ContractsProf Blog

Elon Gets Faculty

The new law school at Elon University in Greensboro, N.C., has announced its founding faculty.  The first contracts teacher at the new school is George R. Johnson, Jr. (left).

Johnson, a former academic dean and professor of law at Howard University, spent six years as president of LeMoyne-Owen College in Memphis, Tenn.  He previously served as assistant general counsel in the Executive Office of the President in the Carter Administration, and as assistant counsel to the Committee on Banking, Finance & Urban Affairs in the U.S. House of Representatives.  Most recently he practiced law in Washington, D.C.

Johnson is a graduate of Amherst College and earned his J.D. at Columbia.  Among other activities, he’s served on the board of trustees of Amherst and the boards of directors of the United Negro College Fund, the Council of Independent Colleges, the Economic Club of Memphis, and Universal Life Insurance Company.

[Frank Snyder]

Selling Sex

Okay, the folks at Yale know a good topic for a conference when they see one.  The Yale Journal of Law and Feminism will host a conference, Sex for Sale.  There are two panels in the one-day session, scheduled for Saturday, February 4, one on pornography and one on prostitution.  The issue of whether interactive sex software is a good or a service under the UCC doesn’t seem to be covered.

To register for the conference, e-mail Erin Bradrick at Yale, with "Sex for Sale Registration" in the subject line.  You'll either get signed up for the conference or find yourself on an FBI list.

[Frank Snyder]

Goldman on A Million Pieces

To follow up on Meredith's post, ContractsProf contributing editor Eric Goldman has been unaccountably shy about posting a link to his thoughts on the case over at his Technology & Marketing Law Blog.  So we'll do it for him.

Eric also has a link to one of the complaints.

[Frank Snyder]

A Million Little Fact Checkers

In addition to this lawsuit, yesterday’s Wall Street Journal mentions yet another lawsuit over James Frey’s sham exaggerated memoir A Million Little Pieces. The lawsuits raise the issue of what precautions publishers should take in publishing memoirs.  Should publishers undertake extensive fact investigations?  Should they include warranty clauses in contracts with authors? The Wall Street Journal article reported:

Some publishers say the "Million Little Pieces" incident may well result in some changes in how books are vetted. "The entire process will have to be rethought," says James Atlas, president of Atlas Books LLC and the author of "My Life in the Middle Ages: A Survivor's Tale" a memoir published last year by News Corp.’s HarperCollins imprint. "Publishers will scrutinize far more closely what they publish, especially in the realm of memoirs. But short of having some kind of honor code I don't see what can really be done except to exercise far greater vigilance."

Some do. Jeff Kleinman, an agent with Folio Literary Management, said publishers could add a clause to the author's warranty section in their contracts, stating that to the best of the writer's knowledge the facts in the book are true. "The point being, if the author's found to egregiously misrepresent the facts, the author could be sued for breach of contract," said Mr. Kleinman via email. "Wouldn't that be a lot simpler than asking an agent, or even a publisher, to verify and fact-check every book?"

The article points out that having a million little fact-checkers is expensive. However, would a warranty clause really deter an author from telling lies exaggerating the truth?

Even if deterrence could potentially be costly for publishers, it seems that Oprah exacted her own dose of retribution by humiliating questioning Frey in a recent interview. The most interesting question here seems to be: has demand for the book increased since the "controversy" broke?

[Meredith R. Miller]

Weekly Top 10

Three new papers have made this week's Weekly Top 10.  Following are the ten most-downloaded papers from the SSRN Journal of Contract and Commercial Law for the 60 days ending January 29, 2006.  (Last week's rank in parentheses; t = tie.)

1  (1) Law and the Rise of the Firm, Henry Hansmann (Yale), Reinier Kraakman (Harvard) & Richard C. Squire (Yale).

2 (5) The Return of the Twenty Bishops: Toward a Subjective Theory of Contract Formation, Lawrence M. Solan (Brooklyn).

3 (7) Signals, Assent and Internet Contracting, Juliet Moringiello (Widener).

4 (6) Do Courts Matter? Rental Markets and the Law, Pablo Casas-Arce (Oxford-Economics) & Albert Saiz (Penn-Business).

5 (9) Penalties and Optimality in Financial Contracts: Taking Stock, Michel A. Robe, (American-Business), Eva-Maria Steiger (Humboldt Berlin-Business) & Pierre-Armand Michel (Liege-Management).

6 (10) Diversity of Contract Law and the European Internal Market, Jan M. Smits (Maastricht).

7 (8) A Bridge, a Tax Revolt, and the Struggle to Industrialize: The Story and Legacy of Rockingham County v. Luten Bridge Co., Barak D. Richman (Duke), Jordi Weinstock (Duke) & Jason Mehta (Harvard).

8 (-) Choice, Consent, and Cycling: The Hidden Limitations of Consent, Leo Katz (Penn).

9-t (-) Courts and Contractual Innovation: A Preliminary Analysis, Mitchell Berlin & Yaron Leitner (Federal Reserve-Philadelphia).

9-t (-) The (CISG) Road Less Travelled: Case Comment on GreCon Dimter Inc. v. J.R. Normand Inc., Antonin I. Pribetic (Steinberg Morton Frymer LLP).

[Frank Snyder]

Barnett, Adams to Give Talks

Boston University's Randy Barnett (left) has been slated to present the 2006 William Howard Taft constitutional law lecture at the University of Cincinnati College of Law.  Barnett’s topic will be Scalia’s Infidelity: A Critique of "Faint-Hearted" Originalism.  The lecture is slated for 1:30 this Thursday, February 2, 2006, at the law school.  It’s open to the public.  If you can’t make it to the Queen City on Thursday, you can listen to the talk live here.

The same day, Valparaiso contracts prof Mark Adams will give his inaugural address as a full professor at the Indiana school.  He’ll talk on the history and future of tenure.  Adams’s presentation is slated for 4:00 p.m. in Wesemann Hall.  It’s also free and open to the public.

[Frank Snyder]

Contract to Waive Jury Trial Not Enforceable

The California Supreme Court has held that a contractual agreement to waive a jury in the event of a contract dispute is unenforceable.  Relying on Cal. Code Civ. Proc. § 631(d), the unanimous court held that a contractual agreement was not a method authorized by the state legislature for a waiver, and thus that the waiver was ineffective.

The case arose out of a PriceWaterhouseCoopers LLP engagement letter with respect to the audits of two partnerships.  The engagement letter, signed by the plaintiffs, said:

In the unlikely event that differences concerning [PWC's] services or fees should arise that are not resolved by mutual agreement, to facilitate judicial resolution and save time and expense of both parties, [the parties] agree not to demand a trial by jury in any action, proceeding or counterclaim arising out of or relating to [PWC's] services and fees for this engagement.

When the plaintiffs subsequently sued and demanded a jury trial, PWC moved to strike it.

No can do, wrote Chief Justice Ronald George.  The right to a jury trial is provided for in the state constitution, and is to be "inviolate."  Under section 631(d), it is true, a party can accidentally lose the "inviolate" right in several ways, such as by failing to appear, failing to make jury demand at the right time, or failure to pay the necessary fees on time.  But under the statute the only two ways to knowingly waive a jury trial are by filing a written consent with the clerk or the judge, or by oral consent in open court.  "Pre-dispute contractual waiver" isn't listed.  Ergo, it's not effective.

PWC argued that it makes no sense to allow an inadvertent waiver by, for example, forgetting to speak up at the right time, but to prohibit a knowing waiver by a sophisticated party -- especially when the parties could have agreed to go to arbitration and not gone to court at all.  The court disagreed, noting that the legislature has decreed a public policy in favor of arbitration, and the state constitution has decreed a public policy in favor of jury trials, but there's no public policy in favor of bench trials.

Grafton Partners v. Superior Court, 36 Cal. 4th 944, 116 P.3d 479, 32 Cal. Rptr. 3d 5 (2005).

[Frank Snyder -- thanks to Gerald Caplan for the tip]

Theory and Anti-Theory at Contracts Conference

February 10 is the last day to get the early registration discount for the International Contracts Conference, being held in Fort Worth, February 24-25.  Information on the conference, including registration and lodging, is at the Conference web site.

The conference's opening panel, Theory and Anti-Theory in Contract Law,  will feature a paper from Peter Linzer (Houston), with reactions and commentary from Randy Barnett (Boston U), David Campbell (Durham), Hila Keren (Hebrew-Jerusalem), and Joe Perillo (Fordham).  Ohio State's Larry Garvin (left) will be the moderator.

[Frank Snyder]

Today in History: Mrs. Hand Gets a Son

On this date, January 27, 1872, Billings Learned Hand, future judge of the U.S. District Court and the U.S. Court of Appeals, is born at Albany, New York.  He's probably best known in contract law circles of his articulation of the Twenty Bishops rule:

A contract has, strictly speaking, nothing to do with the personal, or individual, intent of the parties.  A contract is an obligation attached by the mere force of law to certain acts of the parties, usually words, which ordinarily accompany and represent a known intent.  If, however, it were proved by twenty bishops that either party, when he used the words, intended something else than the usual meaning which the law imposes on them, he would still be held, unless there were mutual mistake, or something else of the sort.

Hotchkiss v. National City Bank, 200 F. 287, 293 (S.D.N.Y.1911), aff'd, 201 F. 664 (2d Cir.1912), aff'd, 231 U.S. 50, 34 S.Ct. 20, 58 L.Ed. 115 (1913).

[Frank Snyder]

Contract Law: The Answer to Student Truancy?

The Oxford Student reports on a proposed “contract” which all students would be required to sign.  The contract would make attendance at "tutorials, classes and lectures" compulsory. According to the article, the students would have “to agree to the jurisdiction of the legal system over the agreement, enabling the university or college to take any student to court if they are deemed to have breached the contract.” 

The article reports:

A member of the law faculty, who wished to remain anonymous, said that he felt there was potential for litigation from students forced to sign the contract, due to the inordinate powers granted to colleges. “It’s not clear because it has not yet been tested in court, but a sizeable body of opinion would argue that the courts might take an interest in these terms being imposed upon students. There could be a future issue with litigation from students... they come off so weak in this contract,” he said. He emphasised that there had been a problem with presentation of the contract to students, but added: “there’s a real difficulty in tidying this up in writing...I’m not sure whether the EU would let the terms be set down in this way.” However, Dame Fiona Caldicott, chair of last year’s Conference of the Colleges and Principal of Somerville, said that it was unlikely colleges would refer cases to the courts.

Apparently, there is still wrangling over the wording of the proposed contract, with many arguing that the present language is vague.

It seems that the “student contract” is only reiterating attendance requirements for graduation which are set forth in the student handbook. Aren’t these provisions of the student handbook arguably a binding contract? If so, isn’t the “student contract” redundant of the handbook? Perhaps the students should just be required to sign a form acknowledging that they have read and familiarized themselves with the attendance rules set forth in the student handbook. An acknowledgment would look a lot less heavy handed on the part of the University, and it would eviscerate any argument of surprise when a student is not permitted to graduate for poor attendance at “tutorials, classes and lectures.”

[Meredith R. Miller]

A Disco View of Auction Contracts

Justin Garrett (Faulkner Law) passes on this interesting story from the New Yorker, involving the sale of the actual dance floor used in the film Saturday Night Fever.  It involves the interesting rules about when goods can be withdrawn from an absolute auction.  The question is who'll get the floor: the person who bid $6,000 at the first auction (where the floor was withdrawn from bidding), or the one who bid $188,000 at the second.

The floor, 384 square feet of Plexiglas with 304 colored light bulbs beneath it, had been part of New York's Odyssey night club.  The auction apparently induced its own fever among devotees of disco.  As the first putative buyer remarked, somebody bought those 37 million Bee Gees albums.  To see a replica of the floor in its full glory, check out this.

[Frank Snyder]

Lipshaw on Contracts in Middle Earth

Although Middle Earth contract theory is not an overly studied subject, it seems clear that Elvish or Numenorian jurisprudence holds to an autonomy and freedom basis for contract versus a more utilitarian welfare maximization theory.  In The Hobbit, Bilbo Baggins, who has chanced on the One Ring underneath the mountains, makes a bargain with Gollum that the two will play a riddle game.  If Gollum wins, he will eat Bilbo, and if Bilbo wins, Gollum will show him the way out of the mountain.  Bilbo stumps Gollum with the question "What have I got in my pocket?"  (Left, the riddle contest going on the subterranean darkness.)

Later, in the prologue to The Lord of the Rings, Tolkien comments:

The Authorities, it is true, differ whether this last question was a mere "question" and not a "riddle" according to the strict rules of the game; but all agree that, after accepting it and trying to guess the answer, Gollum was bound by his promise.  And Bilbo pressed him to keep his word; for the thought came to him that this slimy creature might prove false, even though such promises were held sacred, and of old all but the wickedest things feared to break them.

There is no indication, from the text at least, that Tolkien consulted with his fellow Oxford don, P.S. Atiyah, on this

                                                 -- Jeff Lipshaw

[Frank Snyder]

Author Sued by Readers for Breach of Contract

Readers of a best-selling book about author James Frey's "redemptive story" of his alleged recovery from drug and alcohol abuse, A Million Little Pieces, are suing him for breach of contract, after stories arose that much of the book is fiction.  The publisher, Doubleday, has already offered to refund the money to purchasers.  But readers in a class action are claiming consequential damages for the time they wasted reading the book.  The book was a selection of the Oprah Winfrey book club.

[Frank Snyder]

Today in History: Substantial Performance

On this date, January 25, 1921, the New York Court of Appeals decides, on a 4-3 vote, the case of Jacob & Youngs v. Kent, 230 N.Y. 239, 129 N.E. 889 (1921), and launches the doctrine of "substantial performance" into American contract casebooks.

It's one of Cardozo's best-known contracts decisions.  More info on Kent's house and the case is available in a previous post here.

[Frank Snyder]

Today in History: The Beatles Get a Manager

On this date, January 24, 1962, one of the most famous management contracts in music history is signed.  At the home of drummer Pete Best at 8 Hayman's Green, West Derby, Liverpool,  he and the other members of the Beatles -- John Lennon, Paul McCartney, and George Harrison -- sign a five-year management contract with local record store owner Brian Epstein.  Epstein doesn't sign, saying that this gave the group the option of withdrawing at any time.

On Pete Best's web site is a picture of him and his mother looking over the management contract for the Beatles.

[Frank Snyder]

A Question of Foreseeability

A rather grim case from New Jersey, reported in the Philadelphia Inquirer, raises an interesting question of foreseeability:  Was it foreseeable in 1992 that a person diagnosed with AIDS and given two years to live would still be alive in 2006?

The question is important because a number of companies, including Life Partners Holdings, Inc. (NASDAQ: LPHI), are in the "transferable insurance policies" business.  They buy life insurance policies from individuals, making monthly payments to them while they're alive and then cashing in the policies when they die.  The business sounds ghoulish, but it actually provides a useful service to people who have paid insurance premiums throughout their lives and need the money now more than they need to leave it to their heirs.  The payments can often be much higher than the cash value the insurance company would give.  (Picture: Happy seniors who've sold their policies, from the LPHI web site.)

But calculations in such cases can go badly awry.  Back in 1992, only a year after it was formed, LPHI bought the life insurance policy of a suddenly destitute single woman who had been diagnosed with AIDS and given two years to live, but who had a $150,000 life insurance policy.  LPHI paid $90,000 up front to the woman (known only anonymously as "M. Smith"), and expected to cash in the $150,000 policy two years later.  The company also apparently agreed as part of the deal -- though this isn't entirely clear -- to pay Smith's life insurance and health insurance premiums until her death.

With new AIDS treatments, however, Smith didn't die, and is very much alive today at age 50, feeling fine.  Not only did LPHI not cash in the policy as it expected, it may be in the hook for maintaining her insurance payments, which have now risen to $26,000 a year.  The company is now in state court in New Jersey, arguing that it is not obligated to continue paying for Smith.  Without seeing the actual contract, it's hard to evaluate the claim, but Smith's own lawyer seems to agree that the company didn't anticipate that new AIDS drugs would significantly change the economics of its deals.

[Frank Snyder -- hat tip to Ben Templin for the link]

Weekly Top 10

Following are the top ten most-downloaded papers from the SSRN Journal of Contract and Commercial Law for the 60 days ending January 22, 2006.

1  Law and the Rise of the Firm, Henry Hansmann (Yale), Reinier Kraakman (Harvard) & Richard C. Squire (Yale).

2  How Law Affects Lending, Rainer F.H. Haselmann (Leipzig-Business), Katharina Pistor (Columbia) & Vikrant Vig (Columbia-Business).

3  The Strategy of Boilerplate, Robert B. Ahdieh (Emory).

4  Beyond Reason and Rational Frogs: Intuitional Business Ethics in a Scientific World, Jeffrey M. Lipshaw (Indiana-Indianapolis).

5  The Return of the Twenty Bishops: Toward a Subjective Theory of Contract Formation, Lawrence M. Solan (Brooklyn).

6  Do Courts Matter? Rental Markets and the Law, Pablo Casas-Arce (Oxford-Economics) & Albert Saiz (Penn-Business).

7  Signals, Assent and Internet Contracting, Juliet Moringiello (Widener).

8  A Bridge, a Tax Revolt, and the Struggle to Industrialize: The Story and Legacy of Rockingham County v. Luten Bridge Co., Barak D. Richman (Duke), Jordi Weinstock (Duke) & Jason Mehta (Harvard).

9 Penalties and Optimality in Financial Contracts: Taking Stock, Michel A. Robe (American-Business), Eva-Maria Steiger (Humboldt-Business) & Pierre-Armand Michel (Liege-Management).

10  Diversity of Contract Law and the European Internal Market, Jan M. Smits (Maastricht).

[Frank Snyder]

Today in History: Robert Nozick Dies

On this date, January 23, 2002, libertarian philosopher Robert Nozick died of cancer at age 63.  In his best-known book, Anarchy, State, and Utopia (1974), Nozick articulated the libertarian view of contracts, arguing that differences in wealth distribution are just when they result from the voluntary exchanges of consenting adults.  (Image: Harvard University)

[Frank Snyder]

Today in History: Pothier Hits America

On this date, January 22, 1802, Messrs. Martin & Ogden of New Bern, North Carolina, publish the first American translation of Robert Joseph Pothier's 1761 Traite des obligations.  This Treatise on Obligations was translated by Francois-Xavier Martin.  Martin's translation was a big success, and Pothier's influence was immediately felt in the common law world, most famously via the adoption of his foreseeability limitation on damages in the case of Hadley v. Baxendale.  (Left: Pothier, Penn Law School)

Martin himself was an interesting figure, a native of Marseilles who came to America at 18, settling at New Bern  He learned English, taught French, and set himself up as a printer.  He studied law and was admitted to the North Carolina Bar in 1789.  He became editor of the Acts of the North Carolina Legislature, then a member of the state's General Assembly.  He was appointed a judge of the Mississippi Territory, then the Louisiana Territory, and served as attorney general of the new State of Louisiana, where he played a major role in sorting out the French and common-law legal systems in the new state, being considered by many as "the father of Louisiana jurisprudence."  He ended his career as presiding judge of the state supreme court.  A portrait of Martin from the Louisiana State Historical society is here.

[Frank Snyder]

Revoking Acceptance of that Lemon RV for Nonconformity

In a recent case, the Nevada Supreme Court held that, pursuant to UCC 2-608, the buyers of an RV could revoke acceptance for nonconformity – the RV’s engine had a history of overheating.

Shortly after taking possession of the RV, the purchasers took a trip from Las Vegas to Hemet, California. On the way back, the entry door popped open and the RV’s engine overheated while ascending a moderate hill. The buyers had to pull over on the side of the road and wait for the engine to cool down. This was only the beginning of the buyers’ problems with the RV, which continually overheated. The service department of the RV dealer spent a lot of time attempting to repair the RV.

The buyers sued the dealership for equitable and monetary relief. The dealership, in turn, sued the RV manufacturer. After a bench trial, the court concluded that the RV’s nonconformities substantially impaired its value to the buyers. The trial court allowed the buyers to revoke their acceptance of the RV and ordered the dealership to return all of the buyers’ out-of-pocket expenses. (The court further concluded that the dealership was not entitled to indemnification from the manufacturer).

On appeal, the dealership argued that the trial court erred in allowing the buyers to revoke their acceptance of the RV because the buyers did not prove that the RV suffered nonconformities that substantially impaired its value. The Supreme Court of Nevada disagreed with the dealership, and affirmed the trial court determination.

The Nevada Supreme Court explained:

The district court found that despite [the dealership’s] good-faith attempts to repair the RV, the nonconformities persisted and rendered the RV unfit for its intended use. Some of those nonconformities identified by the district court included: the bedroom air conditioning does not cool, the front air conditioning does not cool, the dash heater does not blow hot air, RV batteries do not stay charged, and chronic engine overheating. The district court concluded that these nonconformities and others substantially impaired the RV's value to the [buyers] and that the [buyers] had revoked their acceptance of the RV within a reasonable time.

The Nevada Supreme Court held that the RV’s infirmities were a substantial impairment of its value under NRS 104.2608 (Nevada’s verbatim enactment of UCC 2-608).  The Nevada court adopted a two-part test established by the Supreme Court of Oregon:

The Supreme Court of Oregon has established a two-part test to determine whether a nonconformity, under the totality of the circumstances, substantially impairs the value of the goods to the buyer. The test has both an objective and a subjective prong:

Since [the statute] provides that the buyer may revoke acceptance of goods "whose nonconformity substantially impairs its value to him," the value of conforming goods to the plaintiff must first be determined. This is a subjective question in the sense that it calls for a consideration of the needs and circumstances of the plaintiff who seeks to revoke; not the needs and circumstances of an average buyer. The second inquiry is whether the nonconformity in fact substantially impairs the value of the goods to the buyer, having in mind his particular needs. This is an objective question in the sense that it calls for evidence of something more than plaintiff's assertion that the nonconformity impaired the value to him; it requires evidence from which it can be inferred that plaintiff's needs were not met because of the nonconformity.

As for subjective value, the buyers testified that they purchased the RV “to enjoy the RV lifestyle.” They even testified that they intended to sell their house and spend two to three years traveling around the country. Thus, the court held that the RV’s subjective value to the buyers was based on their ability to enjoy this lifestyle, which was substantially impaired by the RV’s nonconformities.

As for objective impairment, the buyers testified that the RV spent a total of 213 days, or seven months and one day, at the dealership’s service department during the eighteen months immediately following the purchase. Thus, the court held that, the buyers’ testimony was “sufficient to demonstrate an objective, substantial impairment of value.” The court noted that the “chronic engine overheating shook the [buyers’] faith in the RV and undermined their confidence in the RV’s reliability and integrity. Not only did this problem make travel in the RV unreliable and stressful to the [buyers], the overheating made travel in the vehicle objectively unsafe."

Finally, the Nevada court held that the buyers had notified the dealership of their intent to revoke within a reasonable time after purchasing the RV. The court noted that “the seller's attempts to cure do not count against the buyer regarding timely revocation.” Rather, the seller’s attempts to repair toll the reasonable time for the buyer’s revocation of acceptance.

Waddell v. R.V., Inc., 122 Nev. Adv. Op. No. 3 (Nev. Jan. 16, 2006).

[Meredith R. Miller]