Tuesday, September 30, 2008
Edwin S. Fruehwald (Hofstra) has posted to SSRN a piece titled Reciprocal Altruism as the Basis for Contract. Here's the abstract:
Behavioral Biology illuminates the basis of contract. Behavioral biologists believe that genes are selfish; they are only interested in their survival. However, reciprocal altruism - "I'll scratch your back if you scratch mine" - provides a basis for cooperation among humans that promotes survival. If two humans cooperate in obtaining and allocating resources, they will have greater resources and a greater chance to survive and reproduce, thus continuing their genes. Contract law reflects and reinforces this reciprocal altruism from our evolutionary past.
Connected with reciprocal altruism is a human instinct for equity in reciprocal exchanges. Humans can detect unfair situations and rectify them. Evolutionary fairness is reflected in the contract rules of frustration, unconscionability, and mistake, as well as the good faith duty in performance and unconscionability. Also connected with reciprocal altruism is the need to punish cheaters. In contract law, cheaters-those who breach the contract-are punished through contract remedies. Finally, contract law helps deal with the evolutionary problem of time-shifted rationality, where individuals value what they have over what they can gain in the future.
Part II of this paper will discuss traditional theories of contract law, including the objective theory of contract formation, deontological and consequentialist approaches, redistributive theories, and more recent theories by Professor Solan (contract as agreement) and Professor Markovits (contract as collaboration). Part III will introduce behavioral biology and explain reciprocal altruism and related doctrines, such as cheating and time-shifted rationality. It will also show that neuroscientific studies support the existence of reciprocal altruism and related behavioral mechanisms. Part IV will then analyze the relationship between reciprocal altruism and contract law. It will argue that reciprocal altruism is the best explanation for the formation of contracts, compare reciprocal altruism as the basis of contract to the theories discussed in Part II, examine the other necessary element for contract validity - consideration - under reciprocal altruism, and give a justification for courts to enforce contracts under reciprocal altruism. Part V will demonstrate that contract damages are the glue for reciprocal altruism and that expectation damages are the proper measure of damages under this approach. Finally, Part VI will deal with reciprocal altruism and other contract issues-gap filling, unallocated risks, good faith in performance, and unconscionability.
[Meredith R. Miller]
Poor Lillian Pritchard gave in to depression after her husband's death. Her husband, loving father that he was, tried to warn Lillian of the vipers she had raised. "He'll steal the shirt off your back," Mr. Pritchard warned Lillian, speaking of one of the sons. Lillian did not heed that advice, and she fiddled while the reinsurance brokerof which she was a director, Pritchard & Baird, burned. Her sons, co-owners of the enterprise, gave themselves loans out of the business's coffers and never repaid them. After the company went bankrupt, creditors sought to recover from Mrs. Pritchard's estate.
One might think that the business judgment rule would protect Mrs. Pritchard, but not so where there was no business judgment made. Indeed, the court noted that the Pritchard boys hatched their fraudulent scheme "in the backyard of Lillian's neglect." That's the line that inspired the Limerick:
Francis v. United Jersey Bank
In the backyard of Lilly's neglect
Spawned a fraud that a company wrecked:
Her boys stole the booty
While she breached her duty
Through her failure their fraud to detect.
Monday, September 29, 2008
Ordinarily we don’t pay much attention here to the kind of cosmic questions that show up frequently in moot court competitions, like whether there’s some sort of constitutional right not to become a "genetic parent." But when the question becomes whether you ought to be able to contract to do so, that’s another story.
In a paper forthcoming in the Southern California Law Review, The Right Not to Be a Genetic Parent? [sic], Harvard’s Glenn Cohen first argues that courts ought to recognize the right to be free from genetic parenthood, because of the "harm that stems from the social assignment of the status of parent to the provider of genetic material that persists notwithstanding the fact that the legal system has declared him or her a non-parent."
But that’s neither here nor there. Cohen goes on to argue that whatever the source of the right, you ought to be able to contract in advance to surrender that right, so long as suitable mechanisms are in place to ensure consent. Here’s the abstract:
Should the law recognize an individual's right not to be a genetic parent when genetic parenthood does not carry with it legal or gestational parenthood? If so, should we allow individuals to waive that right in advance, either by contract or a less formal means? How should the law's treatment of gestational and legal parenthood inform these questions? Developments in reproductive technology have brought these questions to the fore, most prominently in the preembryo disposition cases a number of courts have confronted - disputes over the use of stored frozen preembryos that couples have fertilized in the course of In Vitro Fertilization (IVF) - but other examples abound.
In this Article, I argue that in analyzing these cases it is essential to unbundle the possible rights not to be a genetic, gestational, and legal parent, and to recognize that the three rights do not stand and fall together. I show that we cannot move from the discourse surrounding the rights not to be a gestational and legal parent to a justification for a right not to be a genetic parent. Instead, I argue that the normative mooring of the right not to be a genetic parent is best understood as a way of protecting individuals from what I call "attributional parenthood," a harm that stems from the social assignment of the status of parent to the provider of genetic material that persists notwithstanding the fact that the legal system has declared him or her a non-parent.
Using this framework, I argue for the recognition of the right not to be a genetic parent. However, I reject the claim, common among courts and commentators, that this right should not be capable of advance waiver. I instead conclude that we should permit advance waiver of the right through contract, with several interventions aimed at improving contractual consent. In preembryo disposition disputes where the parties have not contracted, I argue for a general default rule of non-use, perhaps with a sub-rule permitting use when non-use would mean the impossibility of one party ever having any genetic children.
Two new papers make our top ten list this week, Alan White's study of voluntary mortgage modifications and Stephen A. Smith's review of an important recent book by James Gordley. As always, there's a good deal of interesting stuff here. Following are the top ten most-downloaded new papers from the SSRN Journal of Contract and Commercial Law for the 60 days ending September 28, 2008. (Last week's rank in parentheses.)
1 (1) Freedom of Contract, David E. Bernstein (Geo. Mason).
2 (2) Contract Enforcement and Institutions Among the Maghribi Traders: Refuting Edwards and Ogilvie, Avner Greif (Stanford-Econ)
3 (3) Consent in Contract Law, Brian Bix (Minnesota).
4 (4) Law's Illusion: Scientific Jurisprudence and the Struggle with Judgment, Jeffrey M. Lipshaw (Suffolk).
5 (-) Rewriting Contracts, Wholesale: Data on Voluntary Mortgage Modifications from 2007 and 2008 Remittance Reports, Alan M. White (Valparaiso).
6 (6) Resolving the Foreclosure Crisis: Mortgage Modification in Bankruptcy, Adam Levitin (Georgetown) & Joshua Goodman (Columbia-Econ).
7 (5) The British Approach to Consumer Financial Disputes: A Model for Reform in Insurance Law and Beyond, Daniel Schwarcz (Minnesota).
8 (-) Troubled Foundations for Private Law: A Review Essay of 'The Foundations of Private Law' by James Gordley, Stephen A. Smith (McGill).
9 (8) Intellectual Property and Restrictive Covenants, Orly Lobel (San Diego).
10 (9) Spanish and International Judicial Interpretation of CISG, Anselmo M. Martinez Canellas (Islas Baleares).
Attorney Oliver agreed to represent Dr. Roy Campbell for a stated fee of $750. Okay, it was the 1950s, but even then $750 was a bit low for divorce proceedings that led to a 29-day trial. Things went pretty well at trial, but Dr. Campbell came in second and was not pleased with the silver medal. So, Dr. Campbell fired Mr. Oliver before the final hearing and the entry of judgment. Campbell was probably disappointed by that, until he realized that under the First Restatement ss. 347 and 350 (now R.2d s. 373), he could recover in restitution for the value of benefits conferred on Dr. Campbell, but only if Mr. Oliver had not completed performance.
Alas for Mr. Oliver, the majority of California's Supreme Court found that performance had been completed, and so he could only recover the unpaid portion of the contract price ($300) rather than the $5000 that the dissenting justice would have granted in quantum meruit.
Oliver v. Campbell
Campbell wasn't unjustly enriched
By the lawyer whose contract he'd ditched.
Counsel could have earned more
If he'd been fired before
Or claimed Campbell's wife was bewitched.
You may have noticed that this year's Tour de France was missing something. Like, for example, all of the top riders. However, ESPN reports that the International Cycling Union (UCI) and the organizers of the most famous cycling races, the Tour de France, the Giro D'Italia and the Vuelta a Espagne, have reached an agreement that will permit coordination of the various bodies that seek to govern professional cycling.
The parties have been feuding since UCI established its pro tour series in 2004. This year, the Tour de France's organizers fell out with the UCI, with disputes centering on controls over doping and authority to invite various cycling teams to enter the race. As reported in bikeradar.com, The Tour organizers excluded from the race the Astana team of defending champion, Alberto Contador, on the grounds that some members of Astana had been disqualified for doping in 2007. I've already groused about this injustice here. Contador, by the way, proved his mettle again this year by winning both the Giro and the Vuelta. The race was run under the authority of the French Cycling Federation. And still, still, the French could not win!
But all of that is water under the bridge, or so it is to be hoped.
Friday, September 26, 2008
- Stephen D. Dunn, The Next Reform: The State of Contractual Freedom in China, 9 Austl. J. Asian L. 289-306 (2007).
- Norman Otto Stockmeyer, To Err is Human, To Moo Bovine: The Rose of Aberlone Story, 24 T.M. Cooley L. Rev. 491-502 (2007).
[Meredith R. Miller]
On this appeal, we are asked to consider whether a dissatisfied end user of a computer system may maintain a cause of action against the system's manufacturer sounding in breach of contract where the end user did not purchase the system from the manufacturer, but from an authorized dealer. We also consider whether, in the absence of privity between the end user and the manufacturer, the end user may nonetheless maintain a cause of action against the manufacturer to recover damages for breach of implied warranties, or breach of express warranties contained in the manufacturer's brochure, a written price quote, an on-line digital licensing agreement, and a seller's distribution agreement. We hold that, in the absence of privity, the end user has no cause of action against the manufacturer sounding in breach of contract or breach of implied warranty. We conclude, however, that the end user has a cause of action against the manufacturer to recover damages for breach of express warranties contained in the brochure, the price quote, and the seller's distribution agreement. Since the end user here did not personally accept, agree to, or rely upon the terms of the on-line digital licensing agreement, she has no cause of action against the manufacturer to recover damages for breach of the express warranties contained therein. For the same reason, the manufacturer may not invoke the provisions of the digital licensing agreement to limit or restrict the express warranties contained in the brochure, the price quote, or the seller's distribution agreement.
Jesmer v. Retail Magic, Inc., __ A.D.3d ___ (2d Dep't Sept. 9, 2008).
[Meredith R. Miller]
Contracts are usually said to be different from things like crimes and torts in that they impose duties based on the consent of the party. We're all bound by duties of tort law whether we choose to be or not, but at least in theory we are not subject to contractual duties unless we have consented to them.
The problem, as all first-year contracts students quickly learn, is that theory and practice don't fit all that well together. There are many situations in contract law where the law imposes duties even where it's clear a party has not consented, and many others where the law excuses performance even from those who have agreed.
So what exactly is contractual "consent"? Minnesota's Brian Bix takes an interesting whack at the question in Consent in Contract Law:
Here's the abstract:
Consent, in terms of voluntary choice, is - or, at least, appears to be or purports to be - at the essence of contract law. Contract law, both in principle and in practice, is about allowing parties to enter arrangements on terms they choose - each party imposing obligations on itself in return for obligations another party has placed upon itself. This freedom of contract - an ideal by which there are obligations to the extent, but only to the extent, freely chosen by the parties - is contrasted to the duties of criminal law and tort law, which bind all parties regardless of consent. At the same time, consent, in the robust sense expressed by the ideal of freedom of contract, is arguably absent in the vast majority of the contracts we enter these days, but its absence does little to affect the enforceability of those agreements. Consent to contractual terms often looks like consent to government: present, if at all, only under a fictional (as if) or attenuated rubric.
This article explores a variety of topics relating to consent, and the role it plays in contract law doctrine and theory. The article begins by a brief examination of the nature of consent, then turns to contract doctrines that turn on the alleged absence of consent (e.g., duress and undue influence); contract rules and principles (e.g., implied terms) that turn on hypothetical consent; the challenges to consent that arise from electronic contracting and bounded rationality, and theories of contract law that emphasize consent.
. . . settling a dispute over a government contract ought to be easy, right? Maybe, maybe not. The two contractors fighting over NASA's proposed Constellation moon-rocket project have apparently called a "weeklong truce" in their battle. United Space Alliance, the biggest contractor at Kennedy Space Center, is suing Alliant Techsystems, claiming that Alliant had promised it a long-term subcontract to work on the Moon missile project.
You can already hear the jokes: "The bad news is that NASA has had to scale back the project so that the Moon rocket will only travel one way. The good news is that the lawyers will be flying the spacecraft."
Thursday, September 25, 2008
On Wednesday, John McCain announced that he was suspending his Presidential campaign so that he can help fix the current financial crisis. As a result, he had to back out of his promised appearance on the "Late Show with David Letterman".
According to the Los Angeles Times, McCain told Letterman that he had to cancel his appearance on Letterman's show so that he could rush to the airport and head to Washington. However, during the taping of his show, Letterman learned that McCain was not only still in New York, he was a few blocks away preparing to be interviewed by Katie Couric.
Letterman seems to viewed McCain's conduct as an actionable breach of contract. Rather than filing a complaint, he attempted to extract damages from the politician with the comedic tools at hand: The L.A. Times reports Letterman's commentary on the live feed that the "Late Show" played of McCain getting ready for his interview with Couric.
“He doesn’t seem to be racing to the airport, does he?” Letterman said, shouting at the television monitor: “Hey, John, I got a question! You need a ride to the airport?”
Letterman didn't stop there. He devoted much of the show to berating McCain for jilting him and for not sending Vice Presidential nominee, Sarah
Palin in his stead.
Apparently, Letterman is not the type to just let things go. According to the Los Angeles Times, Letterman devoted considerable air time to savaging the McCain campaign yet again Thursday night.
The bankruptcy of Lehman Brothers has caused shockwaves around the world, and those who participated in multi-lender deals the venerable investment banking house are looking anxiously at their contracts to find out just what they’re facing. Lawyers Merritt Pardini, Timothy Little and Sheri Chromow of Chicago’s Katten Muchin Rosenman LLP run down a list of the looming questions in a recent client alert, United States: Implications Of The Lehman Bankruptcy Entities On Multi-Lender Financings. (Free registration required.)
The school is on a $120 million kick to build up it’s law school facilities. Sounds pretty good, especially if you’re a football fan. The contact is Professor Gary Gildin.
When an insurance company wrongly denies your claim, or gives you less than you ought to get, you have an arsenal of legal weapons available to you. Fact is, though, that most of these weapons are unrealistic for ordinary people, says Minnesota’s Daniel Schwarcz in a new paper, The British Approach to Consumer Financial Disputes: A Model for Reform in Insurance Law and Beyond.
Schwarcz argues that neither litigation nor alternative dispute resolution does a good job of redressing wrongful denials, and suggests that U.S. policy makers might want to look at a British model instead. Here’s the abstract:
Much of insurance law and regulation is concerned with compensating consumers who have been wrongly denied coverage. But policyholders nonetheless have relatively few realistic options for challenging an insurer's adverse coverage determination. Litigation is often too slow and costly for those who have recently suffered significant financial loss. Meanwhile, the alternative dispute resolution options that do exist - such as the mediation services that insurance regulators offer or the existing variants of insurance arbitration - are generally either ineffective or unavailable for most disputes. This Article proposes a new way forward by looking to the United Kingdom's innovative Financial Ombudsman Service, which operates in parallel to the British regulatory agency and is devoted solely to resolving consumer financial disputes. It argues that the comparative success of the Financial Ombudsman Service is attributable primarily to the ways in which it blends elements of the individual, uncoordinated insurance ADR schemes that are used in America. As such, the Article concludes that American lawmakers can significantly improve insurance compensation by strategically rethinking the institutional architecture of insurance dispute resolution. It also suggests that the British Financial Ombudsman Service may offer a model for improving consumer dispute resolution in realms beyond insurance.
Wednesday, September 24, 2008
Some contract disputes are simple. Some aren't. The $100 million breach-of-contract dispute between American Skiing Co. and Wolf Mountain Resorts over Park City's The Canyons resort is apparently one of the latter. Asked what the litigation is about, a lawyer for ASC said that it involves "many, many different breaches in play, with 10 years of dealings between the parties." Exactly what the breaches are will presumably emerge during discovery, since (as an opposing lawyer notes), "We're all fighting over the same ski resort that is worth quite a lot of money."
There seems to be a gulf, says Suffolk’s Jeff Lipshaw, between practicing lawyers and the professors who taught them. There is another gulf between the practicing lawyers and their clients. In a new "thought piece," Law's Illusion: Scientific Jurisprudence and the Struggle with Judgment, Lipshaw argues that it may be that single thing most important to a lawyer who can solve a client’s problem is something that just can’t be taught: judgment. Here’s the abstract:
Why are there two fairly clear chasms that affect practicing lawyers - one between themselves and their clients, and one between themselves and their professors? Both have to do with the irreducibility of judgment - perceiving regularities, applying rules to new situations, and deciding in advance what to do. I suspect Kant was right over two centuries ago, and there has not been much progress theorizing about it since then (even after the behavioral theorists like Tversky and Kahnemann and popular expositors like Malcolm Gladwell); judgment, either the inductive inferences from what we observe to what we generalize, or the leap from what we generalize to what to do next, is not teachable, but only achievable through practice. Practicing lawyers are reductivists in comparison to their clients - reducing the complex world through the science of law to a model; professors are reductivists in comparison to their students - either reducing the practice to a rational science, or avoiding the question of judgment at all.
We've mentioned before that Dan Rather has sued CBS for breach of contract. Here's an update from the Austin Business Journal:
A New York judge ruled Monday that former CBS anchor and longtime newsman Dan Rather can proceed with a $70 million lawsuit against the network for firing him, Bloomberg reports.
Rather, a native Texan who maintains a residence in downtown Austin, filed the complaint alleging breach of contract in 2007. New York Supreme Court Judge Ira Gammerman ruled in April that depositions could be taken in the case. Gammerman said on Monday that Rather can sue over claims that the network damaged his reputation when it fired him. But Gammerman said the newsman cannot sue CBS Corp. for fraud, or the one-time parent company Viacom Inc. on claims it interfered with his contract.
Rather’s attorney Martin Gold told Bloomberg: “I think the breach-of-contract claim is essentially a slam dunk, there’s no defense to that.”
James Quinn, a lawyer for CBS, told the news agency he intends to ask the judge for a pretrial ruling dismissing the remaining breach-of-contract and breach-of-fiduciary duty claims against CBS after depositions and discovery have been completed.
[Meredith R. Miller]
You may have heard, Governor Sarah Palin said "thanks but no thanks" to the "bridge to nowhere" in Ketchikan, Alaska. Well, our fourth branch of government, CNN, has uncovered that Gov. Palin did, however, say "yes" to a "road to nowhere." In all fairness, the road to nowhere was to lead to the bridge to nowhere that was never built.
In an act of courageous reporting, CNN traveled to the site of the road to nowhere, and tried to find someone to take the position that, once the bridge project was cancelled, there was still good reason to spend millions of taxpayer dollars on the road that would have lead to the bridge. As you'll see in the clip (above), they found Meg Stapleton, a McCain-Palin spokesperson, who said that Gov. Palin had no choice - because the federal money was earmarked for the road, and the contract for the road's construction had already been signed before Palin took office. It is beyond my expertise to speak about federal earmarks, though I suspect that a State can return the money once the need for it is obviated, no questions asked. The point about an existing contract is, of course, more interesting to me -- at least, to the extent that it becomes a matter of political convenience, and an unconvincing excuse. People change their minds, why can't governments?
Even before the recent downward spiral of our financial markets, politicians have analogized the federal purse to the home budget. That is, just as each American family's budget, the government shouldn't be spending more than it can afford. (Which, of course, is in part to blame for our recent mess - that both the American family and the government are spending more than they can afford). But, I digress. The point: government contracts are no different than our own, private contracts, and people renege on deals all of the time. If I hired a contractor to build a fence around a pool that I was going to construct in my backyard, but then decided against building the pool, I would also renege on the contract to construct the fence. Sure, I might have to pay the contractor damages (likely, forfeit a deposit), but certainly not the full amount of original fence contract. Similarly, I'd rather pay a few million in taxpayer money in damages to a road contractor than more millions for a road to nowhere.
I wonder how effective it is as a political device to say to the American people that "a contract had already been signed." I wonder if the societal norm is to view a contract as an iron clad commitment. Or, is a contract seen as something there is always a way to weasel or pay your way out of? I can't be sure, but I suspect the latter. Which would make "the contract was already signed" an unconvincing political line.
[Meredith R. Miller]
The recipient of the produce contained in this package agrees not to propagate or reproduce any portion of the produce, including (but not limited to) seeds, stems, tissue and fruit.
Thanks to Michigan's Bruce Frier for tipping me off. Bruce would appreciate learned opinion on the enforceability of such a EULA.
Tuesday, September 23, 2008
How do societies develop methods of enforcing commercial dealings? That’s a subject that both economists and historians have investigated over the years. They've paid particular attention to the "Maghribi," Jewish traders in the Islamic Mediterranean of the Middle Ages. Stanford’s Avner Greif (left) has written about them extensively, suggesting that they relied on a "multilateral reputation mechanism" in a closed society to enforce dealings, rather than a formal legal system, and arguing that this left them at a disadvantage vis-a-vis the more legalistic Italians.
Earlier this year, two Cambridge economists, Jeremy Edwards and Sheilagh Ogilvie, took issue with that claim in a a paper that argued that Maghribis did, in fact, deal extensively with outsiders and used formal legal mechanisms to do so.
Greif has now responded with Contract Enforcement and Institutions Among the Maghribi Traders: Refuting Edwards and Ogilvie. You probably need to be an expert to follow the nuances, but both articles are worth a read. Here’s Grief’s abstract:
Edwards and Ogilvie (2008) dispute the empirical basis of the view (Greif, e.g., 1989, 1994, 2006) that a multilateral reputation mechanism mitigated agency problems among the eleventh-century Maghribi traders. Based on anecdotal evidence and an interpretation of the secondary literature they assert that the relations among merchants and agents were law-based. This paper refutes this assertion based on comprehensive quantitative analyzes of the documentary corpuses and a careful review of the documents and the literature Edwards and Ogilvie cite. The assertion that the legal system had a major role in supporting trade is based on unrepresentative and irrelevant examples, an inaccurate description of the literature, and a consistent misreading of the few sources Edwards and Ogilvie consulted. The claim that merchants' relations with their overseas agents were law-based in this historical era is wrong.
Among the recent and new quantitative findings reported here is that (1) less than one percent of the documents' content is devoted to legal activity on any matter. (3) The legal system was mainly used for mandatory, non-trade related matters. (Edwards and Ogilvie constantly present mandatory legal actions in non-trade related legal cases as evidence for voluntary legal actions in matters pertaining to trade.) (3) The documents reflect thousands of agency relations but there are less than six court documents possibly reflecting its use in agency disputes. (4) A ten percent random sample of all the documents finds no trade-related legal actions among Maghribis beyond those in the court documents. (5) About 75 percent of agency relations were not based on a legal contract. The paper also reaffirms the accuracy of Greif's documentary examples and sheds light on the roles of the legal system and reputation mechanism during this period. The empirical basis for the multilateral reputation view is stronger than originally perceived.