ContractsProf Blog

Editor: Myanna Dellinger
University of South Dakota School of Law

Wednesday, September 19, 2007

Hadley v. Baxendale Rides Again

Uk_flag A couple of weeks ago fans of Hadley v. Baxendale got a treat from the English Court of Appeal.  Andrew Tettenborn (Exeter) has the details:

In The Achilleas [2007] EWCA Civ 901 (9/6/2007) the time charterers of a bulk carrier redelivered her 8 days late and got sued for damages by the owners.  Big deal, you might say (and the charterers not surprisingly did say): liability is clearly the difference between the charter rate and the market rate for those 8 days, which works out at a fairly modest $160,000.

Wait a minute, riposted the owners.  You see, we had fixed the ship for six months end-on with someone else (i.e. Cargill) at no less than $40,000 a day on the assumption that the charterers would redeliver on time.  Because the charterers redelivered late we lost the benefit of that contract and Cargill, knowing they had us over a barrel, agreed to take the ship but screwed our rate down to only $32,000 a day.  Therefore the damages are six months at $8,000 a day, or something like $1.4 million.

Who was correct? In the event the owners won right along: at arbitration, before the judge and in the Court of Appeal. Once it was found foreseeable that the ship would be fixed end-on and that the benefit of that subsequent charter might be lost with late redelivery, that was it: there was no reason to limit liability to the market difference, and however large and disproportionate the loss caused by the cancellation of the following charter, the charterers were liable for it.

This case has caused, to say the least, some unease among shipping lawyers here (some use rather stronger language). An appeal to the House of Lords, we understand, is not unlikely.

[Frank Snyder]

September 19, 2007 in Recent Cases | Permalink | TrackBack (0)

Dan Rather Sues CBS for Breach of Contract

We interrupt the regularly scheduling contract blogging about suing god to mention, on a less divine note, that Dan Rather is suing CBS for breach of contract. This just in from the WSJ law blog (internal links omitted):

Rather, 75, whose vaunted career at CBS News ended on a sour note last year over his role in a story on President Bush’s National Guard service, claims that the network violated his contract by giving him insufficient airtime on “60 Minutes” after forcing him to step down as the nightly news anchor in early 2005, according to the Times. He also contends that the network committed fraud and damaged his reputation by commissioning a “biased” and incomplete investigation of the Guard broadcast, which was co-headed by K&L Gates’s Dick Thornburgh. (Click here for a copy of the report.)

The lawsuit also names CBS CEO Leslie Moonves, Viacom CEO Sumner Redstone, and former CBS News president Andrew Heyward. The suit, filed in New York State Supreme Court in Manhattan, seeks $20 million in compensatory damages and $50 million in punitive damages.

Here's the complaint.

[Meredith R. Miller]

September 19, 2007 in In the News | Permalink | TrackBack (0)

More on Suing God

Aa Apropos our comments yesterday on the Nebraska legislator who's suing God, philosophy professor Patrick O'Donnell writes to note that the man-sues-God theme was the subject of a 2001 Australian film, The Man Who Sued God.  In the flick, a lawyer whose marine insurance doesn't include coverage for "acts of God" decides to sue the Big Fella.  O'Donnell says the film is "delightful" and actually raises some interesting issues about the role of churches in society and the practices of big insurance companies.

From the film's description, it appears that the Australian courts let him get all the way to trial on his complaint.  It is a comedy, after all.

[Frank Snyder]

September 19, 2007 in Film Clips, In the News | Permalink | TrackBack (0)

Contracting for Force in Iraq

Aaa The use of government contractors to provide security services in Iraq (read, "carry guns in a war zone") has raised a lot of interesting questions for the contract law community.  Historically, use of private force under vaguely government authority was common; much of the colonization of America was done by private entrepreneurs using force under Royal charters that often allowed them to kill as many natives as necessary.  The Constitution specifically authorizes Congress to grant letters of marque (left) to private shipowners to wage war on enemies.  As late as 1856, the British East India Company operated its own empire with its own army.  Even today there are private armies in many countries.

But over the past century, the U.S. and other developed countries have elected to entrust the use of force in war zones to their own employees rather than private contractors.  That means that the war in Iraq has raised significant issues about who should be using force, who should be watching those who apply force, and exactly what contract law has to do with all this.

George Washington's Steve Schooner is quoted in an interesting piece that goes over the issues in a story today from the Associated Press.

[Frank Snyder]

September 19, 2007 in Government Contracting, In the News | Permalink | TrackBack (0)

Top 20 Law Schools

Aa Three are out and three are in this week, in our rankings of the Top 20 law schools in the U.S.  UCLA took the biggest fall, dropping from No. 11 completely off the charts.  Tennessee and Arkansas both also drop from the 20.  Southern Cal remains the top law school in the U.S. for the third straight week, although Louisiana State is hard on its heels and Florida is moving up strongly.  This week's Top 20:

1 (1) Southern California
2 (2) LSU (Hebert)
3 (3) Florida (Levin)
4 (3) Oklahoma
5 (3) West Virginia
6 (6) Texas
7 (8) Cal-Berkeley
8 (7) Wisconsin
9 (10) Ohio State (Moritz)
10 (12) Penn State (Dickinson)
11 (15) South Carolina
     (15) Oregon
     (15) Boston College
14 (-) Alabama
15 (9) Louisville (Brandeis)
    (18) Hawai'i (Richardson)
17 (-) Georgia
18 (-) Kentucky
19 (13) Nebraska
20 (20) Missouri

[Frank Snyder]

September 19, 2007 in Law Schools | Permalink | TrackBack (0)

Tuesday, September 18, 2007

Teaching Assistants: William S. Dodge

DodgeOne of the most useful pieces of legal scholarship I have ever read is William S. Dodge's Teaching the CISG in Contracts, 50 J. Legal. Educ. 72 (2000).  At the time I came across Dodge's essay, I had just completed teaching a four-credit contracts class.  I attended an AALS session on introducing international and comparative perspectives into the first-year curriculum with two thoughts in my mind:

1. As a student, I took a five-credit contracts course and I don't recall any mention of the CISG.

2. There was absolutely no way I was going to cram more material into my contratcs course.

Well, I attended the session, read the article, and the scales fell from my eyes.  Moreover, with the assistance of Dodge's article, working a few key provisions from the CISG into a first-year contracts course -- and vitally, putting students on notice that the CISG exists and will govern international commercial agreements involving the sale of goods if not contratced around -- is really as easy as UCC 2-207.  Easier even, perhaps.

Each section of the article focuses on a different doctrinal area in which the CISG differs from the UCC.or the common law, but the parts of the article that I have basically just plugged into my course are its discussions of the S.D.N.Y.'s handling of the CISG's version of the Battle of the Forms in Filanto, S.p.A. v. Chilewich Int'l Corp. (789 F.Supp. 1229 (1992) and of the Eleventh Circuit's treatment of the non-existence of the parol evidence rule in MCC-Marble Cermaic Cneter, Inc. v. Ceramica Nuova D'Agostino, S.p.A. (144 F.3d 1384 (1998).  I highly recommend this readable and immensely useful introduction to the CISG.

Now, there's no way I'm going to try to discuss the new UCC in my contracts course . . . .

[Jeremy Telman]

September 18, 2007 in Commentary, Recent Scholarship, Teaching | Permalink | Comments (0) | TrackBack (0)

Presumably You'd Have to Serve One of His Agents

Aa_2 A Nebraska legislator who has somehow discovered the astonishing fact that anyone can sue anyone for anything has illustrated it by filing a suit against God.  According to State Sen. Ernie Chambers (left), the Supreme Being has been tough on Nebraskans this year -- inflicting on them such devastating "disasters as floods . . . horrendous hurricanes, terrifying tornadoes," not to mention publicity-seeking State Legislators with too much time on their hands.  He also charges the Big Kahuna with making terroristic threats against him and his constituents.

Having discovered that anyone can file a frivolous lawsuit, perhaps he will also discover that anyone can also be sanctioned for filing a frivolous lawsuit.

[Frank Snyder]

September 18, 2007 in In the News | Permalink | TrackBack (0)

Chemerinsky is In, Yale is Out, Ave Maria is Messed Up

Aa Lots of law school news today.  At the top, Erwin Chemerinsky is now back in as founding dean of the new state law school at the University of California-Irvine.  UCI Chancellor Michael Blake, doing his best imitation of a reed in a gale, apparently bowed to pressure to bring Chemerinsky on board less than a week after he had bowed to contrary pressure to toss him out.  Those concerned that UCI wouldn't have been able to hire a faculty if Chemerinsky's firing had remained a blot on its escutcheon can now breathe a sigh of relief.

Meanwhile, though it's not exactly man-bites-dog news, the U.S. Court of Appeals for the Second Circuit has thrown out Yale University's argument that it has a constitutional right to receive federal government funding even if it refuses to go along with federal government regulations that compel it to allow military recruiting on campus.  The handwriting had been on the wall after the U.S. Supreme Court decided Forum for Academic and Institutional Rights v. Rumsfeld, which had upheld the validity of the Solomon Amendment.  Not even the best arguments from Yale law professors, ably assisted by Cravath, Swaine & Moore and amicus briefs from colleagues at Harvard, Chicago, Columbia, Cornell, NYU, and Penn, and by the AAUP, could keep the Second Circuit from the swift completion of it appointed rounds.  Yale, with an endowment reported at some $15 billion dollars, could probably manage to scrape by without federal cash if it felt strongly enough about its anti-discrimination policy, but that's apparently not something that's on the table.

On a less cynical note, things seem to be going from bad to worse at Ave Maria Law School.  The folks at the always interesting Mirror of Justice blog have issued a joint statement expressing serious concern over the treatment of tenured and untenured faculty who have disagreed with the policies set forth by the dean and the Board, saying that "the Catholic nature vital to [Ave Maria's] founding and sustenance has been derailed" by a series of arbitrary actions.

[Frank Snyder]

September 18, 2007 in Law Schools | Permalink | TrackBack (0)

Monday, September 17, 2007

In the News: September 17

Aa_3 Two rich guys are locked in a battle over who will buy a historic Methodist church in Sag Harbor, N.Y. (left).  One wants it to house his $100 million art collection, the other wants to house his even more valuable family.

The NASCAR team owner who’s being sued for breach of contract by drivers Sterling Marlin and Joe Nemechek says that he’s surprised by the suits because he’s met all of his contractual obligations to the pair.

A former star of TV’s Flip This House is being sued for fraud and breach of contract over a real estate transaction in California.

A D.C. clergyman who is being sued for mismanagement and breach of contract by some parishioners can keep his job, at least for now, according to a court ruling that overruled a congregational vote.

United Auto Workers leaders say they’re close to a deal with General Motors on a new contract that would turn over responsibility for retiree health care to the union in exchange for job security in the U.S.

Ugandan guards who signed up to work in Iraq are suing the contractor who employed them, claiming that it has paid much less than it promised.

The al Quaeda group has put out an offer for a unilateral contract on the life of Danish cartoonist Lars Vilks; they’ll give $100,000 for his murder, or $150,000 if he is "slaughtered like a lamb."

The managers of an Australian singer whose self-funded record unexpectedly hit number one on the charts are suing her for lost earnings, claiming her behavior made their positions "untenable" and led to a split.

[Frank Snyder]

September 17, 2007 in In the News | Permalink | TrackBack (0)

Usury By Any Other Name Would Smell as Sweet

Aa_2 One of the more interesting philosophical questions in commercial law is why there are so few restrictions on allowing people to buy things, while there are so many apparent restrictions on loaning money to those same people to finance that same purchase.  When, for example, a high-risk debtor borrows money from a subprime lender to buy a home theater system from Best Buy, the retailer reaps a nice profit on the deal while our attention (and disapprobation) seems to be focused on the lender, not the seller.  Why?

A new paper by Christopher Peterson (Florida) doesn’t purport to answer that question, but it does suggest that the reasons for usury law lie in some deeply felt moral sense than in any practical reality. The reality, he suggests in Usury Law, Payday Loans, and Statutory Slight of Hand: An Empirical Analysis of American Credit Pricing Limits, is that usury laws are not doing the kind of heavy lifting many of us expect them to.  He finds that they are rooted in "an ancient moral tradition" which -- like so many ancient moral traditions today -- seems to have been overridden by market forces even as the rhetoric continues.  Here's the abstract:

In the Western intellectual tradition usury law has historically been the foremost bulwark shielding consumers from harsh credit practices.  Historically, the United States commitment to usury law has been deep and consistent.  However, the recent rapid growth of the "payday" loan industry belies this longstanding American tradition.  In order to understand the evolution of American usury law, this paper presents a systemic empirical analysis of all fifty state usury laws in two time periods: 1965 and the present.  The highest permissible price of a typical payday loan authorized under each state's usury law was calculated.  These prices were then translated into Annual Percentage Rate (APR) format following the federal Truth-in-Lending Act price disclosure regulations.  Moreover, this Article also compares how each state legislature describes its most expensive permissible payday loan, with how that loan is characterized under federal price disclosure law. It does so by suggesting a new financial concept which I label: salience distortion. This analysis produces three findings: (1) usury law has become more lax; (2) usury law has become more polarized; and, (3) usury law has become more misleading. These findings suggest that the numeric language in current state usury statutes is not chosen because it helpfully describes some expectation of commercial behavior. Rather, legislatures have chosen the language of most current credit price caps because it sounds in an ancient moral tradition - a mythology of sorts - that roughly delineates popular perception of moral and immoral interest rates. Exploiting this normative tradition as well as common behavioral economic heuristics, many state legislatures use small, innocuous numbers in usury law because they are attempting to minimize the public and media outcry over their decision to legalize triple digit interest rate consumer loans.

[Frank Snyder]

September 17, 2007 in Recent Scholarship | Permalink | TrackBack (0)

Weekly Top Ten

Ssrn The more things change, the more they stay the same.  No surprises on this week's Top Ten, as all ten of last week's most popular papers return.  Following are the top ten most-downloaded new papers from the SSRN Journal of Contract and Commercial Law for the 60 days ending September 16, 2007.  (Last week's ranking in parentheses.)

1 (1) Usury Law, Payday Loans, and Statutory Slight of Hand: An Empirical Analysis of American Credit Pricing Limits, Christopher Lewis Peterson (Florida).

2 (2) Consumer Protection in the United States: An Overview, Spencer Weber Waller & Jillian G. Brady (Loyola-Chicago).

3 (3) Explaining the Spread of At-Will Employment as an Inter-Jurisdictional Race-to-the-Bottom of Employment Standards, Richard A. Bales (No. Kentucky).

4 (4) You Asked for it, You Got It . . . Toy Yoda: Practical Jokes, Prizes, and Contract Law, Keith A. Rowley (UNLV/Alabama).

5 (5) Renting the Good Life, Jim Hawkins (Independent).

6 (6) The Other Side of the Picket Line: Contract, Democracy, and Power in a Law School Classroom, Richard Michael Fischl (Connecticut).

7 (7) Anti-Social Contracts: The Contractual Governance of Online Communities, Joshua Fairfield (Indiana-Bloomington).

8 (9) Economics of Contract Law, Cento Veljanovski (Case Associates).

9 (8) A Positive Law Theory of Contract, Fergus Farrow (Victorian Bar).

10 (10) A Study of Interest, John Y. Gotanda (Villanova).

[Frank Snyder]

September 17, 2007 in Recent Scholarship | Permalink | TrackBack (0)

Gambling Debts Now Enforceable in U.K.

Aab_2 Britain’s Gambling Act of 2005 -- which comes into effect this year -- has garnered a lot of attention.  But one aspect of the new law hasn’t gotten much play, according to Carl Rohsler of London’s Hammonds. It’s the sentence in the act that says, "the fact that a contract relates to gambling shall not affect its enforcement."

That sweeping statement, says Rohsler, "wipes out over 200 years of precedent . . . not only in the UK but also in most common law jurisdictions around the world, that gambling contracts are debts of honour only."  Gambling houses that once had to demand that gamblers cough up the cash in advance (because they could not collect the debts in court) can now lend money to gamblers and collect their debts in the usual way. Rohsler’s comments on this development are here.  A more general introduction to the Act, by Paul Renney of London’s Campbell Hooper, is here.  (Free registration required for each.)

[Frank Snyder]

September 17, 2007 in Commentary, Legislation | Permalink | TrackBack (0)

Saturday, September 15, 2007

Rap Bet / Offer / Contract?

In the past, we've seen some interesting contracts questions that arise out of the music scene.  Whether it's canceled tours, arguments with managers, or one-sided record deals, they provide us with a great deal of blog fodder.  Here's the latest wrinkle - Kanye West and Fifty Cent's battle over who would sell the most records.  Does it look like a contract to you?  Here are the facts from the LA Times:

[Fifty Cent agreed] to hang up his mike if Kanye West's "Graduation" outsells 50's third album, "Curtis," in their first week of release. Now, just two days after both CDs went on sale -- and a month after his challenge began generating an inescapable din of promotional hype -- Nielsen SoundScan has tallied the albums' early returns, putting West on pace to best 50 by about 125,000 copies by Tuesday.

But a closer reading of 50's original invitation to throw down, taken with comments the Queens, N.Y.-born rapper made to The Times just before "Curtis" was released, makes it clear that even if the sum of all of 50 Cent's fears were to materialize, rap fans -- and haters -- haven't likely heard the last from hip-hop's most diss-prone MC.

Since August, media scrutiny has focused on only one part of the commitment 50 made on the hip-hop website "If Kanye West sells more records than 50 Cent on Sept. 11, I'll no longer write music. I'll write music and work with my other artists, but I won't put out any more solo albums."

But even with his future solo output seeming to hang in the balance, little attention has been paid to 50's opt-out clause -- his promise to quit only if certain terms and conditions are met.

"And I bet this, when Kanye West's sales come in, he's gonna have a 70% decrease [the second week] 'cause Def Jam is gonna buy records to keep him closer to 50 Cent," he continued. "So watch the first week and then watch the second week. Watch his [expletive] drop off the planet. We keep our angles covered before we make a decent bet."

In a conversation with The Times, the rapper confirmed that a steep second-week sales drop for "Graduation" is a central part of his challenge. That would be evidence, 50 said, that West's record company Island Def Jam had been using some kind of market manipulation to artificially boost West's first-week numbers.

"I think the perception on some levels would be that Kanye West is generating more interest than 50 Cent regardless of actual record sales," 50 said. "He's never had a fraction of the sales 50 Cent has. So when you see him come out and it's like they were close? They could have one scan and have it count four times."

Fifty's made a promise, sure.  But did Kanye take him up on it?  I haven't heard anything about Kanye promising to retire.  I suppose it's more a question of Fifty losing credibility with his fans if he makes these types of statements and then doesn't follow through.  But as I play "In da Club" this morning while I work on an article, I have to tell you it would be a sad day if I could no longer listen to new rap anthems from Fifty (best line:  "I love you more than a fat kid loves cake.")

[Miriam Cherry]

September 15, 2007 in Celebrity Contracts | Permalink | TrackBack (0)

Friday, September 14, 2007

In the News: September 14

Aa_2 The California Labor Commission has ruled that the agent for actress Nicollette Sheridan wasn’t properly licensed when he represented her, but that this fact may not have been relevant to his breach of contract claim for fees arising out of her work on Desperate Housewives.

Baltimore has terminated a school busing contract with a private operator after its service was interrupted by striking drivers.

Barbra Streisand’s promoters are suing ticket agencies in the U.K., claiming that thousands of tickets (worth nearly £ 1 million) for her much-ballyhooed series of "sold out" English concerts were never actually sold.

Two well-known NASCAR drivers, Sterling Marlin and Joe Nemechek, are suing Ginn Racing and Dale Earnhardt Inc. for breach of contract; their jobs were eliminated when the two teams merged.

News Corp. says it expects "prickly and dicey and contentious" negotiations with Apple Corp. over the terms for showing Fox television and film properties over Apple’s iTunes platform.

[Frank Snyder]

September 14, 2007 in In the News | Permalink | TrackBack (0)

Green Eggs and Contracts

Aa Okay, law isn't exactly rocket science.  And contract law may not be as intellectually demanding as, say, Constitutional law, where the ability to count to five is critical.  But it's still a little sad when students see through what we try to do in class and manage to encapsulate one of our most mysterious doctrines in  language that any first-grader can follow.  Here, courtesy of Charles Calleros (Arizona State) is a pithy recap from one of his students.

by Alison Atwater

Listen! Listen! Can you hear?
There is an offer very near.

I want to offer, yes I do.
I want to offer a contract to you.
I want to offer right away.
I want to offer-what do you say?

I'll make an offer with a quote
I'll write it on this great, big note.

Stop right there! You cannot do it.
A quote has got no offer to it.
Unless you give a certain limit,
A quote has got no offer in it.

Then here's an offer to change your story:
My full-color ad in all its glory!

You cannot offer in an ad.
There's too much risk that will be had.
Your ad is seen by way too many;
An offer, well, you don't have any!

How about an offer made with laughter?
Will it bind us ever after?

It will not bind us, it cannot yoke.
You cannot offer with a joke!
No one with reason could thus glean
A serious offer is what you mean.

But surely I do offer well
When I tell you I will gladly sell.

You do not offer well at all!
An offer, that, I cannot call.
No power moves from you to me;
We won't contract if I agree.

Listen! Listen! What do you say?
What if I make you an offer this way?

I'll tell you the what and the where and the how,
I'll offer to make you a promise right now.
Then it is you who can make the decision.
Tell me, does this offer need more revision?

You've done it, I say! You've done it quite nicely
This time you've made me an offer precisely.

If I accept now, if I promise too,
A contract will form and then we'll be through!
Now I can see it-a transfer of power.
Thank you, thank you! We'll contract in the hour!

[Frank Snyder]

September 14, 2007 in Miscellaneous | Permalink | TrackBack (0)

Non-Compete Might Fly in California

Bbb California is famous for its general refusal to enforce no-compete agreements.  With certain limited exceptions, such agreements are void as against public policy. In a recent case, therefore, the state’s court of appeals knocked out as "overly broad" a provision that prevented a business customer of a software consulting firm from hiring employees of the consulting firm.

The facts in this one were pretty easy. The consulting firm had supplied only 16 hours of service to the client, the employee who was hired had not worked for the client at all, and the hiring had come through an unrelated Internet job ad. The consulting firm’s clause, which would have barred the hiring, was far too broad.

Interestingly, the court suggested in dicta that a narrower clause the prohibited solicitation of employees who had actually worked for the client might be enforceable.  Rick Bergstrom of San Francisco’s Morrison & Foerster LLP offers his take on the facts and the holding of the case here. (Free registration required.)

[Frank Snyder]

September 14, 2007 in Commentary, Recent Cases | Permalink | TrackBack (0)

Thursday, September 13, 2007

In the News: September 13

Aaa_2 A nice little shrinkwrap case is brewing out in Seattle, where software publisher AutoDesk has been using a provision in its End User License Agreement to stop sales of its products over eBay.

The battle to force the Seattle SuperSonics basketball team to keep playing in a city arena is heating up; Seattle is "lawyering up" and has brought in former Republican Senator Slate Gorton, who previously helped prevent the baseball Mariners from leaving for greener pastures.

Authorities in Ghana are trying to boost the leasing industry by promulgating a new law governing lease contracts; the new law provides for more lessor self-help and allows them to enlist police to repossess goods from delinquent lessees.

Earthlink Inc. can breath a little easier today, after the San Francisco City Council formally terminated the proposed contract to blanket the city with free Wi-Fi.  Earthlink was set to lose a tidy chunk of money on the deal, and had withdrawn its proposal last month.

[Frank Snyder]

September 13, 2007 in In the News | Permalink | TrackBack (0)

UCI is Looking for a New Dean

Aaa Many Californians think the Golden State needs another state-supported law school about as much as it needs another fast food restaurant.  It is, after all, the only state where anybody with a spare bedroom and a table can open a law school, and where you don't even have to go to law school to become a lawyer.  But they've apparently found something they like even less:  a high profile leftist law professor to act as its founding dean.

The chancellor of the University of California-Irvine, apparently under some pressure from the Board of Regents and members of the UCI community, has canceled the contract of Duke law professor Erwin Chemerinsky to become the Orange County law school's first dean.  Getting Chemerinsky, widely regarded as one of the country's most prominent legal scholars, had been something of a coup for UCI.  But his highly public advocacy on hot-button issues like abortion, affirmative action, and displays of the Ten Commandments, his attacks on conservative supreme court justices, and his reported unwillingness to lower his profile made him a political lightning rod, especially in one of the most conservative areas of California.  The fact that the new school is being named for a prominent Republican who gave it $20 million is said not have affected the decision.  Chemerinsky, who had previously been turned down for the deanship at Duke, says he won't challenge the termination.

Many commentators are saying that UCI will now have trouble attracting candidates for the $300,000+ position.  So this is your chance to get your application in.

[Frank Snyder]

September 13, 2007 in In the News, Law Schools | Permalink | TrackBack (0)

A Penalty is a Penalty is a Penalty . . . .

Aaa_2 Calling something a "deposit" instead of a "penalty" doesn’t make it so, according to a recent decision of the New South Wales Court of Appeal.

In Iannello & Anor v. Sharpe, the purchaser had agreed to buy a parcel of land for $4.5 million. He put down $225,000 in cash, which was 5 percent of the purchase price. The custom in New South Wales, apparently, is that buyers put down 10 percent.  So under the contract, the buyer was also obliged to ante up an additional 5 percent "deposit" in the event he backed out of the deal -- and the entire deposit would be forfeited.

If the whole 10 percent had been paid up front, it would all have been a "deposit" and the forfeiture would presumably have been valid. Did the fact that the additional 5 percent was not paid paid up front change the equation?  Yes, said the court. Only the money paid down on the barrelhead counts as a "true" deposit.  By making the second payment contingent on a breach by the buyer, the seller had simply imposed an improper penalty.

David Meagher of Sydney’s Cutler Hughes & Harris has some thoughts about the case in When a 'Deposit' Payable Under A Contract May Not Be A Deposit.  (Free registration required.)

[Frank Snyder]

September 13, 2007 in Commentary, Recent Cases | Permalink | TrackBack (0)

Wednesday, September 12, 2007

In the News: September 12

Skittish lenders apparently are driving a downturn in real estate deals.

The winner of the Miss Tuscola (Ill.) beauty pageant has been stripped of her crown and a $1,000 scholarship for breach of contract after pictures of her in a hookah bar were posted on the Internet.

Manager Ozzie Guillen of the Chicago White Sox -- the team with the worst record in baseball -- has been given a new contract extension through 2012. Rumor has the figure at over $2 million a year.

Aab Sevilla goalkeeper Andres Palop -- who is having a much better year than Ozzie Guillen -- also gets a contract extension from Sevilla F.C., this one to run through 2011.

The Colorado Supreme Court has refused to review a $4 million judgment won by a sheep rancher against an Oklahoma oil company for failing to pay appropriate royalties.

Some people do make a nice, legal living off of illegal drugs -- like Raytheon, which just earned a contract worth up to $15 billion to provide technology to try to stop the trade.

A Maryland appellate court has reversed a lower court ruling that Steve Belkin, majority owner of hockey’s Atlanta Thrashers and basketball’s Atlanta Hawks, had a contractual right to buy out his co-owners.

In a big privatization deal, America’s Ford Motor has acquired Romania’s state-owned Automobile Craiova for € 57 million, with a pledge to pump another € 675 million in the troubled company and a promise to buy € 1 billion in Romanian parts and supplies by 2012.  Ford had a plant in Romania until 1944, when it was confiscated by the state.

[Frank Snyder]

September 12, 2007 | Permalink | TrackBack (0)