ContractsProf Blog

In the News: August 30

A Chinese telecom manufacturer has been hit with a $610 million "fine" for breaching its contract with the Communications Authority of Thailand after it was late delivering a regional network. The amount reportedly is three times the total value of the contract.

A 1991 contract under which the town of Greenwood, Mo., agreed to let trucks use a city street to transport stone from a quarry has erupted in litigation after the town, at the request of local residents, voted to ban trucks from the street. The quarry, which says it’s losing $700,000 a month, argues that the contract was perpetual, while the town claims that it was only to last until the city could no longer keep up the roadway.

Johnson & Johnson won one and lost one, as a federal judge refused to dismiss its breach of contract claims against Boston Scientific, but threw out claims that BS tortiously interfered with a contract J&J claims it had reached with Guidant Corp.  The dispute arises out of BS's successful acquisition of Guidant despite a rival bid by J&J.

ITT has won an $1.8 billion contract from the U.S. Department of Transportation to upgrade the nation’s air traffic control system. It’s the first part of a $20 billion project that will go through the year 2020.

Apple and AT&T are facing another class action lawsuit over the batteries in their iPhone product.  Among the claims are counts for breach of contract for failure to tell buyers in advance that the phones require users to pay extra fees of $100 every time the battery needs to be replaced.

A Washington man who had offered to settle his breach of contract claim against his former employer for $500,000 got good news when he won $6.5 million from a jury -- which the employer apparently has paid.

[Frank Snyder]

Customers as TPBs of Business Contracts

A pending dispute in Oregon raises some interesting issues. The Willamette & Pacific Railroad leased a stretch of rail line from the Union Pacific Railroad in 1993. The lease apparently requires the W&P to maintain the line in the same condition as it was then. But the line has deteriorated and recently suffered five derailments in five weeks. The W&P now wants to abandon the line and eliminate service to the 11 shippers that the line serves.

The shippers are suing to prevent the closure and seeking an injunction to have the line repaired, claiming (as recounted in the Corvallis (Ore.) Gazette:

Breach of contract. . . As continuous users of the line, the plaintiffs are intended beneficiaries of the lease agreement and so should be covered by it.

Breach of implied contract.  When the state appropriated funds for emergency repairs to the line, the Willamette & Pacific imposed a $49-per-carload surcharge on the shippers to pay for ongoing maintenance. The surcharge created a new obligation for the W&P to maintain the track in a safe condition, which it has failed to do, according to the lawsuit.

Promissory estoppel. The railroad told the shippers the surcharge would enable it it keep the line open. Based on those promises, the shippers entered into contracts promising to deliver or receive goods via rail. The embargo has forced the shippers to violate those contracts.

[Frank Snyder]

City Wants Specific Performance of Stadium Lease

The usual rule in a lease agreement is that a landlord can’t make a tenant stay put in a building - - all it can get are damages reflecting the value of the remaining lease payments. Can the parties change that rule by inserting a clause allowing the landlord to get specific performance of the lease and make the tenant remain?

Seattle city leaders apparently hope so. They’re threatening legal action if the National Basketball Association’s Seattle SuperSonics try to leave town to move to Oklahoma. The club’s lease with the city-owned Key Arena (left) apparently does not contain any specific promise by the club to stay in Seattle, but does contain a clause entitling the city to specific performance. The lease runs through 2010.

[Frank Snyder]

CLEA Annual Meeting Coming Up

There’s still time to register for the Canadian Law and Economics Association’s annual meeting next month in Toronto. It’s scheduled for September 28-29 at the University of Toronto Law School (left). This year's schedule is a little light on contracts offerings, but there are some interesting panels on behavioral economics, social norms, and teaching L&E.  Info is available here.

[Frank Snyder]

Three by DiMatteo

Larry DiMatteo has been busy lately. Though he teaches at the University of Florida’s Warrington College of Business Administration, he writes (as we all know) on legal issues in contract and commercial law. Three recent articles of his crossed our desk a few days ago.

In A Consent Theory of Unconscionability: An Empirical Study of Law in Action, 33 Fla. St. L. Rev. 1067 (2006), he and Bruce Louis Rich take a look at court decisions involving that often-puzzling doctrine. They find some support for the most widely held views of unconscionability’s virtues and vices, and offer a new way of thinking about the doctrine. In A Theory of Interpretation in the Realm of Idealism, 5 DePaul Bus. & Comm’l L.J. 17 (2006), he takes an interesting look at Karl Llewellyn’s model of theory building.  And in Penalties as a Rational Response to Bargaining Irrationality, 2006 Mich. St. L. Rev. 883, he looks at one of the most confusing areas of damages law: the distinction between a valid liquidated damages clause and an invalid penalty.  Two of the articles don't seem to be available on line, but he probably can get you copies.

[Frank Snyder]

In the News

The U.S. is not the only country where the wheels of justice grind slowly. Take Malaysia, for example, where an architectural firm finally won contract damages for its firing from a major project after 19 years of litigation.

Two software giants are squaring off in a battle that involves claims of copyright violation and breach of contract. Oracle Corp. claims, among other things that Germany’s SAP breached contracts by hacking into Oracle’s system and stealing documentation and code.

The man who bought Nantucket’s Dreamland Theater (left) for $6 million back in 2005 has allegedly failed to make payments on a $1 million note held by the sellers, who are suing for breach of contract.  Meanwhile, the buyer’s plans to renovate the decaying former Quaker meeting house have been held up by the town's approval process.

New Zealand Cricket is threatening contract actions against any of its players who try to jump to the new Indian Cricket League. The rebel ICL is a private venture that apparently seeks to get around control of the sport by national governing boards in various countries.

Internet provider Earthlink has backed out if its proposed contract with San Francisco to provide free Wi-Fi for the city.  Snags with the city's Board of Supervisors apparently held up contract finalization long enough to let Earthlink out of the deal, which it had apparently concluded wasn't going to be economically viable.

The family of a Toronto couple killed in a Mexican hotel room is suing the tour operator for, among other things, breach of contract, claiming that the operator should have warned the couple that Mexico was less safe than other tourist destinations and for misrepresenting hotel security.

Some English soccer clubs are interested in star Ronaldinho, who plays for Barcelona -- but one problem seems to be that it would cost £83 million (about $167 million at today's exchange rates) to buy out his current contract.

Law School The Musical

Josh Keesan, a Boalt Law student, has put together an album called "The Law of Rock, Vol. 1." The chorus from the track "Promissory Estoppel":

Cause I relied on you
And you screwed me through and through
So it’s Promissory Estoppel
We made plans far ahead
And now you say you want me dead,
Well, too bad: ’cause it’s Promissory Estoppel.

Check out this interview with the WSJ Law Blog. Listen here.

[Meredith R. Miller]

Adams on the Rule of the Last Antecedent

Contract drafting specialist Ken Adams of the excellent adamsdrafting.com site (left) reports that the battle is over in Canada's Great Comma Case (though the war is still going on) -- but that it ended with a whimper, not a bang.

In the case, Bell Aliant attempted to terminate its five-year contract with Rogers Communications, relying on the following language:

Subject to the termination provisions of this Agreement, this Agreement shall be effective from the date it is made and shall continue in force for a period of five (5) years from the date it is made, and thereafter for successive five (5) year terms, unless and until terminated by one year prior notice in writing by either party.

The question for Canada's Radio-Television and Communications Commission is whether the last "unless" phrase modifies only the previous "and thereafter" clause, or whether it also modifies the prior clause, which provides for the initial five-year period.  The Commission, says Adams, originally applied the Rule of the Last Antecedent (yes, there is such a thing, apparently) to hold that the comma before the "unless"  meant that the clause modified both of the prior clauses.

It's now reversed itself, but did so by relying on the French version of the contract, which apparently didn't have the confusing language.  Adams offers his own take on the case (he was an expert witness for Rogers) in an op-ed piece in the Globe and Mail.

[Frank Snyder]

Friends Star Sued by Ex-Manager

TV sitcom star Matt LeBlanc is apparently being sued by his former manager, who claims she's owed at least $1 million in commissions he earned and is still earning from his work on the show Friends.  Camille Cerio says the star signed a contract in 1994 that gave her 15 percent of his earnings from the show and any subsequent spinoffs, but that LeBlanc stopped paying her in 2000.

[Frank Snyder]

Contracting Out of the UCC

Kudos to the Loyola of Los Angeles Law Review, for the massive and excellent recent symposium issue, Contracting Out of the Uniform Commercial Code.  The volume, dedicated to well-known commercial lawyer Paul S. Turner, who died last year, has essays that reflect both nuts-and-bolts practical considerations and concerns about consumer protection in an opt-out world. The Review has all the papers on line here. You can get a good idea of what's in store from the Table of Contents:

William J. Woodward, Jr., Constraining Opt-Outs: Shielding Local Law and Those It Protects from Adhesive Choice of Law Clauses.

Charles L. Knapp, Opting Out or Copping Out? An Argument for Strict Scrutiny of Individual Contracts

Irma S. Russell, Got Wheels? Article 21, Standardized Rental Car Terms, Rational Inaction, and Unilateral Private Ordering

Christopher R. Drahozal, Is Arbitration Lawless?

Fred H. Miller, Writing Your Own Rules: Contracting Out of (and Into) The Uniform Commercial Code: Intrastate Choice of Law

Raymond T. Nimmer, An Essay on Article 2's Irrelevance to Licensing Agreements

Jean Braucher, Contracting Out of Article 2 Using a "License" Label: A Strategy That Should Not Work for Software Products

Meredith Jackson, Contracting Out of Article 9

James E. Byrne, Contracting Out of Revised UCC Article 5 (Letters of Credit).

Sarah Howard Jenkins, Contracting Out of Article 2: Minimizing the Obligation of Performance & Liability for Breach

Paul S. Turner, Contracting Out of the UCC: Variation by Agreement Under Articles 3, 4, and 4A

Christina L. Kunz, The Ethics of Invalid and "Iffy" Contract Clauses

Stephanie Heller, An Endangered Species: The Increasing Irrelevance of Article 4 of the UCC in Electronics-Based Payments Systems

[Frank Snyder]

Prof: Faculty Constitution Trumps CBA

Where faculty members have both a faculty constitution that guarantees their status and a collective bargaining agreement, which one will control the issue of when they can be terminated?  That’s apparently the issue in a suit by former University of Winnipeg physics professor Edward Tomchuk.

Tomchuk was terminated when he turned 69, pursuant to a mandatory retirement clause in the university’s collective bargaining agreement. But he’s claiming breach of his contract with the university on the grounds that the faculty constitution prohibits age discrimination, and that its terms can't be varied by the CBA.

[Frank Snyder]

Contracts Spotlight: Eboni Nelson

Eboni Nelson (University of South Carolina)

B.A., Wake Forest University

J.D., Harvard Law School

Eboni Nelson recently joined the faculty of the University of South Carolina, where she teaches Contracts, Sales and Consumer Law. Prior to joining the faculty, she taught Commercial Law and Texas Consumer Law at Thurgood Marshall School of Law in Houston, TX. She was also a visiting professor at the University of Houston Law Center, where she taught Contracts and Texas Consumer Law.

Before joining "the best profession in the world," Professor Nelson practiced ERISA and Employee Benefits in the Houston office of Bracewell & Giuliani, LLP (Yes...that Giuliani!!), where she developed a love for statutory and code work. Her love of Contracts came from earning her stripes as a teaching assistant for Professor Elizabeth Warren at Harvard Law School.

Professor Nelson's scholarly interests include education law and policy, specifically the intersection of consumer law and education issues. Her recent articles concerning affirmative action in higher education and the constitutionality of race-conscious student assignment plans have appeared as lead articles in the Journal of College and University Law, a peer-reviewed journal at Notre Dame, and the Denver Law Review. Her current work examines issues related to student consumer debt.

Professor Nelson is originally from Greenville, SC and is excited about her recent move "home." While happy that she and her husband, Scott, are now closer, her family is ecstatic that their 2 year old daughter, Ella Joy, is now only an hour and a half away. In her spare time, Professor Nelson pursues her lifelong quest to be the ultimate cook and entertainer, just like her idol Ina Garten a/k/a the Barefoot Contessa.

[If you would like to be featured in the ContractsProf Blog spotlight, or would like to recommend someone to be featured, please contact Meredith Miller.]

Teaching Assistants: Oliver Wendell Holmes

In his brief essay, The Theory of Legal Interpretation (12 Harv. L. Rev. 418 (1899)), Oliver Wendell Holmes endorses the objective theory of contract formation and justifies his preference as follows:

For each party to a contract has notice that the other will understand his words according to the usage of the normal speaker of English under the circumstances, and therefore cannot complain if his words are taken in that sense.  Id. at 419. 

This is an important and probably a sound conclusion, but Holmes arrives at it by means of reasoning that might well lead one to a very different conclusion.

Holmes first notes that while serious documents might "in theory" have one meaning and no other, "in practice" it is simply not the case that individual words or "a given collocation of words" has one meaning and no other.  Id. at 417.  Even dictionaries provide multiple definitions, and Holmes suggests, words taken in their context often depart subtly from the connotations assigned to them in dictionaries.  Holmes thus arrives at a shocking interim conclusion:

What happens it this.  Even the whole document is found to have a certain play in the joints when its words are translated into things by parol evidence, as they have to be.  It does not disclose one meaning conclusively according to the laws of language.  Id.

How does Holmes avoid following this reasoning into the dark corners explored by the likes of Stanley Fish -- or worse Jacques Derrida?  Well, it turns out, we don't care what the words meant to the person or people who drafted them.  We care only about what those words "would mean in the mouth of a normal speaker of English."  Id.  Although he accepts that proper names, such as Peerless, can create an irresoluble ambiguity, Holmes is for some reason convinced that we are otherwise usually able to understand what contractual language would mean to a "normal speaker of English." 

Holmes' reasoning here eludes me, but it seems to turn on notice, as indicated in the first quotation above.  But if the meaning of words is subject to "a certain play in the joints," and if this play is inescapable, and Holmes suggests that it is, how can one know in advance what meaning a normal speaker of English will attach to contractual language?

Holmes concludes by noting that "practical men prefer to leave their major premises inarticulate, yet even for practial purposes theory generally turns out the most important thing in the end."  Holmes begins his essay by contrasting "theory," which holds that words have one meaning, with "practice" which reveals that they have multiple meanings.  Practice, 1; Theory, 0.  In his conclusion, Holmes evens the score and defies the "practical men" who refuse to articulate the theoretical underpinnings of their practices.  Unfortunately, at least in this essay, Holmes' theoretical defense of the practice is incomplete.

[Jeremy Telman]

Foreseeable Damages?

In South Africa, the Department of Health has ordered a recall of 20 million defective condoms. The manufacturer allegedly bribed government inspectors to accept the goods even though they did not meet the required standards.

If the seller breached the warranty of merchantability, and the warranty ran to the end users (sorry!), the foreseeable damages could be very interesting.

[Frank Snyder]

It's a Floor Wax and a Dessert Topping

When a user of "open source" software uses it in violation of the license agreement, is the appropriate claim breach of contract or copyright violation? The issue is potentially significant because the usual remedy from breach of contract is monetary damages (which may be very little in the open source context) while a copyright violation is routinely remedied with an injunction.

Lawyer Mark Radcliffe of DLA Piper (left) has some critical words about a recent California decision that held that violation of the license agreement was a simple breach of contract.

[Frank Snyder]

New Law School in Louisiana

Louisiana College in Pineville, La., has announced plans for a new law school that will open its doors next year.  The 101-year-old Baptist college hopes to build a "conservative, Christian law school," and will name it for retired Texas appeals court judge Paul Pressler, a long-time leader in the Southern Baptist Convention.  Pineville, for those who aren't familiar with it, is a pleasant little town just across the Red River from Alexandria, La., about equidistant from Houston and New Orleans.

As folks who believe that more jobs for law professors are always a good idea, we wish them a hearty welcome to the club.

[Frank Snyder]

Vick's Biggest Problem May Not Be Prison

The legal woes of Atlanta Falcons quarterback Michael Vick have been getting more play over on the blogs devoted to criminal law issues, but he’s got some potential contract issues as well.  Vick, who pleaded guilty to federal charges of conspiracy involving a dogfighting scheme, got a $120 million contract when he signed with the Falcons as the number-one pick in the NFL draft in 2001. The contract has a morals clause, which makes Vick potentially liable to repay an amount estimated to be between $22 million and $28 million.

Vick also has an endorsement contract with Nike, which had planned a "Vick Zoom V" shoe for release this year -- a product line that is now moribund. Nike, say sources, may have claims against Vick for the money it paid to develop and market the shoe.  (Image: Wikipedia Public Domain.)

[Frank Snyder]

New Feature: "Teaching Assistants"

This week, we are introducing a new weekly (we hope) feature on the blog.  "Teaching Assistants" will summarize and discuss a piece of scholarship that is useful in the contracts classroom.  The target audience for this column will be contracts profs who, like your humble author, do not specialize in contracts scholarship and are still working their way through the literature, as well as students and other devotees of the blog.

The idea is to highlight some scholarship, mostly not of recent vintage, that shows up in the "for more on this topic" notes that follow cases in our casebooks.  The columns will summarize the content of this scholarship, and discuss how it might be used in class or what students might get out of wading into the deep end of contracts scholarship.

While the column will likely focus on well-known and older essays, readers who are also authors and think their work relevant and useful in the first-year contracts setting should feel free to send offprints my way. 

[Jeremy Telman]

No Implied PILON Term in Scots Employment Contracts

Scotland's highest court has held that there is no implied term in an employment contract that gives the employer a right to terminate the contract early upon what is usually called a "Payment in Lieu of Notice."

The case, Morrish v. NTL Group Ltd., involved a contract, originally signed in 1983, which provided that the employer could terminate the contract on 12 months' notice.   In 2005, the employer decided the job was redundant and terminated the employee without giving the proper notice.  The employer argued that there was no breach, since the notice provision gave it an implied right to terminate the agreement upon paying the pro-rated share of the employee's compensation for the notice period.

The Inner House of the Court of Session -- equivalent to England's Court of Appeal -- disagreed.  In an opinion by Lord Nimmo Smith, the court found that the notice provision did not create any implied term related to damages.  Failure to give the notice was a breach, and since the contract was breached, the employee had a right to pursue a damages remedy.

[Frank Snyder]

"Natural Meaning" and Contracts

When a court interprets a contract, it often looks for what is called the "natural meaning" of the language.  Sometimes, however, one of the parties argues after the fact that parties used language in a manner different from the "natural" meaning that an ordinary lawyer or judge would apply.  Whether (and when) courts should give effect to these "unnatural" meanings has been a troublesome issue in contract law for a century or so.

A new paper by John Carter and Elisabeth Peden (both at Sydney) takes a look at The 'Natural Meaning' of Contracts.  Here's the brief abstract:

This article considers the concept of 'natural meaning' used in the construction of contracts.  It considers the relevant theoretical aspects of construction law and the differences between linguistic meaning, legal effect and application of the contract.  The conclusion is that ultimate question is always the meaning or application which the parties intended the words to have, whether natural or not.

[Frank Snyder]