ContractsProf Blog

Editor: Myanna Dellinger
University of South Dakota School of Law

Saturday, May 17, 2008

Not-Quite-Mid-Year UCC Legislative Update

Out of deference to friends and colleagues updating casebooks and statutory supplements for publication prior to the start of fall classes, as well as friends and colleagues teaching contracts or commercial law courses this summer or preparing or updating their own teaching materials for the fall, here's the early edition of this year's Mid-Year UCC Legislative Update.

Revised Article 1 (2001)

As of January 1, 2008, twenty-nine states -- Alabama, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Hawaii, Idaho, Indiana, Iowa, Kansas, Kentucky, Louisiana, Minnesota, Montana, Nebraska, Nevada, New Hampshire, New Mexico, North Carolina, North Dakota, Oklahoma, Rhode Island, Texas, Utah, Virginia, and West Virginia -- had enacted Revised Article 1, and twenty-eight of those enactments were in effect (Kansas's version has a delayed effective date of July 1, 2008).

As of May 17, 2008, four more states -- Pennsylvania (HB 1152), South Dakota (SB 93), Tennessee (SB 3993), and Vermont (HB 563) -- have enacted Revised Article 1 thus far this year.  All four enactments will take effect on or before July 1, 2008.  With only one other pending bill -- Illinois SB 2080 -- having made any progress (the Illinois Senate passed it unanimously on April 9 and it is currently scheduled for a hearing before the Illinois House Judiciary Civil Law Committee on May 20), it appears that 2008 will yield the fewest new enactments since 2004.  That said, Revised Article 1 will be law in at least two-thirds of the states by July 1.

As I have discussed previously, the two primary bones of contention during the enactment process have been uniform R1-301's choice-of-law rules and uniform R1-201(b)(20)'s "good faith" definition.  None of the thirty-three enacting states has adopted uniform R1-301; instead, all have chosen to either leave their pre-revised 1-105 in place or to enact a substitute 1-301 with language consistent with pre-revised 1-105.  (Louisiana subsequently amended its substitute 1-301 to diminish the distinction between choice-of-law rules applicable to UCC and non-UCC transactions; but, a fuller exploration of that amendment is another topic for another day.)  There had been less uniformity with regard to defining "good faith."  Twenty-three states -- including Pennsylvania, South Dakota, and Vermont -- have enacted uniform R1-201(b)(20)'s "honesty in fact and the observance of reasonable commercial standards of fair dealing" definition; while ten states -- including Tennessee -- have retained pre-revised 1-201(19)'s "honesty in fact in the conduct or transaction concerned" definition, reserving the requirement of commercial reasonableness for merchants under 2-103(1)(b) & 2A-103(3).  If enacted as it currently reads, Illinois SB 2080 would make uniform R1-301 0-for-34 and would make Illinois the eleventh enacting state to retain the bifurcated good-faith standard.

In response to the widespread failure of uniform R1-301, NCCUSL has approved and the ALI will consider later this month a substitute uniform R1-301, which -- as so many states have already done while enacting Revised Article 1 -- retains the essence of pre-revised Section 1-105.

Amended Articles 2 & 2A (2003)

The 2003 amendments to Article 2 and 2A continue to stagnate.  Bills proposing their enactment have died unceremonious deaths in Kansas and Nevada.  Oklahoma amended Sections 2-105 and 2A-103 of its commercial code to add that the definition of "goods" for purposes of Articles 2 and 2A, respectively, "does not include information," see 12A Okla. Stat. Ann. §§ 2-105(1) & 2A-103(1)(h) (West Supp. 2008), and amended its Section 2-106 to add that "contract for sale" for purposes of Article 2 "does not include a license of information," see id. § 2-106(1).  The net effect is similar to having enacted Amended §§ 2-103(k) & 2A-103(1)(n), both of which exclude information from the meaning of "goods" for purposes of Article 2 and 2A, respectively.  Attempts to further amend Articles 2 and 2A in Oklahoma have been unsuccessful and no other state's legislature has considered a bill proposing to enact the 2003 Article 2 and 2A amendments.

Amended Articles 3 & 4 (2002)

For several years now, those who teach UCC Articles 3 and 4 have had to caution students that New York and South Carolina had not adopted the 1990 revisions of Article 3 and 4, on which most payments teaching materials focus much of their attention.  More recently, we have had to decide how much emphasis to give the 2002 amendments to Article 3 and 4 -- which, until April 15, only five states (Arkansas, Kentucky, Minnesota, Nevada, and Texas) had enacted.

By affixing his signature to SB 936 on April 15, Governor Mark Sanford made law a sweeping revision of South Carolina's Articles 3 and 4 that has the effect of enacting the 1990 revisions as amended by the 2002 amendments.

New York SB 4120 proposes comparably sweeping changes to New York's versions of Article 3 and 4. However, SB 4120 has not made any progress since it was introduced and referred to the Senate Judiciary Committee on March 27, 2007, and re-referred to the Committee on January 9, 2008.

The only other bill currently pending that proposes adopting the 2002 amendments to UCC Articles 3 & 4 (along with certain conforming amendments to other articles) is Oklahoma HB 2588, which was introduced on February 4, 2008.  On February 5, HB 2588 was referred to the House Judiciary and Public Safety Committee, which voted on February 28 to recommend passage.  No further action has been reported as of May 17, 2008.

Revised Article 7 (2003)

As of January 1, 2008, twenty-eight states -- Alabama, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Hawaii, Idaho, Indiana, Iowa, Kansas, Maryland, Minnesota, Mississippi, Montana, Nebraska, Nevada, New Hampshire, New Mexico, North Carolina, North Dakota, Oklahoma, Rhode Island, Texas, Utah, Virginia, and West Virginia -- had enacted Revised Article 7, and twenty-seven of those enactments were in effect (Kansas's version has a delayed effective date of July 1, 2008).

As of May 17, 2008, Pennsylvania (HB 1152) and Tennessee (HB 3950) have enacted Revised Article 7 thus far this year.  Both enactments will take effect on or before July 1, 2008.   

The only other pending bills are Illinois SB 2080 and Massachusetts HB 4302 -- both of which combine Revised Articles 1 & 7.  As discussed above, Illinois SB 2080 appears to be making progress toward enactment.  Massachusetts HB 4302, by contrast, appears to be headed nowhere.

[Keith A. Rowley]

May 17, 2008 in Legislation | Permalink | TrackBack (0)

Friday, May 16, 2008

Patriots Fan Ordered to Pay $65,500 in Liquidated Damages for Breach of 10-Year Agreement for "Luxury" Stadium Seats

This breach of contract story from the Boston Globe:

If you want to buy those luxury seats at Gillette Stadium to enjoy Patriots games, better read the fine print first.

A man who decided he wanted out of his 10-year agreement for two luxury seats after just one year must pay for the seats for the rest of the 10 years, the state Supreme Judicial Court ruled today.

Paul Minihane, a real estate broker with experience as a contractor and developer, signed up for two $3,750 seats in the Club Level III section for 10 seasons, from 2002 to 2011.

The contract he signed said that if he defaulted, he would have to pay the balance for all the remaining years.

Minihane paid a $7,500 deposit and later made another $2,000 payment, using the seats for the 2002 season. But after that, he made no further payments to NPS LLC, the developer of the stadium.

A lower court judge said the contract's provisions were unreasonable and ordered Minihane to pay $6,000.

But the Supreme Judicial Court said today that Minihane hadn't shown that the provisions weren't unreasonable.

The developers were entitled to the "liquidated damages" the contract required in case of a breach, the court said.

The court noted that even though the Patriots had won a Super Bowl in early 2002, shortly before the contract was inked, demand for luxury seats "was then and remains variable and depends, according to the evidence, on the current performance of the team, as well as other factors, such as the popularity of the players and the relative popularity of other sports, that are unpredictable at the time of contract."

The court said the terms "may be harsh," but Minihane -- who at the time of the Superior Court trial was chairman of the Boston Finance Commission -- hadn't shown that they were "unreasonably and grossly disproportionate."

The court awarded the stadium developers the total amount of unpaid fees: $65,500, plus interest.

UPDATE: Here's a link to the opinion of the Massachusetts Supreme Court. This would have made for a fun liquidated damages exam question.

[Meredith R. Miller]

May 16, 2008 in In the News, Recent Cases | Permalink | TrackBack (0)

Jail Time for Breach of Contract?

Today's New York Times reports that a 49-year-old Missouri woman has been indicted for driving a 13-year-old California girl to suicide through use of a MySpace account.  According to the indictment, Lori Drew created a MySpace account under the name Josh Evans.  She used this account to contact Megan Meier, who had been a friend of Ms. Drew's daughter.  After a few weeks of friendly chatting, "Josh" turned nasty, eventually driving Megan Meier to suicide, according to the indictment.  Ms. Drew denies having created the account, and Missouri law enforcement officials could not find sufficient evidence to bring charges against her. 

But now federal law enforcement officials in Los Angeles have indicted Ms. Drew on charges of conspiracy and violations of the anti-hacking Computer Fraud and Abuse Act.  According to the Wired Blog Network, the feds are alleging violations of the Act because Ms. Drew set up the Josh Evans account in violation of the website's terms of service.  Wired views the indictment as "a potentially troubling precedent, given that terms-of-service agreements sometimes contain onerous provisions, and are rarely read by users."

MySpace supports the indictment.  Wired cites Wharton Business School Professor Andrea Matwyshyn, who describes the indictment as a creative use of the Act, given that it is set up to protect businesses such as MySpace, but is now being used to criminalize conduct that really victimized Megan Meier.  Matwyshyn expresses concern that a breach of contract action is being turned into a criminal case.

[Jeremy Telman]

May 16, 2008 in In the News | Permalink | Comments (0) | TrackBack (0)

"It's contract law, marriage, that's all it is, contract law."

Charles Karel Bouley's reaction (at Huffington Post) to the California Supreme Court's marriage decision. Here's an excerpt of his reaction:

Mayor Newsom, I was wrong. I apologize. This morning, May 15, 2008 at 10am, when the California State Supreme Court said nope, no reason to ban gay marriage in California that we can see, I cried. I cried for all those in my community that were happy today. I cried because having fought to be recognized as a couple myself and changing the only laws we had at the time, AB 25 and AB 205 that granted SOME rights, changing them to recognize those that had wrongful death cases pending before the legislation, well, today was my victory also, Andrew Howard's victory (my late partner).

And it is. Andrew and I were the first gay couple on drive time radio on KFI Los Angeles. It was a big deal. Hasn't been done since, either, anywhere on talk radio to my knowledge. When he died, I saw marriage equality. Thousands of straight couples emailed in grief to say they felt as we were part of their marriage, and that we represented a normal couple to them. That's marriage equality. When the courts told me I couldn't sue, I said yes I can (when he died) and then did after changing law. That got media coverage and told people that the legislature and the courts favored granting rights to gays and lesbians.

Then Gavin made his decision, right or wrong, to grant licenses. And in the aftermath, yes, some bigoted states allowed their people and legislatures to put bigotry in their state codes. But this state, my state, Gavin's state, did the right thing. And as a jaded gay male of 45 years, I didn't expect it to. That's why I've stated I'm all for Civil Unions with the exact same benefits of marriage. So, I'm all for marriage, but with a different name. Why? Because I believe that's what is nationally obtainable in the short term why states fight out the marriage issue.

However, I'd be lying if I said today didn't feel good. Because while I would settle for Domestic Partnership, there's no reason for it. It's contract law, marriage, that's all it is, contract law. And just like you can't stop a person from entering a contract because they're black, Hispanic, a woman, etc., then you can't stop someone from entering the marriage contract based on gender. It's horrible for lawyers and judges, because in their legal hearts they know same sex marriage must be legal and available for all the couples that want it. But in their moral or religious hearts the vision gets cloudy. That's why we turn to the courts, to uncloud things. And when they do, as in today's case, they see that the law is in fact the law.

(emphasis added).

Is marriage really about contract law? Certainly, many New York cases describe marriage as a "civil contract." Or, is the description of marriage as a contract a metaphor that does not recognize the complexities of defining "contract"? (See Thomas Joo, The Discourse of "Contract" and the Law of Marriage). If it is a metaphor, is it an effective one for same-sex marriage advocates?

[Meredith R. Miller]

May 16, 2008 in In the News | Permalink | TrackBack (0)

Thursday, May 15, 2008

A Right to Health Insurance for Same-Sex Partners? It Depends on What You Mean by “Similar Union,” “Recognized,” “Only Agreement” and “For Any Purpose”

Michigan_flagFirst Vermont allowed same-sex couples to enter into civil unions. Then Massachusetts allowed same-sex couples to marry. (And, JUST HOURS AGO, the Supreme Court of California lifted that state's ban on same-sex marriage). In response to the strides made by gay rights advocates in Vermont and Massachusetts, many states amended their constitutions to “defend” marriage. Michigan’s constitution was amended to provide:

To secure and preserve the benefits of marriage for our society and for future generations of children, the union of one man and one woman in marriage shall be the only agreement recognized as a marriage or similar union for any purpose.

(emphasis added).

A dispute arose when the Attorney General issued a formal opinion concluding that this so-called “marriage amendment” prohibited the city of Kalamazoo from providing health insurance to employees’ same-sex domestic partners.

Over a spirited defense, a majority of the Michigan Supreme Court recently held that this amendment to the Michigan constitution prohibits public employers from providing health insurance to employees' same-sex domestic partners. As the dissent paints it: “[t]he majority decides that the ‘marriage amendment’ prevents public employers from voluntarily entering into contractual agreements to provide health benefits to their employees' same-sex domestic partners.”

The majority's decision required many consultations with Webster’s Dictionary.

Continue reading

May 15, 2008 in Recent Cases | Permalink | TrackBack (0)

Wednesday, May 14, 2008

EarthLink and Wireless Philadelphia Disconnecting

According to the Wall Street Journal, EarthLink announced on Tuesday that it would be discontinuing its wireless Internet service in municipal Philadelphia. 

Since 2006, Earthlink had been working with Wireless Philadelphia to provide low-cost wireless Internet service in the city.  EarthLink anticipated that 100,000 customers would sign up for the service, but less than 5,000 have done so.  EarthLink CEO Rolla Huff explained, "This was about a business model that simply didn't work."   Wireless Philadelphia vows to fight on, as the organization put it in a press release on its blog:

Today we received an announcement that EarthLink intends to discontinue operation of its Municipal Wi-Fi Network in Philadelphia. The reason cited was that negotiations with a certain party failed to come to a positive conclusion. The transfer of the EarthLink network is by definition a complex, time-intensive, multi-party transaction. Despite today's announcement, Wireless Philadelphia and the City are still working actively together to identify alternatives for preserving this network and applying it to numerous civic, commercial and social purposes. We remain optimistic for an orderly resolution of this matter. Regardless, Wireless Philadelphia is utterly steadfast in its determination to extend internet access to all members of the community, and we intend to do everything in our power to continue the momentum generated by WP in support of Digital Inclusion.

But wait.  Apparently EarthLink is not free to simply walk away from its partnership with the city.  It has therefore filed suit seeking permission to remove its Wi-Fi gear from utlity poles on June 12th and seeknig to cap its damages at $1 million.  Wi-Fi Net News's Glenn ("I haven’t read the contract’s provisions for this set of circumstances, and I’m not a lawyer") Fleishman expresses skepticism about the prospects for this suit:

EarthLink will ultimately have to pay much more than $1m, I predict, and I suspect some of the settlement will leave gear in selected neighborhoods behind for more modest networking purposes.

Apparently EarthLink is shutting down other, less ambitious, urban networks as well.

HT: Alan White (again!)

Update: The contract is available here.

[Jeremy Telman]

May 14, 2008 in In the News, Recent Cases | Permalink | Comments (1) | TrackBack (0)

Today is the Day!!

500000_3 Based on our history, I predict that today will be the day that this blog surpasses 500,000 visitors since its inception.

If we only had a Uruguayan Peso for each of those visitors . . . .

Thanks for visiting!

[Jeremy Telman]

May 14, 2008 in About this Blog | Permalink | Comments (1) | TrackBack (0)

Tuesday, May 13, 2008

The Importance of Appropriate Word Choice

This isn't much of a contracts story, but luckily most things can be connected to contract law.

Contractual obligation distills to what it appears the parties intended to promise to do. And, the first indicator of what the parties intended to promise is the language they use. Word choice is hyper-important. And intricate language gaffes and malapropisms abound, teaching us lessons we can apply to contract drafting. (See, e.g., "Bushisms," though some of these gaffes aren't word choice, but word creation or problems with subject-verb agreement).

Word choice is important, and that is why I like this clip of New York City mayor Michael Bloomberg, which demonstrates his dislike of the word "maintain."

Apparently, the mayor's favorite word is "unconscionable."

[Meredith R. Miller]

May 13, 2008 in In the News, Miscellaneous | Permalink | TrackBack (0)

Monday, May 12, 2008

"No Damages for Delay" Clause Enforced in Colorado

_colorado_flag_2A Colorado appellate court recently held that a "no damages for delay" clause in a construction subcontract was enforceable. The general contractor had a highway construction contract with the Colorado Department of Transportation. The general contractor entered into a subcontract for the earthwork on the project. The subcontract contained a "no damages for delay clause", which provided:

Section 6. Delays. (a) In the event the Subcontractor's performance of this subcontract is delayed or interfered with by acts of the Owner, Contractor or other Subcontractors, he may request an extension of time for the performance of same, as herein provided, but shall not be entitled to any increase in the subcontract price or to damages or additional compensation as a consequence of such delays or interference, except to the extent that the prime contract entitled the Contractor to compensation for such delays and then only to the extent of any amounts that the Contractor may, on behalf of the Subcontractor, recover from the Owner for such delays.

A dispute arose when the general contractor and subcontractor could not agree on the amount of the subcontractor's final compensation for the work. Among other things, the subcontractor sought additional compensation based on alleged delays relating to the construction of a retaining wall and traffic lane closures. The general contractor maintained that this compensation was precluded by the “no damages for delay” clause in the subcontract.

The appellate court affirmed the trial court, and enforced the clause:

We are unaware of any published state court decision in Colorado addressing a “no damages for delay” clause. However, a federal appeals court in a case arising in Colorado and the majority of courts in other jurisdictions that have addressed the issue have generally upheld the validity of such clauses. See W.C. James, Inc. v. Phillips Petroleum Co., 485 F.2d 22, 25 (10th Cir.1973) (observing that “[s]uch clauses are commonly used in the construction industry and are generally recognized as valid and enforceable”); Owen Constr. Co. v. Iowa State Dep't of Transp., 274 N.W.2d 304, 306 (Iowa 1979) (“Such clauses are defended [in cases involving public contracts] on the theory they protect public agencies which contract for large improvements to be paid for through fixed appropriations against vexatious litigation based on claims, real or fancied, that the agency has been responsible for unreasonable delays.”)(citing A. Kaplen & Son, Ltd. v. Hous. Auth., 42 N.J.Super. 230, 233, 126 A.2d 13, 15 (1956)); Maurice T. Brunner, Annotation, Validity and Construction of “No Damage” Clause with Respect to Delay in Building or Construction Contract, 74 A.L.R.3d 187 (1976 & 2007 Cum.Supp.)(collecting numerous state and federal cases upholding “no damages for delay” clauses); see also In re Marriage of Bolding-Roberts, 113 P.3d 1265, 1267 (Colo.App.2005); Kohn v. Burlington N. & Santa Fe R.R., 77 P.3d 809, 811 (Colo.App.2003) (observing that when there are no Colorado decisions, we may look to other jurisdictions, including federal jurisdictions, for guidance).

Nevertheless, “no damages for delay” clauses have been strictly construed against owners or contractees because of the harsh results that may flow from the enforcement of such clauses. See John E. Green Plumbing & Heating Co. v. Turner Constr. Co., 742 F.2d 965, 966 (6th Cir.1984) (applying Michigan law); E.C. Ernst, Inc. v. Manhattan Constr. Co., 551 F.2d 1026, 1029 (5th Cir.1977) (applying Alabama law); Cunningham Bros., Inc. v. City of Waterloo, 254 Iowa 659, 664, 117 N.W.2d 46, 49 (1962).

We are persuaded by these decisions, and we similarly conclude “no damages for delay” clauses are valid and enforceable in Colorado, but they are to be strictly construed against the owner or contractee.

Tricon Kent Co. v. Lafarge North America, Inc., __ P.3d __, 2008 WL 1902514 (Colo. App. May 1, 2008).

[Meredith R. Miller]

May 12, 2008 in Recent Cases | Permalink | TrackBack (0)

Limerick of the Week: Watteau v. Fenwick

459pxbovril_250g It is worth teaching Business Associations just for this case.  It is the perfect illustration of the doctrine of inherent authority.  It has all of the necessary ingredients: a general agent for an undisclosed principal who exceeds his authority by entering into a contract for goods he was not authorized to purchase.  It also has a special added ingredient: Bovril. 

As I tell my students, Bovril was developed by French scientists after the Franco-Prussian War because they thought that concentrated beef extract would enhance the fighting ability of French soldiers.  In order to demonstrate the effectiveness of this technique, I instruct my students to go to the home page, enter "French military victories" and then hit the "I'm feeling lucky" button.  It's a crowd pleaser. 

Anyhew, here's the Limerick:

Watteau v. Fenwick

Inherent authority imposes
Liability where no one discloses
The one whose dinars
Are owed for cigars . . .
And other goods that offend noses.

[Jeremy Telman]

May 12, 2008 in Famous Cases, Limericks, Teaching | Permalink | Comments (0) | TrackBack (0)

Sunday, May 11, 2008

Kill Lancome!

UmaUma Thurman is mad.  In fact, I haven't seen her this mad since Michael Madsen shot her in the chest, took her samurai sword and buried her alive.  She is no longer mad at Bill.  No, no, that's all in the past.  Now, she is mad at Lancome, according to the Wall Street Journal, because she alleges that the French cosmetics corporation is continuing to use her image to promote its products after the expiration of a licensing agreement.  Fans of movie stars, cosmetics and litigation can find the complaint here

The WSJ notes that Lancome has filed its own suit against Thurman, apparently claiming that, under the licensing agreement, it is not subject to liability for third-party use of Thurman's image .  Lancome issued a statement on Friday in which it said that it would not comment on on-going litigation but claimed that "The use of Ms. Thurman's image after her contract expired, however minor, was neither deliberate nor intentional."  Uh huh.  Sounds like the pot was already broken when they borrowed it.

[Jeremy Telman]

May 11, 2008 in Celebrity Contracts, In the News | Permalink | Comments (0) | TrackBack (0)