December 19, 2008
Your Chance to Pre-Screen Two Coming Features
The forthcoming December 2008 issue of the New York University Law Review features not one, but two scintillating-looking articles of interest to contracts scholars and teachers.
In Efficient Breach Theory Through the Looking Glass, 83 NYU L. Rev. 1679 (2008), NYU's Barry Adler (left) offers his insights into a frequent topic of discussion at September's Fault in Contract Law symposium at the University of Chicago (the papers for which the Michigan Law Review will publish early next year). Here's Adler's abstract:
A party in breach of contract cannot sue the victim of breach to recover what would have been the victim’s loss on the contract. The doctrinal rationale is simple: A violator should not benefit from his violation. This rationale does not, however, provide an economic justification for the rule. Indeed, efficient breach theory is founded on the proposition that a breach of contract need not be met with reproach. Yet the prospect of recovery by the party in breach—that is, the prospect of negative damages—has received scant attention in the contracts literature. Close analysis reveals potential costs to disallowance of negative damages, particularly where a party with private information about the benefits of termination also has an incentive to continue under the contract. These costs can arise both ex post, at the time of a performance-or-termination decision, and ex ante, in anticipation of that decision. Nevertheless, allowance of negative damages could impose its own costs, where background information would create an incentive to repudiate a contract before either party could gather more information, for example. Ex ante contractual provisions, such as liquidated-damages or specific-performance clauses, permit parties some latitude to balance the costs of disallowance and allowance of negative damages, albeit imperfectly. Common law limitations on the mitigation duty may be seen as a mechanism to approach this balance in the absence of an explicit contractual solution.
In Three Pictures of Contract: Duty, Power, and Compound Rule, 83 NYU L. Rev. 1726 (2008), Georgetown's Gregory Klass (right) tackles "a fundamental divide among theories of contract law between those that picture contract as a power and those that picture it as a duty." Klass's abstract continues:
On the power conferring picture, contracting is a sort of legislative act in which persons determine what law will apply to their transaction. On the duty-imposing picture, contract law places duties on persons entering into agreements for consideration, whether they want them or not. Until now, very little attention has been paid to the problem of how to tell whether a given rule is power conferring or duty imposing—a question that should lie at the center of contract theory.
This Article argues that legal powers have two characteristic features. First, there is an expectation that actors will satisfy the rules with the purpose of achieving the associated legal consequences. Second, the legal rules are designed to facilitate such uses. A law might exhibit these features in either of two ways, which define two types of legal powers. Many laws that create legal powers employ conditions of legal validity, such as legal formalities, designed to guarantee the actor’s legal purpose. The presence of such validity conditions is strong evidence that the law’s sole function is to create a legal power, and I suggest reserving the term “power conferring” for such laws. Other laws anticipate and enable their purposive use without conditioning an act’s legal consequences on the actor’s legal purpose. The structure of such laws suggests that they function both to create powers and to impose duties. I coin the term “compound rule” for laws that satisfy this description and argue that the contract law we have is a compound rule. The dual function of compound rules provides empirical support for pluralist justifications of contract law. An example of such a theory can be found in Joseph Raz’s comments on the relationship between contract law and voluntary obligations.
Having found the articles on-line, I look forward to reading them over the semester break and not having to wait for the print copy of the NYU Law Review to make its way to my campus mailbox.
[Keith A. Rowley]
Now in Print
Caleb J. Bartel, Professional Compensation in Bankruptcy: Using Contract Law Principles to Interpret Ambiguous Retention Orders, 9 Transactions 149 (2007).
M. H. Sam Jacobson, A Checklist for Drafting Good Contracts, 5 J. Ass'n Legal Writing Directors 79 (2008).
Deborah A. Schmedemann, Finding a Happy Medium: Teaching Contract Creation in the First Year, 5 J. Ass'n Legal Writing Directors 177 (2008).
Stephen L. Sepinuck & Tina L. Stark, The Big Deal About the Fine Print: Negotiating and Drafting Boilerplate, 61 Consumer Fin. L.Q. Rep. 848 (2007).
[Meredith R. Miller & Keith A. Rowley]
December 16, 2008
Business Associations Limerick of the Week: Basic Inc.
It is grading period, which leaves me with little time for posting.
Basic, Inc. v. Levinson does not have Limerickworthy facts, but it is too important a case to ignore, as it gives Supreme Court approval to the fraud-on-the-market theory, without which security fraud class actions would almost never make it past the certification stage.
Basic, Inc. v. Levinson
Is a plaintiff class free to rely
On word of a merger denied?
Yes, there's a presumption
For those with the gumption
To fraud on the market decry.
December 15, 2008
Dick Speidel Tribute at AALS Annual Meeting
From our friend Mike Kelly at the University of San Diego:
Northwestern University School of Law and the University of San Diego School of Law are hosting a reception honoring the career of Richard Speidel, who passed away this past semester. Dick was a major figure in contracts, commercial law, and international arbitration.
The reception will be held at the AALS Annual Meeting in San Diego on Friday, January 9, from 6:30 to 8:30 p.m. in the Warner Center Room, 4th floor, south tower of the San Diego Marriott Hotel & Marina, with a short program beginning at 7:00 p.m. We will also videotape remarks from those who knew Dick or his work and will provide a copy to Dick's family.
[Keith A. Rowley]
Terri Hatcher Is a Woman of the Highest Integrity
All Headline News reports that last year, cosmetics maker Hydroderm accused Terri Hatcher (pictured) of endorsing other products while under contract to endorse its anti-aging products exclusively. One would have to wonder about a person who would have to endorse, according to the original accusations, 22 different anti-aging products. Fortunately, it was all just one of those bizarre misunderstandings. Hydroderm has now apologized to Ms. Hatcher and withdrawn its lawsuit, reported on in People Magazine here, in which it sought the return of $2.4 million paid to Ms. Hatcher as an endorsement fee.
Now, Hydroderm is making up with Hatcher, praising her as a "woman of the highest integrity." That may well be true, but she'll always be Lois Lane to me. Ahhh, Terri, in those days, even Lex Luthor armed with Kryptonite couldn't make you age!
Contracts Limerick of the Week: Clark v. West
William Clark had a great reputation as a prolific legal scholar. In 1899, he was hired to teach law at Washington & Lee University. According to Washington & Lee's website, he was fired within weeks and demanded to know the reason for his dismissal. The President of the university explained that the grounds for dismissal were that Clark was "addicted to drink beyond what would be proper in a college professor."
West publications nonetheless hired Clark to write a multi-volume treatise. A bizarre provision in the contract provided that Clark would be entitled to $2/page in any case but $6/page if he were to abstain from drinking so long as he was working on the project. It is undisputed that Clark was unable to do so, but he did complete the treatise and there is no indication that West was in any way dissatisfied with Clark's work.
West duly paid Clark $2/page upon the completion of the treatise and Clark sued for full payment. New York's Court of Appeals sided with Clark, ruling that his sobriety was a condition to his entitlement to full payment but that the condition had been waived.
Clark v. West
Was Clark due six dollars a page
For his work as a bibulous sage?
Yes, be West's own volition
It waived the condition
Of temperance for the man it engaged.