ContractsProf Blog

Film Clips: The Marx Bros. on contract drafting

[Fiorello and Otis B. Driftwood are going over their proposed contract.]
     Driftwood: Now pay particular attention to this first clause because it's most important. It says the, uh -- "The party of the first part shall be known in this contract as the party of the first part."  How do you like that? That's pretty neat, eh?
     Fiorello: No, that's no good.
     Driftwood: What's the matter with it?
     Fiorello: [Thinking.]  I dunno. Let's hear it again.
     Driftwood: It says the, ah "The party of the first part shall be known in this contract as the party of the first part."
     Fiorello: That sounds a little better this time.
     Driftwood: Well, it grows on you. Would you like to hear it once more?
     Fiorello: Er -- just the first part.
     Driftwood: What do you mean?  The -- the party of the first part?
     Fiorello: No, the first part of the party of the first part.
     Driftwood: All right. It says the, uh, "The first part of the party of the first part shall be known in this contract as the first part of the party of the first part shall be known in this contract" -- Look, why should we quarrel about a thing like this? We'll take it right out, eh?

              From:  A Night at the Opera (1935)

Who owns employees' knowledge?

With the decline of unskilled or traditional assembly-line jobs, the concept of "human capital" has become more prominent.  When employers invest substantial amounts of money to give workers a set of valuable skills, what rights do employers have in those skills?  Contractual provisions -- usually noncompete clauses -- are often used in an attempt to protect the employer's interest.  Should that interest be protected?

In Thinking and Doing -- The Regulation Of Workers' Human Capital in the United States, forthcoming in the Socio-Economic Review, Katherine Van Wezel Stone (UCLA) looks at the issues from a relational angle and concludes that current law is out of step with reality.  Click on "continue reading" for the abstract.

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Today in History: July 31

1763: Chancellor James Kent is born at Fredericksburgh, New York.  The first professor of law at Columbia, his Commentaries on American Law will go through six editions in his lifetime and be enormously influential on both sides of the Atlantic.

1790: Philadelphia potash maker Samuel Hopkins receives the first patent issued by the United States government, for an improvement in the process of making potash.  The document is signed by President Washington, Secretary of State Jefferson, and Attorney-General Randolph.

1803: Inventor John Ericsson is born at Långbanshyttan in Wermelandia, Sweden.  Although he'll become most famous as the designer of the U.S.S. Monitor, his greatest contribution is the screw propeller, which revolutionizes steamship design.

1856: Christchurch, named after the Oxford college of the same name, receives a royal charter to become the first city in New Zealand.

1912: Economist Milton Friedman is born at New York City.  "A major source of objection to a free economy," he will say, "is precisely that it . . . gives people what they want instead of what a particular group thinks they ought to want."

1923: Record impresario and Atlantic Records co-founder Ahmet Ertegun is born at Istanbul, Turkey.

1930: The Mutual Broadcasting Service debuts a new radio series, Detective Stories.  The most memorable character is the announcer, known only as "The Shadow."

1951: Japan Airlines (known as JAL) is formed.  Today it flies more Boeing 747s than any other airline.

1958: Internet entrepreneur Mark Cuban is born at Pittsburgh, Pennsylvania.  In 1998 his Broadcast.com will go public, making him a billionaire and 300 other employees millionaires.

1965: Joanne Rowling is born at Chipping Sodbury, Gloucestershire.  Her six Harry Potter novels will make her the first writer in history to earn $1 billion from her writings.

1975: Teamsters president Jimmy Hoffa is reported missing from the parking lot of the Machus Red Fox restaurant in Bloomfield Hills, Michigan.

Ducks seek new law dean

The University of Oregon is looking for a new dean for its law school.  They're looking for somebody who is "a new leader" who will "continue a tradition of excellence in education, scholarship and public service."

Click on "continue reading" for the full job listing.

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Today in History: July 30

1619: The Virginia Company of London convenes the first meeting the the House of Burgesses at Jamestown, the first legislative assembly in the New World.

1718: William Penn, founder and first owner of the colony of Pennsylvania, dies at Ruscombe, Berkshire.

1729: A new port town is founded on the shores of Chesapeake Bay, named for the proprietary governor of Maryland, Cæcilius Calvert, 2nd Baron Baltimore.

1857: Economist Thorstein (Theory of the Leisure Class) Veblen, the man who came up with "conspicuous consumption," is born at Manitowoc County, Wisconsin.

1863: The father of modern mass production, Henry Ford, is born at Springwells Township (now Dearborn), Michigan.

1898: Prince Otto Eduard Leopold von Bismarck-Schönhausen, the Iron Chancellor who took his law degree from Friedrich Wilhelm University of Berlin in 1835, dies at Friedrichsruh in the German Empire.

1930: At Montevideo, Uruguay beats Argentina 4-2 to win the first soccer World Cup.

1930: Economist Thomas Sowell is born in North Carolina.

1934: Caro Davis and her husband will get the money after all, as the California Supreme Court decides Davis v. Jacoby.

1956: President Eisenhower signs a joint resolution of Congress making "In God We Trust" the official motto of the United States.

1990: The first car rolls off the assembly line at General Motors' new high-tech Saturn division.

2003: After more than a half-century of production, the last old-style Volkswagen beetle -- Hitler's "people's car" -- rolls off a production line in Mexico.

Cases: Indemnity clauses

The difference between breach of a contract duty to take care of property and breach of a promise to indemnify for loss to that property is nicely illustrated in a recent decision from the Indiana Court of Appeals.

In the case, electronics retailer Best Buy leased a store from Simon Property Group.  In 1996, Best Buy's store was being renovated by Brandt Construction to expand the store.   Simon was responsible for hiring Brandt, and in the Brandt-Simon contract, Brandt agreed to provide weather protection to any exposed part of the store during the renovation period, and also promised to indemnify Best Buy and Simon for any damages.  Brandt nevertheless left a large hole in the back wall of Best Buy, and in July 1996, a large rainstorm flooded the store, damaging thousands of dollars of merchandise.  Brandt refused to accept responsibility and refused to indemnify Best Buy.  A jury found that Brandt had not breached its contractual duty with Simon to protect the property, but that its negligence had been 50 percent responsible for the damage.

The jury, however, apparently was looking at the wrong question.  The issue was not whether Brandt had breached its promise to protect the store from damage, the issue was whether Brandt had breached its promise to indemnify Best Buy.  Here, said the court, the clause was clear, and since the loss was at least partially Brandt’s fault, judgment on the contract count should have been entered against it.

Simon Property Group, L.P. v. Brandt Construction, Inc., 2005 Ind. App. LEXIS 1263 (2d Dist., July 15, 2005).

Help Wanted: Stetson

Stetson University is looking for two tenured or tenure-track Contracts professors (who can also do some UCC and Remedies) to be begin in the 2006-07 school year in sunny Tampa-St. Pete.  Sun, sand, and the parol evidence rule.  What more could you want?

Click on "continue reading" for the details.  (Photo: Stetson Law School.)

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Forum on Franchising set for October

This Sunday, July 31, is the deadline for Early Bird registration at the ABA's 28th Annual Forum on Franchising, which will be held October 19-21, 2005, in Orlando.  Click on "continue reading" for the conference details.

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Today in History: July 29

238: In a rare double-header, the Praetorian Guard kills both of the Roman co-emperors, Pupienus and Balbinus, replacing them with the 13-year-old Gordian III.

1030: King Olav II Haraldsson, known to history as St. Olaf for his role in Christianizing Norway, is killed at the Battle of Stiklestad, site of what is today the largest outdoor theater in Scandinavia.

1793: Lieutenant-Governor John Graves Simcoe chooses a capital site for the new province of Upper Canada, at a place where the sandy Toronto Islands form a natural harbor on Lake Ontario.  He calls the place “York,” but in 1834 the name will be changed to “Toronto.”

1801: Publisher George Bradshaw is born at Pendleton, Lancashire.  In 1839 he’ll create the first of Bradshaw’s Railway Timetables, at sixpence a shot.  They'll become a staple of Britain's Victorian and Edwardian mysteries.

"[Sherlock Holmes] opened the yellow envelope, and then, glancing at the message, threw it across to me.  'Just look up the trains in Bradshaw,' said he, and turned back to his chemical studies."   Conan Doyle, The Adventure of the Copper Beeches.

1833: William Wilberforce, the wealthy merchant who bought a seat in Parliament for £9,000 but used it to champion the abolition of the slave trade, dies a month before the Slavery Abolition Act frees all slaves in the British Empire.

1883: Benito Mussolini, who will become one of the relatively few newspaper editors to become head of a modern state, is born near Como in Italy.

1899: The first Hague Convention is signed, outlawing aerial bombardment and chemical weapons.

1907: Robert Baden-Powell and 22 boys “of mixed social background” hold the first experimental “boy scout” encampment at Brownsea Island, Dorset.  By 1912 there are so many Scouts in England that when they contribute a penny apiece to buy him a wedding gift they come up with a new Rolls-Royce.

1954: George Allen & Unwin publishes J.R.R. Tolkien’s The Fellowship of the Ring, first installment of one of the century’s biggest-selling trilogies.

Today in History: July 28

1540: Lawyer and Lord Chancellor Thomas Cromwell learns the hard way that Henry VIII is as rough on subordinates as on wives, when he is beheaded on Tower Hill.  Henry deliberately chooses an inexperienced executioner, so it takes three whacks to finish the job.

1794: Another bad day for lawyers involved in politics, as Maximilien Robespierre goes to the guillotine in front of a cheering mob in Paris.

1804: Ludwig Andreas Feuerbach is born at Landshut in Bavaria.  In 1839 he will announce, perhaps prematurely, that “Christianity has in fact long vanished not only from the reason but from the life of mankind.”

1821: Peru declares its independence from Spain.

1866: The Metric Act makes use of the metric system legal in the United States, providing that “no contract or dealing . . . shall be deemed invalid or liable to objection because the weights or measures expressed or referred to therein are weights or measures of the metric system.”

1868: The Fourteenth Amendment to the U.S. Constitution is ratified, forbidding states from denying any person “life, liberty or property, without due process of law” or to denying “to any person within its jurisdiction the equal protection of its laws.”

1902: Philosopher Karl Raimund Popper is born at Vienna in Austria-Hungary.  His thesis, that the distinction between science and non-science is that the former can be falsified, underlies much of modern thought.

1907: Earl Silas Tupper, the inventor of Tupperware, is born at Berlin, New Hampshire.  He’ll turn to plastics after his first venture, a landscaping and nursery business, is bankrupted by the Depression.

1932: President Hoover orders federal troops to disperse the “Bonus Army” of World War I veterans who descended on Washington asking for more money.  When they will return after President Roosevelt takes office, he sends his wife Eleanor instead of troops, but they still don't get anything.

Today in History: July 27

1663: The English Parliament passes the second Navigation Act, which requires that all goods shipped to the American colonies must be sent in English-built ships sailing from English and Welsh ports, with all masters and three-quarters of the crews English.

1694: In exchange for a £1.2 million loan to the government, a group of subscribers called The Governor and Company of the Bank of England receives a royal charter and authority to print bank notes.

1789: The first government department under the new U.S. Constitution is formed.  It’s originally called the Department of Foreign Affairs, but the name is later changed to the Department of State to confuse foreigners.

1863: William Lowndes Yancey, the lawyer and journalist who did as much as anyone to bring abut the secession of the southern states and the Civil War, dies less than a month after the Confederate disasters at Gettysburg and Vicksburg.

1866: Cyrus Field’s Anglo-American Telegraph Co. completes the first successful trans-Atlantic cable, allowing telegraphic communication between Europe and the United States.

1922: Norman Lear, whose career will prove that British sitcoms involving funny lower-class people yelling at each other (All in the Family, Sanford and Son) will translate well in the U.S., is born at New Haven, Connecticut.

1990: Belarus declares its independence from Russia for the second and hopefully final time.

Today in History: July 26

1139: Portugal becomes independent of Leon-Castile, as Afonso Henriques, hitherto Count of Portugal, is proclaimed king.

1581: The Low Countries declare independence from Spanish rule with the Staten-Generaal’s promulgation of the Oath of Abjuration.

1775: The forerunner of the U.S. Postal Service is created, as Benjamin Franklin is appointed the first Postmaster General of the American colonies.

1788: New York ratifies the new Constitution and becomes the 11th U.S. state.

1803: The first public freight railway, the horse-drawn Surrey Iron Railway, opens in south London.  It will last for 40 years before steam engines put it out of business.

1863: Lawyer, soldier, and politician Samuel Houston, ejected from office as Governor of Texas for refusing to take an oath to the upstart Confederate States of America, dies at his farm at Huntsville, Texas.

1875: Analytical psychiatrist Carl Gustav Jung is born, an introverted child with two personalities, at Kesswil in Switzerland.

1887: L.L. Zamenhof publishes his International Language. Foreword And Complete Textbook.  His pseudonym, “Dr. Esperanto” ("Hopeful"), gives his proposed new language its name.

1925: The father of modern logic, (Friedrich Ludwig) Gottlob Frege dies at Bad Kleinen in Germany.  Few writers on the topic have ever written as clearly and succinctly.

1948: President Truman desegregates the U.S. military by signing Executive Order 9981.

1966: Britain’s House of Lords issues its Practice Statement, announcing that while its precedents will still be “normally binding” on it, it will depart from them where justice requires.

Today in History: July 25

306: Gaius Flavius Valerius Aurelius Constantinus is proclaimed Emperor of Rome by his troops.  He’ll be known to history as Constantine the Great.

1593: Announcing that “Paris is worth a Mass,” Protestant leader Henry of Navarre turns Catholic to become King of France as Henri IV.

1853: The “Robin Hood of El Dorado,” bandit Joaquin Murietta, is killed by a group of California Rangers looking for a $5,000 reward.  His head, preserved in brandy, will later be exhibited to spectators at $1 each.

1934: Cosmetics entrepreneur François Coty, the man who discovered that the secret to selling a perfume is having a great bottle, dies at age 60.

1946: At the Club 500 in Atlantic City, New Jersey, crooner Dean Martin and comedian Jerry Lewis appear together for the first time.  Martin & Lewis will soon become one of the country’s biggest draws.

1952: Puerto Rico becomes a self-governing U.S. commonwealth with adoption of a new constitution.

Today in History: July 24

1701: French military officer Antoine de la Mothe, sieuer de Cadillac, founds a small fort and settlement on the strait connecting Lake St. Clair and Lake Erie.  He names it after his boss, the comte de Ponchartrain, calling it Fort Pontchartrain du Détroit (“of the Strait”) but only the last part sticks.

1832: A group of 110 men and 20 wagons financed by John Jacob Astor to set up competition with the Hudson’s Bay Company, use Wyoming’s South Pass to become the first wagon train to cross the Rocky Mountains.

1847: Brigham Young leads a party of 143 men, three women and two children to the shores of the Great Salt Lake to found Salt Lake City.  Others will quickly arrive and by 1849 residents will create the State of Deseret.

1862: New York lawyer and former President Martin Van Buren, whose “Albany Regency” was the first great political machine in U.S. history, dies at Kinderhook, New York.

1901: William Sydney Porter is released from prison at Columbus, Ohio, having done three years for embezzlement from a bank.  In prison he’d already started writing as “O. Henry.”

1915: A ship carrying Western Electric employees to a picnic sinks 20 feet from the Chicago wharf, killing 841 passengers, twelve more than had died on the Titanic three years earlier.

1929: The Kellogg-Briant Pact goes into effect, prohibiting all future wars.

1997: U.S. Supreme Court Justice William Joseph Brennan, Jr. (Harvard Law 1931) dies at Arlington, Virginia.

Today in History: June 23

1862: Maj. Gen. Henry Wager Halleck, a successful San Francisco lawyer and railroad president, becomes General in Chief of the U.S. Army, replacing George MacClellan.  Among his books is International Law, or, Rules Regulating the Intercourse of States in Peace and War (1861).

1866: Congress cuts the number of Supreme Court Justices to seven and creates the modern circuit alignment in “An Act to fix the Number of Judges of the Supreme Court of the United States, and to change certain Judicial Circuits.”

1903: Dr. Ernst Pfenning of Chicago becomes the first person to buy a Ford Model A, a two-seater runabout known as the “Fordmobile.”  Cost?  $750, with options including rear seat ($100), rubber roof ($30) or leather roof for ($50). 

1936: U.S. Supreme Court Justice and former law professor Anthony McLeod Kennedy (Harvard Law 1961) is born in Sacramento, California.

1940: The U.S. government announces that it will not recognize the Soviet annexation of Latvia, Lithuania, and Estonia.  The Soviets do it anyway.

1950: U.S. Ninth Circuit Judge Alex Kozinski (UCLA Law 1975) is born at Bucharest, Romania.  He's one of the few U.S. jurists to have been a successful contestant on The Dating Game.

1955: Secretary of State, United Nations architect and Nobel Prize-winner Cordell Hull (Cumberland Law 1891) dies at Bethesda, Maryland.

1973: Philosopher and occultist Robert Anton Wilson achieves telepathic communication with extraterrestrial aliens from Sirius.

1997: Digital Equipment Co., rapidly approaching dinosaur status in the computing world, files antitrust charges against Intel Corp.

Law school gets major artwork

Law students at the University of Washington will be surrounded not only by the high-tech features of William H. Gates Hall, the school’s fine library, and a coterie of bright and energetic peers, but by world-class art. Next Tuesday, July 26, the school will unveil Doris Chase’s "Monument for Law School" (left). Chase is "a prominent national and international figure whose works are in the collections of the Museum of Modern Art, the Smithsonian and many other public institutions," and she created the Monument to honor her father and brother.

The work, with its rocket-ship-like design, contrasts law’s aspirations and its claims to soar above mere politics by showing it nevertheless firmly earthbound, anchored to its pedestal by its legs, unable to escape the forces of everyday life. The pedestal itself is a wry reference to the way lawyers tend to hold the law up as something sacred and entitled to devotion.  The hole in the center of the rocket ship recognizes the critical insight that despite traditional claims of law as an autonomous and self-contained body of knowledge, there is a void at the center (the very place where the direction of the rocket ship would be set) which can be filled only by non-legal values and interests.

The legal world is welcome to attend the festivities, which will be at 10:00 a.m. at the northwest entrance to Gates Hall. RSVPs are appreciated.  Email here.

Getting paid without going to court

It's axiomatic that a contract is, in the famous words of the Second Restatement, a promise "for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty."  What happens when you have a contract that a court can't enforce?

Well, there's always self-help.  And when self-help is used in the case of a foreign sovereign debt contract, it tends to involve warships, guns, and the U.S. Marines.  In a new paper from the National Bureau of Economic Research, Supersanctions and Sovereign Debt Repayment, Kris James Mitchener (Santa Clara Econ) and Marc D. Weidenmier (Claremont-McKenna Econ) investigate the use of what they call "super-sanctions," the self-help measures to which nations resort to get the money they're owed.  Here's the abstract:

Theoretical models have suggested that sanctions may be important for enforcing sovereign debt contracts (Bulow and Rogoff, 1989a, 1989b). This paper examines the role of sanctions in promoting debt repayment during the classical gold standard period. We analyze a wide range of sanctions including gunboat diplomacy, external fiscal control over a country's finances, asset seizures by private creditors, and trade sanctions. We find that "supersanctions," instances where military pressure or political control were applied in response to default, were an important and commonly used enforcement mechanism from 1870-1913. Following the implementation of supersanctions, on average, ex ante default probabilities on new debt issues fell by more than 60 percent, yield spreads declined approximately 800 basis points, and defaulting countries experienced almost a 100 percent reduction of time spent in default. We also find that debt defaulters that surrendered their fiscal sovereignty for an extended period of time were able to issue large amounts of new debt on international capital markets. Consistent with policies advocated by Caballero and Dornbusch (2002) for Argentina, our results suggest that third-party enforcement mechanisms, with the authority to enact financial and fiscal reforms, may be beneficial for resuscitating the capital market reputation of sovereign defaulters.

Today in History: July 22

1587: Settlers arrive at Roanoke Island, Virginia and build a settlement.  Before a return ship can arrive, all 117 of the colonists will disappear, leaving only the word "Croatoan" carved on a tree.

1796: Agents of the Connecticut Land Co., surveying the area that will become Ohio, name a newly created township in honor of the expedition’s commander, Moses Cleaveland.

1898: Writer Stephen Vincent Benét is born at Bethlehem, Pennsylvania. His The Devil and Daniel Webster is one of the most perfect pieces of legal literature ever written.

1908: Albert Fisher founds the Fisher Body Co. to manufacture bodies for carriages and automobiles. It will later be acquired by General Motors Corp.

1923: Future Senator and Presidential candidate Robert Joseph Dole (Washburn Law 1952) is born at Russell, Kansas.

1934: Bank robber and "Public Enemy No. 1" John Dillinger is shot to death by FBI agents outside the Biograph Theater in the Lincoln Park district of Chicago. He had just seen the gangster drama Manhattan Melodrama, with Clark Gable, William Powell, and Myrna Loy.

1937: The U.S. Senate rejects President Roosevelt’s plan to increase the size of the Supreme Court by adding as many as six new seats he could fill.

1950: Canada’s tenth Prime Minister, William Lyon Mackenzie King (Toronto Law 1896) dies at his home near Ottawa.

1966: Loral Corp. yields to pressure from Austin Instruments to make important contract concessions on subcontracts for a Navy contract, a decision that will later lead to Austin Instruments Inc. v. Loral.

Calandrillo promoted; will visit at Seattle

Steve Calandrillo (U. of Washington) has a promotion and a temporary change of venue coming up. He’s been promoted by the university to professor of law, and he’ll be spending the fall semester 2005 year as a visiting professor at Seattle University.

Calandrillo earned his B.A. from UC-Berkeley in 1994 and his J.D. from Harvard in 1998, where he was a John M. Olin Fellow and a member of the Harvard Journal of Legislation.  He practiced in Seattle and clerked for Judge Alfred Goodwin on the U.S Court of Appeals for the Ninth Circuit before joining the Washington faculty in 2000.  He was named the school’s Professor of the Year in 2003-04. He’s also on the advisory board of LifeSharers, a group dedicated to promoting organ donation.

Should have read it before you signed

You’re bound to the terms of the contract you sign, says the Texas Supreme Court in a recent decision, whether or not you’re aware of everything that’s in it.  Thus, a customer who signed a brokerage contract with an arbitration clause in it was bound to go to arbitration, even though he thought he was only using a form to change the account name and set up a margin account.

Plaintiff Keith Rohlack had, while still a minor, received a substantial cash settlement out of the death of his father. The money was invested in a custodial account with broker Edward D. Jones & Co. When he turned eighteen, Rohlack transferred the account to his own name and opened a margin account so he could speculate in technology stocks.  The form he signed contained an arbitration clause. When the technology bubble burst, his investment portfolio, which involved significant technology investments bought on margin, went down badly, and he sued Edward Jones.

"Absent fraud, misrepresentation, or deceit," said the court in a per curiam decision, "a party is bound by the terms of the contract he signed, regardless of whether he read it or thought it had different terms." It went on:

Therefore, Rohlack's contention that he did not understand his signature's significance does not negate his acceptance of the contract terms. Moreover, when parties enter into an agreement based on a writing that is not ambiguous, the court will give effect to the parties' intention as expressed in the writing. Here, the agreement that Rohlack signed recited: "THIS IS A BINDING CONTRACT. I HAVE READ IT CAREFULLY BEFORE SIGNING." It further alerted him on the signature page that it incorporated an agreement to arbitrate and explained elsewhere in the agreement what that meant. Considering these undisputed facts, the only decision that the trial court could have reasonably reached was that Rohlack, by signing the agreement, had consented to arbitrate future disputes.  [Citations omitted.]

In re McKinney, 2005 Tex. LEXIS 511 (July 1, 2005).