ContractsProf Blog

Editor: Myanna Dellinger
University of South Dakota School of Law

Friday, February 10, 2006

When you have Mama, who needs a warranty?

Hush, little baby, don't say a word.
Mama's gonna buy you a mockingbird

And if that mockingbird won't sing,
Mama's gonna buy you a diamond ring

And if that diamond ring turns brass,
Mama's gonna buy you a looking glass

And if that looking glass gets broke,
Mama's gonna buy you a billy goat

And if that billy goat won't pull,
Mama's gonna buy you a cart and bull

And if that cart and bull turn over,
Mama's going to buy you a dog named Rover.

And if that dog named Rover won't bark,
Mama's going to buy you a horse and cart.

And if that horse and cart fall down,
You'll still be the sweetest little baby in town.

[Miriam Cherry]

February 10, 2006 in Quotes | Permalink | TrackBack (0)

Thursday, February 9, 2006

Quotes: Patent Ambiguity

"No, Jimmy, I distinctly said that you can halve your allowance if you mow the lawn.  That's why we ask for things in writing."

                         -- from a cartoon by Jay Love

February 9, 2006 in Quotes | Permalink | TrackBack (0)

Metaphorical Capacity

Carl_bjerre An interesting new piece by Carl S. Bjerre (Oregon), Mental Capacity as Metaphor, will be forthcoming in the International Journal for the Semiotics of Law.  Here's the abstract:

Despite its foundational role in contract law, the term mental capacity is entirely metaphorical, and a detailed analysis of three representative judicial opinions shows that courts' explanations of the term are equally metaphorical. As such, the term mental capacity nicely illustrates the cognitivist view that abstract concepts arise through an imaginative but orderly projection from the domain of bodily and social experience.  Legal Realists, including notably Felix Cohen, condemned metaphors for their supposed failure to constrain judges, but this article and other recent empirical work indicates that metaphorical thinking is indeed constrained. I accordingly suggest that thinkers such as Cohen would probably have welcomed the cognitive analysis of metaphor in law, both for its methods and for its substantively progressive disposition.

[Frank Snyder]

February 9, 2006 in Recent Scholarship | Permalink | TrackBack (0)

Does an E-Mail Ending in a Company's Domain Name Cloak the Sender with Apparent Authority?

Is it reasonable to believe that a person who sends an e-mail from an address ending in a company’s domain name has authority to act on behalf of that company? The District Court of Massachusetts recently held that, as a matter of law, it was not reasonable for the recipient of an e-mail sent from a company’s domain name to believe that the sender had authority to act on behalf of the company.

Albert Arillotta, representing to be both from Interstate Demolition and Recovery Express (“IDEC” and “Recovery”) sent an e-mail to Len Whitehead of CSX, a business that sells out-of-service railcars and parts. The e-mail (typos and all) proposed the following:

From: Albert Arillotta []
Sent: Friday, August 22, 2003 4:57 PM
To: Whitehead, Len Jr.
Subject: purchase of out service railcars


this is albert arillotta from interstate demolition and recovery express we are interested in buying rail cars for scrap paying you a percentage of what the amm maket indicator is there are several locations i suggest to work at the exsisting location of the rail cars. we will send you a brocheure and financials per your request our addressis the following:
interstate demolition/recoveryexpress
180 canal street 5th floor boston mass 02114
phone number617-523-7740
fax number 617-367-3627
email address albert @recoveryexpress .com
thank you for your time

After some telephone conversations, Arillotta and Whitehead apparently proceeded with this proposed deal, and the railcars were delivered by CSX to a location specified by Arillotta. After delivery, CSX sent invoices to IDEC for the scrap railcars totaling $115,757.36. When IDEC and Recovery apparently refused to pay, CSX brought an action alleging, among other things, breach of contract and unjust enrichment.

Whitehead alleged that, at all times during his dealings with Arillotta, he believed that Arillotta was representing, and authorized to act on behalf of, Recovery and IDEC. Whitehead apparently based this belief on the e-mail's domain name ( and the representations of Arillotta to him both in the e-mail and in subsequent telephone conversations. However, Recovery claimed that Arrillotta never worked for it, and was not authorized to represent or transact business on behalf of Recovery or IDEC.

Apparently, Arillotta obtained a Recovery e-mail address by becoming involved in the separate IDEC venture with Recovery’s president and treasurer. IDEC and Recovery shared offices and some resources, including e-mail services. Other than physical resources, there was no evidence that Recovery ever shared anything with IDEC -assets, funds, books of business, bank accounts, or insurance coverage.

The court noted that “CSX genuflects to the possibility that Arillotta was granted actual authority by Recovery,” but quickly dismissed any argument that Arillotta had actual authority to act on behalf of Recovery. Thus, the issue was whether Arillotta had apparent authority to act on behalf of Recovery. The court defined the issue narrowly as “whether a domain name, by itself, cloaks a purported agent with authority sufficient as matter of law to be called ‘apparent.’”

The court wrote:

Because apparent authority depends on that knowledge held by Whitehead and CSX of Arillotta's authority, which knowledge was derived from actions of Recovery, the only relevant conduct by Recovery is that it issued Arillotta an e-mail address with its domain name. Such associations as Recovery having the same offices, mailing address, phone number, or fax number are red herrings; these facts-if Whitehead even possessed them prior to entering the contract-emanated from Arillotta by way of his e-mail signature or telephone representations. There is no evidence of the manifestation of those facts by Recovery to Whitehead and CSX (i.e., by way of its website, as CSX asserted at oral argument) until after the contract was entered and collection efforts had begun.

The only act taken by Recovery known to Whitehead and CSX prior to entering the contract and upon which Whitehead could rely, was its issuance to Arillotta of an e-mail address sporting Recovery's domain name ( The Court holds that Whitehead and CSX were unreasonable, as matter of law, in their reliance solely on an e-mail domain name. Such a manifestation by Recovery cannot be sufficient to sustain a claim of apparent authority. Granting an e-mail domain name, by itself, does not cloak the recipient with carte blanche authority to act on behalf the grantee. Were this so, every subordinate employee with a company e-mail address-down to the night watchman-could bind a company to the same contracts as the president. This is not the law.

Though e-mail communication may be relatively new to staid legal institutions, the results in analogous low-tech situations confirm this conclusion. The Court could find no cases where, for example, giving someone a business card with the company name or logo, access to a company car, or company stationery, by themselves, created sufficient indicia of apparent authority … An e-mail domain name is sufficiently analogous to business cards, company vehicles, and letterhead for these cases to be persuasive. Those indicia of apparent authority all convey some degree of association between the purported principal and agent. By themselves, however, no reasonable person could conclude that apparent authority was present. The same is true with e-mail domain names.

The court chided Whitehead for his “gullibility,” and stated that

CSX and Whitehead should have been more suspicious of an unsolicited, poorly written e-mail that arrived late one Friday afternoon. There are means by which CSX could have protected itself (e.g., requiring a purchase order form from IDEC or Recovery). Before delivering goods worth over $115,000 to a stranger, one reasonably should be expected to inquire as to the authority of that person to have made such a deal. Given the anonymity of the Internet, this case illustrates the potential consequences of operating-even in today's fast-paced business world-as did CSX.

CSX Transp., Inc. v. Recovery Express, Inc. (D. Mass. Feb 1, 2006).

[Meredith R. Miller]

February 9, 2006 in E-commerce | Permalink | TrackBack (0)

Wednesday, February 8, 2006

Warranty Failure Doesn't Trigger Mag-Moss

Arizona_flag A manufacturer who keeps fixing defects in a product under a limited repair-and-replace warranty doesn’t violate the Magnuson-Moss Warranty Act even if the repairs don't solve the problem and the product continues to fail, according to a new decision by the Arizona Court of Appeals.

In the case, a car buyer got General Motors’s “limited express warranty” which provided that GM “will pay for repairs needed to correct defects in materials or workmanship,” and that “[w]arranty repairs, including towing, parts and labor, will be made at No Charge.”   There was no dispute that GM repeatedly paid to fix problems with the buyer’s car, but the repairs never managed to fix whatever the problems were.  The buyer argued that after a certain number of repeated failures, GM ought be found in violation of the MMWA.

The problem with that argument, said the court, is that the buyer confused the state UCC claims with the MMWA.  It’s true that the seller’s repeated failures may cause a remedy to “fail of its essential purpose” under UCC § 2-719(2), and that the buyer may be entitled to one of the Code's default remedies if it does.  But that has nothing to do with the MMWA.  Since Congress explicitly included the right to full refund or replacement under such circumstances where a full warranty is given, it must (said the court) have meant that the same right did not apply to a limited warranty.  Summary judgment was therefore appropriate for GM.

Chaurasia v. GMC, 2006 Ariz. App. LEXIS 1 (Jan. 3, 2006)

[Frank Snyder]

February 8, 2006 in Recent Cases | Permalink | TrackBack (0)

Scott & Triantis on Contract Design

Yale_2 A fair amount of contract scholarship over the years has tended to assume (tacitly, anyway) that litigation to resolve contract disputes is costless.  Default terms like "reasonable" and "good faith" may allow courts after the fact to better sort out the parties' dispute, but it's expensive to go to court.  Do litigation costs cause contracting parties to change their behavior?

Yes, say Robert E. Scott and George G. Triantis (Virginia) in their new article, Anticipating Litigation in Contract Design, 115 Yale L.J. 814 (2006).  Here's the abstract:

Contract theory does not address the question of how parties design contracts under the existing adversarial system, which relies on the parties to establish relevant facts indirectly by the use of evidentiary proxies. In this Article, we advance a theory of contract design in a world of costly litigation. We examine the efficiency of investment at the front end and back end of the contracting process, where we focus on litigation as the back-end stage. In deciding whether to express their obligations in precise or vague terms, contracting parties implicitly allocate costs between the front and back end. When the parties agree to vague terms (or standards), such as “best efforts” or “commercial reasonableness,” they delegate to the back end the task of selecting proxies: For example, the court selects market indicators that serve as benchmarks for performance. When the parties agree to precise terms (or rules), they invest more at the front end to specify proxies in their contract, thereby leaving a smaller task for the enforcing court. We explore the choice between rules and standards in terms of this tradeoff, and we offer an explanation for why contracts in practice have a mix of vague and precise provisions. We then suggest that parties can achieve further contracting gains by varying the procedural rules that will govern their disputes in court. We illustrate by examining provisions in commercial contracts that allocate burdens and standards of proof. If the parties can improve the cost-effectiveness of litigation in this manner, they can further lower contracting costs by shifting more investment to the back end through their increased use of vague terms. Although vague terms have fallen into disfavor with contract theorists, this Article offers a justification for their frequent use in commercial practice.

[Frank Snyder]

February 8, 2006 in Recent Scholarship | Permalink | TrackBack (0)

Today in History: A Record Contract

Roger_clemens On this date, February 8, 1991, pitcher Roger Clemens of the Boston Red Sox signs the most lucrative contract in baseball history to that time: $5,380,250 a year for four years.  That's more than $600,000 a year more than the previous record, held by Jose Canseco of the Oakland Athletics.  Clemens’s record will last only a year, however, before the Chicago Cubs give $7 million a year to second baseman Ryne Sandberg.  (Image: Clemens in 2004 as a member of the Houston Astros, by Rick Dikerman, GNU License, from Wikipedia)

[Frank Snyder]

February 8, 2006 in Today in History | Permalink | TrackBack (0)

Tuesday, February 7, 2006

Pryor on Theology and Consideration

Scott_pryor The doctrine of consideration has received treatments from almost every angle over the past hundred years or so.  Now Scott Pryor (Regent) offers a Christian take on the doctrine in Consideration in the Common Law of Contracts: A Biblical-Theological Perspective, 18 Regent U. L. Rev. 1 (2005-06).  Here’s the introduction:

An approach to the study of the law of contracts must start somewhere.  Some casebooks on contracts start with a very brief historical review and proceed directly to cases.  A number start with the formation of contracts; others begin with remedies for breach of contract.  One even begins with consideration.  Sprinkled throughout most casebooks are some discussions of why contracts should be enforced, usually in the form of notes following cases or short excerpts from law review articles.  Even those discussions, however, rarely deal with questions of the worldview that legitimates coercive state enforcement of contracts.  And to my knowlege, non discuss questions of theology in relation to the law of contracts.

This article will discuss one aspect of contracts law -- consideration -- in light of biblical criteria.  Such a move requires some preliminary groundwork.  Application of biblical teachings requires more than citing a series of proof-texts.  And application of biblical doctrine includes more than the Bible.  I will thus begin by describing three Christian doctrines that are particularly relevant to legal analysis.  I will then follow with three perspectives that demonstrate how to apply the doctrines as tools for legal criticism.  With these foundations, I will then move on to address consideration in two parts: What purpose does it serve?  And how should courts draw its boundaries?  I will cite very few cases.  This is primarily a work of critique; I am certainly not trying to plot a curve on the scattershot of judicial decisions.  But there is also some theory here; I believe Christianity has something to say about what the law should be.

[Frank Snyder]

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

"Strict Compliance" Doesn't Mean "Exact Compliance"

Alabama_flag_1 Alabama follows the “strict compliance” standard governing letters of credit.  But “strict compliance” doesn’t necessarily mean “exact,” according to a recent decision by the state’s Supreme Court.

In the case, SouthTrust Bank issued a letter of credit on behalf of Skilstaf Inc., for the benefit of Skilstaf’s workers’ comp carrier, Continental Casualty.  The LOC listed “Continental Casualty Company, c/o Risk Management Group, CNA Plaza, 333 S. Wabash, Chicago, IL 60685, Attn: Contract Administration,” as the beneficiary.  It stated also that “This credit is subject to the Uniform Customs and Practice for Documentary Credits (1993 Revision), International Chamber of Commerce, Publication No. 500.”

The LOC was renewable.  Prior to the renewal date, December 14, SouthTrust notified Continental that it would not renew the credit.  On December 10, after getting this notice, Continental presented a sight draft for $810,000 -- the entire amount of the LOC.  The draft was to the order of “Continental Casualty Company,” with no address stated.  SouthTrust rejected it on the ground that it did not include the address, as required.  The relevant Alabama statute provides:

[A]n issuer shall honor a presentation that, as determined by the standard practice . . . appears on its face strictly to comply with the terms and conditions of the letter of credit.  Except as otherwise provided . . . and unless otherwise agreed with the applicant, an issuer shall dishonor a presentation that does not appear so to comply.

But the failure to include the address specified in the beneficiary line wasn’t fatal, said the court.
The beneficiary of the sight draft was "Continental Casualty Company," at whatever address it might be using at the time it might seek to submit a sight draft drawn on the LOC.  Taking SouthTrust's argument to its logical extreme, said the court, if Continental had changed its physical or mailing address in any way subsequent to its listing its address as beneficiary on the LOC and before the issuance of a sight draft, in order to comply strictly with the LOC in submitting a sight draft drawing against it, Continental would have to state its original, but now incorrect, address.

Continental Casualty Co. v. SouthTrust Bank, N.A., 2006 Ala. LEXIS 1  (Jan. 6, 2006).

[Frank Snyder]

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

Today in History: Saintly Lawyer

Sir_thomas_more On this date, February 7, 1478, St. Thomas More, the patron saint of lawyers, was born at Milk Street, London, the son of a lawyer and judge of the King’s Bench.  In his most famous work, Utopia, More envisions a nation in which there seems to be no private contracts at all and loans from the state may be called in at any time if someone needs the money more.

This makes us think that C.S. Lewis was probably right when he argued that Utopia is a satire, not a philosophical tract.  (Image: Statute in Notre Dame Law School Library)

[Frank Snyder]

February 7, 2006 in Today in History | Permalink | TrackBack (0)

Monday, February 6, 2006

Weekly Top 10

Ssrn_logo_43 A hot new paper from the veteran duo of Choi & Gulati has rocketed up the charts this week, taking the number two spot on this week's Top 10.  The rest of the list is back from last week.  Following are the ten most-downloaded papers from the SSRN Journal of Contract and Commercial Law for the 60 days ending February 5, 2006.  (Last week's rank in parentheses.)

1 (1) Law and the Rise of the Firm, Henry Hansmann (Yale), Reinier Kraakman (Harvard) & Richard C. Squire (Yale).

2 (-)  Contract as Statute, Stephen J. Choi (NYU) & G. Mitu Gulati (Georgetown).

3 (2)  The Return of the Twenty Bishops: Toward a Subjective Theory of Contract Formation, Lawrence M. Solan (Brooklyn).

4 (3) Signals, Assent and Internet Contracting, Juliet Moringiello (Widener).

5 (4) Do Courts Matter? Rental Markets and the Law, Pablo Casas-Arce (Oxford-Economics) & Albert Saiz (Penn-Business).

6 (8) Choice, Consent, and Cycling: The Hidden Limitations of Consent, Leo Katz (Penn).

7-tie  (6) Diversity of Contract Law and the European Internal Market, Jan M. Smits (Maastricht).

7-tie (5) Penalties and Optimality in Financial Contracts: Taking Stock, Michel A. Robe (American-Business), Eva-Maria Steiger (Humboldt-Business) & Pierre-Armand Michel (Liege-Management).

9 (7) A Bridge, a Tax Revolt, and the Struggle to Industrialize: The Story and Legacy of Rockingham County v. Luten Bridge Co., Barak D. Richman (Duke), Jordi Weinstock (Duke) & Jason Mehta, (Harvard).

10 (9) The (CISG) Road Less Traveled: Case Comment on GreCon Dimter Inc. v. J.R. Normand Inc., Antonin I. Pribetic (Steinberg Morton Frymer LLP).

[Frank Snyder]

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

One-Sided Clause isn't "Absurd"

Pennsylvania_flag When dealing with a contract between two sophisticated commercial parties, a court ordinarily ought to give effect to the unambiguous language they put in their written agreement, according to a recent decision by the U.S. Court of Appeals for the Third Circuit, applying Pennsylvania law.

The case arose out of a real estate development deal, in which the seller, Format Corp., gave a series of options to Widewaters Property Development.  Widewaters kept exercising the options, but kept only making partial payments on them.  By the time Widewaters broke off the project, it had paid some $77,000, but still owed another $79,000 for the options it had exercised.  Format wanted the rest of the money.  Its problem was a liquidated damages clause, which provided:

If Buyer [Widewaters] willfully fails to render the performance required of it under this Agreement, beyond any applicable notice and cure periods, then Seller shall, as its sole and exclusive right and remedy, be entitled to the Initial Deposit and any Extension Fees and other sums, if any, paid to Seller pursuant to this Agreement, as liquidated damages and not as a penalty and neither party shall have any further obligations or liabilities to the other.

Widewaters argued that under this clause, Format should be entitled only to the moneys it already received, not that it was owed.  The district judge held that such a result would be “absurd,” since Widewaters, having got the benefit of the option periods without paying for them, could walk away with no further liability.  The court therefore decided that the clause must mean not “sums paid” but “sums owing.”

Wrong, said the Third Circuit.  If applying the literal meaning would create an “absurd and unreasonable” result, said the court, it might need to look beyond the words.  But that’s not the case here:

We do not read . . . the Pennsylvania contract cases . . . to support the contention that a facially unambiguous term becomes ambiguous if there is any possibly absurd result that might hypothetically occur.  Rather, we understand the inquiry to be whether applying the facially unambiguous plain meaning of the term would lead to an absurd result.  Here, it certainly would not.  The District Court, therefore, erroneously found the liquidated damages clause to be absurd and, hence, ambiguous.

The liquidated damages clause here, said the court, was both facially unambiguous (clearly limiting Format's recovery to the deposit plus any fees already paid) and reasonable (since it allowed Format to terminate the contract at any point if Widewaters stopped paying its fees and walk away while still recovering the fair value of the deal).  That Format held the deal open despite not receiving the payments was, of course, Format's choice, as there existed no automatic breach trigger for nonpayment of fees; but Format did so at the risk of not recovering those fees not actually paid to it. Where the clause was a product of seven months of negotiation between two very sophisticated business and real estate entities, the fact that one party now no longer wants to be bound by it does not render the clause unreasonable.

Format Corp. v. Widewaters Property Development Corp., 2006 U.S. App. LEXIS 647 (January 11, 2006)

[Frank Snyder]

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

Today in History: Raffles Founds a Trading Post

Singapore On this date, February 6, 1819, Sir Thomas Stamford Bingley Raffles, 38, announces the formation of a tax-free trading post at the southern tip of the Malay Peninsula.  The absence of tax and regulations brings several hundred traders within a few weeks.  The settlement will later grow up to be the nation of Singapore.  (Photo: Ricky W., GNU License, Wikipedia)

[Frank Snyder]

February 6, 2006 in Today in History | Permalink | TrackBack (0)

Sunday, February 5, 2006

"Repair or Replace" Promise is Express Warranty

Michigan_flag_2 A manufacturer’s limited “repair or replace” warranty is an “express warranty” for purposes of UCC Article 2, and extends to purchasers of the goods who are not in privity with the manufacturer, according to a recent decision by the U.S. Court of Appeals for the Sixth Circuit, applying Michigan law.  The court also held that no privity of contract is required for an implied warranty under the UCC, so that a remote purchase can recover from a manufacturer if the goods are not merchantable.

Pack v. Damon Corp., 2006 U.S. App. LEXIS 343 (6th Cir. Jan. 5, 2006).

[Frank Snyder]

February 5, 2006 in Recent Cases | Permalink | TrackBack (0)

Today in History: Levi Gets Sick

On this date,  February 5, 1824, beached sailor Levi Wyman got sick -- likely from over-consumption of alcohol -- at the house of Daniel Mills in Hartford, Connecticut.  Contrary to the suggestion in the opinion in the later Mills v. Wyman, he didn’t die.

[Frank Snyder]

February 5, 2006 in Famous Cases, Today in History | Permalink | TrackBack (0)