March 18, 2010
Sometimes the Statute of Frauds Can Be a Real Pain in the Neck
Just ask Professor Chander Kant. He filed a pro se complaint alleging that Columbia University breached an oral contract promising him a senior-level, full-time, tenure-track faculty position in its Economics Department. But the S.D.N.Y. (Gardephe, J.) dismissed the complaint:
Kant alleges that an oral contract was formed when he was promised a senior-level, full-time appointment for two successive one-year terms, subject to (1) approval of the initial appointment by the economics department's senior faculty, and (2) Kant's regular attendance at and participation in weekly research seminars. (SAC ¶¶14, 17) Kant asserts that reappointment after the first year was mandatory if his initial appointment was approved and he met his seminar obligations. (See SAC ¶14 ("During [the initial year of appointment] two things will happen: Kant will be considered for tenure, and he will be reappointed for a second year."))
The alleged oral contract—although phrased in one-year increments—provides for performance over a two-year period, and thus violates the statute of frauds, rendering it unenforceable. See Bykofsky v. Hess, 107 A.D.2d 779, 782 (2d Dep't 1985) (holding an oral promise "to reappoint plaintiff for two successive one-year terms unenforceable pursuant to the Statute of Frauds") (collecting cases); Ginsberg v. Fairfield-Noble Corp., 81 A.D.2d 318 (1st Dep't 1981) ("oral employment agreement for a period of one year to commence at a time subsequent to the making of the agreement is unenforceable against a plea of the Statute of Frauds"); Whitehall v. Maimonides School, 53 A.D.2d 568 (1st Dep't 1976) (finding oral employment agreement unenforceable under the statute of frauds where the contract "was made on July 6, 1973, with performance to commence on August 1, 1973 and [to] be completed on July 31, 1974"); see also Andruff v. World Travel Holdings, PLC, No. 01 Civ. 10717 (LBS), 2002 WL 1033811 (S.D.N.Y. May 22, 2002) (granting summary judgment for defendant because unwritten two-year contract violated Statute of Frauds).
While Kant alleges that his oral contract was "renewed and restated" by Professor Davis in January 2002 (SAC ¶18), this confirmation of the original terms of the alleged January 2001 oral agreement by a second Columbia official in January 2002 does not alter the fact that the January 2001 agreement provided for performance over two years.
Kant v. Columbia University, 08 Civ. 7476 (S.D.N.Y. Mar. 9, 2010).
[Meredith R. Miller]
Fault Lines in Contracts Theory IV: Chapin Cimino
In this, the last in our series on the fault lines in contract law, we introduce Chapin F. Cimino's "Virtue and Contract Law," which is forthcoming in the Oregon Law Review and comes "highly recommended" from the Legal Theory Blog. In her article Professor Cimino presents virtue theory as a means of escaping what she characterizes as the “dominant theoretical dichotomy” confronting contracts scholars, that between consequentialism (which informs law and economics) and deontology (which informs rights-based theories). Professor Cimino recommends virtue theory to private law scholars because of its “symbiotic focus on both the means and ends of law.” Virtue theory is uniquely positioned to help us understand contracts as both economic and social things and thus to better capture the parties’ intent.
In Part I of her article, Professor Cimino argues that consequentialist approaches focus on the ends of contracts rules – do they make the parties better off? – while deontological approaches focus on the means – does the rule require the parties to do what is morally justifiable? Because of their different focuses, contracts theorists tend to argue in each other’s blind spots, resulting in a theoretical logjam. Courts too, focusing either on consequentialist ends or rights-based means, render rulings that neglect either one component or the other of the dynamics of contracting.
In Part II, Professor Cimino explains the Aristotelian concept of “virtue” with which she is working and its application to contracts law. “Virtue” is not the same as morality; rather, it is a “moral and intellectual disposition” that leads a person to choose right action. Choice is crucial to Aristotelian virtue. A virtuous act is one taken voluntarily and not in response to a duty to act. The virtue of justice in the context of contracting involves transactions in which each party gets no more and no less than her due.
Part III is an ambitious literature review, in which Professor Cimino describes the revival of interest in virtue theory in intellectual history, political theory and legal theory. This section builds to a discussion of a recent collection of essays, Virtue Jurisprudence. That valuable volume raises more questions than it answers, which is not surprising given that it is the first of its kind, and Professor Cimino proposes to expand on the work begun therein by exploring the relation of law and virtue in the context of contracts law.
In Part IV, Professor Cimino develops her application of virtue theory to contracts law, arguing that virtue theory best enables courts to capture “the single most foundational concept in contract: the parties’ intent.” While virtue theory has largely been applied in public law contexts, its application to contracts law makes sense given the social relationship that arises between contracting parties. While existing approaches privilege either the means or the ends of contracting, virtue theory permits one to theorize the parties’ intent as to both aspects of the contractual exchange. With respect to intent, courts either tend towards an approach that maximizes efficiency or one that promotes promise keeping, but the parties likely were trying to do both. In a brief section that touches very closely on the concerns of the papers that were the subjects of earlier posts in this series, Professor Cimino cites to evidence suggesting that lay people assume that there is a moral component to contracting that leads them to want to award higher damages in cases of more morally culpable breach. On this basis, Professor Cimino argues that non-lawyer parties clearly care about the means of contracting.
Finally, Professor Cimino shows how her virtue theory can be deployed to help courts get at the parties’ intentions when filling in “reasonableness” terms and in delineating the implied covenant of good faith and fair dealing. With respect to “reasonableness,” Professor Cimino suggests that a virtue-based approach would seek to determine not what is reasonable, but what was the “natural” intent of the parties, with an eye to protecting their expectations with respect to both promise-keeping and efficiency. The shift is subtle but significant and one of which courts are fully capable, especially as something like virtue theory seems to have informed aspects of the Uniform Commercial Code. Similarly, Professor Cimino finds elements of virtue theory embodied in the Official Comments to the Restatement (2d) § 205, which explicates the duty of good faith and fair dealing in terms of both the means and the ends of contracts.
The paper thus elegantly develops an abstract apparatus and then deploys it strategically to illustrate not only its logical force and usefulness but also its proximity to our inarticulate intuitions about contract interpretation. As I was considering Professor Cimino’s theory in connection with my own litigation experience, I could think of several examples of trial judges who, without any familiarity with the Nichomachean Ethics, decided issues with a keen eye to both the means and ends underlying the parties' intent.
Ethics in Contract Drafting
As academics, we all keep some form of a list of the ideas or topics we are thinking of taking up in our scholarship. (On the “meat market,” I believe this is what they refer to as “research agenda.”) For some time, I have been meaning to take up the topic of ethics in contract drafting and negotiation. A topic that had been largely left unexplored – until now. Professor Gregory Duhl (William Mitchell) has posted to SSRN a manuscript, The Ethics of Contract Drafting. Here’s the abstract:
This Article provides the first comprehensive discussion of the ethical obligations and duties to non-clients of lawyers drafting contracts. It discusses fraudulent representations, errors, fraud, and "conscious ambiguity" in transcription, as well as "iffy" and invalid clauses, and argues that the standard for lawyer misconduct under the disciplinary rules should be consistent with the purposes of contract law, one of which is to promote trust between contracting parties. Additionally, the Article discusses lawyer liability for negligence to non-parties in contract drafting and contends that lawyers should be liable to non-parties only when they are third-party beneficiaries to the contract between the lawyer and client for the lawyer‘s services. The Article concludes by arguing for a functional set of ethical rules for lawyers drafting contracts that reflect the increasing emphasis on cooperation, rather than competition, in the contracting process.
When someone else writes the potential article on your list, there is a tendency to feel frustration at the preemption- especially when it is done well. But I am nothing other than thankful to Prof. Duhl for writing this important article, and having done it in such an organized and readable way.
Ethics in contract drafting is a subject I broach with my class when we talk about exculpatory clauses and non-competes – namely, whether an attorney has any ethical duty to the other party (a non-client) when the exculpatory clause or non-compete she is inserting in the contract is either unenforceable or “iffy.” I have never been sure of the answers to any of my ethics hypos. Thankfully, I now have a useful resource and framework, and a source of new hypotheticals.
[Meredith R. Miller]
Promise and Contract: Jane Austen's Take
While thinking about the problems relating to promise and contract explored by Michael Pratt, I came across this scene from Chapter 22 of Jane Austen's Persuasion. The setting, of course, is Bath. The characters are Charles Musgrove and his wife, Mary, the pathetic, self-pitying and miserable sister of Jane Austen's protagonist, Anne Elliot. Charles has just announced, with something like triumph, that he had procured tickets for them all to go to the theater the following evening. His wife interrupts him:
To me, this example illustrates the tension between our ordinary language sense of what it means to make a promise and Professor Pratt's focus on promissory intent. As the doctrine of promissory estoppel recognizes, manifestations that could be reasonably expected to induce reliance and do induce such reliance can create a legal obligation. But we ordinarily think of promissory estoppel as an equitable supplement to contracts law that addresses our moral intuition that, even absent a contract, it is wrong to allow people to induce others to rely to their detriment on one's representations. I substitute the word "manifestations" for "promise" here because I think Professor Pratt is right that what the law enforces are not "promises" but legal undertakings -- that is, expressions of intent to be legally bound by a statement of future intention.
So, Charles Musgrove did not "promise" in Professor Pratt's sense, but he may have promised in the sense of the law. His manifestations might also be regarded by others in his social circle as a promise, which suggests some tension between our intuitions about what constitutes promising and Professor Pratt's understanding of that phenomenon. I think this places me in the camp that Professor Pratt labels "deflationist." I suppose I've been called worse.
In short, we might use the word "promise" to describe both statements that bind us because through them we undertake a moral obligation and moral obligations that arise because others reasonably rely on our representations regardless of our intent. Professor Pratt thinks there are good reasons for keeping these different types of moral obligation separate, but I am not persuaded that anything is gained from the distinction.
March 17, 2010
Now in Print
Gerald Caplan, Legal Autopsies: Assessing the Performance of Judges and Lawyers Through the Window of Leading Contract Cases, 73 Alb. L. Rev. 1 (2009).
Samir Chopra & Laurence White, Artificial Agents and the Contracting Problem: A Solution Via an Agency Analysis, 2009 U. Ill. J.L. Tech. & Pol'y 363.
David Collins, Settlement Agreements, Legal Information and the Mistake of Law Rule in Contract, 61 N. Ir. L.Q. 1 (2010).
Nicholas Curwen, Confusing Contract and Tort When Measuring Damages for a Seller's Conversion of Goods Sold, 17 Waikato L. Rev. 25 (2009).
Katherine Doornik, Incentive Contracts with Enforcement Costs, 26 J.L. Econ. & Org. 115 (2010).
Steven W. Feldman, Autonomy and Accountability in the Law of Contracts: A Response to Professor Shiffrin, 58 Drake L. Rev. 177 (2009).
Stephen R. Ginger, Attorneys' Fees Awards to Contract Non-signatories: Should Equitable Estoppel Inform the Discretion of the Courts?, 40 Golden Gate U. L. Rev. 15 (2009).
Margaret N. Kniffin, Conflating and Confusing Contract Interpretation and the Parol Evidence Rule: Is the Emperor Wearing Someone Else's Clothes?, 62 Rutgers L. Rev. 75 (2009).
Proshanto K. Mukherjee & Abhinayan Basu Bal, A Legal and Economic Analysis of the Volume Contract Concept under the Rotterdam Rules: Selected Issues in Perspective, 40 J. Mar. L. & Com. 579 (2009).
Jared Tong, You Pay for What You Get: The Argument for Allowing Parties to Contract Around Patent Exhaustion, 46 Hous. L. Rev. 1711 (2010).
Tess Wilkinson-Ryan, Do Liquidated Damages Encourage Breach? A Psychological Experiment, 108 Mich. L. Rev. 633 (2010).
[Keith A. Rowley]
Weekly Top Ten from the Social Science Research Network
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TOP 10 Papers for Journal of Contracts & Commercial Law
January 16, 2010 to March 17, 2010
Fault Lines in Contracts Theory III: Michael G. Pratt
This is the third in a series of posts on recent scholarship relating to the relationship between contract and fault or between contract and promissory obligation. Yesterday, we posted about Steven Feldman’s critique of Seana Shiffrin. On Monday, we discussed Martha Ertman’s book chapter, “The Productive Tension between Official and Unofficial Stories of Fault in Contract Law.” Today, we discuss Michael G. Pratt’s presentation at the UNLV Spring Contracts conference on “The Obligation Conception of Promising.” Once again, no electronic version of Professor Pratt’s presentation is currently available on the Internet. However, one can look at his earlier essay, “Contact: Not Promise” which appeared two years ago in the Florida State University Law Review (35 Fl. St. Univ. L. Rev. 801 (2008)). In order to establish the context for a discussion of Professor Pratt’s current project, it makes sense to set out his main argument from that earlier piece.
“Contract: Not Promise,” like Steven Feldman’s article discussed yesterday, is a response to Seana Shiffrin’s work. Professor Pratt begins with the provocative claim that that the commissive speech act that gives rise to a contract is not the same as the kind of speech act that gives rise to a moral obligation to others. In short, contracts are not promises. Rather, contracts entail undertakings, but the undertakings are distinct from the undertakings with which morality is concerned. Professor Shiffrin errs, according to Professor Pratt, because she assumes that contracts law is about enforcing promises and seeks to justify the divergence of legal and moral rules regarding such enforcement. Professor Pratt escapes this difficulty by arguing that the law on contracts is not concerned with promises as such. Professor Pratt argues that contracts are not promises in the narrow sense in which Professor Shiffrin understands promises because undertakings to fulfill legal obligations entail no moral obligation to do so. In order to demonstrate this, he proposes a hypothetical contract in which the parties agree that they are contractually bound respectively to perform a service and to pay for that service. The contract also specifies that neither party is promising to perform and has no moral obligation to do so. A promise necessarily entails a moral obligation for Professor Pratt, or at least an attempt on the part of the promisor to manifest an intention to acquire a moral obligation.
Professor Pratt considers the objection that, given our objective theory of contract formation, the purported promisee might believe that a contractual undertaking entails a promise even where no moral obligation was intended. Such “ostensive promises” might indeed entail a moral obligation to perform, but the moral obligation is not, Professor Pratt insists, that the person committing herself to an undertaking perform a promise. Rather, there is a moral obligation to perform an undertaking that could be reasonably mistaken for a promise. (815) Professor Pratt also concedes that it may well be that most contractual undertakings are also moral obligations, but the point is that the law enforces only the legal obligation and not the moral one. (816)
In his conference presentation, Professor Pratt further explores the nature of promissory obligation and clarifies his view that the concept of a promise requires that it has particular moral significance. Promise is linked to moral obligation, according to Professor Pratt, just as our notion of “hammer” cannot be expressed without reference to nails. Professor Pratt proceeds to offer both a phenomenological and a communicative argument in favor of what Joseph Raz has called the obligation concept of promising.
Professor Pratt begins by rejecting what he calls the “ceremonial account” of promising. We do not make promises by reciting some specified incantatory language. Rather, in most cases, we make promises through any communicative act that gives the promisee additional assurances that we will do the thing that we have stated we will do. A promise is thus a communicative act in which the promisor binds herself to do X because she says she will do X. The philosophical puzzle is to understand how a communicative act can effect such a normative change.
Philosophers whom Professor Pratt labels “deflationists” escape this puzzle by focusing on the fact that promises are relied on. There is nothing particular to the immorality of promise-breaking, argue such deflationists; it is wrong to break a promise for the same reasons that it is generally wrong to harm others. But this approach misses an essential component of Professor Pratt’s understanding of promises, the promisor’s intent to bind herself through promising.
Professor Pratt illustrates the advantages of the obligation conception of promising with an example. Imagine an assurance to do X characterized as “information, prediction or advice” but not a promise. In fact, the non-promisor specifically notifies the would-be promisee that she is under no obligation to the latter but will do X for the sake of interested third parties. Professor Pratt concedes that the assurances can give rise to moral obligations, but they are not promissory in nature. The person undertaking the obligation has made no promises to the third parties and the moral obligation to the would-be promisee sounds in reliance, not in promise, because there was no promise. Professor Pratt thus claims to have refuted the deflationist account, which could not explain why there would be no promissory obligation in this context, and to have demonstrated the truth of the obligation conception of promise.
Section § 21 of the Restatement (2d) provides that an express statement of intention to be bound is not required but an express statement not to be bound is effective. One may thus be bound involuntarily, or at least without any expression of intent to bound. Professor Pratt contends that promissory obligations that are disclaimer sensitive must be voluntary. This latter claim reinforces the argument of Professor Pratt’s “Contract: Not Promise” by specifying another way that promises diverge from contractual obligations. Here, Professor Pratt goes beyond his earlier claim that the law of contracts is not concerned with enforcing moral obligations. He now argues that promises, by their very nature, are unlike contractual undertakings.
Professor Pratt’s writings are certainly thought provoking. They provide interesting ways to think about contractual obligation – and to think about teaching contracts – that may not make any difference at all when it comes to deciding cases. If I understand Professor Pratt correctly, while the R.2d may be a bit sloppy in characterizing contracts as promises that the law enforces, the sloppiness does no harm because courts in fact enforce not moral obligations but legal undertakings. They may also enforce other kinds of moral obligations – such as those arising from reliance – but that is different from enforcing moral obligations that sound in promise. But the law need not identify the sorts of obligations it is enforcing or its moral grounds for doing so with the kind of specificity Professor Pratt’s analysis requires. It merely needs to identify sources of law adequate to ground decisions.
March 16, 2010
Fault Lines in Contracts Theory II: Steven W. Feldman
This is the second in a series of posts on recent scholarship relating to the relationship between contract and fault or between contract and promissory obligation. Yesterday, we posted about Martha Ertman’s book chapter, “The Productive Tension between Official and Unofficial Stories of Fault in Contract Law.” Today, we discuss Steven W. Feldman’s article, “Autonomy and Accountability in the Law of Contracts: A Response to Professor Shiffrin,” which can be found at 58 Drake Law Review 177 (2009). Unfortunately, no electronic version is currently available on the Internet.
As its title suggests, Mr. Feldman’s article is a response to Seana Shiffrin’s “The Divergence of Contract and Promise.” Mr. Feldman is not a contracts prof; he is an attorney with the U.S. Army Corps of Engineers, and he faults Professor Shiffrin and other contracts law scholars for their failure to give adequate attention to statutes and case law. Based on his review of the case law, Mr. Feldman concludes that contract and promise do not diverge as Professor Shiffrin has suggested.
After an introductory Part I, Part II of the article contends that judges have often expressed not only legal but also moral disapproval of willful breach. He concludes that now more than ever a moral standard undergirds our expectation that people will abide by their contractual obligations. (189-90). The Part also discusses promissory estoppel and the relatively few U.S. jurisdictions that expressly deny the moral basis of contract. Part III of the article then takes up the implied covenant of good faith and fair dealing, which Mr. Feldman characterizes as a “wide-ranging code of moral conduct that spans the full spectrum of formation, performance and enforcement.” (196)
Part IV focuses on the Holmesian dictum that a contract is nothing more than a promise to perform or to pay damages. Mr. Feldman finds that only a few jurisdictions embrace this doctrine (197-98) and even Holmes himself viewed breach of contract as a legal wrong that resulted in liability to the breaching party. (199) Part V discusses the doctrine of efficient breach. Mr. Feldman contends that very few courts accept the doctrine or use it to decide cases. (201)
Part VI addresses the availability of specific performance as a remedy and criticizes Professor Shiffrin for overlooking cases in which courts have awarded the remedy in the face of anticipatory repudiation. (205) More generally, Mr. Feldman notes a trend in favor of increased awards of specific performance, claiming that some jurisdictions even identify specific performance as the preferred remedy for breach of contract. (207) In short, Mr. Feldman disputes Professor Shiffrin’s claim that specific performance is not commonly invoked and thus finds no divergence between promise and contract because “courts hold the promisor accountable to the promisee for breach.” (209)
The final three Parts address damages issues. Part VII begins by acknowledging courts’ “traditional reluctance to award punitive damages for a breach of contract.” (210) Mr. Feldman cites to numerous opinions in which courts do indeed award punitive damages for breach of contract and cites to 12 jurisdictions in which there is no requirement that the plaintiff also allege an independent tort. (213) He thus believes to have demonstrated a considerable erosion of the barriers separating contracts law and morality. Part VIII asserts a moral basis justifying Hadley’s foreseeability requirement with respect to consequential damages. Finally, Part IX defends the morality of the damages rule that puts the responsibility on the non-breaching party to mitigate the damages arising from the breach. I have had occasion to remark elsewhere on my skepticism regarding that claim.
I should disclose that I provided some pre-publication comments on a draft of the article, and I am always happy to read the work of a practitioner who is not only well-informed regarding current academic debates but also has on eye on the practical ramifications of contracts scholarship. The article has a wealth of information. The footnote apparatus is especially useful because Mr. Feldman has hunted down every case and every statute that supports his thesis. Law professors would do well to mine these footnotes and read or re-read the cases so as to deepen their own and their students’ understanding of the relationship of contracts remedies to the question of moral wrongdoing.
Nonetheless, I remain unpersuaded by Mr. Feldman’s arguments, except to the extent that they illustrate Professor Ertman’s “unofficial” counternarrative to mainstream contracts doctrine. Yes, there are cases in which the general rule that contracts law is a strict liability regime yields to equitable considerations. There are contracts doctrines such as “good faith and fair dealing” and “unconscionability” that clearly invoke moral sentiments. But then there is vast majority of cases, including every case I ever litigated, in which the only issue is whether or not there has been a breach and in which no consideration is given, at least in the litigation, to whether or not the breach was willful.
I find the claims of Parts IV and V especially troublesome. Courts may wax moralistic before finding a party liable for breach of contract, but what practical consequences derive from identifying a breaching party as a wrongdoer? If there is no liability beyond the obligation to pay expectation damages, I do not see how the notion of fault matters. Similarly, with respect to efficient breach, the question is not whether or not courts embrace the doctrine expressly but whether they can do anything to dissuade parties from engaging in the practice. Standard contractual remedies for breach of contract suggest that courts are powerless to do anything other than encourage efficient breach.
I learned a great deal from Mr. Feldman’s Part VII on punitive damages. He opened my eyes to the surprising willingness of courts to award such damages for breach of contract, and I have subsequently discovered additional evidence of their willingness to do so. Nonetheless, I still believe it to be the case that in the vast majority of breach of contract cases, claims for punitive damages will not and should not arise. Mr. Feldman’s remaining sections on damages suffer, in my view, from a confusion of moral and economic justifications for existing rules. Mr. Feldman is aware of the overlap of moral and economic justifications (190, n. 49), and seems to regard the fact that the justifications overlap as sufficient to make his point that moral considerations underlie contracts doctrine. But Professor Shiffrin and others have not argued that there is no overlap between contractual and moral obligations; they merely explore what they regard as the troublesome areas in which contract law and moral sentiment diverge.
Remedies is actually an area where practitioners’ insights would be especially welcome. Certainly one does want to impress a judge with the extent to which one’s client has been wronged, but it seems to me that the real value of moral suasion lies outside of the litigation context. There are extra-legal consequences for bad behavior, and those consequences likely have a far more profound impact on parties’ inclinations to breach agreements than does the remote chance that a court might award a remedy other than expectation damages.
That said, I applaud Mr. Feldman for his significant contribution to our body of knowledge on this important subject, and I am happy to report that more scholarship is on the way from Mr. Feldman.
March 15, 2010
Partnership Agreements in "Breaking Bad"
Season Two of AMC's Emmy-winning drama "Breaking Bad" raises some interesting questions about the division of partnership profits. The two main characters, Walt, played by Bryan Cranston -- pictured left-- and Jesse, played by Aaron Paul, who is fast becoming one of my favorite actors, frequently refer to themselves as "partners" and speak of their meth production and distribution operation as a "partnership." And sure enough, they are indeed two or more persons operating as co-owners a business for profit, so I think they've got that right. The two never seem to have formalized their agreement in a writing, which is not advisable, except that their business is illegal and therefore any agreement would likely be unenforceable in any case and any writing evidencing the nature of their business could land them in jail.
In any case, absent agreement to the contrary, the partners should divide their profits equally, and that is what Walt and Jesse do. Who says that there is no honor among thieves? Jesse is also a very prudent criminal, since he keeps a "rainy day fund." Unfortunately, he keeps the rainy day fund in his car, and when he is briefly arrested in Episode 4, "Down," his savings are seized by the DEA. Jesse gets out of jail, but in order to do so, he has to sever all ties to his "stacks" of "serious cheese," yo. In addition, his parents evict him from his home. In short, Jesse needs money, and he demands that Walt split half of the remaining profits with him. Walt initially refuses, saying that he is not responsible for Jesse's carelessness.
As a matter of law, I think Walt has it right. The partnership profits had been distributed and the money Jesse lost to the DEA was not partnership property. It was Jesse's money, and Walt is not obligated under the partnership agreement to divide his share with Jesse. As a matter of good business dealings, however, and also in order to keep the storyline headed in a reasonable direction, Walt gives in and splits his share with Jesse.
A second problem arises in Episode 6, "Peekaboo," when one of the partnership's informal employees is robbed at knifepoint by a meth addict. As a result, Walt's expected profits were reduced by $1000. Jesse was willing to accept this shortfall as a cost of doing business, but since distribution was Jesse's responsibility, Walt felt that Jesse should absorb the loss and also prevent future losses through an act of retaliation and/or intimidation. The parties did not end up taking their dispute to court however, as an ATM machine served both to make up the earlier loss and dispense with the troublesome meth addict. Need I say more?
Finally, in a drama that plays out over the last three episodes of the season,Jesse decides to reduce his role in the partnership to part-time druglord so that he can become a full-time heroin addict and squeeze to his neighbor and landlord's agent, Jane. As a result, he is in a drug-induced haze when Walt needs him to deliver $1.2 million worth of product. Walt ends up doing it all himself and as a result misses the birth of his daughter. His wife doesn't seem to mind, but boy, Walt had better answer her straight when she asks him about his cell phone! Once again, the parties seem to recognize that they are bound under the Uniform Partnership Act, since they are operating without an agreement, to split their profits 50/50. Walt could have argued that Jesse's conduct constituted a constructive termination, but he chose once again to be a good father-figure for the hapless Jesse, whose share in the profits is now being held in trust by the partnership's attorney.
That gets you up to speed on the vital contracts issues from Season Two. Season Three begins March 21st. The blog is of course not plugging the series as such. We just think it is a useful mechanism for working through some of the problems inherent in running a partnership without a written agreement.
Fault Lines in Contracts Theory I: Martha Ertman
This week, the Blog will feature a series of posts on recent scholarship relating to the relationship between contract and fault or between contract and promissory obligation. These themes are explored in greater detail in the forthcoming book, edited by Omri Ben-Shahar and Ariel Porot, Fault in American Contract Law (Cambridge University Press 2010). Today’s post is about Martha Ertman’s chapter in the volume, “The Productive Tension between Official and Unofficial Stories of Fault in Contract Law,” which can be downloaded from the Social Science Research Network here.
Professor Ertman presents as the “official story” the notion that contracts law is a strict-liability regime and that the state of mind of the breaching party ought to have no role in the assessment of damages. As Justice Holmes put it, “the wicked contract-breaker should pay mo more in damages than the innocent and the pure in heart.” But that official story is supplemented, as is often the case in contracts law, with numerous exceptions in which courts do consider fault either in determining liability or in assessing damages. Professor Ertman argues that these exceptions facilitate rather than undermine contracts law by facilitating ex ante planning.
The chapter comes complete with its own Venn diagram and with some colorful metaphors to help the reader conceptualize the relationship between contract and fault, between contracts damages and tort damages, and between public and private mechanisms for social regulation. But Professor Ertman also hammers her thesis home with evidence from the Restatement (2d) of Contracts, the Uniform Commercial Code and case law to demonstrate that there have always been exceptions to the general rule that contracts law is not about fault. R.2d § 90 permits recovery based on promissory estoppel and thus incorporates a notion of fault to the extent that promisors induce reasonable reliance. UCC § 2-713 permits additional damages in cases of willful breach. In Jacob & Youngs v. Kent, Judge Cardozo would have awarded damages but for his finding that there was an “innocent breach of an inessential term.”
In the final section of her chapter, Professor Ertman draws on George Lakoff’s work on body-based metaphors to suggest ways in which contracts doctrine benefits from the supplement fault-based theories provide to the general strict-liability regime that constitutes the “official story” of contract law. She concludes that while the official story “buttresses the planning or certainty side of contract law,” the unofficial story tempers the law by permitting considerations of fault, thus preventing contracts law from encouraging opportunistic breaches that would undermine the goal of certainty.
Professor Ertman’s chapter is short, but it provides a very useful framework that contracts profs could utilize to help students organize their ideas about contracts damages.