ContractsProf Blog

The vital difference between a promise and a condition

I always tell my students that if you want people to promise to do something, you'd better make sure you don't phrase it as a condition in your contract, and a recent case out of the Middle District of Pennsylvania, Allen v. SWEPI, LP, No. 4:18-CV-01179 (behind paywall), carries just that lesson. 

The contract was for the purposes of exploring for oil and gas on the Allens' land and read that the agreement was "made on the condition that within sixty (60) days from the Effective Date of this lease, [the defendant] shall pay to the [Allens] the sum of Two Thousand Dollars ($2000.00) per acre for the first year." The defendant never paid the Allens this sum, and the Allens sued. However, the defendant argued that this was nothing but an option contract. It had the right to rent the land for oil and gas exploration if it paid the required sum. However, it was not required to pay that sum. Instead, the payment was a condition that had to be fulfilled before the contract would come into operation. The court agreed and dismissed the Allens' breach of contract causes of action. 

The court then also dismissed the Allens' promissory estoppel claim, because it found that there had been a valid and enforceable contract between the parties -- it was just an option contract that the defendant chose not to exercise. 

The Allens seem to have thought they had rented this land to the defendant. I think that what they wanted to accomplish (or thought they were getting) with the quoted clause was to make sure they were paid within 60 days. However, in phrasing it as a condition, what they got was no commitment from the defendant at all. 

No Compete Clauses in Bilateral Contracts (No Unilaterality)

In a recent case, employment agency Robert Half International, Inc. (“Robert Half”) brought suit against a former employee, Nicholas Billingham, and Billingham’s current employer, Beacon Hill Staffing (a competitor of Robert Half) for actual and anticipatory breach of contract. Billingham’s contract with Robert Half included the agreement that Billingham would not compete with or solicit clients from Robert Half if leaving the company.  Nonetheless, Billingham accepted employment with Robert Half’s direct competitor where he stated that he intended to “add to my team quickly and take market share from Beacon Hill’s competitors.”  Robert Half brought suit.  Billingham and Beacon Hill moved to dismiss the complaint for failure to state a claim.

Billingham first defended himself arguing that unilateral contracts cannot be anticipatorily breached since they technically seen do not arise until the actual performance has been rendered.  He argued that his contract was unilateral since his remaining obligations were not yet due.  (Strangely, he did so although he had already terminated the relationship himself.)  The court corrected him on this point, noting that a unilateral contract is one that “occurs when there is only one promisor and the other party accepts, not by mutual promise, but by actual performance or forbearance.”  (Quoting Williston § 1:17).  To help my students distinguish accepting by beginning of performance in bilateral contracts from offers for unilateral contracts, which is sometimes confusing for them, I tell them that they must scrutinize what type of acceptance is sought by the offeror: if onlythe actual performance, then there is a truly an offer for a unilateral contract. If this is not clearly the case, there is an offer for a “regular” bilateral contract.  In this instance, the contract between Billingham and Plaintiff was bilateral, not unilateral.  Robert Half promised to employ Billingham in exchange for Billingham's promise to abide by the restrictive covenants in the Agreement.  Billingham's promise included the prospectiveagreement that he would refrain from certain activities upon departing the company.  Billingham was thus not correct that the agreement “became unilateral” after his resignation.  That is a legal impossibility.  His obligations to forbear from the non-competitive agreements became due the moment he left Robert Half.  As with many other contractual issues, unilaterality and bilaterality are examined at the point of contract formation, not by looking at what actually happened thereafter.

The court thus found that plaintiffs had sufficiently pled a claim of anticipatory, if not actual, breach of contract. 

Plaintiffs also stated a claim for unjust enrichment. Defendants argued that Robert Half has not actually “conferred” any benefits on Beacon Hill and would thus not be liable for compensation under that theory.  The court noted that this is wrong.  Beacon Hill received a “benefit” from Billingham's employment through the revenue that he generates, his professional training, his relationships with customers and candidates, and his industry knowledge.  Beacon Hill's retention of these benefits is “unjust” as they are benefits that Billingham is barred, by the agreement, from conferring on Beacon Hill.

The case is Robert Half International Inc. v. Billingham, 317 F.Supp.3d 379, 385 (D.D.C., 2018).

The (Quasi) Weekly Top Ten SSRN Contracts & Commercial Law Downloads (November 10, 2018)

Top Downloads For:

Contracts & Commercial Law eJournal

Recent Top Papers (60 days)

As of: 11 Sep 2018 - 10 Nov 2018

Rank	Paper	Downloads
1.	Sovereign Debt Restructuring and U.S. Executive Power (Reestructuración de Deuda Soberana y el Poder Ejecutivo Norteamericano) Lee C. Buchheit and G. Mitu Gulati Cleary Gottlieb Steen & Hamilton LLP - New York Office and Duke University School of Law	579
2.	Requiem for a Paradox: The Dubious Rise and Inevitable Fall of Hipster Antitrust Joshua D. Wright, Elyse Dorsey, Jan Rybnicek and Jonathan Klick George Mason University - Antonin Scalia Law School, Faculty, Government of the United States of America - Federal Trade Commission, Freshfields Bruckhaus Deringer LLP and University of Pennsylvania Law School	444
3.	The New Law of Penalties: Mapping the Terrain John Eldridge The University of Sydney Law School	246
4.	The Private Law Critique of International Investment Law Julian Arato Brooklyn Law School Date Posted: 13 Sep 2018 Last Revised: 21 Oct 2018	227
5.	'Surrounding Circumstances' in Contractual Interpretation: Where are we Now? John Eldridge The University of Sydney Law School Date Posted: 27 Sep 2018 Last Revised: 24 Oct 2018	181
6.	Reputation Failure: Market Discipline and Its Limits Yonathan A. Arbel University of Alabama - School of Law	105
7.	Noncompetes as Tax Evasion Rebecca Morrow Wake Forest University - School of Law	92
8.	Big Data Is Not Big Oil: On Analogical Reasoning, New Technologies, and Law Lauren Henry Scholz Florida State University - College of Law	89
9.	The Structure of Remedial Law Stephen Smith McGill University - Faculty of Law	82
10.	The Enduring Distinction Between Business Entities and Security Interests Ofer Eldar and Andrew Verstein Duke University School of Law and Wake Forest University School of Law	79

 

Top Downloads For:

Law & Society: Private Law - Contracts eJournal

Recent Top Papers (60 days)

As of: 11 Sep 2018 - 10 Nov 2018

Rank	Paper	Downloads
1.	The New Law of Penalties: Mapping the Terrain John Eldridge The University of Sydney Law School	246
2.	'Surrounding Circumstances' in Contractual Interpretation: Where are we Now? John Eldridge The University of Sydney Law School	181
3.	Reputation Failure: Market Discipline and Its Limits Yonathan A. Arbel University of Alabama - School of Law	105
4.	Fusion and Theories of Equity in Common Law Systems P G Turner University of Cambridge - St. Catharine's College	78
5.	The Arbitration-Litigation Paradox Pamela Bookman Temple University Beasley School of Law	75
6.	The Value of Choice and the Justice of Contract Hanoch Dagan Tel Aviv University - Buchmann Faculty of Law	57
7.	How Did We End Up in a World Where Browsewraps are Enforced Even When They Waive All Consumer Rights? Cheryl B. Preston Brigham Young University - J. Reuben Clark Law School	54
8.	Addressing Infringement: Developments in Content Regulation in the US and the DNS Annemarie Bridy University of Idaho	50
9.	Introduction to the Research Handbook on Fiduciary Law D. Gordon Smith and Andrew S. Gold Brigham Young University - J. Reuben Clark Law School and Brooklyn Law School	38
10.	Transaction Costs of Blockchain Smart Contracts Jakub J. Szczerbowski SWPS University of Social Sciences and Humanities	38

Not remembering signing your arbitration agreement doesn't mean you didn't sign it

Another day, another arbitration compelled, this time in a recent case out of the Northern District of Illinois, Nitka v. ERJ Dining IV, LLC, Case No. 18 cv 3279. The plaintiff sued the defendant for sexual harassment, sex discrimination, and assault and battery. The defendant countered that the plaintiff had signed an agreement to arbitrate disputes relating to her employment, which these were. The plaintiff stated she had no memory of signing the arbitration agreement, but the defendant's Vice President of People and Development testified that it required new employees to sign such agreements before entering employment and maintained them in the usual course of business. The plaintiff's arbitration agreement was located in her personnel file. Furthermore, the plaintiff had apparently affirmatively indicated on an electronic form that she had signed the agreement. 

The plaintiff then argued that she had been a minor at the time of signing the agreement, but the court pointed out that she ratified the agreement by continuing to work for the defendant after her eighteenth birthday. 

I believe that the plaintiff did not remember signing the arbitration agreement. To be honest, I believe that, even if she remembered, she probably had no idea what it really was. She was a minor trying to get a job at a Chili's. I'm sure she signed what she was told to sign and clicked the electronic check-boxes she was told to click -- exactly the way the vast majority of us do when getting a new job. 

Mirror image rule reminder

Here's one for exam review. 

A recent case out of the District of Oregon, Reed v. Ezelle Investment Properties Inc., Case No. 3:17-cv-01364-YY, contains an application of the mirror image rule. 

The parties in the case were embroiled in a copyright infringement dispute. They had settlement discussions as follows: 

• Reed's counsel sent Ezelle a cease and desist letter that included a settlement agreement proposing to settle the matter for $5,000. 
• Negotiations followed. 
• Ezelle's counsel sent Reed's counsel a thousand dollar check (stating that it was not a settlement offer, although that doesn't seem important to the analysis here). 
• Reed's counsel responded saying that Reed accepted the thousand dollar offer and sending Ezelle's counsel a new proposed settlement agreement. 
• Ezelle's counsel crossed out the proposed agreement's confidentiality clause and sent it back. 
• Reed's counsel said the confidentiality clause was non-negotiable. 
• There were further negotiations that fell apart, leading eventually to this lawsuit. 

Ezelle argued that the parties had settled the case through the above series of events, but the court found there was never a binding settlement because Ezelle never accepted the settlement agreement. Under the mirror image rule, when Ezelle's counsel crossed out the confidentiality clause, that operated as a counteroffer that Reed would have needed to accept. Reed never did. Rather, Reed informed Ezelle that the proposed modification of the settlement agreement was unacceptable. Therefore, there was no binding settlement agreement between the parties. 

Ezelle argued that the confidentiality clause should be classified as immaterial or unconscionable, so that the settlement agreement should be enforced just with the confidentiality clause struck, as Ezelle had desired. However, the court found no reason to strike the confidentiality clause. 

The court went on to find copyright infringement and awarded $1500 in statutory damages, as well as attorneys' fees and costs. 

The fights over arbitration clauses continue

Alison Frankel has a write-up of A-1 Premium Acceptance, Inc v. Hunter, No. SC96672, a case out of Missouri that refuses to substitute an arbitrator when the arbitrator named in the arbitration clause is no longer available (in this case, the specified National Arbitration Forum no longer provides arbitration services on consumer loans like in the contract at issue here). This is yet another court weighing in on a split that's developed: Can arbitration be compelled when the arbitration clause specified a now-unavailable arbitrator, in which case the court substitutes an arbitrator, keeping to the pro-arbitration nature of the contract? Or should courts refuse to rewrite such contracts to compel arbitration in a forum not originally agreed to, rather allowing judicial proceedings to proceed? 

Myanna Dellinger has already written about this issue in a context of another case. Given how many arbitration clauses out there might still be in effect that specify a now-defunct arbitrator, this doesn't seem like an issue that's going away. Frankel's article concludes by quoting A-1's attorney as indicating that it will petition the Supreme Court to resolve the dispute. 

(h/t to Eric Chiappinelli for sending this along to us!)

In honor of the Red Sox, some baseball contracts

Hello! I was away at a conference last week and then the Red Sox* decided to win the World Series, which threw off all productivity for a while. As I ease back into blogging, I thought I'd link you to this piece from Business Insider, analyzing some of the terms set forth in the 2011-era version of Major League Baseball's uniform contract. I find my students always love to look at real-life contracts, and this is a nice point in the year to do it, as it's a nice way to demonstrate that they are now able to (or should be able to!) understand more of the contract than they might have on the first day of class. 

Of course, I always try to impress upon my students that contracts can be negotiated, so here's a list of some more unusual contract clauses baseball players were successful in getting teams to agree to. 

*(not the Red Sex)

Attorneys cannot use anti-SLAPP statutes to strike client complaints

Is an attorney’s work in underlying lawsuits on behalf of clients protected speech under the United States or similar state constitutional standards?  No, held a California Appellate Court recently.

The California anti-SLAPP provisions state that “[a] cause of action against a person arising from any act of that person in furtherance of the person's right of petition or free speech under the United States Constitution or the California Constitution in connection with a public issue shall be subject to a special motion to strike unless the court determines that the plaintiff has established that there is a probability that the plaintiff will prevail on the claim.  An act in furtherance of a person's right of petition or free speech under the United States or California Constitution in connection with a public issue includes ... any written or oral statement or writing made in connection with an issue under consideration or review by a ... judicial body....” 

A client alleged that his attorney misrepresented his labor law expertize when negotiating the retention agreement between the two and that the attorney conducted settlement negotiations with the opposing party in order to drive up fees.  When the attorney sued his client to collect his fees, the client cross-complained for fraud and breach of contract.  The attorney then moved to strike the cross-complaint under the California anti-SLAPP statute, Code of Civil Procedure § 425.16. 

The court found that merely because attorneys occur as part of litigation – the client’slitigation – a malpractice claim such as this is not subject to anti-SLAPP.  Said the court, “[i]t is the principal thrust or gravamen of the plaintiff's cause of actionthat determines whether the anti-SLAPP statute applies, and when the allegations referring to arguably protected activity are only incidental to a cause of action based essentially on non-protected activity, collateral allusions to protected activity should not subject the cause of action to the anti-SLAPP statute.”

“Although attorney retention negotiations may in a sense be ‘connected’ with judicial proceedings involving the client, they in no way relate to the substance of an issue under review in the proceedings or further the attorney's petition or free speech rights in them.  If they did, then every communication between an attorney and a client who is or may become involved in judicial proceedings would constitute an exercise of the attorney's petition and free speech rights, and every lawsuit for malpractice would be required to undergo a second-prong anti-SLAPP analysis.  No principle or authority supports such a proposition.

The case is Mostafavi Law Group v. Ershadi, 2018 WL 4690887, (Cal.App. 2 Dist., 2018)

The (Not Quite) Weekly Top Ten SSRN Contracts & Commercial Law Downloads (October 19, 2018)

Top Downloads For:

Contracts & Commercial Law eJournal

Recent Top Papers (60 days)

As of: 20 Aug 2018 - 19 Oct 2018

Rank	Paper	Downloads
1.	Graying of U.S. Bankruptcy: Fallout from Life in a Risk Society Deborah Thorne, Pamela Foohey, Robert M. Lawless and Katherine M. Porter University of Idaho, Indiana University Maurer School of Law, University of Illinois College of Law and University of California - Irvine School of Law	3,240
2.	Sovereign Debt Restructuring and U.S. Executive Power (Reestructuración de Deuda Soberana y el Poder Ejecutivo Norteamericano) Lee C. Buchheit and G. Mitu Gulati Cleary Gottlieb Steen & Hamilton LLP - New York Office and Duke University School of Law	551
3.	The SAFE, the KISS, and the Note: A Survey of Startup Seed Financing Contracts John F. Coyle and Joseph M. Green University of North Carolina School of Law and Thomson Reuters Practical Law	388
4.	Requiem for a Paradox: The Dubious Rise and Inevitable Fall of Hipster Antitrust Joshua D. Wright, Elyse Dorsey, Jan Rybnicek and Jonathan Klick George Mason University - Antonin Scalia Law School, Faculty, Government of the United States of America - Federal Trade Commission, Freshfields Bruckhaus Deringer LLP and University of Pennsylvania Law School	386
5.	Demystifying Technology. Do Smart Contracts Require a New Legal Framework? Regulatory Fragmentation, Self-Regulation, Public Regulation. Marco Dell'Erba New York University School of Law	284
6.	The New Law of Penalties: Mapping the Terrain John Eldridge The University of Sydney Law School	234
7.	The Private Law Critique of International Investment Law Julian Arato Brooklyn Law School	185
8.	Poor Consumer(s) Law: The Case of High-Cost Credit and Payday Loans Shmuel I. Becher, Yuval Feldman and Orly Lobel Victoria University of Wellington, Bar-Ilan University - Faculty of Law and University of San Diego School of Law	148
9.	'Surrounding Circumstances' in Contractual Interpretation: Where are we Now? John Eldridge The University of Sydney Law School	148
10.	The Impact of the Hague Principles on Choice of Law in International Commercial Contracts Michael Douglas and Nicholas Loadsman The University of Western Australia Law School and Clayton Utz	117

 

Top Downloads For:

Law & Society: Private Law - Contracts eJournal

Recent Top Papers (60 days)

As of: 20 Aug 2018 - 19 Oct 2018

Rank	Paper	Downloads
1.	The SAFE, the KISS, and the Note: A Survey of Startup Seed Financing Contracts John F. Coyle and Joseph M. Green University of North Carolina School of Law and Thomson Reuters Practical Law	388
2.	Demystifying Technology. Do Smart Contracts Require a New Legal Framework? Regulatory Fragmentation, Self-Regulation, Public Regulation. Marco Dell'Erba New York University School of Law	284
3.	The New Law of Penalties: Mapping the Terrain John Eldridge The University of Sydney Law School	234
4.	'Surrounding Circumstances' in Contractual Interpretation: Where are we Now? John Eldridge The University of Sydney Law School	148
5.	Arbitration Nation: Data from Four Providers Andrea Chandrasekher and David Horton University of California, Davis - School of Law and University of California, Davis - School of Law	124
6.	Implementation Negotiation: A Transactional Skill that Builds on and Transforms Classic Negotiation Theory Tina L. Stark Independent	119
7.	The Impact of the Hague Principles on Choice of Law in International Commercial Contracts Michael Douglas and Nicholas Loadsman The University of Western Australia Law School and Clayton Utz	117
8.	Split Derivatives: Inside the World's Most Misunderstood Contract Dan Awrey University of Oxford, Faculty of Law	106
9.	Transactional Skills Education: Mandated by the ABA Standards Tina L. Stark Independent	105
10.	Reputation Failure: Market Discipline and Its Limits Yonathan A. Arbel University of Alabama - School of Law	70

 

Contracts quintessential first-year course: Law school professor makes his case

From WMU-Cooley Distinguished Professor Emeritus Otto Stockmeyer:

In my view, Contracts is the quintessential first-year course. It presents an excellent introduction to the common law and legal reasoning. The course is foundational to several upper-level courses, and the best predictor of law school success. Lawyers have reported that they use Contracts in their practice almost twice as much as any other law school subject.

Although traditionalists begin the course with offer and acceptance, there are both pedagogical and practical reasons to start with remedies. Studying remedies is not easy going for beginning students, who tend to hate working with numbers. But they tell me that they like difficult topics placed early in the term so they have longer to process the material.

The most important reason to start with remedies is the opportunity to begin the first day’s class with Hawkins v. McGee.

Here are my Top Ten reasons why:

10. The opinion immediately demonstrates to beginning students their need for a law dictionary. The first paragraph alone contains five legal terms.

9. The opinion shows how judges sometimes load their opinions with empty overstatements, such as “clearly” and “obviously” when the facts were neither.

8. The opinion demonstrates the process of analysis that courts employ when direct legal authority is lacking.

7. The opinion allows an early exploration of some distinctions between tort (medical malpractice) and contract (promise of 100 percent success) in a context readily understood by beginning students.

6. The opinion revolves around two of the central themes in Contract law: the objective theory of assent and the expectation objective of contract remedies.

5. The opinion is an excellent introduction to remedies and the difference between tort and contract damages.

4. The opinion illustrates that general principles are easier to state than to apply.

3. The opinion has more poignancy than the commercial disputes that will follow.

2. The case has a rich subsequent history that can be explored as time permits.

1. Three words: The Paper Chase. Many students will have read the book or rented the movie. They expect Contracts to begin with a study of the “hairy hand” case. Disappoint them the first day and they may question their choice of law schools.

The Paper Chase
The movie version of this law school classic contains two scenes that I’ve used in my class. The first is Professor Kingsfield’s ‘skull full of mush’ explanation of why law schools use the Socratic method. That needs to be addressed the first day.

The second is Kingsfield’s encounter with a student, Mr. Hart. After recapping the facts of Hawkins v. McGee, Kingsfield asks, ‘Now Mr. Hart, what sort of damages do you think the doctor should pay?’

I then would call on several students and ask whether Mr. Hart gave the right answer (no, he didn’t). The ice having been broken, another term of Contracts has been successfully launched.

---

Read the full text of Professor Stockmeyer’s paper on the Social Science Research Network.

Dish Network and Univision fight over who breached

As the Hollywood Reporter reports, the license agreement expired between Dish Network and Univision more than three months ago, and the parties are fighting it out in federal court, pointing fingers at which of them (if any, I suppose) breached the license agreement, and whether there are any additional IP claims in play. It's a high-profile case with a real impact for Hispanic viewers, who probably just would like to get Univision back on Dish. Given the litigation, that might take a while. 

Lack of Consideration – Or Not!

Currently in the midst of teaching consideration, I found the following case curious not so much because of its somewhat questionable facts, but because of the court’s puzzling reasoning.

Plaintiff Jose Torrez, a skilled laborer, agreed to renovate some buildings owned by defendant Koray Ergur and his companies.  Torrez was promised a bonus of $150,000 for nine months’ worth of work if he would work for the “reduced hourly wage” of $10 per hour.  He did. At some point in time, his hourly pay was increased to $11 per hour.  After completing a total of 18 months of labor, Torrez was terminated and – you guessed it – denied the bonus.  He brought suit claiming, among other things, breach of oral contract and the bonus $150,000 in damages.

The court rejected the latter.  Of course, since the contract was for the completion of nine months of labor, the Statute of Frauds was not implicated and the oral promise was thus enforceable if the court had wanted to do so.  It did not, however.  Instead, it found that Torrez had, during the legal proceedings, “contractict[ed] his allegation of reduced wages as the consideration for the $150,000 bonus.”  The court concluded that “while Torrez recited facts in his pleading to support the element of consideration for the promised bonus [i.e. the low pay of $10 per hour], the evidence presented by deposition and at Hearing [i.e. the “non-reduced” hourly wage of $11 per hour] refutes the existence of consideration … Therefore … it is clear that no consideration existed for the promise to pay a bonus.”

The court apparently found that because Torrez actually received one single dollar more per hour over nine months, there was no consideration for the original promise of working for a “reduced salary.”  However, consideration is measured at the point of contract formation, not after the subsequent turn of events.  Receiving only $10 or even $11 per hour instead of what skilled, manual laborers could get is a “reduced wage” given the market for such work.  It is puzzling why the court found that “no consideration existed for the promise to pay a bonus” when such consideration was fairly clearly present from the outset, namely the promise to work for not much with a promise of a bonus upon completion of the work.

Is something else at play here?  I think so.  It strikes me as odd that, pardon me, a manual laborer would be promised a bonus of no less than $150,000 for nine months of work.  That is $16,999 per month or, working 40 hours a week, $104 per hour.  Skilled workers can and do demand high fees in some locales, and maybe in Ohio as well. But $150,000 does seem high.  Was the court simply trying to protect the defendant from what may have been an attempted fraud by Torrez?

The truth will probably never be known here. Regardless, this case nicely demonstrates how the consideration doctrine is still relevant and, as always, the importance of getting contracts in writing even though they do not haveto be.  Even if Torrez had been promised the asserted bonus, it is also wise to remember the old adage that if something seems too good to be true, it might be.  Maybe Torrez was the one fooled in this case.

The case is Jose Torrez v. Koray Ergur, et al., Case No. G-4801-CI-201604375-000 (Court of Common Pleas, Ohio, Aug. 31, 2018).

H/t to colleagues on Contracts listserv for bringing this case to the attention of all of us.

If you're looking for a statute of frauds "cannot be performed within a year" case

I just gave a midterm in my contracts class, which is always so useful to crystallize the places where the students are having consistent understanding issues. For me this year, one of the tricky parts seems to be the statute of frauds, so it was nice to see this recent case out of the Eastern District of Wisconsin, Northern Group, Inc. v. Tech 4 Kids Inc., Case No. 17-C-1367 (behind paywall), that deals with a fairly straightforward statute of frauds issue. 

In the case, Northern Group alleged that the parties had an oral agreement for commissions for sales and brought causes of action related to the breach of this agreement. Tech 4 Kids argued that the claims should be dismissed, in part because the oral agreement should have been in writing under the statute of frauds. However, as the court noted, the statute of frauds does not require a contract to be in writing unless it cannot be performed within a year. While it was true that the sales agreements required to be formed to result in commissions under the contract could sometimes taje years to finalize, Northern Group could conceivably have arranged some sales agreements within a year. Moreover, the agreement was terminable at will by either party, so either party could have decided within a year not to continue with the arrangement. Therefore, the oral agreement was capable of being performed within one year and so was not void under the statute of frauds. 

A little less Sixteen Candles, a little more duty to inspect (or not)

When you've been stuck in an airport for hours, boarded the plane, un-boarded the plane, and have several more hours of airport waiting time in front of you, you're allowed to randomly make a Fall Out Boy reference if your Fall Out Boy playlist is what's getting you through the delay. 

As far as the case goes: a recent case out of New Jersey, Gross v. Fotinos Enterprises, Docket No. A-2058-17T4, involved a dispute over a landlord's duty to inspect, which the court decided did not exist. The landlord rented to a pancake house restaurant (I have a habit of blogging about pancake houses, I happen to like pancakes) who used a cinder block to prop open an exterior door. The plaintiff was a restaurant employee who tripped over the cinder block and sued for injuries she sustained. 

The lease stated that the tenant should not obstruct the entrances, and the parties agreed that the lease imposed liability on the tenant for all charges associated with the property. The plaintiff argued, though, that the landlord had a duty to ensure the tenant's compliance with all terms of the lease.

The court disagreed. The lease explicitly delegated responsibility for maintenance of the premises to the tenant, and the landlord was not aware that the tenant was using the cinder block to prop open the door. The landlord therefore owed no duty to inspect the premises or enforce compliance with the lease. 

Duty of Good Faith, Tortious Interference, and Statutes of Limitation

A new Seventh Circuit Court of Appeals case demonstrates the importance of filing suit in a timely manner in order to retain one’s contractual rights.  It also shows just how nasty contractual parties may act towards each other in violation of the duty of good faith and fair dealing.

JTE distributed products in Chicago for Bimbo Foods Bakeries Distribution Company (“Bimbo”) for over a decade.  The contract had no duration, but stipulated that it could be terminated in cases of non-curable breaches by one of the parties.  Bimbo sought to force JTE to forfeit its contractual rights so that Bimbo could start working with a new distributor that would accept a smaller slice of the pie: 18% instead of 20%.  But because JTE had performed the contract as required, Bimbo

"began fabricating curable breaches in the spring of 2008 as part of a scheme to force JTE out as its distributor. Bimbo Foods employees filed false reports of poor customer service and out-of-stock products at stores in JTE’s distribution area. Even more egregiously, Bimbo employees would sometimes remove JTE-delivered products from grocery store shelves, photograph the empty shelves as “proof” of a breach, and then return the products to their initial location. On one occasion, in 2008, a distributor caught a Bimbo Foods manager in the act of fabricating a photograph and reported him. Bimbo assured JTE that this misconduct would never happen again. Nevertheless, unbeknownst to JTE, Bimbo Foods continued these scurrilous tactics … When JTE refused to sell its distribution rights in January 2011, Bimbo Foods breached the distribution agreement and unilaterally terminated JTE’s agreement, citing the fabricated breaches as cause. Several months later ... Bimbo Foods forced JTE to sell its rights to new distributors."

JTE filed suit in 2017.  Under the Illinois law, the statute of limitations for breaches of common law contracts is ten years whereas under the UCC, it is four years.  The question thus became whether the parties had entered a contract for sale of goods. They had.  Said the court: “Under the primary-purpose test, the distribution agreement between JTE and Bimbo Foods easily qualifies as a contract for the sale of goods. We have previously pointed out that ‘virtually every jurisdiction that has addressed this issue’ has concluded that dealership and distributorship agreements are predominantly for the sale of goods.”  The suit was thus untimely filed.

JTE’s additional claim for tortious interference with contract fared no better as a five-year statute of limitation governed that.  The court did, however, comment on the merits of the alleged tort.  It found that “a party cannot tortiously interfere with its own contract, nor can it tortiously interfere with any business expectancies created by that contract. As the Illinois courts have noted, ‘[t]o allow such claims to be litigated would invite tort law to absorb contract law.’”  Thus, because JTE was one of the parties to the suit, it could not assert that claim even thought it was Bimbo, not JTE, that had acted in a highly unwarranted manner.

None of the parties asserted the duty of good faith and fair dealing under UCC §1-304 which states that “[e]very contract or duty within [the Uniform Commercial Code] imposes an obligation of good faith in its performance and enforcement.”  “Good faith” is defined as “honesty in fact and the observance of reasonable commercial standards of fair dealing.”  UCC § 1-201. 

What Bimbo allegedly did clearly did not meet this standard. However, because the four-year statute of limitations had run, JTE could still not have asserted that argument. The moral of this story is for your clients to monitor the contractual performance by the other party closely and, if anything seems awry, bring this up and resolve the issue as soon as possible.

The case is Heiman v. Bimbo Foods Bakeries Distribution Co., 902 F.3d 714 (7th Cir. 2018).

Banksy keeps things interesting

Here's me poking my head out from a weekend of midterm grading to thank Banksy for a situation right out of a contracts hypothetical. 

Thank you to Eric Chiappinelli and Jennifer Taub for the heads-up!

The (Somewhat) Weekly Top Ten SSRN Contracts & Commercial Law Downloads (October 2, 2018)

Top Downloads For:

Contracts & Commercial Law eJournal

Recent Top Papers (60 days)

As of: 03 Aug 2018 - 02 Oct 2018

Rank	Paper	Downloads
1.	Graying of U.S. Bankruptcy: Fallout from Life in a Risk Society Deborah Thorne, Pamela Foohey, Robert M. Lawless and Katherine M. Porter University of Idaho, Indiana University Maurer School of Law, University of Illinois College of Law and University of California - Irvine School of Law	3,099
2.	The SAFE, the KISS, and the Note: A Survey of Startup Seed Financing Contracts John F. Coyle and Joseph M. Green University of North Carolina School of Law and Thomson Reuters Practical Law	364
3.	Requiem for a Paradox: The Dubious Rise and Inevitable Fall of Hipster Antitrust Joshua D. Wright, Elyse Dorsey, Jan Rybnicek and Jonathan Klick George Mason University - Antonin Scalia Law School, Faculty, Government of the United States of America - Federal Trade Commission, Freshfields Bruckhaus Deringer LLP and University of Pennsylvania Law School	319
4.	Will the Sharing Economy Increase Inequality? Gregory M. Stein University of Tennessee College of Law	238
5.	Demystifying Technology. Do Smart Contracts Require a New Legal Framework? Regulatory Fragmentation, Self-Regulation, Public Regulation. Marco Dell'Erba New York University School of Law	237
6.	The New Law of Penalties: Mapping the Terrain John Eldridge The University of Sydney Law School	195
7.	Bankruptcy Claims Trading Jared A. Ellias University of California, Hastings	174
8.	The Private Law Critique of International Investment Law Julian Arato Brooklyn Law School	165
9.	Blockchain Bills of Lading Elson Ong National University of Singapore (NUS) - Centre for Maritime Law	150
10.	Poor Consumer(s) Law: The Case of High-Cost Credit and Payday Loans Shmuel I. Becher, Yuval Feldman and Orly Lobel Victoria University of Wellington, Bar-Ilan University - Faculty of Law and University of San Diego School of Law	125

 

 

Top Downloads For:

Law & Society: Private Law - Contracts eJournal

Recent Top Papers (60 days)

As of: 03 Aug 2018 - 02 Oct 2018

Rank	Paper	Downloads
1.	The SAFE, the KISS, and the Note: A Survey of Startup Seed Financing Contracts John F. Coyle and Joseph M. Green University of North Carolina School of Law and Thomson Reuters Practical Law	364
2.	Will the Sharing Economy Increase Inequality? Gregory M. Stein University of Tennessee College of Law	238
3.	Demystifying Technology. Do Smart Contracts Require a New Legal Framework? Regulatory Fragmentation, Self-Regulation, Public Regulation. Marco Dell'Erba New York University School of Law	237
4.	The New Law of Penalties: Mapping the Terrain John Eldridge The University of Sydney Law School	195
5.	The Impact of the Hague Principles on Choice of Law in International Commercial Contracts Michael Douglas and Nicholas Loadsman The University of Western Australia Law School and Clayton Utz	114
6.	Arbitration Nation: Data from Four Providers Andrea Chandrasekher and David Horton University of California, Davis - School of Law and University of California, Davis - School of Law	109
7.	The Chilling Effect of Governance-by-Data on Data Markets Niva Elkin-Koren and Michal Gal University of Haifa - Faculty of Law and University of Haifa - Faculty of Law	91
8.	Split Derivatives: Inside the World's Most Misunderstood Contract Dan Awrey University of Oxford, Faculty of Law	91
9.	Foundationalism About Contract Law: A Sceptical View George Letsas and Prince Saprai University College London - Faculty of Laws and University College London - Faculty of Laws	64
10.	Transactional Skills Education: Mandated by the ABA Standards Tina L. Stark Independent	60

 

How to draft a forum selection clause

A recent decision out of the District of Oregon, Summit Foods, Inc. v. Viking Packaging Technologies, Inc., Case No. 3:18-cv-1470-SI, debated whether a forum selection clause was mandatory or permissive, and so provides some lessons if you're trying to draft one of these. 

The defendant was arguing that the forum selection clause was mandatory, but the court found that was reading the clause "through rose-colored glasses." The clause said that "[t]he courts of Sheboygan County Wisconsin will have jurisdiction." The court, however, noted that the clause was silent as to whether any other jurisdiction might also have jurisdiction. There was no language indicating that Sheboygan County would have exclusive jurisdiction. A mandatory forum selection one is one that contains such language of exclusivity. The forum selection clause in this case was therefore held to be permissive. 

Uber fails to establish an accord and satisfaction on a motion to dismiss

If you're looking for a recent accord and satisfaction case, look no further! I've got one for you out of the Northern District of California, TSI USA LLC v. Uber Technologies, Inc., Case No. 17-cv-03536-HSG (behind paywall). In the case, Uber and TSI had a contract that Uber terminated. TSI received a termination notice and a check for a little over $200,000. TSI responded to Uber with outstanding invoices Uber owed payment on, amounting to more than $1.4 million. TSI eventually sued Uber for, inter alia, breach of contract, and Uber moved to dismiss the claim, arguing that that TSI's cashing of the $200,000 check operated as an accord and satisfaction, prohibiting TSI's breach of contract claim. 

The court disagreed. Accord and satisfaction requires that the check be presented in good faith and with a conspicuous statement that it is meant to satisfy the entire debt. Construing the facts in the light most favorable to TSI, Uber could not establish that its check of $200,000 met "reasonable commercial standards of fair dealing," given that TSI alleged Uber owed over $1.4 million. In addition, while the termination notice stated "by executing below you acknowledge and agree that such payment constitutes full and final payment," it was followed by a line for signature labeled "Chief Executive Officer." TSI asserted that it thought the signature of the CEO was required for the payment to constitute full and final payment, not that the cashing of the check by itself. The court agreed with TSI that the language was not so "explicit and unequivocal as a matter of law so as to preclude TSI from asserting its breach of contract claim." Therefore, the breach of contract claim survived. 

Deciding insubordination isn't the same as judging spiritual leadership

I just blogged about the ministerial exception of the First Amendment, and now here's another case discussing it! This recent case out of California, Sumner v. Simpson University, C077302, was a dispute over Sumner's dismissal for insubordination. Sumner sued for breach of her employment contract. Simpson argued that the ministerial exception of the First Amendment protected its contractual decision from judicial examination. The court agreed that Simpson was a religious group and also found that Sumner was a ministerial employee even though she wasn't technically titled a minister. Her job duties at the university required her to have a doctorate in ministry or a related field and included promoting the university through preaching appearances. 

However, the court still permitted Sumner's breach of contract claim to go forward, based on the fact that the ministerial exception should not bar all contract actions involving a religious group and its ministerial employees. Rather, it should only operate to bar those causes of action that would require the court to decide religious matters. Sumner was purportedly terminated for insubordination, which was defined by the faculty handbook incorporated into Sumner's contract. The alleged insubordination involved Sumner's violation of the university's written protocol. Sumner, however, alleged that she was never provided with the written protocol and so her conduct could not be found to be insubordinate. Resolving this dispute would not require "wad[ing] into doctrinal waters," because Sumner's religious qualifications weren't at issue and the dispute didn't concern Simpson's religious autonomy.