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Valparaiso Univ. Law School

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Thursday, July 11, 2013

Documentary on Terms of Use

There's a new documentary about...wait for it....contracts!  Well, if you want to call terms of use "contracts" - which courts seem to want to do.  Here's a link to an article in USA Today  and a link to the the official trailer on YouTube (yes, I get the irony of posting a trailer to YouTube which you can't do without agreeing to their terms of use....).  The clip contains some infuriating quotes from self-interested folks who want to perpetuate consumer ignorance of privacy looting.  One of my favorites-to-hate is the lie that people don't care about privacy - if they did they would do something about it.  But contracts profs know about bounded rationality and the limits of cognition - and we also know about lack of choice, the importance of contract design and effective v. ineffective notice.

I cover all of this ground (and more) in my forthcoming book  but more on that later.... 

 

[Nancy Kim]

July 11, 2013 in In the News, Miscellaneous, Web/Tech | Permalink | Comments (0) | TrackBack (0)

Wednesday, July 3, 2013

A non-disparagement clause and a contract that pushes the limits without one

The NYT's (new) ethicist, Chuck Klosterman tackled the issue of non-disparagement clauses in last Sunday's magazine (you have to scroll down past the first question about the ethics of skipping commercials).  Klosterman stated that, "(n)ondisclosure provisions that stretch beyond a straightforward embargo on business-oriented “trade secrets” represent the worst kind of corporate limitations on individual freedom — no one should be contractually stopped from talking about their personal experiences with any company."  He adds, "You did, however, sign this contract (possibly under mild duress, but not against your will)."  A non-disparagement clause, however, is quite different from a blanket nondisclosure provision - the ex-employee may presumably talk about her personal experiences, as long as she leaves out the disparaging remarks.  "Mild duress" is an oxymoron since duress, by its definition, is not mild and if you sign something under duress, you are signing it against your will.  Despite getting the nuances wrong, the advice -- which is basically to say nothing bad but say nothing good either --  is sound. Sometimes silence speaks volumes.

Non-disparagement clauses in settlement agreements are fairly common and I don't think they are necessarily outrageous (it is a settlement agreement afterall).  That's not the case with this agreement, posted courtesy of radaronline and discussed at Consumerist.  The agreement doesn't contain a non-disparagement clause but still manages to be overreaching.  The agreement, purportedly from Amy's Baking Company , requires that its employees work holidays and weekends, and extracts a $250 penalty for no-shows.  It also forbids employees from using cell phones, bringing purses and bags to work, and having friends and family visit during working hours.  The contract also contains a non-compete clause, prohibiting employees from working for competitors within a 50 mile radius for one year after termination.  What the agreement doesn't contain is a non-disparagement clause - and a clause prohibiting employees from sharing the terms of the agreement with others.  My guess is that those clauses will probably show up in the next iteration of the contract....

 

[Nancy Kim]

July 3, 2013 in Current Affairs, Miscellaneous, True Contracts | Permalink | Comments (1) | TrackBack (0)

Friday, June 14, 2013

Scholarship Highlight: Sex* Matters

SchmitzI just finished reading contracts prof Amy J. Schmitz's article, Sex Matters:  Considering Gender in Consumer Contracting, 19 CARDOZO J. LAW & GENDER 437 (2013) which I thought was particularly timely given all the interest in consumer contracts.  As Schmitz points out, too often discussions about "context" are left out of discussions about consumer contracts, especially from efficiency theorists who "mistakenly assume that market competition and antidiscrimination legislation address any improper biases in contracting."  Schmitz's article is a thoughtful and comprehensive work that canvasses and synthesizes existing research, including behavioral economics and consumer legislation, in this area.  She does a great job of highlighting ways in which existing legislation falls short of protecting against gender discrimination and incorporates a great deal of empirical and cognitive research regarding how gender affects both parties  in consumer contracting scenarios.  She notes that the available data suggests that women receive "less financially attractive sales and loan contracts, which may lead to higher debt loads for women." (at 447)  Schmitz also conducted her own survey and shares the results which indicated gender disparities in areas such as confidence in ability to negotiate terms and ability to get companies to change terms.  She argues in this article (as she has elsewhere) that context and "contracting culture" matters, and argues that gender be considered among the factors contributing to a contracting culture.  For those who think that the free market is a fair market, Schmitz's paper should provide food for thought (as should this article that discrimination in housing persists against non-whites).   

 

 

*Yes, I knew that putting "sex" in the title would increase traffic.

 

[Nancy Kim]

June 14, 2013 in Contract Profs, In the News, Miscellaneous, Recent Scholarship | Permalink | Comments (0) | TrackBack (0)

Friday, May 24, 2013

Dollar Rent a Car and the Borat Problem

Given all the excitement over boilerplate on this blog, I thought it would be a good time to remind readers of problems that might arise that don't exactly involve (just) boilerplate,  It's not just the words in the contract -- the way the contract is presented can create problems, too.   I've been meaning for a while to discuss this NYT article about a lawsuit against Dollar Rent a Car.  According to the article and the complaint, the plaintiffs were customers who specifically declined the insurance coverage that car rental companies are always pushing (and which is often covered by customers’ personal auto insurance policy and/or credit card).  They were then handed a tablet and asked to sign electronically.  When they returned the car, they were surprised with a much larger-than-expected bill that included a “loss damage waiver” which, like insurance, “waives” the customer’s liability for loss or damage to the car.

I planned to blog about this last month, but just as I was about to, I received a reprint of Russell Korobkin’s article, recently published in the California Law Review.   The title, The Borat Problem in Negotiation:  Fraud, Assent and the Behavioral Law and Economics of Standard Form Contracts, sounded intriguing and as I started to read it, I realized that the article addressed a lot of the issues raised by the car rental form contract/electronic signature situation.  I thought it might be fun (er, contracts prof style-fun) to view the Dollar Rent a Car problem through the lens of Korobkin’s proposed Borat solution.

According to the article, the Dollar-Rent-A-Car plaintiffs explicitly told the car rental agent that they were declining insurance coverage yet unknowingly signed for it on an electronic tablet.  This illustrates one way that contracting form matters –I suspect it was easier for customers to be misled by the “loss damage waiver” language because they didn’t have an easy way to read the surrounding language.  While paper consumer contracts are generally adhesive, customers do have the option of declining insurance coverage.  While many customers may still have overlooked the meaning of the language, others may have scanned the few sentences immediately before the signature line (this seems particularly true of the plaintiffs, who one of whom is an insurance lawyer). 

Sales agents are typically paid a commission to upsell the insurance coverage and each of the plaintiffs paid a hundred to several hundred dollars more than they expected to pay. 

I tried to get a copy of Dollar’s rental agreement off their website.  While their general policies are posted, which references their rental agreement, the agreement itself is not available.  That’s already a strike against them in my book – why not post the rental agreement on your website since you’re going to have your customer sign it anyway?  I think it’s because the company doesn’t really expect anyone to read the agreement.  Most people don’t read, but that doesn’t mean they wouldn’t if the company made more of an effort to make the agreement accessible and readable. 

Without a copy of Dollar’s actual rental agreement, I can only make assumptions about what it contains but my guess is that it contains an integration clause and a no-oral modification or “NOM” clause.  The latter may not be enforced but the former brings the contract into the grip of the parol evidence rule.  The PER rule won’t effectively block a fraud claim, but fraud claims may be difficult to prove in this context.   The other avenue for redress is under a consumer protection statute claiming unfair or deceptive trade practices.  But what about contract law – can it do anything here to help the consumers?

Korobkin’s article doesn’t specifically address consumer actions, but he tackles the “Borat Problem” which often occurs in consumer contracting situations.  According to Korobkin, the Borat Problem  occurs when two parties “reach an oral agreement.  The first then presents a standard form contract, which the second signs without reading or without reading carefully.  When the second party later objects that the first did not perform according to the oral representations, the first party points out that the signed document includes different terms or disclaims prior representations and promises.” 

As readers of this blog are well aware, contractsprofs went through a slight obsessive period with the Borat contract when it first arose.  To quickly summarize, several people who were in the 2006 movie, Borat:  Cultural Learnings of America for Make Benefit Glorious Nation of Kazakhstan sued the producer, Twentieth Century Fox, claiming that they were misled into appearing in it.  Korobkin states that these plaintiffs claimed that the studio obtained their consent using a two part strategy, “false representations followed by standard form contracts that included language designed to contradict or disclaim those representations.” 

Sound similar to the Dollar situation?  Although the Dollar agent didn’t expressly make false representations, they allegedly acted in a way that misled the plaintiffs into believing they were acting consistent with their wishes, and that the contract they were signing reflected their understanding.  Korobkin discusses existing legal remedies to the Borat problem and concludes they are not so satisfying for various reasons.  He then discusses the risk of “bilateral opportunism,” meaning that a “pure duty to read” rule leaves nondrafting parties vulnerable to exploitation by drafters and a “no-exploitation rule” leaves drafters vulnerable to opportunistic behavior (i.e. bad faith claims) by nondrafters.  He discusses the different ways that each party might take advantage of the other under either rule and throws in a good amount of behavioral economics to back up his arguments – for example, “confirmation bias” makes it difficult for even sophisticated nondrafters to notice when a contract term contradicts a prior representation made by the drafter.  Korobkin also discusses the role of trust,  specifically that reading a contract may signal that the nondrafter doesn’t trust the drafter.   I think trust plays a role (even if small) in the Dollar scenario – afterall, nobody wants to be that jerk in line who challenges the smiling service rep.  There's also social pressure in that nobody want to be that jerk holding up the line of foot tapping customers by asking questions about fine print (believe me, I know).

Korobkin’s “Borat Solution” would require specific assent to written terms that are inconsistent with prior representations.  This effectively puts the burden on drafters to include a “clear statement” that the particular provision takes precedence over prior representations and “realistic notice” which would generally mean that the parties actively negotiated the term.   I like this proposal (and have proposed something very similar to it in the context of online agreements) because it recognizes that drafters have the power to make terms more salient.  The notion of blanket assent puts too much of a burden on the nondrafting party instead of the party that has the power to actually communicate the terms more effectively.

So would the Borat solution have changed anything in the Dollar scenario?  I think so, but for a different reason than the actual Borat scenario.  A clear statement and realistic notice would preclude having customers sign on an electronic tablet without also making immediately visible the relevant provision.  In other words, the customer wouldn't be asked to sign without being able to read the waiver provision.  Although it's not expressly stated, it seems implied from the NYT article that the contract provision was not viewable on the tablet.  If that's the case, that provision would not be enforceable.

So, for those of you planning to research the consumer contracts conundrum this summer, in addition to Margaret Jane Radin’s book, Boilerplate: The Fine Print, Vanishing Rights, and the Rule of Law and Oren Bar-Gill’s book, Seduction by Contract, I recommend that you add Korobkin’s article to your summer reading list.

[Nancy Kim]

May 24, 2013 in Contract Profs, Current Affairs, Miscellaneous, Recent Scholarship | Permalink | Comments (2) | TrackBack (0)

Atlantis Blue v. Atlantic Blue: Substantial Impairment?

A (presumably U.S.) buyer (identified on the web only as "b-thumper") ordered a BMW M3 in "Atlantis Blue with Blue deviated stitching and the Individual Piano trim" and paid for European delivery.  "European delivery" allows the buyer to pick up the car at the BMW Museum in Germany and take it for a lap around the Nürburgring.

As recounted over at Jalopnik, the Internets displayed divided sympathy for b-thumper, who, upon arriving in Germany, discovered that the car BMW delivered was Atlantic blue and not Atlantis blue.  Seller offered to repaint but buyer wanted a substitute car in Atlantis blue with the customized interior.

Kuxlarge-1
Sorry b-thumper, but these are the type of fun facts contracts profs dream about!  Assuming we are applying the UCC, does the Atlantis shade of blue substantially impair the value of the BMW?  My colleague Jack Graves reminds me that the CISG doesn't apply unless the buyer was purchasing the car for a business purpose. What remedy would German law provide the buyer?

[Meredith R. Miller h/t Shawn Crincoli]

May 24, 2013 in In the News, Miscellaneous | Permalink | Comments (1) | TrackBack (0)

Thursday, May 2, 2013

Ticketmaster and Those Pesky Bots

Last week, I mentioned a California bill addressing the issue of ticket resales and secondary marketplaces.  I think that the primary problem for consumers is not that these secondary marketplaces exist -- being able to resell tickets is generally a good thing for consumers--but that scalpers use bots (automated software programs) to buy up large quantities of tickets which they then resell at jacked up prices.  Fans get angry because shows are quickly "sold out" and they are forced to pay heart stopping prices in the secondary marketplace if they want to see their favorite performer (or get decent seats).  Well, Ticketmaster has had enough and is suing 21 people involved in circumventing its online security system by buying up vast quantities of tickets.  Ticketmaster's weapon of choice here?  The universally reviled yet oh-too-familiar Terms of Use.  Ticketmaster's TOU prohibits the use of bots.  (It's also suing for copyright infringement, among other things).  In fact, back in the early days of the Internet, bots were one of the reasons companies started to use TOU.  The more things change....

[Nancy Kim]

May 2, 2013 in Current Affairs, E-commerce, Miscellaneous, Web/Tech | Permalink | Comments (1) | TrackBack (0)

Wednesday, April 24, 2013

Paperless Tickets and Licenses

 

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

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

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

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

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

[Nancy Kim]

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

Monday, April 22, 2013

Phone "Bill Cramming" and Consent

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

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

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

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

[Nancy Kim] 

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

Monday, March 4, 2013

For Those Who Have 76 Days to Spare

( H/T to Ben Davis -and his student - for posting about the article to the Contracts Prof list serv).

This article indicates that the average Internet user would need 76 work days in order to read all the privacy policies that she encounters in a year.  (Unfortunately, the link to the study conducted by the Carnegie Mellon researchers and cited in the article doesn’t seem to be working).  But you don’t need a study to tell you that privacy policies are long-winded and hard to find.  That’s one of the reasons you don’t read them.  Another is that they can be updated, often without prior notice, so what’s the point in reading terms that are constantly changing? Finally, what can you do about it anyway?  Don’t like your bank’s privacy policies – good luck finding another bank with a better one.

But we contracts profs are familiar with the disadvantages of standard form contracts. We’re also familiar with the efficiency argument in favor of them. The same issues arise with privacy policies – only there’s one important difference between a privacy policy and a contract, even an adhesive one. A privacy policy isn’t really a contract, at least not in most cases. That’s one of the arguments I make in my forthcoming book, WRAP CONTRACTS:  FOUNDATIONS AND RAMIFICATIONS.  A privacy policy is typically a notice, not a contract.  Courts – especially in cases involving digital contracts – have tended to confuse or conflate the two.  If you look at the wrap contracts (shrinkwrap,browsewrap, clickwrap) cases under traditional contract law, they make no sense.  If you analyze them as notice cases, they have some consistency. Unfortunately, courts are treating wrap contracts as contracts, not notices. 

So, what’s the difference between a contract and a notice?  The big difference is that the enforceability of a notice depends upon the notice giver’s existing entitlements, i.e. property or proprietorship rights whereas a contract requires consent.

If I put a sign on my yard that says, Keep off the grass, I can enforce that sign under property and tort law.  As long as the sign has to do with something that is entirely within my property rights to unilaterally establish, it’s enforceable.  If the sign said, however, ‘Keep off the grass or you have to pay me $50” – well that’s a different matter entirely.  That would require a contract because now it involves your property rights.

Privacy policies are more like notices – and should be treated as such even if they are in the form of a contract (such as a little clickbox that accompanies a hyperlink that says TERMS).   If a company wants to elevate a notice to a contract, it should require a lot more than that simple click.  Because the fact is, contract law currently does require the user to do more than click – it requires the user to read pages and pages of terms spread across multiple pages – at a cost of 76 days a year.  The standard form contract starts to look a lot less efficient when viewed from the user’s perspective.

[Nancy Kim]

 

March 4, 2013 in Commentary, E-commerce, Miscellaneous, Web/Tech | Permalink | Comments (0) | TrackBack (0)

Thursday, February 14, 2013

A Valentine's Day Poem

Mountain_lionThe brochure for the wildlife sanctuary cried out to us: "Be Stalked By a Mountain Lion!"  So we went, foregoing opportunities to be served by a sommelier, pounded by a masseuse, guided by a docent or entertained by a performer.  

When we arrived at the sanctuary, and I announced to the ticket taker that we would like to be stalked by a mountain lion, he looked confused.  Craning his neck to shout a question to someone who made something above minimum wage, he said, "Do we have a mountain lion?"  

"That's the cougar," came the disinterested response.  

"Oh," said the ticket taker.  "He hides a lot."

My heart sank, but we trudged on.  We weren't stalked, and while I contemplated a breach of warranty claim, my wife wrote a poem.  Indiana Poet Laureate, Karen Kovacik is featuring that poem today on her blog, No more corn, as a Valentine's Day poem.  We reproduce it here:

On Not Being Stalked by a Mountain Lion

BE STALKED BY A MOUNTAIN LION! said the brochure.
But we weren’t stalked,
Although for a lazy hour along the path
We strolled and talked--

Totally helpless, as you pointed out,
Pitifully clueless, meant for lion-prey
(Apart from the fence and the ditch too broad to leap
Even for mountain lions). You scanned the sway

And shadow play of branches for a glimpse
Of that quicksilver shape--
O the rising unease, the chills, the chase, the last-
Minute, hairsbreadth escape!

“He’s probably sleeping,” the gate attendant shrugged
When you complained
No icy green-gold gaze had pricked our necks.
Later it rained,

And we drove back and chased each other into bed
And slept an hour or two.
There was nothing boring about not being stalked 
By a mountain lion with you.

This poem originally appeared in Able Muse Review.

Valentines_day_flowers
BEST

VALENTINE'S

DAY

PRESENT

 

EVER!!

[JT]

 

February 14, 2013 in Miscellaneous | Permalink | Comments (0) | TrackBack (0)

Monday, February 11, 2013

CA fires contractor, providing a helpful breach of K scenario

The LA Times reports that the state of California has terminated its contract with SAP Public Services, a contractor that was supposed to fix the state's outdated computer network system that handles paychecks and medical benefits for 240,000 state employees. 

While both SAP and California are unhappy about the state of events, I have just covered breach, substantial performance, conditions and damages in my Contracts course and was delighted to find a real life scenario to illustrate the relevance of the material we just covered. 

So what triggered CA's termination?  SAP was hired three years ago but when its program was tested, it made errors at "more than 100 times" the rate of the old system. 

Was failing this test a breach?  If so, was it a minor or material breach?  It seems it would depend on what was in the contract. As contracts profs know, the first place to look in a contract dispute is the contract itself.  The are terms in the contract that will be relevant in evaluating whether there was a breach or the applicable measure of damages.  For example, there may be performance targets (i.e. conditions) that SAP had to meet which weren't met.  Those conditions would be relevant in determining each party's obligations (would the contract terminate upon failure to meet the condition, for example?)  There's also likely to be a provision dealing with whether SAP gets paid per deliverable or target met or per person/hour or time spent on a project. If this was a scheduled deliverable, then the facts tend toward finding a breach (or, if the contract language indicates, it could be a condition that was just never met).  If it was a test done in the course of moving the project toward completion, CA may have jumped the gun.  A material breach would allow CA to then terminate its obligation.  If not a material breach, CA should have sought adequate assurance of performance and could itself be in breach by terminating the contract.

 Facts matter, as I repeat like a broken record to my students (I guess I should update my reference for the iPod generation) - so it matters what it means to say that SAP failed the test.  The LA Times reports that:

    "During a trial run involving 1,300 employees....some paychecks went to the wrong person for the wrong amoung.  The system canceled some medical coverage and sent child-support payments to the wrong beneficiaries."

Furthermore, because the system sent money to retirement accounts "incorrectly,"' the state had to pay $50,000 in penalties.

Given the late stage of the project, if not a material breach itself, the failed trial seems to at least give rise to a reasonable belief that SAP would breach.  What did CA do then?  Did it immediately terminate or seek explanations/reassurance? 

 Another issue is what damages measure is applicable?  CA paid SAP $50million dollars but it had incurred much more trying to get the system up and running.  It wasn't clear to me whether the $50million dollar amount was the amount paid up to that point, or the total due to SAP.  In class, the cases we study regarding breach of contract to provide services typically involve some type of construction contract.  The standard measure then would be the difference between the cost of completion and the contract price.  But in a situation like this, the cost of completion is a bit funny given the various factors involved - and the period of time it would take to implement a new project (SAP took the project over from a prior contractor).  Furthermore, the purpose of the new system wasn't so CA could make money (no loss profit measure applicable here).  Given that, the standard expectation measure likely would not be appropriate and a reliance (or restitution) measure makes more sense.  Not surprisingly, CA is seeking recovery of the $50million dollars paid. 

What about SAP? Will it claim that it substantially performed?  I don't think it can with a straight face, but again, I am only basing my conclusion upon the facts contained in the newspaper article.  Will SAP seek restitution for the reasonable value of its services to CA?  It very well may, (and any students reading this, should raise it on an exam...) since it has spent three years on this project.  Based upon the information in the article, it doesn't sound as though CA received any benefit from the services rendered.  If SAP is determined to be the breaching party, it may not get awarded anything. The real world problem for SAP is that trying to hang on to money for delivering a system that doesn't work might hurt its reputation even more.  And it doesn't help that the other party is a state entity - meaning lots of future potential business at stake.  (The LA times noted that SAP projects with other CA entities are not going so well, either).

As is true for other contracts profs, I spend a lot time trying to situate doctrine into a problem solving (or minimizing) scenario since this is how most lawyers deal with contract law.  For example, prior to cancelling the contract, the attorneys for the state of CA most likely sat down and discussed its available options under both the contract and contract law.  SAP, too, likely reviewed (or is reviewing) its options under the contract and contract law.  My guess is that the contract terms probably permit CA to cancel under these circumstances, although a spokesperson for SAP stated that it believed it had "satisfied all contractual obligations in this project."

I'm sure I missed a few things in my quick analysis of ths situation, so feel free to note any other issues in the comments.

[Nancy Kim]

February 11, 2013 in Current Affairs, In the News, Miscellaneous, Teaching, True Contracts | Permalink | Comments (0) | TrackBack (0)

Thursday, February 7, 2013

A Unilateral Contract to "Like"

Shades of Hamer v. Sidway!  A man offered his daughter $200 if she quits Facebook for five months.  It seems that the daughter was well aware of the irresistible time-wasting hazards of the popular social networking site, but needed an incentive to quit.  The father even had her sign a contract.  But, as contractsprofs know, it's not the written form that makes the contract but the bargain.  Even though quitting Facebook may be better for productivity (as I keep telling my students....), it is still a legal "detriment" so if she's successful, dad should pay up.

Fbcontract

[Nancy Kim]

February 7, 2013 in Current Affairs, In the News, Miscellaneous, True Contracts | Permalink | Comments (0) | TrackBack (0)

Tuesday, January 29, 2013

Murder-suicide and the new homeowner

A Pennsylvania homeowner is suing the seller of the house and a real estate agent, claiming fraud and misrepresentation, for failing to tell her that the home she recently purchased had been the scene of a murder-suicide the previous year.  The homeowner had moved to Pennsylvania from California with her two children after her husband's death.  She learned of the murder-suicide from a neighbor, several weeks after moving in.  You can read about it here.

I don't know about you, but I think a murder suicide is pretty material, although there aren't enough facts here to indicate whether the seller and agent deliberately concealed the fact or whether the buyer inquired as to any unusual events happening in the house....  With respect to the seller, it might be one of those "tough luck" situations where the law just doesn't help the buyer even if the court feels sympathetic toward the buyer's situation.  It's not clear whether the agent is the buyer's agent - if so, the agent should have disclosed this as a fiduciary.  But it's more likely that the agent was actually the seller's agent, and not the agent of the buyer or a dual agent.  (Got that?  Just because someone has the word "agent" in their job title doesn't make that person your agent.  Who is paying the commission?  When in doubt about where the agent's loyalties lie - ASK the agent).

The lesson here - especially relevant given the recent rise in home sales - is BUYER BEWARE.  I wonder if a quick online search of the address would have uncovered the grisly events that took place in it.  It would probably be prudent for all potential home buyers to expressly ask, "Did anything unusual ever happen in this house that we should know about such as any crimes?"  A buyer should also ask how long the current sellers have lived in the house and why they are moving. [In this case, such a question probably wouldn't have helped the homeowner.  The immediate sellers were not the owners of the house when the murder-suicide took place, but subsequent owners who bought it, presumably at a low price given what had just happened in it, and then turned around and sold it to the out-of-state buyer].  The seller's failure to disclose in a situation where the buyer has specifically asked is entirely different from a failure to affirmatively disclose unasked for (albeit material) information.

N.B.  Under California real estate law (which imposes a duty to disclose facts materially affecting the value of real property where the facts would be hard to uncover), the result would probably have been different.  See Reed v. King, 145 Cal. App. 3d 261 (1983) involving a failure to disclose a multiple murder by a home seller.  Interesting, given that the PA home buyer was from California and might have expected a bit more from the seller based upon her real estate experiences there...

[Nancy Kim]

 

January 29, 2013 in Current Affairs, In the News, Miscellaneous | Permalink | Comments (0) | TrackBack (0)

Thursday, January 24, 2013

When is a Contract Not a Contract?

I recently finished a book manuscript on the subject of “wrap contracts” – shrinkwraps, clickwraps, browsewraps, tapwraps, etc.  These non-traditional contracts are interstitial, occupying space in and between contracts and internet law, but not neatly fitting into one alone.  I'll be blogging a lot more about them in the future.

On the subject of wrap contracts, not long ago I bought a new laptop with Windows 8 pre-installed. 
But that didn’t mean I didn’t have to agree to this:

Windows License Terms 

What's interesting is that my old laptop, which I ordered online, came in a package like this:

  Torn Agreement

Like the typical shrinkwrap, ripping the plastic bag (which was necessary to get to the laptop inside it) was deemed acceptance. 

Both were examples of rolling contracts, but they came in different forms -- and neither gave me notice of any terms to come at the time of the transaction.  Yet consider the hassle I would have to go through if I decided, after having received the goods and a "reasonable opportunity to read" the terms, that I didn't want to accept the terms.  I would  have to ship back the computer or take it back to the store, and try to explain that I was rejecting it because I disagreed with the contract terms. 

Honestly, now - don't you think the retailer would just think I was nuts?  Or that I had found a better deal elsewhere?  (Or that I had done something sneaky, like somehow copied the software or infected the computer with a virus?)  How many think I would actually get my money back if there was nothing (else) wrong with the laptop(s)?

 

[Nancy Kim]

January 24, 2013 in E-commerce, Miscellaneous, True Contracts, Web/Tech | Permalink | Comments (0) | TrackBack (0)

Tuesday, January 15, 2013

Conde Nast and Writers Rights

The N.Y. Times reports that Conde Nast has issued new contracts to its writers with changes that diminish their right to profits from articles.  Conde Nast is the publisher for magazines like Wired, Vanity Fair and The New Yorker.  (You remember magazines, right?  They’re printed on paper and you can usually find them at airports.  Unlike newspapers, they don’t leave inky residue on your fingers).  Conde Nast writers typically lack job security and benefits, signing one-year contracts – but they are (or were) allowed to keep the rights to their work. These rights could be valuable if an article becomes a movie, like “Argo” or “Brokeback Mountain.”  Under the new contracts, however, Conde Nast has exclusive rights to articles for periods of time ranging from thirty days to one year and option rights where payments to the writer top out at $5K. If the article is turned into a movie, there is also a cap on what writers can receive.

It would be easy for me to demonize Conde Nast given my association with writers.  Yet, it’s no secret that the demand for glossies is diminishing and that publishers need to figure out a way to monetize their content better – otherwise, there won’t be any magazine writers at all.  Perhaps Conde Nast could bargain employee benefits for these rights, the way newspapers do.  Maybe they could increase the cap based on different variables.  Maybe they could lift the exclusivity for certain writers after a period of time (or a designated number of successes).  Maybe they could commission articles that they conceived in-house, so that the work is a traditional work for hire, and the cap isn’t tied to an idea that originated with the writer.  In any event, it’s clear that Conde Nast needs to evolve with the marketplace; what’s not so clear is that this is the way to do it.

[Nancy Kim]

January 15, 2013 in Current Affairs, In the News, Miscellaneous, True Contracts | Permalink | Comments (0) | TrackBack (0)

Monday, January 7, 2013

Parking Contract

Below is a parking ticket I got from a parking lot outside of a hotel I stayed at over the holidays.  The fact that the ticket announced itself as a contract caught my attention.  It was as if the busboy in a restaurant, after clearing the table and placing a towel in his waistband, pulled out a pad of paper and announced, "My name's Devon, and I'll be your server tonight."  

Nothing against busboys or servers.  They each have their designated role, and for some reason restaurants keep them separate.  If you ask a busboy to bring you some ketchup, the best he can do is pass word on to the server that you need something, who will then send over the ketchup sommelier who will intimidate you with questions about what you have in mind for what he calls "catsup," what kind of tomato you prefer and if there was a particular vintage you had in mind.  Similarly, it seems a bit ambitious for a simple parking ticket to announce itself as a contract.  That's all I'm saying.

Parking Ticket

At this point, it should not shock us that our knowing assent to terms is not required for the the formation of a consumer contract, but still I found this little parking ticket a bit jarring.  The reason for that is as follows.  At the hotel at which I stayed, you actually don't use the ticket to get in and out of the parking lot; you use your room key, which has no contractual langauge written on it.  Nor were there signs elsewhere in the parking area that I noticed about limitations of liability.  I got the ticket because I parked my car before getting my room key.  

Moreover, the information provided does not seem adequate to establish a contract.  How long can I park my car?  What do I pay for the license to do so.  That information was not provided to me until I checked in to the hotel.  If I had just wandered into that parking lot without checking into the hotel, I would have no information about parking rates, and I'm not sure how a court would go about implying a price term in this case.  Social conventions suggest that I ought to know that by taking a ticket, proceeding through a raised gate and entering a parking lot, I am agreeing to pay for the privilege, but that should not mean they can charge me whatever they please.

If I had parked outside the front entrance of the hotel, unpacked my stuff, registered and then parked my car, I would have used my room key to get into the parking lot and never have received the notice printed on the ticket.  I suspect that the hotel somehow would still have found a way to limit its liabilty for any damage to my (rental) car while it was parked in its lot, but I really have no idea how or if it matters.  It's all for the best, because this way I started my little holiday thinking about contracts.

[JT]

January 7, 2013 in Miscellaneous, True Contracts | Permalink | Comments (2) | TrackBack (0)

Monday, December 31, 2012

Of Hobbits and Contracts

The other night, I finally got to see The Hobbit:  An Unexpected Journey.  Having recently spent several months in New Zealand (the home of Peter Jackson’s Weta studio), I had been surrounded by Hobbit-mania and was interested to see whether the movie proved worthy of the hype.  I wasn’t disappointed.  Although some critics were, well, critical, I thought it was an extremely entertaining movie that made time fly.  Making a highly entertaining movie even better, a lengthy contract played a pivotal role.  When Gandalf the Wizard, and Thorin and his company of dwarves seek Bilbo Baggins’ (i.e. the aforesaid hobbit’s) assistance to accompany them as burglar on an unexpected journey, they first ask him to sign a contract.  The contract, several pages long, outlines in detail his compensation (i.e. consideration) and contains warnings and numerous disclaimers of liability in favor of Thorin & Co.  Being a wise hobbit, Bilbo actually reads the contract, faints, and then refuses to sign it. The next morning, he awakens to a quiet house (dwarves know how to party, but apparently do so responsibly). Bilbo has a change of heart, decides he does want excitement and adventure, signs the contract, picks it up, and runs out of his house to join the departing dwarves.  This is where --for a contracts prof -- the tension is most high.  Having rejected the terms of the contract the night before, we know that the hobbit no longer has the power of acceptance.  Therefore, when Bilbo thrusts his signed contract into the hands of one of the dwarves, he is only making an offer.  It is the dwarf (who apparently has authority to accept on behalf of the other dwarves) who has the power of acceptance.  I don’t think I need a spoiler alert before revealing that they do accept (there wouldn’t be much of a movie if they didn’t). 

There were so many things to like about the movie, not the least of which was the way it illustrated how relational contracts set expectations, shape relationships and establish trust. At one point, Bilbo seeks to desert the dwarves. Although one could argue changed circumstances, I think a better explanation would be that given Thorin’s disparaging comments about Bilbo’s suitability for the journey, Bilbo decides to adjust his performance obligations accordingly.  But events (and the always fascinating Gollum) intervene.  In the end, Bilbo carries out his contractual obligations, proving that - even in Middle Earth - contracts are alive and well.

[Nancy Kim]

 

 

 

 

 

December 31, 2012 in Film, Film Clips, Miscellaneous | Permalink | Comments (1) | TrackBack (0)

Wednesday, December 19, 2012

Thoughts on the Instagram Kerfuffle

Stop me if you've heard this one before - Facebook changes its Terms in a way that its users find offensive and invasive of their privacy.  Uproar ensues and Facebook promises that the changes are harmless and everyone is just overreacting.  Facebook backs off, a little, and then pushes the boundaries a little further next time, regaining even more ground against its users.  Sound familiar? 

When Facebook bought Instagram for (approximately) $750 million dollars, we should have known the time was coming when Instagram would piss off its users, too.  Well, that time is here.  Instagram posted changes to its Terms of Use this week which made users concerned that the company could use their content (i.e. photos) in advertisements.  So that lovely picture you took of your sweet grandmother could be used in an ad for Depends. The media was all over it, and you can read about it here, and here, and here

I think the public backlash is a very good thing since it reminds companies that there are at least some people who are reading their online agreements.  Unfortunately, they are usually only reading the terms of companies that already have a monopoly in the marketplace.  It's not easy for unhappy Facebookers, Googlers or Instagramers to pick up their content and go elsewhere - where would they go? 

What makes my skin crawl, however, is the misleading reassurances doled out by companies when they are called on their online agreements.  Instagram, for example, states on its blog that users shouldn't fear, because it respects them, really it does:

"Instagram users own their content and Instagram does not claim any ownership rights over your photos. Nothing about this has changed. We respect that there are creative artists and hobbyists alike that pour their heart into creating beautiful photos, and we respect that your photos are your photos. Period.

I always want you to feel comfortable sharing your photos on Instagram and we will always work hard to foster and respect our community and go out of our way to support its rights."

While it may be true that Instagram users own their content, Instagram does take a pretty broad license from its users:

"Instead, you hereby grant to Instagram a non-exclusive, fully paid and royalty-free, transferable, sub-licensable, worldwide license to use the Content that you post on or through the Service, except that you can control who can view certain of your Content and activities on the Service as described in the Service's Privacy Policy, available here: http://instagram.com/legal/privacy/."

As Instagram knows, it doesn't need to own your content in order to use it as if it owned it.  All it needs is a broad license, like the one it has.  Note that it has the right to "use" the content - and doesn't define what that means or restrict that use very much.

The Privacy Policy states that Instagram may use the information to in the following ways:

  • "provide personalized content and information to you and others, which could include online ads or other forms of marketing
  • provide, improve, test, and monitor the effectiveness of our Service
  • develop and test new products and features
  • monitor metrics such as total number of visitors, traffic, and demographic patterns"

I found this sentence particularly sneaky:

"We will not rent or sell your information to third parties outside Instagram (or the group of companies of which Instagram is a part) without your consent, except as noted in this Policy"

Did you like the "except as noted in this Policy" ?  And, as Contracts profs know, "consent" means something other than what a layperson might think - it can mean just using a website in many cases.  There is similar broad language here:

"We may also share certain information such as cookie data with third-party advertising partners. This information would allow third-party ad networks to, among other things, deliver targeted advertisements that they believe will be of most interest to you." 

I'm not as concerned about the targeted advertisements (which doesn't mean I'm not concerned at all) as I am about the "such as" and "among other things."

And remember, the Terms do expressly state:

"Some or all of the Service may be supported by advertising revenue. To help us deliver interesting paid or sponsored content or promotions, you agree that a business or other entity may pay us to display your username, likeness, photos (along with any associated metadata), and/or actions you take, in connection with paid or sponsored content or promotions, without any compensation to you."

The company reassures its users, on its blog that it is not their "intention" to "sell" user photos.  The company says it is working on language to make that clear.  Let's hope so, but my guess is that they are probably going to use more mealy language like "at the moment" or "sell as a good defined under the UCC," or something that leaves wide open the possibility that it can make money off user photos by selling them to third party advertisers. 

I'd suggest you save Granny some embarrassment and delete that photo now.

[Nancy Kim]

 

December 19, 2012 in Commentary, Current Affairs, Miscellaneous, True Contracts, Web/Tech, Weblogs | Permalink | Comments (0) | TrackBack (0)

Wednesday, December 5, 2012

Study Break: Visions of Leonard v. Pepsico on 30 Rock

In a recent episode of 30 Rock ("Mazel Tov, Dummies!"), Liz Lemon (Tina Fey) gets married.  Liz attempts to subvert the wedding industrial complex by tying the knot in her gym clothes at City Hall.  She fights any desire to make it a "special day," leading her boyfriend/fiance to tell her "it is ok to be a human woman."

Interesting for our purposes: there is a sub-plot in the episode that is reminiscent of Leonard v. Pepsico. It begins at a little past 4 minutes into the episode.  A creepy character played by John Hodgman comes to collect a woman (the character Jenna Maroney) that he says he earned by collecting $1,000,0000 Surge points.  Surge is a soda and his claim to the money is based on a tv advertisement.  The Surge points catalogue entitles Hodgman to the item or its equivalent value.  Since it is "illegal to own someone," Jack Donaghy (Alec Baldwin) has to determine Jenna's value (and Jenna is not happy with the assessment of her worth).

Take a study/grading break:

[Meredith R. Miller - h/t 1L Matthew Gray]

December 5, 2012 in Film Clips, Miscellaneous, Television | Permalink | Comments (1) | TrackBack (0)

Monday, November 12, 2012

Post-Election Puzzler

 Will Farrell posted the following video just days before the election:

 

Is this an offer?  If so, how many millions of voters have taken him up on it?  It seems seriously intended, and when I first viewed it, I felt like he was addressing me directly.  It could be a joke, I suppose.  It's hard to tell.  Will Farrell is an actor and his performance here (if that's what it is) is full of nuance.

[JT]

November 12, 2012 in Miscellaneous | Permalink | Comments (0) | TrackBack (0)