Monday, October 22, 2012
In this blog post, I would like to examine some of the dichotomies in contract theory and doctrine that are noted in Professor Cunningham’s Contracts in the Real World. Some would claim that contract law is revolutionary; others would argue that it is reactionary. Compared to the status relationships of the Middle Ages, in which economic power was primarily determined through feudal or family relationships, contract and market relations promised a more egalitarian alternative.
In the classic text Ancient Law, Sir Henry Maine described the radical transformation from a feudal society governed by custom and hierarchy to one transformed by the industrial revolution, in which socio-economic mobility was not only possible, but which was expected. On the other hand, many today would argue that contract acts as a reactionary force, for enforcing bargains strictly as written could result in reinforcing the power imbalances that already exist in society.
Contracts in the Real World notes these dichotomies and strikes a middle ground between them. Prof. Cunningham characterizes the schism in contract law as a dispute between formalists and realists. This schism, he posits, applies even to foundational matters, such as the question of whether a contract has been formed. Prof. Cunningham notes that extreme formalists would champion a return to the days of the seal and enforce only those deals that meet the strict definitions of offer, acceptance, and consideration.
Realists, on the other hand, favor scrutinizing the context of every bargain, accepting the most informal of deals and even enforcing promises to make gifts as contracts. Thus the dichotomy between formalists and realists turns into a debate over the extent of government or court involvement in private ordering.
Throughout the book, Prof. Cunningham walks a tightrope between these positions, often making reference to contract law’s “sensible center,” and noting that with many common problems, the rules that have evolved over the years make a good deal of sense. In essence, he makes a case for the status quo, eschewing reform in either the direction of more government interference in contract, or government withdrawal from contract.
Prof. Cunningham suggests that current law strikes the proper balance between two rather extreme positions. The book extols the earthy pragmatism of old precedents and wise judges, and suggests that these doctrines will ultimately win out and reach a balance. In my next blog post, I will question whether this assertion holds true in the context of technological change.
[Posted by JT]
The following post is cross-posted from an online symposium that previously appeared on Concurring Opnions. The original post can be found here.
The title of Larry’s new book is Contracts in the Real World. Intentionally or not, the title suggests that there may exist another realm for contracts other than the real world, a realm that is perhaps more theoretical and not completely real. The alternate universe that most readily comes to mind is law school. Contracts in the real world exist in partial contrast to contracts in law school.
Contracts in the real world bind parties and counterparties to one another. Contracts in law school bind students to casebooks and laptops. Contracts in the real world frequently revolve around compensation, obligations, and duties. Contracts in law school frequently revolve around precedents, arguments, and defenses. Contracts in the real world are about contracts. Contracts in law school are about cases about contracts. Needless to say more, there exists a meaningful and significant gulf between contracts in the real world and contracts in law school.
Larry’s book serves a bridge across this gulf. Through wide-ranging popular stories about the prominent and the pedestrian crafted in accessible language yet not devoid of legal doctrine, the book connects contracts in law school with contracts in the real world. Law school concepts like offer, acceptance, mitigation, and assignment are illuminated by real world stories of popular contracts involving Pepsi ads, Dateline NBC, Redskins tickets, and Haagen-Dazs ice cream.
The conceptual meditations of contract scholars like Cardozo, Corbin, and Williston are expressed and explained in contract controversies involving well-known figures such as Michael Jordan, Maya Angelou, and Lady Gaga, and through common experiences like purchasing lottery tickets, signing mobile phone agreements, and buying football tickets online. Given the accessible language and popular stories, it is easy for the reader to be lulled into forgetting that they are reading and learning about the law, much in the same way that Tom Sawyer lulled his friends into whitewashing a fence by making it seem more like a treat than a chore.
Through stories, common and classic, Larry reminds us that contracts are not pacts chiseled in stone that bind parties to one another in an empty, static, and monochromatic world without regard for reason or sense. Rather, contracts are dynamic communions between parties that exist in a colorful world filled with complications, change, and consequence. This means that contracts manifest agreements that are frequently honored as intended, but it also means that contracts are sometimes modified, breached, and enforced against another’s preferences because these agreements exist in a dynamic world.
Throughout the book, Larry advocates for a thoughtful, balanced view of contract law; this balanced view departs from heedless, extreme views of contract law based on rigid and impractical notions of freedom of contracts or social justice that frequently find root in irreconcilable moral, political perspectives. Likewise, contracts in law school and contracts in the real world should strive to find what Larry calls a “sensible center.”
Scholars, students, and practitioners of contract law can all greatly benefit from finding this balanced core as well because contract law is perhaps most enjoyable, most thoughtful, and most useful, when theory and pedagogy meets experience and practice, when there is a meeting of the minds between contracts in law school and contracts in the real world.
Larry’s book is a much welcomed addition to the literature on contract law. It will be enjoyed by many who deal with contract law, be it in law school, the real world, or somewhere in between.
[Posted by JT]
Friday, October 19, 2012
[Like Jake Linford's post, this is a cross post from Concurring Opinions, which had an online symposium about Professor Cunningham's book, Contracts in the Real World. I previously blogged about the book here.]
There’s been a lot of noise recently about the law school curriculum and real world training. In contracts courses, that typically means that we should give students experience reviewing and drafting actual agreements. I think there’s another aspect of training that we need to provide students, and that’s to show them the relevance of the cases we assign from musty books, and show them how to apply those cases to new fact patterns. That’s where Professor Cunningham’s book comes in. It is chock full of fun contracts disputes ripped out of today’s headlines. Of course there’s the People magazine allure of reading about celebrities and their unreasonable demands and unbelievable predicaments. Cunningham’s book tells tales of love children and blackmail, bad bets and bad defenses. It was so entertaining that I almost felt guilty reading it – which makes me think that my students will enjoy the engaging tales and humorous anecdotes just as much as I did. Cunningham does a great job of weaving old cases with new ones, and new cases with newer ones. In showing how everything old is new again, Cunningham wages a strong case that contract law is alive and well. It made me feel that my chosen subject area was relevant and timely – and interesting. Sure, Contracts as a 1L course may not have the sex appeal of Con Law, or the life-and-death importance of Crim Law, but Cunningham shows that the subject can be intriguing just the same.
As Professor Collins put it (better and more eloquently) in his post, what makes this book unique is not just its readability but that it places contracts within their business context. For students who haven’t yet worked on a deal or negotiated a contract, it helps them to understand abstract concepts to have some sort of setting, something they can imagine. When that setting is one that they’ve read about in the paper or heard in the news, it just makes it more fun.
I did have one minor quibble with the book, and it’s that Cunningham’s “alive and well” view of contracts was misleading with respect to one infamous case. Yes, I’m talking about the quick gloss given to ProCD (and by extension, the slew of cases that followed in its wake). Cunningham provides what could be interpreted as a rationale for ProCD, but I wish he would have been a bit more critical. I’m not so sure that the case can be justified doctrinally – Easterbrook’s whole bit about ProCD being the master of the offer and the notice of terms in a box – it stretches the truth a bit much. I’m not quibbling with the result in the case so much as the rationale, and I think the rationale matters for the simple reason that it establishes precedent. Precedent that’s been followed by too many other courts even where the facts don’t warrant it. The court in ProCD could have enforced the contract against Zeidenberg under a quasi-contract theory or maybe an unfair competition claim (although I can’t recall off hand whether ProCD ever raised either). But it didn’t, and now we’re stuck with rolling contracts and the contracting of everything online. But Cunningham comes around in the next section when he acknowledges the challenges of applying old doctrine to new encounters. He comes down hard against those who would make blanket statements that website privacy policies cannot be contracts. As Cunningham notes, “They can be enforceable contracts or promises when meeting traditional tests of manifested intention, assent, and either consideration or reliance.” I couldn’t agree more.
Contracts in the Real World does what may seem impossible to wary 1Ls – it makes an old topic like Contract law seem dynamic, fun - and relevant.
Thursday, October 18, 2012
[Jake Linford (left) of the Florida State University College of Law, has allowed us to cross-post his contribution to a symposium about a new book by Lawrence Cunningham (right) Contracts in the Real World, about which we have previously blogged here.]
I am participating in a online symposium on Concurring Opinions, where we are discussing Larry Cunningham's fantastic new book, Contracts in the Real World, and where you should check out the rest of the commentary.
As I read "Facing Limits," Larry's chapter on unenforceable bargains, I had to pause and smile at the following line:
People often think that fairness is a court's chief concern, but that is not always true in contract cases (p. 57).
I still remember the first time someone used the word "fair" in Douglas Baird's Contracts class. "Wait, wait," he cried, with an impish grin. "This is Contracts! We can't use 'the f-word' in here!"1 Of course, Larry also correctly recognizes the flip side of the coin. If courts are not adjudicating contracts disputes based on what is "fair," we might think that "all contracts are enforced as made," but as Larry points out, "that is not quite right, either" (p. 57).
Pedagogically, Contracts in the Real World is effective due to its pairings of contrasting casebook classics, juxtaposed against relevant modern disputes. In nearly every instance, Larry does an excellent job of matching pairs of cases that present both sides of the argument. I don't mean to damn with faint praise, because I love the project overall, but I feel like Larry may have missed the boat with one pairing of cases.
Facing Limits on Surrogacy Agreements
As I mentioned, the chapter on Facing Limits is in part about the difficulty of balancing fairness, or equitable intuitions, against freedom of parties to be bound by their agreements. Larry pairs In re Baby M, a case where the New Jersey's highest court invalidated a surrogacy agreement with Johnson v. Calvert, a case where the California Supreme Court upholds such an agreement. I'm troubled that the Court in Baby M could be on the wrong side of both fairness and freedom.
In re Baby M was arguably the first case on surrogacy agreements to reach national prominence. The court found unenforceable a surrogacy agreement between William and Elizabeth Stern, who hoped to raise a child that Elizabeth could not bear, and Mary Beth Whitehead, who wanted to give another couple "the gift of life" and agreed to bring William's child, Baby M, to term. Mrs. Whitehead and her then-husband Richard were in tight financial straits, and the surrogacy deal promised $10,000, "on surrender of custody of the child" to the Sterns.
Once she gave birth, Mrs. Whitehead found it difficult to part with the baby girl she called Sara Elizabeth, but the Sterns planned to name Melissa. To avoid relinquishing the child, the Whiteheads fled to Florida with the baby. When Baby M was returned to the Sterns and everyone made it to court, the trial judge determined that the interests of the baby were best served by granting custody to the Sterns. The Supreme Court of New Jersey agreed with that assessment, but on its way to that conclusion, rejected the validity of the surrogacy contract itself, in which all parties stipulated, prior to the birth of Baby M, that it was in the child's best interest to live with the Sterns.
The Supreme Court's decision ostensibly turned on the unenforceability of the contract because, even in America, "there are, in a civilized society, some things that money cannot buy" (p. 55). But the decision is full of language suggesting that, in the Court's opinion, Mrs. Whitehead didn't know what she was doing. In the very paragraph that the Court assumed that she could consent to the contract, the Court marginalized her capacity to consent.
The Court bought into two tropes often trotted out by those who aspire to protect the poor from themselves: the coercive effects of money, and the inability of the poor to fully understand the consequences of their decisions. The Court was troubled that Mrs. Whitehead, "[t]he natural mother," did not "receive the benefit of counseling and guidance to assist her in making a decision that may affect her for a lifetime." The Court was perhaps suspicious she could not. After noting the distressing state of her financial circumstances, the Court posited that "the monetary incentive to sell her child may, depending on her financial circumstances, make her decision less voluntary."
Fairness and Freedom
It strikes me as unfair to conclude that a mother of two is incapable of considering what it might mean to give birth to a third. Holding the surrogate to the bargain can seem unfair at the difficult moment where she hands over the baby, but I struggle to see how it is any less unfair to allow the parents to invest their hearts and energy into planning for a baby that will come, but will not become theirs.
Turning to the question of the coercive effect of money, the problem with paternalistic protections is they often protect the neediest from the thing they ostensibly need the most. Many interested parties find ways to make money on adoption and surrogacy. It's puzzling, if we are truly serious about protecting the needy, that we would protect them from also acquiring some of the money that we seem to assume they so desparately need.
Here's another way to make the same point: in the wake of Baby M, some states allow surrogacy contracts, and some don't. Hopeful parents who can afford to enter into surrogacy contracts will go to states, like California, where those contracts are enforced. Surrogacy providers who hope to make their money as an intermediary will focus on markets where their contracts will survive judicial scrutiny. Our potential surrogates, however, are more likely to be tied to the jurisdictions in which they reside, at least if the assumptions about poverty in the Baby M opinion are generalizable. So altruistic surrogates will be able to carry a child to term in every state, but those who desire to make a bargain can do so only in those states willing to recognize them. To me, that sounds neither free nor fair.
Larry takes some comfort in the common law inquiry into the best interests of the child, and with that I take no issue. In a case where the contract and the child's interests are at loggerheads, it seems appropriate in the abstract for the best interests to be a heavy thumb on the scale, or even to trump the prior agreement. I'm just not sure that In re Baby M -- a case where the Court knocked out the contract even though the contract terms and best interests were essentially in line -- is a case where the value of the best interest test are best brought to light.
Jake Linford is Assistant Professor of Law at the Florida State University College of Law. Some of his scholarship can be found on SSRN.
1 I may have slightly dramatized this exchange, although my classmates assure me I did not invent it from whole cloth.[Posted by JT]
Wednesday, October 17, 2012
Clayton P. Gillette, Bondholders and Financially Stressed Municipalities. 39 Fordham Urb. L.J. 639 (2012)
Jeffrey F. Pan, Preventing Small Business Fraud, Including Small Business Contracting Fraud Prevention Act, 11 Fla. St. U. Bus. Rev. 13 (2012)
Tuesday, October 16, 2012
RECENT HITS (for all papers announced in the last 60 days)
TOP 10 Papers for Journal of Contracts & Commercial Law eJournal
August 16, 2012 to October 15, 2012
|1||225||Allocating Risk Through Contract: Evidence from M&A and Policy Implications
John C. Coates, IV,
Harvard Law School
Anna Gelpern, G. Mitu Gulati,
American University Washington College of Law, Duke University - School of Law
|3||105||Disarming the Trojan Horse of the UAAA and SPARTA: How America Should Reform its Sports Agent Laws to Conform with True Agency Principles
Barry University - Dwayne O. Andreas School of Law
|4||98||Economic Analysis of Contract Law from the Internal Point of View
New York University School of Law
|5||96||Express Contract Terms and the Implied Contractual Covenant of Delaware Law
University of Oregon School of Law 2012
Last Revised: September 30, 2012
||When Nudges Fail: Slippery Defaults
Lauren E. Willis,
Loyola Law School Los Angeles
||Rethinking the Nature of the Firm: The Corporation as a Governance Object
York University - Osgoode Hall Law School
|8||50||Misrepresentation: The Restatement's Second Mistake
Stephanie R. Hoffer,
Ohio State University (OSU) - Michael E. Moritz College of Law
|9||47||Prohibiting the Freedom of Contract: A Fundamental Restriction
David P. Weber,
Creighton University - School of Law
|10||47||Lexis Nexus Complexus: Comparative Contract Law and International Accounting Collide in the IASB-FASB Revenue Recognition Exposure Draft
Kurt S. Schulzke, Gerlinde Berger-Walliser, Pier Luigi Marchini,
Kennesaw State University, University of Connecticut, University of Parma - Department of Economics
Monday, October 15, 2012
We have reported previously on the fact that the Totten doctrine bars suits against the United States by people who enter into espionage contracts with the government. But what if you are engaged in espionage for the Church of Scientology?
As reported here in the Tampa Bay Times, Paul Marrick and Greg Arnold are suing the Church of Scientology for breach of contract. The two men claim that David Miscavige, the Church's leader, hired them to spy on the Church’s rivals, especially Pat Broeker, who was ousted during a power struggle in 1986, and whom it was believed still constituted a threat to Miscavige’s power over the church. The theory was that Broeker had misappropriated $1.8 million in Church funds and that he was in possession of invaluable records entrusted to him by Church founder L. Ron Hubbard (pictured).
Marrick and Arnold allege that the Church has been paying them up to $500,000 a year since 1988 to keep the Church informed of the comings and goings of Broeker, among others, including Indiana governor Mitch Daniels when he was with Eli Lilly, and promised that their positions were permanent. However, they allege that the Church stopped paying them two earlier this year, and they have now filed suit.
Marrick and Arnold claim that, while no written agreement existed, the assurances given to them by the church constitute a verbal agreement that the church breached when it stopped paying them. Statute of Frauds much? They claim to have kept ample records detailing their work, and according to the Tampa Bay Times, when they suggested that they would share that information with the newspaper, the Church initiated settlement talks in a suit it characterized as a "shakedown." The Church acknowledges that the two men worked for them, providing "various services" as "independent contractors."
[Christina Phillips and JT]
In Halbman v. Lemke, Lemke sold an Oldsmobile to young Halbman, who being under the age of 18, was entiteld to avoid his contractual obligations. The sale price was $1250, part of which was payable in installments. However, apparently only weeks after the exchange was made, a connecting rod in the vehicle's enging broke. Although Lemke, who was the manager at a gas station, offered to install a used engine in the car if Halbman could find one. Instead, Halbman took the car to a repair shop, which charged him $637.40 for the repairs.
Although Halbman ceased payments on the car at that point, Lemke transferred title. Halbman returned the title, sought to avoid the contract and demanded the return of the $1100 already paid on it.
Halbman did not pay for the repairs, so the repair shop exercised its garageman's lien and canibalized the car for parts. It towed what remained of the car to Halbman's father's residence, where it sat, degraded and became unsalvageable. So matters stood when Halbman sued for the return of his $1100.
Those of you who read last week's Limerick can probably guess how this came out:
Halbman v. Lemke
Halbman, the young contract signer
Admitted that he was a minor.
When the car blew a rod
Lemke, poor sod,
Was left with some scrap and a shiner
Thursday, October 11, 2012
On the way in to work this morning, I heard on the radio that Pizza Hut is making an offer for a unilateral contract (okay, that’s not exactly the way the d.j. put it, but anyway…). The offer is free pizza for life to anyone who manages to ask either one of the presidential candidates during the town hall debate, “Do you prefer sausage or pepperoni on your pizza?” The debate will take place October 16 at Hofstra University. (It turns out that the offer is not actually “free pizza for life” it’s actually a $520/year gift card for up to 30 years). A silly contest, of course -- but a good example to illustrate the difference between a unilateral and bilateral contract and related issues having to do with effective offers and acceptances. Often, it doesn’t really matter if an offeree accepts by performing by by promising to perform– but in some cases (i.e. bets, dares), it really does. I used to refer to the bet in the book, HOW TO EAT FRIED WORMS to explain the difference between a unilateral and bilateral contract (15 worms in 15 days for $50). This year I might use the more election -season- friendly example of the Pizza Hut offer.
Wednesday, October 10, 2012
Edward P. Boyle & David N. Cinotti. Beyond Nondiscrimination: AT&T Mobility LLC v. Concepcion and the Further Federalization of U.S. Arbitration Law, 12 Pepp. Disp. Resol. L.J. 373 (2012)
Jack Graves, Court Litigation over Arbitration Agreements: Is It Time for a New Default Rule? 23 Am. Rev. Int'l Arb. 113 (2012)
Sachin S. Pandya, Unpacking the Employee-Misconduct Defense. 14 U. Pa. J. Bus. L. 867 (2012)
Steven L. Schooner & student Collin D. Swan, Dead Contractors: the Un-examined Effect of Surrogates on the Public's Casualty Sensitivity, 6 J. Nat'l Sec. L. & Pol'y 11 (2012)
Tuesday, October 9, 2012
RECENT HITS (for all papers announced in the last 60 days)
TOP 10 Papers for Journal of Contracts & Commercial Law eJournal
August 9, 2012 to October 8, 2012
As reported in The Guardian here, a challenge to a series of UK rulings permitting parties to specify the religion of their arbitrator is being referred to the European Court of Justice. The UK Supreme Court case at issue, Jivraj v. Hashwani, was decided in July 2011. The two parties to the dispute are members of the Ismaili Muslim community, and they agreed that any disputes involving their joint venture would be decided by an arbitrator who belonged to that same community.
The parties fell out and, after some complicated litigation, their chosen arbitrator resigned. Hashwani wanted to replace the Ismaili arbitrator with a retired judge, but Jivraj objected that the nomineed was not Ismaili. Hashwani contended that the part of the paties agreement specifying the ethnicity of the arbitrator is s unenforceable under European legislation and the Equality Act 2010 because it unfairly discriminates against non-Ismaili arbitrators. The Supreme Court ruled in Jivraj's favor, finding that the Equality Act does not apply to arbitrators and, even if it did, the requirement that the arbiter be Ismaili was a "genuine occupational requirement" and thus permissible.
A new, Ismaili arbiter was appointed, but he too resigned, and Hashwani then asked the European Commission to refer the issue to the European Court of Justice. Given that the dispute is clearly commercial, rather than religious in nature, Hashwani believes that there is no need for the arbitrator to be from the Isamili Islamic community. The Guardian suggests that an ECJ ruling could have far-reaching consequences for religious arbitration, but it would seem that there is room for a narrow holding that religious arbitration is perfectly appropriate when there are issues of religious law to be adjudicated.
[JT, with hat tip to my student, Alex Seciuch]
Yesterday, in light of the on-going Moby Dick Big Read, we considered the contract to which Herman Melville's protagonist, Ishmael, signed in Moby Dick. Today, we consider the contractual fate of his friend, Queequeg as set forth in the book's 18th chapter. Ishmael agreed to sign on to the Pequod for a 1/300th share of the ship's take. He did so if only to keep the ship's part-owners and agents, Captains Peleg and Bildad from coming to blows over what was equitable and just. Ishmael's harpooning friend, Queequeg was another matter.
Upon seeing the tatooed savage, Peleg and Bildad initially protested that they do not ordinarily enlist cannibals and insisted that Queequeg must show evidence that he had converted to Christianity. Ishmael gamely lies, insisting that Queequeg is a Deacon in the First Congregation Church. Bildad is having none of this "skylarking," but Queequeg offers a quick demonstration of his skills with a harpoon, and the next thing you know, Peleg is offering "Hedgehog" or "Quohog" a 1/19th share of the ship's take. But there remained the uncomfortable issue of how one signs up an unlettered savage who cannot sign his name.
Queequeg was not at all put out by this difficulty:
Queequeg, who had twice or thrice before taken part in similar ceremonies, looked no ways abashed; but taking the offered pen, copied upon the paper, in the proper place, an exact counterpart of a queer round figure which was tattooed upon his arm; so that through Captain Peleg's obstinate mistake touching his appellative, it stood something like this: -- Quohog his mark
To this, the pious Bildad appended a brief sermon advising Queequeg to abandon his heathen ways. But Peleg was having none of it.
'Avast there, avast there, Bildad, avast now spoiling our harpooneer,'cried Peleg. 'Pious harpooneers never make good voyagers -- it takes the shark out of 'em; no harpooneer is worth a straw who aint pretty sharkish.'
And with that, the two former shipmates launch into another debate on the place of piety on a whaling vessel, as the two new shipmates follow Peleg aboard the Pequod.
Monday, October 8, 2012
The Kunz and Chomsky caebook features two cases that highlight the potential for harsh results arising from a mechanical application of the infancy doctrine. The first such case is the subject of this week's Limerick. The second, well, you'll have to wait and see.
In Webster Street Partnership, Ltd. v. Sheridan, the partnership rented an apartment to two infants and expected them to pay $250/month rent, plus some additional incidental costs and a $150 security deposit.. That's right, infants! The nerve! How are two little babies supposed to pay the rent? Sell their diapers for fertilizer? Pose for cute baby pictures? Awww, that is a cute baby!
Well, actually, contracts law considers you an infant if you are under 18. At common law, contracts with infants for non-necessaries are voidable at the election of the infant, and these two boys were under 18 at the time the contract was formed. The boys did not pay their rent, and the partnership sought to collect.
The first issue was whether an apartment is a necessary. Seems like it ought to be, but . . . nope. Second issue was whether the fact that the boys actually had use and enjoyment of the apartment should count for something. Nope. Finally, one of them turned 18 seven days before vacating the apartment, but the court found preposterous the notion that a mere seven days could be a sufficiently lengthy time to permit ratification of the earlier, voidable agreement. The partnership also had to return the deposit. Ugh.
A number of jurisdictions have introduced equitable limitations on the doctrine, and that just seems right. The concept of "necessary" is so elastic as to provide no notice or warning of the possibility of avoidance to parties that might have entered nto contracts with infants in good faith. The result in this case strikes me as highly unfair to the landlords and permits the two young rapscalions escape the consequences of their delinquencies.
Webster Street Partnership, Ltd. v. Sheridan Limerick
For indulging the two boys’
In contracting without capacity,
The landlord must tender,
And the court gets to render
A paean to doctrine’s opacity.
I have been immensely enjoying (at a rate of one chapter a day) re-reading Moby Dick as part of the Moby Dick Big Read, through which each of the 135 chapters of Melville's sprawling classic novel is being broadcast in downloadable form. You can read more about the project here, but let me just say that it is a very fine thing to get a five-to-thirty minute dose of Melville's prose delivered in a variety of accents on a daily basis.
Which brings me to the contracts hook (or perhaps harpoon) in this case. Melville's narrator, let's call him Ishmael, signs up on the whaler the Pequod in Chapter 16, a text version of which can be found here. When asked of his experience at sea, Ishmael makes the mistake of telling Captain Peleg, one of the Pequod's part owners and agents, that he had been on serveral merchant voyages. Pressed further, Ishmael admits that he wants to go on a whaling vessel because he wants to see the world. Peleg responds by exhorting Ishmael to look out at the sea.
The prospect was unlimited, but exceedingly monotonous and forbidding; not the slightest variety that I could see.
Ishmael returns with this report to Peleg and yet still wants to "see the world," despite Peleg's insistence that he could travel to Cape Horn and still see only more of the same monotony. At that point, Peleg suspends his skepticism and owns that Ishmael may as well sign the papers. Here is Ishmael's description of his expectations of the agreement to be negotiated:
I was already aware that in the whaling business they paid no wages; but all hands, including the captain, received certain shares of the profits called lays, and that these lays were proportioned to the degree of importance pertaining to the respective duties of the ship's company. I was also aware that being a green hand at whaling, my own lay would not be very large; but considering that I was used to the sea, could steer a ship, splice a rope, and all that, I made no doubt that from all I had heard I should be offered at least the 275th lay- that is, the 275th part of the clear net proceeds of the voyage, whatever that might eventually amount to. And though the 275th lay was what they call a rather long lay, yet it was better than nothing; and if we had a lucky voyage, might pretty nearly pay for the clothing I would wear out on it, not to speak of my three years' beef and board, for which I would not have to pay one stiver. . . .
Upon the whole, I thought the 275th lay would be about the fair thing, but would not have been surprised had I been offered the 200th, considering I was of a broad-shouldered make.
But Captain Bildad, Peleg's business partner, does not share Ishmael's estimation of his value and suggests putting Ishmael down for a 777th lay. After a spirited exchange between the partners and one mad rush by Peleg at Bildad as Peleg shouts "Out of the cabin, ye canting, drab-colored son of a wooden gun- a straight wake with ye!" , Ishmael signs up for a 300th lay.
Tomorrow, we shall discuss how Ishmael's cannibal companion, Queequeg, fares.
Thursday, October 4, 2012
The United States District Court for the Southern District of New York recently awarded a partial win to the Estate of Mario Puzo (author of the popular novel “The Godfather”) when it denied Paramount Pictures Corp.’s (Paramount) motion to dismiss the Estate’s breach of contract counterclaim, which Paramount claimed was preempted by the Copyright Act. The win was indeed partial in that the District Court dismissed the Estate’s remaining counterclaims. The issue at the heart of the parties' dispute, whether book publishing rights to all sequels were among the rights that Puzo sold to Paramount, was not before the court on Paramount’s motion to dismiss.
The Estate's breach of contract claim is based on a 1969 Agreement between Puzo Sr. and Paramount, (the details of which we recently blogged about here), through which Paramount claims that Puzo signed over all publishing rights regarding any sequel to “The Godfather.” Based on some language that the parties left out of the 1969 agreement, the Estate reads Paramount's rights more narrowly and alleges that Paramount repudiated and breached the 1969 Agreement when it interfered with rights allegedly reserved in the Estate. In fact, the District Court noted, the Estate is seeking to characterize as repudiation conduct that simply contradicted the Estate's narrow reading of Paramount's contractual rights. Under New York law, such conduct does not constitute a repudiation unless a party advances an untenable contract interpretation in order to avoid its contractual obligations. The Court hinted that there was no evidence that Paramount had ever sought to escape its contractual obligations and thus seems to have tipped its hand that it sees no merit in the Estate's breach of contract claim. However, as Paramount did not move to dismiss on that basis, the court moved on to the preemption issue.
The District Court rejected Paramount's argument that federal copyright law preempts the Estate's breach of contract claim. The elements required to prove the Estate’s claim differ from those needed to establish copyright infringement. Instead of proof of a valid copyright and copying of protected elements of a copyrighted work, the Estate must establish that Paramount had a contractual obligation not to interfere with its exercise of book publishing rights and that Paramount breached that obligation. Moreover, the Court pointed out, “a copyright is a right against the world,” providing for exclusive rights in the holder. In contrast, the Estate’s claimed right is one that creates a potential liability in Paramount if it should breach. Everyone else can do as they please.
In sum, because the Estate’s claim focuses on a contractual obligation outside federal copyright law, it is not preempted and Paramount’s motion to dismiss the Estate's breach of contract claim on that basis was denied.
[Christina Phillips and JT]
Wednesday, October 3, 2012
Ian Ayres & Gregory M. Klass, Studies in Contract Law (8th Ed., Foundation Press, 2012) -- click on the link to watch a video of Gregory Klass describing the virtues of the new edition!
Nathan M. Crystal & Francesca Giannoni-Crystal, Enforceability of Forum Selection Clauses: A "Gallant Knight" Still Seeking Eldorado, 8 S.C. J. Int'l L. & Bus. 203 (2012)
William N. Eskridge, Jr., Family Law Pluralism: The Guided-Choice Regime of Menus, Default Rules, and Override Rules. 100 Geo. L.J. 1881 (2012)
David A. Linehan, Due Process Denied: The Forgotten Constitutional Limits on Choice of Law in the Enforcement of Employee Covenants Not to Compete, 2012 Utah L. Rev. 209
Michael E. Sykuta, The Nature of the Deal in the Post-Crisis Financial Market, 7 Entrepren. Bus. L.J. 27 (2012)
Lisa Tripp, Arbitration Agreements Used by Nursing Homes: An Empirical Study and Critique of AT&T Mobility v. Concepcion. 35 Am. J. Trial Advoc. 87 (2011)
Manuel A. Utset, High-Powered (Mis)incentives and Venture-Capital Contracts, 7 Entrepren. Bus. L.J. 45 (2012)
Tuesday, October 2, 2012
While teaching the concept of "offeror is king" this semester, I said something like, "I wish I had a crown. One of you should bring me a crown! There might be some participation points in it for you if you do." (It sounded less entitled than that quote but you get the point.) Shortly thereafter, two students brought me a crown--one from Burger King (of course!) and one from a party supply store. The first one was just slipped under my door but the second one had "terms of acceptance" attached. The terms stated that I had to use the crown in class and not disclose the student's name in order to accept. I did both, and my acceptance was deemed substantively valid and timely by the entire class.
Another student recently alerted me to a New York Times story about a lawyer victimized by the "offeror is king" concept. The lawyer, Theodore Scott, reportedly produced a winning video and essay in response to a contest offer from Gold Peak Tea. The contest winner would receive $100,000 to take a year off and enjoy life (presumably over some tea). However, after Mr. Scott's video received the highest number of votes and was declared the grand prize winner, Gold Peak Tea had a change of heart. Apparently, Mr. Scott had requested votes for his contest entry via a crowdsourcing website on which people, well, request votes for things like this. Gold Peak Tea took the position that Mr. Scott's online plea for votes violated the contest rules. Because Mr. Scott accepted in a way other than that specified by the offeror, there was no deal, and a different winner was selected.
As an interesting side note, many folks appear to be bombarding Gold Peak Tea's Facebook page with comments supporting Mr. Scott, the original winner. The Facebook response from Gold Peak Tea reads as follows:
"Gold Peak appreciates input from the community on our Facebook page. The Take the Year Off program was created to reward a Gold Peak Tea fan with the opportunity to refresh, renew and refocus. By devoting more time to his three special needs children and bettering his community with the development of a local equine therapy program, Michael Simpson will take the year off in a deserving fashion. We’d like to address some of the feedback shared about the Take the Year Off promotion and how the winner was determined:
Unfortunately, Theodore Scott was disqualified when it was determined during the verification process that he had attempted to inappropriately induce members of the public to vote for his submission, a violation of Official Contest Rules (http://CokeURL.com/TTYORules).
The House Rules for the Gold Peak Tea Facebook page state that users will not “publish, post, distribute or disseminate any defamatory, infringing, obscene, indecent, misleading or unlawful material or information.” Certain posts addressing the Take the Year Off promotion do not abide by these Rules and have been removed (http://CokeURL.com/HouseRules)."
Gold Peak hopes the members of this community will join us in wishing Michael Simpson well in his year off."
Perhaps the ultimate message, then, is not "offeror is king" but, rather, "read the fine print."
[Heidi R. Anderson, hat tip to Ly Tran]
Monday, October 1, 2012
Last year, the United States District Court for the Eastern District of Texas when the court determined Chesapeake Exploration, LLC (“Chesapeake”) violated its agreement with Peak Energy Corporation (“Peak”) involving certain oil and gas leases in the Haynesville Shale formation. Chesapeake appealed the district court decision, contending that the agreement at issue was unenforceable under the Texas statute of frauds, was fatally indefinite, and that Peak had failed to tender performance. On September 12th, in Coe v. Chesapeake Exploration, LLC, he Fifth Circuit affirmed the award.
In July 2008, when natural gas prices were soaring, Chesapeake emailed a letter entitled “Offer to Purchase” (the July Agreement) to Peak’s contact, Richard Coe. The e-mail contained offer of a little over $81 million for the oil and gas leases on Peak’s 5,404.74 acres of land in Harrison County, TX, at $15,000 per acre. The offer had to be accepted by 5:00 PM CDT on July 3, 2008, but also described the transaction as a “valid and binding agreement.”
The parties were to close on August 31, 2008. After a few delays on both sides, pushing the closing date to October 9, 2008, Chesapeake requested a further delay and then announced that it was backing out. This decision coincided with the 50% fall of natural gas prices, leaving the leases in question with a value of $3000/acre. Peak and the Coes then filed suit to enforce the July Agreement.
Although Chesapeake claimed that the July Agreement was void under the Texas statute of frauds because it did not adequately identify the property. To satisfy the statute of frauds, a contract for the conveyance of an interest in land must only identify the property to be conveyed with “reasonable certainty,” and a “recital of ownership” is one mechanism for providing such certainty. Since, in the July Agreement, Peak agreed to convey all of its interests in the oil and gas leases, it had provided the requisite recital of ownership and the “reasonable certainty” standard was met.
Further, Chesapeake claimed that the parties had no intent to “bind themselves” by signing the letter and that the agreement lacked material terms. However, the July Agreement stated on its face that it was “valid and binding,” stated plainly that it was an “Offer to Purchase” and placed a time limit on acceptance. In addition, Chesapeake repeatedly assured Peak that it would follow through with the transaction. Chesapeake sought to rely on a confidentiality agreement into which the parties had entered as evidence that the transaction was merely contemplated. The Fifth Circuit affirmed the District Court’s finding that the confidentiality agreement did not alter the substance of the July Agreement and was a standard form routinely used by Peak when providing information in connection with transactional due diligence.
Chesapeake further contended that the terms of the July Agreement were so indefinite as to render the agreement unenforceable. It claimed the agreement did not provide a final lease schedule or a figure regarding revenue interest. The Fifth Circuit found that the first term was not material and the second term was in fact covered in the July Agreement Although Chesapeake claims it requested that the latter term be deleted, “one party unsuccessfully attempting to retroactively change an essential term does not prove that term had not been previously agreed to and included in the agreement.” Chesapeake also claimed the July Agreement lacked terms that would have been included in the final Purchase and Sale Agreement, such as warranties of title, depth limitations, non-compete provisions, and options to purchase additional acreage. The Fifth Circuit rejected these arguments either because they were included in the July Agreement or were not essential terms whose absence would render an agreement indefinite.
In its final attempt to render the July agreement unenforceable, Chesapeake alleged that Peak failed to perform its obligations under the July Agreement when it only delivered 1,645.917 acres instead of 5,404.75. Both parties were aware that the number of acres Peak could deliver was uncertain, which is demonstrated by the language “approximately” and “more or less,” along with an adjustment clause present in the July Agreement. The Fifth Circuit thus found that the District Court did not err in concluding that Peak was willing and able to tender its performance as specified by the July Agreement.
[JT & Christina Phillips]