ContractsProf Blog

People Is Stoopid: $5 Million Baby Pictures

Question: What kind of person would expose her children to ruthless paparazzi just in order to make a few bucks? 

Answer: The kind of person who doesn't need the money in the first place.

Today's New York Times reports that People Magazine paid $5 million for the first public pictures of J-Lo (pictured) and her newborn twins, so that you can see the same picture for free here.

One interesting thing about this agreement: In the New York Times article, it seems quite clear that the publishers cannot justify the prices they have been paying for baby pictures, which now frequently exceed $1 million. The Times quotes industry executives as saying that "the most important factors are impossible to measure: the value of being known as the place to go for those pictures, and of keeping them out of a competitor’s hands."  It gets clearer still:

Larry Hackett, People’s editor, said, “Last year, we lost a couple of weddings because OK! magazine was willing to spend more money than we thought made sense.” If that sort of thing becomes common, he said, “they’re going to get traction, and I don’t want any competitor to get traction where I can stop it.”

This kind of comment falls into a pattern of grossly inflated contracts that benefit the ultra-rich, something this blog has commented on before.  These contracts are not subject to rational defenses.  People is now pretty much admitting that it pays more for these photos than "makes sense."  The competition, OK!, has yet to make a profit.  The high prices are motivated by fear of the competition, which creates a feeding-frenzy dynamic in the bidding and defies conventional market logic.

[Jeremy Telman]

Senate to Employees: You're on Your Own

In Ledbetter v. Goodyear Tire & Rubber Co., the Supreme Court ruled, in a 5-4 decision, that Title VII required that a plaintiff allege that defendant acted with discriminatory intent in making adverse pay decisions during the 180 days prior to the filling of a complaint with the Equal Employment Opportunity Commission (EEOC).

Lilly Ledbetter was employed as a manager by Goodyear from 1979-1998.  Initially she was paid the same as her male counterparts, but over time her pay slipped until she was paid significantly less than the lowest-paid male manager.  A jury rejected Goodyear's claim that it had non-discriminatory reasons for the pay disparity and awarded Ledbetter back pay.  The Eleventh Circuit reversed, finding that the allegedly discriminatory conduct had occurred prior to the 180-day window dating from the time of Ledbetter's complaint to the EEOC.  Justice Alito, writing for the majority, agreed, based on the statutory language and precedent.

Ledbetter and the dissent made policy arguments in favor of a more lenient rule.  Because employees are not entitled to know what their peers are being paid and because pay discrimination only occurs in slow imcrements that have a cumulative effect, Ledbetter argued that the 180 window should be expanded.  Justice Alito would not address those arguments, saying the court's role was simply to apply the statute as written.

The decision was thus, in effect, a remand back to Congress to clarify its legislative intent.  It attempted to do so through the Lilly Ledbetter Fair Pay Act of 2007, which effectively overrules Ledbetter and which passed the House by a vote of 225-199.  But the Act will not come to a vote in the Senate because it failed to win the 60 votes necessary to overcome Senate procedural rules.  Candidates Clinton and Obama returned to Washington to speak in favor of the Act and to cast their votes.  Candidate McCain remained on the campaign trail, but according to the New York Times, he said "he would have opposed the bill since it could contribute to frivolous lawsuits harmful to businesses."  Senator Hatch further explained the motives of the all but six Republican Senators who opposed the Act:  “The only ones who will see an increase in pay are some of the trial lawyers who bring the cases.”

So, employees who want to protect themselves against pay discrimination will have to negotiate harder during those oh-so-even-handed discussions they have with their employers when they take their positions.  Ms. Ledbetter, for example, after nearly 20 years in a supervisory position with Goodyear, was making nearly $45,000 a year.  With such princely resources at her disposal, imagine her bargaining power!

[Jeremy Telman]

Medellin and Contracts Revisited II

Justice Roberts' opinion in Medellin v. Texas has been praised as "modest and fairly careful."  But on the crucial question of self-execution, I find the opinion both bold and confusing.  Bold, because I think the petition for cert. was improvidently granted in this case.  As Justice Roberts notes in footnote 1 of the opinion, because Medellin confessed within three hours of his arrest, and because according to the ICJ's judgment in Avena, consular notification would have been timely if effected within three days, Medellin could not have been prejudiced based on the U.S. violation of the Vienna Convention on Consular Relations.  The Texas courts so found on the merits of Medellin's habeas petition.  The Court could have simply upheld that decision as satisfying the "review and reconsideration" required by Avena.  End of the matter.

I find Roberts' opinion confusing on the vital matter of what it takes to make an international agreement self-executing.  Or to put it in less technical language, when does an international agreement have direct effect as domestic law even without any congressional implementing legislation and under that test, must state courts give effect to the CISG in disputes where it provides governing law?  Michael Van Alstine and Antonin I. Pribetic provide reasoned grounds for thinking that the CISG is a self-executing agreement under the test articulated by Justice Roberts.

Van Alstine writes:

Chief Justice Roberts' opinion in Medellin does not require express language for self-execution. Indeed, at one point he refers to the intent of the Senate upon giving its consent to treaty ratification. See slip op. at 12 (reasoning in part that the UN Charter was not self-executing because there was no "indicat[ion] that the Senate that ratified the U. N. Charter intended" it to have direct domestic law effect). Moreover, he quoted with approval Judge Boudin's opinion from Igartúa-De La Rosa v. United States, 417 F. 3d 145, 150 (1st Cir. 2005) to the effect that a treaty need merely "convey[] an intention that it be 'self-executing' and [be] ratified on these terms.” Slip op. at 9.

Antonin Pribetic applies Justice Roberts' reasoning to the CISG as follows, beginning with a quotation from page 9, fn 3 of the Majority opinion:

"Accordingly, a number of the Courts of Appeals have presumed that treaties do not create privately enforceable rights in the absence of express language to the contrary. [citations omitted]."

Clearly, the CISG does "create private rights" or does "provide for a private cause of action", in circumstances where both parties are from Contracting States (CISG, Art. 1(1)(a)) and the pre-requisites of applicability, internationality and territoriality are otherwise met (Art. 2-6).

These readings of Roberts' opinion are well-justified and should prevail. 

But the dissent provides an alternative reading of Roberts' opinion which is not without support in that text.  For example, the language from Igartúa-De La Rosa v. United States quoted by Michael Van Alstine above actually suggests to me (as it does to the dissent) that a court must look to language in the treaty conveying an intention that the treaty be self-executing.  This reading is reinforced on page 18 of the opinion where Justice Roberts writes that "we do think it rather important to look to the treaty language to see what is has to say about the issue" of self-execution. 

But as the dissent points out at page 12 (quite rightly in my opinion), it is unlikely that a multilateral treaty would ever address the issue of self-execution, as that issue is handled differently in different domestic contexts.  Rather, treaties usually express the expectation (though language such as the U.N.Charter Art. 94's "undertake to comply") that states will take whatever measures are necessary as a matter of domestic law to make the relevant provisions effective as a matter of domestic law. 

In short, I think a smart commercial lawyer whose client would prefer to have her contract governed by the U.C.C. could convince a trial court that Justice Roberts' opinion now means that because there is no language in the CISG that expresses or implies an intention on the part of the parties to the CISG that it be a self-executory agreement, it cannot be given direct effect by U.S. courts absent congressional legislation to that effect. 

[Jeremy Telman]

Medellin and Contracts Revisited I

Having now carefully read the Medellin case, I have two more comments to make that relate to earlier posts on contracting with the U.S. government and the enforceability of international agreements as domestic law.  Today, I will take up the first theme.  The good news is that both the Medellin majority and the dissent agree that making it easy for third parties to predict when the U.S. will abide by its international obligations is a good thing.  The bad news is that they come to different conclusions about how to facilitate U.S. cooperation in treaty regimes.

Justice Roberts, writing for the majority, chateracterizes the dissenting judges' approach to the issue of self-execution of treaties as entailing "an ad hoc judgment of the judiciary," which could result in differing outcomes even if the same international agreement was at issue in successive cases. Slip op. at 19.  Justice Roberts rejects this approach:

It is hard to believe that the United States would enter into treaties that are sometimes enforceable and sometimes not.  Such a treaty would be the equivalent of writing a blank check to the judiciary.  Senators could never be quite sure what the treaties on which they were voting meant.  Only a judge could say for sure and only at some future date.  This uncertainty could hobble the United States' efforts to negotiate and sign international argreements.

Id. at 19-20 (majority opinion).  Justice Breyer, writing in dissent, characterizes the majority as requiring language in a treaty specifying that the treaty is to be self-executing before it can be given direct effect as domestic law.  Slip op. at 12 (Breyer, J., dissenting).  After pointing out that few multilateral treaties would contain such language, since in some countries (e.g., the Netherlands) treaties concluded by the executive, are always given direct effect, even absent parliamentary approval, Justice Breyer gets a bit colorful:

In a word, for present purposes, the absence of presence of language in a treaty about a provision's self-execution proves nothing at all.  At best the Court is hunting the snark.  At worst it erects legalistic hurdles that can threaten the application of provisions in many existing commercial and other treaties and make it more difficult to negotiate new ones.

Id. at 12-13.  And there you have it.  The Justices want to facilitate U.S. participation in international agreements, but each side is convinced that the other side's approach to the question of self-execution undermines such participation.

Tune in tomorrow for a discussion of why I am less certain than Michael Van Alstine and Antonin Pribetic that the self-executory nature of the CISG is beyond question.

[Jeremy Telman]

Transactional Approaches to Teaching

I have been very impressed since (re)joining the teaching profession by the amount of time and energy that law professors devote to pedagogical concerns.  This devotion to teaching has been on display recently on the contracts profs listserv, based on a discussion initiated by Villanova's Chaim Saiman (left).  Professor Saiman asked the group if and how contracts profs incorporate transactionally oriented skills into final examinations.  The result was a broad-ranging and passionate discussion that could not possibly be summarized in this space.  Or so one would think.  Nonetheless, the most recent post on the thread attempts to do so.  It comes from the thread's initiator, Professor Saiman, who has given me permission to post an edited version here.  Summarizing the discussion and adding his own musings, Saiman writes:

Initially the question was a very limited one about test design. . . . The consensus from the list (which I agree with) appears to be as follows:

1. It would be a very hard idea to have students draft provisions free-formed.  They lack practice doing this, and it would advantage students with a business background. Moreover, the exercise is a bit sterile unless there is another party pushing back on the provisions, and I for one can't figure out a way to do this on a standard law school exam.

2. A more promising idea, thought not without its shortfalls, would be to describe some background and negotiations, and then have the "issue spotter" take the form of drafting a memo to the client commenting on contractual language that I would provide on the exam.  The goal would be to test if they can see what problems / risk this language might raise down the road and to see if they can identify whether the written contract conforms to what the client thinks he is signing.  I can imagine this method effectively testing what Farnsworth calls "the law of the contract," e.g., interpretation, parole evidence, conditions, performance and breach, implied terms, default rules and repudiation.

. . .

Invariably, this question about test design became a question of what do we teach in contract class (and law school) and why.  This is a large question worthy of much thought, and here at Villanova we are in the midst of undertaking a curriculum review so these issues are on our minds.

FWIW, my own view of the topic . . .

FWIW, my own view of the topic is that what we do in contracts depends on what we do in the first year as a whole.  In my vast experience of 19 months, I have concluded that sometimes we teach doctrines so that the students know the doctrines, and sometimes (especially in the first year) we teach doctrines as a way of teaching skills (e.g., rule against perpetuities).  I think this makes sense, but that we should identify which skills to teach and then distribute them across the courses in a more organized fashion.

As I see it, the main skills are:

1. Traditional common law case and conceptual analysis
2. Statutory interpretation
3. Advising, counseling and factual development
4. International and comparative aspects
5. Policy, theory, legal history and evoluation and acculturation into the profession
6. Understanding the procedural structure of federal/state law

I think each school needs to figure out which teachers / classes in the first year are best suited for each goal.

For example, I could imagine (and would love to teach) a Contracts course that stressed skills 1 and 5.  Then I would spend a lot of time on consideration, the emergence of reliance from equity and estoppel, the mailbox rule, the bargain theory, unconscionability, implied warranties, realism, formalism, law and economics etc.  These doctrines tend to make these points well.

But, if this was stressed in contracts, I would see no reason to repeat the same narrative with the rule against perpetuities, evolution of landlord/tenant law and marital/women's property in Property, or rise and fall of intentional torts, developments of negligence and products liability law in tort.

Alternatively, I could imagine teaching a contracts course that focused on skills 2, 3 & 4, which would place far more emphasis on the UCC & CISG.  Most of the course would be structured as problem sets raising issues of planning various sales of goods transactions to domestic and foreign markets.  In this course, I would spend much more time examing contracts as a tool of business planning in the B2B context and teaching how to examine statutory and regulatory texts and private international law issues.  However, I would relegate consideration/reliance/restitution and even offer and acceptance to 2 or 3 sessions.  Similarly, I would at least introduce the complexities that bankruptcy and Article 9 introduce to the damages and remedies issues.

Thanks to Professor Saiman for giving me permission to share his thoughts with readers of our blog.  I apologize for any typos I have introduced in the transcription process.

[Jeremy Telman]

International Agreements: Once More

Apologies to those of you who are getting tired of the treaties-as-contracts theme,but once more unto the breach!  We have had a couple of recent posts, here and here, about the danger that its international partners will be less willing to enter into agreements with the United States because of recent trends in U.S. law, and today there are new developments on this topic, although this is hardly news.

Our friends over at the Consumer Law and Policy blog have a post today on a New York Times story about the refusal of an Italian court to enforce a judgment against an Italian motorcycle helmet manufacturer because "a peculiarity of American law — punitive damages — was so offensive to Italian notions of justice that it would not enforce the Alabama judgment." 

One might assume that some sort of international agreement would be in place that would reqiure foreign courts to enforce judgments of U.S. courts.  According to the U.S. Department of State, no such agreements are in place and here's why:

Although there are many reasons for the absence of such agreements, a principal stumbling block appears to be the perception of many foreign states that U.S. money judgments are excessive according to their notions of liability.

[Jeremy Telman]

Medellin and the CISG

The University of Michigan's Bruce Frier has raised the following interesting question in the aftermath of the Supreme Court's decision in Medellin v. Texas (already mentioned on this blog here) yesterday:

Does anyone know whether the CISG is among the treaties whose enforceability within the United States is endangered by today's Supreme Court decision?

I'm not sure anyone knows, but two Contracts Profs have ventured opinions and given me permission to post them here. 

University of Maryland's Michael Van Alstine writes:

The CISG should satisfy even the Court's (misguided and historically unfounded) heightened requirement for self-execution.  In his message to the Senate in 1983, President Reagan expressly stated the premise that the CISG would be self-executing upon Senate consent and later ratification.  See Message from the President of the United States to the Senate Transmitting the United Nations Convention on Contracts for the International Sale of Goods, Sept. 21, 1983, S. Treaty Doc. No. 98-9 (1983) ("The Convention is subject to ratification by signatory States (Article 91(2)), but is self-executing and this requires no federal implementing legislation to come into force throughout the Untied States").

Seton Hall's Michael Zimmer is unpersuaded:

Given that the Court said the Treaty must explicitly include a provision that it is self-executing, I am not sure that, without more, President Reagan's statement is any better than President Bush's statement.

One note of clarification might be helpful for our readers.  Because the CISG is a treaty, under the Supremacy Clause, it is binding law for international contracts for the sale of goods, provided that the parties to the contract are nationals of signatory states.  The parties might clarify that they intend to be bound by the CISG or by the UCC, and if they do so, this issue would not arise, because parties can freely contract around the CISG or free to choose to be bound by it.  The issue would only arise if the parties do not specify which law governs and at least one party tries to argue that U.S. law relating to the sale of goods rather than the CISG should govern.

The Blog would welcome additional thoughts.

[Jeremy Telman]

Two Reasons Not to Contract with the Government

Although I teach contracts and contribute to this blog, I am not a contracts scholar.  My main research interests lie at the intersection of U.S. constitutional law and international law.  But in that context, I have been thinking a lot of late about how current trends in the law create substantial disincentives for entities to enter into contracts with the U.S. government.  I'm sure that readers who deal with government contracts regularly can think of many more, but I want to focus on two developments that would give me pause if I were considering entering into a contract with the U.S.

For more bloviation, click on the link . . .

The first development has to do with international agreements.  For simplicity's sake, let's say there are two approaches to understanding why states enter into and abide by international agreements.  I'll call the first approach normative.  It is associated with people like Tom Franck and Harold Koh who argue that states are compelled by notions like legitimacy and fairness to enter into international agreements that implement international norms or norms that have been internalized by states parties.  From the perspective of the normative approach, something like waterboarding simply cannot be justified.  Call it torture, call it cruel, inhuman or degrading treatment, it clearly violates international norms and is categorically prohibited. 

I'll call the second approach Realism and reduce Realism to the belief that states are rational, self-interested actors that enter into and abide by international agreements to the extent that doing so furthers national self interest.  Variations on Realism dominated political science departments for decades before it was discovered by international legal scholars.  Now, through the writings of people like Jack Goldsmith, Eric Posner, and Adrian Vermeule, international legal scholarship is taken up with the Realist model as never before.  In the context of the War on Terror, these neo-Realists, or neo-Nationalists, or New Sovereigntists (whatever you want to call them) have argued for extensive executive authority to do whatever is necessary to national defense.  By the way, for a brilliant, short critique of this approach as it relates to torture, see Alice Ristroph's Professors Strangelove.  A more extended but also very intelligent critique can be found in Thomas Crocker's, Torture, with Apologies. 

My point here is a simple one.  Let's assume that the U.S. signed the Geneva Conventions banning cruel, inhuman and degrading treatment based on the simple Realist principle of reciprocity.  We promised not to, for example, waterboard detainees because we don't want our soldiers waterboarded.  JAG officers testifying before Congress cited this concern in voicing their opposition to proposed legislation (subsequently enacted) that would insulate the government from lawsuits brought by Guantanamo detainees alleging that their rights protected under the Geneva Conventions were violated.  So, in addition to normative arguments, there are solid Realists arguments for abiding by our international obligations.  But reigning theories of the unilateral executive embodied in both the scholarly and political efforts of Robert Delahunty, Jack Goldsmith and John Yoo suggest that those obligations can be set aside whenever the executive branch finds it expedient to do so.  If I were a international entity considering entering into an agreement with the United States, this doctrine would give me pause, especially as there is no limit on what the executive branch can do in the name of national security.  Today, it may set aside the Geneva Conventions, tomorrow it may decide that the U.S. cannot abide by its environmental agreements, the Law of the Sea, trade agreements, etc. because doing so would undermine national security.

Fine, you're saying.  But I'm not an international entity, so I don't have to worry.  Well, the problem you have as an individual contracting with the United States is secrecy.  Let's say you enter into some sort of commercial contract with the U.S. government.  You may be a defense contractor; you may be a government employee; you may be involved in something related to U.S. surveillance operations.  I'm not saying you're a spy; you may just be a software designer facilitating surveillance.  Now, let's say the government breaches its agreement with you, or maybe it fires you based on your race or gender or because you blew the whistle on some illegal conduct by your immediate superior.  The government can stop your law suit in its tracks by invoking the state secrets privilege and your case will be dismissed before you even get to discovery.  I have an article on this topic coming out in the Temple Law Review.  For those of you who just can't wait, you can have a look at a draft version here.

My point is pretty basic.  Current policies, largely informed by a bizarre infatuation with executive power, create disincentives for rational actors to contract with the United States.  The predictable result of this is higher transactions costs as the U.S. seeks to overcome the obstacles it has needlessly placed between itself and individuals and entities otherwise willing to assist the U.S. in achieving its legitimate goals.

[Jeremy Telman]

The Best is the Enemy of the Reasonable

What’s the difference between a clause requiring "best endeavours" and one requiring "reasonable endeavours"? And, for that matter, one requiring "all reasonable endeavours"? In a decision last year, Rhodia International Holdings v. Huntsman International LLC, [2007] EWHC 292 (Comm), the U.K. High Court took a whack at sorting them out.  A duty to use "reasonable endeavours," said the court, can be met by exhausting only one of a number of possible solutions, while a duty to use "best endeavours" requires the party to exhause all possible courses of action.

In a recent memo, Use Of Best And Reasonable Endeavours In Contracts, solicitor Sian Forbes of Bristol’s Bevan Brittan LLP offers an analysis of the decision.

[Frank Snyder]

Three Cheers for Merchants!

I was just reading with great interest the spiffy new Commercial Law Blog when I came across a fascinating post on The Morality of Trade by Marie T. Reilly (pictured) that included this:

If merchants "were [ever] considered" no better than thieves, I say, consider who's doing the considering. The possibility of gains from trade in the hands of "merchants" was and is the key driver for social and economic mobility and the political instability that comes with it. Feudal lords had much to fear and loathe at the possibility that by trading among themselves serfs might drag themselves out of hunger and ignorance. And so too the Church. Trade is possible only when people assert property rights. Assertion and exploitation of property rights by political subordinates is the beginning of the end of a social order based on birthright and violence.

Stirring stuff.  But why does it seem so familiar?  Ah, yes, here's what it reminds me of:

The bourgeoisie, historically, has played a most revolutionary part.

The bourgeoisie, wherever it has got the upper hand, has put an end to all feudal, patriarchal, idyllic relations. It has pitilessly torn asunder the motley feudal ties that bound man to his "natural superiors", and has left no other nexus between people than naked self-interest, than callous "cash payment". It has drowned out the most heavenly ecstacies of religious fervor, of chivalrous enthusiasm, of philistine sentimentalism, in the icy water of egotistical calculation. It has resolved personal worth into exchange value, and in place of the numberless indefeasible chartered freedoms, has set up that single, unconscionable freedom -- Free Trade. . . .

The bourgeoisie has disclosed how it came to pass that the brutal display of vigor in the Middle Ages, which reactionaries so much admire, found its fitting complement in the most slothful indolence. It has been the first to show what man's activity can bring about. It has accomplished wonders far surpassing Egyptian pyramids, Roman aqueducts, and Gothic cathedrals; it has conducted expeditions that put in the shade all former exoduses of nations and crusades.

What great 19th-century thinker is Mary T. Reilly channeling (find out below the break)?

Yup, that's right.  Karl Marx!  It's from The Communist Manifesto.

Now I'm not saying that we here at the Contracts Profs Blog don't enjoy a little competition from our friends and colleagues over at the Commercial Law Blog.  I'm just saying they're a bunch of godless commies.

[Jeremy Telman]

Oman's Random Thoughts on Consideration

Nate Oman (William & Mary) asks: why bother with consideration to determine which promises are enforceable?  He argues: why not enforce all promises, no matter how trivial, and let litigation costs serve as the gatekeeper for which promises get enforced - it simply isn't worth the expense of seeking to enforce trivial claims (like the broken promise to have lunch).  Interesting thoughts.  But, what about the justification of consideration as a recognition of the solemnity of making the promise?  I realize that consideration often does not serve this stated purpose (especially not a mere peppercorn); however, to the extent non-trivial (high value) promises would be binding in court regardless of consideration, shouldn't the law have some mechanism to give the promisor pause?  Bring back the seal!?!

[Meredith R. Miller]

Higher Wages Can't Count as Reimbursement

California employers and their employees cannot agree to a system under which the worker gets a higher wage and pays his or her own business expenses, according to a recent decision by the state supreme court.  The California Labor Code requires employers to reimburse all expenses that employees incur in the course of their work.  Many employers have tried to deal with this rule by offering higher salaries or by offering lump-sum payments to workers.  But the recent decision in Gattuso v. Harte-Hanks Shoppers, Inc., makes that very difficult to do, according to a recent client advisory by Laura P. Worsinger and Chad C. Coombs of Los Angeles’s Buchalter Nemer PLC.

[Frank Snyder]

More Mandatory Arbitration Clauses

We have already heard what Homer Simpson thinks of mandatory arbitration clauses here.  Now the Consumer Law and Policy blog weighs in with a post that may be of interest here.

[Jeremy Telman}

Teaching Assistants: Geoffrey R. Watson

We broke some hearts in last week's post on Kirksey v. Kirksey, as several generations of contracts profs and students were forced to part with their fantasies regarding Isaac and Antillico (Angelico) Kirksey.  Well, this week we have very good news.  Levi Wyman lived!  And his father may even have loved him!!  Or so says Geoffrey R. Watson (left) in In the Tribunal of Conscience: Mills v. Wyman Reconsidered, 71 Tulane L. Rev. 1749 (1997).

Like Kirksey, Mills v. Wyman is a familiar case, involving a Good Samaritan (Mills) who cared for the dying Levi Wyman, estranged son of Seth Wyman.  Mills wrote to Seth to inform him of his son's condition and to invite Seth to visit his son.  According to the case, Seth replied that he could not come but would cover any costs Mills incurred in caring for Levi.  Levi Wyman died, despite Mills' ministrations, and Seth's promise was not kept.  Mills sued to enforce the promise.  The Supreme Judicial Court of Massachusetts concluded that Seth Wyman had a moral obligation to pay Mills but no legal one and ruled for Wyman.

Watson finds fault with everything about the Massachusetts' court's opinion.  Seth Wyman never promised to pay Mills, and Levi Wyman did not die until many years later.  Moreover, if the facts were as the court construed them, Watson thinks the "court missed an opportunity to shape a more sensible doctrine of promissory liability."  Id. at 1752.  Unlike those killjoys, Casto and Ricks, who sucked all the joy and mystery out of Kirksey, Watson leaves some of the mysteries of Mills unresolved.  For example, Watson's exhaustive historical research did not enable him to explain why the court treated Levi Wyman as a corpse in 1825 when as late as 1829 he was engaged in spending and wasting "his estate by excessive drinking and idleness."  Id. at 1757.  We do learn some dramatic details of Levi's illness, however.  For example, his symptoms included bouts of delirium during which "he leaped out of a chamber window to the immminent hazard of his life" and for which he was treated by a "prominent Hartford physician" with "1 gallon spirits" and pills.  Perhaps the Massachusetts court simply indulged the safe assumption that in the 1820s medical treatment for an illness such as Levi's was little more than an unpleasant prelude to death.

In any case, while Mills clearly thought he had received a promise from Seth to pay for services rendered, Watson views Seth's letter as far more equivocal, suggesting at best an intention to pay for future services.  Id. at 1761.  Watson suggests that Seth's failure to visit his dying son is best explained by Seth's advanced age (63) and frail health rather than by lingering ill-will towards Levi.  Id. at 1762-63.  In large part, Watson's critique of the Massachusetts court turns on his conviction that Seth made no promise.  While the court viewed Seth as a man "willing to have his case appear on record as a strong example of particular injustices sometimes necessary resulting from the operation of general rules," Watson paints a different picture of Seth:

Wyman did not make the promise and thus never "determined" to break any promise.  Wyman's "transient feeling of gratitude" might have been a sincere expression of willingness to pay for Levi's future expenses, but not his past ones.  Wyman's "willingness" to stand as an example of "injustice" was more likely a determination to fight for his rights. 

Id. at 1781.  Hmmm.  Do we like Seth better if we think he went to the Massachusetts Supreme Court to fight for his right not to pay a penny to the man who nursed his ill son back to health and then sought full reimbursement and not only reimbursement starting from the moment of the promise?

As to the doctrine of moral consideration, Watson thinks the law was much less clear than the court suggests, as Lord Mansfield had declared in a 1785 case that where there is a moral obligation and a promise, "the honesty and rectitude of the thing is a consideration."  Id. at 1783.  Lord Mansfield's position met with resistance in England, but was viewed sympathetically in America.  In the 1813 case, Bowers v. Hurd, the same Chief Justice Parker who decided Mills, enforced a moral obligation, even where no antecedent debt was found.  Id. at 1784-85. Reminded of Bowers in the context of Mills, Justice Parker remarked that the case "has been doubted."  Id. at 1786.

In the final section of the essay, Watson summarizes theoretical approaches to the moral obligation doctrine, including: the revival or waiver theory, which seems to have informed the Mills decision (id. at 1790-93); the promissory restitution theory embodied in R.2d s. 86 (id. at 1793-95); Duncan Kennedy's concerns about the "legalization" of family relations (id. at 1795-96); and Richard Posner's economic defense of the moral obligation doctrine. (Id. at 1796).  Watson finds all of these approaches inadequate in terms of explaining the behavior of courts.  For example, theoretical approaches call for the enforcement of either a pre-existing obligation or of the subsequent promise, but courts do not consistently enforce either.  The Restatement approach, as well as Posner's, suggest where the law ought to go rather than to describing the law as it is.

Watson has his own ideas for reform that draw on the doctrine of restitution.  Watson argues that "[o]ur society suffers more from apathy than from altruism" (id. at 1801) and therefore proposes that the law create incentives to encourage Good Samaritans, like Mills and Joe Webb of Webb v. McGowin.  Watson acknowledges that an expanded restitutionary doctrine would impose considerable judicial costs of enforcement.  Id.  The solution is simple, however. 

A promise to fulfill a moral obligation should be binding regardless of whether it is supported by consideration.  It should be enough for the plaintiff to prove that the defendant's promise was made with intent to be legally bound.  The existence of a past "moral obligation" should be treated as prima facie evidence that the moral obligor does intend to be bound.

Id. at 1801. Intent to be bound would be evidenced, says Watson, not by the bizarre rigamarole of the consideration doctrine but by formal mechanisms, such as a writing or a seal.  Id. at 1802.  Watson concludes by predicting the ultimate demise of consideration doctrine: "Consideration doctrine, if indeed it was ever useful, has outlived its utility.  The next century will see the end of consideration as we know it."  Id. at 1804.  With the end of the consideration doctrine, Watson foresees a future in which legal liability will be more closely linked to moral responsibility -- and the proposed reform would also enhance efficiency by making promises "more valuable at relatively little social cost."

The rule in Mills v. Wyman, says Watson is "eminently forgettable;" it is both "incoherent and inefficient."  Id. at 1806.  The facts of Mills -- from which we can create competing narratives -- are what remains.

[Jeremy Telman]

Stress-Induced Illness Not Foreseeable as Damages from Contract Breach

It’s foreseeable that a contract party will get stressed out when the agreement is broken, but is physical illness caused by the stress the kind of damage that is foreseeable under the rule of Hadley v. Baxendale? That was one of the issues before the English Court of Appeal in a recent decision, Deadman v. Bristol City Council, outlined in a client advisory by Simon Cradick of Cardiff’s Morgan Cole firm. (Free registration required.)

The case involved a manager charged with sexual harassment. Under his terms of employment he was entitled to disciplinary review by a three-person panel. The employer only provided two members of the panel, which found against him. He successfully overturned that decision on the grounds that it violated his employment agreement. The employer then launched a new investigation.

One question in the case was whether the employer’s Procedure for Stopping Harassment in the Workplace became part of the contract. An employer’s announced policy does not necessarily become part of the employment contract, the court noted, but held that the nature of the Harassment Procedure, with its detailed provisions for handling disputes, did. Convening a two-person panel instead of a three-person panel was therefore a breach.

Meanwhile, though, the stress from the original finding and the reinvestigation apparently caused the employee depression and other psychiatric problems. He claimed those as consequential damages of the breach. Assuming that the breach caused the illness, however, the Court found that the damages were too remote. Neither party, said the court, could have anticipated that convening a two-person panel instead of a three-person panel would have resulted in psychiatric injury to the employee. He therefore could not recover for that harm.

[Frank Snyder]

Teaching Assistants: Casto & Ricks

Okay, so who are the two biggest killjoys in the legal academy?  William R. Casto (left top) and Val .D. Ricks (left bottom), that's who!

Why, you ask?  Because in their recent essay, "Dear Sister Antillico . . ." The Story of Kirksey v. Kirksey, 94 Georgetown L. J. 321 (2006), they solve every last mystery that one might derive from the Alabama Supreme Court's laconic opinion in Kirksey.  Their solution to the great mystery of Kirksey -- why did Isaac Kirksey invite his sister-in-law to live on his land and then evict her just two years later -- sucks all the romance out of the case.  History replaces economics as the dismal science.

In my mind, the key turning point of Kirksey involves a headstrong Antillico (portrayed by Merle Oberon) lured to his lodge on the Heights by a bold, passionate Isaac (portrayed by Laurence Olivier).  The climactic scene comes after the protagonists have lived within close proximity for two years:

Isaac: Dear Sister, I can't disguise my feelings for you any longer.  I must have you!  Will you be mine, all mine?!?

Antillico: Brother, control yourself!  Think of your dear departed brother, of my children!

I: But dearest, won't you show me the slightest kindness?

A: I'm sorry.  I'll always love you, but as a brother.

I: Then torment me no longer!  I shall not share this plot of land with you nor suffer to see your face, your figure.  Leave these lands that I may skulk along my properties in my solitary meanderings, contemplating the happiness that might have been but for your rank obedience to the rabble's law of etiquette!  Haunt me no more, pale specter of a life that might have been!

Or words to that effect.  Not so, say Casto and Ricks.  Isaac and Antillico were never lovers or anything of the sort.  Her name wasn't even Antillico -- it was Angelico -- and the case was all about land and the changing law of holding over on public lands in the 1840s. 

But seriously folks, it's a wonderful essay and here's just some of what you might learn if you read it:

Angelico was the fifth of twenty-eight children born to one John Connolly.  She seems to have inherited little other than her father's fecundity (if that's possible), as she bore at least sixteen children herself, eight or nine of whom accompanied her when she accepted Isaac's invitation and moved to Talladega County.  In so doing, she abandoned land on which she had "held over" and on which she may have earned a "preference" under a federal pre-emption grant Act of 1840.  In other words, if Angelico had not accepted Isaac's invitation, she likely could have purchased the land on which she was squatting for $1.25 per acre.  94 Georgetown L. J. at 343.  Those facts support an argument that Angelico offered good consideration in return for Isaac's promise to provide land for her and her family in that she suffered a legal detriment in quitting her land in a neighboring county.

Isaac was a far more successful businessman than his brother.  He owned a smith's shop as well as considerable property in Alabama and Texas.  He also seems to have had some income from the slave trade, and he himself came to own in excess of fifty slaves.  Id. at 332-33.  He was, in short a "very economical" man (id. at 334) and hardly the romantic anti-hero I had hoped for.  In any case, the authors point out, Isaac had been married to Angelico's sister, and when she died, he re-married, happily for all we can tell, just six months before inviting Angelico onto his land. Id. at 325.

As Casto and Ricks inform us, Isaac's motivation for inviting Angelico to occupy some of his land derived from his own desire to occupy as much land as possible.  When he wrote to her that he had "more open land than [he could] tend," he did not mean that he needed Angelico and her children as farm hands.  Rather, Isaac was trying to get around federal limitations on the amount of land to which one property owner could claim pre-emption rights.  Id. at 346-47.  The scheme fell apart when the law changed so as to make it impossible for Isaac to use Angelico as his proxy.  Indeed, she would have a claim on the land and he would not.  Hence Isaac's proposal to Angelico that she move to a cabin in the woods, which the court described as "not comfortable," by which it meant having no outhouse and no access to water.  Id. at 348.  He needed her off the land so that he could claim it, and in order to do so Isaac set his son up in residence.

The jury, according to Casto and Ricks, saw through Isaac's schemes and granted Angelico what it regarded as her expectation -- $200, the very amount that would enable her to purchase the 160 acres of land at issue at $1.25 an acre.  Id. at 351.  Casto and Ricks next take us through the reasoning of the Supreme Court, which they have to tease out of the dissenting justice's one-sentence explanation of the reasoning of his brethren, with the help of the rather fragmentary briefs that have survived.  The majority seems to have found that, even if Angelico suffered a detriment sufficient to serve as consideration (id. at 364), the detriment was not bargained for (id. at 368) and thus cannot be regarded as consideration.  There was precedent in Alabama for something like the doctrine of promissory estoppel, but Angelico's attorney did not raise it.  Id. at 369-70.

While Angelico's great-grandson won a silver medal in the 1920 Olympics and Isaac's great-great-great grandson (pictured at left) had a career in journalism which culminated recently in a mention on the Contracts Profs Blog (id. at 371-72), Angelico and Isaac lapsed into obscurity.  As the authors put it (rather chidingly, I think):

She is a single mother who perhaps led Thoreau's life of quiet desperation.  He appears to be an amoral entrepreneur who built a petty empire with callous -- even knowing -- disregard for his fellow human beings.  But Angelico's and Isaac's lives remain obscure.  There are no diaries, no treasure trove of letters, no cache of plantation records.  Any attempt to use them as archetypes would have to be based on wishful, even fanciful thinking rather than the surviving historical record.

Id. at 370.  Precisely.

Killjoys!

[Jeremy Telman]

Teaching Assistants: William S. Dodge

One of the most useful pieces of legal scholarship I have ever read is William S. Dodge's Teaching the CISG in Contracts, 50 J. Legal. Educ. 72 (2000).  At the time I came across Dodge's essay, I had just completed teaching a four-credit contracts class.  I attended an AALS session on introducing international and comparative perspectives into the first-year curriculum with two thoughts in my mind:

1. As a student, I took a five-credit contracts course and I don't recall any mention of the CISG.

2. There was absolutely no way I was going to cram more material into my contratcs course.

Well, I attended the session, read the article, and the scales fell from my eyes.  Moreover, with the assistance of Dodge's article, working a few key provisions from the CISG into a first-year contracts course -- and vitally, putting students on notice that the CISG exists and will govern international commercial agreements involving the sale of goods if not contratced around -- is really as easy as UCC 2-207.  Easier even, perhaps.

Each section of the article focuses on a different doctrinal area in which the CISG differs from the UCC.or the common law, but the parts of the article that I have basically just plugged into my course are its discussions of the S.D.N.Y.'s handling of the CISG's version of the Battle of the Forms in Filanto, S.p.A. v. Chilewich Int'l Corp. (789 F.Supp. 1229 (1992) and of the Eleventh Circuit's treatment of the non-existence of the parol evidence rule in MCC-Marble Cermaic Cneter, Inc. v. Ceramica Nuova D'Agostino, S.p.A. (144 F.3d 1384 (1998).  I highly recommend this readable and immensely useful introduction to the CISG.

Now, there's no way I'm going to try to discuss the new UCC in my contracts course . . . .

[Jeremy Telman]

Gambling Debts Now Enforceable in U.K.

Britain’s Gambling Act of 2005 -- which comes into effect this year -- has garnered a lot of attention.  But one aspect of the new law hasn’t gotten much play, according to Carl Rohsler of London’s Hammonds. It’s the sentence in the act that says, "the fact that a contract relates to gambling shall not affect its enforcement."

That sweeping statement, says Rohsler, "wipes out over 200 years of precedent . . . not only in the UK but also in most common law jurisdictions around the world, that gambling contracts are debts of honour only."  Gambling houses that once had to demand that gamblers cough up the cash in advance (because they could not collect the debts in court) can now lend money to gamblers and collect their debts in the usual way. Rohsler’s comments on this development are here.  A more general introduction to the Act, by Paul Renney of London’s Campbell Hooper, is here.  (Free registration required for each.)

[Frank Snyder]

Non-Compete Might Fly in California

California is famous for its general refusal to enforce no-compete agreements.  With certain limited exceptions, such agreements are void as against public policy. In a recent case, therefore, the state’s court of appeals knocked out as "overly broad" a provision that prevented a business customer of a software consulting firm from hiring employees of the consulting firm.

The facts in this one were pretty easy. The consulting firm had supplied only 16 hours of service to the client, the employee who was hired had not worked for the client at all, and the hiring had come through an unrelated Internet job ad. The consulting firm’s clause, which would have barred the hiring, was far too broad.

Interestingly, the court suggested in dicta that a narrower clause the prohibited solicitation of employees who had actually worked for the client might be enforceable.  Rick Bergstrom of San Francisco’s Morrison & Foerster LLP offers his take on the facts and the holding of the case here. (Free registration required.)

[Frank Snyder]

A Penalty is a Penalty is a Penalty . . . .

Calling something a "deposit" instead of a "penalty" doesn’t make it so, according to a recent decision of the New South Wales Court of Appeal.

In Iannello & Anor v. Sharpe, the purchaser had agreed to buy a parcel of land for $4.5 million. He put down $225,000 in cash, which was 5 percent of the purchase price. The custom in New South Wales, apparently, is that buyers put down 10 percent.  So under the contract, the buyer was also obliged to ante up an additional 5 percent "deposit" in the event he backed out of the deal -- and the entire deposit would be forfeited.

If the whole 10 percent had been paid up front, it would all have been a "deposit" and the forfeiture would presumably have been valid. Did the fact that the additional 5 percent was not paid paid up front change the equation?  Yes, said the court. Only the money paid down on the barrelhead counts as a "true" deposit.  By making the second payment contingent on a breach by the buyer, the seller had simply imposed an improper penalty.

David Meagher of Sydney’s Cutler Hughes & Harris has some thoughts about the case in When a 'Deposit' Payable Under A Contract May Not Be A Deposit.  (Free registration required.)

[Frank Snyder]

U.K. Courts Favoring Arbitration Clauses?

Courts in the U.K. are increasingly willing to enforce dispute resolution clauses in contracts, according to a client report from Jeremy Glover at London’s Fenwick Elliott. LLP. Glover examines the recent High Court decision in Harper v Interchange Group Limited [2007] EWHC 1834. (Free registration required.)

The case involved a dispute about commissions that Interchange was allegedly supposed to pay to Harper. The contract contained rather awkward clause, which provided that if the two parties were unable to reach agreement on the commission amounts:

then the dispute shall be referred, with the agreement of the Purchaser and Mr Harper, or in the absence of such agreement, by the President for the time being of the Institute of Chartered Accountants in England and Wales on the application of either of them, to an independent chartered accountant (being a partner of one of the "big 6" firms) who, once appointed, shall act as an expert (not as arbitrator) and whose decision shall, in the absence of manifest error, be final and binding on the parties.

One of Harper’s arguments was that the clause (presumably because it said that the accountant would not serve as an arbitrator) meant that the expert accountant was only supposed to calculate damages, but that issues of construction of the contract would have to go to the courts. Writing for the court, Mr. Justice Aikens disagreed.

[Frank Snyder]

China Gets New Labor Contract Law

This coming January 1, China will have a new law governing employment contracts. Among the requirements is one that all employees be provided with a written employment contract; failure to do so will turn the relationship into "indefinite" employment which can be terminated only for cause. And failure to specify a term may also lead to creation of "indefinite" employment. And trying to get around the rules by using a series of fixed-term contracts won’t likely work, either.

Samuel Estreicher and Winston Zhao of Cleveland’s Jones Day offer a rundown of the new law here. (Free registration required.)

[Frank Snyder]

Employee Profit Bonus is Legal in California

A bonus provision in an employment contract does not run afoul of the California Labor Code merely because its calculation takes into account losses and other expenses of the employer’s operation, according to a recent decision by the California Supreme Court.

California law prohibits employers from reducing wages of employees to reflect business losses or expenses. Employers, for example, can't reduce wages to charge employees for broken equipment or disappearing property, or for other expenses that are usually the employer's responsibility.  The state’s court of appeals had held that this rule applied to bonuses, so that an employer who offered a bonus based on profits could not lawfully deduct expenses from income to derive the profits.  Ralph's Supermarkets, said the court, had violated the rule because in calculating profits it had deducted its expenses.

In Prachasaisoradej v. Ralphs Grocery Co., 07 C.D.O.S. 9940 (Aug. 23, 2007), California's top court reversed, holding that reduction of a "bonus" was not a reduction in "wages" to the employee. Since the employer had paid the wages agreed to, and had specified that additional amounts were payable only if it achieved certain profits, and "profits" requires that expenses be taken into account, the practice was not illegal.

Doug Dexter and Diego Acevedo of San Francisco’s Farella Braun & Martel offer a recap of the case and their commentary here. Another take, by R. Brian Dixon and Diane L. Kimberlin of S.F.’s Littler Mendelson LP is here. (Free registration required for each.)

[Frank Snyder]

Teaching Assistants: Douglas Baird

Douglas Baird (at left) has an engaging historical essay, Reconstructing Contracts: Hamer v. Sidway, in Foundation Press's Contracts Stories, pp. 160-185, which Baird also edited.  The essay does far more than provide a narrative background (actually several narrative backgrounds) on what Frank Snyder has called "the granddaddy of all unilateral contracts cases."   The case involves a pledge by William E. Story, Sr. ("William") to his nephew, William E. Story, 2d ("Willie") that William would give Willie $5000 if Willie abstained from drinking, smoking and gambling until his 21st birthday.  Judge Parker's decision for the N.Y. Court of Appeals articulates the doctrine that forebearance from engaging in activities in which one has a legal right to engage suffice as consideration.  Parker's opinion reduces the facts of the case in a way that render it ideal for teaching that particular doctrine.  Baird's essay complicates the facts and illustrates how they can be spun to justify any number of rulings on different legal grounds. 

Baird begins with a fascinating account of the role Hamer v. Sidway has played in legal education right from the time it was decided.  He then proceeds to a number of "reconstructions" of the facts of the case. In various versions of the case, Willie can come off as a "wayward adolescent" or as "a responsible adult who . . . has to care for an elderly parent."  (161)  Baird expresses skepticism about courts' abilities to sort out family relationships -- which may be both intimate and commercial -- and to determine which promises made in the family context ought to be enforced.  While Judge Parker's opinion in Hamer reduces the focus of the narrative to the relationship between William and Willie, Baird suggests that the conflict had at least as much to do with William's relationship to his older brother, Willie's father, and with William's concerns about making sure his neices were cared for after his death.

In the formalist version of the facts of Hamer, Willie bargains with his uncle, reserving for himself the right to play cards and billiards, "so long as it was not for money." (164)  In formalist hands, the case served to limit the number of enforceable promises, becasue the facts of Hamer could be contrasted with other familial promises in which the elements of a bargain were not present.  Hamer is thus a very satisfying case from the formalist, doctrinal perspective, but Baird notes that formalists such as Langdell and Holmes did not provide -- and did not care to provide -- any justification for the principle of bargained-for exchange as a means of determining which promises ought to be enforced.  (165)

Focusing on different facts, Corbinian Legal Realists questioned whether Hamer involved a bargain at all.  They saw William's statements as adding a condition (Willie needed to straighten up and fly right) to a pre-existing gratuitous pledge William had made repeatedly since Willie was a boy. (166)  Still, Legal Realists could live with the result in Hamer because it protected Willie's reasonable reliance on his uncle's promise.

Baird next reconstructs the facts from the perspective of William's executor, Franklin Sidway (at left). From this perspective, it is not hard to see why New York's intermediate appellate court refused to enforce William's promise.  William had already given Willie and his father $5000 to start up a business.  That business failed, leading Willie into bankruptcy.  Later, William again set up Willie and his father in a business, at which time Willie executed a release discharging William from any claims Willie might have against him.  (176)  There were also good grounds for believing that Willie's assignment of his claim against his uncle was a fraudulent transfer. (177)  From this perspective, it seems that the promise, if there was one, was either already fulfilled (perhaps twice) or excused.  It must have been surprising to Sidway that the court even reached the issue of consideration.

Baird then reconstructs the facts of Hamer again, this time from the perspective of Willie's father, James.  Here Baird assembles from the court record evidence of the complex financial arrangements between the brothers.  Apparently William provided for James, both by paying him to care for their demented father and by allowing him to live in properties that William owned provided that James contributed to the renovations of such homes.  William might have viewed these arrangments as a form of charity.  James more likely viewed the arrangements as just compensation.  In any case, Baird speculates that William's sudden death may have deprived James of a home.  Willie may have pursued his claim (through his mother-in-law) against his uncle in order to procure the means to house his father.

In his conclusion, Baird reminds us that whether or not a promise should be enforceable turns "on whether enforcing that promise will make the society in which it operates a better place."  (185)  I have a hard time deriving that lesson from the conflicting narratives that Baird reconstructs.  If by "that promise" Baird means William's specific promise to Willie, his multiple narratives suggest that courts are ill-equipped to decide the question.  Should a court be deciding whether society benefits from favoring James Story over William Story, Sr.'s nieces? 

If by "that promise" Baird means "that kind of promise" -- or "that category of promises," one's answer will depend on what sort of promise one thinks William made to Willie.  Choosing which category fits the promise will also turn on one's preferred reading of the facts, and once again, Baird seems to think courts are not well-positioned to make such choices.  Perhaps Baird is advocating placing William's promise in the category of "familial promises," a category of promises that we know should rarely be enforced. But some such promises clearly should be enforced, and it would be helpful to be able to identify that sub-category.

[Jeremy Telman]

Damages Availabale for Breach of Arbitration Clause