of personal property that is not subject one of the UCC's Articles.
The Massachusetts legislature continues to largely ignore HB 3731, which was first introduced in early 2005. Most recently, the Massachusetts House voted to further extend to January 2, 2007 the relevant committee's deadline to report back to the full legislature the committee's recommendation following public hearings held on October 26, 2005. While the Senate has yet to concur in this most recent extension, it seems clear that Massachusetts will not enact Revised Article 1 this year.
The Florida legislature considered Revised Article 1 in 2006, but allowed both House and Senate bills to die in committee. Bills that were introduced in 2005 in Illinois and Kansas and then languished went without further action in 2006.
For those who are interested, California SB 1481 will, if enacted, bring the number of Revised Article 7 enactments to 24. Meanwhile, five states -- Arkansas, Kentucky, Minnesota, Nevada, and Texas -- have enacted the latest Article 3 and 4 amendments, and Massachusetts appears to be progressing toward becoming the sixth.
The 2003 amendments to Article 2 and 2A continue to go nowhere. They have only been introduced in three states -- Kansas, Nevada, and Oklahoma -- and have died unceremonious deaths in all three. Unless NCCUSL and the ALI return to the drawing board and initiate a legislative full court press (neither of which seems likely in the near future), the only amendments to Articles 2 and 2A likely to be of any relevance in the foreseeable future are conforming amendments required by a state's adoption of Revised Article 1 or 7 or amended Articles 3 and 4.
[Keith A. Rowley]
Customer Must Actually Get Terms for Gateway Rule to Apply
Whatever the merits of "terms in the box" contracts like that involved in Hill v. Gateway 2000, they don't apply to warranty limitations that are not, in fact, ever delivered to the customer. That's the ruling from a recent Massachusetts case, Schacter v. Circuit City Stores Inc., Civ. No. 05-12456, (D. Mass. May 3, 2006), reported in BNA's Electronic Commerce and Law Reporter.
In the case, the plaintiffs bought a phone from Circuit City and bought an extended warranty. The store gave them a glossy brochure describing the warranty, which explicitly noted that the details of the warranty were contained in another document. That other document was never delivered. The logic of the Gateway case -- that buyers are bound to the after-delivered terms if they do not return the goods -- doesn't apply, said the court, when the terms are never actually delivered.
The Calamitous 2-209
Pretty much everyone agrees that one of the least successful bits of UCC Article 2 -- not that there's not a lot of spirited competition -- is section 2-209, which deals with modifications and waivers. At one swoop it removes the consideration requirement for modifications, but then quickly backtracks by adding some writing requirements, which it then suggests don't really need to be followed, and then adds that the gratuitous modification can be retracted unless retraction would be unjust. Follow?
In a new paper, How to Create a Commercial Calamity, forthcoming in the Ohio State Law Journal, Robert A. Hillman (Cornell) uses 2-209 as a springboard to take a critical look at what happens when reform-minded lawmakers don't really understand either what they're trying to do or what the consequences of their actions will be. Here's the abstract:
There are many ways to define a legal calamity. For example, a grossly unfair or inefficient law constitutes a legal calamity. A law that produces serious and deleterious unintended effects, such as effects opposite from those intended, is another kind of legal calamity. A law that is so imprecise and confusing that judges do not know how to apply it and lawyers do not know how to advise their clients is still another example of a legal calamity, which I focus on in this paper. Because this paper is a contribution to a symposium on commercial legal calamities, my example is Uniform Commercial Code (UCC) section 2-209, dealing with contract modification and waiver. But my goal is not to explain why 2-209 is a calamity of the third kind - everybody already knows that it is. I use the section to illustrate the kind of strategy of lawmaking that cannot fail to create a calamity of obfuscation. Section 2-209 illustrates what happens when lawmakers who boldly seek to reform the law cannot bring themselves to carry out their plan or never fully understand the ramifications of what they are doing. Instead, they waiver. The result is chaos - a commercial calamity.
Wrong, Sir! Wrong!
This clip of the final minutes of the (original!) Charlie and the Chocolate Factory movie begins with a great contract moment when Charlie's grandfather asks about the promised lifetime supply of chocolate. Of course, despite Wonka's citation to section 37(b) of the contract, the movie has a happy ending. Enjoy!
[Meredith R. Miller]
August 22, 2006
Pitfalls in Letters of Intent
Few issues in contract law create more problems than the status of "letters of intent." Frequently, prospective parties to some undertaking sign a document that indicates their present intent to enter into a deal, but that also indicates that neither party is bound to anything. When the deal falls through, one or the other of the parties may sue.
In a recent client advisory, Letters of Intent: Principles and Pitfalls, Matthew Needham-Laing of London's Fenwick Elliott LLP, offers some thoughts from a U.K. perspective.
Does Contract or Tort Law Protect an Agent/Lessee's Electronic Data?
Plaintiff Louis Thyroff was associated with Nationwide Mutual Insurance Company (“Nationwide”) as an insurance agent for 21 years. When the relationship began in 1988, Thyroff and Nationwide entered into an Agent’s Agreement, which provided a non-compete clause that allowed competition only if certain enumerated requirements were met. Thryoff was also required to lease an agency-automation system, which consisted of hardware and software from Nationwide. Thyroff relied on this system to keep track of customer data.
In September of 2000, Nationwide sent Thyroff a letter canceling the Agent’s Agreement. The following day, without notice, Nationwide denied Thryoff access to the agency-automation system, and all his client files contained therein.
Thryoff sued Nationwide for (1) conversion of the personal
and business data contained on the computer and (2) breach of contract for
depriving him of access to business information necessary to compete once the
Agency’s Agreement expired. In an
unpublished opinion, the District Court dismissed the conversion claim and
granted Nationwide summary judgment on the breach of contract claim. Thyroff appealed to the Second Circuit.
In what is perhaps the most interesting aspect of the case (and has much less to do with contract law), the Second Circuit has certified the following question to the New York Court of Appeals: Is a claim of conversion cognizable for electronic data?
In addition, the Second Circuit affirmed the grant of summary judgment to
Nationwide on Thyroff’s breach of contract claim. Thryoff asserted that Nationwide owed a
contractual obligation not to seize policyholder information from the leased
computer without first providing Thyroff with an opportunity to duplicate
it. Thryoff attempted to cobble together
this duty by pointing to (1) a section of his Agent’s Agreement that allowed
him to compete if certain requirements were met and (2) the implied covenant of
good faith and fair dealing. The Second
Circuit interpreted the non-compete provision to allow Thryoff to compete in
certain situations, but did not interpret it as requiring Nationwide to provide
Thryoff with a means to compete. The
court determined that “despite Thyroff’s evidence that Nationwide may have acted in
bad faith in the manner in which it removed the policyholder information from
Thryoff’s possession, no rational trier of fact could conclude that in so doing
Nationwide violated any provision of the contract." The court held that the Agent’s Agreement,
coupled with the implied covenant of good faith, could not be read to impose any
affirmative obligation on Nationwide.
Thryoff v. Nationwide Mutual Ins. Co., __ F.3d __ (2d Cir. Aug. 21, 2006).
[Meredith R. Miller]
Contract v. Gift
Why does the law enforce promises it calls "contracts" but not those it calls "gifts"? It's a good question. Such a good question that nobody has ever really been able to explain it so clearly that everyone agrees -- including me, this morning, on opening day of Contracts I.
In a new paper, Law & Gratuitous Promises, Robert A. Prentice (Texas-Business) takes a look at the various rationales and offers his take on the issues. Here's the abstract:
A foundational question in contract law is why certain promises are enforced and others are not. For many years scholars have attempted to justify the common law’s use of the consideration doctrine to draw this line. Recently, law & economics scholars have turned their attention to this issue, with less than fully satisfying results. This article critically examines the rationales provided by both traditional scholars and law & economics scholars and then contributes an analysis regarding whether gratuitous promises should be enforced that applies the principles of behavioral law & economics.
Families Sue Over Fetal Remains
A macabre breach of contract action is unfolding in Pennsylvania, where families of six decesased babies and fetuses are suing the University of Pittsburgh's Magee-Women's Hospital for breach of contract and negligence, after the remains of 19 infants were found stored in a McKeesport funeral director's garage. The hospital had contracted with the funeral director to cremate the remains.
August 21, 2006
New Casebook on Comparative Contract Law
There's a lot of interest in comparative contract law these days. For those who've thought they'd like to teach in that area, but who've been intimidated by the prospect of putting together materials, relax. Carolina Academic Press has launched a new casebook, Comparative Contract Law, by Tadas Klimas, dean of the law school at Vytautas Magnus University in Lithuania.
Klimas is unusually well-suited for the task, since he trained as an American lawyer, practiced law in both New York and Lithuania, worked as a legal adviser to the Lithuanian Parliament, and is a founder and editor of the Journal of Baltic Law. The book is due out later this year.
Zealous Advocacy Misfires
From the Department of Judicial Decisions You Don't Want to Show Your Clients if They Still Owe You Money, this snippet from a recent California Court of Appeals decision, via The Legal Reader:
In sum, the artists lack standing to contest most of the matters they cite, their appeal is untimely as to anything of which they have standing to complain, their briefs are defective, their arguments lack merit and their attorney misrepresented the complexity of the issues, apparently as a means of delaying our consideration of the merits of the Artists’ arguments.
[Frank Snyder -- hat tip, QuizLaw]
Weekly Top Ten
With the beginning of the semester come a stream of new papers on contract and commercial law, three of which crack out Top Ten for the first time 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 August 20, 2006. (Last week's ranking in parentheses).
2 (3) Rise of the Financial Advisers: An Empirical Study of the Division of Professional Fees in Large Bankruptcies, Lynn M. LoPucki & Joseph W. Doherty (UCLA).
3 (-) The Law and Economics of Contracts, Avery W. Katz (Columbia), Benjamin E. Hermalin (Cal Berkeley-Economics) & Richard Craswell (Stanford).
4 (5) A Coasean Analysis of Marketing, Eric Goldman (Marquette).
5 (7) Bankruptcy, Creditor Protection and Debt Contracts, Stefano Rossi & Nicola Gennaioli (Stockholm).
6 (-) Technoconsen(t)sus, Andrea M. Matwyshyn (Florida).
7-tie (8) Finding Nemo: Rediscovering the Virtues of Negotiability in the Wake of Enron, Adam Levitin (3rd Circuit).
7-tie (10) Between Rights and Contract: Arbitration Agreements and Non-Compete Covenants as a Hybrid Form of Employment Law, Cynthia L. Estlund (NYU).
9 (9) Juries, Judges, and Punitive Damages: Empirical Analyses Using the Civil Justice Survey of State Courts 1992, 1996, and 2001 Data, Michael Heise (Cornell), et al.
10 (-) The Common Law as an Iterative Process: A Preliminary Inquiry, Lawrence A. Cunningham (Boston College).
Holy Interrogatories, Batman!
The daughter of a producer of the 1960s Batman television show is suing 20th Century Fox, claiming the company owes her $4.4 million. Deborah Dozier Potter is the daughter of series producer William Dozier, and is raising breach of contract and fraud charges against Fox. Dozier produced a number of television series in the 1950s and 1960s, including The Loner, The Green Hornet and The Tammy Grimes Show, but Batman was his biggest hit. The studio -- surprise! -- has no comment.
August 20, 2006
Law and Economics of Contracts
It is almost impossible to write about commercial law these days without a passing familiarity with law and economics. For those who want a handy introduction, three experts -- Avery Katz (Columbia), Benjamin Hermalin (Cal Berkeley-Business), and Richard Craswell (Stanford) -- have written The Law and Economics of Contracts. Here's the abstract:
This paper, which will appear as a chapter in the forthcoming Handbook of Law and Economics (A.M. Polinsky & S. Shavell, eds.), surveys major issues arising in the economic analysis of contract law. It begins with an introductory discussion of scope and methodology, and then addresses four topic areas that correspond to the major doctrinal divisions of the law of contracts. These areas include freedom of contract (i.e., the scope of private power to create binding obligations), formation of contracts (both the procedural mechanics of exchange, and rules that govern pre-contractual behavior), contract interpretation (what consequences follow when agreements are ambiguous or incomplete), and enforcement of contractual obligations. For each of these sections, we address the economic analysis of particular legal rules and institutions, and, where relevant, connections between legal arrangements and associated topics in microeconomic theory, including welfare economics and the theory of contracts.