September 6, 2008
Fault in Contract Law
Here's the updated programmatic schedule for the symposium on "Fault in Contract Law" later this month at the University of Chicago School of Law:
Friday, September 26
9:00 Opening Remarks
9:15–10:45 Panel I
Chair: Douglas Baird (Chicago)
Eric Posner (Chicago), Fault In Contract Law
Roy Kreitner (Tel Aviv), Fault at the Contract-Tort Interface
11:00–12:30 Panel II
Chair: Lee Fennell (Chicago)
Ariel Porat (Tel Aviv), A Comparative Fault Defense in Contract Law
Saul Levmore (Chicago), Stipulated Damages, Super-Strict Liability, and the Real Rule of Contract Remedies
2:00–4:00 Panel III
Chair: Lisa Bernstein (Chicago)
Richard Craswell (Stanford), When is Willful Breach ‘Willful’? A Puzzle and Two Different Economic Solutions
Oren Bar-Gill (NYU) & Omri Ben-Shahar (Chicago), An Information-Based Theory of Willful Breach
Peter Siegelman (Connecticut) & Steven Thel (Fordham), Willfulness versus Expectation: A Promisor-Based Defense of Willful Breach Doctrine
4:15–5:45 Panel IV
Chair: Lior Strahilevitz (Chicago)
Stephan Grundmann (Humboldt-Berlin), The Fault Principle as the Chameleon of Contract Law: A Market Function Approach
Seana Shiffrin (UCLA), Why Breach of Contract May Be Immoral
Saturday, September 27
9:00–10:30 Panel V
Chair: Ariel Porat (Tel Aviv)
Richard Epstein (Chicago), The Many Different Faces of Fault in Contract Law: Or How to Do Economics Right, without Really Trying
George Cohen (Virginia), The Fault that Lies Within Our Contract Law
10:45–12:30 Panel VI
Chair: Keith Rowley (UNLV)
Robert Scott (Columbia), In (Partial) Defense of Strict Liability in Contract, presented and discussed by Fabrizio Cafaggi (European University Institute)
Hon. Richard Posner (Chicago), Let Us Never Blame a Contract Breaker
Admission to the symposium is free (except for Friday dinner) and all are welcome.
[Keith A. Rowley]
Call for Papers: AALS Annual Meeting
The AALS Section on Contracts solicits papers and proposals for our 2009 Annual Meeting program on “Immutable Rules and Contract Law,” scheduled for Friday, January 9, from 8:30-10:00 a.m.
In the last three decades, legal scholars have paid considerable attention to conceptualizing and prudentially designing contractual rules. Most of this attention has been placed on default rules (e.g., Should we prefer "majoritarian" rules that mimic the likely intent of the parties or "penalty" rules that purportedly force information revelation?). Part of this concentration on immutable rules has been due to a sense that the rationales for immutable rules were well understood and widely accepted. In recent years, important contributions within legal scholarship, humanities, and the social sciences have alerted us to a number of ways that contracting may fail (due to transaction costs, cognitive failure, externalities, path dependence, etc), which in turn reasserts the importance of understanding the role of immutable rules. This panel is intended both to survey and to evaluate the set of immutable rules within a system of contract and commercial law, concentrating on three questions: (1) What are the key immutable rules within contract law? (2) What are the principal policy rationales behind immutable rules in contract law? (3) How well equipped is contract law (compared to other areas of law) to contend with these policy concerns.
If you are interested in participating, please e-mail your paper or proposal to email@example.com not later than Monday, September 29, 2008.
[Keith A. Rowley]
September 5, 2008
Now in Print
- Katherine A. Burkhart, Note, Layering Administrative Law and Basic Contract Principles: Analyzing the Waiver of FMLA Claims in Severance Agreements, 33 J. Corp. L. 983-1006 (2008).
- Nancy Kim, Mistakes, Changed Circumstances and Intent, 56 U. Kan. L. Rev. 473-516 (2008).
- Jennifer Sapp, Note, Aging Out of Foster Care: Enforcing the Independent Living Program Through Contract Liability, 29 Cardozo L. Rev. 2861-2895 (2008).
- Guanghua Yu & Hao Zhang, Adaptive Efficiency and Financial Development in China: The Role of Contracts and Contractual Enforcement, 11 J. Int'l Econ. L. 459-494 (2008).
[Meredith R. Miller]
The Not So Peaceable Art Kingdom With The Lawsuit of Sotheby's
The NY Times reports that Sotheby’s has filed a $16.8 million lawsuit against Hasley Minor, an art collector and Internet entrepreneur. (By the way, The Newsday headline: "Sotheby's Art Attack on Tycoon").
The lawsuit alleges that Minor has refused to pay for three paintings he purchased in May. The complaint states a cause of action for breach of contract and seeks the $13.8 million cost of the paintings, plus late fees, interest and damages.
Minor apparently agreed to purchase three paintings: (1) Edward Hicks' "The Peaceable Kingdom With the Leopard of Serenity" for $9.6 million [pictured above], (2) Andy Warhol’s “Diamond Dust Shoes” for about $300,000, (3) and Childe Hassam’s “Paris, Winter Days” for $3.9 million.
The NY Times Reports:
The auction [of the Hicks painting] attracted considerable interest because of the financial drama surrounding the painting’s seller, the jeweler Ralph O. Esmerian, who owed some $11.5 million to Sotheby’s in addition to $187 million to Merrill Lynch and $7.5 million to Christie’s.
Reached by phone, Diana Phillips, a spokeswoman for Sotheby’s, said that Mr. Minor had told the auction house that he had not paid for the works because he was owed money by other parties and could not afford to.
But Mr. Minor said in an interview on Thursday that he had not paid for the purchases because Sotheby’s had not disclosed its financial stake in the sale of “Peaceable Kingdom.”
Asked if he had the money to pay for the paintings, he said: “My net worth exceeds what’s owed by an order of magnitude. Their claim is preposterous.”
Mr. Minor said that Sotheby’s filed the suit only after he asked it to send him papers documenting its precise economic interest in the sale of the work.
But Ms. Phillips said the auction house had fully complied with all consumer regulations involving such disclosures. “We’ve been talking with him for some time about trying to resolve this,” she said. “He told us that the sole reason he had not paid was because others had failed to meet their financial obligations to him.”
“It was only a few days ago that he brought up this issue of financial disclosure,” Ms. Phillips added. “His explanation is just not credible.”
Minor told Newsday, "Their descriptions [of the painting's value] could have been embellished, They're doing it for the house account. The process is now tainted."
The $9.6 million tag on the Hicks painting was a record-breaking price for American folk art.
[Meredith R. Miller]
September 4, 2008
In re Seinfeld (Clancy v. King)
Oh, how I have waited for this day!! For years, I have been relying on a scene from Seinfeld in which the Seinfeld character tries to return a jacket to a store because he dislikes the clerk who sold it to him. When asked the reason for his return, Jerry says, "Spite." It turns out, "spite" is not an acceptable grounds for returning an item. Jerry offers other, legitimate grounds for the return, but he said "spite," so it's too late. He is not permitted to return the jacket. I use this scene to illustrate any number of legal propositions, although I always had a nagging feeling that perhaps it wasn't really a very good illustration of any legal proposition. I just like the scene.
But now in Clancy v. King, the Maryland Court of Appeals held that the author Tom Clancy would not be permitted to modify a limited partnership with his ex-wife to prohibit the venture from using Clancy's name if his motive for doing so was to punish his ex-wife. The court's authority for this decision, as Larry Ribstein explains in his Ideoblog, is the Seinfeld Wig Master episode featuring the very scene described above!! Ribstein quibbles with the court's reasoning, and he may be right, but there is a time and a place for everything. And this, my friends, is simply an occasion for rejoicing and. . . well. . . dancing:
AZ Supreme Court Permits Breach of Implied Warranties Claim to Proceed Despite Lack of Privity
The Supreme Court of the home state of Republican Presidential candidate, John McCain, decided last week that a homebuilder who is not also the vendor of a residence can be sued for breaches of implied warranties of workmanship and habitability even in the absence of privity. Could this be the next big election issue?
In Lofts at Fillmore Condo. Ass'n v. Reliance Comm. Constr., Inc., No. CV-07-0416 - PR, 2008 WL 3834587 (Aug. 19, 2008, AZ), the developer hired Reliance to convert a building owned by the developer into condominiums. The Condo Association sued, alleging breaches of implied warranties. The trial court granted Reliance summary judgment, finding no contractual relationship between Reliance and the Condo Association. Although it found no prior Arizona case directly on point, the Arizona Supreme Court found that earlier precedents rested "on the premise that an implied warranty arises from the construction of a new home, whether or not the builder is also a vendor of the home." In retreating from older principles of caveat emptor in the home construction context, the court found support in Wyoming law. Does this suggest that Dick Cheney will have a role in a future McCain administration?
Reliance objected that failure to require privity of contract in such cases will have disastrous consequences for residential homebuilders. The court rejected this argument, noting that builders have long been liable to developers, who can seek indemnification for breaches of implied warranties. Nor does the court view its decision as in any way preventing builders and developers from allocating risk between them as they please.
Complaint in Class Action against Amex over Gift Cards
We previously mentioned that a class action was recently filed against American Express here in the Eastern District of New York. The complaint alleges that Amex's gift card practices constitute a breach of contract, unjust enrichment and conversion. Namely, Amex tells retailers to refuse "split tender transactions," which leaves a small balance on the gift card; then, Amex assesses a $2.00 monthly fee to maintain the gift card, essentially consuming the remaining balance. Here's a copy of the complaint: Download AmexClassActionComplaint.pdf
It is worth noting that Eniola Akindemowo (Thomas Jefferson) has done quite a bit of thinking about the nature of stored value cards, including gift cards. She raises some interesting questions about whether we should think of these cards as contractual in nature. Check out her work on the subject.
[Meredith R. Miller]
September 3, 2008
Government Owes $1.1 Billion for Breach of Contract
The Blog of the Legal Times, BLT for short (cute, non?) reports that the U.S. Court of Appeals has affirmed a judgment of the Court of Claims that the U.S. government breached its lease agreement relating to oil exploration off the California coast and awarding $1.1 billion to eleven oil and gas companies.
Apparently, the government entered into 35 such leases between 1979 and 1984. The oil companies then discovered oil fields that the government estimates contained over one billion barrels of oil. However, 1990 amendments to the 1972 Coastal Zone Management Act statutorily barred the oil companies from drilling in the region. The $1.1 billion, which BLT reports is one of the largest awarded in the 150-year history of the Federal Circuit, represents the amount paid under the leases. And a good thing too. They oil and gas companies can really use the money!!
I'm surprised this isn't bigger news, given that offshore drilling is a campaign issue.
Business Associations Limerick of the Week: Dodge v. Ford Motor Co.
Among non-experts, conventional wisdom holds that corporate law requires boards of directors to maximize shareholder wealth. This common but mistaken belief is almost invariably supported by reference to the Michigan Supreme Court's 1919 opinion in Dodge v. Ford Motor Co.
This Essay argues that Dodge v. Ford is bad law, at least when cited for the proposition that maximizing shareholder wealth is the proper corporate purpose. As a positive matter, U.S. corporate law does not and never has imposed a legal obligation on directors to maximize shareholder wealth. From a normative perspective, options theory, team production theory, the problem of external costs, and differences in shareholder interests all suggest why a rule of shareholder wealth maximization would be bad policy and lead to inefficient results.
Courts accordingly treat Dodge v. Ford as a dead letter. (In the past three decades the Delaware courts have cited the case only once, and then on controlling shareholders' duties to minority shareholders). Nevertheless, legal scholars continue to teach and cite it. This Essay suggests that Dodge v. Ford has achieved a privileged position in the legal canon not because it accurately captures the law - it does not - or because it provides good normative guidance - it does not - but because it serves professors' need for a simple answer to the question, What do corporations do? Simplicity is not a virtue when it leads to misunderstanding, however. Law professors should mend their collective ways, and stop teaching Dodge v. Ford as anything more than an example of how courts can go astray.
Professor Stout, I throw down the gauntlet. Why would I stop teaching such a fun case just because it states a legal rule that courts do not follow? Not only should we teach this case, we should write poetry about it. The case actually makes two very different and important points. One is that "judges are not business experts" and therefore if Henry Ford (left) wants to build up the corporate coffers so that he can invest in a new plant, that's his lookout and the Dodge Brothers can't squawk about it. I don't think Professor Stout objects to that portion of the opinion.
The other point is that the court will not permit Ford to treat Ford Motor Co. as a "semi-eleemosynary institution." He is not free to use the corporation's surplus to benefit humankind through lowered prices on Ford cars. He has to look after his shareholders first. Professor Stout objects to some language in the opinion -- that the purpose of corporations is to maximize shareholder wealth. I think the case really stands only for the more limited proposition that a corporation cannot simply decide that its investors have gotten as much return on their investment as they're entitled to and refuse on that basis to issue a special dividend. I doubt that the case is used to inculcate students into the view that the sole purpose of corporations is shareholder wealth maximization, since it is always taught in conjunction with other cases (e.g., Barlow and Wrigley), that clearly show that courts consider things other than shareholder wealth maximization to be legitimate corporate purposes.
I have developed my own view of this case in an article on the business judgment rule, which is not available electronically but can be found in 81 Tulane L. Rev. 829 (2007). Basically, I think Ford went off on his charitable urges because he did not want to reveal his true reason for preventing the Dodge Brothers from getting the $1 million in special dividends that they were after. It would not have been good for Ford Motor Co. if Ford had revealed his fear of competition. So Ford came up with a different justification for his decision and his language -- and his contempt for his shareholders -- was so extreme that the court balked. But I digress, here's the Limerick:
Dodge v. Ford Motor Co.
Reinvesting to build a new plant,
Ford went on a common-man rant
And stiffed his investors.
The boss who sequesters
His profits will have to recant.
September 2, 2008
Contracts Limerick of the Week: Sherwood v. Walker
My discovery of Otto Stockmeyer's little essay on Sherwood v. Walker inspired me to try my hand at a Sherwood Limerick. Alas, the anxiety of influence is strong here. I tread on paths well worn by other poets.
Sherwood v. Walker is a popular vehicle for introducing students to the doctrine of mutual mistake. The case involves a contract for the sale of a cow, Rose 2d of Aberlone. Sherwood buys Rose cheap because both parties believe she is barren (or at least that's what the case says). In fact, she is fertile and, indeed, before long she is with calf. The court finds that the mistake went to one of Rose's essential features and therefore there was no enforceable contract. A barren cow is more akin to an ox than it is to a fertile cow, said the court. The object of the proposed bargain, a barren cow, did not exist. Nifty reasoning.
With all that has been written about Rose 2d of Aberlone, it is a shame that we have no image of her. Above, on the left, I have tried to represent what Rose 2d might have looked like after she proved for good and all that she was no barren cow. And, to our left, we have an image of how Rose might have looked had she not proven her fertility.
It is on this tension, between mother and steak, that my Limerick focuses:
Sherwood v. Walker
Because of a mutual mistake,
Poor Rose was thought of as steak.
But the court did discover
Her essence was "lover"
So Sherwood made do with milk shake.
Cell Phone Dispute in England
According to The Independent, Vodaphone, England's second largest provider of cell phone services, has announced plans to increase its charges for telephone services by as much as 40% per call. But no need for the Brits to keep a stiff upper lip in this case. Vodaphone's contract with its customers provides an out: "You may end this agreement immediately by writing to us ... if we increase call or other usage charges which have the effect of increasing your call or other usage charges by more than 10 per cent."
'At's a lo' o' bangers 'n' mash for rabbitin' on the dog 'n' bone! Or with words to that effect, some Vodaphone customers seeking to rely on this contractual out are being told that there is a charge of £500 or more to escape from their agreements with the service provider. Consumer advocates are up in arms, accusing Vodaphone of blatant dishonesty, unacceptable behavior, and breach of contract. Vodaphone claims that it will honor its contract and release customers whose bills increase by more than 10 percent. But that sounds like Vodaphone is attempting to escape the plain meaning of the out provision, which seems to afford protections whenever usage charges increase by 10% without the need to show that the total bill has increased by that amount.
I wonder why there is the sudden need to jack up the prices. I know England is not exactly on the cutting edge of new technology, but do their cell phones run on gasoline?
September 1, 2008
The Only Sure Winners in the America's Cup: Lawyers
Like most lubbers, I've never really cared much about the America's Cup and the millionaires -- oh, sorry, billionaires -- who compete in it. Indeed, I have often said that most of my knowledge of the sea comes from SpongeBob. But I'm working my way through Patrick O'Brian's masterful Jack Aubrey novels, and I can now better understand the call of the sea. Still, here on land, I always cheer for the lawyers. And thanks to a fight between Oracle billionaire Lawrence Ellison and Swiss/Italian billionaire Ernesto Bertarelli, the lawyers have already made a terrific showing in the most recent regatta.
The dispute, it appears, is over what entity will be the race's official challenger to Bertarelli's team, Alinghi of Switzerland, supported by the Societe Nautique de Geneve yacht club. According to the AP, a New York trial court's ruling, awarding that status to Golden Gate Yacht Club, which supports Ellison's BMW Oracle Racing yacht, was reversed by the Appellate Division on a 3-2 vote. Instead, the Appellate Division determined that the challenger of record is Spain's Club Nautico Espanol de Vela, which Ellison's group claims is a sham. Ellison's group will proceed to New York's Court of Appeals.
If they win, it will mean a one-on-one showdown for the America's Cup, pictured at left. Otherwise, the race will involve all comers. According to the New York Times, the dispute will turn on interpretations of the 1887 "deed of gift" that governs the race and the rules that govern the 33rd running of the race. Beyond that, details of the nature of the legal dispute are rather hard to come by. Readers who have kept up with the year-long legal battle, please feel free to chime in.