December 3, 2008
New CISG Scholarship
Antonin 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.
Buyer’s Remorse, Now With Bite
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:
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 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.
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.
We now return to our regularly scheduled programming.
Contracts Limerick of the Week: Selmer v. Blakeslee Midwest
Blakeslee-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.