ContractsProf Blog

Editor: Myanna Dellinger
University of South Dakota School of Law

Thursday, October 23, 2008

Creep Bliss in Seattle

SlawsonEmeritus Professor David Slawson (pictured) of USC's Gould School of Law, provides this link from the Seattle Times, as well as the following summary:

A firm based in New York State sells credit-card machine leases to merchants, using supposedly independent contractors in various states to actually make the sales. The salespersons the contractors employ tell the merchants that the leases will cost them only $20 a month but if they don't prove profitable, the merchants can transfer their leases to someone else and be free of the rental obligation. However, the fine print makes the leases nontransferable and noncancelable without a big cancelation fee and also much more expensive than $20 a month. In total, it costs a merchant $12,000 to $15,000 to get out of the lease or to continue using it for its full term. The fine print also apparently makes New York law control, and if a merchant stops paying, the New York firm brings suit against them in New York, making it very difficult and expensive for them to defend. The suit itself, if not settled, can ruin a merchant's credit rating.

Professor Slawson appends the following questions for any who might care to offer advice:

1. Aren't the local contractors still the New York firm's agents, despite being independent contractors, because an agent is someone who has the power to make contracts for the principal, *by definition?*

2. Would any of the limits on choice of law for contracts allow a Washington court to apply Washington law despite the contract?

3. Since it would not be enough merely to declare these contracts unenforceable, because the New York firm could continue to ruin a merchant's credit rating anyway, simply by bringing suit (and possibly alleging some
new fact that distinguished the Washington court's decision), what basis might there be for bringing a fraud action against the Washington contractor and/or the New York firm?

Comments will be greatly appreciated.

[Jeremy Telman]

October 23, 2008 in In the News | Permalink | Comments (1) | TrackBack (0)

Wednesday, October 22, 2008

Chapman, Alabama, 1925

Aaa Some time ago we noted here that when Joe Webb of Webb. v. McGowin fame was working at the W.T. Smith Lumber Company back in the 1920s, one of his co-workers was Alonzo Huble "Lon" Williams, driver of the train that brought the logs to the mill (left).  Lon's son Hiram, nicknamed "Hank," went on to be one of the greatest country singers and songwriters of all time.

We noted that Hank wrote a song about his daddy and the W.T. Smith log train.  Well, somebody has now come up with a YouTube version of Hank Williams's performance of The Old Log Train, illustrated with photos of Williams and the old W.T. Smith mill.  Enjoy!

(P.S. Maybe Jeremy knows how to insert the video into the post, but I can't figure it out.)

Happy to oblige:

October 22, 2008 in Famous Cases, Teaching | Permalink | TrackBack (0)

Can two people "cohabit" without. . . "doing it"?

Coahead01A majority of the New York Court of Appeals held yesterday that the word "cohabitation" was ambiguous as used in a separation agreement -- namely, because it is unclear whether two people must engage in sexual relations to be cohabiting rather than, well, simply living together.

Husband and wife separated and agreed that husband would pay wife $11,000 a month for a period of time, unless one of four specified "termination events" occurred. One such event was "[t]he cohabitation of the Wife with an unrelated adult for a period of sixty (60) substantially consecutive days." The agreement did not define cohabitation.

Husband argued that he no longer had to make payments to wife, alleging that the wife and an unrelated man ("MP") were cohabiting within the meaning of the settlement agreement -- because MP had stayed overnight in the wife's vacation home in Connecticut for at least 60 substantially consecutive days during the summer of 2004, as borne out by surveillance.

Wife argued that she did not "cohabit" with MP, and that their relationship was strictly platonic, as proven by evidence of MP's sexual incapacity and her diminished sexual desire caused by prescribed medication. She argued that "use [of] the word 'cohabitation' –- rather than 'living together' or 'residing' . . . plainly mean[t] having sexual relations." The husband argued that the definition of cohabitation "could not possibly require sexual relations."

Jread04The trial court sided with the husband, holding that sexual relations were not determinative of cohabitation, and noting that the parties functioned as an economic unit by sharing expenses. Over a two judge dissent, the Appellative Division affirmed. Judge Read, writing for a 4-judge majority of the Court of Appeals, reversed:

We do not agree that "the term cohabitation has a plain meaning which contemplates changed economic circumstances, and is not ambiguous" absent an explicit provision to the contrary in a separation agreement or stipulation (Graev, 46 AD3d at 451), or, put slightly differently, is necessarily determined by whether a "couple share[s] household expenses or function[s] as a single economic unit" (id. at 453). Rather, the word "cohabitation" is ambiguous as used in this separation agreement: neither the dictionary nor New York caselaw supplies an authoritative or "plain" meaning. Similarly, courts in other states have not ascribed a uniform meaning to the word "cohabitation" as used in separation agreements (see Allen, Annotation, Divorced or Separated Spouse'sLiving with Member of Opposite Sex as Affecting Other Spouse's Obligation of Alimony or Support Under Separation Agreement, 47 ALR4th 38, §§ 6[a] and 6[b]).
In addition to the definition in Black's Law Dictionary, already set out, "cohabit" is variously defined as "[t]o live together as husband and wife: often said distinctively of persons not legally married" (Oxford English Dictionary [2d ed 1989]); "to live together and have a sexual relationship without being married" (The New Oxford American Dictionary [2d ed 2005]); "to live together as or as if as husband and wife" (Webster's Third New International Dictionary [2002]); "to live together as husband and wife, usually without legal or religious sanction," or "to live together in an intimate relationship" (Random House Webster's Unabridged Dictionary [2d ed 2001]); and "to live together as or as if a married couple" (Merriam Webster's Collegiate Dictionary [10th ed 1997]). The common element in all these definitions is "to live together," particularly in a relationship or manner resembling or suggestive of marriage, and New York courts have, in fact, used the word "cohabitation" interchangeably with the phrase "living together" (see e.g., Markhoff, 225 AD2d at 1001; Olstein, 309 AD2d at 698; Scharnweber, 65 NY2d at 1017). Ultimately, however, "living together" as if husband and wife is no less opaque than "cohabitation": both bring to mind a variety of physical, emotional and material factors, and therefore might mean anynumber of things in a separation agreement, where otherwise unexplained in the text, depending on the parties' intent. For example, the parties here might reasonably have meant "cohabitation" to encompass whether [the wife] engaged in sexual relations with an unrelated adult; whether she and the unrelated adult commingled their finances or -- just the opposite -- whether she supported the unrelated adult financially; whether she and the unrelated adult shared the same bed; or some combination of these or other factors associated with living together as if husband and wife.

Therefore, the majority of the court held that the word "cohabitation" was ambiguous in the parties separation agreement and, without extrinsic evidence of the parties' intent, the court could not assess what they meant by it. The Court reversed and remitted for further proceedings.

Graffeo04Judge Graffeo, writing for the dissent, found that the term "cohabitation" has a "commonly-accepted core meaning:habitually living with an unrelated adult in the same residence while engaged in an intimate relationship without being legally married to that person." She explained:

In fact, we have explained that "cohabitation" is synonymous with the phrase "habitually living with another" person for purposes of the maintenance termination provisions of Domestic Relations Law § 248 (citations omitted). It is true, however, that the use of the term "cohabitation" without elaboration or conditions is capable of causing ambiguity. This is because a living arrangement becomes cohabitation only if it is habitual and this requirement may not be quantified in every situation. But the parties in this case were careful to avoid this pitfall by indicating that the benchmark would be a specific duration -- "sixty (60) substantially consecutive days" -- a practice that is implicitly recommended by a leading New York treatise (see Scheinkman, West's New York Practice Series, New York Law of Domestic Relations, Appx B, at 550 ["openly and continuously cohabits with an unrelated male for a continuous period exceeding 30 days . . ."]). This was sufficient to make the cohabitation clause here unambiguous.

Graev v. Graev, __ N.Y.3d ___ (Oct. 21, 2008).

[Meredith R. Miller]

October 22, 2008 in Recent Cases | Permalink | Comments (0) | TrackBack (0)

Robin Williams v. Frank & Beans: A Couple of Dicks

Robin_williamsE! Online reports that Robin Williams is suing a production company by the name of Frank & Beans for $6 million. E! also provides the complaint, which alleges causes of action for breach of contract and promissory estoppel here. According to the complaint, Williams was to be paid $6 million for making a film called "A Couple of Dicks." The filming was supposed to begin in April. In March, defendant Frank & Beans and its parent company Gold Circle Films (also a defendant) notified Williams that the film had been shelved. Williams alleges that his agreement was "pay or play," and that defendants had agreed to pay him his $6 million whether or not the film was produced.

Nice work if you can get it.

The contract also allegedly specified that Mr. Williams would get top billing. I wonder how the other Dick felt about that.

[Jeremy Telman]

October 22, 2008 in Celebrity Contracts, In the News | Permalink | Comments (2) | TrackBack (0)

Tuesday, October 21, 2008

Gift Card Class Action Survives in NY Appellate Court

ImagesWe previously mentioned a federal class action against Amex over gift card fees. Well, in a separate state case against Simon Property Group over gift card fees, an appellate court in New York (Second Department) recently held that, in the absence of clear and unambiguous disclosure, the imposition of dormancy and administrative fees decreasing the redeemable value of a gift card constitutes a sufficient predicate for a cause of action to recover for breach of contract.

Plaintiffs commenced a class action challenging, among other things, a $2.50 monthly "dormancy fee" imposed by the defendant in connection with its promotion and sale of Simon Gift Cards, and the allegedly improper manner in which such fees were disclosed. The court explained:

The Simon Gift Card (hereinafter the card) is a prepaid, stored-value card, which is issued by Bank of America, N.A., pursuant to a license from Visa U.S.A., Inc., and may be used everywhere Visa is accepted. The card is programmed to hold a balance that is recorded on it at the time of purchase, and stored on it thereafter. Each time the card is used, the amount of the transaction is deducted from the available balance. The card is plastic and resembles a standard credit card. There is a magnetic strip on the back of the card, below which is recited, in relevant part, as follows: "An administrative fee of $2.50 per month will be deducted from your balance beginning with the seventh month from the month of card purchase." Once the card is activated, it is placed in a cardboard sleeve, which is styled as a cardboard folding "book" with the sleeve at the top, into which the card is inserted, along with five additional folding double-sided "pages" which are attached to the sleeve. On the front five "pages," general information about the card and its use is included, and on the back five "pages" the cardholder agreement and terms and conditions are articulated. The amended complaint alleges that the five "pages" on the back of the card sleeve that contain the terms and conditions of the card, including the dormancy fees, are in small print, in fonts materially less than that required pursuant to CPLR 4544, concealed, and in violation of General Business Law 396-i(3), which provides that "[t]he terms of a gift certificate or store credit shall be clearly and conspicuously stated thereon."

* * *

A section on the back of the card sleeve, entitled "Do I ever expire?" provided: "An administrative fee of $2.50 per month will be deducted from your balance beginning in the seventh month from the month of card purchase." The actual card term regarding the dormancy fees is placed on the very last page on the back of the 10 folding pages' of information included with the card sleeve. That section, entitled "Service Charges," provides, in relevant part, as follows:

"If a balance remains on the Gift Card after the sixth month, the Gift Card will be charged a $2.50 monthly service fee. The fee will be deducted automatically, starting on the seventh month after the month of purchase, from any remaining value on the card on the first day of the month until the value reaches zero."

Defendant moved to dismiss. The trial court denied the motion as to plaintiffs' causes of action for breach of contract and deceptive business practices. The Second Department affirmed. It explained in part:

Breach of the Implied Covenant of Good Faith and Fair Dealing

"Implicit in all contracts is a covenant of good faith and fair dealing in the course of contract performance . . . This 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 . . . Where the contract contemplates the exercise of discretion, this pledge includes a promise not to act arbitrarily or irrationally in exercising that discretion" (Dalton v Educational Testing Serv., 87 NY2d 384, 389 [internal quotation marks and citation omitted]). "If a factfinder concluded that the [fee] disclosure statement was not clear or conspicuous as required by [law], it could invalidate the fee provision or, alternatively, see it as a violation of the implied duty of good faith and fair dealing" (see Sims v First Consumers Natl. Bank, 303 AD2d at 290). The amended complaint alleges that the terms of the fee disclosure are not clear and conspicuous, but rather, unclear and hidden, which is sufficient to maintain a claim based upon a breach of the implied covenant of good faith and fair dealing.

Furthermore, the amended complaint alleges that the amount of the dormancy fee is grossly excessive. Even were the defendant entitled to charge dormancy fees, it is still precludedunder the implied covenant of good faith and fair dealing from setting such fees at grossly excessive amounts. Thus, the amended complaint sufficiently states a claim to recover damages for breach of the implied covenant of good faith and fair dealing (see Englade v HarperCollins Publs., 289 AD2d 159; Broder v MBNA Corp., 281 AD2d 369).

More coverage at

Lonner v Simon Prop. Group, Inc., 2008 NY Slip Op 07877 (App. Div. 2d Dep't Oct. 14, 2008).

[Meredith R. Miller]

October 21, 2008 in Recent Cases | Permalink | TrackBack (0)

Business Associations Limerick of the Week: Broz v. Cellular Information Systems

Robert Broz wore two corporate hats. He was the President and sole shareholder of RFB Cellular (RFB), and he was also a member of the board of Cellular Information Systems (CIS). A broker of telephone service licenses approached Broz in his RFB capacity and asked if he would be interested in a license known as Michigan 2. Broz checked with some of the principals of CIS, who had no objections, and then purchased the license for his own company. In fact, CIS was in financial difficulties and was seeking to unload its existing licenses rather than buying new ones.

Meanwhile, another company, PriCellular, was seeking to acquire both CIS and the Michigan 2 license. PriCellular lost out to Broz in the bidding war over Michigan 2, but when it acquired CIS, it sued Broz for usurpation of a corporate opportunity. The court adopts a four-factor test, or so it says. The case really turns on the fact that, at the time Broz took the opportunity, CIS was financially unable to do so. Having so found, I don't see how the court could reason that the other factors could or should play any role. In any case, it found that Broz had not usurped a corporate opportunity.

Broz v. Cellular Information Systems

Alleging some corporate faux pas,
PriCellular sued Robert Broz.
The outcome is clear
From that sound you all hear:
It's his butler, uncorking Shiraz.

[Jeremy Telman]

October 21, 2008 in Famous Cases, Limericks, Teaching | Permalink | Comments (0) | TrackBack (0)

Monday, October 20, 2008

L'il Kim and a L'suit

LilkimAccording to the New York Times, rap star L'il Kim has been enjoined temporarily from recording new music. A New York Supreme Court Justice set November 5th as the date for a hearing on the injunction. Independent label Brookland Media seeks $2.5 million from L'il Kim on a breach of contract claim. Brookland alleges that it paid $300,000 to buy out L'il Kim's contract with Atlantic Records. In return, L'il Kim agreed to record a new album with Brookland, but by the end of the summer she had only recorded three tracks.

According to, L'il Kim views the lawsuit as a bargaining strategy: Brookland is simply seeking to "leverage its position" in a contract dispute. provides further details: L'il Kim's attorney describes Brookland as "wonderful people" with whom L'il Kim expects to do business. However, L'il Kim's attorney claims, Brookland did not honor the terms of their agreement.

[Jeremy Telman]

October 20, 2008 in Celebrity Contracts, In the News | Permalink | Comments (0) | TrackBack (0)