Thursday, January 31, 2013
M.D. Imad John Bakoss (Bakoss) entered into an insurance contract with Lloyds of London (Lloyds), which provided for the paymetn of a benefit to Bakoss should be become "permanently totally disabled." Each party was permitted to have Bakoss examined by a physician of its choice to determine whether or not he was qualified to receive such a payment. In the case of a disagreement between the two party physicians, the two physicians were to name a third physician who would then determine whether or not Bakoss was in fact permanently totally disabled. That decision was, according to the insurance contract, "final and binding."
Bakoss brought a suit on the insurance contract in New York state court. Lloyd's removed the case to a federal district court, characterizing the third-physician clause as an arbitration agreemnt, which gave rise to federal question jurisdiction under the Federal Arbitration Agreement (FAA).
In agreeing with Lloyd's characterization of the agreement as an abritration agreement, the district court relied on other decisions from federal district courts. On appeal in Bakoss v. Certain Underwriters at Llods of London Issuing Certificate No. 0510135, Bakoss argued that the district court erred in using federal common law rather than New York state law in determining whether or not the agreement was one for arbitration. While the Second Circuit acknolwedged a Circuit split on the issue, it sided with those that reasoned that a congressional interest in favor of a uniform national arbitration policy counciled in favor of the application of federal common law. It thus upheld the exercise of subject-matter jurisdiction over the suit.
The Second Circuit also affirmed the district court's grant of summary judgment to Lloyd's on the ground that Bakoss did not provide timely notice of his potential permanent disability.
Wednesday, January 30, 2013
[Edited: Apologies to my co-blogger, Nancy Kim, for posting this before reading our own blog to see that she already covered it. I'll keep this up for the links to the cases but please read Nancy's post for a more in-depth analysis of the materiality issue.]
For professors who teach nondisclosure as a "reason not to enforce a contract," (that's what the book I use calls "defenses"), Stambovsky v. Ackley often is a favorite case due its entertaining facts. In the case, the buyers of a Nyack, NY house (pictured) seek to have the contract rescinded due to the home being haunted by poltergeists. The haunted condition was known by the sellers but was not disclosed to the buyers.
I am particularly fond of the case in part because the opinion is filled with puns such as, "[I]n his pursuit of a legal remedy for fraudulent misrepresentation against the seller, plaintiff hasn't a ghost of a chance, [however,] I am nevertheless moved by the spirit of equity to allow the buyer to seek rescission of the contract of sale and recovery of his down payment.". Puns aside, the case is instructive because it helps students understand the difference between nondisclosure versus misrepresentation and gets some students to question their faith in caveat emptor. The fact that I teach the case right around Halloween is a nice bonus.
The only potential problem with the case is that it's somewhat dated (yes, something from the 1990s can feel dated to current first-year students). Thankfully, a student of mine from last semester just sent me a link to this newer version of Stambovsky out of Pennsylvania (what do ghosts love about the mid-atlantic states?). In this new dispute, the buyer, a recent widow, is seeking to rescind the contract for sale of a home based on the nondisclosure of a murder-suicide in the home in the same year she agreed to purchase it. The trial court granted summary judgment to the sellers and the appellate court affirmed, finding that, "psychological damage to a property cannot be considered a material defect in the property which must be revealed by the seller to the buyer." The buyer now has appealed the case to the Supreme Court of Pennsylvania. No one knows how that court will exorcise its discretion (ba-dum-bum).
[Heidi R. Anderson]
Tuesday, January 29, 2013
A Pennsylvania homeowner is suing the seller of the house and a real estate agent, claiming fraud and misrepresentation, for failing to tell her that the home she recently purchased had been the scene of a murder-suicide the previous year. The homeowner had moved to Pennsylvania from California with her two children after her husband's death. She learned of the murder-suicide from a neighbor, several weeks after moving in. You can read about it here.
I don't know about you, but I think a murder suicide is pretty material, although there aren't enough facts here to indicate whether the seller and agent deliberately concealed the fact or whether the buyer inquired as to any unusual events happening in the house.... With respect to the seller, it might be one of those "tough luck" situations where the law just doesn't help the buyer even if the court feels sympathetic toward the buyer's situation. It's not clear whether the agent is the buyer's agent - if so, the agent should have disclosed this as a fiduciary. But it's more likely that the agent was actually the seller's agent, and not the agent of the buyer or a dual agent. (Got that? Just because someone has the word "agent" in their job title doesn't make that person your agent. Who is paying the commission? When in doubt about where the agent's loyalties lie - ASK the agent).
The lesson here - especially relevant given the recent rise in home sales - is BUYER BEWARE. I wonder if a quick online search of the address would have uncovered the grisly events that took place in it. It would probably be prudent for all potential home buyers to expressly ask, "Did anything unusual ever happen in this house that we should know about such as any crimes?" A buyer should also ask how long the current sellers have lived in the house and why they are moving. [In this case, such a question probably wouldn't have helped the homeowner. The immediate sellers were not the owners of the house when the murder-suicide took place, but subsequent owners who bought it, presumably at a low price given what had just happened in it, and then turned around and sold it to the out-of-state buyer]. The seller's failure to disclose in a situation where the buyer has specifically asked is entirely different from a failure to affirmatively disclose unasked for (albeit material) information.
N.B. Under California real estate law (which imposes a duty to disclose facts materially affecting the value of real property where the facts would be hard to uncover), the result would probably have been different. See Reed v. King, 145 Cal. App. 3d 261 (1983) involving a failure to disclose a multiple murder by a home seller. Interesting, given that the PA home buyer was from California and might have expected a bit more from the seller based upon her real estate experiences there...
Monday, January 28, 2013
I'm about to leave Fort Myers, Florida after a great weekend on Captiva Island, where I participated in the George Mason LEC Workshop for Law Professors on the Economics of Contracting. Economists sure know how to organize a workshop. (By the way, the picture depicts a bird that was hanging out on the balcony of my hotel room).
Over at George Mason they understand incentives. Participants pay a $500 deposit that is only refunded after all sessions (including dinners) are attended. After attending all sessions, participants not only see a return of the deposit but additionally receive a $500 honorarium. Lodging and all meals were covered and they couldn't have paid for better weather (on the day I got there the weather was about 70 degrees warmer than New York). I am still waiting for someone to try to sell me a timeshare.
Broadly, the goal of the program is to expose legal academics to economics. The homework (though voluminous) was thoughtfully compiled and the instruction was engaging. Some participants were already fairly exposed to law and economics others (including myself) had tinkered on the margins in researching but had no background whatsoever. I found the material and the teaching very accessible.
The discussion included contractual (and non-contractual) solutions to hold up problems and price readjustment. We also discussed retail price maintenance and slotting fee contracts. I found the discussion of vertical integration most interesting, though I had to suspend my disbelief when told not to consider the liability implications of choosing to employ someone v. hire them as an indpendent contractor. There were other times when I had to suspend disbelief about psychology and decisionmaking capacity. So, I suppose this is the timeshare. While I didn't buy it, I do feel enriched for having spent some time considering these problems through a classical economics lens.
I highly recommend this and other George Mason programs to anyone with even a passing interest in economics. I learned that reputation matters (though to varying degrees depending on which economists you read). Whatever the case may be, George Mason deserves its excellent reputation for organizing these outstanding workshops. Thanks!
[Meredith R. Miller]
In 2009, Bristol Care, Inc. (Bristol), which operates residential care facilities for the elderly, hired Sharon Owen (Owen) as administrator of its Cameron, Missouri facility. Owens' agreement with Bristol contained a arbitration clause that specifically provided that claims arising under the Federal Labor Standards Act (FLSA) were also subject to arbitration. The provision also provided that the parties could not arbitrate class claims. Claims relating to "harassment, discrimination, other statutory violations, or similar claims" were excluded from the mandatory arbitration provision.
In 2011, Owen sued, alleging violations of FLSA, claiming that she and others similarly situated were required to work in excess of 40 hours a week without being compenstated for overtime. Bristol moved to compel arbitration, but the Distict Court denied the motion, reasoning that arbitration provisions containing class action waivers are invalid with respect to FSLA claims. The District Court, relying on one district court decisions and one decision from the National Labor Relations Board (NLRB), distinguished this case from AT&T Mobility, LLC v. Concepcion, reasoning that Concepcion's ruling that arbitration provisions containing class action waivers are enforceable in consumer contracts did not extend to employment contracts.
In Owen v. Bristol Care, Inc., the Eighth Circuit reversed. It noted that, under the Federal Arbitration Act (FAA), courts are required to enforce arbitration agreements according to their terms. Federal legislation can override an arbitration provision and a class action waiver only if there is evidence of "congressional command" contrary to the FAA's requirement that arbiration agreements be enforced. The Eighth Circuit found no such contrary congressional commend in the FLSA. The court did not feel itself bound under Chevron deference or any other doctrine to defer to the NLRB's narrow interpretation of Concepcion. Most district courts that had considered the issue have rejected the NLRB's approach.
The Eighth Circuit also cited to opinions from five other Federal Circuit Courts which ruled that class action waivers in arbitration agreements are enforceable in FLSA cases. The Eighth Circuit reversed the District Court's denial of Bristol's motion to compel arbitration and remanded the case for an order staying proceedings and compelling arbitration.
Friday, January 25, 2013
In 2006, the U.S. Department of Health and Human Services (HHS) recieved funds under the federal Trafficking Victims Protection Act (TVPA) and contracted with the United States Conference of Catholic Bishops (the Conference) to provide services to trafficking victims. It did so after issuing a request for proposals (RFP) and receiving submissions only from the Conference and the Salvation Army, both of which are religiously affiliated.
The Conference insisted that the contract provide that neither the Conference nor any of its sub-contracts would use the TVPA funds to counsel or provide abortions or contraceptive services and prescriptions to trafficking victims. The panel that reviewed the RFP's deducted points from the Conference's submission because of that condition, but it still rated the Conference's RFP far more favorably than that of the Salvation Army.
The Conference did not provide any direct services to trafficking victims. Rather, it subcontracted with hundreds of other organizations, which provided services to over 2200 victims over a four-year period. The Conference entered into agreements with its sub-contractors prohibiting them from using TVPA for any purposes relating to contraception or abortion, but the sub-contractors were not prohibited from using their own funds for those purposes.
In 2009, the American Civil Liberties Union of Massachusetts (ACLUM) brought suit alleging that the contract violated the First Amendment's Establishment Clause. The contract expired in 2011, and HHS replaced its program run through the Conferece with a grant program in which the Conference as not involved. The District Court nonetheless granted ACLUM's motion for summary judgment in March 2012, finding that the claim was not moot because the "voluntary cessation" exception to the mootness doctrine applied.
On January 15, 2013, the First Circuit issued its opinion in American Civil Liberites Union of Massachusetts v. United States Conference of Catholic Bishops, and it reversed. It remanded the case to the Distrcit Court for an entry of an order of dismissal because the case is rendered moot by the expiration of the contract at issue. In so doing, the First Circuit noted that the voluntary cessation doctrine has no application where the cessation is unrelated to the litigation. The exception exists to deter strategic behavior in which a party ceases the challenged behavior only to avoid further litigation and may reasonably be expected to resume the behavior once the threat of litigation has subsided. There is no likelihood that a contract will be awarded to the Conference in the foreseeable future, as HHS has locked itself into three-year agreements with other organizations under its new grant program.
As long as our first lady has ba-ba-ba-bangs [relevant "analysis" starts about a minute into the video], it seems unlikely that HHS will be contracting with the Conference and that, it seems, is enough to render ACLUM's challenge moot.
Thursday, January 24, 2013
Nancy Kim beat me to the punch by posting about the contract that Bilbo Baggins enters into with Thorin's crew in The Hobbit. I was so upset that she beat me to the punch on the subject matter that I docked her a month salary from her position as contributing editor on the blog.
Now we've both been shown up (and how!), by James Daily, identifed here by Wired.com as
a lawyer and co-author of The Law and Superheroes, [who] typically focuses his legal critiques on the superhero world at the Law and the Multiverse website he runs with fellow lawyer and co-author Ryan Davidson.
Apparently, Mr. Daily got his hands on a replica of the five-foot-long scroll that was used as the contracts prop in the film. He then goes through the contract provision by provision and reaches the following conclusion:
One the whole, the contract is pretty well written. There are some anachronisms, unnecessary clauses, typos, and a small number of clear drafting errors, but given the contract’s length and its role in the film (which is to say not a huge one, especially in the particulars) it’s an impressive piece of work. I congratulate prop-maker and artist Daniel Reeve on a strong piece of work.
He provides a link for those interested in purchasing their own version of the contract, for a mere $500. " If you’d like an even more accurate replica of the contract, Weta’s online store has a version with hand-made touches by Mr. Reeve."
We tip our hats to Mr. Daily.
But I have my own thoughts about the contract that Mr. Daily does not mention. First, the price term of the contract is ambiguous, since it promises Bilbo "only cash on delivery, up to and not exceeding one fourteenth of total profits (if any)," which on my reading does not really guarantee him anything. On the other hand, the dwarves do promise to pay for Bilbo's funeral expenses, if necessary, so I think under the contract terms, he's better off dead.
This ambiguity is only partially clarified with the later provision that "the company shall retain any and all Recovered Goods until such a time as a full and final reckoning can be made, from which the Total Profits can then be established. Then, and only then, will the Burglar’s fourteenth share be calculated and decided." While this provision would strengthen any potential argument Bilbo might make that he should get no less and no more than a fourteenth share, if the contract does not define "full and final reckoning," he might have to wait quite some time to get that share, perhaps beyond his own final reckoning, and then it's Frodo's problem.
In addition, to address a matter of genuine concern; i.e., one that actually plays a role in the book, the contract does not specify the manner of delivery of payment. As Bilbo points out in Chapter 18 (spoiler alert: the mission to recover Smaug's treasure was a success), "How on [Middle] earth should I have got all that treasure home without war and murder all along the way, I don't know." Mr. Daily offers a solution: since the contract does not actually entitle Bilbo to any protion of Smaug's treasure but only to the value of a 1/14 share, the Dwarves could have wired a check to Bilbo's bank in the Shire (or the Middle Earth equivalent to a wire transfer). But in the book, Bilbo waived his right to the spoils of war beyond "two small chests, one filled with silver, and the other with gold, such as one strong pony should carry."
The fact that he did so suggests that really no part of the contract mattered much in the end. And that is as it should be, since the bonds formed by those who joined Thorin's crew went well beyond those that can be reduced to any writing or even to any trilogy of films.
[JT, with hat tip to Mark Edwin Burge of the Texas Wesleyan School of Law for directing us to the Wired.com site]
I recently finished a book manuscript on the subject of “wrap contracts” – shrinkwraps, clickwraps, browsewraps, tapwraps, etc. These non-traditional contracts are interstitial, occupying space in and between contracts and internet law, but not neatly fitting into one alone. I'll be blogging a lot more about them in the future.
On the subject of wrap contracts, not long ago I bought a new laptop with Windows 8 pre-installed.
But that didn’t mean I didn’t have to agree to this:
What's interesting is that my old laptop, which I ordered online, came in a package like this:
Like the typical shrinkwrap, ripping the plastic bag (which was necessary to get to the laptop inside it) was deemed acceptance.
Both were examples of rolling contracts, but they came in different forms -- and neither gave me notice of any terms to come at the time of the transaction. Yet consider the hassle I would have to go through if I decided, after having received the goods and a "reasonable opportunity to read" the terms, that I didn't want to accept the terms. I would have to ship back the computer or take it back to the store, and try to explain that I was rejecting it because I disagreed with the contract terms.
Honestly, now - don't you think the retailer would just think I was nuts? Or that I had found a better deal elsewhere? (Or that I had done something sneaky, like somehow copied the software or infected the computer with a virus?) How many think I would actually get my money back if there was nothing (else) wrong with the laptop(s)?
Wednesday, January 23, 2013
Two New Jersey men sued Subway this week, claiming the world's biggest fast-food chain has been shorting them by selling so-called footlong sandwiches that measure a bit less than 12 inches.
The suit, filed Tuesday in Superior Court in Mount Holly, may be the first legal filing aimed at the sandwich shops after an embarrassment went viral last week when someone posted a photo of a footlong and a ruler on the company's Facebook page to show that the sandwich was not as long as advertised.
At the time, the company issued a statement saying that the sandwich length can vary a bit when franchises do not bake to the exact corporate standards.
Stephen DeNittis, the lawyer for the plaintiffs in the New Jersey suit, said he's seeking class-action status and is also preparing to file a similar suit in Pennsylvania state court in Philadelphia.
He said he's had sandwiches from 17 shops measured — and every one came up short.
"The case is about holding companies to deliver what they've promised," he said.
Even though the alleged short of a half-inch or so of bread is relatively small, it adds up, he said. Subway has 38,000 stores around the world, nearly all owned by franchisees and its $5 footlong specials have been a mainstay of the company's ads for five years.
DeNittis said both plaintiffs — John Farley, of Evesham and Charles Noah Pendrack, of Ocean City — came to him after reading last week about the short sandwiches.
DeNittis is asking for compensatory damages for his client and a change in Subway's practices.
The Milford, Conn.-based firm should either make sure its sandwiches measure a full foot or stop advertising them as such.
He points to how McDonald's quarter-pounders are advertised as being that weight before they are cooked.
Subway did not immediately return a call to The Associated Press on Wednesday.
[Meredith R. Miller]
Tuesday, January 22, 2013
We here at ContractsProf Blog can't seem to get enough of the "Chicken Case," also known as Frigaliment. Many of us use this case when teaching the "ambiguous term" exception to the parol evidence rule. In the case, the seller argued that the written contract term of "chicken" meant any type and age of chicken of the specified size while the buyer argued that "chicken" meant only "roasters and fryers" of the specified size, which are younger and appreciably better than older "fowl."
Students who are only familiar with Chick-Fil-A and the packaged chicken parts in the grocery store tend not to appreciate the practical difference between the two sides' meanings. Confused students? ContractsProf bloggers to the rescue!
For a picture that says it all, see Prof. Snyder's post from 2010. For a video-based explanation of the issues in the case from none other than Hitler, see my post from last year. Prof. Miller also has offered another video-based teaching aid to use. Today, I bring you this clip, the source of which I cannot remember.
Apologies to whomever showed this clip to me first (a former student? a previous post on this blog that is not coming up in my search?).
I like this clip because you only need to take a few seconds of class time and it sticks with the students more than a 2-D picture thanks to Ms. Child's natural charm.
[Heidi R. Anderson]
There's a post of potential interest to our readers over at the Legal Sklls Prof Blog, courtesy of Scott Fruehwald.
Here's a taste:
Professor Rip Verkerke [pictured] has developed an innovative contracts course at the University of Virginia School of Law. (full story here) He received a grant "to convert a fall-semester course into a 'hybrid technology-enhanced' offering." In addition to using innovative technology in his class, he redesigned his course as a "flipped" classroom model, "in which students watch pre-recorded lectures outside of class and participate in more interactive learning inside the classroom. . ." His goal for this flipped model is "to promote deeper learning for students." The article states, "he has taken a quantum leap this year in reimagining how to teach Contracts with online tools and a new understanding of how students learn."
Scott Fruehwald adds:
This is exactly the type of class that law schools should be teaching to better prepare their students for the contemporary legal world. Problem-solving exercises force students to apply what they have learned to facts, and studies have shown that students learn more when they apply their knowledge. Small-group discussions, along with the problem-solving exercises, make the students active learners, rather than passive receptacles as the Socratic method does. Education scholarship has determined that frequent formative assessment helps students learn more and remember more. I suspect that Verkerke's nightly quizzes are especially effective. He is also developing metacognitive learning by asking metacognitive questions to his students and causing them to self-reflect. (''What aspect(s) of the materials in this module did you find most difficult or confusing?' is a metacognitive question because it forces the students to "think about their thinking.")
In sum, Professor Verkerke's Contracts class is a model of what a law school class should be. Hats off to Professor Verkerke!
The rest can be found here.
Monday, January 21, 2013
In theory, if you are looking for a case to illustrate the UCC's potential liberality in letting in trade usage evidence to modify a written contract, nothing could be better than Nanakuli Paving v. Shell Oil. One cannot avoid feeling gobsmacked by the Ninth Circuit's insouciance as it uses parol evidence to alter a clear, unambiguous price term. And it's fun to say "Nanakuli."
But Nanakuli is long. In order for students to understand it, they have to appreciate the idiosyncrasies of the asphaltic paving industry in Hawaii and they have to know quite a bit of detail about the the relationship between Nanakuli and Shell. If you have six credits to play with, luxuriate in Nanakuli's details, but if you are on a time budget, do I have a case for you!
Whaley and McJohn's Problems and Materials on the Sale and Lease of Goods includes Columbia Nitrogen Corp. v. Royster Co., 451 F.2d 3 (4th Cir. 1971), which is just as outré as Nanakuli but much, much shorter. The case is about a phosphate sale, most likely for the manufacture of fertilizer. Despite the image at left, there's nothing sexy about the case, other than the fact that its logical contortions (like those in Nanakuli) are reminiscent of the Kama Sutra. Still, it's a good way to hammer home the point that, under the UCC, one cannot expect the parol evidence rule to provide much protection against the introduction of course of dealing, course of performance and trade usage evidence.
Friday, January 18, 2013
Apparently the Supreme Court of Texas will decide this issue in Strickland v. Medlen. According to the Wall Street Journal:
In 2009, Avery, a spotted mixed-breed dog, escaped from his Fort Worth home and was taken to a city animal shelter where workers promised to hold him until his owners picked him up. Instead, he was put to death.
Avery's owners sued the shelter employee who mistakenly ordered the killing, raising an emotionally charged issue argued Thursday at the Texas Supreme Court: Can people be compensated for the sentimental value of a lost pet?
Texas law awards damages for the "market value" of a lost pet, which is defined as the price the animal would fetch at sale. But it is an open question in Texas whether pet owners can also be compensated for their emotional losses. The issue has split courts in other states.
The case sounds in tort (negligence) but it does in essence allege a breached promise (to hold the dog until the owners picked him up).
This video interview provides a nice overview of the case:
Should damages be assessed based on the dog's market value (tricky to assess - and maybe zero - for a mutt) or intrinsic/sentimental value to his owners?
Here's a link to the oral argument before the Texas Supreme Court on January 10th.
[Meredith R. Miller]
In yesterday's post, Heidi Anderson introduced us to a football analogy for the parol evidence rule (PER). The parol evidence rule prevents certain extrinsic evidence from getting to the trier of fact just like an offensive lineman prevents defensive players from getting at the quarterback. She analogizes the PER to a very good offensive lineman, but in some jurisdictions the PER is pretty porous, and that may well be a good thing, as Heidi aknowledges. On Heidi's analogy a football safety is like fraud, and these days, letting evidence of fraud tackle the quarterback is widely viewed as a good thing. Or maybe the the safety is supposed to get through to the trier of fact.
On Monday, in Riverisland Cold Storage v. Fresno-Madea Production Credit Association, a case alleging a fraudulent misrepresentation in connection with a debt restructuing agreement, the California Supreme Court revisited a rule derived from a 1935 case, Bank of America etc. Assn. v. Pendergrass. In Pendergrass, the California Supreme Court held that the PER excludes evidence of fraud if that evidence indicates "a promise directly at variance with the promise of the writing." In Riverisland, the lower courts read Pendergrass narrowly and decided that it did not apply to exclude plaintiffs' evidence. On appeal, the Court noted that Pendergrass has been broadly criticized and is inconsistent with both the Restatement and contracts treatises, which suggest that evidence of fraud should not be excluded under the PER. A 1977 California Law Revision Commission also indicated its disappoval of the Pendergrass rule.
The Court then noted that Pendergrass has had its defenders both in the courts and in the scholarly literature. The Court also acknolwedged the principle of stare decisis but nonetheless recognized that the principle must be limited in cases of poorly-reasoned decisions out of step with existing law.
The Court concluded that Pendergrass was "plainly out of step with established California law" at the time it was decided. The Court accordingly overruled Pendergrass and embraced the rule that the PER does not bar evidence of fraud.
Quarterbacks had better watch their blind sides.
Thursday, January 17, 2013
I start the second semester of Contracts with the Parol Evidence Rule. I think it's a complex but manageable topic that engages my no-longer-terrified "seasoned" students at the beginning of the semester. Some students, however, struggle to understand exactly what the effect of the rule is, especially after I tell them that it's not really a rule of evidence. Then, after we cover the exceptions, they're even more confused. So, for the visual thinkers in the class, I show this clip:
For the students not familiar with football, I explain that the player featured in the video, Michael Oher, is an offensive lineman at the heart of the book and movie, The Blind Side. His primary job is to protect the quarterback. More specifically, Oher's job is to protect the quarterback's "blind side"--the side the QB can't see when looking downfield to pass (for right-handed quarterbacks, the left tackle protects the blind side; for lefty QBs, it's the right tackle's job).
Then, I say, "Michael Oher is the Parol Evidence Rule. The defenders rushing in are parol (or extrinsic) evidence. Defensive linemen are prior written agreements. Linebackers are contemporaneous statements. The safety is fraud in the inducement. The quarterback is the judge. Most of the time, Michael Oher (a.k.a., the Parol Evidence Rule) is keeping the extrinsic evidence away from the quarterback/judge. The QB/Judge knows the evidence is there but it does not reach him or affect his decision. That said, Michael Oher is not perfect. Neither is the parol evidence rule. Sometimes, a safety gets through, and for good reason."
And so on. The analogy breaks down in various places but still seems to work for some students. Thus, I thought I'd share it on the blog. I hope some of you find it useful.
[Heidi R. Anderson]
Whether or not distributorship agreements should be covered under UCC Article 2 as contracts for the sale of goods seems to be a case very similar to that of software contracts. That is, some courts assume that such contracts are covered under Article 2 without looking very carefully to see whether the contract is predominantly one for the sale of goods. In the case of software contracts, as discussed yesterday, if the transactions are really about licenses, the assumption that Article 2 applies is not warranted unless the parties have stipulated that they want their agreement to be governed by Article 2, and according to this very helpful comment, they usually stipulate that they do not want the agreement to be governed by Article 2.
A distribution agreement is more likely to involve the sale of goods, and so it is more like the mixed contracts that we talked about on Tuesday. That is, a distributorship agreement will often entail both a service agreement and an agreement for the sale of goods. If so, then the court should analyze the contract under either the predominant purpose test or the gravamen of the action test as discussed in Tuesday's post, depending on the jurisdiction. But it seems that some courts do not do that, either mistaking precedents in which distributorship agreements are treated as governed by Article 2 as establishing a blanket rule or preferring a bright line rule in which all distributorships are governed by Article 2.
Wednesday, January 16, 2013
This is the second in a series of posts on issues that arise in a Sales course.
As Holly K. Towle lays it out in, Enough Already: It Is Time to Acknowledge that UCC Article 2 Does not Apply to Software and Other Information, 52 S. Tex. L. Rev. 531 (2011), many courts simply apply Article 2 to software licenses without much consideration of the law of licenses Others apply the law of licenses, which she thinks is appropriate. Her approach makes sense when we're talking about mass-marketed software provided to consumers through licenses. In fact, courts ought to take notice of the fact that all U.S. jursdictions have now clarified the status of software as a "general intangible" and not a good through the revisions to UCC Article 9 adopted in all fifty states.
But what of custom-made software that may not be licensed but sold to the client who will be its exclusive user? My impression from the limited caselaw I have reviewed on the subject suggests that courts recognized early on that software consists of both tangible and intangible elements. They seem to have assumed that the intangible elements (the services provided in developing software, for example) could be easily separated from the tangible elements (the disks, drives or hardware associated with the delivery of the software). On this line of reasoning, only the latter are goods. That distinction strikes me as artificial. Unless the deal involves a lot of hardware, the cost of the "goods" is trivial compared to the costs of software development, and in fact, with digital downloads and cloud computing, there may not be a good at issue at all. That is, my office used to be cluttered with the boxes that held the disks on which my software came to me. I may have naively thought of software as a good then because those boxes made software look like a good. Now, my software either comes pre-loaded or I download it without the aid of a disk or external drive. Now it looks much less good-like, but of course, how it looks should not matter.
Towle draws on IP law to argue that software is really "information" and information ought to be treated differently from tangible goods. I'm not sure I understand why that distinction matters if we are dealing with a sale rather than a license. A lot of things that we consider goods are really just information, in the sense that Towle uses it. Books are just information, but a sale of books is a sale of goods (although she is correct that you cannot return a lousy novel based on a breach of the implied warranty of merchantability). There are lots of other items that we buy about which is could be said that the costs of development constitute a large part of the costs of the good, but the UCC does not ask about cost breakdowns; it just asks if the subject of the transaction is moveable at the time that it is identified to the contract. Electricity has been held to be a good because it moves. So does information. More particularly, custom-made software, White & Summers point out, does not really seem much different from any other specially-manufactured good, which the UCC treats as a good for the purposes of Article 2.
I recommend Towle's article. She has persuaded me that courts err in trying to apply Article 2 to software licensing transactions, but when it comes to custom-designed software that is actually sold, rather than licensed, to the end user, I think a strong case can be made for applying Article 2.
I do not know if the software design companies agree to flat out sell the software they develop. It might be safer for them to license it so that they can re-use the code for other businesses that might need similar software designed for their specific needs. If that's the way these deals are done, it follows from Towle's reasoning that licensing law, rather than Article 2 should apply to those transactions as well.
Tuesday, January 15, 2013
The N.Y. Times reports that Conde Nast has issued new contracts to its writers with changes that diminish their right to profits from articles. Conde Nast is the publisher for magazines like Wired, Vanity Fair and The New Yorker. (You remember magazines, right? They’re printed on paper and you can usually find them at airports. Unlike newspapers, they don’t leave inky residue on your fingers). Conde Nast writers typically lack job security and benefits, signing one-year contracts – but they are (or were) allowed to keep the rights to their work. These rights could be valuable if an article becomes a movie, like “Argo” or “Brokeback Mountain.” Under the new contracts, however, Conde Nast has exclusive rights to articles for periods of time ranging from thirty days to one year and option rights where payments to the writer top out at $5K. If the article is turned into a movie, there is also a cap on what writers can receive.
It would be easy for me to demonize Conde Nast given my association with writers. Yet, it’s no secret that the demand for glossies is diminishing and that publishers need to figure out a way to monetize their content better – otherwise, there won’t be any magazine writers at all. Perhaps Conde Nast could bargain employee benefits for these rights, the way newspapers do. Maybe they could increase the cap based on different variables. Maybe they could lift the exclusivity for certain writers after a period of time (or a designated number of successes). Maybe they could commission articles that they conceived in-house, so that the work is a traditional work for hire, and the cap isn’t tied to an idea that originated with the writer. In any event, it’s clear that Conde Nast needs to evolve with the marketplace; what’s not so clear is that this is the way to do it.