ContractsProf Blog

Is Breach of Contract a Good Use of Taxpayer Dollars?

LexCH.com, your source for Dawson and Gosper County News, brings this report from Hall County (which actually seems a bit out of their jurisdiction): the County Board of Supervisors has decided to cut funding to their local bookmobile, abruptly electing not to pay $70,000 of the service fee outstanding on the county's agreement with the library board for the 2009-2010 fiscal year.  According to the report, the cut constitutes a breach of contract, and if challenged in court, the county could not win.  Still, all six of the supervisors present at a special budget meeting were reportedly willing to take the risk of litigation because they believed "that spending money on the bookmobile is no longer the best use of taxpayer funds."  

Perhaps I overestimate the litigiousness of library boards, but it seems to me if you have a public admission of a breach of contract and an acknowledgment that the breach could not be justified in a court of law, you sue and you get the full $70,000 that's owed to you.  That means that the taxpayers will pay the full contract price, plus the litigations costs.  How efficient is that?

Of course, it's also possible that the library board will take the hit, in the hopes of preserving good relationships with the county and thus living to fight another day.  If so, I'm afraid I have to agree with Jerry Seinfeld.  Libraries are like some pathetic kid who has all the best sports equipment and lets you play with his ball if you agree to be his friend.

[Jeremy Telman]

Contracts Limerick of the Week: Lefkowitz

I am teaching Lefkowitz v. Great Minneapolis Surplus Store for the first time this year.  I don't know why this case has fallen out of the casebooks; I really like it.  I also teach Izadi v. Machado Ford, Inc. (about which more in next week's Limerick), and I like that case too, but I think they will teach well together because I think Lefkowitz is pretty clearly rightly decided, while I have my doubts about Izadi.

The reason I like Lefkowitz is that it provides lots of opportunities to talk about what constitutes an offer, as well as the sub-topic of when an ad can qualify as an offer.  It also provides an opportunity to talk about the need for damages to be calculable with reasonable certainty.  As I mentioned in an earlier post, I do not start with damages, but I try to bring them into the conversation wherever possible, since as my colleague Alan White stresses, ultimately, contracts cases are about getting some recovery for your clients.  The casebook that we both use, Law in Action, appropriately stresses that the storybook contract with an easily identifiable offer followed by a clear acceptance does not capture the much more tohu vavohu world of actual commercial interactions.  I do not quarrel with that principle, but I still think you've got to be able to swim before you can synchronized swim.  So I start with the basics, even if they may be Platonic forms.

In any case, to celebrate the return of Lefkowitz to my syllabus, I have composed a new Limerick, which I acknowledge does not do the case justice.  By the way, after I introduced my new students to the Limerick approach to contracts pedagogy, one of them asked how much time I spend composing them -- as if he could think of better uses for my time!  Well, in this case, the answer is about 20 minutes.  Next week's Limerick was more of an epiphany; it only took me ten minutes.

Lefkowitz v. Great Minneapolis Surplus Store

Mo Lefkowitz made his career
Finding ads explicit and clear.
He's the first to the store;
Now he's got furs galore,
And the price that he pays isn't dear.

[Jeremy Telman]

Another Blood Contract

We reported earlier this year about a contract written in blood.  In that case, Plaintiff Kim opened his appellate brief with the statement, "Blood may be thicker than water, but here it's far weightier than a peppercorn."  Both at the trial and appellate level, California's courts disagreed and refused to enforce a gratuitous promise, even if memorialized in the defendant's blood.

Perhaps business schools ought to develop a course called Blood and Contracts, because today's New York Times reports on another blood contract. According to the Times, the Chief Financial Officer of Stanford Financial asserts in a plea agreement that his boss, R. Allen Stanford, and the chief regulator of his Antigua Bank swore a "blood oath" by cutting their wrists and mixing their blood in a "brotherhood ceremony."  Unlike the Kim case, however, here other consideration is alleged.  The bank regulator allegedly received Super Bowl tickets and regular bribe payments from a Swiss bank account.  In return, he is alleged to have ensured that regulatory bodies in Antigua would not interfere with what is now being described as a $7 billion international Ponzi scheme.

[Jeremy Telman]

The First Week: A Hypothetical

As I indicated in my last post, on the first day of class, I discuss with my students a case, Ray v. William G. Eurice Bros., in which a party is held to the terms of a contract signed by one of its principals, although another principal claims that he never saw the agreement and would never have agreed to its terms had he seen it.  As expected, my student were not all that sympathetic to the Brothers Eurice, who were, after all, in the construction business and should have read the construction specifications at issue before signing the agreement to which they were attached.  But when I threw out the follow-up question, "What kind of person signs a contract without reading it," my students surprised me by volunteering that they all do.  This took some of the wind out of my sails, but that's alright.  We proceeded nonetheless to a discussion of the Google Terms of Service, which are included in the Farnsworth (ed.) statutory supplement that I use with the course.

After we acknowledge that we all agree -- without reading or understanding them -- to the terms of license agreements by clicking the "I agree" icon that appears as we install the software that we download, I present them with the following hypothetical that requires them to look at the Google Terms of Service in some detail:

I download Google software so I can set up a gmail account, and in so doing I agree to the Terms of Service.
After I have been using the product for one month, the software interacts poorly with Microsoft software on my computer. The result is the complete and irreparable destruction of my hard drive, containing my only copy of a scholarly work in progress which would undoubtedly have brought me everlasting fame as a contracts master scholar.

I immediately use my office computer to access my gmail account and tell the world how dangerous, unreliable, odious and vile Google is, and of course I sue.

Do I have a remedy under the terms of service?

Google responds by immediately closing off my access to my gmail account and by forwarding to my wife my extensive correspondence with my mistress, all of which I composed and received on my gmail account. Google also brings suit against me seeking to enjoin me from further negative comments about its services.

Can Google do these things?

We had a good discussion of the hypothetical today.  My students got the obvious point that "I" was likely without a remedy against Google, and even if I could bring a claim I would have to do so in California.  Views were divided as to whether Google could distribute my e-mails without my permission.  The students also recognized how unlikely it was that Google would do so for reasons that have nothing to do with its legal rights.  So, believe it or not, we got into a discussion of law and social norms in the first week of law school because the students brought it up!

The rest of the discussion was more or less as I had planned.  We discussed form contracts and the troubles they raise in terms of fairness to consumers who lack information and bargaining power.  We also discussed the benefits that consumers enjoy because courts permit businesses to reduce transactions costs by enforcing form contracts. 

Both this year and last year I have had the benefit of the perspective of students who come to us with training and experience in non-U.S. law.   I have learned from these students that in both Europe and Latin America the law is less deferential to the terms of form contracts.  I've found that foreign students are often astonished by the difference in approaches in the area of consumer protection law.  They find it hard to believe that U.S. courts enforce, for example, the arbitration and choice of forum clauses that have become a standard component of contracts of adhesion in the U.S.

[Jeremy Telman]

P.S. I apologize for the varying font sizes. I am having a hard time adjusting to the new Typepad.

"Roxanne's Revenge": A PhD on Warner Music [File This In: Awesome Contracts Stories]

As Gawker tells it:

Heartwarming story of the day: Back in the 80s, Warner Music tossed a clause in then-teenage rapper Roxanne Shante's contract saying they'd pay for her education for life. So she got a psychology Ph.D from Cornell. Cost: $217K. Ha.

A little more detail from the Daily News:

After two albums, Shante said, she was disillusioned by the sleazy music industry and swindled by her record company. The teen mother, living in the Queensbridge Houses, recalled how her life was shattered.

"Everybody was cheating with the contracts, stealing and telling lies," she said. "And to find out that I was just a commodity was heartbreaking."

But Shante, then 19, remembered a clause in her Warner Music recording contract: The company would fund her education for life.

She eventually cashed in, earning a Ph.D. in psychology from Cornell to the tune of $217,000 - all covered by the label. But getting Warner Music to cough up the dough was a battle.

And, Roxanne's Revenge:

Here's to you, Dr. Shante!

[Meredith R. Miller]

Timeless Topics: Insects and Real Estate Contracts

Bed bugs!  From the New York Times:

According to the law, sellers and their brokers must acknowledge a problem if asked. But conflicts of interest aside, neither can be expected to know whether an infestation exists elsewhere in the building.

The problem is so pervasive that some lawyers have begun incorporating sellers’ representations about bedbugs into sales contracts, adding to now-standard ones about leaks, mold and noise issues. And buyers are having to determine if the pests are a deal-breaker or just one more headache on the road to a new home.

[Meredith R. Miller]

Now in Print

Kristen David Adams, Promise Enforcement in Mortgage Lending: How U.S. Borrowers and Lenders Can See Themselves as Part of a Shared Goal, 28 Rev. Banking & Fin. L. 507 (2009).

Henry Deeb Gabriel, The Advantages of Soft Law in International Commercial Law: The Role of UNIDROIT, UNCITRAL, and the Hague Conference, 34 Brook. J. Int'l L. 655 (2009).

Gregory Klass, A Conditional Intent to Perform, 15 Legal Theory 107 (2009).

Boris Kozolchyk, Modernization of Commercial Law: International Uniformity and Economic Development, 34 Brook. J. Int'l L. 709 (2009).

Ramona L. Lampley, Is Arbitration Under Attack?: Exploring the Recent Judicial Skepticism of the Class Action Arbitration Waiver and Innovative Solutions to the Unsettled Legal Landscape, 18 Cornell J.L. & Pub. Pol'y 477 (2009).

Howard Munro, The "Good Faith" Controversy in Australian Commercial Law: A Survey of the Spectrum of Academic Legal Opinion, 28 U. Queensland L.J. 167 (2009).

Note, On Enforcing Viral Terms, 122 Harv. L. Rev. 2184 (2009).

C. Scott Pryor, Principled Pluralism and Contract Remedies, 40 McGeorge L. Rev. 723 (2009).

[Keith A. Rowley]

Crocs Settles Breach of Contract Suit with NothinZ-Producer Australia Unlimited, inc.

Here we have a number of variations on everyone's favorite form of ethylene vinyl acetate footware, Crocs.  However, despite the fact that you can decorate your Crocs with flowers and peace signs, in the litigation context, it is apparently not all love and harmony if you mess with the makers of Crocs footware. Australia Unlimited has recently surivied a three-year legal battle with Crocs, which its President refers to as "Goliath."  Australia Unlimited markets shoes (NothinZ) that look somewhat like Crocs (take a peek here), with the important difference that the strap in the back of the NothinZ can easily be used as a slingshot. 

According to the Daily Camera Online,Crocs filed a claim with the International Trade Commission in 2006 alleging that Australia Unlimited and 10 other companies were infringing on its patents. Crocs then settled with Australia Unlimited in August 2006 but later filed a suit in federal district court alleging that Australia Unlimited was about to release a new shoe that violated the agreement.  Tia Mattson, a Crocs spokeswoman, hoping to get more publicity for her company on the ContractsProf Blog, stressed that the recent settlement between the two companies effectively ends a conflict over an alleged breach of contract and did not involve intellectual property issues.

As Ms. Mattson put it, "I do want to clarify that the lawsuit is not one based on intellectual property.  This was a lawsuit derived from a contract dispute and we (Crocs) are pleased with the final resolution."

[Jeremy Telman]

On Paris, Zsa Zsa, 1988 and Alternative Measures of Damages

As summer wanes and 1L orientation draws to a close, it is part of the sweet rhythm of academia that a colleague inevitably says something like: "every year, they get younger."  I'll admit, this year, I was the one who said it.  And, in response, I was reminded that, of this incoming 1L class, there are some students who were born in 1988.  1988!  (Apparently, at Northwestern, there's an incoming 1-L who may have been born in the 90's).  (Image of Zsa Zsa, courtesy of Wikimedia Commons).

This has a lot to do with contracts, or at least the teaching of the subject.  

In a previous post, I had asked if anyone happened upon a copy of the Goldberg v. Hilton decision.  Ask on the glorious interwebs and ye shall receive.  (Thanks, Eric Talley (Berkeley)). 

Here's a copy of the decision: Download SLJQZ9-GoldbergvHilton.  I think you'll agree that the facts provide a good example of the certainty limitation on damages, as well as the reliance v. restitution measure of damages.  In the past, as an example on these points, I have used (and will continue to use) the Zsa Zsa Gabor case, Hollywood Fantasies.  (The one where the celebrity fantasy vacation business bombs and the promoters blame it all on Zsa Zsa canceling her gig - purportedly because she had to film her 30 second cameo in Naked Gun 2 1/2).  This year, I will try offering Goldberg v. Hilton as another example, given that involves an element of current (though similarly inexplicable) celebrity. My students born in 1988 might be interested.  

Try it.  If you just can't resist showing your relative age in pop-culture markers, you can mention that, for a time in the late 1940's, Zsa Zsa was married to Paris Hilton's great grandfather.

[Meredith R. Miller]

Judge Denies $8.3+ million sought from Paris Hilton for Movie Flop

Not too surprisingly, the film “Pledge This!,” a sorority comedy starring Paris Hilton, bombed.  The film’s investors sued Hilton for over $8.3 million, alleging that Hilton breached her contract by failing to promote the movie, and thereby causing it to bomb.  The $8.3+ million represented roughly what it cost to produce the film, and the investors argued that they could have made at least that much if Hilton had followed through on her end of the bargain.  (Image source: Wikimedia Commons).

The AP reports that Judge Moreno (SDNY SD Fla.) has decided that the damages requested by investors are too speculative.  According to the AP, Judge Moreno wrote:

"The court finds compelling evidence in the record that 'Pledge This!' lost money because the film's inexperienced producers hastily cobbled together a wholly inadequate marketing plan," the judge wrote. "They sent scattershot requests to their principal star in the hopes that she could find time to promote a sinking ship."

Even if Hilton breached by failing to promote the movie, the court held that investors failed to establish a causal link between the $8.3 million loss and her breach.  Hilton is not entirely off the hook, though.  As the AP reports, if she did breach, she may be liable for some of the $1 million she was paid under the contract.

[If you have located an online copy of the court's decision, please leave a link to it in the comments. Thanks!]

Here's the trailer, if you dare:

[Meredith R. Miller]

Starting with Intent to Enter Legal Relations [or Why I Don't Start with Remedies]

In his first post as guest blogger, Alan White explained his reasons for starting with Peevyhouse.  Alan's arguments were enough to persuade me to move Peevyhouse into the number 2 spot, but I try to ease the students into the study of contracts with a set of concepts that I think most students find less challenging than damages.  The contracts course I took as a law student began with damages, and there is not a thing I would have changed about my experience with that course (other than my grade).  Nonetheless, in retrospect I must confess that I was bewildered for the longest time as to what exactly it was that we were studying.  It was a pleasant bewilderment for me, but I know that some of my fellow students were not as appreciative.  And I have a sense that my own students grasp the material more easily if we take the typical contractual transaction through from beginning to end, with many gestures toward the end along the way.

So, I begin not with Peevyhouse, but with Hurley v. Eddingfield.  The case hails from Indiana, which is a good reason to start with it if you teach in Valparaiso.  It also gets across a simple point, which was my no means intuitive to me when I was a law student: the concept of freedom of contract includes the principle that there is no freestanding duty to enter into contractual relations with others.  

From there, I confront my students with the opposite end of the specturm: the law is relatively indifferent to our actual intentions when determining intent to be bound.  I illustrate this with a case, Ray v. William G. Eurice Bros. in which a small construction company is bound to a perhaps unreasonable building contract that the builders did not read with any attention.  The case also illustrates expectation damages and I make the most of that.  

My students are often unsympathetic to the builders in Ray, so I have them look at an earlier version of the Google terms of service, included in the Farnsworth (ed.) Selections for Contracts, which serves as my statutory supplement.  We then talk about the frequency with which they (and I) download software subject to license agreements that they (and I) do not read and thus become bound by terms that we would not have agreed to if we 1) read them; 2) understood them; and 3) had any bargaining power.  

So, while Alan begins with a case that illustrates the limitations of standard remedies for contract breach, I begin with cases that illustrate other ways in which contracts doctrine refuses to protect those who will not or cannot protect themselves.

[Jeremy Telman]

Alan White: Teaching Peevyhouse First

The first in a series of posts by

guest blogger, 

Alan White

      I was fortunate during my transition from practice to teaching to have had the wise counsel of several experienced contracts teachers, and as it happened they were all advocates of the Wisconsin group text, Contracts:  Law in Action.  Being an empiricist, legal realist, and having decidedly leftist political tendencies, I was attracted to the Law and Society project, and so I dove in last fall, and dragged my good friend Jeremy Telman, an unrepentant Kelsenian, along with me.  Horrified by the absence of vital doctrine, Jeremy plugged the gaps with a few old chestnuts, while I did the best I could to stick to the authors’ logic and lesson plan, aided by extensive notes they generously shared.  Promising my students that this would not be their father’s Contracts class, I supplemented the materials with pleadings and exercises grabbed from the (mostly financial crisis-related) headlines, to drive home the point that we would be learning the real world version of Contracts law.  Reviews were mixed.

          This year, with one semester’s experience under my belt, I hope to enrich my teaching of Contracts with a variety of assessments, collaboration with our Legal Writing teachers (more on this later) and other improvisations.  I’ll try to recount the successes and failures each week as the semester progresses. 

          Law in Action begins at the end (of a lawsuit), with remedies.  This makes complete sense to me, as a former plaintiff’s lawyer, who was never interested in any statute or common law doctrine until I could see what it might do for my client.  Regrettably (and I offer this as the friendliest of critiques) the casebook begins the term with the Shirley Maclaine case, Parker v. Twentieth Century Fox.  I find this regrettable because the case illustrates nothing so much as an exception to an exception to a remedies principle.  If one wants to begin by getting across the idea of what the so-called expectation interest is, why bring in the issue of mitigation of damages?  If on the other hand, one wants to get across the simple idea that contract remedies are rarely adequate to make parties whole, why not use a mitigation case in which the aggrieved employee is not fully compensated, on the grounds of failure to mitigate?  And if the point is to liven up the proceedings with a bit of pop culture, perhaps a case involving a more contemporary entertainer would do. 

          So I decided to deviate only slightly from the casebook’s path this year and to lead with the contract-remedies-are-never-fully-compensatory theme.  To do that, we will begin not with the Parker case, but with Peevyhouse v. Garland Coal Company, a case that aroused ire and passion and the best classroom discussion last year, and therefore the case I will rely on to start this year with a bang.  The injustice of the Oklahoma Supreme Court’s decision seems obvious, and yet when pressed to view the question of compensation from the Coal Company’s point of view, students come quickly to understand the murkiness and ambiguity of the seemingly limpid principle that the victim of a breach should receive what they expected.  The wonderful video history of the case, produced by Professor Judith Maute, will once again be featured, I think to introduce the second day of discussion, after we first have at the opinion in splendid isolation from the entire context and the facts not selected for narration by the Oklahoma Supreme Court.  To my students who might read this, be patient, all will be revealed in the end (of the first week.)

 

Welcome, Alan White!!

 I am pleased to welcome to the blog my friend and colleague, Alan White.  Avid fans of the blog might think that name sounds familiar.  And sure enough, we have had reason to mention Professor White's scholarship previously on this blog here, and we've advertized one of his conferences here (he's got another one planned for later this semester, so stay tuned!),  But now the real excitement begins, because Alan has agreed to do a guest blogging stint this semester in which he will blog about his first-year contracts course. 

I will be posting Alan's comments as he writes them.  In separate posts, I will then add my own blow-by-blow account of what is going on in my contracts course.  Alan and I both adopted the same casebook last year, so we started out in a relatively similar place, but this year our teaching approaches are diverging, as we supplement the casebook we are using with our own ideas about what first-year students need from a contracts course.  I think we both have found the three-way conversation involving the two of us and our casebook a fruitful one.  We hope it will interest readers of the blog as well. 

In any case, we here at the blog are grateful to Alan for his willingness to share his thoughts and experiences.  Our readers will enjoy getting inside the mind of a still young contracts prof who is still willing to try new ways to stimulate his students and to prepare them for practice.

[Jeremy Telman]

Another Take on the Van Halen "No Brown M&M's Rider"

Perhaps the most famous contract in rock history is Van Halen’s 1982 World Tour rider.  It contains the legendary requirement that the band be provided with a bowl of M&M’s in the dressing room, with all brown M&M’s removed from the bowl.  Actually, the rider states, on the topic of Munchies: 

M&M’s (WARNING: ABSOLUTELY NO BROWN ONES)

You can check out the rider here if you’d like.

Until recently, the famous Brown M&M’s rider seemed nothing more than an example of the frivolity of the rock star ego.  Then I listened to an alternative explanation, courtesy of NPR’s fabulous radio show This American Life.

In an episode titled “The Fine Print,” with the help of John Flansburgh of They Might Be Giants, we are offered a business reason for the M&M's clause of the rider.  

Apparently, beyond the backstage food and drink requirements, tour riders contain very important instructions that affect how smoothly the show will run -- for example, electricity or weight requirements for the band’s gear.  Well, if the promoter at the local venue does not read the rider, it is likely that something will go very wrong at the show.  So, Van Halen used the M&M’s for signaling purposes: if there were no brown M&M’s in the bowl, the band knew that the local promoter read the rider.  If the brown M&M’s were there, the band knew that the local promoter had not read the rider carefully, and technical and safety requirements might not have been met.

You can give the show a listen here.  The Van Halen part is in the very beginning of the show, but it is well worth listening to the entire show.

[Meredith R. Miller] 

At Best Buy, Too Good To Be True

Courtesy of Best Buy (via CNN), here's a nice lesson on the objective theory and the doctrine of mistake:

Early Wednesday morning, BestBuy.com listed a 52-inch Samsung HDTV for $9.99 -- a savings of more than $1600.

As customers jumped on the Web site trying to take advantage of the offer, Best Buy announced it was a "pricing error" and was no longer available.

A recorded message on Best Buy's customer service line told customers "we will not be placing any more orders for this unit," and messages were sent on Twitter apologizing "for any disappointment."

Customers who placed orders early Wednesday were left wondering if they got away with the bargain. Eric VanBergen of Grand Rapids, Michigan, told CNN he snapped one up for $84.79 -- including $70 shipping and taxes -- at 5:30 a.m. Then, he ordered a second.

Dozens of customers were posting to Twitter and Bestbuy.com, saying they also placed often multiple orders.

It appears they are out of luck. In a statement, Best Buy apologized for the mistake but said it would "not be honoring the incorrect price."

Company representatives posted online messages telling customers "All current and previous orders made for the TV at this price on BestBuy.com will be cancelled, and customers will be refunded in full for the purchase."

The company's Web site states Best Buy reserves the right to "revoke offers or correct errors" even if a credit card has already been charged.

The price mix-up gave way to customer frustration as people lost out on the deal of the year. ".bestbuy dang you!!!!" was how VanBergen reacted on Twitter after learning that his two confirmation e-mails from Best Buy were meaningless.

But it appears there is little else they can do. A spokeswoman for the Federal Trade Commission that investigates consumer complaints told CNN "The FTC act bars unfair and deceptive commercial practices." Those would be cases of phony offers or sweepstakes, rather than a mistake, she said.

[Meredith R. Miller - h/t Isaac Samuels]