ContractsProf Blog

Estate Fails to Establish Mistake of Fact as Ground to Rescind Decedent’s Annuity

Jean M. Simes (Simes) died of cancer less than four months after purchasing an annuity that provided for monthly benefit payments as long as she lived. The administrators of her estate (the Estate), sought to rescind the annuity based on a mistake of fact, namely, that Simes was unaware at the time of the contract that she was terminally ill. The trial court granted summary judgment in favor of the issuing company, defendant United of Omaha Life Insurance Company (United). A California appellate court affirm because the Estate failed to establish an essential element for rescission based on mistake of fact -- that is, the Estate failed to establish that Simes did not bear the risk of the mistake.

This strikes me as a great teaching case for mistake of fact, especially because it extensively cites Donovan v. RRL Corp., 26 Cal.4th 261, 278 (2001), which I use to discuss unilateral mistake of fact.

It was undisputed that Simes submitted a signed annuity application to United’s agent on October 2, 2001, and paid a single premium of $321,131. United then issued a policy for a single premium immediate annuity, effective the date of Simes’s application. On January 25, 2002, after receiving three benefit payments, Simes was diagnosed with ovarian cancer. She died less than a week later on January 30, 2002.

The Estate filed suit against United to, among other things, rescind the annuity based on mistake of fact. The trial court granted summary judgment in favor of United, concluding that Simes’s undetected cancer did not constitute a mistake of fact rendering enforcement unconscionable. The trial court noted that purchasers of annuities assume the risk of dying before recouping their investments and concluded it was reasonably foreseeable that Simes would die before the benefit payments matched her premium. Under these circumstances, the trial court held that it was reasonable to allocate to Simes the risk of a mistake regarding her health and life expectancy.

The Estate appealed. The appellate court reviewed the grant of summary judgment de novo, and affirmed the trial court. The appellate court reasoned:

The facts on which the Estate relied below purport to show the following: (1) Simes did not know at the time of her application and during the statutory rescission period that she had terminal ovarian cancer that would result in her death four months later; (2) Simes’s illness affected her ability to make decisions; and (3) Simes did not receive a copy of the annuity policy until mid-November 2001. The sole issue argued by the Estate on appeal is whether these facts provide a legal basis for rescission of the life annuity contract based on a mistake of fact. We hold, as a matter of law, that they do not, for the following reasons.

California law permits rescission of a contract when a party’s consent is given by mistake. (Civ. Code, § 1689, subd. (b)(1); Donovan v. RRL Corp. (2001) 26 Cal.4th 261, 278 (Donovan).) On this basis, the Estate asserts a right to rescind the annuity policy, alleging that Simes would not have entered the contract but for a mistake of fact, specifically, the terminal illness she did not know she had. A mistake of fact may consist of a “[b]elief in the present existence of a thing material to the contract, which does not exist.” (Civ. Code, § 1577.) The alleged mistake therefore may be characterized as Simes’s erroneous belief at the time of the contract that she was in good health and had a reasonable life expectancy.

A mistake of this nature does not support a claim for rescission. The Estate asserts a unilateral mistake and offers no evidence that United had reason to know of or caused the mistake. Accordingly, to prevail at trial, the Estate would have been required to prove the following: (1) Simes was mistaken regarding a basic assumption upon which she made the contract; (2) the mistake materially affected the agreed exchange of performances in a way that was adverse to Simes; (3) Simes did not bear the risk of the mistake; and (4) the effect of the mistake was such that enforcement of the contract would be unconscionable. (See Donovan, supra, 26 Cal.4th at p. 278.) The facts on which the Estate relies demonstrate that it cannot establish the third of these elements.

We conclude, based on the nature of the contract and the alleged mistake, that Simes bore the risk of the mistake, as a matter of law. A contracting party bears the risk of a mistake when the agreement so provides or when the party is aware of having only limited knowledge of the facts relating to the mistake but treats this limited knowledge as sufficient. (Donovan, supra, 26 Cal.4th at p. 283, citing Rest.2d Contracts, § 154.) Additionally, the court may allocate the risk to a party because it is reasonable under the circumstances to do so. (Donovan, at p. 283.) The contract in this case does not expressly assign the risk of the alleged mistake. Nonetheless, parties who contract for “life contingent” benefits necessarily do so based on limited knowledge of the very facts about which Simes was mistaken. We cannot fix the length of our lives or even the state of our health with certainty, and the parties knew that their expectations in this regard were at best an educated guess. Indeed, life annuity contracts are read “in the light of the knowledge of all mankind, that death may come tomorrow.” (Rishel v. Pacific Mut. Life Ins. Co. of California (10th Cir. 1935) 78 F.2d 881, 883 (Rishel).)

The allocation of this risk to Simes is reasonable because such risks are an inherent part of life annuity contracts, which reflect, at their essence, a longevity wager measured by average life expectancy. (See Rest.2d Contracts, § 154, illus. 3 [reasonable allocation of risk that annuitant has incurable disease and will live no more than a year]; see also Stockett v. Penn Mut. Life Ins. Co. (1954) 82 R.I. 172 [106 A.2d 741, 744] [contract not based on life expectancy of particular annuitant, but on “the average life expectancy of a specified group within which the individual may reasonably be included”].) Annuitants who survive the average life expectancy receive benefits beyond the premium; those who die earlier do not recoup their investments. Both risks are contemplated by the parties and, indeed, are an integral part of their bargain. (See Guthrie v. Times-Mirror Co. (1975) 51 Cal.App.3d 879, 885 [“Where parties are aware at the time the contract is entered into that a doubt exists in regard to a certain matter and contract on that assumption, the risk of the existence of the doubtful matter is assumed as an element of the bargain”].)

While there was no California case squarely on point, the court noted that the decision was consistent with the bulk of persuasive authority from other jurisdictions.

Grenall v. United of Omaha Life Insurance Company, 08 S.O.S. 4461, (California Court of Appeal, 1st Appellate Dept., July 25, 2008).

[Meredith R. Miller]

The Boss on the Hold Up Game (and Gas Prices)

Back in June, after Adam Liptak's NYT article about the use of Dylan's lyrics in judicial opnions, Prof. Katrina Kuh lamented that:

Bruce Springsteen ranks as the third most-cited rocker in judicial opinions. However, I can’t help but think that, even coming in at number three, the Boss is being underutilized in the judicial lexicon.

"To help matters along," she offered some suggestions "for incorporating Springsteen lyrics into decisions."

Well, I figure it is a worthwhile effort, and I am writing here to endorse it. You see, I actually did some research last night at Giants Stadium. I had the opportunity to see Bruuuuuuce; it was a great show.

Bruce took sign requests from the crowd and, about midway through the set, he played a fan's request for "Held Up Without a Gun." This is a somewhat obscure song off a 2003 release called "The Essential Bruce Springsteen," which has a third disc of live recordings. "Held Up Without a Gun" was recorded back in 1980, but, to the extent it is about high gas prices, it could have been written today. The Boss remarked that the band had played the song maybe twice before, and dedicated the song "to what it cost you guys to drive here."

But, I couldn't help thinking that the song was, additionally, about economic duress:

I was out driving just a taking it slow Looked at my tank it was reading low Pulled in a Exxon station out on Highway One Held up without a gun, held up without a gun

Some damn fool
with a guitar
walkin' down
the street
ain't got
nowhere to go
Ain't got
nothing to eat
Man with a cigar says,
"Sign here son"
Held up without
a gun, held up
without a gun

Now it's a sin
and it oughta
be a crime
You know it
happens buddy
all the time
Try to make a
living, try to
have a little
fun
Held up without
a gun, held up
without a gun

[Meredith R. Miller]

We Plead the Fifth

It is undeniable that, here at ContractsProf Blog, we love all things Rose the 2d of Aberlone.

And, we took great interest in this story, via Jeffrey Lipshaw at Legal Profession Blog:

As I'm still a member in good standing of the State Bar of Michigan, I get the Michigan Bar Journal (the repository of an article I wrote twenty-five years ago which was of no value whatsoever academically speaking, but that's another story). Well, it turns out that pretty little Kellogg Park, the Midwest equivalent of the town green, turns out to have all sorts of historic legal implications to it. The June, 2008 issue of the MBJ highlights the rededication of the Rose of Aberlone plaque in the park. As we all recall, Rose was the the breeder cow whose fertility or lack thereof was the subject of Sherwood v. Walker (Hiram of whiskey fame), the 1887 contract law chestnut.

Why a rededication of the Rose of Aberlone plaque? Apparently, vandals pilfered the original one. Prof Lipshaw would have done well to stop his reporting there. But, oh no, he goes on to point the finger at us and, it seems, in particular, one Professor Franklin Snyder:

Far be it from me to cast aspersions, but I think you will agree that the left side of this page [i.e, ContractProf Blog] contains a nice list of the usual suspects, particularly toward the top. So the criminal law clearly, it seems to me, has a place in the history of Kellogg Park.

We admit nothing beyond admiration for Rose and, in the spirit of a grand tradition, we feel compelled to otherwise exercise our Fifth Amendment right:

[Meredith R. Miller]

Law Firm Partnership Exits, Partnership Contracts and Fiduciary Limbo

With my Business Organizations students, after reading the "grabbing and leaving" agency cases, I always raise the question of what an exiting law firm partner can do without breaching her fiduciary duty to the partnership - in preparation to leave and in terms of client retention/solicitation. (As an aside, I should note my dismay that I have not yet seen a limerick for my favorite of these cases - Town & Country Home & House Service v. Newbery).

Well, this article in the NYLJ (subscription required) by Arthur Ciampi provides a a succinct discussion of a contract twist on my tiresome hypotheticals. It begins by noting that law firm partnership agreements commonly contain a provision that allows a partner to withdraw only upon 60 (or 30 or 90) days written notice to the firm's executive committee. Of course, partnership agreements include this notice period for practical reasons - for continuity and stability during the transition. But, the article points out that "[s]uch provisions often place the departing partner in a state of limbo - neither "fish nor fowl" - because, during this interim period, the rights and obligations of the departing partner and the partnership are unclear." Which tees up for an interesting (and, at least in New York, unresolved) question: what duties does the departing partner owe to the firm during the contractual notice period? The article provides the following analysis, beginning with the obligations of a partner when no such contractual notice provision exists:

The Court of Appeals in Graubard Mollen Dannett & Horowitz v. Moskovitz1 set forth a law firm partner's rights and obligations upon withdrawing from their partnership. In so doing, the court found that once partners notified their partnership of their intent to withdraw as partner, they dispatched their fiduciary duty and were at that point permitted to inform clients of their departure and that they wished to continue to represent them. The court also identified the dual fiduciary duties at play:

It is unquestionably difficult to draw hard lines defining lawyers' fiduciary duty to partners and their fiduciary duty to clients. That there may be overlap, tension, even conflict between the two spheres is underscored by the spate of literature concerning the current revolving door law firm culture.

One respected commentator says that, while a departing partner's preresignation negotiations with firm clients in most businesses would probably constitute breach of the common-law obligation of loyalty to the firm, in the case of law practice, "the public policy favoring client freedom of choice in legal representation should override the firm's proprietary interest in holding its clientele."

The Court of Appeals has not addressed the issue of the obligations of a departing partner when there is a contractual notice provision. It is suggested that the problem created by these provisions is determining: what is a partner permitted to do during the contractual waiting period.

Here are the arguments of the departing partner, and those of the firm:

Not surprisingly, departing partners argue that pursuant to Graubard and its progeny, upon giving notice to one's partners, a departing partner is free to contact clients and that the contractual notice provision does not change that right. They continue to argue that this is the case because an attorney is obliged to inform clients of their intention to leave the partnership because such change will likely materially affect the client's representation and that the delay caused by remaining silent during a typical contractual notice provision would deprive a client of a meaningful choice of counsel. In addition, departing partners argue that once the firm and its partners know of their intent to depart from the partnership, the "playing field" is even and the partnership is not damaged by the contacting of clients.

The partnership disagrees and typically argues that the plain language of the agreement provides that the partner remains a partner until the last day of the notice period and thereby continues to owe fiduciary duties to the partnership which include a duty not to compete and therefore not to contact clients about the partner's new firm. Accordingly, partnerships often contend that a partner is not permitted to contact clients during the notice period and that doing so is a breach of fiduciary duty which could be compensable in money damages. Partnerships find support for this contention in the Partnership Law and cases which maintain that partners are free to contract among themselves and that the courts will bind partners to their agreements.

Until there is some judicial direction, however, there will be no controlling answer concerning who is correct and this debate will continue. Accordingly, in light of these murky waters, law firm partnerships should consider taking advantage of the flexibility offered by their chosen legal form of partnership and include more detailed provisions in their partnership agreement which resolve the issue in the manner best suited for their particular partnership and its practice. Surely heated debate will occur among the partners concerning what is the best way to address this issue, and, while the debate itself may be contentious and even unpleasant, it is submitted that the partnership would be well-served to vet the issue on its own terms in its own conference rooms or risk having the issue decided for it in the course of a litigation in a room of another kind, a courtroom.

Which all leads to the next question, which Ciampi addresses: can the limbo be solved with additional contract language about what the exiting partner can do during the notice period? He offers some possible language.

[Meredith R. Miller]

Another Plug for The Slippery Slope

This time, I think I need not ask forgiveness for a shameless plug for my new podcast project, The Slippery Slope. While the project features general interest, law-related conversations on a wide variety of topics, the most recent episode actually does touch upon a topic near and dear to the heart of ContractsProf Blog: the sale of goods -- on the street, that is. Here's information about the most recent podcast, which you can listen to or download here:

This podcast features a conversation with attorney Sean Basinski, described by New York Magazine as the "César Chávez of Hot-Dog Stands." Sean is the founder and Director of the Street Vendor Project (which is affiliated with the Urban Justice Center). Upon graduating from law school, Sean received a Yale Initiative for Public Interest Law Fellowship to start the project. His inspiration came from his own 9-month stint selling Mexican food from a pushcart on Park Avenue and 52nd Street in Manhattan.

Topics include: street vendor demographics, permit and licensing requirements, common misconceptions about New York City street vendors, where the carts go at the end of the day, and the amount of street food Sean consumes.

[Meredith R. Miller]

"A Kiss is not a Contract"

A little July humor from Flight of the Conchords. Caveat: contains language and themes that may not be appropriate for work or the company of children.

The summary: a kiss does not constitute a binding promise of anything more (maybe just an invitation to make an offer?). I like the gender role reversal here -- at least, I would have thought gender stereotypes would have a woman singing these lyrics. Adds to the humor (or is the humor?), I suppose. I won't try to determine why this is funny - as we were reminded in Leonard v. Pepsico, "Humor can be dissected, as a frog can, but the thing dies in the process. . . ."

[Meredith R. Miller]

Catfight: Barbie v. the Bratz

She may look all, "Oooh, let's have a tea party," but Barbie (left) can be a monster in the courtroom.  According to news reports, including this one in Tradingmarkets.com, Barbie's Mattel has prevailed over rival MGA, distributor of the Bratz dolls. 

A jury agreed with Mattel's claim that Bratz doll designer, Carter Bryant, had created designs and prototypes for the Bratz while employed by Mattel.  The jury thus concluded that MGA and its CEO had, among other things, interfered with Bryant's contractual duties to Mattel.  Bryant himself had earlier settled with Mattel.  The trial is not over, but I think I can hear the skinny lady singing.

My money would have been on the Bratz dolls to pummel Barbie down to her goody-two-shoes.  My seven-year-old daughter is a fan of both dolls, and the Bratz' sass usually bests Barbie's moxie.  Still, I overlooked the tale of the tape (left).  As you can see, modern Barbies are pumped up.  Not only are their waists wider, they have six-pack abs.  Don't mess with Barbie, Bratz.  She'll f you up.

[Jeremy Telman]

Limerick of the Week: The Punctilio

I make a big deal out of Cardozo's opinion in Meinhard v. Salmon.  The paragraph in which he defines the fiduciary duty among co-venturers in a business is as close to poetry as any legal opinion has ever come.

Here it is, in all its glory:

Joint adventurers, like copartners, owe to one another, while the enterprise continues, the duty of the finest loyalty. Many forms of conduct permissible in a workaday world for those acting at arm's length, are forbidden to those bound by fiduciary ties. A trustee is held to something stricter than the morals of the market place. Not honesty alone, but the punctilio of an honor the most sensitive, is then the standard of behavior. As to this there has developed a tradition that is unbending and inveterate. Uncompromising rigidity has been the attitude of courts of equity when petitioned to undermine the rule of undivided loyalty by the "disintegrating erosion" of particular exceptions (Wendt v. Fischer, 243 N. Y. 439, 444). Only thus has the level of conduct for fiduciaries been kept at a level higher than that trodden by the crowd. It will not consciously be lowered by any judgment of this court.

All I wanted to do was to somehow work the line with the punctilio into a Limerick.  That is indeed all I have done.  The point of the fourth line is that I have often found that students find Cardozo's prose inpentrable and thus lose interest before they can apprehend his penetrating thoughts. 

Meinhard v. Salmon

Among partners, in matters compensative,
Cardozo, opining most pensative
Held out as the standard --
As attention meandered --
The punctilio of an honor most sensitive.

[Jeremy Telman]

Missouri Appeals Court Holds that Employee ADR Program is Not an Enforceable Contract

In late June, the Missouri Court of Appeals addressed the legal enforceability of a program adopted by Hallmark requiring employees to arbitrate employment disputes. The court held that Hallmark's ADR program did not constitute a contract and that there was no consideration to bind the employees to the promise to arbitrate claims.

Mary Kay Morrow began employment with Hallmark in 1982. In 2002, the company adopted an ADR program. The policy provided that, if an employee continued to work for the company after the policy's effective date, that employee was deemed to have agreed to arbitration under the policy's procedures. When Ms. Morrow sued Hallmark for age discrimination, the company pointed to its ADR program as a binding contract. Morrow argued that "the notion that the [ADR policy] is a contract is an illusion." The Missouri appellate court held that Morrow could not be compelled to arbitrate because the ADR program did not constitute a "contract." The court appeared to reason that simply continuing employment did not amount to assent to be bound by the ADR policy and, thus, no contract was formed:

Contracts embody the intention of two or more parties to bind themselves legally to promises, and are often characterized by the concepts of mutual promises. Sometimes, in lieu of mutual promises, a non-promising party may provide legal consideration, that is, the transfer of something of value to the promising party. See Triarch Indus., 158 S.W.3d at 775. Many courts have invalidated purported contracts containing “non-mutual arbitration provisions” (requiring only the party with less economic bargaining power to submit claims to arbitration) because they are so “one-sided” as to be illusory or unconscionable. Id. at 774-75.

Hallmark informed its employees that by continuing to work after notice of the DRP, they would be deemed to have consented to its terms. Hallmark acknowledges that the DRP was presented as a new term or condition of employment. Employees are typically not asked or required to sign a document indicating agreement with new terms of employment. If employees do not agree with a new term of employment, they may leave.

With regard to contracts, on the other hand, signatures remain a common, though not exclusive, method of demonstrating agreement. See, e.g., Bailey, 209 F.3d at 745 (noting that the employee never signed an agreement to arbitrate and expressed disagreement with the plan); Gannon v. Circuit City Stores, Inc., 262 F.3d 677, 682 (8th Cir.2001) (employee demonstrated her intent to arbitrate by signing agreement); McIntosh v. Tenet Health Sys. Hosp., Inc., 48 S.W.3d 85, 89 (Mo.App.2001) (noting that employee signed arbitration clause agreeing, along with company, to submit claims to arbitration). In Gilmer, 500 U.S. at 23, both employer and employee signed the agreement required by the NYSE. Here, in contrast, the employee was not expected to express agreement, but was expected simply to acquiesce in the new requirement in order to keep working.FN3 As will be shown in the discussion below, the distinction between terms and conditions of employment, on the one hand, and legally enforceable contracts, on the other, is crucial for this case.

The court's contract formation discussion also had a strong taste of unconscionability and/or illusory promise analysis:

[T]he program does not involve mutual promises because Hallmark reserves the right, in its sole discretion, to modify or revoke the provisions of this program.

Further, and the part of the case that raises a nice, modern example of the relationship between contract modification and consideration, the court held that the Morrow's continued employment in an at-will employment relationship did not constitute consideration:

Hallmark's position, for instance, is that it lawfully terminated Ms. Morrow's at-will employment when it was no longer pleased with her services. It terminated her a little over a year after the DRP went into effect, but the legal posture of the case would be the same if it had terminated her fifteen minutes after the DRP went into effect. Ms. Morrow had no employment contract, and no offer of “continuing employment,” with Hallmark.

We also reject the notion that, after the DRP went into effect, the work she was then allowed to do could constitute consideration, as though a contract could be formed in retrospect. Obviously, there must be a meeting of the minds at the time the purported contract is formed. “Continued employment” was neither promised at that time nor received at that time-that is, at the time the alleged contract was formed.

The idea that an employer can create any legal contract it dares to create (based on a condition of at-will employment) cannot be sustained upon reflection. Imagine, for instance, an employer publishing a memo to employees stating that:

Anyone who continues to work for us through next Monday will be conclusively deemed to have agreed, as a condition of remaining in our employ through that date, that you will contribute twenty dollars per month over the next ten years to the National Association of Manufacturers (NAM), whether or not you remain employed here during that time. If you do not agree, you will need to resign your employment immediately, because by continuing to work, you are agreeing.

While it is unlikely that any employer would do that, we are here talking about contract analysis. If an employer did impose such a requirement, it would be impossible to conceive that anyone would seriously argue that because an employee continued to work through the next Monday before being terminated, there was formed a true, legally enforceable contract to support the NAM, rendering the requirement legally enforceable as a contractual provision. Similarly, a requirement pursuant to a collective bargaining agreement that the employees must support their union as a condition of employment would be understood to apply only as long as the employee remained in employment, and would be enforceable only through employee discipline, not through the courts. Nor could an employer effectively argue that the fact that the employee continued to work for a year after the requirement became effective somehow constituted legal consideration supporting the contract.

Morrow v. Hallmark, 2008 WL 2582662 (Mo. App. W. D., June 30, 2008).

[Meredith R. Miller]

Tangential Rant on a Pet Peeve

This rant is probably more aptly blogged by our friends over at this blog or even this blog, but it will really make me feel better to get this off my chest. When I read this sentence from an inane blog post at "Lis on Law" by Fox News "legal analyst" Lis Wiehl, I cringed (and not only because she is discussing a hypothetical bridesmaid's claim against the bride for intentional emotional distress):

The New York Court of Appeals, the second highest court in this state, has repeatedly stated that most IIED claims fail "because the alleged conduct was not sufficiently outrageous."

It is accurate that the New York Court of Appeals has yet to believe any conduct is extreme and outrageous - something in which, as a New Yorker, I take great pride (nothing shocks a New Yorker!). But, I'd like to set the record straight: The New York Court of Appeals is the highest tribunal in the State of New York.

I have e-mailed Ms. Wiehl to inform her of the error, I will update this post if I receive a response.

[Meredith R. Miller]

Arbitration Fairness Act Moves to Full Committee

Prof. Paul Secunda / Workplace Prof Blog reports that, yesterday, the House Commercial and Administrative Law Subcommittee decided by a voice vote to report the Arbitration Fairness Act bill (H.R. 3010) favorably to the full House Judiciary Committee.  The bill would ban pre-dispute arbitration agreements in employment, consumer and franchise contracts. 

[Meredith R. Miller]

Why Borat Release Agreement is Niiice!

We've mentioned the "Borat" release on these pages before. Kent Raygor and Bardia Bakhtari have a fairly detailed discussion of the terms of the release in today's NYLJ in an article titled "Great Success! 'Borat's' Release Agreement Averts Liability." They write that other filmmakers would be wise to model their own release agreements on Borat's. Here's an excerpt from the article:

The Release Agreement contains a clause acknowledging that the participant agrees to be filmed for a "documentary-style film." This creates defenses that filmmakers can later use to defend against a claim for invasion of privacy by appropriation. By using the phrase "documentary-style film" or something similar, filmmakers can help preempt an allegation that the participant was unaware he or she was being filmed for a comedic mockumentary as opposed to a documentary, and avoids committing the filmmaker to a specific genre of film. In drafting such a clause, a filmmaker should also include language where the participant acknowledges that his or her participation will be part of a larger work, which could be edited in such a way that the participant appears in contexts or places different than those he or she might presently contemplate. Doing so will further prevent the participant from later claiming he or she was unfairly surprised by the final product.

Read the article for more analysis on such topics as why choice of New York law was wise, and why contract length matters.

[Meredith R. Miller]

Bull Semen Mix-Up Leads to £67,000 Damage Award

Here's a story for good old Rose the Second of Aberlone. After wrongly labeling the semen of a "valuable Aberdeen Angus bull," a UK artificial insemination center has been ordered to pay £67,000 in damages. The story from the BBC:

Farmer Hamish Sclater, of Turriff, Aberdeenshire, has been awarded the settlement after Deveron Limited Edition's semen could not be sold.

More than 1,000 straws of semen from the bull could not be exported or sold at home.

The award was made against Carlisle firm Lindsay AI.

In a case held at Carlisle County Court, Judge Peter Hughes QC heard that Mr Sclater had agreed a valuable contract to sell semen from Deveron Limited Edition to the Irish Angus Cattle Society.

The semen could only be taken at sites specially licensed.

The labelling mistake was discovered in November 2005, by which time Deveron Limited Edition had died and the semen could not be replaced. In his judgment, the judge said: "Deveron Limited Edition was therefore a limited edition in more ways than one.

"The semen collected by the defendants was all there ever would be and the only means of breeding from him."

'Huge losses'
Lindsay's AI has been ordered to pay damages of £31,845 relating to the loss of profit on the sale of 1,158 straws and £36,100 for the lost enhancement to the value of the herd.

Mr Sclater said: "I am just a normal farmer trying to get on.

"I am still astonished that we had to go to court when liability was admitted two and a half years ago, but our losses are huge as has been proved by the judgment.

"We have been lucky in the support we have had from our friends, family and others in the farming community."

Deveron Limited Edition sired just one bull calf naturally, which sold for £20,000.

Stewart Fyfe, from Burnetts Solicitors in Carlisle, who represented Mr and Mrs Sclater, said: "This has been a very interesting case because it raised some tricky issues of foresight of loss in negligence and breach of contract claims.

"In the end, our judgment has been proved correct.

"Of course, getting judgment doesn't guarantee that Lindsay's AI can afford to pay what's due, but the Sclaters have certainly been vindicated for pursuing this claim."

At family-owned Lindsay AI, Helen Lindsay told the BBC Scotland news website the company was disappointed at the figure awarded and that an appeal would be contemplated.

[Meredith R. Miller]

Limerick of the Week: Fenwick

Nothing like a trip to the beauty shop to address a bad hair day (left).  But when is a beauty shop receptionist a partner and when is she an employee?  In Fenwick v. Unemployment Compensation Committee, we learn that the test for whether or not a partnership exists is substantive.  The intentions of the parties matter, but their intentions must be to form a partnership, not merely to call themselves a partnership. 

Mr. Fenwick valued his receptionist, Mrs. Chesire ("she was a very good girl").  He wanted to keep her but could not afford to increase her salary.  Instead, he offered to make her a partner, with a right to 20% of the profits from the business.  Naming her a partner rather than an employee also exempted him from having to pay into an unemployment comopensation fund.  Under the Uniform Partnership Act (1914), sharing of profits is prima facie evidence of a partnership.  Unfortunately for Mr. Fenwick, the presumption of a partnership is rebutted when the sharing of profits is really just an alternative means of paying a salary.  Mrs. Chesire was not a partner in the business in any significant sense.  She did not help run the business; she did not share in losses; there was no dissolution of the partnership or accounting to her when she quit her job as a receptionist. 

I feel some remorse that I could not do anything in the Limerick with Mrs. Chesire's name.  It seems to me that a Lewis Carroll reference is called for here, but I could not pull it off.

Fenwick v. Unemployment Compensation Committee

Fenwick's love for his "partner" just waxed
When he learned he'd avoid being taxed.
Co-ownership was lacking,
Fenwick sent packing,
And the Beauty Shoppe partnership axed.

[Jeremy Telman]

Iowa Supremes Rule in Favor of Ice Cream

This Iowa case is a good one for the summer, at least to the extent it involves the production of ice cream.

Pursuant to a contract between Wells Diary and Pillsbury, Wells promised to produce Haagen-Dazs ice cream for Pillsbury. However, there was an explosion at Wells' manufacturing facility in Le Mars, Iowa. Pillbury sued Wells for breach of contract, requesting damages related to the explosion at Well's facility. Wells pointed to the force majuere clause in the parties' contract:

FORCE MAJEURE: Neither party will be liable for delays or suspension of performance (other than the obligation to pay for services and goods sold and delivered) caused by acts of God or governmental authority, strikes, accidents, explosions, floods, fires or the total loss of manufacturing facilities or any other cause that is beyond the reasonable control of that party (“Force Majeure”) so long as that party has used its best efforts to perform despite such Force Majeure.

(emphasis added). The district court found that the the placement of the phrase "that is beyond the reasonable control of that party" created an ambiguity. It then granted Wells' motion for summary judgment on the grounds that the parties' conrtact relieved Wells of performance.

Continue reading

The Slippery Slope

I hope I will be forgiven for using this space for a non-contracts item. I wanted readers to know that I have launched a side-side-project of general interest law-related podcasts. Please check it out.

You can learn more about the project and listen to the podcasts on the website. You can also subscribe through iTunes (there is a link to the iTunes page on the site).

I hope you find it interesting.

[Meredith R. Miller]

Government Contracts: Are They Sui Generis?

Over at the Commercial Law Blog, Jennifer Martin reports and comments on a recent discussion of the nature of government contracts.  We have recommended Professor Martin's writings on the subject of wartime contracts before here.  For those interested in the subject, Professor Martin has a new article on the treatment of wartime contracts in connection with the UCC's doctrine of impracticability.

[Jeremy Telman]

Now in Print

- Shmuel I. Becher and Tal Z. Zarsky, E-contract Doctrine 2.0: Standard Form Contracting in the Age of Online User Participation, 14 Mich. Telecomm. & Tech. L. Rev. 303-366 (2008).

- Margaret F. Brinig, Are All Contracts Alike? 43 Wake Forest L. Rev. 533-557 (2008).

- Alex M. Johnson, Jr., An Economic Analysis of the Duty to Disclose Information: Lessons Learned from the Caveat Emptor Doctrine, 45 San Diego L. Rev. 79-132 (2008).

- Kevin Tuininga, The Ethics of Surrogacy Contracts and Nebraska's Surrogacy Law, 41 Creighton L. Rev. 185-205 (2008).

- Frederick Tung, The New Death of Contract: Creeping Corporate Fiduciary Duties for Creditors, 57 Emory L.J. 809-869 (2008).

- Gedenkschrift in Honor of E. Allan Farnsworth (1928-2005), 19 Pace Int'l L. Rev. 1-142 (2007).

- Karen Einsidler, Foreword, 19 Pace Int'l L. Rev. 1-7 (2007).
- Michael Joachim Bonell, The UNIDROIT Principles and CISG--Sources of Inspiration for English Courts?, 19 Pace Int'l L. Rev. 9-27 (2007).
- Harry Flechtner, Article 79 of the United Nations Convention on Contracts for the International Sale of Goods (CISG) as Rorschach test: The Homeward Trend and Exemption for Delivering Non-Conforming Goods, 19 Pace Int'l L. Rev. 29-51 (2007).
- Roy Goode, Litigation or Arbitration? The Influence of the Dispute Resolution Procedure on Substantive Rights, 19 Pace Int'l L. Rev. 53-62 (2007).
- Joseph M. Lookofsky, Consequential Damages in CISG Context, 19 Pace Int'l L. Rev. 63-88 (2007).
- Peter Schlechtriem, Non-Material Damages--Recovery under the CISG?, 19 Pace Int'l L. Rev. 89-102 (2007).
- Ingeborg Schwenzer, National Preconceptions that Endanger Uniformity, 19 Pace Int'l L. Rev. 103-124 (2007).
- Pilar Perales Viscasillas, Late Payment Directive 2000/35 and the CISG, 19 Pace Int'l L. Rev. 125-142 (2007).

- Symposium: The Enduring Legacy of Wood v. Lucy, Lady Duff-Gordon, 28 Pace L. Rev. 161-454 (2008).

- James J. Fishman, Introduction: The Enduring Legacy of Wood v. Lucy, Lady Duff-Gordon, 28 Pace L. Rev. 161-178 (2008).
- Joseph M. Perillo, Neutral Standardizing of Contracts, 28 Pace L. Rev. 179-194 (2008).
- Peter Linzer, "Implied," "Inferred," and "Imposed": Default Rules and Adhesion Contracts--the Need for Radical Surgery, 28 Pace L. Rev. 195-217 (2008).
- Nicholas R. Weiskopf, Wood v. Lucy: The Overlap Between Interpretation and Gap-filling to Achieve Minimum Decencies, 28 Pace L. Rev. 219-233 (2008).
- Miriam A. Cherry, Exploring (Social) Class in the Classroom: The Case of Lucy, Lady Duff-Gordon, 28 Pace L. Rev. 235-247 (2008).
- Celia R. Taylor, Teaching Ethics in Context: Wood v. Lucy, Lady Duff-Gordon in the First Year Curriculum, 28 Pace L. Rev. 249-269 (2008).
- Deborah Zalesne with David Nadvorney, Integrating Academic Skills into First Year Curricula: Using Wood v. Lucy, Lady Duff-Gordon to Teach the Role of Facts in Legal Reasoning, 28 Pace L. Rev. 271-296 (2008).
- Andrew Tettenborn, What it's Worth to Do Your Best, 28 Pace L. Rev. 297-314 (2008).
- Larry A. DiMatteo, Cardozo, Anti-Formalism, and the Fiction of Noninterventionism, 28 Pace L. Rev. 315-355 (2008).
- Meredith R. Miller, A Picture of the New York Court of Appeals at the Time of Wood v. Lucy, Lady Duff-Gordon, 28 Pace L. Rev. 357-377 (2008).
- Megan Richardson and David Tan, Wood v. Duff-Gordon and the Modernist Cult of Personality, 28 Pace L. Rev. 379-393 (2008).
- Monroe H. Freedman, Cardozo's Opinion in Lady Lucy's case: "Formative Unconscionability," Impracticality and Judicial Abuse, 28 Pace L. Rev. 395-407 (2008).
- Robert C. Bird, An Employment Contract "Instinct with an Obligation": Good Faith Costs and Contexts, 28 Pace L. Rev. 409-428 (2008).
- Emily Gold Waldman, Fulfilling Lucy's Legacy: Recognizing Implicit Good-Faith Obligations Within Explicit Job Duties, 28 Pace L. Rev. 429-454 (2008).

[Meredith R. Miller]

Subscriber Sues Newspaper for Staff Cuts

Raleigh, North Carolina's 's News & Observer reports that Raleigh's News & Observer is being sued by a subscriber angered by new staff cuts.  Durham attorney Keith Hempstead alleges that he renewed his subscription just before the newspaper announced that it was cutting 70 staff members and reducing the number of pages devoted to news.  Mr. Hempstead is claiming that the cuts constitute a breach of contract.  He is also alleging fraud, because his subscription renewal was solicited just before the cuts were announced. 

The lawsuit, is really a labor of love.  Mr. Hempstead, a former reporter, realizes that he could simply cancel his subscription, but he is filing the suit in order to send a message to the companies that run newspapers that they need to be more mindful of their readers. 

John Drescher, executive editor of The News & Observer, appreciates Mr. Hempstead's support for the newspaper, but he claims that Mr. Hempstead really owes the paper money, not the other way around.  According to Drescher, "We've had some really good papers recently, and they're worth more than the 36 cents a day that Mr. Hempstead is paying us."

HT: Dan Barnhizer

[Jeremy Telman]

Special Commemorative Poem

This past week, I have been occupied with sewage problems at home.  The sewer line coming out of my house pulled away from the house and was also damaged in other ways that were discovered only after a man who proved himself most talented with a compact excavator dug up our front yard (but only as much as necessary to expose the damaged sewage line).  This lowered my spirits, but is perhaps evidence of Karma, since I had it coming to me, having composed this Limerick.

My co-blogger, Meredith Miller, lifted my spirits with Tuesday's post, and since I am still recovering from the disruption caused by the sewage leak and don't have time for a serious post, an extra bit of poetry will have to do.  This is an old poem that I wrote for a friend in order to persuade her to have lunch with me at Al Yeganeh's Soup Kitchen International.  These soups (and Al) became famous because of the Seinfeld Soup Nazi episode.  My own experiences were nowhere near as dramatic as Seinfeld led me to expect (although my assistant was denied soup once), and the soup was better than I ever could have imagined.  One does indeed need to eat it sitting down because it is so good it makes one's knees buckle. 

Anyway, here's the poem:

An Invitation to Soup
(for Saima)

I'm truly delighted
To have been invited
To dine at Cosi with you.

But I say without malice
It's a Eurotrash palace;
I'd rather select from the stew,

Bisque or broth
Served up by the Goth*
With diction both clear and correct.

Though glib paparazzi
Have dubbed him "Soup Nazi,"
His recipes earn him respect.

*Al is a "Goth," if at all, only in that I can easily imagine him hanging with those people who wear black clothing, paint their fingernails black and have a generally bleak outlook.

[Jeremy Telman]