October 1, 2009
Bonus Limerick: Totten v. United StatesIn Totten, a the administrator for the estate of William A. Lloyd brings a claim against the government seeking to recover for the breach of an espionage contract. It is alleged that Lloyd entered into an agreement with President Abraham Lincoln in which Lloyd infiltrated enemy territory during the Civil War in order to provide the U.S. Government with vital information relating to the military forces and fortifications of the Confederacy. For these services, Lloyd was to be paid $200/month plus expenses. Honest Abe allegedly paid Lloyd only expenses.
Justice Field, writing in 1875, found that the subject matter of the contract was a secret and that both parties must have known at the time of their agreement that their lips would be “for ever sealed respecting the relation of either to the matter.” In order to protect the public interest in having an effective arm of the government that could engage in secret services, the Court ruled that there could be no claim for breach of a secret contract because the existence of the contract was itself a secret that could not be disclosed.
I am happy to report that Totten is a hit! We only got to it in the last ten minutes of class, which I thought would suffice for a one-page opinion. But when I suggested that we could continue the discussion in the next session, in addition to their now habitual groans of disapproval, a couple of students murmured: “Yes!” And several students stuck around after class to explore the consequences of the Totten doctrine. Giddy about this overlap of my teaching and research interests, I composed a celebratory Limerick:
Totten v. United States
The President gamely employed
But then stiffed an agent named Lloyd.
Abe knew Lee’s plan
Because of this man,
But the court found his legal claims void.
The President gamely employed
September 30, 2009
7 Crucial Words: "Except as otherwise specified in this Agreement...."
7 dirty words. Here, at ContractsProf Blog, we talk about 7 crucial words: "Except as otherwise specified in this Agreement..."
On ocassion, we've mentioned Dan Rather's breach of contract suit against CBS. Yesterday, a New York appellate court held that the trial court erred in declining to dismiss Rather's breach of contract claim against CBS. It looked to the "pay or play" clause in Rather's contract and reasoned:
Rather alleges that he delivered his last broadcast as anchor of the CBS Evening News on March 9, 2005, and that, since he was only nominally assigned to 60 Minutes II and then 60 Minutes, he should have received the remainder of his compensation under the agreement in March 2005. Rather claims that, in effect, CBS "warehoused" him, and that, when he was finally terminated and paid in June 2006, CBS did not compensate him for the 15 months "when he could have worked elsewhere." This claim attempts to gloss over the fact that Rather continued to be compensated at his normal CBS salary of approximately $6 million a year until June 2006 when the compensation was accelerated upon termination, consistent with his contract.
Contractually, CBS was under no obligation to "use [Rather's] services or to broadcast any program" so long as it continued to pay him the applicable compensation. This "pay or play" provision of the original 1979 employment agreement was specifically reaffirmed in the 2002 Amendment to the employment agreement.
That Amendment also provided, in subparagraph 1(g), that if CBS removed Rather as anchor or co-anchor of the CBS Evening News and failed to assign him as a correspondent on 60 Minutes II or another mutually agreed upon position, the agreement would be terminated, Rather would be free to seek employment elsewhere, and CBS would pay him immediately the remainder of his weekly compensation through November 25, 2006.
We agree that subparagraph 1(g) must be read together with the subparagraph 1(f), which provided that if CBS removed Rather from the CBS Evening News, it would assign him to 60 Minutes II "as a full-time Correspondent," and if 60 Minutes II were canceled, it would assign him to 60 Minutes as a correspondent "to perform services on a regular basis." However, this construction does not render any language of the agreement inoperative, since, consistent with the "pay or play" clause, neither subparagraph 1(g) nor 1(f) requires that CBS actually use Rather's services or broadcast any programs on which he appears, but simply retains the option of accelerating the payment of his compensation under the agreement if he is not assigned to either program.
It is clear that subparagraph 1(g) applies only to a situation where CBS removed Rather as anchor of CBS Evening News and then failed to assign him "as a Correspondent on 60 Minutes II." The amended complaint alleges that when Rather no longer performed anchor duties at CBS, he was assigned to 60 Minutes II. Thus, Rather implicitly concedes that CBS fully complied with subparagraph 1(g).
Supreme Court erred in finding that subparagraph 1(g) modified the "pay or play" provision when it ignored the initial prefatory clause to the rest of that subparagraph, which states "[e]xcept as otherwise specified in this Agreement." As the defendants correctly assert, the seven words are crucial because they require subparagraph 1(g) to be read together with the "pay or play" provision, and thus, subparagraph 1(g) cannot modify the "pay or play" provision to mean that CBS must utilize Rather in accordance with some specific standard by featuring him in a sufficient number or types of broadcasts. As the defendants aptly observed, "the notion that a network would cede to a reporter editorial authority to decide what stories will be aired is absurd."
Rather v. CBS Corp., 2009 NY Slip Op 06738 (App Div 1st Dep't Sept. 29, 2009) (emphasis added).
[Meredith R. Miller]
September 29, 2009
The Sucker Theory of Contract
Do individuals view breach of contract as a moral harm? Dave Hoffman (Temple) and Tess Wilkinson-Ryan (UPenn) explore this question by way of psychology and offer an explanatory theory of contract: we view the unrequited promisee as a sucker. Their engaging paper "Breach is for Suckers" is forthcoming in the Vanderbilt Law Review. Here's the abstract:
This paper presents results from three experiments offering evidence that parties see breach of contract as a form of exploitation, making disappointed promisees into “suckers.” In psychology, being a sucker turns on a three-part definition: betrayal, inequity, and intention. We used web-based questionnaires to test the effect of each of the three factors separately. Our results support the hypothesis that when breach of contract cues an exploitation schema, people become angry, offended, and inclined to retaliate even when retaliation is costly. This theory offers a useful advance insofar it explains why victims of breach demand more than similarly situated tort victims and why breaches to engorge gain are perceived to be more immoral than breaches to avoid loss. In general, the sucker theory provides an explanatory framework for recent experimental work showing that individuals view breach as a moral harm. We describe the implications of this theory for doctrinal problems like liquidated damages, willful breach, and promissory estoppel, and we suggest an agenda for further research.
[Meredith R. Miller]
Contracts Limerick of the Week: Fitzpatrick v. Michael
The Law in Action casebook includes two nicely contrasting cases in its section on the Statute of Frauds and problems that arise in enforcing contracts in the family setting. The first is Fitzpatrick v. Michael, 9 A.2d 639 (Maryland, 1939), in which a man (Orion C. Michael) hires a woman (Marie Ellen Fitzpatrick) to be his nurse, chauffeur, companion, gardener and housekeeper for $8/week plus a promise to will her his home property with all its furnishings and furniture. After she performs for two years, culminating in a trip in which she drove him from Maryland to Miami, Florida -- and somehow got him to Cuba as well -- Mr. Michael abruptly decides to end the contractual relationship by having her arrested for trespass when his attempts to get her to leave the property were unavailing. There can be no doubt that Mr. Michael was satisfied with Ms. Fitzpatrick's performance until that point because, in my favorite fact from the case, he took out a newspaper advertisement to announce their happy return to "their home" after a vacation in Florida during which Ms. Fitzpatrick had driven the entire 4,400 miles "without the least mishap either with motor or tires."
Ms. Fitzpatrick sued for specific performance of the contract and relied on her part performance in order to get around the Statute of Frauds. The court first announced that "[t]here can be no possible doubt that upon these facts the plaintiff should be entitled to some relief against the defendant." Unfortunately, the only remedy that the court thought was available was to compel the defendant "to accept the personal services of an employee against his wish and his will." The court found itself without authority to order people to live together when one of them did not wish to do so.
This case made me wonder why American courts are so shy of positive injunctions, Clearly, if the court had ordered Michael to specifically perform he would have settled with Ms. Fitzpatrick. So, here is how I would revise the opinion, were I to address Mr. Michael in verse:
Fitzpatrick v. Michael
I now pronounce you and Marie
To be bound by this solemn decree:
She will be your nurse,
'Til you leave in a hearse;
You owe that to your promisee.
Tune in next week for a Limerick on Brackenbury v. Hodgkin, which illustrates why a court might indeed have good reason to be wary of positive injunctions.