ContractsProf Blog

Tangential Rant on a Pet Peeve

This rant is probably more aptly blogged by our friends over at this blog or even this blog, but it will really make me feel better to get this off my chest. When I read this sentence from an inane blog post at "Lis on Law" by Fox News "legal analyst" Lis Wiehl, I cringed (and not only because she is discussing a hypothetical bridesmaid's claim against the bride for intentional emotional distress):

The New York Court of Appeals, the second highest court in this state, has repeatedly stated that most IIED claims fail "because the alleged conduct was not sufficiently outrageous."

It is accurate that the New York Court of Appeals has yet to believe any conduct is extreme and outrageous - something in which, as a New Yorker, I take great pride (nothing shocks a New Yorker!). But, I'd like to set the record straight: The New York Court of Appeals is the highest tribunal in the State of New York.

I have e-mailed Ms. Wiehl to inform her of the error, I will update this post if I receive a response.

[Meredith R. Miller]

Arbitration Fairness Act Moves to Full Committee

Prof. Paul Secunda / Workplace Prof Blog reports that, yesterday, the House Commercial and Administrative Law Subcommittee decided by a voice vote to report the Arbitration Fairness Act bill (H.R. 3010) favorably to the full House Judiciary Committee.  The bill would ban pre-dispute arbitration agreements in employment, consumer and franchise contracts. 

[Meredith R. Miller]

Why Borat Release Agreement is Niiice!

We've mentioned the "Borat" release on these pages before. Kent Raygor and Bardia Bakhtari have a fairly detailed discussion of the terms of the release in today's NYLJ in an article titled "Great Success! 'Borat's' Release Agreement Averts Liability." They write that other filmmakers would be wise to model their own release agreements on Borat's. Here's an excerpt from the article:

The Release Agreement contains a clause acknowledging that the participant agrees to be filmed for a "documentary-style film." This creates defenses that filmmakers can later use to defend against a claim for invasion of privacy by appropriation. By using the phrase "documentary-style film" or something similar, filmmakers can help preempt an allegation that the participant was unaware he or she was being filmed for a comedic mockumentary as opposed to a documentary, and avoids committing the filmmaker to a specific genre of film. In drafting such a clause, a filmmaker should also include language where the participant acknowledges that his or her participation will be part of a larger work, which could be edited in such a way that the participant appears in contexts or places different than those he or she might presently contemplate. Doing so will further prevent the participant from later claiming he or she was unfairly surprised by the final product.

Read the article for more analysis on such topics as why choice of New York law was wise, and why contract length matters.

[Meredith R. Miller]

Bull Semen Mix-Up Leads to £67,000 Damage Award

Here's a story for good old Rose the Second of Aberlone. After wrongly labeling the semen of a "valuable Aberdeen Angus bull," a UK artificial insemination center has been ordered to pay £67,000 in damages. The story from the BBC:

Farmer Hamish Sclater, of Turriff, Aberdeenshire, has been awarded the settlement after Deveron Limited Edition's semen could not be sold.

More than 1,000 straws of semen from the bull could not be exported or sold at home.

The award was made against Carlisle firm Lindsay AI.

In a case held at Carlisle County Court, Judge Peter Hughes QC heard that Mr Sclater had agreed a valuable contract to sell semen from Deveron Limited Edition to the Irish Angus Cattle Society.

The semen could only be taken at sites specially licensed.

The labelling mistake was discovered in November 2005, by which time Deveron Limited Edition had died and the semen could not be replaced. In his judgment, the judge said: "Deveron Limited Edition was therefore a limited edition in more ways than one.

"The semen collected by the defendants was all there ever would be and the only means of breeding from him."

'Huge losses'
Lindsay's AI has been ordered to pay damages of £31,845 relating to the loss of profit on the sale of 1,158 straws and £36,100 for the lost enhancement to the value of the herd.

Mr Sclater said: "I am just a normal farmer trying to get on.

"I am still astonished that we had to go to court when liability was admitted two and a half years ago, but our losses are huge as has been proved by the judgment.

"We have been lucky in the support we have had from our friends, family and others in the farming community."

Deveron Limited Edition sired just one bull calf naturally, which sold for £20,000.

Stewart Fyfe, from Burnetts Solicitors in Carlisle, who represented Mr and Mrs Sclater, said: "This has been a very interesting case because it raised some tricky issues of foresight of loss in negligence and breach of contract claims.

"In the end, our judgment has been proved correct.

"Of course, getting judgment doesn't guarantee that Lindsay's AI can afford to pay what's due, but the Sclaters have certainly been vindicated for pursuing this claim."

At family-owned Lindsay AI, Helen Lindsay told the BBC Scotland news website the company was disappointed at the figure awarded and that an appeal would be contemplated.

[Meredith R. Miller]

Limerick of the Week: Fenwick

Nothing like a trip to the beauty shop to address a bad hair day (left).  But when is a beauty shop receptionist a partner and when is she an employee?  In Fenwick v. Unemployment Compensation Committee, we learn that the test for whether or not a partnership exists is substantive.  The intentions of the parties matter, but their intentions must be to form a partnership, not merely to call themselves a partnership. 

Mr. Fenwick valued his receptionist, Mrs. Chesire ("she was a very good girl").  He wanted to keep her but could not afford to increase her salary.  Instead, he offered to make her a partner, with a right to 20% of the profits from the business.  Naming her a partner rather than an employee also exempted him from having to pay into an unemployment comopensation fund.  Under the Uniform Partnership Act (1914), sharing of profits is prima facie evidence of a partnership.  Unfortunately for Mr. Fenwick, the presumption of a partnership is rebutted when the sharing of profits is really just an alternative means of paying a salary.  Mrs. Chesire was not a partner in the business in any significant sense.  She did not help run the business; she did not share in losses; there was no dissolution of the partnership or accounting to her when she quit her job as a receptionist. 

I feel some remorse that I could not do anything in the Limerick with Mrs. Chesire's name.  It seems to me that a Lewis Carroll reference is called for here, but I could not pull it off.

Fenwick v. Unemployment Compensation Committee

Fenwick's love for his "partner" just waxed
When he learned he'd avoid being taxed.
Co-ownership was lacking,
Fenwick sent packing,
And the Beauty Shoppe partnership axed.

[Jeremy Telman]

Iowa Supremes Rule in Favor of Ice Cream

This Iowa case is a good one for the summer, at least to the extent it involves the production of ice cream.

Pursuant to a contract between Wells Diary and Pillsbury, Wells promised to produce Haagen-Dazs ice cream for Pillsbury. However, there was an explosion at Wells' manufacturing facility in Le Mars, Iowa. Pillbury sued Wells for breach of contract, requesting damages related to the explosion at Well's facility. Wells pointed to the force majuere clause in the parties' contract:

FORCE MAJEURE: Neither party will be liable for delays or suspension of performance (other than the obligation to pay for services and goods sold and delivered) caused by acts of God or governmental authority, strikes, accidents, explosions, floods, fires or the total loss of manufacturing facilities or any other cause that is beyond the reasonable control of that party (“Force Majeure”) so long as that party has used its best efforts to perform despite such Force Majeure.

(emphasis added). The district court found that the the placement of the phrase "that is beyond the reasonable control of that party" created an ambiguity. It then granted Wells' motion for summary judgment on the grounds that the parties' conrtact relieved Wells of performance.

The Iowa Supreme Court described the district court's determination that there were two, competing interpretations:

The district court held one reasonable interpretation of the force-majeure clause is that this phrase modifies “acts of God or governmental authority, strikes, accidents, explosions, floods, fires or the total loss of manufacturing facilities or any other cause.” Under this interpretation, the explosion and fire at the south ice cream manufacturing facility would not excuse Wells’ nonperformance under the contract if the explosion and fire were not beyond the reasonable control of Wells. The district court found another reasonable interpretation of the force-majeure clause is that this phrase only applies to “any other cause.” Under this interpretation, the explosion and fire at the south ice cream manufacturing facility excuse Wells’ performance under the contract even if the explosion and fire were within the reasonable control of Wells.

The Iowa supreme Court disagreed that the placement of that clause created an ambiguity:

The determination of whether the language of a contract is ambiguous is ordinarily one of law for the court. *** We understand how the district court came to the conclusion that the placement of the phrase “that is beyond the reasonable control of that party,” can make the force-majeure clause reasonably susceptible to two meanings, if the district court examined the force-majeure clause out of context with the entire agreement. However, when a court is required to make a determination of whether a clause is ambiguous, the words and phrases of sentences cannot be read in isolation. *** The determination of whether “an agreement is ambiguous must be reached through a process of synthesis in which words, phrases, and sentences are assigned a meaning in accordance with the apparent purpose of the agreement as a whole.” ***

Applying these principals to the force-majeure clause, we disagree with the district court and find the force-majeure clause is not ambiguous. “Force majeure” is “an event that can be neither anticipated nor controlled.” Black’s Law Dictionary 657 (7th ed. 1999). A “force- majeure clause” is a clause “allocating the risk if performance becomes impossible or impracticable as a result of an event or effect that the parties could not have anticipated or controlled.” Id. A force-majeure clause is not intended to shield a party from the normal risks associated with an agreement. 30 Richard A. Lord, Williston on Contracts § 77:6, at 299 (4th ed. 2004). Wells claims the force-majeure clause would relieve it from performance even if a strike, accident, explosion, flood, fire or the total loss of the manufacturing facilities was caused by an event within its control. The record is clear that when the parties entered into the 1999 production contract they did not negotiate what would constitute a force-majeure event. The only discussion between the parties involved what would be the obligations of the parties if a force-majeure event occurred.

Had the parties meant to change the common meaning of the force-majeure clause, the parties should have had a discussion regarding the definition of a force-majeure event. Wells’ claimed interpretation of the force-majeure clause is not reasonable in light of the common understanding of a force-majeure clause and the lack of a discussion between the parties changing the common meaning of such a clause.

In addition, Wells’ interpretation of the force-majeure clause is not reasonable in light of the purpose of the contract. The purpose of the contract was for Wells to provide Pillsbury with a specific amount of
product in a defined period of time. When the contract is read in its entirety, the obligations of each party are described in detail. There is nothing in the language used by the parties, which describes each
party’s various obligations, that indicates a party’s negligence would excuse nonperformance of a specific obligation. Moreover, an agreement excusing a party’s performance due to that party’s negligence defeats the purpose of having an agreement requiring specific performance within a specified period of time.

Therefore, because Wells’ interpretation is inconsistent with the common understanding of a force-majeure clause and the purpose of a production contract that requires specific performance to be completed in a specified period, the contract is not reasonably susceptible to more than one interpretation. Accordingly, as a matter of law we find the phrase “that is beyond the reasonable control of that party” modifies all the events enumerated by the parties in the force-majeure clause. Consequently, we find that Wells is not entitled to summary judgment based on the force-majeure clause, and we reverse the district court’s ruling on this issue.

Net result: summary judgment in favor of Wells is reversed, and the case is remanded for further proceedings.

[For Civ Pro enthusiasts, the case also contains a nice discussion of the difference between standing and the real party in interest doctrine.]

Pillsbury Inc. v. Wells Dairy Inc., No. 05/06-1002 (Iowa, July 11, 2008).

[Meredith R. Miller]

The Slippery Slope

I hope I will be forgiven for using this space for a non-contracts item. I wanted readers to know that I have launched a side-side-project of general interest law-related podcasts. Please check it out.

You can learn more about the project and listen to the podcasts on the website. You can also subscribe through iTunes (there is a link to the iTunes page on the site).

I hope you find it interesting.

[Meredith R. Miller]

Government Contracts: Are They Sui Generis?

Over at the Commercial Law Blog, Jennifer Martin reports and comments on a recent discussion of the nature of government contracts.  We have recommended Professor Martin's writings on the subject of wartime contracts before here.  For those interested in the subject, Professor Martin has a new article on the treatment of wartime contracts in connection with the UCC's doctrine of impracticability.

[Jeremy Telman]