ContractsProf Blog

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

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Thursday, March 3, 2011

The Suez Canal and Impracticability - A Video Clip for Class

Given the current political turmoil in Egypt, a discussion of the Suez Crisis and impracticability may actually meet with fewer yawning students this year.  In preparing to present a hypothetical based on the cases (e.g., American Trading and Production v. Shell Int'l Marine Ltd, 453 F.2d 939 (2d Cir. 1972), I discovered some newsreel footage from 1956, which may help tell the story:

There are many other clips, but this one seemed like just the right length for class.  Coincidentally, today, Reuters reports that Egypt's Suez Canal Authority announced that it will leave transit fees unchanged until the end of 2011.

[Meredith R. Miller]

March 3, 2011 in Famous Cases, Film, Teaching | Permalink | Comments (0) | TrackBack (0)

Friday, December 3, 2010

Wilkes v. Springside Nursing Home: Defendant Dr. Leon Riche

Riche 

It was Riche whose disputes with Stanley Wilkes triggered the freeze-out in the case.  Image courtesy Eric Gouvin (Western New England).

FGS

December 3, 2010 in Famous Cases, Teaching | Permalink | Comments (0) | TrackBack (0)

Thursday, December 2, 2010

Wilkes v. Springside Nursing Home: Plaintiff Stanley Wilkes

Wilkes-Wilkes 

A high school grad with a talent for real estate, Wilkes had the vision in the early 1950s that private nursing homes would become a major industry.  Image courtesty Eric Gouvin (Western New England).

FGS

December 2, 2010 in Famous Cases | Permalink | TrackBack (0)

Wednesday, December 1, 2010

Wilkes v. Springside Nursing Home: The images

Courtesy of Eric Gouvin (Western New England) we're delighted to publish some of the images of the case he collected as part of his recent (and highly enjoyable) conference on that staple of Business Associations casebooks, Wilkes v. Springside Nursing Home.  We'll be publishing one a day.  Enjoy!

Here's the Springside Nursing Home before renovations.

 Wilkes-Springside Future

FGS

December 1, 2010 in Famous Cases | Permalink | TrackBack (0)

Thursday, November 25, 2010

Happy Thanksgiving!

On a day like today, when the first icy (45° F) blast of winter is coming down the verdant Brazos Valley, chilling the rattlesnakes and rattling the Mexican junipers at Château Snyder, it's nice to sit in front of a fire with a steaming Tom & Jerry and think about . . . chicken feet.

1908RandallCountyCourthouseCanyonTexas907TJnsn 
Why chicken feet?  Because they (along with chicken skin) are prominent features of what I think is the only U.S. Supreme Court case about Thanksgiving turkeys.  The case is M. Kraus & Bros., Inc. v. United States, 327 U.S. 614; 66 S. Ct. 705; 90 L. Ed. 894 (1946).  It's a criminal case, but it does have something to do with contract law.

The case takes us back to Thanksgiving 1943, when wartime price controls have led to a serious shortage of meat (and lots of other things) in the U.S.  Because turkeys are in short supply, prices naturally tend to rise.  The Roosevelt Administration responds with the Emergency Price Control Act of 1942, which makes it a criminal offense to sell certain things (including turkeys) prices above a price "established" by the Office of Price Administration.  Because that price is fairly low, demand for turkeys at Thanksgiving 1943 far exceeds the supply.

The defendant operates a wholesale meat and poultry business in New York City.  In prior years it has usually received 100-150 rail cars of turkeys, but in 1943 it only gets one (1) car, and must decide how to divide that relative handful among its customers.  Because it can't raise prices, it decides to bundle the turkeys with chicken feet, chicken skin, and chicken gizzards, so that its customers who buy turkeys must also buy the other products.

The defendant is indicted.  The prosecution claims that by tying the turkeys to other products of dubious value the seller had violated the Price Administrator's regulations, which provided:

Price limitations set forth in this Revised Maximum Price Regulation No. 269 shall not be evaded whether by direct or indirect methods, in connection with any offer, solicitation, agreement, sale, delivery, purchase or receipt of, or relating to, the commodities prices of which are herein regulated, alone or in conjunction with any other commodity, or by way of commission, service, transportation, or other charge, or discount, premium, or other privilege or other trade understanding or otherwise.

The jury convicted and the Second Circuit affirmed.  The Supreme Court -- perhaps still not as friendly and accomodating to economic regulations as it would later become -- reversed the conviction 5-3 (Jackson did not participate), although the justices issued four separate opinions.  Relying heavily on the fact that the Administrator in other regulations had specifically mentioned "tying agreements" but did not do so in Regulation 269, Justice Murphy,Stone, Rutledge, Frankfurter, and Douglas all more or less agreed that a tying arrangement in which the goods had some value was not an "evasion" of the regulations, although Douglas and Rutledge (joined by Frankfurter) wrote concurrences as well.  Black wrote the dissent, joined by Burton and Reed.

It's interesting that only ten ears after unanimously striking down poultry price regulations in A.L.A. Schechter Poultry Corp. v. United States, 295 U.S. 495, 55 S. Ct. 837; 79 L. Ed. 1570  (1935), not a single justice even questioned the government's authority to set the price of every turkey in the United States.  As Mr. Dooley noted, "No matther whether th' constitution follows th' flag or not, th' supreme coort follows th' iliction returns.”

Happy Thanksgiving!

FGS

P.S. In case you're wondering what value chicken feet would have, here's a tasty recipe..

November 25, 2010 in Famous Cases, Food and Drink | Permalink | Comments (0) | TrackBack (0)

Friday, November 12, 2010

What is "chicken"?

Courtesty of a student of Bill Dodge (UC-Hastings), a nice illustration for use when you teach Frigaliment Importing Co. v. B.N.S. International Sales Corp., 190 F.Supp. 116 (S.D.N.Y. 1960).

Aa 

FGS

November 12, 2010 in Famous Cases | Permalink | Comments (0) | TrackBack (0)

Tuesday, October 26, 2010

Red Owl, Professor Kingsfield, and Mary Tyler Moore

Over at Conglomerate, Gordon Smith weaves the connections between growing up in Wisconsin, teaching Hoffman v. Red Owl Stores, and watching The Mary Tyler Moore Show and The Paper Chase.

Turns out that MTM went shopping at a Red Owl store in Minneapolis -- as you can see on the video of the show's opening he's posted on the site.  I'm older than Gordon, but I enjoyed the show, too, though the bit of trivia I recall is "Whose jersey is she wearing while washing the car?"

Unlike Gordon, I wasn't a fan of The Paper Chase,  I was more into a short-lived show called The Storefront Lawyers.  I don't have a video, but here are the Ventures with the show's VERY cool opening theme -- which fortunately doesn't sound anything like Seals & Crofts: 

  

Speaking of Hoffman, be sure to check out Bill Whitford's and Stewart Macauley's fascinating backgrounder, Hoffman v. Red Owl Stores: The Rest of the Story.

FGS

P.S. She's wearing Fran Tarkenton's #10 Minnesota Vikings jersey. 

October 26, 2010 in Famous Cases, Film Clips | Permalink | Comments (0) | TrackBack (0)

Monday, May 3, 2010

Business Associations Limerick of the Week: CTS Corporation v. Dynamics Corproation of America

Justice Powell I turned up a Limerick from a case I haven't taught in a few years, so I thought I would share it.  The connection to contracts law is pretty attenuated, but I'm sure we could find one if we looked hard enough.  The issue in the case was whether or not Indiana's anti-takeover statute, the Control Share Acquisitions Chapter of Indiana's Business Corporation law, should be struck down as inconsistent with the Williams Act and the Commerce Clause.

The Williams Act provides for disclosure when any party gains control of over 5% of an issuer's shares.  It also provides for certain procedural and substantive limitations on tender offers.  The Indiana Act provided additional protections against tender offers for Indiana corporations by requiring a shareholder vote on whether or not the acquiror would be permitted to vote its shares once it crossed certain thresholds of ownership: 20%, 33.3%, 50%. 

Judge Posner, writing for the Seventh Circuit and following the Supreme Court's plurality decision in Edgar v. MITE Corp., struck down the Indiana Act as inconsistent with the Williams Act and also with the Commerce Clause.  Justice Powell (pictured), writing for the majority of the Supreme Court, reversed.  While the Illinois statute at issue in MITE favored existing management over the rights of acquirors and shareholders alike, the Indiana Act was consistent with the aims of the Williams Act, in that it favored neither acquirors nor incumbent management and sought only to protect the rights of shareholders.  It's impact on interstate commerce was negligible, and even if there was some slight discriminatory effect, that discrimination was acceptable in light of the internal affairs doctrine, that for the most part leaves the regulation of corporations to the state legislators that create corporations in the first place.

Justice Scalia concurred.  He had no disagreement with Justice Powell on the law, but he was irked that Justice Powell ventured a judgment on the aim of the statute.  He regarded it as "extraordinary to think taht the constitutionality of the Act should depend on" whether the Court thought that the Indiana Act aimed to protect shareholders of incumbent management.  Justice Scalia seemed open to the view that the Indiana Act was idiotic but lawful and should be upheld regardless of its folly.  Three dissenting Justices, following Posner's reasoning, would have found the Indiana Act to be a kind of unlawful folly.

CTS Corporation v. Dynamics Corporation of America

The Williams Act does not preclude
A state from protecting its brood.
Posner dislikes it;
Scalia won't strike it:
"It's law, so what if it's crude?"

[Jeremy Telman]

May 3, 2010 in Famous Cases, Limericks, Teaching | Permalink | Comments (0) | TrackBack (0)

Monday, April 12, 2010

Guest Post by Deborah Post: Contract and Structural Inequality

[Cross-posted to SALTLAW blog]

Chickens Last week we learned that Jim Perdue,  Chairman of Perdue Foods Inc., spoke to Maryland legislators on behalf of the small farmers he claimed would be forced out of business if the environmental law clinic at University of Maryland Law School is allowed to sue Perdue and one of its growers.  I was familiar with Perdue’s relationship with small farmers.  Some years ago — in 1998, to be precise — I wrote a contracts exam using the pleadings filed in Monk v. Perdue Farms, Inc., 12 F. Supp.2d 508 (D.Md. 1998),  by plaintiff’s attorney, Roger L. Gregory, then partner in the firm of Wilder and Gregory, now judge on the Fourth Circuit Court of Appeals.

Monk was a case about racial discrimination. Several black farmers alleged that they were not accorded the same treatment under the terms of Perdue’s standard form contract as white farmers.  In that respect, the Monk case bore some resemblance to Reid v. Key Bank of Southern Maine, Inc., 821 F.2d 9 (1st Cir. 1987), a case I cover in contracts when I teach students about the implied duty of good faith. Mr. Reid was the only borrower at the bank to have his line of credit cut off, his note accelerated, his collateral seized without the bank officers first calling him in to the bank for a meeting.  Reid is still mentioned in other casebooks in notes about lender liability or the subjective test for good faith, but these notes appear to sidestep the issues of race and motive altogether.  The relationship between motive, malice and racial prejudice is admittedly somewhat ambiguous in Reid  because the jury found there was no racial discrimination by the bank.  Nevertheless, Reid is still a case that calls attention on the disparate treatment one black businessman received and the inferences that could be drawn from that fact.

But I chose the Monk case for my final examination because it was not just a case about discrimination and bad faith.  The pleadings alleged behavior by Perdue that could be analyzed variously as misrepresentation, economic duress, bad faith unrelated to any allegation of racial prejudice, and failure to perform many of its obligations under the contract.

The genesis of all of these claims was the ironclad control Perdue had over the manner in which the farmer ran his business. The farmer was contractually obligated to take chicks supplied by Perdue, use the food or grain supplied by Perdue, build housing for the chickens or purchase equipment if Perdue decided it was necessary, administer antibiotics to the chickens as required by Perdue. The chickens were collected, weighed and delivered to the plants by Perdue employees (the status and plight of chicken collectors is a story for another day). According to the pleadings, a rider to the contract, not negotiated with the farmers but unilaterally imposed by Perdue, shifted all risk of disaster – flood or disease or excessive heat – to the farmers. If the chickens died, there would be no compensation forthcoming, although the practice in the past had been to pay a minimum amount per chicken received and raised.

The current conflict with Perdue reminded me of that old exam  because back then chicken manure was part of the problem. Perdue has known for some time that farmers were storing chicken manure on their property. In  Chapter 3 of  a 2001 report , Professor Neil D. Hamilton of the Drake University Agricultural Law Center  reviewed the terms in several contracts used by producers, noting that whether the contracts were silent on the issue of chicken manure or expressly placed responsibility for disposal on the farmer, the cost of the removing chicken manure fell on the farmer. By most reports, chicken growers don’t make much money, somewhere between  $16,000 -$18,000 a year. Perdue, in contrast, reports on its website that it has annual sales of $4.6 billion a year. Perdue had to have  known that the cost of removing manure would be significant  for  famers whose profit margin is so slim.

Apparently, Perdue did see and plan for a future when environmental regulation would prohibit the use of chicken manure as fertilizer and  require its removal from poultry farms.   Perdue Farms is now trumpeting its environmental stewardship and its farsightedness in constructing the Perdue AgriRecyle plant. The plant has been in operation for nine years and was built, says Perdue, to offer the growers the option of taking poultry litter ( chicken manure) somewhere at “no cost to them.”  In fact, Jim Perdue proudly claims that Perdue was willing to bear that cost “in order to help the growers satisfy the new rules around nutrient management in the Chesapeake Bay region.”   The ‘cost’ to Perdue of taking the growers’ manure without charging those growers a fee  is questionable. This manure is the raw material Perdue uses to manufacture MicroStart 90, a fertilizer that that it  sells to the Scotts Co., golf course management companies and organic farmers as “processed manure.”  Chicken manure may well become a new profit center for Perdue.

Perdue offered the plaintiffs in Monk a standard form contract on a take-it-or-leave-it basis that gave Perdue  control over production and placed much of the risk of loss associated with growing poultry on the farmer. The power differential, the structural inequality between farmer and producer, is explicit in the contractual terms that governed their relationship, in the asymmetry of duties and obligations, and in the disparity in wealth perpetuated by the method and terms of compensation.

Farmers fought for fairer terms in their contracts, but were thwarted by contractual terms that made the provisions of the Packers and Stockyards Act inapplicable to to producers like Perdue.  In the 1980s,  a grower in North Carolina filed suit against Perdue claiming that the company was violating a provision of the Act which prohibited “live poultry dealers from engaging in or using “ any unfair, unjustly discriminatory, or deceptive practice or device.”  Wiley B. Bunting Jr. v. Perdue Inc., 611 F. Supp. 682 (EDNC 1985). The plaintiff lost the case  because Perdue does not sell poultry to the growers. It retains title to the chickens and the growers are paid for the service they provide in raising the chickens.  The court found no legislative history to support an expansive interpretation of the term “live poultry dealer.” 

More recently, arbitration provisions in the standard form contracts drafted by producers thwarted the efforts of farmers, like the plaintiffs in Monk, to challenge the terms or the manner in which the contract was performed by Perdue.

Fortunately, agrarian sentiment worked to the benefit of poultry growers when Congress passed the last farm bill.  Under the amended version of the Packers and Stockyards Act, a poultry farmer cannot be coerced into assenting to an arbitration provision.  ”Any livestock or poultry contract that contains a provision requiring the use of arbitration to resolve any controversy that may arise under the contract shall contain a provision that allows a producer or grower, prior to entering the contract, to decline to be bound by the arbitration provision.” 7 U.S.C.S. Section 197(c).

The revised statute and new regulations effect a redistribution of power between grower and producer; they address structural inequality by regulating the process of contract formation in a situation where the terms otherwise would not have been negotiable. The statute restored to farmers the freedom of contract that contemporary contract jurisprudence has theorized out of existence. Maybe this is a development that judges need to think about. Why was legislation needed to remedy the abuses that stem, inexorably and inevitably, from structural inequality?

Which brings me back to contracts and to the final examination I gave in the Spring of 1998. A final examination matters to students. They probably read it more carefully than any case they read all year. If questions of social justice have been explored in class, students may reflect, as they construct their answer, on the meaning of power, the reason why a drafter would include terms that are extremely favorable, perhaps even ‘disproportionately favorable,’ to a client, the strength or weakness of doctrines which arguably restrain the use or abuse of power. A final examination is an instrument that assesses what students learn. If we truly want our students to learn something about social justice, a final examination should raise issues about the inequities and the inequality that law perpetuates and the potential the law might have to address or even remedy them.

[Deborah Waire Post (Touro)]

April 12, 2010 in Contract Profs, Current Affairs, Famous Cases, In the News | Permalink | Comments (1) | TrackBack (0)

Wednesday, March 3, 2010

Another UNLV Conference Paper Available on SSRN

Listokin Yair Listokin presented his paper, "Bayesian Contractual Interpretation" at the Spring Contracts Conference at UNLV last week.  Yesterday, the written version showed up in my e-mail via a Social Science Research Network notice.  The paper is downloadable from the site here.  Get it while it's hot; it's already climbed to #5 on SSRN's Top Ten.  Here is the abstract:

Courts seeking the most likely intent of contracting parties should interpret contracts according to Bayes’ Rule. The best interpretation of a contract reflects both the prior likelihood (base rate) of a pair of contracting parties having a given intention as well as the probability that the contract would be written as it is given that intention. If the base rate of the intention associated with the simplest reading of the contract is low, then Bayes’ Rule implies that the simplest reading is not necessarily the interpretation of the contract that most likely captures the parties’ intentions. The Bayesian framework explains when default rules should be more or less “sticky” and helps define the appropriate role of boilerplate language in contractual interpretation.

The piece is fun in part because it applies the Bayesian framework to Cardozo's classic opinion in Jacob & Youngs v. Kent, a case we have mentioned on occasion on this blog, e.g., here,  here  and here.  The popularity of the case meant that everyone at the conference had a strong opinion about what Cardozo was really saying and how Bayesian analysis, to which many of us were introduced at the conference, is properly applied to the timeless question of Reading v. Cohoes pipe.

[Jeremy Telman]

March 3, 2010 in Conferences, Famous Cases, Recent Scholarship | Permalink | Comments (0) | TrackBack (0)

Friday, February 26, 2010

Spring Contracts Conference: Day One

The 2010 Spring Contracts Conference begins today at UNLV's William S. Boyd School of Law.  Here's Friday's line-up:

The Contract Law System and Power – Past, Present, and Future

Chair: Jay M. Feinman (Rutgers-Camden)

Hila Keren (Hebrew U. of Jerusalem), Considering Affective Consideration

Nancy S. Kim (Cal Western), ‘Wrap Contracts as Sword, Shield, Crook, and Drawbridge

Amy J. Schmitz (Colorado), Pizza-Box Contracting: An Empirical Exploration of Consent

Danielle Kie Hart (Southwestern), Smoke, Mirrors & Contract Law

Incomplete Information and Contract Law

Chair: Keith A. Rowley (UNLV)

Robert Anderson (Pepperdine), Information, Incentives, and Disclosure in the Law of Contracts

H. Allen Blair (Hamline), No-Reliance Clauses

Yair Listokin (Yale), Bayesian Interpretation

Shawn J. Bayern (Florida State), Rational Ignorance, Rational Closed-Mindedness, and Modern Economic Formalism in Contract Law

Contract Law’s Intersection with Business Law

Chair: Nancy B. Rapoport (UNLV)

Daniel S. Kleinberger (William Mitchell), Battle Report from the Undiscovered Territory – The Law of “Contractual Organizations” Continues its Silent War on the Common Law of Contract

Andrew A. Schwartz (Colorado), A “Standard Clause Analysis” of the Frustration Doctrine and the Material Adverse Change Clause

Lydie N. Pierre-Louis (St. Thomas (FL)), Mini-Tender Offers: The Lack of Federal Jurisdiction and the Failure of Fundamental Contract Law Principles to Protect Investors

Keynote: Omri Ben-Shahar (U. of Chicago), The Failure of Mandated Disclosure

Arbitration and Unconscionability in Rent-a-Center West v. Jackson and Elsewhere

Chair: Jean R. Sternlight (UNLV)

Charles L. Knapp (UC-Hastings), Blowing the Whistle on Mandatory Arbitration: Unconscionability as a Signaling Device

Karen Halverson Cross (John Marshall (IL)), Letting the Arbitrator Decide?  Unconscionability and the Allocation of Authority Between Courts and Arbitrators

Christopher R. Drahozal (Kansas), Rent-A-Center and Institutional Arbitration Rules

Thomas J. Stipanowich (Pepperdine), Contracts and Conflict Management: Another Look

Forming Contracts and Similar Relationships

Chair: James W. Fox, Jr. (Stetson)

Michael Pratt (Queen's U. (Ontario)), What is a Promise?

Val D. Ricks (South Texas), The Continued Relevance of Consideration

Janet Ainsworth (Seattle), Beyond Status and Contract: Relational Estoppel as a Source of Rights and Obligations in Intimate Relationships

Andrea B. Carroll (LSU), Reviving Proxy Marriage

Vive la Différence!: Comparative Contract Theory

Chair: Daniel D. Barnhizer (Michigan State)

Robin J. Effron (Brooklyn), Revisiting The Death of Contract: Gilmore’s Thesis in Comparative Perspective

Wayne R. Barnes (Texas Wesleyan), French Subjective Theory of Contract: Separating Rhetoric from Reality

Tadas Klimas (Kaunas, Lithuania), Lessons American and Continental Contract Theory Can Teach One Another

Franklin G. Snyder (Texas Wesleyan), Cross-Cultural Adoption of Legal Rules: The Case ofHadley v. Baxendale


[Keith A. Rowley]

February 26, 2010 in Conferences, Contract Profs, Famous Cases, Law Schools, Meetings, Recent Scholarship | Permalink | Comments (0) | TrackBack (0)

Monday, December 7, 2009

Hurley v. Eddingfield: It's the Law and It's Ethical

Physician  I always start my contracts course with Hurley v. Eddingfield, in which the court held that a doctor has no contractual obligation to treat his own patient and need give no reason or excuse for his refusal to do so.  The case illustrates the strength of our notions of freedom of contract and also permits us to discuss the interaction of common law doctrines with other legal or regulatory regimes.  

Now I have in the past crossed swords with The New York Times Magazine's ethicist, Randy Cohen.  I have chided him for too readily conflating the lawful with the ethical.  Mr. Cohen has always responded to my criticisms, which is all one can ask for, but he gives no ground.  Still, I was cheered by a recent column addressing the etiquette of car phones.  The writer boasted of her hands-free car phone and of her habit of informing people when other people are in the car.  Cohen responded, in part, as follows:

This should be handled by never using the phone while driving. To do so increases your chance of an accident fourfold, akin to driving drunk. And there is no significant difference between speaking on a hand-held or hands-free device. (As your local legislators knew or should have known when they legalized the latter. Ignorant or cynical? Let’s not rush to judgment. They might merely have been possessed by demons.)
My point exactly.  But the comment applies to much of what emerges from our legislature.  

In any case, having criticized Mr. Cohen in the past. I must now give him his props for his nuanced response to a Hurley-like question that arose in yesterday's column. The writer is a doctor who did not want to take on a notorious med-mal attorney who had in the past sued the doctor's wife.  Cohen answered as follows:

As to this particular would-be patient, you acted reasonably. Because you and your wife have a history that causes you to resent him and his cohort, your ability to view him dispassionately and thus act in his best medical interest may be compromised. Therefore, not only may you decline to take him on; you should decline. I might feel different if you practiced medicine in a provincial town on the Russian steppes, like some brooding doctor out of Chekhov, with no other physician within a thousand miles. But in your actual situation, go forth guiltlessly.
And the good doctor can do so all the more easily, as the attorney found some other sucker -- oops, typo -- doctor to treat him.

[Jeremy Telman]

December 7, 2009 in Commentary, Famous Cases | Permalink | Comments (0) | TrackBack (0)

Monday, November 2, 2009

Michelle Triola Marvin, Mother of Palimony, Dead at 76

Michelle Triola Marvin, who lived with Lee Marvin for six years and then sued for her share of the income he had earned during the relationship, has died at the age of 76.  Ms. Marvin was the plaintiff in the landmark Marvin v. Marvin case, which we have had occasion to mention on the blog before, here and here.  The New York Times obituary can be found here.

[Jeremy Telman]

November 2, 2009 in Famous Cases, In the News | Permalink | Comments (0) | TrackBack (0)

Monday, October 19, 2009

Contracts Limerick of the Week: Market Street Associates v. Frey

There has been a lot of interest on the blog lately in the topic of contracts law and morality, e.g. here and here.  Our comments section has been unusually active, which is terrific.  A recent comment got me to thinking about Market Street Associates v. Frey.  

That case involved a lease agreement between GE Pension Trust (GE) and Market Street Associates (MSA) as the assignee of JC Penny.   The lease had a provision that allowed MSA to seek a loan from GE for the purpose of improving the property.  If GE refused, MSA had an option to buy the property for the original purchase price plus 6% annual interest. 

MSA offered to repurchase the property from GE, but GE demanded $3 million, which MSA thought was too much.  MSA then requested financing, and when GE refused on the ground that it was not offering loans in amounts less than $7 million, MSA demanded the sale of the property pursuant to the lease provision.  Under the terms of the lease, MSA would have been entitled to buy the property for about $1 million.  GE claimed that because MSA had failed to remind it of the option in the lease, MSA had acted in bad faith. 

The district court granted summary judgment to GE, finding that under the doctrine of good faith or simply as a matter of contract interpretation, MSA had a duty to remind GE of the option provision.  This led Judge Posner to a lengthy rumination on the nature of terms such as “good faith” in contract law.  Not surprisingly, Judge Posner does not find these terms very useful.  However, he was able to explain the value of the doctrine of good faith in economic terms, and that permitted him to find that in fact MSA's conduct might well have violated the duty to act in good faith.

For Posner, what we call the duty of good faith is really just about reducing transactions costs by creating a disincentive to sharp practices in the course of performance.  Sharp practices, says Judge Posner, are perfectly fine when negotiating a deal, but once the parties enter into an agreement, they are now in a “cooperative relationship” in which each lowers her guard.  The doctrine of good faith thus protects against opportunistic behavior that can arise in the context of the sort of bilateral monopoly that can develop after the parties have committed themselves to a contractual relationship.

As many commentators on the blog have pointed out, there are many reasons to doubt that the moralizing tone underlying terms such as “good faith” could or should be eliminated from contracts law.   But even assuming we were to attempt to understand contracts law entirely in terms of transactions costs, Posner’s position remains highly dubious. 

First, at least since the Restatement (2d) and the UCC, contracts law has been sensitive to the difficulty of attempting to pinpoint the moment at which a threshold from a pre-contractual to a post-contractual relationship has been crossed.  Parties continue to negotiate and change deals as they go.  There is thus little reason to suspect that parties immediately let down their guards once they have entered into a cooperative relationship.

Second, if sharp practices increase transactions costs, then they do so regardless of when they occur.  A party that engages in sharp practices will get a reputation for doing so.  Other parties dealing with that party will be cautious and will engage in extra diligence that will complicate negotiations and may ultimately prevent many deals from occurring because a fundamental mistrust cannot be overcome satisfactorily.  

Finally, if one is really interested in reducing transactions costs, then hold sophisticated, well-resourced parties to the terms of the agreements they sign.  If GE wants a provision requiring notice before its contractual partner triggers its option to purchase, it can very easily write that duty to notify into the contract.  A party like GE should have no recourse to a doctrine like good faith when it had the means and the ability to protect its own interests in both the pre- and the post-contractual moments.

Still, Posner opinions are always stimulating and thus Limerickworthy:

Market Street Associates v. Frey

“Don’t get moralistic with me,”
 Said Judge Posner to trustee, GE.
 “Though when I hear ‘good faith,’
 I reach for my . . .
Wraith.
 Opportunists ain’t my cup o’ tea.”

[Jeremy Telman]

October 19, 2009 in Famous Cases, Limericks, Teaching | Permalink | Comments (0) | TrackBack (0)

Wednesday, October 7, 2009

Alan White on Public Policy and Pedagogy:

Brothel

The Fourth in a Series of Posts by

Guest Blogger, Alan White

One of the things I took away from Elizabeth Mertz’s

interesting book The Language of Law School was that Contracts professors have a tendency to squelch their students’ moral intuitions in the process of teaching critical thinking and legal rules.  After reading this I resolved to hear students out when they react with “it’s not right” or “it’s not fair”, while at the same time engaging with their moral sense and challenging them to consider the dialectical tensions that are ever-present in seemingly simple questions of right and wrong.

Yesterday a session on illegal contracts provided my students with an opportunity to wander in this territory.  The case at issue, Carroll v. Beardon, involves a contract for one madam to sell her house of ill repute to another.  The court enforces the note and mortgage obliging the buyer topay the remainder of the sale price (we don’t know if the buyer madam was eventually foreclosed on) based on the notion that the seller was not an active participant in the business, at least not after she sold it.

The first question students raised was why the parties did not end up in criminal court as a result of airing their dirty laundry (so to speak) in the civil case, as happened to the two partners in the Highwaymen’s case.  One can only assume that the judge and other citizens of the county all found the business at issue distasteful but tolerable, and the parties and their lawyers regarded the risk as minimal.  This thought raises a number of interesting questions about malumprohibitum and whether the legal system can occasionally look the other way when legal rules are perceived either as illegitimate or at least not worthy of strict enforcement.

This thread then led to several equally interesting questions, such as whether merely selling an illegal business would constitute a crime, and whether it made a difference that the seller received payments over time on her Note, and thus continued profiting in some sense from the trade.  These questions provided a useful opportunity to point out the seamless nature of law practice, and the need to be on the lookout for issues that clients may not have considered, most especially the prospect of jail time. 

Also interesting was the question of the lawyer’s duty when her client seeks legal advice about the sale of an illegal business.  This provided me with yet another opportunity to venture into a subject ordinarily taught by one of my colleagues.  Many students approach this question with the intuition that if a client is guilty of a crime, assisting them in any way is wrong, and perhaps we should even report them to the authorities.  Here is a nice example that might be viewed simplistically and incorrectly as differentiating between what is moral and what is legal.  The presumption of innocence, the unequal burden of proof placed on the awesome power of the state, and the freedom from self-incrimination are all moral as well as legal principles, that obviously come into tension with the basic moral notion of wanting to see wrongdoers punished.  A lawyer’s role in advising an admitted criminal to my mind is profoundly moral, as well as instrumentally legal.  Nevertheless, the idea of counseling a client who confesses past sins is troubling to students, for reasons we should not too hastily dismiss.

[Posted, on Alan's behalf, by Jeremy Telman]

October 7, 2009 in Commentary, Famous Cases, Teaching | Permalink | Comments (1) | TrackBack (0)

Thursday, October 1, 2009

Bonus Limerick: Totten v. United States

Lincoln

I decided to bolster the section of my Contracts course devoted to public policy issues by introducing students to the Totten doctrine and the states secrets privilege, which we will discuss without reading any cases.  In Totten, a the administrator for the estate of William A. Lloyd brings a claim against the government seeking to recover for the breach of an espionage contract.   It is alleged that Lloyd entered into an agreement with President Abraham Lincoln in which Lloyd infiltrated enemy territory during the Civil War in order to provide the U.S. Government with vital information relating to the military forces and fortifications of the Confederacy.   For these services, Lloyd was to be paid $200/month plus expenses.  Honest Abe allegedly paid Lloyd only expenses.  

Justice Field, writing in 1875, found that the subject matter of the contract was a secret and that both parties must have known at the time of their agreement that their lips would be “for ever sealed respecting the relation of either to the matter.”  In order to protect the public interest in having an effective arm of the government that could engage in secret services, the Court ruled that there could be no claim for breach of a secret contract because the existence of the contract was itself a secret that could not be disclosed.

I am happy to report that Totten is a hit!  We only got to it in the last ten minutes of class, which I thought would suffice for a one-page opinion.  But when I suggested that we could continue the discussion in the next session, in addition to their now habitual groans of disapproval, a couple of students murmured: “Yes!”  And several students stuck around after class to explore the consequences of the Totten doctrine.  Giddy about this overlap of my teaching and research interests, I composed a celebratory Limerick:

Totten v. United States

 The President gamely employed
 But then stiffed an agent named Lloyd.
 Abe knew Lee’s plan
 Because of this man,
 But the court found his legal claims void. 

[Jeremy Telman]

October 1, 2009 in Famous Cases, Government Contracting, Limericks, Teaching | Permalink | Comments (0) | TrackBack (0)

Wednesday, September 16, 2009

Macaulay & Whitford on Hoffman v. Red Owl Stores

Red Owl When I first learned that Steward Macaulay and William Whitford had written a new “Law Stories” article about Hoffman v. Red Owl Stores, all I could do was groan.  I had already read Robert Scott’s piece on the case.  How much background material can I possibly incorporate into a discussion of one case?!?  But Professors Macaulay and Whitford have made use of their access to the plaintiff in the case, Joseph Hoffman, and do indeed have new information to share.  Based on new factual findings the two reach different conclusions from those of Professor Scott.  And they do so, I must say, with class, praising him as a giant of contracts scholarship.   As I have only read a draft of the Macaulay and Whitford article, I will not quote them, but you can find their draft here and their very respectful expression of disagreement with Professor Scott can be found in footnote 15 of the draft.

It is a piece that pays great dividends, not only for what it says about Hoffman, but also for all the pearls of wisdom the authors let fall along the way, which relate not only to contracts doctrine, but also to pedagogy and the advantages of the Law Stories approach to scholarship.  Here is the abstract from SSRN:

Hoffman v. Red Owl Stores is one of the most famous 20th century cases in American contract law, usually credited both with expanding the reach of the promissory estoppel doctrine and with opening up the issue of liability for precontractual reliance. It is a staple in contracts casebooks. By fortunate circumstance we have located the plaintiff, who retains a vivid memory about many of the circumstances in his famous case. We have interviewed him and we have examined the full trial record as well as the briefs on appeal. In this article we tell the story of what we have learned about this famous case, including what happened after the appellate decision. We conclude that a fuller understanding of the facts provides information about a promise that was made, yet was not described in the Court’s opinion. This promise supports the outcome of the litigation. Justice was done! The plaintiff substantially relied to his detriment after receiving specific assurances from an authorized agent of the defendant that he would receive a franchise if he relied by selling his bakery building and business. Reimbursing precontractual reliance in this circumstance can be done without creating a rule that would justify reimbursement of precontractual reliance in all circumstances.

I see that the article is now forthcoming in the Hastings Law Journal, so congratulations to the authors on that fine placement!

[Jeremy Telman]

September 16, 2009 in Famous Cases, Recent Scholarship | Permalink | Comments (0) | TrackBack (0)

Monday, September 14, 2009

Limerick of the Week: Leonard v. Pepsico, Inc.

Harrier As most readers of this blog likely know, John Leonard saw a Pepsi commercial and then attempted to accept what he took to be Pepsi's offer of a Harrier Jet.  The commercial seemed to indicate that one could get a Harrier in exchange for 7,000,000 Pepsi Points.  Relying on the Pepsi Stuff catalogue, Leonard learned that he could turn in 15 Pepsi Points and provide the remaining consideration in cash, so he attempted to accept Pepsi's purported offer with 15 Pepsi Points and just over $700,000 in cash.

Judge Kimba Wood found that the ad was not an offer, distinguishing it from the advertisments discussed in the last two Limericks cases, Lefkowitz and Izadi.  The ad, said Judge Wood, was not an offer, largely because the Harrier Jet was not included in the Pepsi Stuff Catalogue that provides further information about the Pepsi Points program. Moreover, Judge Wood added, the ad was a joke, and anybody who didn't recognize it as such was simply past help.  Explaining why a joke is funny defeats the purpose of jokes, Judge Wood opined. 

At least some of my students agreed.  They felt that, while both Lefkowitz and Izadi were taken in by intentionally misleading advertisements, Leonard must have known that the Harrier commercial was just supposed to be absurd.  Among other things, my students pointed out that Pepsico was unlikely to have access to a piece of military hardware like the Harrier.  They also deemed it unlikely that the high school kid featured in the commercial would have been able to get a license to fly a Harrier in any case.  

They are probably right, and yet, as far as we can tell, Lefkowitz was the only person to come forward to complain about having been mislead by the Great Minneapolis Surplus Store's ad.  Izadi seems to have been the only one who tried to trade in a matchbox car in order to get $3000 off a new Ford truck.  But Leonard was not alone.  He did not just happen to have $700,000 lying around; he raised the money necessary to accept Pepsi's "offer" by finding interested investors who thought his interpretation of the commercial as an offer had merit.

Interestingly enough, Pepsi released a second version of the commercial.  It contains only one change.  Now the "offer" requires 700,000,000 Pepsi points for a Harrier jet.  There is also a third version, which ads the additional verbiage: "Just kidding."  Apparently Pepsi's non-offer was not as clearly not an offer as it could have been.

Leonard v. Pepsico

Intent to be bound was a barrier
To Leonard's acquiring a Harrier.
Now he only drinks Coke,
And he gets every joke
But I would not say he's much merrier.

[Jeremy Telman]

September 14, 2009 in Famous Cases, Limericks, Teaching | Permalink | Comments (0) | TrackBack (0)

Monday, September 7, 2009

Contracts Limerick of the Week: Izadi v. Machado (Gus) Ford, Inc.

Pinto As I mentioned in introducing last week’s Limerick, although Lefkowitz and Izadi cover much the same ground, I think they go well together.  In fact, I also have the students read Leonard v. Pepsico., Inc., which is always good for a laugh.

My students raised some interesting issues with respect to Lefkowitz.  As you may or may not recall, Lefkowitz is about a guy who responds to an ad advertising various fur coats and stoles for sale on a first-come-first-served basis for $1.  When Lefkowitz shows up and tries to buy a fur, the store owners say that they have a policy against selling to men.  Lefkowitz tries the trick again two weeks later and gets the same response.  He sues, claiming breach of a contract for sale. The court sides with Lefkowitz, construing the ad as an unambiguous offer.

We had a really interesting discussion of damages this time around.  The court gave Lefkowitz his expectation damages for the second failed attempt at purchase, which was for a stole valued at $139.  The court refused to grant him damages for his first failed attempt because the ad was ambiguous as to the value of the coats: “worth to $100.”   We explored whether Lefkowitz’s attorneys could not have elicited deposition testimony or gotten some appraisal of the coats.  Perhaps if they failed to do so, that’s their fault and Lefkowitz was properly precluded.

But some of my students wondered whether Lefkowitz should be entitled to collect for his second attempt at purchase.  After all, it seems likely that he was unaware of the store policy against selling women’s coats to men when he first showed up in the Great Minneapolis Surplus Store.  But the second time he came, he knew that the ad in question was not an offer directed at him.  Why grant him recovery?   It seems like the court split the baby, but they gave Lefkowitz the wrong half.  Eww; that’s a hideous metaphor, but you get the point.

Pacer I am somewhat sympathetic to Lefkowitz.  I don’t know about Izadi.  Izadi claims to have construed Machado Ford’s ad as meaning that he could get $3000 off a new Ford car or truck if he traded in “any vehicle.”  He showed up with a vehicle which the court acknowledged was likely worth far less than $3000.  Was it a tricycle?   That’s a vehicle.  I feel for Machado Ford, because they were arguing before a highly unsympathetic Judge Alan R. Schwartz.  I’ve had that experience and it was not pleasant.

Judge Schwartz got himself in a lather about what he took to be an intentionally misleading advertisement.   In order to establish that the advertisement was misleading, one might try to learn how many people were actually mislead.  As far as I can tell, only Izadi claimed to have been taken in by the ad -- after all, the case is not a class action -- and I suspect that Izadi was not mislead at all but in fact was opportunistic in his reading of the ad.  

But here’s the rub: Judge Schwartz offers two justifications for ruling against Machado Ford.  First, he reads the ad as an unambiguous offer.  That’s a bit hard to swallow.  The ad is confusing, but that argues for rather than against ambiguity.  The second justification is that people ought not to be allowed to take advantage of consumers with intentionally misleading ads.  I certainly agree with that, but Judge Schwartz is able to find no Florida authority establishing that rule as a matter of contract law.  

I thus use this case to introduce my students to the problems of institutional competence and judge-made law.  In order to do so, I edit out the case which indicates that defendant could also be liable under relevant Florida consumer protection statutes. 

As Judge Schwartz notes, other states have adopted the rule of contracts law that “a binding offer may be implied from the very fact that deliberately misleading advertising intentionally leads the reader to the conclusion that one exists,” but Florida courts had not recognized that rule.  Why not leave it to the legislature to do so, I ask my students.  This can lead to an interesting discussion of why judges often feel that they have to make or adopt legal rules on the fly rather than wait for the slugs in the legislature to act.

Well, this post is already too long.  I’ll have to compose a Limerick for Leonard so that I can explain where that case fits in next week.

Izadi v. Machado (Gus) Ford, Inc.. 

Want to make a used-car dealer weep?
Try to trade in your rusting junk-heap,
Then pretend that your mad
On account of his ad
And seek justice not blind but asleep.

[Jeremy Telman]

September 7, 2009 in Famous Cases, Limericks, Teaching | Permalink | Comments (0) | TrackBack (0)

Monday, August 31, 2009

Contracts Limerick of the Week: Lefkowitz

Lefkowitz Coat I am teaching Lefkowitz v. Great Minneapolis Surplus Store for the first time this year.  I don't know why this case has fallen out of the casebooks; I really like it.  I also teach Izadi v. Machado Ford, Inc. (about which more in next week's Limerick), and I like that case too, but I think they will teach well together because I think Lefkowitz is pretty clearly rightly decided, while I have my doubts about Izadi.

The reason I like Lefkowitz is that it provides lots of opportunities to talk about what constitutes an offer, as well as the sub-topic of when an ad can qualify as an offer.  It also provides an opportunity to talk about the need for damages to be calculable with reasonable certainty.  As I mentioned in an earlier post, I do not start with damages, but I try to bring them into the conversation wherever possible, since as my colleague Alan White stresses, ultimately, contracts cases are about getting some recovery for your clients.  The casebook that we both use, Law in Action, appropriately stresses that the storybook contract with an easily identifiable offer followed by a clear acceptance does not capture the much more tohu vavohu world of actual commercial interactions.  I do not quarrel with that principle, but I still think you've got to be able to swim before you can synchronized swim.  So I start with the basics, even if they may be Platonic forms.

In any case, to celebrate the return of Lefkowitz to my syllabus, I have composed a new Limerick, which I acknowledge does not do the case justice.  By the way, after I introduced my new students to the Limerick approach to contracts pedagogy, one of them asked how much time I spend composing them -- as if he could think of better uses for my time!  Well, in this case, the answer is about 20 minutes.  Next week's Limerick was more of an epiphany; it only took me ten minutes.

Lefkowitz v. Great Minneapolis Surplus Store

Mo Lefkowitz made his career
Finding ads explicit and clear.
He's the first to the store;
Now he's got furs galore,
And the price that he pays isn't dear.

[Jeremy Telman]

August 31, 2009 in Famous Cases, Limericks, Teaching | Permalink | TrackBack (0)