ContractsProf Blog

Editor: D. A. Jeremy Telman
Valparaiso Univ. Law School

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Monday, December 8, 2008

Arianna Huffington + Jon Stewart = Eggplant Parmesan

HuffingtonArianna Huffington (pictured) was on The Daily Show last week promoting her new how-to book on how to be a successful blogger. The key, Huffington says, is to write about your passion, which in her case is cheese.  An incredulous Stewart responds that his passion is eggplant.  He obviously has a hard time imagining that the HuffPo would be the leading political blog that it is if its focus where on cheese.  More generally, Stewart seems to have a rather low opinion of blogs, at least as the blogging process is described by Huffington.  Why, Stewart asks, would people want to read all the dreck that didn't make it onto my show?  You can watch the full exchange here.

As a committed blogger, I have to add, LONG LIVE DRECK!!!

[Jeremy Telman]

December 8, 2008 in About this Blog | Permalink | Comments (1) | TrackBack (0)

Contracts Limerick of the Week: Nanakuli Paving v. Shell Oil

Honolulu I've taught this case for years, and I've always considered it Limerickworthy, but only recently did the proper rhyme scheme occur to me. Giving credit where credit is due, I must acknowledge that my wife, the celebrated poet Catherine Tufariello, suggested the first rhyme word, but only because she never takes my poems seriously. Well, I showed her! The last rhyme word is all mine, and it may be a bit obscure to some, so I have added a link to clarify matters.

Nanakuli Paving and Rock Co. and Shell Oil had developed a symbiotic relationship in which Shell provided asphalt for Nanakuli's paving business, thus giving Shell a partner in Hawaii so that it could compete in the paving business there with its rival, Chevron, which supplied asphalt to Honolulu's leading paving company, H.B. Although the contract between Nanakuli and Shell provided that the price for asphalt would be Shell's posted price at the time of delivery, Nanakuli relied on trade usage evidence to argue that Shell had always granted Nanakuli price protection when rapid changes in petroleum prices would otherwise make Nanakuli's government contracts unprofitable. In fact, there was plenty of evidence that the paving business as it operated in Hawaii would have been commercially impossible without price protection.

Still, the issue was how to reconcile trade usage with a clear price term, as required under the UCC. The Ninth Circuit got creative (in my view) and distinguished permissible "cutting down" of an express term from "negating" it. A negation of the express price term, "Shell's Posted Price at the time of delivery," would have been to permit Nanakuli to set the price. Instead, the court simply "qualified" the express term with an implied term permitting price protection. That is obviously the right result based on commercial reasonableness, but it requires considerable suspension of disbelief.

Nanakuli Paving v. Shell Oil

Was the Ninth Circuit snorting patchouli
Letting parol in to help Nanakuli?
Shell Oil was brought low
As if by a blow
From the bat of a trade-use Gillooly.

[Jeremy Telman]

December 8, 2008 in Famous Cases, Limericks, Teaching | Permalink | Comments (0) | TrackBack (0)

Sunday, December 7, 2008

Wilkinson-Ryan on the Behavioral Economics of Efficient Breach and Liquidated Damages

Tesswilkinsonryan_2Tess Wilkinson-Ryan, Sharswood Fellow in Law and Psychology at the University of Pennsylvania School of Law, recently posted Do Liquidated Damages Clauses Encourage Efficient Breach?, in which she (1) reports the methodology and results of a series of experiments designed to elicit participants' hypothetical likelihood to breach an existing contract either because what they thought was a winning contract now looks to be a losing one or because a more lucrative, but mutually exclusive, opportunity has come along, (2) introduces a liquidated damages provision to the hypothetical contract and reports how its presence or absence appeared to affect participants' responses, and then (3) attempts to draw from her experimental results broad conclusions about the cognitive processes of her sample groups and the implications her results have for efficient breach theory.  Here's an excerpt from the abstract:

Economic theorists predict that parties will breach a contract when it is possible to pay expectation damages to the promisee and still make a net profit.  The moral obligations entailed by a promise, however, implicate unusually robust moral intuitions which in turn may deter parties from breaching even when there is an economic incentive to do so.  In this paper I use experimental methods to investigate the role of moral norms in parties' propensity to capitalize on efficient breach opportunities....  In the last experiment, subjects were asked to think about the effect of a liquidated damages clause on their intuitions. The most important result from this study is that subjects required less money to breach contracts with liquidated damages than otherwise identical contracts.

I have some concerns, which I am happy to discuss with the author, about her methodology (or at least her methodological explanation), the way she characterizes efficient breach theory, and the robustness of a couple of her conclusions.  Those concerns aside, this is an interesting working paper that is, at the very least, a substantial first step toward an interesting article.

[Keith A. Rowley]

December 7, 2008 in Recent Scholarship | Permalink | Comments (0) | TrackBack (0)

Australia: A Movie About Contract Law

A few days ago, in a fit of holiday and pre-exam frivolity, I went to see Australia, the latest Baz Luhrmann – Nicole Kidman collaboration.  It’s quite different from Moulin Rouge (no singing to speak of), yet it’s still a similar kind of oddball high-kinetic vision, and a lot of fun.  The one flaw of the movie (okay, other than the fact that it lacks Ewan McGregor) is that it tries to weave too many strands together – a sense of the beauty of the outback, cattle ranching, business competition, racism, aboriginal rights, WWII, mysticism, a love story.  Too much for one movie.

Aside from all these themes, I perceived that Baz Luhrmann wanted to make a movie about contract law.  When Lady Sarah (Kidman) arrives in Australia, the dominating cattle baron, King Carney, offers her a lowball price for her cattle ranch.  If she can succeed in driving her cattle to the Port of Darwin, she will win the contract for supply of the army, thereby undercutting Carney’s monopoly.  The climax of the first part of the movie (the first movie?) involves whether the army officer will sign Carney’s proffered contract before Lady Sarah rides into town with the cattle. 

Unfortunately, the army officer does sign the contract before Lady Sarah arrives.  But then the officer tells Lady Sarah that the contract is only binding upon delivery of the cattle to the ship.  A race then ensues to load the cattle first.  Who knew that the UCC could be so much fun?

So, there you have it.  The epic of Australia is really a movie about contract law.

[Miriam Cherry / Cross Posted at Concurring Opinions]

December 7, 2008 in Film Clips | Permalink | TrackBack (0)

Now in Print: Dispatches from Abroad

Pileofbooks

As our world shrinks and becomes increasingly interconnected, U.S. scholars visit or take posts abroad and foreign scholars reciprocate, and private law systems tend to converge, it seems odd that U.S. contracts scholarship is not chock full of citations to articles and essays appearing in foreign law journals and that, likewise, the work of predominantly non-U.S. scholars appearing in foreign law journals -- particularly from countries that share a common legal ancestry -- is not chock full of citations to articles and essays appearing in U.S. law journals. It's as if we still lived in an age where most legal scholars relied on postal delivery of law journals, there was no Internet providing a worldwide web of opportunities for collaboration and cross-pollination, and the only English-language journal devoted to contracts scholarship  -- the Journal of Contract Law -- wasn't based in Australia.

In an effort to help raise awareness among this blog's readers, most of whom are (as am I and my fellow bloggers) based in the U.S., this is the first of an irregular series of posts designed to call attention to recent English-language contracts scholarship appearing in journals that SmartCILP generally does not index and to which Westlaw or LexisNexis may not provide full-text on-line access. (Hein Online makes many of these periodicals available -- but typically not the most recent issues.)

Richard Austen-Baker, Consumer-Supplier Relations, Regulation and Essential Contract Theory, 24 J. Contract L. 60 (2008).

Lord Bingham of Cornhill, A New Thing Under the Sun? The Interpretation of Contract and the ICS Decision, 12 Edinburgh L. Rev. 374 (2008).

David Capper, The Extinctive Effect of Promissory Estoppel, 37 Common L. World Rev. 105 (2008).

David Capper, A "Golden Victory" for Freedom of Contract, 24 J. Contract L. 176 (2008).

J.W. Carter, Partial Termination of Contracts, 24 J. Contract L. 1 (2008).

J.W. Carter & Elisabeth Peden, Damages Following Termination for Repudiation: Taking Account of Later Events, 24 J. Contract L. 145 (2008).

David Collins, Compulsory Arbitration Agreements in Domestic and International Consumer Contracts, 19 King's L.J. 335 (2008).

Wayne Courtney, Termination of Contract by a Party in Breach, 3 J. Bus. L. 226 (2008).

Wayne Courtney, Construction of Contractual Indemnities -- Out with the Old, in with the New?, 24 J. Contract L. 182 (2008).

Ross Grantham & Charles Rickett, A Normative Account of Defences to Restitutionary Liability, 67 Cambridge L.J. 92 (2008).

Birke Häcker, Mistakes in the Execution of Documents: Recent Cases on Rectification and Related Doctrines, 19 King's L.J. 293 (2008).

Parker Hood, "A Stitch in Time"? Repairs and Rejection in Sale of Goods, 12 Edinburgh L. Rev. 316 (2008).

Simon Lean-Massey, Employment Agreements: Special Contracts Deserving of Special Treatment?, 14 Canterbury L. Rev. 101 (2008).

Sarah Leslie, Much Ado About Nothing: Steele v Serepisos and a Notice Requirement for Contingent Conditions, 39 Victoria U. Wellington L. Rev. 319 (2008).

David McLauchlan, The "Drastic" Remedy of Rectification for Unilateral Mistake, 124 L.Q. Rev. 608 (2008).

Jennifer M. Nadler, What Right Does Unjust Enrichment Law Protect?, 28 Oxford J. Legal Studies 245 (2008).

Sara Partington & Kirk Page, Best Endeavours?  What's Reasonable and What's Best?, 158 New L.J. 1407 (2008).

Luke Pearce, Foakes v. Beer and Promissory Estoppel: A Step Too Far, 19 King's L.J. 630 (2008).

David Pearce & Roger Halson, Damages for Breach of Contract: Compensation, Restitution and Vindication, 28 Oxford J. Legal Stud. 73 (2008).

Nick Sage, Should Contract Law Demand Equality in Exchange? Reflections on Substance, Procedure and a Modus Vivendi, 24 J. Cont. L. 28 (2008).

Chaim Saiman, Restitution in America: Why the US Refuses to Join the Global Restitution Party, 28 Oxford J. Legal Stud. 99 (2008).

James Simon, European Contract Law: Odysseus the Hero or Muffin the Mule?, 2 L. & Fin. Mkts. Rev. 498 (2008).

Richard Sutton, Interest on Money Claims: The Restitutionary Award, 23 N.Z. U. L. Rev. 34 (2008).

Greg Tolhurst, The Nature of an Assignee’s Right to Damages for Breaches of Contract That Occur Prior to Assignment, 24 J. Cont. L. 77 (2008).

Alexander Trukhtanov, Foakes v Beer: Reform of Common Law at the Expense of Equity, 124 L.Q. Rev. 364 (2008).

John Zerilli, Accident in the Equitable Jurisdiction, 24 J. Contract L. 112 (2008).

Qi Zhou, An Economic Perspective on the Doctrine of Unilateral Mistake in English Contract Law: A Remedy-Based Approach, 59 N. Irl. L.Q. 327 (2008).

[Keith A. Rowley]

December 7, 2008 in Recent Scholarship | Permalink | TrackBack (0)

Wednesday, December 3, 2008

New CISG Scholarship

Canadian_flagAntonin I. Pribetic, friend of the blog and the practitioner who has best positioned himself of the traffic circle at which scholarship, Canadian law and the CISG intersect, has a new article out. You can download it from SSRN here. Here is the abstract:

This article discusses the applicability of the CISG from a Canadian conflict of laws perspective - both in terms of jurisdiction and choice of law. The analysis is framed by providing an outline of the key jurisdictional and choice of law principles developed within Canadian jurisprudence. Following a brief contextual overview of the CISG, Articles 1(1) (a) and 1(1) (b) and Article 6 of the CISG are highlighted, with specific reference to recent Canadian and foreign judicial decisions and foreign arbitral awards involving Canadian parties. The article concludes with a clarion call to justice stakeholders, particularly, Canadian commercial lawyers and judges, to better understand and apply the CISG in the future.

[Jeremy Telman]

December 3, 2008 in Recent Scholarship | Permalink | Comments (0) | TrackBack (0)

Buyer’s Remorse, Now With Bite

Coahead01Recently, the New York Court of Appeals unanimously held that the buyers of a house could back out of the deal by disapproving of the contract pursuant to an “attorney approval contingency.”

In Moran v. Erk, the Erks signed a contract to purchase the Morans' home in Clarence, New York for $505,000. The contract of sale contained a rider with an “attorney approval contingency.” That clause provided that the contract was contingent upon approval by the parties’ attorneys, and gave both seller and buyer 3 days from their attorney’s receipt of the contract to disapprove of the contract and render it void. The contract and rider were boilerplate forms copyrighted and approved by the Greater Buffalo Association of Realtors and the Bar Association of Erie County. This type of clause is common in New York real estate contracts, and is (at least in part) intended to ensure that real estate brokers avoid unauthorized practice of law.

After signing the contract, the Erks began to have second thoughts about the purchase. As a result, they instructed their attorney to disapprove of the contract, which she did within the 3-day period provided in the contract rider. The Morans eventually sold their house about 3 years later for $385,000. Shortly thereafter, the Morans sued the Erks for breach of contract and sought the difference in sale prices as well as carrying costs for the nearly 3-year period the house was on the market.

The trial court entered judgment against the Erks, holding that they acted in bad faith by instructing their attorney to cancel the contract. The Appellate Division affirmed. The New York Court of Appeals reversed, holding the language of the “attorney approval contingency” clause “means what it says: no vested rights are created by the contract prior to the expiration of the contingency period.” The Morans argued that the contract nonetheless created an implied limitation on the attorney’s discretion to disapprove the contract. Writing for the unanimous Court, Judge Read held:

Jread04

We do not ordinarily read implied limitations into unambiguously worded contractual provisions designed to protect contracting parties. The Morans, however, contend – and the lower courts apparently agreed – that the implied covenant of good faith and fair dealing implicitly limits an attorney’s ability to approve or disapprove a real estate contract pursuant to an attorney approval contingency. This argument misconstrues the implied covenant of good faith and fair dealing under New York law.

The implied covenant of good faith and fair dealing between parties to a contract embraces a pledge that “neither party shall do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract.” [citations omitted]. Yet the plain language of the contract in this case makes clear that any “fruits” of the contract were contingent on attorney approval, as any reasonable person in the Morans’ position should have understood.

Further, the Court recognized the "chanciness" of a “bad faith exception” to the attorney approval contingency:

Reading a bad faith exception into an attorney approval contingency would create . . . a regime where “question[s] of fact precluding summary judgment” would “usually [be] raise[d]” by a disappointed would-be seller or buyer any time an attorney disapproved a real estate contract pursuant to an attorney approval contingency. In an area of law where clarity and predictability are particularly important, “this novel notion would be entirely dependent on the subjective equitable variations of different Judges and courts instead of the objective, reliable, predictable and relatively definitive rules” of plain-text contractual language.

Finally, the Court noted that a bad faith rule could pose a threat to attorney-client confidentiality: “A diligent attorney, cognizant of the risk of being subpoenaed to testify as to the basis for disapproval, would face a perverse incentive to avoid candid communications with his or her client regarding a transaction in which the attorney is supposed to represent the client’s legal interest.”

Moran v. Erk, ___ N.Y.3d ___ (Nov. 25, 2008).

[Meredith R. Miller]

December 3, 2008 in Recent Cases | Permalink | TrackBack (0)

Tuesday, December 2, 2008

Business Associations Limerick of the Week: New Horizons v. Haack

This is a sad case about a woman, Allison Haack, who formed an LLC with her brother and was left on the hook when the LLC was dissolved because Ms. Haack did not abide by all necessary formalities in dissolving the association and could not account for all of its assets.

The case drives home the crucial point that states do business owners a great favor by letting them organize themselves as limited liability companies. All they ask in return is that the business owners make certain that the world is on notice that they are in fact LLCs. If the members of the LLC fail to do so, they are subject to something akin to veil-piercing, as was the unfortunate Ms. Haack.

Like most LLC cases, this one is not very colorful, nor is it great fun to teach, but it is set in Wisconsin's charming Kickapoo Valley, and I just like having reason to say "Kickapoo."

New Horizons v. Haack

She lost on appeal, poor Ms. Haack.
She could have won. But for the lack
Of a filing,
Ms. Haack would be smiling
And her finances back in the black.

[Jeremy Telman]

December 2, 2008 in Famous Cases, Limericks, Teaching | Permalink | Comments (0) | TrackBack (0)

Monday, December 1, 2008

Links to Related Blog Posts

Just in case there are readers of this blog who are interested in further discussion of the two recent international contracts (i.e. treaties) posted on this blog recently here and here, you can find it over at Opinio Juris.

Kenneth Anderson gets the ball rolling with this blog post in support of Goldsmith and Posner's Wall Street Journal opinion peace. The comments on that post do a nice job of supplementing my criticisms of Goldsmith & Posner's perspective.

Kevin Jon Heller pitches in with this post echoing opinions posted on this blog to the effect that European states do not violate international law or the U.N. Charter by ratifying the Rome Statute and participating in the International Criminal Court.

Kennether Anderson's views on pirates are available here.  Kevin Jon Heller also contributes to the piracy theme in this post, as does Duncan Hollis here.

We now return to our regularly scheduled programming.

[Jeremy Telman]

December 1, 2008 in Commentary | Permalink | Comments (0) | TrackBack (0)

Contracts Limerick of the Week: Selmer v. Blakeslee Midwest

PosnerBlakeslee-Midwest owed Selmer $120,000, but it offered to pay only $67,000. As Selmer was on the brink of collapse and desperately needed the cash, it accepted the partial payment. Two years later, Selmer sued claiming that the settlement was the product of economic duress. Most courts might be sympathetic to such a claim, but this case was decided by Judge Posner, who believes that permitting an insolvent party to avoid a settlement on the basis of economic duress would remove all incentives for parties to enter into settlements with parties in financial distress, thus hastening the latter's ruin. So long as the Blakeslees of the world are not responsible for the economic hardship faced by the other party, a court should not permit avoidance of a settlement agreement on the basis of economic duress.  At least, that seems to be Posner's rule, although his discussion suggests that a court might take other factors into account as well, such as whether the settlement was somewhat close to the amount owed and whether there was some reason why the party, perhaps seeking to benefit from its partner's economic position, could not have paid the full amount owed.

As the editors of the casebook that I use, Contracts: Law in Action, point out, Judge Posner's rule might be a good one, but it likely was not the law of Wisconsin at the time Judge Posner decided this diversity case that was governed by Wisconsin law. Unfortunately, the governing precedent in Wisconsin, Wurtz v. Fleischman, does not set forth a very clear rule of law. The intermediate appellate court had decided the case based on a law review note that proposed treating duress as though it were a tort. Wisconsin's high court did not contradict that view but simply remanded to the trial court because the intermediate appellate court had decided factual issues.  But the Wisconsin court did not seem to think the rule for economic duress should depend on whether or not one party was resopnsible for the other party's economic difficulties.

My understanding is that most states follow some version of Posner's rule on economic duress.

Selmer v. Blakeslee-Midwest

In Selmer v. Blakeslee-Midwest,
Judge Posner creates a new test.
Mere business stress
Does not make duress.
Thus breaching parties are blessed.

[Jeremy Telman]

December 1, 2008 in Famous Cases, Limericks, Teaching | Permalink | Comments (0) | TrackBack (0)