Thursday, February 21, 2013
There's a theory among some of my foodie friends that, when it comes to food, bacon makes everything better. I'm considering a similar theory for teaching Contracts via hypos: when it comes to Contracts hypos, celebrities make everything better. Hypos work. Sure, they "taste" just fine using names like "Buyer," "Client," and "Sub-Contractor," and I use those names most of the time. But using names like "Jason Patric, you know, the guy from Lost Boys and Narc" often makes the hypo better, at least for the few people over 25 who remember those movies. So, in the interest of making hypos better via celebrity a.k.a. bacon, I bring you this story from TMZ (see, you don't actually have to go to sites of ill repute; you can count on me to go to them for you and only bring you the somewhat good, quasi-clean stuff).
As TMZ reports, actor Jason Patric is in a custody dispute with his ex-girlfriend, Danielle Schreiber. Upon their break-up in 2009, Patric allegedly agreed to compensate Schreiber for her troubles via donating his sperm instead of by paying her. Presumably, in exchange for Patric's promised sperm, Schreiber would not sue Patric for support payments. Simple enough (sort of). But wait, there's more! Patric allegedly would donate his sperm to Schreiber only if she also promised not to seek support from him for the child; Schreiber agreed. If this agreement actually was reached, Schreiber must have believed that Patric's sperm was so valuable that she was willing to forgo support payments for herself and for the child that would result. [Insert skepticism here.]
How does this relate to Contracts hypos? It works as a hypo for R.R. v. M.H., which many of us use to teach how a contract can be deemed unenforceable if it violates public policy. In R.R. v. M.H., the court must decide whether to enforce the surrogacy agreement between a fertile father, married to an infertile wife, and the surrogate mother, who also happens to be married, and who was inseminated with the fertile father's donor sperm. I won't go into the case in more detail here; instead, I would like to focus one part of the case has a direct parallel to the Jason Patric dispute.
In R.R. v. M.H., a state statute provided that the husband of a married woman inseminated with donor sperm was treated as the legal father of the child, with all of the associated benefits and obligations that fatherhood carried along with it. The statute was supposed to facilitate the common practice of women being inseminated by a (usually anonymous) sperm donor. Strictly applying the statute to the facts in R.R. v. M.H. would have led to an absurd result. Specifically, it would have meant that the legal father of the child born to the surrogate would have been the surrogate's husband, who had no real interest in the child. The court wisely argued its way around that literal application and ruled differently.
The Patric dispute also involves a law of unintended consequence much like that involved in R.R. v. M.H. A California law states as follows:
"(b) The donor of semen provided to a licensed physician and surgeon or to a licensed sperm bank for use in artificial insemination or in vitro fertilization of a woman other than the donor's wife is treated in law as if he were not the natural father of a child thereby conceived, unless otherwise agreed to in a writing signed by the donor and the woman prior to the conception of the child."
Applying this law to the Patric situation could, like the law in R.R. v. M.H., produce an absurd result. Let's paraphrase the statute with applicable facts in parentheses:
"The donor of semen (Patric) for use in artificial insemenation of a woman (Schreiber) other than the donor's (Patric's) wife (they weren't married) is treated in law as if he (Patric) were not the natural father unless otherwise agreed in a signed writing."
So, even though Patric and Schreiber had been romantically involved, the formalized donation and the couple's unmarried status could negate Patric's claims to custody. It is not clear whether the statute applies and, not being admitted in California, I'd rather not analyze it further. But it always surprises me how what seems like a one-in-a-million kind of case does, in fact, repeat itself. Eventually.
[Heidi R. Anderson]
I have been meaning to blog about IRB-Brasil Resseguros, S.A. v. Inepar Investments, S.A., a New York Court of Appeals case holding that a conflict of laws analysis was obviated by the parties’ choice of law clause.
IIC (a Brazilian company) owns a 60% stake in Inepar (a Uruguayan company). Inepar issued $30 million in notes to raise capital and refinance previous debt incurred by both companies. IIC agreed to guarantee the notes. The guarantee contained a clause choosing New York law to govern the agreement. New York was also designated as the venue.
Another Brazilian company (IRB/Plaintiff) purchased $14 million of the notes. When Inepar defaulted, IRB sued Inepar and IIC in New York. IIC argued that New York’s choice of law principles should apply, resulting in the application of Brazilian law. Under Brazilian law the guarantee was void because it was never authorized by IIC’s board.
Invoking New York General Obligations Law § 5-1401, the New York Court of Appeals held that New York law applied and no choice of law analysis was necessary. Section 5-1401(1) provides in part:
The parties to any contract . . . arising out of a transaction covering in the aggregate not less than two hundred fifty thousand dollars . . . may agree that the law of this state shall govern their rights and duties in whole or in part, whether or not such contract, agreement or undertaking bears a reasonable relation to this state.
The Court explained:
The Legislature passed the statute in 1984 in order to allow parties without New York contacts to choose New York law to govern their contracts. Prior to the enactment of § 5-1401, the Legislature feared that New York courts would not recognize "a choice of New York law [in certain contracts] on the ground that the particular contract had insufficient 'contact' or 'relationship' with New York" (Sponsor's Mem, Bill Jacket, L 1984, ch 421). Instead of applying New York law, the courts would conduct a conflicts analysis and apply the law of the jurisdiction with "'the most significant relationship to the transaction and the parties'" (Zurich Ins. Co. v Shearson Lehman Hutton, 84 NY2d 309, 317  [quoting Restatement (Second) of Conflict of Laws § 188 (1)]). As a result, parties would be deterred from choosing the law of New York in their contracts, and the Legislature was concerned about how that would affect the standing of New York as a commercial and financial center (see Sponsor's Mem, Bill Jacket, L 1984, ch 421). The Sponsor's Memorandum states, "In order to encourage the parties of significant commercial, mercantile or financial contracts to choose New York law, it is important . . . that the parties be certain that their choice of law will not be rejected by a New York Court . . ." (id.). The Legislature desired for parties with multi-jurisdictional contacts to avail themselves of New York law if they so designate in their choice-of-law provisions, in order to eliminate uncertainty and to permit the parties to choose New York's "well-developed system of commercial jurisprudence" (id.).
General Obligations Law § 5-1402 (1) further provides:
any person may maintain an action or proceeding against a foreign corporation, non-resident, or foreign state where the action or proceeding arises out of or relates to any contract, agreement or undertaking for which a choice of New York law has been made in whole or in part pursuant to section 5-1401 and which (a) is a contract, agreement or undertaking, contingent or otherwise, in consideration of, or relating to any obligation arising out of a transaction covering in the aggregate, not less than one million dollars, and (b) which contains a provision or provisions whereby such foreign corporation or non-resident agrees to submit to the jurisdiction of the courts of this state.
The Court wrote that:
Section 5-1402 (1) opened New York courts up to parties who lacked New York contacts but who had (1) engaged in a transaction involving $1 million or more, (2) agreed in their contract to submit to the jurisdiction of New York courts, and (3) chosen to apply New York law pursuant to General Obligations Law § 5-1401. The statutes read together permit parties to select New York law to govern their contractual relationship and to avail themselves of New York courts despite lacking New York contacts.
Applying General Obligations Law §§ 5-1401 and 5-1402 to the facts of the present case, we conclude that New York substantive law must govern, since the parties designated New York in their choice-of-law provision in the Guarantee and the transaction exceeded $250,000. IIC argues that the "whole" of New York law should apply, including New York's common law conflict-of-laws principles. IIC maintains that the Guarantee's choice-of-law provision would have had to expressly exclude New York's conflict-of-laws principles in order for New York substantive law to apply; otherwise, IIC claims that the court must engage in a conflicts analysis that results in the application of Brazilian substantive law. IIC's argument is unpersuasive. Express contract language excluding New York's conflict-of-laws principles is not necessary. The plain language of General Obligations Law § 5-1401 dictates that New York substantive law applies when parties include an ordinary New York choice-of-law provision, such as appears in the Guarantee, in their contracts. The goal of General Obligations Law § 5-1401 was to promote and preserve New York's status as a commercial center and to maintain predictability for the parties. To find here that courts must engage in a conflict-of-law analysis despite the parties' plainly expressed desire to apply New York law would frustrate the Legislature's purpose of encouraging a predictable contractual choice of New York commercial law and, crucially, of eliminating uncertainty regarding the governing law.
IRB-Brasil Resseguros, S.A. v. Inepar Investments, S.A., (NY Ct of Appeals Dec. 12, 2012).
[Meredith R. Miller]
Tuesday, February 19, 2013
Monday, February 18, 2013
"Entrusting" includes any delivery and any acquiescence in retention of possession regardless of any condition expressed between the parties to the delivery or acquiescence and regardless of whether the procurement of the entrusting or the possessor's disposition of the goods have been such as to be larcenous under the criminal law.
Notwithstanding the clearly expansive nature of the doctrine, my students would not accept that, for example, a mechanic with whom you had left your car for repairs could sell same car and your only remedy against the mechanic (under the UCC) would be a suit for damages. When I informed them of the true state of the law, their outrage was unquenchable.
"You could still have the authorities pursue criminal charges for theft," I offered.
Not good enough.
Backing away from the lectern and eyeing the emergency exit, I pleaded, "There are likely state statutory protections that would enable you to recover the car. After all, the buyer is going to have a problem when he tries to register title to the car."
Still not satisfied.
Finally, left with no other choice, I threw Karl Llewellyn under the bus. "Look, I just teach this stuff," I said. "I didn't draft the UCC. Blame Karl! Blame Karl!! Blame Karl!!!!
I put up a white flag from the teaching station that I was hiding behind to avoid the projectiles headed my way, and then it came to me. "Wait," I said. "Let's talk about Kahr v. Markland." In that case, a man gave Goodwill a bag of clothes. Unbeknowst to him, the bag also included valuable sterling silver. The court held there had been no entrustment because Kahr intended to donate the clothes but not the silver. It's reasoning is as follows:
An entrustment requires four essential elements: (1) an actual entrustment of the goods by the delivery of possession of those goods to a merchant; (2) the party receiving the goods must be a merchant who deals in goods of that kind; (3) the merchant must sell the entrusted goods; and (4) the sale must be to a buyer in the ordinary course of business. ( Dan Pilson Auto Center, Inc. v. DeMarco (1987), 156 Ill. App. 3d 617, 621, 509 N.E.2d 159, 162.) The record establishes there was no delivery or voluntary transfer of the sterling silver because plaintiffs were unaware of its place in the bags of clothes.
But wait! Whence the court's notion that "there was no delivery or voluntary transfer"? Saying that there was no delivery in this case is more than a stretch. It's simply factually untrue. And saying that the transfer was not voluntary turns on what the term "voluntary," means. Nobody put a gun to Kahr's head. He just made a mistake. In any case, voluntariness is not an element of the test for entrustment as laid out by the Kahr court.
Of course, I merely thought all these things. I didn't say them for fear of my students' wrath.
But how about this hypothetical based on personal experience: I donate a bunch of books to Goodwill, including an old copy of Atlas Shrugged with a hideous paper cover on it. One week later, my wife asks me where her copy of Atlas Shrugged is. Since she is always after me to clear away old books that we are not going to read or re-read, I proudly announce that I delivered it to Goodwill.
Her jaw drops. "But that was a first edition bearing the inscription, "I know who John Galt is, It's you. Yours, with a passion hot enough to forge Rearden steel, Ayn." We rush to Goodwill, but we are too late. The book was snapped up faster than a locomotive powered by an engine that transforms atmospheric static electricity into kinetic electricity. Did I entrust it to Goodwill?
There is a bit of a discussion of the Kahr case on The Faculty Lounge blog.