Thursday, January 20, 2022
A post on Chapter 3 is here.
A post on Chapter 2 is here.
The introductory post is here.
In lost-volume cases, such as Neri v. Retail Marine, a seller can recover lost profits even though it was able to re-sell the good after breach. Assuming an effectively infinite inventory, but for the breach, the seller would have sold twice, and so the re-sale does not mitigate its damages. I teach lost-volume sellers in my Sales course. I feel bad about forcing lost-volume sales on students, because a lot of students have a hard time understanding when the doctrine might apply. However, the doctrine seems like a good way to get students thinking about mitigation of damages and the contours of a party’s ability to recover for lost profits. Lost volume cases might not arise very frequently, perhaps a product of amounts in controversy that do not justify the costs of litigation, but that does not mean the bar will not test the material.
Professor Goldberg is not enamored of the doctrine, especially because courts are wont to apply it in cases where it clearly does not apply (looking at you, then Circuit Judge Alito in Tigg v. Dow Corning) (RCL, 35-36). As he does in Chapter 2, Professor Goldberg suggests that option pricing provides a far better solution to the lost-volume problem than the lost-volume doctrine. Sellers know that some buyers will back out. They rely on buyers; buyers should be willing to bargain for some flexibility. So make buyers pay a non-refundable deposit, or the parties can agree to liquidated damages (which courts would be well-advised to enforce) as a way to protect seller’s reliance interest. And buyers should be willing to pay a higher deposit when goods are not plentiful rather than when they are, so the UCC § 2-708(2) gets the option price backward (RCL, 36-38).
Lawyers representing Michael Jordan in In re WorldCom contended that he was entitled to lost- volume profits when a bankrupt WorldCom rejected his endorsement contract only six years into a ten-year commitment. The bankruptcy court rejected Jordan’s claim that he was a lost-volume seller, but Professor Goldberg explains that the argument is not as preposterous at it seems. Although MJ was only obligated to work 16 hours/year for WorldCom, and thus could have taken on other endorsement deals, he was not a lost-volume seller because he had not established that he had any interest in taking on additional deals. He had no such interest, among other reasons, because WorldCom would argue that any such deals were mitigation. But because MJ’s deal with WorldCom was exclusive only of endorsement deals with other telecom companies, any other endorsement deals would not have been mitigation, and the only thing that would be mitigation was taking an endorsement deal with another telecom company. But doing so would have been a bad business decisions for MJ. They would have made him look mercenary, like he will pimp any product (RCL, 40-43). MJ is not the “Can you hear me now?” guy.
Professor Goldberg faults the bankruptcy court for treating any endorsement contract that MJ would have taken as mitigation for WorldCom’s breach. The court mistakes the interests we protect through the mitigation doctrine. What matters in mitigation cases, Professor Goldberg argues, is not whether the alternative work taken on is comparable. What matters is that new work is taken on that could not have been taken on but for the breach. What the law characterizes as mitigation is really just an offset. In MJ’s case, there could be no lost-volume problem, because MJ was not interested in a second sale. If there was a second sale, only an endorsement deal with another telecom company would have offset his harm from WorldCom’s breach. Professor Goldberg is sympathetic to MJ’s claim that he was entitled to full recovery because it would have been a bad business decision for him to take on a comparable endorsement deal (RCL, 44-46).
I must admit, he loses me there. MJ’s attorneys noted that MJ did not want to take on any more endorsement deals, as they detracted from his main goal, owning an NBA franchise. For MJ, WorldCom’s beach was fortuitous. He no longer had to do work that he no longer wanted to do. I can see a legal argument for why MJ was entitled to compensation because of the breach, but I don’t see the economic argument. MJ had protected himself contractually against a breach caused by WorldCom’s insolvency and had no duty to mitigate. However, the Bankruptcy Code negates such contractual clauses, because they give unsecured creditors priority over secured creditors. To the extent that the priority rules in the Bankruptcy Code made sense, I don’t see the economic argument for setting those rules aside for someone who has no interest in doing the work for which he was promised payment.
Wednesday, January 19, 2022
I’m excited to teach copyright this semester and while I miss teaching contracts, there is a lot of synergy between the two subjects. So, I was interested to read that the director Quentin Tarantino is being sued by Miramax in an action claiming copyright infringement and breach of contract. The lawsuit involves Tarantino’s efforts to auction pages of the script from Pulp Fiction as non-fungible tokens or NFTs.
The issue is whether Tarantino owns the rights to the NFTs. That will depend on the contract between Tarantino and Miramax and whether the language the parties used was broad enough to capture this type of technology – technology that wasn’t contemplated at the time the parties entered into their agreement.
I started law school in the Fall of 1996, visions of social justice, constitutional, international, and comparative law dancing in my head. I knew I would have to take torts and criminal law in the first semester. That would be diverting, I thought. There was also something called civil procedure. I had no idea what that was, and based on my grades in that course, that had not changed by the the end of my first year. Contracts was a course about transactional law, I supposed. It was for people who became lawyers so that they could make money. I had no interest in that.
Dutifully, I showed up for class, and in walked Liam Murphy (right). Liam was not what I had in mind when I imagined my contracts professor. He was not a transactional lawyer. He was a philosopher. I don't know if he ever practiced law or even got a law license. He was a pure academic, and he thought about contracts law the way I wanted to think about contracts law, at a time when I thought I would never want to think about contracts law. He started in with the very basic premise that, at least in the United States, contracts law is about promises, and so we started talking right from the beginning about why we enforce some promises and not others.
Suddenly, contracts law was not at all about commerce or transactional work. It was about a very basic human interaction. It was about obligations, moral and legal, and about why we think some promises entail moral obligations and why the law treats some of those moral obligations but not others as legal obligations. Yes, we read cases and we learned doctrine, and yes, those cases mostly involved commercial transactions. We also read a lot of economics and law literature about contracts. But we never lost track of the basic questions with which we started. For which promises should the law provide a remedy in case of breach, and what are our intuitions, moral, conventional, or pragmatic, about what those remedies should be?
Well, thanks to Felipe Jimenez's Private Law Podcast, I was able to bite into a madeleine and feel as though transported back through time and space into Vanderbilt Hall circa 1996-97. The conversation begins with Liam's thoughts about tax law, moves to property, and then settles in on the nature of promise and contract.
Tuesday, January 18, 2022
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Here's the problem about writing about the British Royal Family. If you are someone who cares about the Royals, you know approximately 1.7 million times more about them than I do. If you don't care about the Royals, nothing in the post will be of the slightest interest to you. And yet, there is a big story out there; contracts law is at the center of it. I am somewhat compulsive. Sigh. Here we go.
Earlier this month, Sid DeLong posted about the argument that Virginia Roberts Giuffre's suit against Prince Andrew alleging sex trafficking should be dismissed based on a Settlement Agreement and Release that she entered. into with Jeffrey Epstein in 2009. Last week, Judge Lewis Kaplan denied Prince Andrew's motion to dismiss in a 46-page opinion. In that opinion, Judge Kaplan carefully considers whether Prince Andrew was among the defendants whom the parties intended to release or whether he is a third-party beneficiary of the Agreement. At this point in the litigation, Judge Kaplan concluded, it is too early to rule definitively on either argument. Judge Kaplan also rejects the so-called "Dershowitz argument." That is, because Ms. Giuffre dismissed her claims against Mr. Dershowitz when the Agreement was raised as a potential defense, the same result should obtain here. Judge Kaplan avoided speculating on why the Release might be helpful to Mr. Dershowitz but insisted in any case to consider independently the Release's applicability to every potential defendant.
There is more to the opinion, but the rest of it does not really touch on contracts law or the law of third-party beneficiaries, so we will leave it to others to expound. What interests us for now is the Crown's response to this opinion.
With The Queen's approval and agreement, The Duke of York’s military affiliations and Royal patronages have been returned to The Queen.
The Duke of York will continue not to undertake any public duties and is defending this case as a private citizen.
He may no longer use the honorific "His Royal Highness," and he had to surrender his military titles. The BBC, perhaps a more reliable source on this subject, clarifies, "Like Harry and Meghan, Prince Andrew retains his title HRH but will not use it in any official capacity." I'll assume you all know to which "Harry and Meghan" the BBC refers, and I will leave it at that.
A post on Chapter 2 is here.
The introductory post is here.
The standard measure of damages in a case of breach or anticipatory repudiation is the difference between the market price and the contract price. However, courts have taken different approaches when determining the market price – is it the market price at the time of breach, at the time when performance was due, or when the decision is rendered (RCL 22)? Professor Goldberg’s analysis focuses on four cases.
In Cosden Oil & Chemical Co v. Karl O. Helm Aktiengesellschaft, an anticipatory repudiation case, the court got things right in Professor Goldberg’s view. It effectively recognized that the cover price is not best understood as the value of the goods to be exchanged on date X, where X is a reasonable time after notice of repudiation, but the value of the goods on date X to be delivered on date Y. This is especially true in a case such as this one, where the non-breaching party was a trader rather than an end-user of the goods (RCL, 23-24).
The same issue arose in the case of The Golden Victory, about which Professor Goldberg wrote at greater length here. There, the Law Lords were confused by a clause that permitted a charterer to terminate a shipping contract in the event of war. The U.S. invaded Iraq between the time of repudiation and the time of the decision, and so the Law Lords recognized that the breaching party could have canceled the contract from the onset of the U.S. invasion of Iraq and calculated damages accordingly. But given that war is always a possibility, the proper measure of harm is the value of the contract, taking the risk of war into account, at the time of notice of breach (RCL, 25-28).
Professor Goldberg next discusses a case involving Pepsico and a jet. No, not that one. Klein v. Pepsico. In Klein, the trial court awarded specific performance as the remedy for Pepsico’s failure to deliver a G-II airplane to Klein. Very few such planes were available, and Klein had covered by purchasing a G-III. The Court of Appeals appropriately reversed. As Klein intended to resell the plane, the proper measure of Klein’s damages was the difference between market price and contract price at the time of breach. Klein sought specific performance because the value of the plane had increased in the intervening period, but the Court of Appeals refused to award an extraordinary remedy when money damages were sufficient (RCL 28-30).
In Israel, specific performance is not an extraordinary remedy, but Adras Building Material v. Harlow & Jones GMBH, was Klein in reverse. The court granted damages (disgorgement) because the value of specific performance had declined in the interval between breach and judgment. Israeli law provided for a calculation of damages from the time of the contract’s “termination.” From an American perspective, the case is rendered ridiculous by the court’s finding that the contract, despite breach, had never terminated, although Harlow failed to deliver 2000 tons of the 7000 tons of steel it was contractually obligated to provide. The contract dated from 1973; the breach from 1974. The Israeli Supreme Court rendered its final decision in 1988. From Professor Goldberg’s perspective, the various opinions in the case omit the crucial date when performance was due. If that fact were provided, then it would be a simple matter of calculating the market price of steel due for delivery at the time of the breach. The court, in granting a restitution remedy, effectively made that calculation. It held that Harlow had been unjustly enriched by the amount by which the price at which it sold the steel exceeded the contract price. Restitution damages in this case were the same as expectation damages (RCL, 30-32).
The reasoning in Adras seems to give the non-breaching party a valuable option. Under Israeli law, if the price of steel rose, it could have sought specific performance at any time prior to contract “termination.” Because the price of steel dropped, it sought expectation damages styled as a disgorgement remedy. However, Professor Goldberg notes, if the contract is not terminated, shouldn’t both sides have the same option. Why couldn’t Harlow simply deliver steel at any point before the final decision in 1988 and claim full contractual performance (RCL 33-34)?
It is clear, in Professor Goldberg’s view, that in anticipatory repudiation cases, a court should not take post-breach occurrences into account in calculating damages. In the other cases (the ones not involving anticipatory repudiation), it is striking how untethered discussions of damages were from legal or economic justification. In Klein, the trial court ordered specific performance when the good at issue was not unique and money damages were sufficient. In Adras, the court did not seem to understand the nature of the remedy it provided.
Monday, January 17, 2022
These are stressful times for first-year law students. They are getting grades that purport to sum up their performance in their first semester and that some may regard as a predictor of success in the legal profession or even of cognitive fitness for the bar. There is no denying that first-semester grades are important. They will open doors for some students, and for others the grades will nudge some doors towards closing, but for almost all students, most doors remain ajar if not wide open. Our jobs as teachers and our institutions' function as schools is to strive for success for all of our students.
The students who do well on exams will have an easier time launching their careers, but good grades in law school only take you so far. Everyone faces challenges, and for most careers, law schools grades don't map very well onto career prospects. Students should continue to get what they can out of the law school curriculum, but they may need to look for ways to distinguish themselves in ways other than with a high GPA. Fortunately, law schools offer myriad ways to do so.
Allow me to use myself as an example. I was a history professor before I went to law school. I never wanted to practice law. I wanted to return to teaching, and I thought a J.D. on top of a Ph.D. was a good way to do it. I had always gotten very high grades, but my first-semester grades were not great -- maybe top third of my class or thereabouts. I met with my advisor. He said three things that have stuck with me.
First he said, "Well, you will never have a tenure-track job at a top-50 law school." Then, perhaps seeing the look on my face, he added, "These grades aren't bad for someone with a Ph.D." He then proceeded to, "You will get a teaching job, but it might take a while, and you won't be driving a taxi until then." At the time, the first comment was devastating. The absolute last thing I wanted to hear. It was not long before I came to appreciate that everything he said was exactly right, and I rather quickly regained my equilibrium. I was grateful for his honesty and comforted by my confidence in his predictive abilities. Things turned out pretty much exactly as my advisor predicted. I will focus on his first and third statements, but I also want to note that my experience is that students who have prior experience, not necessarily Ph.D.'s, but any experience that involves a way of thinking and writing, are at a disadvantage when placed in competition with the receptive tabula rasa of the 22-year-old mind. Older students, take heart. Employers know that you have skills that may not translate into high grades in the first year of law school.
I can also say that, in my case, my grades and class standing improved markedly after the first year. However, to be honest, final exam essays were never my strong suit. At NYU, I was able to improve my GPA by taking a bunch of seminars. I knew how to write seminar papers. At institutions like the unranked law schools at which I have always taught, where students need to take bar-tested subjects throughout all three years of law school, their GPAs should improve steadily, but their class ranks might be more sticky.
I would land a teaching job, and that was the career path I wanted to be on. It took longer than I hoped (five years), but those five years were extraordinarily helpful in preparing me for teaching. I gained experience clerking for a judge and working as a litigator that inform my teaching. I can't imagine teaching without those experiences, even though, at the time, I thought of them as just paying the bills and padding my c.v. until I could rejoin the academy.
There have been adjustments, but I love my professional life. I cannot imagine the life I would have lived if I had been better at law school in the beginning. I don't know how I would have withstood the pressures of teaching at an elite law school. Thoughts of that life unlived do not keep me awake at night.
And so this is my message to students who are disappointed with their grades. First, the obvious. You are not your grades. Your grades are a component of what will determine your career, so you need to take them seriously, but there are plenty of qualities that will be far more important for your career than your grades. Drive, dedication, the ability to work with others are all important, but the most important thing is to find the things about law that you love doing. Those will probably end up being the things that you do best. There will be plenty of opportunities to distinguish yourself in law school, and grades are just one of them. Also, make friends in law school and go to alumni events. Connect with people who share your interests, and don't be shy about following up. You may have to kiss a lot of frogs, but you will find your prince.
Second, you do not know now what you will find most rewarding about a career in the law. When my advisor told me I would never have a tenure-track job at a top-50 law school, I was devastated, because I thought my most important contributions in this life would come through scholarship, and I thought I needed to be at a top school so that I would have the environment most conducive to scholarship. I have now come to conclude that the most important thing I do as a law professor is teach, and I think that is true of most academics, regardless of where they are.
In the past decade, I have seen senior colleagues bow to economic necessity and take buy-outs. Many of them came back to teach as adjuncts because they missed the classroom and the connection with students. I also experienced having my law law school close. Some of my colleagues have not yet found steady teaching jobs, and I think they all desperately miss it, even if they are making the most of their times back in practice or in retirement. What they miss is not the rush of being the center of attention. It is truly a privilege to be able to help people develop into professionals, and it is a joy to watch the incredible progress students make between orientation in 1L year and graduation. The pandemic also brings home to me how important it is to me to be in the classroom, especially during times like these, when omicron is keeping us all at home.
A law degree opens many doors. None of us can know enough about what lies behind those doors for it to make any sense to fixate on any door in particular. As directors tell stage actors: know your character, find your light, and say your lines. There are things going on all around you that you cannot control, so just focus on doing your job as well as you can. For now, that means do your reading, show up for class, think about the rulings and start to develop your own take on the law. Eventually, that will prepare you to use your legal reasoning skills to support yourself, to contribute to your community, and to benefit others.
Friday, January 14, 2022
Wordle, The Bildungsroman
It was 2 AM when K awoke out of unruly dreams and found himself thinking about Wordle. He lay in bed, his mind uselessly racing about the tasks of the day like a dung beetle careening aimlessly against the walls of a small cell. K grabbed his phone.
"This is what I've been reduced to," he thought. I'll play Wordle. That will relax me so that I can get back to asleep. K entered a variation of his usual opening gambit. One green; two yellow. "A nice start!" K congratulated himself. "I shall make quick work of this!"
A word occurred to him. It was simply a matter of sliding the two yellow letters over one space to the left, and the one, obviously correct choice magically slid its way into his consciousness. K felt giddy as he typed in the letters. His heart raced. "This is not good," he chided himself. "I will be very excited to solve it on the second guess. I've never been able to do that before. I’ll never get back to sleep if I can do that." He exhaled slowly to slacken his pulse and hit enter.
One green; two yellow. K's brow furrowed. He was mildly relieved, but he was also annoyed at the puzzle and at himself. "Hubris!" he berated himself, actually hissing the word under his breath so as not to awaken other family members. This was typical of him. He tended to exaggerate his own capabilities. His parents had remarked upon it from his youth, and in adulthood, so had his co-workers and supervisors. "You get ahead of yourself, K," his supervisor had said only the past week. "Remember, slow and steady wins the race." K silently cursed his supervisor, a narrow fellow with limited prospects. But in this instance, K also knew that his supervisor's rebuke was mild compared to what K deserved.
K stared at the puzzle. No words came to mind. He looked at the available letters. Unpromising recruits all. He returned to the letters he had to work with. Was there some mistake? Why had the puzzle rejected his earlier guess? There was no way to make a word if the letters could not be in their current positions or in the positions he had ventured in his first attempt.
“Wait a tick,” K thought. When he had googled “Wordle” to get to the puzzle, hadn’t he seen a link called “Why your Wordle streak will end today”? Was this some devilish puzzle with no vowels? Or using the same vowel thrice? Isn’t the creator of Wordle a Brit? Was the answer today some obscure Britishism like bollocks or chuffed or knackered? Too long. Cuppa? K felt the anger towards all people with posh accents rising in his chest. All thoughts of a return to sleep had been vanquished.
K wanted to give up on the puzzle and go back to sleep. But what happened if he stopped? What if his phone died in the night? Would Wordle close? Would his streak end? Is there a time limit on the game? If you can’t guess the answer in four hours, do you lose? He adjusted his position and looked at the letters again. Despicable malingerers. K had used all the good letters. The remaining letters were all poseurs. They could accomplish nothing without the lovely letters that the puzzle had rejected. No. That was unfair. These letters had their uses. K himself had used them repeatedly. But there was no way to fit them into the spaces left in the puzzle while still using the green letter and the two yellow letters. None at all.
Perhaps the problem was not the letters. Was this it at last? K was by no means old, but was this how senility begins? Words that used to offer themselves willingly now hide in strange corners, just out of reach. Just yesterday, K had been able to solve the puzzle in three guesses. Where was that spark now? K began to substitute loathing for yesterday’s K for his prior loathing of the Brits. He bore down; looked at the letters again.
Nope. Nothing. He was retreading the path. Going over combinations he had tried before and rejected. Two paths diverged in a yellow wood, and K took the same one over and over again until he starved to death. He started typing in combinations that he knew were not words in the hope that the puzzle might take them and, at the very least, help him eliminate some of these feckless letters. Certainly there were no words that would come to his aid. Finally, in desperation, K created a word with his one green letter and four new letters, abandoning any hope of finding the right place for his two yellow letters.
“You’re pathetic,” he told himself, all the while expecting the puzzle to reward him with two new green letters that would magically reveal the mystery that had somehow eluded his baffled understanding. Nothing. Grey upon grey.
K felt trapped. He could not complete the puzzle; he could not sleep. He drearily regarded the remaining available letters. Miscreants all! He would banish them all from the kingdom of his vocabulary. Better still, he would live the rest of his life as a mute rather than allow any of the sounds associated with these letters to escape his lips. He would go through his library and black out all of those letters from his books. He would, he would . . . . Wait a minute.
Suddenly, K saw a possible solution to the puzzle. He typed it in. It looked fantastical dancing on his phone’s screen in the darkness. Could this work? He checked the rows above this savior of the world. It all checked out. He hit enter with the grimness of a man triggering the descent of the blade on the guillotine into which he had just introduced his neck.
Green, green, green, green, green.
With grim satisfaction, K returned his phone to his nightstand. In the morning, he would tell his supervisor where to stick it. 4/6. Probably nobody else on earth had solved this puzzle, but K had! In only four guesses! He had suffered long enough among mediocrities incapable of appreciating his insight, his wit, his bold creativity. Yes, yes. In the morning, he would be recognized for . . . all . . . his . . . worth, for . . . all . . . his . . . pizazzzzzzzzzzzzzzzzzzzz. . . [snore].
Wordle 208 4/6
Thursday, January 13, 2022
The introductory post is here.
In teaching contracts, we often keep things simple, focusing on familiarizing students with doctrinal rules that they will likely need to know to pass the bar exam. In the world of contracts as illustrated in contracts casebooks, both parties enter the contract assuming that both will perform, and then, for some reason, one party breaches. Contracts doctrine instructs us that the non-breaching party ought to be made whole and be awarded damages equal to the non-breaching party’s expected benefit from full performance.
But in contracts between sophisticated parties that may take a while to perform, the possibility of incomplete performance can be a structural component of the deal. Contracts involve a trade-off between the parties desire for flexibility and their reliance on the continuation of the contract. Parties can negotiate an early exit, but there may be no express provision in the contract that addresses the dynamic between flexibility and reliance. Professor Goldberg addresses this dynamic in four different contractual contexts, and the result is rarely that the non-breaching party is entitled to the benefit of the bargain (RCL 9-10).
Venture capital deals are created to allow the venture capitalist (VC) to opt out of further funding if the venture is unpromising but to protect its investment through an option to pursue a second round of investment on more favorable terms than other potential investors. The entrepreneur’s reliance interest is protected because the VC would suffer reputational harm if it abused its power to terminate the relationship to extract more favorable investment terms after the first round of investment (RCL 10-11)
Illusory contracts can be viewed as sitting at one extreme of the flexibility/reliance dynamic. For example, as Professor Goldberg illustrates with a discussion of Bushwick-Decatur Motors, Inc. v. Ford Motor Co., Ford preferred to enter into franchise agreements with its dealerships that were terminable at will. Notwithstanding oral representations to the contrary, the district court found that Ford clearly reserved the right to terminate the relationship at any time, regardless of reliance. Other car manufacturers did not go quite so far, but allowing for termination on fifteen-days notice was effectively pretty much the same as an unenforceable agreement. Eventually, legislators moved in to protect the dealers (RCL 11-12). Professor Goldberg finds similarly illusory contracts between General Motors and one of its main parts suppliers and between Kellogg’s and its main packaging supplier. Neither party has any motivation to breach because both are reliant on the other, but both presumably want the flexibility to shop around should the opportunity arise (RCL 12-13).
The reliance/flexibility dynamic can lead to express terms in the context of breakup fees in connection with corporate acquisitions. A lot can go wrong and a lot can change between the negotiation of a corporate acquisition and its closing. As a result, the buyer will want to negotiate the option to walk away. It needs flexibility. However, the seller relies on the deal going through, and so the parties have to negotiate what, if anything, the buyer would have to pay to walk away. One option is a three-tiered system, as in Hexion Specialty Chemicals, Inc. v. Hunstman Corp.: in the event of a material adverse change in the value of the seller, the buyer could walk away for free; in the event the buyer was unable to finance the acquisition, $325 million; and in case of bad acts by the buyer, no cap on damages. After the Delaware Chancery found bad acts by the buyer, the buyer settled by paying $1 billion (RCL, 13-14)
Finally, Professor Goldberg discusses pay or play movie deals and professional athletes’ or coaches’ severance packages. In both cases, a star actor, director, player, or coach can command protection in the form of a termination/severance payment. An actor might be guaranteed $20 million, subject to an offset if she finds alternative work, or a comparable part in another production (RCL, 15) A star coach or player might command liquidated damages without a duty to mitigate, although earnings in a new position might be used to offset damages (RCL 16).
In light of these examples, Professor Goldberg suggests that contracts entail an option to breach and the cost of exercising that option is whatever remedy is available, either through the parties’ private arrangement or through the law of contracts damages (RCL 16-17). Sophisticated parties are well positioned to negotiate the price of exit, and they may fashion whatever remedy reflects their competing interests in flexibility and reliance. And yet, legal scholars and courts resist following Holmes by treating breach as an option. In part, this is an instance of the stickiness of doctrine that I referenced in the introductory post. In part it is a product of a rhetoric attaching moral opprobrium to breach. If a breach is a wrong, corrective justice requires that the non-breaching party be made whole. (RCL 18-19). Finally, Professor Goldberg illustrates, through his option framework, the error of the common assumption that contracts damages under-compensate because they do not account for lost profits. Parties left to their own devices can set the price of breach as they choose (RCL 20-21).
I note that Professor Goldberg’s work finds support in some recent empirical work that Mitu Gulati (right) undertook with his students and which we featured on the blog here and here, and Professor Goldberg work is cited in their “Lipstick on a Pig” article.
Wednesday, January 12, 2022
Often, when we have discussions on the ContractsProf Listserv, Victor Goldberg (left) has views. That is not unusual in our guild. What is unusual and surprising is how often Professor Goldberg has written about the precise issue or the case up for discussion. Usually, I have not read the Goldberg article in question. That is a Bildungslücke that I intend to address this semester. As I do, I will share short summaries of chapters from his two recent books, Rethinking Contract Law and Contract Design (RCL) and Rethinking the Law of Contract Damages. (RLCD)
The books have a theme. Professor Goldberg is an economist. He came to contracts with the assumption that contracts law was efficient. Decades of teaching doctrine convinced him that contracts doctrine is often inefficient, and that in the context of complex transactions, lawyers earn their keep, in part, by helping their clients overcome doctrinal hurdles to optimal outcomes. But attorneys cannot always negotiate around doctrinal inefficiencies. The inefficiencies are "sticky" in various ways, at times because some rules are mandatory, at times because of the transactional costs involved in getting around them, at times because it can be hard to convince judges that the parties have agreed to non-standard terms or that breaching a contractual obligation does not entail a moral failing (RCL, 1). Another problem that Professor Goldberg thematizes in his discussion of doctrine and caselaw is the propensity of judges to misstate facts in their legal opinions (RCL, 2).
My aim this semester is to post once or twice a week on chapters from these books. As I am teaching defenses and damages this semester, I am also hoping that Professor Goldberg's insights will provide me with new ways to approach this material. One the greatest challenges I face with my students is getting them to move beyond an understanding of the doctrine to an understanding of the effect of doctrine on the underlying transactions. I am hoping that Professor Goldberg's scholarship will help me to help my students start thinking about when existing doctrines facilitate the transactions their clients are contemplating and when they need to find lawyerly ways to engage in private legislation and contract around default rules that do not suit their clients' needs.
Tuesday, January 11, 2022
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Some people may love Maya Angelous for her autobiographical writings and poetry. We also love her for providing an updated version of Wood v. Lady Duff-Gordon.
I'm wondering whether the design is a reference to I Know Why the Cage Bird Sings. If so, the bird no longer seems caged, and that seems fair enough. In any case, it is a great thing to see her achievements recognized. May other poets (and litigants) be similarly honored!
Name, Image, and Likeness Mercenaries? NIL Desperandum in College Athletics
College athletics is a multi-billion-dollar business enriching the nation’s colleges and universities by generating many revenue streams, both directly (in television rights, ticket sales, and sports apparel fees) and indirectly (in tuition-generating student enrollments and alumni donations). The athletes whose efforts create this value are compensated only with academic scholarships giving them a free education that few can take full advantage of. But the NCAA strictly prohibits payment of any other form of compensation to these student athletes, insisting that they are “amateurs.”
Schools are also limited in their ability to compete for these low-paid, high value athletes. A school that steps over the line by secretly paying cash to recruit an athlete is severely sanctioned and the athlete can be stripped of his awards. Several students have suffered from the effects of illegal payments. Albert Means’s high school coach received $200,000 from a booster to steer him to Alabama; when the bribe was revealed he lost his scholarship and Alabama was sanctioned. Both the booster who paid the money and the coach who received it were prosecuted for federal crimes. Reggie Bush was stripped of his Heisman for accepting under the table payments while at U.S.C.., which forfeited a national championship
By contrast, college coaches face no such limits. The football coach is frequently the highest paid public employee in the state, often enjoying additional endorsement income from third parties. Ironically, the ability to recruit a top class high-school player is the primary skill of a winning college coach.
The situation has long been recognized as inequitable. As Justice Kavanaugh described it a recent opinion:
“The bottom line is that the NCAA and its member colleges are suppressing the pay of student athletes who collectively generate billions of dollars in revenues for colleges every year. Those enormous sums of money flow to seemingly everyone except the student athletes. College presidents, athletic directors, coaches, conference commissioners, and NCAA executives take in six- and seven-figure salaries. Colleges build lavish new facilities. But the student athletes who generate the revenues, many of whom are African American and from lower-income backgrounds, end up with little or nothing.“ NCAA v Alston,141 S.Ct. 2141 (2021) (Kavanaugh, concurring).
O'Bannon v NCAA in 1995 was the thin end of the wedge: O'Bannon v. National Collegiate Athletic Association, 802 F. 3d 1049, (9th Cir., 2015). Basketball star Ed Obannon established that the refusal to permit players to share the revenues from the use of their images was a violation of antitrust law.
The decision to which Kavanaugh was concurring held that the NCAA violated the Sherman Act by limiting the educational benefits that member schools could provide student athletes. It recognized college sports as a product market and characterized the NCAA as engaging in “horizontal price fixing in a market where the defendants exercise monopoly control.” Id. 2154. The goal of amateurism did not justify this form of behavior. Although SCOTUS did not rule on student compensation from third parties, Alston’ dicta clearly indicated that schools may not limit athletes from earning compensation from third parties for the use of their name, image, and likeness (NIL).
Soon after Alston, the NCAA implemented new rules to regulate student athletes to accept compensation from third parties for NIL. The regulations also permit athletes to be represented by agents in negotiating contracts. Beginning with California in 2019, several states also enacted statutes validating NIL contracts. However, the new regulations kept in place the NCAA’s long-standing prohibition against “pay-for-play,” the payment of financial compensation to students in return for enrolling in a school or for playing.
Have NIL, Will Travel. In recent years, the NCAA has also relaxed its rules prohibiting the poaching of enrolled students by competing schools. Regulations now permit students to enter a “transfer portal,” transfer to a different school, and play for their new school the next year. The transfer rules have revolutionized the ethos of college sport. Thousands of players entered the portal this year, creating havoc for coaches and teams preparing for next year’s season. Coaches lament the loss of loyalty and commitment even as they hustle to sign replacements now playing at other schools.
Outside the regulatory framework of the NCAA, NIL contracts are regulated by a patchwork of state laws. For example, Alabama’s law requires bars schools from prohibiting NIL contracts and from prohibiting students from using agents. But the statute permits schools to bar students from signing with a sponsor (e.g. Nike) that competes with a sponsor with which the school already has an exclusive contract (e.g. Adidas).
These changes in the law mean that today both the Means and Bush payments could easily be restructured as legal and above-board transactions. The Alabama booster could entice Means to go to Alabama, not by bribing his coach but by offering him (through his agent) a lucrative NIL contract, e.g., doing ads for a car dealership. Bush could similarly earn hundreds of thousands by monetizing his Twitter following. Non-athlete “influencers” are already earning six figure salaries in the social media economy and star athletes have huge social media followings that advertisers would love to tap. Older readers can think of it as working your way through school, like throwing a paper route before class.
Knowledgeable sports commentators describe the new free market in college players as the Wild West, where everyone (coaches, players, athletic directors, and parents) must play a game with no meaningful regulation or standards. Every college athlete is a free agent who can market his skills to the highest bidder every year. And bidders there are. Wealthy alumni in several states have assembled massive amounts of cash with which to fund NIL contracts designed to lure the best players to their schools.
Which raises several questions relevant to the law of contract (as what doesn’t?)
How will the NCAA enforce its continuing prohibition against contracts that provide “pay-for-play”? What is to stop alumni from paying millions of dollars to lure talented players to a particular school by offering them lucrative NIL contracts, not to “play” (“heaven forbid”) but to do advertisement, social media posts, and charitable work? See the link above. If such a contract violates NCAA rules, is it nevertheless fully enforceable or is it void as against public policy or as part of a scheme to defraud the NCAA?
Will students or purchasers of NIL rights be required to make their compensation deals public? Are student privacy rights at stake?
Will purchasers of player endorsements insist that students sign non-compete agreements that bar them from endorsing competing sports products? Will these be enforceable? If they are, will they interfere with athletes’ ability to change schools and endorsers?
Is an offer to an athlete who is a party to a NIL contract seeking to lure him away to another school a tortious interference with the student’s existing contract with another NIL licensee?
How will this new compensation scheme fit within the regulations promulgated under Title IX? Schools are prohibited from engaging in racial or gender discrimination in providing benefits to student athletes. But third party licensees of NIL are not state actors and are unregulated by federal law.
Will this market be free of racism? Will a legal change advertised as a way of ameliorating discrimination and exploitation of Black athletes become a covert means of enriching white athletes who may have more perceived market value to the licensees of NIL?
Should the NCAA promulgate mandatory or prohibited terms for NIL agreements or just let the market take its course? If they did, would its mandate be enforceable or would it violate the anti-trust laws?
And on a more mundane note, how will university professors deal with students who are earning more than they are? What if academic ineligibility costs the student thousands of dollars of NIL revenue?
What will student athletes learn about the sacredness of contract obligation if they enter into the sordid world of university sports? High status college coaches routinely repudiate their contracts at the drop of a hint from a more prestigious school. Some of them have recruited high value high school players by promising wonderful things and have then jumped to another team before the recruit shows up at campus. Students who suffer this may learn their lessons too well.
“Coach, if you don’t promise to start me next year, I’m transferring to Oregon.”
And finally, big money seems inevitably to bring big corruption and advantage-taking of the naïve by the savvy. A later post will list some of the obvious pros and cons of the new system.
Monday, January 10, 2022
Last week, the Supreme Court heard argument in two cases relating to the federal government's attempts to address the COVID-19 pandemic through vaccine mandates/testing and masking requirements in the workplace.
In NFIB v. Department of Labor, Petitioners bring a challenge to an Occupational Safety and Health Association's "Emergency Temporary Standard" (ETS). The ETS applies to workplaces with over 100 employees and requires that affected workers either get vaccinated or wear face masks and submit to weekly COVID testing. The ETS provides for both medical and religious exemptions from any vaccine requirement. While the Fifth Circuit granted petitioners an administrative stay of the ETS, all challenges to the ETS were consolidated and heard by the Sixth Circuit. One footnote from the Sixth Circuit opinion gives you a sense of the range of sensibilities animating these two sister Circuits:
In comparing this case with Alabama Association, the Fifth Circuit wrote, “But health agencies do not make housing policy, and occupational safety administrators do not make health policy.” BST Holdings, 17 F.4th at 619. The Fifth Circuit fails to acknowledge that OSHA stands for the Occupational Safety and Health Administration. See 29 U.S.C. § 651(b) (“The Congress declares it to be its purpose and policy . . . to assure so far as possible every working man and woman in the Nation safe and healthful working conditions . . . .”) (emphasis added).
In a 2-1 panel opinion, the Sixth Circuit refused to enjoin the ETS.
In the second case, Biden v. Missouri, the issue is whether the Supreme Court should uphold an injunction issued by a Missouri District Court blocking a federal rule that requires all health care workers at facilities that participate in Medicare and Medicaid programs to be fully vaccinated against COVID-19 unless they are eligible for a medical or religious exemption.
The cases come to the Court in a highly unusual posture. In the last few terms, the Court has been deciding cases in an expedited manner, without full briefing or oral argument, on what has come to be known as the "shadow docket." Perhaps in light of concerns raised in the legal community about the shadow docket, the Court has adjusted, placing the case on its regular docket, but with an expedited briefing schedule. Based on oral argument, it seems that the Court is poised to strike down the ETS, at the very least.
It bears noting that the Supreme Court itself subjects all people who enter its halls (and it allows very few people in) to a mandatory COVID testing regime. Both the Ohio and the Louisiana Attorney Generals, who are challenging the OSHA regulation, had to attend oral argument remotely, having tested positive for COVID. Justice Sotomayor, who has diabetes, attended remotely, perhaps because she knew that Justice Gorsuch would not wear a mask, despite court rules requiring that everyone in attendance other than the Justices wear N95 masks.
Such rules are wise. The median age on the Court right now is 66. We want the Justices to stay healthy, and it is perfectly reasonable that the Court should adopt rules to protect the Justices' health and safety. It will be most peculiar if the Justices deny the federal government the power to adopt rules that safeguard those of us who cannot control the safety of our own work environments.
The issue may be largely symbolic. Most people are vaccinated. They can still contract and spread the omicron variant, although its effects are likely to be less severe in the vaccinated. But the threat of serious illness or death, and the attendant anxiety accompanying that threat, is not symbolic for millions of workers whom the Court refuses to allow the government to protect. If the Court rules as court-watchers predict it will, it will be making a larger legal and political point. It may not uproot the administrative state root and branch, but it can engage in some selective pruning.
Perhaps, if the Court strikes down the ETS, workers across the nation should adopt Justice Sotomayor's posture and simply opt out. There has been a lot talk on the left about legislative action to temper the power of the Supreme Court. That's a dangerous game if plainly animated by partisan purposes. I have voiced my criticisms of Mark Tushnet’s version of “constitutional hardball.” But a genuine popular uprising in response to an overreaching Supreme Court decision can send a message strong enough to prompt bipartisan legislative action. For once, the left would have the intransigent Republicans over a barrel. The Court seems to want to own the libs so that it can strike a blow in a culture war. But even relatively unorganized labor can hit the Court and its ideological fellow-travelers where it hurts -- in the economy. A week or two without workers should be enough to get even the Republican base to call upon their legislators to vote yes on a piece of legislation or face consequences as the ballot box. A Court decision striking down a reasonable and necessary health and safety regulation can provide a rare opportunity for the people themselves to bypass failed mechanisms of checks and balances and hold the Court accountable for decisions that are inconsistent with our constitutional design and recklessly endanger American lives.
But who knows? Perhaps none of this will be necessary. The ETS was a response to the delta variant. Omicron poses different challenges, and the ETS may no longer be the right response. Or, the next variant may have be as deadly as delta and as communicable as omicron. The ETS is an emergency, temporary standard. The government needs to have the ability to act expeditiously and flexibly to national health challenges. If the Court does not get out of the way, we can call the loss of the Court's legitimacy another COVID casualty, but it's really a self-inflicted wound.
Saturday, January 8, 2022
Friday, January 7, 2022
Information provided by Miriam Cherry
Title: “Current Events in the Contracts Course and in Contracts Scholarship”
Saturday, January 8, 2022
Description: This program will focus on the use of current events both in the contracts course and in contracts scholarship. The pandemic, movements concerned with racial justice, and many other newsworthy events have prompted new lines of inquiry into established contract doctrines. For example, litigation around the pandemic has challenged the scope of force majeure clauses. The panelists will examine these as well as other newsworthy events, and discuss how they have been able to integrate current events into their teaching and scholarship. The use of current events can assist with student engagement in the course, and also help to spark new ideas for research. This panel also evokes larger questions: How do current events shape (or reshape) the law of contracts? Which recent events will fade away, and which will have lasting impact on practice, doctrine, and the content of the contracts course?
Cheryl Wade (St. John's)
Jennifer Taub (Western New England)
Lawrence A. Cunningham (George Washington)
Brian Bix (Minnesota)
Section on Contracts – Pedagogy Panel (Co-Sponsored with the Section on Consumer & Commercial Law)
Title: "Diversity, Equity, Inclusion, and the Teaching of Contracts and Commercial Law,"
Sunday, January 9
Description: Significant scholarship shows that diversity, equity, and inclusion are fundamental to our understanding of commercial law. Yet these issues are rarely highlighted in the teaching of contracts, consumer protection, and other areas of commercial law. This panel will focus on pedagogy centered on race, gender, disability, and sexual orientation, and will explore the implications for bringing diversity into the contracts course. This panel brings together a range of expert instructors to discuss their materials, methodologies, lesson plans, and class activities, in the hopes of enriching the teaching of all commercial law topics.
Adrienne Davis (Washington University - St. Louis)
Creola Johnson (Ohio State)
Hila Keren (Southwestern)
Dean Sean Scott (Cal Western)
Chris Bradley (Moderator)
January 7, 2022 | Permalink
As the New York Times reported yesterday. Horizon Organic gave notice to 89 small dairies in the Northeast that it would be discontinuing its contracts with them. Horizon then granted the small dairies a reprieve, extending the contract until February 2023 and also agreeing to pay them more for their milk.
Organic dairy farming is a niche, and Horizon plays a key role in that niche. Low milk prices threatened to drive small dairies out of business at the start of the century. Organic milk made it possible for small farms to survive if they could get certified. Organic milk fetches a higher price and enables small dairy farms to stay afloat. But now the organic milk market is also flooded (sorry) with milk from Western farms. Dairy used to be a local or regional business. But with ultra-pasteurization, the industry has gone national, making it harder for small dairies to compete. One sentence from the Times report sums up the problem:
One company, Aurora Organic, has 27,000 dairy cows on four farms in Colorado and Texas, according to its website — the equivalent of about 500 small New England farms.
The Northeastern farmers claim that these "factory farms," effectively the Wal*Marts of the organic dairy industry, are skirting federal regulations for organic certification. The regulations relate to giving the cows access to pasture and to the cows' "heritage." There are limits on the conversion of conventional diary cows for use on organic farms. Compliance with these regulations is costly, and so the Northeastern farmers claim unfair competition. Appeals to the Biden Administration's Secretary of Agriculture, Tom Vilsack, have followed.
The story ends on a grim note. One farming couple with thirty cows had been selling their milk to horizon. Ms. Smith is 68; her husband is 77. They were hoping to transfer the farm to their forty-year-old son. Instead, given the uncertainty, they sold the herd.
Thursday, January 6, 2022
“Yes Virginia, There is a Santa Clause”: The Giuffre Release
Denied the benefits of three years of law school, the general public must learn what it can about contract law in piecemeal fashion, in the school for scandal afforded by news reports of highly publicized cases. Thus, for example, the Stormy Daniels controversy introduced everyone to the law of mandatory arbitration, non-disclosure agreements, and temporary restraining orders.
Seen as a teaching moment, the sexual abuse lawsuit brought by Virginia Roberts nee Giuffre against Prince Andrew may further educate the laity about the arcana associated with general releases and third-party beneficiary law. It also may give an incidental education in the state of legal prose.
Last Monday, the court unsealed a Settlement Agreement and Release entered into by Virginia Roberts (Giuffre’s maiden name) and Jeffrey Epstein (below, right) in 2009. The agreement settled her lawsuit and released all her then-pending tort claims against Epstein. Her allegations included that he trafficked her, while a minor, to his powerful friends, who included politicians, academicians, and “royalty.” The Release states that it was executed in connection with a non-prosecution agreement entered into by a Florida federal prosecutor and Epstein, an agreement that was later to become controversial in itself when he was prosecuted in New York.
In her current lawsuit against Prince Andrew, Giuffre alleges that he was a friend of Epstein who sexually assaulted her on multiple occasions when she was a minor. Without admitting any of her allegations, he has pleaded as an affirmative defense that she released her claims against him when she signed the Epstein release, even though he was not a party to the Epstein lawsuit and is not named in the release. Instead, he claims that he is an unnamed third-party beneficiary of the release because it extends to “any other person or entity who could have been included as a potential defendant” to the Epstein lawsuit.
The Settlement Agreement and General Release contains language that, although it is boilerplate familiar to many litigators, would strike most laypersons and many lawyers as bizarre. Like many other forms of contractual boilerplate, release boilerplate grows by accretion and never seems to diminish. As a result, it contains many terms that have no application to this controversy.
Thus, the agreement binds not only Giuffre and Epstein in the singular, but also in the plural:
Virginia Roberts and her agent(s), attorney(s), predecessor(s), successors(s), heir(s), administrator(s), and/or assign(s)/(hereunder, “First Parties”) and Jeffrey Epstein and his agent(s), attorney(s), predecessor(s), successors(s), heir(s), administrator(s), and/or assign(s)/(hereunder, “Second Parties”).
All this means that in form the agreement is between two large groups of people, real and imaginary. More significantly, the agreement also refers to a third group of unnamed persons: “any other person or entity who could have been included as a potential defendant (“Other Potential Defendants”).
The First Parties not only “release“ the Second Parties and the Other Potential Defendants from the Giuffre claims, but also “remise, release, acquit, satisfy, and forever discharge” them.
When the drafter(s) entitled the document a “General” release they were not kidding. The released claims include not only the tort claims Giuffre brought against Epstein in the lawsuit, but also (take a deep breath)
all, and all manner of, action and actions of Virginia Roberts, including State or Federal, cause and causes of action (common law or statutory), suits, debts, dues, sums of money, accounts, reckonings, bonds, bills, specialties, covenants, contracts, controversies, agreements, promises, variances, trespasses, damages, judgments, executions, claims, and demands whatsoever in law or in equity for compensatory or punitive damages that said First Parties ever had or now have or that any personal representative, successor, heir, or assign of said First Parties hereafter can, shall, or may have, against Jeffrey Epstein, or Other Potential Defendants for, upon or by reason of any matter, cause, or thing whatsoever (whether known or unknown), from the beginning of the world to the day of this release.
For a unique experience, legally trained readers may, for once in their professional life, actually read this passage word-for-word, preferably aloud, and reflect on its meaning. They might then reflect on the fact that no living person fully understands every word of this paragraph. Non-lawyers may be surprised that, as Holmes famously remarked, the law finds no difficulty under the objective theory of contract in holding parties to the terms of agreements that neither of them may correctly understand.
If we had world enough and time, it would be highly rewarding to parse this language, lingering lovingly over each word, imagining what drafting disaster in what ancient agreement led to its inclusion in the ever-growing, immortal mass that is the result. Does anyone remember what a “specialty” is? What “variances” might Epstein have committed against Giuffre, assuming one can commit a variance?
Sadly, courts do not always ignore such boilerplate. In the infamous decision, Hershon v. Gibraltar Building & Loan Assoc., Inc., 864 F.2d 848 (D.C. Cir. 1989) a general release with even more extravagant language that was intended only to settle five business claims was held to have inadvertently cancelled a debt of $265,000 owed by the released party to the releasing party in a completely unrelated and uncontested loan.The majority rested on a rather punitive application of the plain meaning theory of contract, visiting the sins of the drafters on their clients. Under Hershon’s reasoning, the Giuffre release would discharge any claim of any sort that she might have had against anyone who might have been a “possible defendant” in her action against Epstein, such as his insurer.
The unique feature of the release is not that it refers to “the beginning of the world”: they all do. Rather, it is that it extends to “said Second Parties and any other person or entity who could have been included as a potential defendant ('Other Potential Defendants').” In a sea of everyday lawyer prose, the phrase “who could have been included as a potential defendant” sticks out like a sore thumb. The phrase has no settled legal meaning, and so the litigants have focused on it intently, as it limits the scope of the The unique feature of the release is not that it refers to “the beginning of the world”: they all do. Rather it is that it extends to “any other person or entity who could have been included as a potential defendant (“Other Potential Defendants”).” In a sea of everyday lawyer prose, the phrase “who could have been included as a potential defendant” sticks out like a sore thumb. The phrase has no settled legal meaning and so both litigants have focused on it intently, as it limits the scope of the release. According to NPR, Giuffre’s lawyers, for example, have argued that it did not include Prince Andrew because, inter alia, he could not have been sued in the jurisdiction where the action was brought. His lawyers argue that, although innocent of any wrongdoing, he is clearly in the category of unnamed “royalty” whose crimes were alleged in the Epstein complaint and who might have been sued along with Epstein.
There were easily-imagined reasons for Epstein’s lawyers to employ the ambiguity so as not to name the “powerful friends” that Epstein wanted to shield with this settlement. But in this case, professional coyness might encourage a court sympathetic to the plaintiff to refuse to read their names into the agreement.
A final question is whether a release can be a “third-party beneficiary contract.” First, a release is not a contract as the Restatement defines it because, as Restatement (Second) of the Law: Contracts § 278, cmt. c acknowledges. A release is not a promise that creates rights and duties but instead extinguishes rights and duties. But there is no reason the Release may not be construed to extinguish claims against third parties if that is the intent. Protection of third parties is common in tort settlements.
Under Restatement (Second) of the Law: Contracts § 302, a third party may enforce a promise whenever the promisee manifests an intention that third parties have enforcement rights and that they are appropriate to achieve the promisee’s purposes. If Epstein intended to give the unnamed friends the benefit of the release, it should be “enforceable” by those third parties if the court resolves the issue noted above as to their identity.
Two things raise doubts about whether Epstein manifested an intent that Andrew be able to enforce the release. First, the release seems not to have been disclosed to Andrew until discovery in the pending case. Than alone argues against Andrew being an intended third-party beneficiary.
A second, related doubt about third party rights arises from the following term.
Additionally, as a material consideration in settling, First Parties and Second Parties agree that the terms of this Settlement Agreement are not intended to be used by any other person nor to be admissible in any proceeding or case against or involving Jeffrey Epstein, either civil or criminal. (emphasis added).
Is Prince Andrew an “other person” who is trying to “use the terms” of the agreement? Or does the term “other person” not include the previously mentioned “Other Potential Defendants”? Does the phrase “in any proceeding or case against or involving Jeffry Epstein” modify the clause limiting the intended use by other persons, so that Prince Andrew may argue that he may use the release because this is not a case “against or involving” Epstein?
What lessons might the public learn from this combination of verbal overkill and under-specificity in Settlement Agreement and General Release? Perhaps that lawyers are paid by the word rather than the thought.
Wednesday, January 5, 2022
The Ubiquity of Unilateral Contracts
Sidney W. DeLong
Some of the most memorable moments of a course in Contracts concern unilateral contracts, where climbers of flagpoles and crossers of the Brooklyn Bridge perform a sideshow in the circus of contract law. The colorful facts assure that students will remember unilateral contracts as strange outliers consigned to what Karl Lewellyn (right) called the “freak tent” of contract law. This view is sometimes shared by modern contracts scholars, who resist the notion that a contract may unfairly bind only one of the parties. The drafters of the Second Restatement seem to have patched up the doctrinal anomalies in §§ 45 and 62 in ways that convert unilateral contracts to bilateral ones to protect both of the parties as soon as possible from the risks of untimely revocation.
Briefly stated, the Restatement's fixes did two things: they prevented the offeror from a surprise revocation of the offer by giving the offeree an option until it could complete the performance (§ 45), and they bound the offeree by construing the commencement of performance, whenever possible, as a return promise sought by the offeror and immediately binding both parties (§ 62 (2) (Commencement of performance operates as a promise to render complete performance)). U.C.C. § 2-206 (1) (b) operates similarly (shipment in response to an order seeking prompt delivery is a promise to fulfill the order.).
The fixes may not be altogether satisfactory, however, for the usual reason that they do not match the equities in all possible cases. Thus, while the flagpole climber may now enforce the offer as an option contract once he starts up the pole, nevertheless if the offeror is deemed to be ambiguous about what constitutes acceptance, the offeror may hold the climber liable for breach if he fails to make it to the top because he will be “deemed” to have promised his performance by starting up.
Perhaps embarrassed by its anomalies, the Second Restatement of Contracts formally abandoned the use of the categories “unilateral” and “bilateral.” Reporter’s Comment § 1. But abolishing a word does not abolish a concept. We continue to encounter one-sided contracts in which only one party ever owes a duty to the other and only the other party ever has an enforceable right to performance. So, begging the post-mortem pardon of Karl Llewellyn and the drafters of the second Restatement, we continue to use “unilateral contract” to refer to any contract in which only one party ever makes a promise or has an enforceable duty of performance, usually made enforceable by some action of the other party which supplies the necessary consideration or consideration substitute.
Nevertheless, because of their marginal position in Contracts casebooks, many Contracts professors continue to think of unilateral contracts as the exception to the rule in comparison with their more symmetrical bilateral cousins. This is a mistake. In the real world, unilateral contracts are the rule and bilateral contracts are the exception. Indeed, unilateral contracts are so commonplace that we don’t even recognize them. For example:
Every sale of goods or services on credit that is not preceded by a contract of sale made by the seller is a unilateral contract in which only the buyer has a duty of performance.
Every loan of money that is not preceded by a lender commitment creates a unilateral contract in which only the debtor has a duty of performance.
Every insurance contract in which the policyholder is never legally obligated to pay the premium is a unilateral contract in which only the insurer incurs legally enforceable duties.
Every contract of guaranty in which the lender is not under a contractual obligation to extend the guaranteed credit is a unilateral contract in which only the guarantor has enforceable duties.
Every promissory note or other instrument creates a unilateral contract in which only the maker or drawer has any legal obligations.
Every obligation to pay a credit card debt is a unilateral contract in which only the card-holder ever has an obligation owed to the other party.
Work done under every at-will employment agreement creates a unilateral contract in which the employee is never under an enforceable duty to show up for work and only the employer owes a duty of performance (payment of wages) for work already completed.
Most family bait promises, such as William Story’s promise of money for his nephew’s avoidance of vice until his 21st birthday, are unilateral promises in substance if not in form. Bilateral family contracts have no value to the benefactors if they cannot be enforced against minors or judgment proof family members. They are better understood as reward promises that induce performance by carrots rather than sticks.
Finally, because promises enforceable under the principle of promissory estoppel described in Restatement (Second) of Contracts § 90 are “contracts,” then they are all unilateral contracts, since only one party promises and the other party merely relies.
Only one of the two parties to such non-simultaneous exchanges is ever under a contractual duty and only the other one has a right of enforcement. Nor are unilateral contracts unique to modern commerce. Historically, unilateral contracts came first and were far more frequent than bilateral ones. Long before the recognition of bilateral contracts in actions of special assumpsit, the common counts in general assumpsit alleged unilateral contracts. The allegations in a claim for quantum meruit or quantum valebant were that plaintiff had furnished goods or services at the defendant’s request before he promised to pay for them. There was no allegation that plaintiff was ever under a contractual duty to do so. The defendant was under a duty of payment only after the benefits had been furnished.
Professor Farnsworth, the Reporter for the Second Restatement, noted that the notion of unilateral contracts created confusion. Indeed, there comes a time in most bilateral contracts in which the exchange is half-completed. One party has performed and has no remaining duties, and only the other party has any remaining obligation. But that of course is not a unilateral contract. None of the contracts listed above represents a half-completed bilateral contract.
Remember that the test of a legal duty, the test of whether a contract is bilateral or unilateral, is whether it is legally enforceable. Thus, for example, to say that each party to an employment at will contract owes the other incidental legal duties of good faith, etc., does not establish that the contract is bilateral. The employee’s good faith performance may condition her right to wages, for example, but if the employer cannot sue her for bad faith performance, it is not a contract duty.
The reason that the reward cases seem rare is not that they are unilateral but that their formation may not exhibit the expressions of mutual assent that characterize other consensual unilateral contracts like credit sales. Unilateral contracts also differ in the sequences of promise and performance. In some the offer precedes the performance to be followed by performance of the unilateral duty (reward cases). In others, the consideration is provided along with the offer, to be followed by performance of the unilateral duty (credit sale and loan cases.) The offer may come either from the promisor (as in the reward cases) or the promisee (as in the credit sale cases, in which the buyer is always deemed to be the offeror). There is also great variation in the length of time between the offer or promise, and the completion of the act that makes the promise enforceable.
Indeed, some of the transactions referred to by the Restatement as “reverse unilateral contract” create “contracts” in which neither party makes a promise or owes a duty to the other:
A owes B $1000, and B is in possession of A’s cow as security for the debt. B says, “If you give me your cow, you may consider the debt discharged.” Whether or not A accepts the offer, this arrangement creates no duties on either A or B. If B gives A the cow, the debt is ipso facto discharged. At no time is either party under a duty to act or refrain from acting. They have simply agreed to change their legal relationships regarding the debt and the cow.
A transaction of this sort is not a contract as traditionally defined because there is no element of futurity in it. In that respect, it is akin to a simple sale, a transfer of title for payment of a price.
One is put in mind of Ogden Nash’s lllama: If a bilateral contract is one in which both parties have duties and a unilateral contract is one in which only one party has duties, what do you call a contract in which neither party has duties.
Tuesday, January 4, 2022
Happy 2022! And, of course, welcome to another year of the latest and greatest in contracts and commercial law scholarship. While the greatest of 2021, as ably documented by BlogLord Jeremy Telman, will be hard to top, don't think that we aren't up to the challenge. Meanwhile, what's been happening on SSRN in our favorite fields coming off the holiday? So glad you asked.
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