ContractsProf Blog

Editor: D. A. Jeremy Telman
Valparaiso Univ. Law School

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Thursday, April 25, 2013

What Do Assignments of Rights and Bad Opera Have in Common?

It's the end of the semester which means that I'm finally covering third parties. One of my favorite (and pretty simple) cases in this unit is Rumbin v. Utical Mutual Insurance, Co. Mr. Rumbin, who had settled a personal injury case, was due regular payments under an annuity purchased by Utica and issued by Safeco. When he faced foreclosure and other financial hardships, Rumbin sought a declaratory judgment approving his assignment of rights to J.G. Wentworth. After a student recites the facts, I often pause the class to ask, "How many of you have heard of Mr. Wentworth before?"  Usually, about half of my class has heard of him while the other half is thinking, "J.G. who?"  For those who haven't heard of him, I offer this clip, which sums up Mr. Rumbin's situation rather nicely and features Mr. Wentworth himself at the end as the conductor:

 

If you watch and later find a way to get the "877-CASH-NOW" earworm out of your head, please let me know. I've been stuck with it for nearly 24 hours now.

[Heidi R. Anderson]

April 25, 2013 in Famous Cases, Teaching | Permalink | TrackBack (0)

Wednesday, April 24, 2013

Paperless Tickets and Licenses

 

The Sacramento Bee reports that a California legislative committee (if you really want to know,  it’s called the Assembly Arts, Entertainment, Sports, Tourism and Internet Media committee) “gutted” a bill that would have illegalized “paperless” tickets.  Paperless tickets are more (or is it less?) than what they sound like – they are a way for companies like Ticketmaster to sell seats without permitting purchasers to resell those seats.  Purchasers must show their ID and a credit card to attend the show.  The bill pitted two companies, Live Nation (owner of Ticketmaster) and StubHub, against each other. 

This bill and the related issues should be of interest to contracts profs because it highlights the same license v. sale issues that have cropped up in other market sectors where digital technologies have transformed the business landscape.  Like software vendors and book publishers, Ticketmaster is concerned about the effect of technology and the secondary marketplace on its business.  Vendors, using automated software (“bots”), can quickly purchase large numbers of tickets and then turn around and sell these tickets in the secondary marketplace (i.e. at StubHub) at much higher prices.  Both companies argue that the other is hurting consumers.  Ticketmaster argues that scalpers hurt fans, who are unable to buy tickets at the original price and must buy them at inflated prices.  Stub Hub, on the other hand, argues that paperless tickets hurt consumers because they are unable to resell or transfer their tickets. 

The underlying question seems to be whether a ticket is a license to enter a venue or is it more akin to a property right that can be transferred.  Or rather, should a ticket be permitted to be only a license or only a property right that can be transferred?  The proposed pre-gutted legislation would have taken that decision out of the hands of the parties (the seller and the purchaser) and mandated that it be a property right that could be transferred.  In other words, it would have made a ticket something that could not be a contract.  Of course, given the adhesive nature of these types of sales, a ticket as contract would end up being like any other mass consumer contract – meaning the terms would be unilaterally imposed by the seller. In this case, that would mean the ticket would be a license and not a sale of a property right. 

It’s not just the media giants who are feeling the disruptive effect of technology  - we contracts profs feel it, too. 

[NB:  My original post confused StubHub with the vendors who use the site.  StubHub is the secondary marketplace where tickets can be resold.  Thanks to Eric Goldman for pointing that out].

[Nancy Kim]

April 24, 2013 in Commentary, Current Affairs, E-commerce, In the News, Legislation, Miscellaneous, Web/Tech | Permalink | Comments (0) | TrackBack (0)

New in Print (including books)

Pile of BooksAndrew Burrows, A Casebook on Contract (4th ed., Hart 2013)

J. W. Carter, The Construction of Commercial Contracts (Hart 2013)

John Cartwright, Contract Law: An Introduction to the English Law of Contract for the Civil Lawyer (2d ed., Hart, 2013)

Adam Kramer, The Law of Contract Damages (Hart 2013)

David Kwok, Evidence from the False Claims Act: Does Private Enforcement Attract Excessive Litigation? 42 Pub. Cont. L.J. 225 (2013)

Per David Midboe, Sidestepping the Point-Estimate Fallacy: How to Improve the Quality of Government Procurement Decisions by Evaluating the Predictive Value of Cost Realism Analyses, 42 Pub. Cont. L.J. 251 (2013) 

Catherine Mitchell, Contract Law and Contract Practice: Bridging the Gap Bewteen Legal Reasoning and Commercial Expectation (Hart 2013)

Robert A. Mullins, Corruption in Municipal Procurement: Foreclosing Challenges of Disappointed Bidders--Augusta, Georgia, and the Need for Reform, 42 Pub. Cont. L.J. 281 (2013)

Judge Robert A. Rosenberg and Dara J. Glasser, Dislocation Expenses in an Assignment for the Benefit of Creditors, 11 Ave Maria L. Rev. 193 (2012)

Amy J. Schmitz, American Exceptionalism in Consumer Arbitration. 10 Loy. U. Chi. Int'l L. Rev. 81 (2012)

James P. Wiezel, The "Significant Change in the Character of the Work" Clause: Uncertain Federalism in Highway Construction Contracts, 42 Pub. Cont. L.J. 327 (2013)

David Winterton, Money Awards for Breach of Contract (Hart 2013)

Maria Yefremova, et al., Contract Law in Russia (Hart 2013)

[JT]

April 24, 2013 in Books, Recent Scholarship | Permalink | TrackBack (0)

Tuesday, April 23, 2013

Weekly Top Tens from the Social Science Research Council

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

February 22, 2013 to April 23, 2013

RankDownloadsPaper Title
1 581 Living with 'ADR': Evolving Perceptions and Use of Mediation, Arbitration and Conflict Management in Fortune 1,000 Corporations 
Thomas StipanowichJ. Ryan Lamare
Pepperdine University School of Law, Pennsylvania State University - Department of Labor Studies and Employment Relations
2 251 The Fiduciary Obligations of Financial Advisors Under the Law of Agency 
Robert H. Sitkoff
Harvard Law School
3 179 Offer and Acceptance in Modern Contract Law: A Needless Concept 
Shawn J. Bayern
Florida State University - College of Law
4 145 Computable Contracts 
Harry Surden
University of Colorado at Boulder - School of Law
5 105 Dude, Where's My Car Title?: The Law, Behavior, and Economics of Title Lending Markets
Kathryn FritzdixonJim HawkinsPaige Marta Skiba
Vanderbilt University, University of Houston Law Center, Vanderbilt Law School
6 101 Personalizing Default Rules and Disclosure with Big Data 
Ariel PoratLior Strahilevitz
Tel Aviv University, University of Chicago Law School
7 98 No Contract? 
Oren Bar-GillOmri Ben-Shahar
New York University (NYU) - School of Law, University of Chicago Law School
8 97 Transfer of Rights and Obligations Under DCFR and CESL: Interactions with English and German Law 
Hugh BealeWolf-Georg Ringe
Warwick School of Law, Copenhagen Business School, Department of Law
9 89 Revenge of the Clerks: MERS Confronts County Clerk and Qui Tam Lawsuits 
Dustin A. Zacks
King, Nieves & Zacks PLLC
10 88 Tailoring a Consent Inquiry to Fit Individual Employment Contracts 
Lisa J. Bernt
Northeastern University School of Law

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

February 22, 2013 to April 23, 2013

RankDownloadsPaper Title
1 581 Living with 'ADR': Evolving Perceptions and Use of Mediation, Arbitration and Conflict Management in Fortune 1,000 Corporations 
Thomas StipanowichJ. Ryan Lamare
Pepperdine University School of Law, Pennsylvania State University - Department of Labor Studies and Employment Relations,
2 185 One Sided Jurisdiction Clauses - A Casenote on Rothschild 
Pascal AncelGilles Cuniberti
Universite du Luxembourg, University of Luxembourg
3 178 Offer and Acceptance in Modern Contract Law: A Needless Concept 
Shawn J. Bayern
Florida State University - College of Law
4 145 Computable Contracts 
Harry Surden
University of Colorado at Boulder - School of Law
5 122 Culpa in Contrahendo in European Private International Law: Another Look at Article 12 of the Rome II Regulation 
Najib Hage-Chahine
Université Paris II - Panthéon-Assas
6 98 No Contract? 
Oren Bar-GillOmri Ben-Shahar
New York University (NYU) - School of Law, University of Chicago Law School
7 97 Transfer of Rights and Obligations Under DCFR and CESL: Interactions with English and German Law 
Hugh BealeWolf-Georg Ringe
Warwick School of Law, Copenhagen Business School, Department of Law
8 88 Tailoring a Consent Inquiry to Fit Individual Employment Contracts 
Lisa J. Bernt
Northeastern University School of Law
9 85 Efficient Breach Is Dead; Long Live Efficient Breach 
Gregory Klass
Georgetown University - Law Center,
10 83 Discretion 
D. Gordon SmithJordan C. Lee
Brigham Young University - J. Reuben Clark Law School , Brigham Young University - J. Reuben Clark Law School

 

[JT]

April 23, 2013 in Recent Scholarship | Permalink | TrackBack (0)

Monday, April 22, 2013

Thoughts on Tongish v. Thomas and UCC § 2-713

Sunflower seedsA lot of very smart contracts scholars, including to name just a few, Omri Ben-Shahar and Lisa Bernstein (here), Victor Goldberg (here), and Peter Siegelman and Steve Thel (e.g., here), have thought long and hard about the seeming conflict between UCC § 2-713 and the general principles of damages set out in UCC § 1-305 (formerly § 1-106).  Most of them support the ruling in Tongish v. Thomas, to which I have just been introduced in teaching Sales for the first time this semester.  I am uncomfortable with the decision for two reasons, which I will set out below.

But first, a brief summary of the case: Tongish agreed to sell his sunflower seeds to the Decatur Coop Association (the Coop) for a fixed price.  The Coop had a deal with Bambino Bean & Seed, Inc. (Bambino) to sell the seeds to them for whatever price the Coop paid plus $0.55 per 100 pounds.  The price of seeds went up and Tongish breached.  The trial court awarded the Coop its lost profits, which came out to $455.51.  The Court of Appeals vacted that award and remanded the case for a calculation of damages based on UCC § 2-713 (and the Kansas Supreme Court upheld that ruling).  UCC § 2-713 allows a buyer to recover the difference between makret price at the time buyer learned of the breach and the contract price.  Under this section, the Coop would recieve not $455 but something like over $5500, despite the fact that it would not have been able to charge Bambino anything more than what it paid Tongish for his seeds.  In short, under the damages awarded by the appellate courts, the Coop gets about $5000 more than expectation damages.

I do not like the result, at least not based on the court's reasoning.  Subsequent law review articles (cited above) provide more sophisticated defenses of § 2-713 based on economic theory.  I cannot address those arguments here.  Instead, I focus on two issues: fault and contract and the court's characterization of UCC § 2-713 as a "statutory liquidated damages provision."  

FeldmanFirst, the case is grist for the mill of Friend of the Blog, Steve Feldman, who has been trying unsuccessfully for years to persuade me that courts not only do consider moral fault in assessing damages but should do so.  In Tongish, the Kansas Court of Appeals distinguished the case from a California case, Allied Canners Packers, Inc. v. Victor Packing Co.  In Allied, the California court limited the buyer's remedy to actual loss.  That case was different, says the Kansas court, because in Allied, the seller's crop had been destroyed and so it had no goods that it could deliver to buyer.  Here, Tonigish breached simply becasue the price went up, and so "the nature of Tongish's breach was much different" from that in Allied, because the Kansas court found, "there was no valid reason" for Tongish's breach.   Whether or not the court is right that there was no valid reason for the breach depends on one's views on the doctrine of efficient breach.  More to the point, I find no language in the UCC that indicates that the measure of damages turns on the state of mind of the breaching party.  That is, where in the UCC does it say that whether or not one can recover damages in excess of actual loss depends on whether the breach was innocent or willful?

The Kansas court then proceeds to an actual statutory analysis and notes the principle that a specific clause (in this case § 2-713, which the court reads to provide damages in excess of actual loss) trumps a general clause (§ 1-305, which limits damages to expectations).  Allowing the specific clause to trump the general clause generally makes sense, but I would invoke another canon of contruction and read § 1-305 as articulating the general remedial scheme in light of which the remainder of the Code is to be read.  Section 1-305 puts parties on notice that, unless they set out their own remedial schemes, though allocation of risk, liquidated damages and the like, they should expect that traditional expectation damages will be the most they can hope for in case of breach.  

Read in that light, § 2-713 does nothing more than describe the usual mechanism for calculating expectation damages.  It does not contemplate a contract such as the one at issue in Tongish in which the Coop, very far from demanding liquidated damages in the case of breach, has protected itself against loss by linking its purchase price from Tongish to its sale price to Bambino.  In so doing, it invited the very sort of efficient breach in which Tongish engaged, and it is absurd for it to now to claim entitlement to (effectively) a disgorgement remedy when it failed to negotiate such a remedy at the time of contracting.  

ScottThe Kansas court cites to Robert Scott's argument that limiting recovery to lost profits in such cases creates market instability by encouraging breach if the market fluctuates to the seller's advantage.  Applying § 2-713 to permit recovery of damages in excess of actual loss, on the other hand, "encourages a more efficient market and discourages the breach of contracts," says the court.  Once again, that determination turns on one's understanding of efficiency.  In any case, to the extent that the circumstances in Tongish encouraged breach, they were entirely a product of the way the parties drew up their contracts.  They in effect, allocated the risk of breach to the Coop, which had protected itself by finding a buyer who would accept any price so long as it was the same price as what the Coop had paid, plus a $0.55/100 lb. handling fee.  To allow the Coop to recover cover costs on top of lost profits actually creates an incentive for sellers with contractual protections such as the Coop had, to encourage breaches, since the court allowed them recovery ten times in excess of their actual harm.

[JT]

April 22, 2013 in Commentary, Famous Cases, Recent Scholarship, Teaching | Permalink | Comments (2) | TrackBack (0)

Phone "Bill Cramming" and Consent

The FTC recently charged a company, Wise Media, with unfair and deceptive business practices. The FTC complaint alleges that Wise Media charged unwitting mobile phone users for “premium" text services, or junk text messages (horoscopes, love tips, other “useful” information…) that consumers never authorized.  The practice is referred to as “bill cramming,” and consumers  often failed to notice the indefinitely recurring charges of, in this case, $9.99/month.  Even when they did and sent a text to “stop” the messages, the company often failed to comply with the request. 

Consumers often miss these charges because they aren’t aware that their mobile phone bills contain charges by third parties and because the charges are not clearly indicated.  The result?  Wise Media has made millions of dollars by surreptitiously charging consumers.

What I find particularly interesting and troubling is the potential interaction of contract law in the area of electronic contracts and consumer protection.  What distinguishes a deceptive business practice (although not necessarily an unfair one) from a “hard bargain” is consent. The FTC complaint, for example, was filed because the charges were “unauthorized” by consumers - they were signed up "seemingly at random" without consumer "knowledge or permission."  The FTC has, in my view, done a pretty terrific job of protecting consumers given the lack of resources and the wide range of consumer-harming activities out there.  Courts have not done so well.  What happens where contractual “consent” (such as in the form of a clickwrap”) is obtained for an unfair practice, such as bill cramming?  What if the consumer had clicked "I agree" on a clickwrap to the premium service?  Would the contract law notion of “consent” mean that the consumer had authorized the “premium text” service, even when we all know that nobody reads clickwraps and browsewraps?  Or would the commonsense version of consent championed by the FTC prevail?

I talk about this disjunction between, what I refer to as “wrap contract doctrine” (since, let's face it, the digital contract cases are not consistent with traditional contract doctrine despite what Easterbrook and others claim) and the FTC’s more commonsense approach to consumer perception and business practices in my forthcoming book on wrap contracts.  (Did you know a plug was coming?  I actually didn’t but there it is.)  The conclusion I reached was that there appears to be a disconnect between contract law notions of “reasonable notice” and the FTC’s notion of “reasonable notice” (which I find more reasonable….)  The takeaway for businesses – just because you obtain consent for a particular business practice via an online contract which may meet the surreal standards of contractual consent set forth by courts doesn’t mean that the practice in question won’t be viewed as an “unfair and deceptive” one by the FTC.

[Nancy Kim] 

April 22, 2013 in Current Affairs, Miscellaneous, Web/Tech | Permalink | Comments (0) | TrackBack (0)