February 24, 2006
Business Norms vs Plain Meaning
In this recent article by Professor Juliet Kostritsky at Case Western Reserve, she considers the importance of norm incorporation in contracts in light of plain meaning formalist attacks on such an approach.
Her abstract: Article 2 of the UCC directed courts to look to business norms as a primary means of interpreting contracts. Recently the new formalists have attacked this strategy of norm incorporation as a misguided one that will lead inevitably to significant error costs. Accordingly, they have embraced plain meaning as the preferred interpretive strategy. This article argues that the strategy of rejecting trade usages unless they are part of the express contract is too rigid. The rejection is premised on an overly narrow cost/benefit analysis that fails to account for the functional role that such usages may play in curbing opportunistic behavior and thereby increasing gains from trade and overall welfare. Plain meaning and incorporation must each be evaluated to see how each one can achieve the parties’ presumed instrumental goals of curbing opportunism - the hold-up game. Decision makers should also consider the particular reasons why parties failed to include the trade usages in their express contract. Some of the reasons for omission might argue for and some against norm incorporation. The incorporation decision should also depend on assessing the critical structural factors that make self-enforcement of trade practices possible. After proposing a taxonomy for assessing the normative issue of incorporation, the article examines the case law. It suggests that the divergences can be explained by whether invocation would achieve the parties’ functional goal of reduced opportunism. The article concludes by suggesting that the taxonomy suggested here helps to overcome some past objections to incorporation strategy.
Kostritsky, Juliet P., "Judicial Incorporation of Trade Usages: A Functional Solution to the Opportunism Problem" (February 2006). Case Legal Studies Research Paper No. 06-02 Available at SSRN: http://ssrn.com/abstract=885386
[Stephen J. Safranek]
February 22, 2006
Real Estate and Cyberspace
From today’s print Wall Street Journal comes this story about “drop catchers,” those who troll the internet looking for expired or lapsed website addresses.
I thought these issues were resolved by ICANN, but apparently after a thirty day grace period, a name is fair game. An owner could have a website address, it might expire (due to inadvertence) and that owner would have to spend a great deal in order to get the domain name back. One of the “drop catchers,” a graduate student, says that the situation is analogous to real estate, “if you’re not paying your mortgage or taxes on it, it’s going to get taken away.”
According to the story, approximately 20,000 names expire each day. The most expensive expired domain name was A1.com, at $260,250, followed by Bogota.com, which was sold for $159,500.
"Contract of Wifely Expectations"
Travis Frey, a 33-year-old Iowa man, faces charges that he
tried to kidnap his wife. Too bad for him, he didn't have the foresight to realize that his "Contract of Wifely Expectations" would very likely be unenforceable, and would only serve as damning evidence at his criminal trial. (And, anyways, his wife never signed the contract). Courtesy of the Smoking Gun, the "contract" can be viewed: here, with the caveat that it is objectively and fairly characterized as repulsive and bizarre.
[Meredith R. Miller]
February 20, 2006
Flicktertail Supreme Court Voids Employment Agreement As Against Public Policy
Craig Peterson, a CPA and lawyer, sought employment in the tax law field. He entered into a contract with Preference Personnel (“PP”), whereby PP agreed to assist Peterson in finding employment. The contract provided that the employer would pay PP a placement fee of 20% of one year’s gross salary. However, if Peterson voluntarily quit the position found by PP within the first 90 days of employment, Peterson was responsible for paying the placement fee. PP found Peterson a $60,000 a year job, but Peterson voluntarily quit before the expiration of the 90-day period. PP paid the employer the $12,000 placement fee. PP then, in turn, sought to recover the fee from Peterson.
It turns out that, at the time PP was assisting Peterson, its license to operate an employment agency had expired. The North Dakota Department of Labor later reinstated PP’s license retroactively. The case presented two related questions. The first issue was whether the Department of Labor had the authority to reinstate PP’s license retroactively. The North Dakota Supreme Court held that N.D.C.C. § 34-13-02 did not give the Department of Labor the authority to issue licenses retroactively.
Thus, the second issue was whether the employment agreement was enforceable because PP was unlicensed at the time it entered the contract. The North Dakota Supreme court held that the agreement was not enforceable because it was against the State’s policy of “requiring licensure prior to conducting any activities as an employment agency.” The Court reasoned:
If public policy considerations require employment agencies to undergo extensive licensing requirements before being allowed to legally conduct business in this State, it follows that it is against the public policy of this State to enforce a contract between an individual and an unlicensed employment agency. To conclude otherwise would undermine the purpose of the licensing requirement.
The Court held that, although Peterson may have breached the contract, the contract was unenforceable because PP was unlicensed at the time the parties entered into the agreement.
Preference Personnel, Inc. v. Peterson (N.D. Feb. 8, 2006).
February 19, 2006
Alces on Contract Theory
The age-old struggle between deontology and consequentialism in American contract law never seems to end. In The Moral Impossibility of Contract, Peter Alces (William & Mary) offers a new take on the dilemma. Here's the abstract:
In efforts to formulate the deontological or consequentialist conceptions of Contract, or to demonstrate that Contract is neither wholly explicable in terms of one or the other type of theory, claims are necessarily made about the nature of Contract as a body of doctrine, claims about what doctrine is. Now I do not mean simply that theorists disagree about what a particular doctrine entails, such as what a court should do in order to apply, for example, the consideration, frustration or unconscionability doctrines correctly. I acknowledge that reasonable minds disagree about the substance and constituents of those common law Contract doctrines. That is not my point. Instead, I am curious about what it means for a set of rules (say, the set of rules that fixes the parameters of "agreement") to be doctrine, the phenomenon that theory would try to explain. The function of theory is heuristic. The object of theory is either normative or positive. The best theorists are able to blur the distinction, often for rhetorical purposes. Legal theory (at least in some of its iterations) depends upon a posited conception of doctrine (and doctrine, too, is heuristic). That is, theory either explains or corrects doctrine. To accomplish that, legal theory is dependent upon a theory of legal doctrine. Contract theory, whether deontological, consequentialist, or pluralist, begins and must end with the doctrine, must have something to say about doctrine that serves a heuristic purpose (as well as, perhaps, other purposes). My interest is not so much with what Contract theorizing tells us, heuristically, about Contract doctrine; my concern is more with what Contract theory, in all of its extant phases, assumes about the nature of Contract doctrine. In this paper, I engage each of the foregoing observations about the theory-doctrine dynamic and try to say something important concerning Contract theory by drawing conclusions about the relationships among them.
New Franchise Rules in Mexico
Franchising is big business in the United States, and it’s also growing fast in the United Mexican States. The Mexican government has just promulgated a new law which provides new requirements for franchise contracts, including requirements for termination only for cause and provisions preventing franchisors from objecting to franchisee changes of control. Michael E. Santa Maria and Kevin E. Maher of Baltimore’s DLA Piper Rudnick Gray Cary provide a rundown of the new changes from the perspective of U.S. franchisors.