ContractsProf Blog

Editor: Myanna Dellinger
University of South Dakota School of Law

Friday, April 20, 2012

More on Morals Clauses

Scarlett LetterFrank touched on the issue of morals clauses in a post earlier this week.  The case on which Frank commented involved a professional athlete, and most most morals clause cases that we have addressed here involve celebrities and often celebrity endorsements.  But today we report on a morals cause case that invovles an ordinary working Joe (well, Jane actually).

According to, Heritage Christian Academy in Rockwall, Texas fired teacher and coach, Cathy Samford, for getting pregnant out of wedlock.  The school claims that Samford violated the “moral clause” in her contract.  Samford and her fiancé had plans to marry at the end of the summer, but a series of events delayed the wedding.  Shockingly marital relations were not similarly delayed.  The school informed Samford that she was to be terminated, even though Samford and her fiancé offered to marry immediately, as that was the plan regardless. Samford has filed a charge of gender and pregnancy discrimination with the U.S. Equal Employment Opportunity Commission and is preparing a lawsuit against the school.

Samford maintains that she did not violate her contract in any way and that the morals clause is vague and unenforceable, as it merely calls on employees to be “Christian role models.”  Samford’s attorney, Colin Walsh, explained to that “It’s against the law to fire someone for them taking a pregnancy leave and you can’t preventatively fire someone.  You can’t contract around anti-discrimination laws. . . ." 

The school’s headmaster, Dr. Ron Taylor, told ABC News that “the issue is that Samford is an unmarried mother, and everything the school stands for says and they want their teachers, who are considered to be in the ministry, to model what a Christian man or woman should be”.  Taylor further intimated that “[the school] had the feeling that because kids on [Samford’s] volleyball team and kids in her classes knew she was pregnant, her getting married would not change the fact that her behavior was out of wedlock.”  The language of ministry is significant, since the Supreme Court recently held in Hosanna-Tabor Evangelical Lutheran Church and School v. EEOC that the Establishment and Free Exercise Clauses of the First Amendment bar suits brought on behalf of ministers against their churches, claiming termination in violation of employment discrimination laws.  Samford's attorney contends that the school cannot invoke this ministerial exception for all of its employees just because it is a Christian institution.

[JT and Christina Phillips]

April 20, 2012 in In the News, Recent Cases, Religion | Permalink | Comments (0) | TrackBack (0)

Thursday, April 19, 2012

If you liked it then you should have put a pen to it...

Quill-penSamuel Goldwyn remarked that “an oral contract isn’t worth the paper its written on.”  But Daniel Ryan fared ok -- that is, after a trial and two appeals. 

In 2003 Ryan was approached about leaving a brokerage firm to join Kellogg Partners, a broker-dealer being formed to trade stocks for institutional investors.  Ryan told Kellogg he wanted a package of $350,000 to leave his current position, and Ryan testified at trial that Kellogg promised to compensate him with $175,000 salary and a non-discretionary $175,000 bonus to be paid out in late 2003 or early 2004.  Ryan took the job with Kellogg.  Ryan testified that Kellogg kept delaying payment of the bonus and, ultimately offered Ryan $20,000 and terminated him.  Ryan sued for breach of contract and violations of NY Labor Law.

At trial, Kellogg’s managing partner “in every conceivable way contradicted Ryan’s testimony on the topic of bonuses; in particular, he told the jury that the subject ‘simply did not come up’ during the course of bringing Ryan on board at Kellogg, and that bonuses were discretionary only.”  The jury discredited Kellogg’s testimony and found in favor of Ryan.

Addressing Kellogg’s motion to set aside the jury verdict, the trial court held that the bonus agreement was supported by consideration because it was forward looking, not compensation for a benefit previously conferred.  The trial court also held that the bonus agreement did not come within the statute of frauds because it was capable of being performed within one year.

By the time the case worked its way to the New York Court of Appeals, Kellogg had a few theories for reversal; in particular, Kellogg argued that the evidence was insufficient to support the jury’s verdict because statements in Ryan’s employment application and Kellogg’s employee handbook negated Ryan’s testimony of an agreement to pay him a non-discretionary bonus.  New York’s highest court unanimously held that the job application and employee handbook, while stating that Ryan was an at-will employee, said nothing about bonus policy and, therefore, did not negate his testimony.

The New York Court of Appeals opinion is highly recommended for contracts profs – it seems that Kellogg’s lawyers raised every NY GOL defense they could think of (statute of frauds, benefit previously conferred and even an oral modification unsupported by consideration).

The lesson, kids: get it in writing.

Ryan v. Kellogg Partners Institutional Services (March 27, 2012 New York).

[Meredith R. Miller]


April 19, 2012 in Recent Cases | Permalink | Comments (0) | TrackBack (0)

Wednesday, April 18, 2012

There's No Such Thing As a Free Drink (Anymore)

CouponsSouthwest Airlines, of "your bags fly free" fame, likely is toasting a recent decision involving its free drink coupons and breach of contract.  The plaintiff in the case, Charles S. Grimsley, alleged that Southwest breached a contract with him when it refused to honor a "1 free drink" coupon he earned as a member of the airline's Rapid Rewards program (Southwest's version of a frequent flier program).  Southwest reportedly had terminated the original coupon program, despite no expiration date appearing on the coupons themselves, in an effort to reduce costs (see picture on right for new vs. old coupon format). In an April 17, 2012 opinion, Judge L. Scott Coogler granted Southwest's motion to dismiss, based on the basic yet critical elements of offer, acceptance and consideration. In dismissing the case, the court noted as follows: "Nothing in the [complaint] alleges that the Coupons promise a [drink] in exchange for the performance of some action on the part of the coupon-holder (emphasis in original)."  The opinion continues:

"Although Plaintiff claims that he was induced to remain a member of the Southwest Airlines Rapid Rewards Program and fly with Defendant in order to enjoy a free beverage (Doc. 9 ¶ 12), he never alleges that the Coupons, on their face, requested such actions in exchange for the promised drink. “A proposal of a gift is not an offer . . . ; there must be an element of exchange. Whether or not a proposal is a promise, it is not an offer unless it specifies a promise or performance by the offeree as the price or consideration to be given by him. It is not enough that there is a promise performable on a certain contingency.”  Restatement (Second) of Contracts § 24(b). Plaintiff has not alleged facts sufficient to establish that the Coupons made a contractual “offer.” Plaintiff also does not allege sufficient facts establishing that he accepted an offer by performing an action that constitutes sufficient consideration to make that offer legally binding. See Smith v. Wachovia Bank, N.A., 33 So. 3d 1191, 1197-98 (Ala. 2009). Accordingly, Plaintiff fails to state a claim for breach of contract."

No offer, no acceptance, no exchange = no contract.  Interested readers also may wish to read about a similar case brought by a different plaintiff summarized by our very own Meredith Miller here.

[Heidi R. Anderson]

April 18, 2012 in Recent Cases | Permalink | TrackBack (0)

"Good faith" breaches

A recent discussion on the AALS Contracts listserv got me to thinking about the question when a party acts in "good faith" in threatening to breach a contract unless the other (nonbreaching) party agrees to pay more. Take this situation:

A has a contract with B. A is losing money on the transaction and is facing bankruptcy unless it can get more money from B. A threatens to breach unless B pays more. At this point, B could refuse the request, in which case A will breach and B will be left with a lawsuit against a probably judgment-proof debtor. Or B could agree to the price increase. Suppsoe B agrees, and A goes ahead and performs, and then B refuses to pay the higher amount. Is B's subsequent promise enforceable? The answer will often turn on whether we think that A was acting in "good faith" in obtaining the modification.

The fact that the company will go bankrupt if it cannot get a higher price seems to be an important factor for many people who say that the promise should be enforced. They argue that the threatening party is acting in "good faith," in a way it would not if it just wanted more money to pass on to its shareholders.

But I'm not sure I agree. In this situation it seems to me that all A is doing is taking advantage of one of its creditors over whom it has a great deal of leverage (B, to whom it owes a performance), so that it can transfer B's money to creditors over which it has less leverage (landlord, bank, IRS, employees). I don't particularly see why it's more moral to exploit a customer for one's creditors than for one's stockholders. There's a natural tendency to see "taking loss" as different from "not getting a gain," but behavioral economics, I think, teaches us that this is simply fallacious reasoning.

Take this hypothetical:

Airline sells me an advance ticket to fly from DFW to New York for $200. Fuel and other prices rise, and Airline decides it won't make money on me. Moreover, Airline is teetering on the edge of bankruptcy, and unless it can get more revenue it will go under. The day before I am to fly, Airline informs me that it will breach the contract unless I agree to pay $400. A quick check of airlines shows that $400 is still less than what I would have to pay to get a last-minute ticket on the other airline. If I refuse to pay the extra, the airline will sell the seat to someone else. I can either pay the extra $200 and fly, or I can pay $800 to fly on another airline, and file a $600 lawsuit against Airline. If I agree to pay the extra, is my promise binding?

Has Airline acted in good faith? What is the relevance of the fact that Airline is near bankruptcy? Why should a company that has managed itself so incompetently as to face bankruptcy be able to get this kind of price increase, while a well-run company in good financial shape would not? My own tentative view is that a company's motive for exploiting a contracting party ought usually to be irrelevant.

But I'm interested in thoughts on the topic.


April 18, 2012 in Commentary | Permalink | Comments (2) | TrackBack (0)

Professor DeAngelis on the Mirror Image Rule

MdeangelisWe have previously posted links to Professor Mark DeAngelis's "Law Lessongs" on Raffles v. Wichelhaus, the UCC's Battle of the Forms (2-207), substantial performance, offers and mixed contracts from Professor DeAngelis's YouTube site .  

A nice companion piece to the Battle of the Forms and the offer song is this law lessong about the Mirror Image Rule, which professor DeAngelis introduces as follows:

This is a "Law Lessong" - a law lesson in a song - that I wrote to help students consider the application of the Mirror Image Rule to contract acceptances. This song deals with the issues of acceptance of contract offers. At Common Law, the Mirror Image Rule required that the acceptance language mirror that of the offer. Any different or additional language may convert the attempted acceptance into a counteroffer - terminating the ability to accept the original offer. The modern trend is for courts to soften the MIR by looking at the substance and meaning of additional language - finding counteroffers where the attempted acceptance manifests an intent to contract only under the new or different terms.

Mirror Image Rule
Lyrics by M. DeAngelis
Tune: Secret Agent Man

There's a rule of contract law that's danger,
For businessfolks to whom contract law's a stranger.
With each offer in the trade,
How is acceptance made?
You don't want to risk a counteroffer!


Refrain: Mirror Image Rule, Mirror Image Rule, The language of acceptance and the offer must be the same.

Any different language could be trouble.
Add another term - you've got trouble doubled!
At Common Law it's true,
With additional language you're through.
No acceptance here, it's counteroffer.



April 18, 2012 in Music, Teaching | Permalink | Comments (0) | TrackBack (0)

Tuesday, April 17, 2012

Welcome to the Blogosphere (again): Frank Snyder's Lawyer Apocalypse

Frank-snyder1As readers might have noted in viewing this recent post, our Founding Brother, Frank Snyder (pictured) has a new blog called Lawyer Apocalypse.  Here's what Frank has to say about the new venture:

This blog reflects the thoughts of Frank Snyder, a law professor and former Big Law partner, on the massive changes that law schools and the legal profession are facing in the decades ahead, and on the larger role of lawyers in society.  Plus some other things, from time to time.

And here's what Frank has to say about Frank and his views:

I'm a law professor who has taught at law schools in each quartile of the USNews rankings, been a partner at an AmLaw 20 firm, and owned a couple of independent mionor league baseball teams.

You can find my current school on a Google search, but I'm not putting it here because I want to emphasize that this blog reflects my personal observations on legal education, the profession of law, and the vast changes (the "Apocalypse") that are looming on the horizon for each. I claim no special expertise in these topics, except for having practiced law for nearly 15 years and taught in law schools nearly as long.

Unlike some other critics, I believe that the law is the greatest of the secular professions It has played a critical role in American life. Law school is not a scam. Law has offered, and continues to offer, incredibly rewarding careers to thousands of new lawyers. My view of the American law school is like that of reforming 15th-century Catholics to abuses in the Church -- a deep love for an institution but a strong concern that it has fallen under some very bad influences.

Unless attributed and linked to specific others, all of the thoughts here are mine, unless I unconsciously stole them, in which case I apologize. None of them should be taken as the opinions of my employer, my publishers, my students, or any other person or institution

As always, we wish Frank all the best in this new venture.


April 17, 2012 in Contract Profs, Web/Tech | Permalink | Comments (0) | TrackBack (0)

Weekly Top Tens from the Social Science Research Network

SSRNRECENT HITS (for all papers announced in the last 60 days) 
TOP 10 Papers for Journal of Contracts & Commercial Law eJournal 

February 17, 2012 to April 17, 2012

RankDownloadsPaper Title
1 324 The Impact of the Broker-Dealer Fiduciary Standard on Financial Advice 
Michael S. FinkeThomas Patrick Langdon
Texas Tech University, Unaffiliated Authors - affiliation not provided to SSRN
2 270 Emerging Policy and Practice Issues (2011) 
Steven L. SchoonerDavid J. Berteau
George Washington University - Law School, Center for Strategic and International Studies, Defense - Industrial Initiatives Group
3 212 A License is Not a 'Contract Not to Sue': Disentangling Property and Contract in the Law of Copyright Licenses 
Christopher M. Newman
George Mason University - School of Law, Faculty
4 161 The Effect of Bargaining Power on Contract Design 
Albert H. ChoiGeorge G. Triantis
University of Virginia School of Law, Stanford Law School
5 128 Boomer-Ang Eldercare: Deductible Claim? 
Wendy C. Gerzog
University of Baltimore - School of Law,
6 115 Does the Constitution Protect Economic Liberty? 
Randy E. Barnett
Georgetown University Law Center
7 97 Controlling Financial Chaos: The Power and Limits of Law 
Steven L. Schwarcz
Duke University - School of Law
8 86 The Impact of Directive 2011/83/EU on Consumer Rights 
Anca Daniela Chirita
Durham University - Department of Law
9 84 'Offer to Sell' as a Policy Tool 
Lucas Osborn
Campbell University Law School
10 74 Why Courts Make Orders (and What this Tells Us About Damages) 
Stephen A. Smith
McGill University - Faculty of Law

RECENT HITS (for all papers announced in the last 60 days) 
TOP 10 Papers for Journal of LSN: Contracts (Topic)  

February 17, 2012 to April 17, 2012

RankDownloadsPaper Title
1 519 A Legal Analysis of Romantic Gifts 
Ruth Sarah Lee
Harvard Law School
2 259 The Common European Sales Law and the CISG - Complicating or Simplifying the Legal Environment? 
Nicole KornetNicole Kornet
Maastricht University - European Private Law Institute (M-EPLI), Maastricht University - METRO Institute
3 212 A License is Not a 'Contract Not to Sue': Disentangling Property and Contract in the Law of Copyright Licenses 
Christopher M. Newman
George Mason University - School of Law, Faculty
4 160 The Effect of Bargaining Power on Contract Design 
Albert H. ChoiGeorge G. Triantis
University of Virginia School of Law, Stanford Law School
5 115 Does the Constitution Protect Economic Liberty? 
Randy E. Barnett
Georgetown University Law Center
6 65 Parallel Contract 
Aditi Bagchi
University of Pennsylvania - Law School - Faculty
7 60 The Unenforceable Corrupt Contract: Corruption and 19th Century Contract Law 
Zephyr Teachout
Fordham University - School of Law
8 50 Instructing Juries on Noneconomic Contract Damages 
David A. HoffmanAlexander Radus
Temple University - James E. Beasley School of Law, Temple University James E. Beasley School of Law
9 45 Good Faith in Civil Law Systems – A Legal-Economic Analysis 
Ejan Mackaay
University of Montreal
10 43 From Lord Coke to Internet Privacy: The Past, Present, and Future of the Law of Electronic Contracting 
Juliet M. MoringielloWilliam L. Reynolds
Widener University - School of Law, University of Maryland - Francis King Carey School of Law


April 17, 2012 in Recent Scholarship | Permalink | TrackBack (0)

Monday, April 16, 2012

Football, terrorists, Twitter, and contract law

Over at the Technoloogy & Marketing Law Blog, Eric Goldman (Santa Clara) and Venkat Balasubramani share their thoughts about an interesting new case involving an NFL player (the Steelers' Rashard Mendenhall) whose endorsement contract was terminated when he made some unpopular comments about Osama bin Laden. It's decided as an "implied covenant of good faith" case, but I make the argument here that it's better viewed as a simple matter of contract interpretation. Either way, seems like it comes out correctly at this stage, which is merely a motion for judgment on the pleadings.

Thanks to Eric and Venkat for finding and sharing.


April 16, 2012 | Permalink | TrackBack (0)

Mark DeAngelis's Mixed Contracts Law Lessong

MdeangelisWe have previously posted links to Professor Mark DeAngelis's "Law Lessongs" on Raffles v. Wichelhaus, the UCC's Battle of the Forms (2-207), substantial performance, and offers from Professor DeAngelis's YouTube site .  

Today, we share his song about mixed contracts -- that is, how one decides whether a contract is one for goods, covered by the Uniform Commercial Code, or for services, covered by general rules of contract law

Here is his explanation of the lessong:

This is a "Law Lessong" - a law lesson in a song - that I wrote to help students consider the problem of mixed contracts under the Uniform Commercial Code. The mixed contract or "hybrid contract" involving both services and the sale of goods can be problematic for students. If the contract is predominantly one for the sale of goods, then the law of article 2 of the UCC applies. Often, this determination, that of which law applies, leads to an obvious resolution of the underlying legal issue. This song does not so much present students with strategies to make this determination, but acts as a reminder to do the "predominant purpose" analysis in the first place.


The Mixed Contract Song
By Mark DeAngelis

In a mixed contract, if issues arise,
In a mixed contract, what law applies?
With a mixed contract the UCC should,
If the predominant purpose is a sale of goods

Just last week I went to the store
I needed some carpet to cover my floor
The salesman said, "If you buy from me,
It's a special deal -- the installation is free."

The workers came in, they put the rug down.
"This carpet's not right," I said with a frown.
Ah, luckily with the UCC,
There's "perfect tender" and warranty.

A mixed contract, if issues arise,
A mixed contract, what law applies?
With a mixed contract use the UCC
If it's a sale of goods, predominantly.

With a Mixed contract, -- goods and services, too.
In a Mixed contract what law will do?
With a mixed contract under the UCC,
There's perfect tender and warranty.


April 16, 2012 in Music, Teaching | Permalink | Comments (0) | TrackBack (0)

New York Convention and Jones Act Do Not Overcome Motion to Compel Arbitration in the 11th Circuit

11thCircuitSealOn April 10, 2012, the Eleventh Circuit Court of Appeals issued an unpublished opinion addressing the types of defenses a party contesting enforcement of an arbitration agreement can make and at what times those arguments can be raised under The United Nation Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention).  In Castillo-Arauz v. Carnival Corp., the court affirmed per curiam, the District Court’s order to compel arbitration.  The plaintiff, a seaman asserting negligence claims under the Jones Act against his employer, Carnival Cruise lines, will now have to arbitrate those claims. 

The seaman, Roy David Castillo Arauz, suffered an injury while working aboard the Carnival ship “Destiny.”  His employment agreement calls for arbitration in Panama City under Bahamian law.  Nevertheless, Arauz filed his claim in Florida state court, and Carnival removed to the Southern District of Florida, where it moved to compel arbitration. 

Cruise ShipArauz contended that the arbitration provision is unenforceable because it violates the public policy of the United States.  For support, Arauz cited Thomas, a 2009 decision of the 11th Circuit, which held unenforceable an arbitration agreement that called for the application of foreign law in a foreign venue.  

In response, Carnival stipulated that it agreed to allow for the application of U.S. law to Arauz’s Jones Act claim.  This, the District Court found, eliminated the public policy concerns contemplated by the court in Thomas, and justified compelling arbitration, which it did. 

After the District Court issued its order to compel the arbitration but before Arauz filed his appeal, the Eleventh circuit decided another arbitration clause case, Lindo. In Lindo, the court held that only standard breach of contract defenses “that can be applied neutrally on an international scale” can invalidate an arbitration agreement during the arbitration-enforcement stage. The court cited its 2005 decision in Bautista and noted that Thomas- decided in 2009- violated the precedent that Bautista had established.

Arauz argued that a public policy defense does exist during the arbitration-enforcement stage pursuant to the New York Convention.  The Court stated that Arauz had acknowledged that his argument is foreclosed by Lindo and that the Court is not in a position to overrule the case.  

The Court declined to consider Arauz’s alternative claim that the agreement is unconscionable and that unconscionability is a standard breach of contract defense since he did not raise the issue in the District Court.  In any case, the Court indicated that the argument would fail since the Bautista court rejected the same argument, reasoning that the doctrine of unconscionability cannot be uniformly applied across the member countries to the New York Convention.  

[JT & Justin Berggren]

April 16, 2012 in Recent Cases | Permalink | Comments (0) | TrackBack (0)