ContractsProf Blog

Why Pyeatte v. Pyeatte May Be the Best Teaching Tool in Contracts Law

Our friend and esteemed colleague, Professor Charles Calleros, has kindly sent the following as a guest contribution to the ContractsProf Blog.  Enjoy!

Recently Val Ricks has collected a number of essays from colleagues on best and worst cases for the development or application of contract law.  In addition to participating in that project, Charles Calleros invites faculty to upload and post links to essays about their favorite cases as teaching tools (regardless whether the cases advance the law in an important way). He starts the ball rolling with this Introduction to his essay on "Why Pyeatte v. Pyeatte Might be the Best Teaching Tool in the Contracts Casebook":

Pyeatte v. Pyeatte, a 1983 decision of the Arizona Court of Appeals, did not break new ground in the field of contracts. Nonetheless, I assert that it is one of the best pedagogic tools in the Contracts casebook, for several reasons:

•  *          The facts are sure to grab the attention of first-semester law students: A law grad reneges on a promise to support his ex-wife through graduate school after she supported him through law school during their marriage;

*          This 1980’s opinion is written in modern plain English, allowing students to focus on substance, while also learning a few necessary legal terms of art.

*          After their immersion in a cold and rather unforgiving bath of consideration and mutual assent, students can finally warm up to a tool for addressing injustice: quasi-contract;

*          The opinion’s presentation of background information on quasi-contract provides an opportunity to discuss the difference between an express contract, an implied-in-fact contract, and an implied-in-law contract; 

*          Although the wife’s act of supporting her husband through law school seems to beg for reciprocation or restitution, students must confront judicial reticence to render an accounting for benefits conferred between partners in a marriage, exposing students to overlap between contract law and domestic relations law;

*          The appellate ruling of indefiniteness of the husband’s promise – presented in a later chapter in my casebook, but looming vaguely in the background of the discussion of quasi-contract – invites critique and perhaps even speculation that the appellate panel felt comfortable denying enforcement of the promise precisely because it knew it could grant restitution under quasi-contract; and

*          The court’s admonition that expectation interest forms a ceiling for the calculation of restitution reveals a fascinating conundrum that brings us back to the court’s ruling on indefiniteness. . . .

You can find the whole essay here.

Contracts and Commercial Law Scholarship: Weekly Top Ten SSRN Downloads (July 27, 2017)

Top Downloads For:

Contracts & Commercial Law eJournal

Recent Top Papers (60 days)

As of: 28 May 2017 - 27 Jul 2017

Rank	Paper	Downloads
1.	Crypto Transaction Dispute Resolution Wulf A. Kaal and Craig Calcaterra University of St. Thomas, Minnesota - School of Law and Department of Mathematics, Metropolitan State University	173
2.	A New Dawn for the Law of Illegality Andrew Burrows University of Oxford - Faculty of Law	136
3.	The Choice Theory of Contracts (Introduction) Hanoch Dagan and Michael Heller Tel Aviv University - Buchmann Faculty of Law and Columbia University - Columbia Law School	127
4.	The Design of Staged Contracting Albert H. Choi and George G. Triantis University of Virginia School of Law and Stanford Law School	115
5.	Paternalism and Contract Law Péter Cserne University of Hull	105
6.	Justice, Fault, and Efficiency in Contract Law Larry A. DiMatteo University of Florida - Levin College of Law	84
7.	Over-Reliance Under Contractual Disgorgement Yehonatan Givati and Yotam Kaplan Hebrew University of Jerusalem - Faculty of Law and Hebrew University of Jerusalem	81
8.	The Failures of State Insurance Regulation Daniel Schwarcz University of Minnesota Law School	79
9.	Postscript to Just Relationships: Reply to Gardner, West, and Zipursky Hanoch Dagan and Avihay Dorfman Tel Aviv University - Buchmann Faculty of Law and Tel Aviv University - Buchmann Faculty of Law	73
10.	Springwell-watch: New Insights into the Nature of Contractual Estoppel Joanne P. Braithwaite London School of Economics - Law Department	71

 

Top Downloads For:

Law & Society: Private Law - Contracts eJournal

Recent Top Papers (60 days)

As of: 28 May 2017 - 27 Jul 2017

Rank	Paper	Downloads
1.	Crypto Transaction Dispute Resolution Wulf A. Kaal and Craig Calcaterra University of St. Thomas, Minnesota - School of Law and Department of Mathematics, Metropolitan State University	173
2.	The Choice Theory of Contracts (Introduction) Hanoch Dagan and Michael Heller Tel Aviv University - Buchmann Faculty of Law and Columbia University - Columbia Law School	127
3.	The Design of Staged Contracting Albert H. Choi and George G. Triantis University of Virginia School of Law and Stanford Law School	115
4.	Paternalism and Contract Law Péter Cserne University of Hull	105
5.	Property and Sovereignty Imbricated: Why Religion Is Not an Excuse to Discriminate in Public Accommodations Joseph William Singer Harvard Law School	95
6.	Over-Reliance Under Contractual Disgorgement Yehonatan Givati and Yotam Kaplan Hebrew University of Jerusalem - Faculty of Law and Hebrew University of Jerusalem	81
7.	Springwell-watch: New Insights into the Nature of Contractual Estoppel Joanne P. Braithwaite London School of Economics - Law Department	71
8.	Disclosure Rules in Contract Law Oren Bar-Gill and Ariel Porat Harvard Law School and Tel Aviv University	67
9.	Property and the Construction of the Information Economy: A Neo-Polanyian Ontology Julie E. Cohen Georgetown University Law Center	51
10.	Liberal Contract Theory and Actually Existing Contracts Luke Herrine New York University (NYU) - Furman Center for Real Estate and Urban Policy	47

Make Sure You Use Photos According to the License Agreement

Recently, Procter & Gamble has been sued for copyright infringement based on its use of photographs on packaging. It's not that P&G didn't have a license; it's that P&G allegedly violated the scope of the license. The allegations claim that P&G, trying to keep costs down, negotiated for fairly narrow rights. It makes a ton of sense to do that if that's all you want the photos for. After all, why pay for rights that you're probably not going to utilize? However, the caveat with that is to be sure that you won't want to use the photos beyond what you're negotiating. That's allegedly what P&G did, and why it finds itself the subject of a lawsuit. 

Court Refuses to Send Claims Against DirecTV to Arbitration

This recent case out of the Central District of California, Perez v. DirecTV Group Holdings, LLC, Case No. 8:16-cv-1440-JLS-DFMx, has some interesting allegations. The plaintiff claims that DirecTV contacted her, unsolicited, at her place of business and sold her a promotional deal there for satellite cable. After the plaintiff agreed to the deal, DirecTV installed the equipment that same day and then asked the plaintiff to sign an Equipment Lease Agreement (ELA). The ELA was entirely in English, even though all communications up to that point had taken place in Spanish (and even though DirecTV apparently had a Spanish-language version of the ELA). The plaintiff signed the ELA, even though she couldn't understand it and it wasn't translated for her, and gave it to the DirecTV representative. She was not given a copy to keep for herself. 

Later, after selling her the satellite cable, DirecTV then contacted the plaintiff to say that she didn't have permission to display the cable, since she was displaying it in a business. It demanded settlement of the purported illegal reception and display. The reception and display DirecTV complained about was the same equipment that DirecTV had just installed. DirecTV demanded $5,000 from the plaintiff to settle the claim. The plaintiff brought this class action, alleging that this was part of a scheme DirecTV had to target selling its services to small business owners (especially minority business owners) and then immediately turn around and accuse those small business owners of having purchased the wrong type of DirecTV for their businesses.  

DirecTV moved to compel arbitration.  The ELA did have an arbitration provision, and the plaintiff did sign it. However, the ELA referenced the Customer Agreement, which she did not receive until it was sent to her by mail later, and therefore the ELA's terms were actually ambiguous, meaning there was no clear agreement to arbitrate.  

DirecTV therefore argued that the plaintiff consented to arbitration when she received the Customer Agreement in the mail, with its full and thorough arbitration provision, and didn't cancel DirecTV's service. However, silence alone does not ordinarily represent acceptance. And the offer and acceptance on the contract between the plaintiff and DirecTV had already happened, on the day of installation. There was nothing in the ELA that indicated that the terms of the contract would change in the future when she received the Customer Agreement and that by keeping the Customer Agreement she was consenting to those changes. 

Other courts have enforced DirecTV's arbitration provision but those cases were distinguishable because those customers were given the Customer Agreement before installation. In at least one other case, a court enforced the Customer Agreement when it was provided after installation because of "practical business realities." This court, however, expressed skepticism that "business practicalities" were a valid justification, and, at any rate, there was no such business practicality at issue here. DirecTV could easily have provided the plaintiff with the Customer Agreement when service was installed. 

At any rate, even if the arbitration provision were enforceable, it excepted any dispute regarding "theft of service," which the case at issue concerns. DirecTV alleged that it was not required to arbitrate these disputes, but its customers were. This one-sided interpretation of this provision raised issues of unconscionability, especially paired with the plaintiff's powerlessness to negotiate the contract at all, which was not in a language she spoke, and which she did not receive until after she was in a position where to refuse the terms would have resulted in a contractual penalty of a cancellation fee of several hundred dollars. Therefore, the court refused to compel arbitration. 

Differences Between German and American Law Don't Preclude German Forum

I started reading this case out of the Northern District of Alabama, ProctorU, Inc. v. TM3 Software GMBH, Civil Action Number 2:17-cv-00926-AKK (behind paywall), because it involves exam proctoring software, which of course is a type of software I am interested in. It ends up really being a case about forum selection and German law vs. American law. 

ProctorU alleged that TM3 was contractually obligated to provide software that could "accurately identify test-takers" within 140 characters. Instead, TM3 provided software that ProctorU claimed could not accurately identify test-takers, even after 280 characters. (I'm not sure how this works technologically; the opinion doesn't get into it beyond this, although I found the website for the software here.) ProctorU therefore sued in the Northern District of Alabama. TM3 moved to dismiss based on a forum selection clause in their contract that required cases to be brought in Germany. 

ProctorU tried to argue that the forum selection clause was unenforceable because of the differences between German and American law. For instance, a jury trial wouldn't be available to ProctorU, it wouldn't be able to recover punitive damages, and discovery would be much more limited than American discovery. The court, however, found that nothing about those differences indicated that ProctorU would be unable to prove its case in Germany. 

ProctorU also tried to argue that it had agreed to the forum selection clause based on misrepresentations by TM3, and that, having been induced by fraud, it should therefore be unenforceable. ProctorU alleged that TM3 told ProctorU its investor was the state of Bavaria, who would not agree to any forum selection clause that was not German. It turned out that Bavaria had only an indirect minority interest in TM3. ProctorU claimed had it known how minor the state of Bavaria's interest was, it would not have agreed to the German provision. However, the court found that the statement that the state of Bavaria was an investor was true; TM3 had not told ProctorU that the state of Bavaria was a majority investor. Furthermore, it was ProctorU's obligation to conduct due diligence before accepting the contract terms, which should have revealed who TM3's investors were. 

Therefore, the court dismissed the case based on the forum selection clause. 

Scholarship Spotlight: Crypto Transaction Dispute Resolution (Kaal & Calcaterra)

 

Crypto Transaction Dispute Resolution

Wulf A. Kaal (University of St. Thomas, Minnesota - School of Law)

Craig Calcaterra (Department of Mathematics, Metropolitan State University)

Abstract

The rapid evolution of anonymous, autonomous, and distributed blockchain-based smart contracting creates friction and enforceability issues with existing legal and jurisdictional principles, calling the future governance of blockchain technology into question. The effective governance of blockchain technology and smart contracting is essential to ensuring its continuing evolution. Based on the mathematical principles underlying the disposition of blockchains, we propose and evaluate an alternative approach to the existing legal exercise of jurisdiction that is inherent in blockchain technology itself. We call this distributed jurisdiction.

This contribution is not merely theoretical. Several Ethereum smart contracting crypto startups demonstrate that anonymity can be perpetuated in blockchain technology, despite blockchains’ eternal storage of information and its growing size working against anonymity. Startup applications highlight that the technology itself offers means of internal controls that help ensure effective governance in the continuing evolution of the technology.

Based on the concept of distributed jurisdiction, we suggest an open source platform ecosystem for smart contracting dispute resolution that allows users to opt into a conflict resolution mechanism that enables more nuanced crypto solutions and produces greater certainty in the process. Anonymized arbiter expertise via rankings in combination with a representation option for crypto disputes provide a resolution mechanism for legacy businesses that desire to participate in the growth of crypto business opportunities, hope to avoid legacy system intermediation and the associated transaction costs, but require legal legacy system assurances and crypto dispute resolution equivalence.

Contracts and Commercial Law Scholarship: Weekly Top Ten SSRN Downloads (July 20, 2017)

Top Downloads For:

Contracts & Commercial Law eJournal

Recent Top Papers (60 days)

As of: 21 May 2017 - 20 Jul 2017

Rank	Paper	Downloads
1.	Crypto Transaction Dispute Resolution Wulf A. Kaal and Craig Calcaterra University of St. Thomas, Minnesota - School of Law and Department of Mathematics, Metropolitan State University	142
2.	A New Dawn for the Law of Illegality Andrew Burrows University of Oxford - Faculty of Law	133
3.	Determining the Territorial Scope of State Law in Interstate and International Conflicts: Comments on the Draft Restatement (Third) and on the Role of Party Autonomy Hannah L. Buxbaum Indiana University Bloomington Maurer School of Law	117
4.	The Design of Staged Contracting Albert H. Choi and George G. Triantis University of Virginia School of Law and Stanford Law School	105
5.	Paternalism and Contract Law Péter Cserne University of Hull	102
6.	The Failures of State Insurance Regulation Daniel Schwarcz University of Minnesota Law School	77
7.	Over-Reliance Under Contractual Disgorgement Yehonatan Givati and Yotam Kaplan Hebrew University of Jerusalem - Faculty of Law and Hebrew University of Jerusalem	76
8.	Postscript to Just Relationships: Reply to Gardner, West, and Zipursky Hanoch Dagan and Avihay Dorfman Tel Aviv University - Buchmann Faculty of Law and Tel Aviv University - Buchmann Faculty of Law	73
9.	Justice, Fault, and Efficiency in Contract Law Larry A. DiMatteo University of Florida - Levin College of Law	71
10.	Springwell-watch: New Insights into the Nature of Contractual Estoppel Joanne P. Braithwaite London School of Economics - Law Department	66

 

Top Downloads For:

Law & Society: Private Law - Contracts eJournal

Recent Top Papers (60 days)

As of: 21 May 2017 - 20 Jul 2017

Rank	Paper	Downloads
1.	Crypto Transaction Dispute Resolution Wulf A. Kaal and Craig Calcaterra University of St. Thomas, Minnesota - School of Law and Department of Mathematics, Metropolitan State University	142
2.	Determining the Territorial Scope of State Law in Interstate and International Conflicts: Comments on the Draft Restatement (Third) and on the Role of Party Autonomy Hannah L. Buxbaum Indiana University Bloomington Maurer School of Law	117
3.	The Design of Staged Contracting Albert H. Choi and George G. Triantis University of Virginia School of Law and Stanford Law School	105
4.	Paternalism and Contract Law Péter Cserne University of Hull	102
5.	Property and Sovereignty Imbricated: Why Religion Is Not an Excuse to Discriminate in Public Accommodations Joseph William Singer Harvard Law School	89
6.	Politicized Dispute Settlement in the Pre-Investment Treaty Era: A Micro-Historical Approach Jason W. Yackee University of Wisconsin Law School	82
7.	Over-Reliance Under Contractual Disgorgement Yehonatan Givati and Yotam Kaplan Hebrew University of Jerusalem - Faculty of Law and Hebrew University of Jerusalem	76
8.	Disclosure Rules in Contract Law Oren Bar-Gill and Ariel Porat Harvard Law School and Tel Aviv University	65
9.	Costs Allocation Under the Amended Indian Arbitration Law: A Critique Badrinath Srinivasan Independent	56
10.	Springwell-watch: New Insights into the Nature of Contractual Estoppel Joanne P. Braithwaite London School of Economics - Law Department	66

Elvis Guitar Contract Case on Appeal to Eighth Circuit

Half a year ago, I blogged here about dispute about a contract for a guitar used by Elvis Presley during his final 1977 tour. The guitar is currently on display at the National Music Museum (“NMM”), which is affiliated with the University of South Dakota. The museum claims ownership to the guitar as the museum bought it under a valid contract with a Mr. Johnson. Mr. Johnson’s former friend and business partner, Mr. Moss of Tennessee, claims that he is the rightful contractual owner of the contract although he, Moss, never paid for or even possessed the $250,000 guitar. A trial court judge in South Dakota ruled that “[u]nder Tennessee and South Dakota law, title to goods does not pass until delivery is made. Here, Johnson never delivered the Martin D-35 guitar to Moss. Because Johnson never delivered the guitar to Moss, Moss never acquired title to the Martin D-35. The court finds NMM is the owner of the Martin D-35.”

In a somewhat erroneous reporting of the case, the USA Today reports that Mr. Moss has now appealed the case to the Eighth Circuit Court of Appeals. Stay, uhm, tuned for more news on this case.

When “The Check Is In The Mail” Extinguishes A Debtor’s Obligation

At ContractsProf Blog, we love it when our readers send us new material or highlight interesting cases. This post below provides an interesting tale of course of performance with a sprinkling of negotiable instruments law. It comes to us courtesy of Keith Paul Bishop, partner with the California corporate and securities law firm of Allen Matkins. You can find Keith's original post on his firm's blog here.

      - MEB

---------------

Most creditors likely assume that they have not been paid unless and until they receive checks from their debtors.  In many cases that assumption may be correct, but in some cases it won’t be.  Section 1476 of the California Civil Code provides:

If a creditor, or any one of the two or more joint creditors, at any time directs the debtor to perform his obligation in a particular manner, the obligation is extinguished by performance in that manner, even though the creditor does not receive the benefit of such performance.

The application of this statute is illustrated by a case, Sleep EZ v. Mateo, Cal. Ct. Appeal Case No. BV 031618 (July 4, 2017).  The contract at issue in the case was an apartment lease.  The lessor’s manager had instructed the tenant to pay the rent by mail to a post office box and to always pay by money order.  The tenant had done so for 30 years until one day the lessor didn’t receive the rent.  The trial court gave judgment for the defendant finding that the tenant had purchased a money order for the full amount of the rent due and the lease required that rent be paid “to landlord by U.S. Mail”.  The Court of Appeal affirmed, citing Section 1476.  In doing so, the Court rejected the landlord’s argument that under Section 3310 of the California Uniform Commercial Code a money order remains unnegotiated until it is honored.

Several facts may distinguish this case from other cases in which a debtor defends on the basis that the check was mailed.  First, the record established that the creditor had required rent to be paid only by mail and prohibited payment in person.  Second, the record established that the tenant had performed in this manner for several decades.  Third, the tenant was able to introduce evidence that she had performed as directed by the landlord (i.e., the receipt for the money order).

Conditions Precedent, Specific Performance, and Unclean Hands, All in One Case!

A recent case out of Texas, Carnegie Homes & Construction, LLC v. Sahin, No. 01-16-00733-CV, brings up no fewer than three golden discussion topics of contracts law courses: conditions precedent, specific performance, and unclean hands. 

The dispute is actually a pretty run-of-the-mill disagreement over a real estate purchase. It just happens to contain a lot of arguments. 

First, Carnegie Homes, the buyer, attempted to argue that a number of conditions precedent had never been fulfilled, and therefore none of its obligations to buy the property had been triggered. The contract in question did read it "shall only be effective upon performance of the conditions set forth in Section E of this agreement." But despite calling the contents of Section E "conditions," the court read them and found them to be covenants, not conditions, dictating when and how much Carnegie Homes would pay and how much their respective obligations would be. Rather than conditions, Section E contained mutual promises, and indeed, Section E was called "Terms" instead of conditions. Therefore, the reference to conditions was a mistaken one. 

Second, specific performance was deemed to be the proper remedy, because the contract was for the sale of a unique property. Carnegie Homes tried to argue that specific performance was not usually made available to the seller of a piece of property, only to the buyer of that property. However, the court said that specific performance was not so limited and that sellers have the right to seek and be rewarded specific performance just as much as buyers. 

Finally, Carnegie Homes tried to argue that unclean hands prevented the seller, Sahin, from receiving relief. The conduct Carnegie Homes complained of concerned Sahin's service of a supplemental petition that alleged Carnegie Homes committed fraud. Sahin served the petition but never filed it. Carnegie Homes, however, was required to disclose it in a loan application, which allegedly caused it to be refused financing, leading to Carnegie Homes's difficulty in fulfilling its obligation to buy the property. The court, however, found that the disclosure to one lender did not block Carnegie Homes from performing the rest of its obligations, and did not act as unclean hands on Sahin's part. The contract did not require Sahin to help Carnegie Homes obtain financing, nor did it condition Carnegie Homes's obligation to pay on the receipt of financing. Therefore, Carnegie Homes was not excused from its obligations and Sahin was entitled to relief. 

Contracts and Commercial Law Scholarship: Weekly Top Ten SSRN Downloads (July 14, 2017)

This week's list is a day late, but hopefully not a dollar short. Enjoy!

Top Downloads For:

Contracts & Commercial Law eJournal

Recent Top Papers (60 days)

As of: 15 May 2017 - 14 Jul 2017

Rank	Paper	Downloads
1.	A New Dawn for the Law of Illegality Andrew Burrows University of Oxford - Faculty of Law	129
2.	Making Finance More Competitive Rory Van Loo Boston University School of Law	122
3.	Determining the Territorial Scope of State Law in Interstate and International Conflicts: Comments on the Draft Restatement (Third) and on the Role of Party Autonomy Hannah L. Buxbaum Indiana University Bloomington Maurer School of Law	117
4.	Crypto Transaction Dispute Resolution Wulf A. Kaal and Craig Calcaterra University of St. Thomas, Minnesota - School of Law and Department of Mathematics, Metropolitan State University	106
5.	Paternalism and Contract Law Péter Cserne University of Hull	98
6.	The Design of Staged Contracting Albert H. Choi and George G. Triantis University of Virginia School of Law and Stanford Law School	97
7.	The Failures of State Insurance Regulation Daniel Schwarcz University of Minnesota Law School	75
8.	Justice, Fault, and Efficiency in Contract Law Larry A. DiMatteo University of Florida - Levin College of Law	65
9.	Postscript to Just Relationships: Reply to Gardner, West, and Zipursky Hanoch Dagan and Avihay Dorfman Tel Aviv University - Buchmann Faculty of Law and Tel Aviv University - Buchmann Faculty of Law	67
10.	Over-Reliance Under Contractual Disgorgement Yehonatan Givati and Yotam Kaplan Hebrew University of Jerusalem - Faculty of Law and Hebrew University of Jerusalem

 

Top Downloads For:

Law & Society: Private Law - Contracts eJournal

Recent Top Papers (60 days)

As of: 15 May 2017 - 14 Jul 2017

Rank	Paper	Downloads
1.	Determining the Territorial Scope of State Law in Interstate and International Conflicts: Comments on the Draft Restatement (Third) and on the Role of Party Autonomy Hannah L. Buxbaum Indiana University Bloomington Maurer School of Law	117
2.	Crypto Transaction Dispute Resolution Wulf A. Kaal and Craig Calcaterra University of St. Thomas, Minnesota - School of Law and Department of Mathematics, Metropolitan State University	107
3.	Paternalism and Contract Law Péter Cserne University of Hull	98
4.	The Design of Staged Contracting Albert H. Choi and George G. Triantis University of Virginia School of Law and Stanford Law School	97
5.	Politicized Dispute Settlement in the Pre-Investment Treaty Era: A Micro-Historical Approach Jason W. Yackee University of Wisconsin Law School	79
6.	Property and Sovereignty Imbricated: Why Religion Is Not an Excuse to Discriminate in Public Accommodations Joseph William Singer Harvard Law School	73
7.	Customary Principles Regarding Public Contracts Concluded with Foreigners Regis Bismuth Sciences Po Law School (Ecole de Droit de Sciences Po)	72
8.	Disclosure Rules in Contract Law Oren Bar-Gill and Ariel Porat Harvard Law School and Tel Aviv University	62
9.	Springwell-watch: New Insights into the Nature of Contractual Estoppel Joanne P. Braithwaite London School of Economics - Law Department	61
10.	Over-Reliance Under Contractual Disgorgement Yehonatan Givati and Yotam Kaplan Hebrew University of Jerusalem - Faculty of Law and Hebrew University of Jerusalem	72

What Does "Renovate" Mean to You? (A Perfect Question for Those, Like Me, Addicted to HGTV)

I'm blogging this case because I had a whole conversation with non-lawyer friends about what the term "renovate" means, and I think maybe they changed my mind about what "renovate" means. I don't know. Upon first reading this case, I spent a lot of time reflecting on all the episode of "House Hunters Renovations" I've watched and what actually happens in them. 

Anyway, if you want to go away and watch a marathon of "House Hunters Renovation" at this point, it's okay. I understand. This blog post will still be here for you to contemplate afterward. 

The case in question (there is an actual case) is a recent case out of Pennsylvania, Blackburn v. King Investment Group, No. 2409 EDA 2016, and, as you may have guessed, the debate in the case was over the meaning of the word "renovate" in the contract. One party maintained that the term was ambiguous, because it could have required them to demolish the bathrooms at issue or merely to do what was necessary to bring them up to modern standards (which was less than full demolition). The other party argued that it was not an ambiguous term and clearly required demolition. 

The court agreed that it was a clear and unambiguous term that required demolition and replacement, and this was what got me to thinking: Do I think that renovation requires demolition? At first my kneejerk reaction was like, "I don't know, I don't think it does." But after conversations with people, I decided maybe it does mean demolition? That doing something less than demolition wouldn't be called renovation but just updating? If you say you're going to renovate your kitchen, does that always imply that you're demolishing the entire kitchen? If you do less than that, is saying you renovated your kitchen misleading? 

My struggling with the word leads me to believe maybe it's not clear and unambiguous but I often feel that way with these types of cases. What I find extra-striking about this case is that, while the court proclaimed the term "clear and unambiguous," it did so by relying entirely on parol evidence, and this parol evidence, in my view, just determined what the parties understood "renovation" to mean. I think finding what renovation meant in the context of this contract to these parties makes a lot more sense than declaring it to be a clear and unambiguous term generally. 

Law Firm Associate Makes $1.5 Billion Mistake

Will an associate who makes a $1.5 billion (yes, with a “b”) clerical error still make partner?... Do law firms owe a duty of care to clients of opposing party’s law firm? The answers, as you can guess: very likely not and no! The case goes like this:

General Motors (“GM”), represented by law firm Mayer Brown, takes out a 2001 loan for $300 million and a 2006 loan for $1.5 billion secured by different real estate properties. JP Morgan acts as agent for the two different groups of lenders. GM pays off the first loan, but encounters severe financial troubles and enters into bankruptcy proceedings before paying off the big 2006 loan. GM continues to follow the terms on that loan, and the bankruptcy court also treats the lenders as if they were still secured.

What’s the problem with this, you ask? When Mayer Brown prepared and filed the UCC-3 termination statement for the 2001 loan, the firm also released the 2006 loan by mistake. The lenders of that were thus not secured under the law any longer even though both GM itself and the bankruptcy court treated them as such. The big loan was simply been converted from a secured transaction into a lending contract. Yikes.

How did this happen? The following is too good to be true, if you are in an irritable or easily amused summer mode, so I cite from the case:

“The plaintiffs' complaint offers the following autopsy of the error[]: a senior Mayer Brown partner was responsible for supervising the work on the closing. He instructed an associate to prepare the closing checklist. The associate, in turn, relied on a paralegal to identify the relevant UCC-1 financing statements. As a cost-saving measure, the paralegal used an old UCC search on General Motors and included the 2006 Term Loan. Another paralegal tasked with preparing the termination statements recognized that the 2006 Term Loan had been included by mistake and informed the associate of the problem, but he ignored the discrepancy. The erroneous checklist and documents were then sent to [JP Morgan’s law firm] Simpson Thacher for review. The supervising partner at Mayer Brown never caught the error, nor did anyone else. With JP Morgan's authorization, the 2001 Synthetic Lease payoff closed on October 30, 2008 … We must also note that, when provided an opportunity to review the Mayer Brown drafts, a Simpson Thacher attorney replied, ‘Nice job on the documents.’”

The lenders represented by JP Morgan sued not Simpson Thacher or JP Morgan, but… Mayer Brown; counsel for the opposing party, arguing that the law firm owed a duty to them not because Mayer Brown represented them or their agent, JP Morgan, in connection with these loans, but rather because, plaintiffs argued, Mayer Brown owed JP Morgan – not the plaintiffs directly – a duty of care as a client in other unrelated matters! As the court said, an astonishing claim.

A law firm or a party directly must always prepare a first draft of any document. “By preparing a first draft, an attorney does not undertake a professional duty to all other parties in the deal.” In sum, said the court, “there is no exception to the Pelham primary purpose rule, and there is no plausible allegation that Mayer Brown voluntarily assumed a duty to plaintiffs by providing drafts to Simpson Thacher for review.”

The case is Oakland Police & Fire Ret. Sys. v. Mayer Brown, LLP, States District Court for the Northern District of Illinois, Eastern Division, Case No. 15 C 6742

Jeff Lipshaw on Robot Lawyers and Legal Education

Over at the hallowed mothership of the Law Professor Blogs Network, TaxProf Blog, Jeff Lipshaw (Suffolk) has written a thought-provoking post entitled "Robot Lawyers, 'Skills Training' and Legal Education." Here are two of the key closing paragraphs:

As a long, long, long time practitioner and generalist, I continue to be amused (or something like that) by the buckets of legal education (the rooms of the Mystery House).  For example, it took returning to academia to find out that "commercial law" (i.e. the UCC) is a different area than "corporate law."  Within business law, there are corporate camps and "uncorporate" camps, with the latter seemingly most interested in demonstrating why the area in which they happen to write and teach is normatively superior to the other (my friend and co-author, the late Larry Ribstein, being a prime example of the latter).  

In the long, long term, I think the crunchable middle will be both doctrine, as traditionally taught, and what today pass for "skills."  Both, to a large extent, have the potential of being robotic.  The long game is in doing and teaching what robots really can't do, or in managing the robots.  I'll put aside both trial and appellate litigation and focus on everything else lawyers do. In the interim, I'd do away with a lot of classes that are merely more yammering away at segments of doctrine by way of litigated cases, reverse the classroom, and make classes ones in which you merely bring doctrine to the party along with all the other theories.  (In my own area, I'd do away with the traditional business law courses, and combine with the business school to teach "Law & Finance of Business Entities" with J.D. and M.B.A. students intermingled.)

The whole post is well worth a read and is available in its natural habitat here.

Who Typed What Where, and Does That Matter?

When I teach my students rules of construction and we talk about contra proforentem, I feel like the standard examples I use with them are insurance contracts, where it's easy to identify who the drafter is. A recent case out of Indiana, Song v. Iatarola, Court of Appeals Case No. 64A03-1609-PL-2094 (thank to D.C. Toedt for the new non-paywall link!), involved an actual discussion of who was the "drafter" in a situation where both parties had input in the contract. The Iatarolas seemed to try to argue that Song should be considered the drafter and have the contract construed against him because he was the one who typed it into Microsoft Word. The court pointed out, though, that the rule of construction is about independent drafting, not a situation where both parties contributed to the contractual terms. Who physically types the contract up means nothing if both parties have helped to decide on the terms being typed up. I have never thought to discuss that with my students, but I think I might bring it up, just to be clear on what the rule is talking about. 

Teaching Spotlight: "Picturing Corporate Practice" (Jay A. Mitchell - Stanford)

From time to time on ContractsProf Blog, we like to highlight innovative or interesting teaching materials that will be of interest to our readers. Jay A. Mitchell is the Director of the Organizations and Transactions Clinic at Stanford Law School and is the author of Picturing Corporate Practice (West Academic). In the current push for pedagogy and materials to create law graduates who are more "practice ready," Professor Mitchell's text stands out with its approachable and innovative design choices for engaging students. I asked the Picturing Corporate Practice author if he would tell us more about his book in a guest blog post.

Without further ado, let me turn this post over to Professor Mitchell:

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Picturing Corporate Practice is a blend of text and visuals intended to introduce students to corporate and transactional work.

The book includes a brief overview of corporate practice and chapters focused on advice development, transaction planning and management, contracts and other legal documents, board meetings, litigation (from a corporate perspective), SEC filings, corporate pro bono, and client service.

The fun part here is that I collaborated with a graphic designer on the thing. We used a landscape format, paid close attention to layout and typography, built in lots of white space, included 50+ diagrams, timelines, and other graphics, and used a conversational writing style throughout. I’m a big believer in the value of design and typography for legal work-products, course materials, and other information products --   the book reflects that belief.

And I tried to draw on my experience not only from the Stanford Law School clinic but also as a former senior lawyer at a big company (and thus client) and law firm partner, and on the input of the five former students who read the entire manuscript.

Several notes about goals and themes:

• Orientation. Most importantly: I wanted simply to orient folks to the work. Corporate is unfamiliar to most students. I tried to provide some broader ways of thinking about the practice and what we do as corporate lawyers -- build things, design processes, produce products that people use, manage projects, engage in a craft. I think those frameworks can help students start to get their head around the job.

 

• Documents. The book gives considerable attention to contracts and other legal documents, the core products of the trade. It discusses reading, a fundamental lawyer activity that in my view doesn't receive the attention it deserves. It identifies document characteristics -- business focus, variety, functionality, visibility, longevity, etc. -- and how law is “underneath” and reflected in our documents. There’s coverage of practical tasks like document planning, working with forms, and proofreading. The idea was not only to demystify but also cultivate an appreciation for the many dimensions and implications of legal documents, and for what it takes to do them well.

 

• Getting Started on a Problem. The book provides tangible suggestions for getting started on a project or document. Students and new lawyers often don’t know how to get going on assessing a business situation, or dealing with a big contract -- I see that in the clinic all the time. So the book includes ideas about how to get traction, how to start getting a grip on a problem, and emphasizes the relevance of common sense and commercial sensibility.

 

• Visual Thinking. I wanted to make the case for one of those practical suggestions: drawing pictures to facilitate thinking and collaboration. Drawing is an unusually effective tool for thinking, and something that we don’t talk about much in law school. The book includes a brief general discussion, grounded in research from psychology, cognitive science, engineering, and other disciplines, and then lots of ideas and examples across the practice.

 

• How Things Work. The book includes how-things-work information and vocabulary. Like, what’s a closing? How do covenants and conditions work together? What do board resolutions do? How does an IPO work? What’s a T&R schedule? When the partner says “we need to make conforming changes,” what does she mean? What’s an officers’ certificate? These are questions folks may be reluctant to ask, and stuff that people in firms rarely explain.

 

• Habits of Mind. The book emphasizes the central importance of ways of working and professional disciplines: organization, attention to detail, project management, diligence, stamina, responsiveness, service orientation…. all things especially important early in one’s career, and generally not big topics of emphasis in school.

 

•  Fun. I try to be direct but encouraging, and to suggest the intellectual and professional enjoyment in the job -- which can be easy to lose sight of in the grind of law school and especially law firm life.

We use this book as a text in my clinic, and it could be used in other transactional skills courses as well; the chapters on deal work and board meetings are relevant to, say, an M&A course. I think the book could be used in 1L lawyering skills and legal writing classes and in contracts and contract drafting courses, with the two chapters about documents being of particular relevance. I’d also love to see visual methods be introduced in lawyering skills or comparable 1L courses -- it’s really useful in this line of work. 

Outside of skills and contracts-oriented classes, I can imagine that corporations instructors might find useful the chapter about board meetings. Evidence instructors who want to add a touch of corporate to the curriculum could use the chapter about litigation, which centers on record building and attorney-client privilege in the transactional setting. Public interest and pro bono instructors might find the pro bono chapter useful in briefing students about nonprofit organizations. And the increasing number of lawyers and others interested in legal design might find both the visual methods discussion and the book design itself of interest.

So, the book is a little different, both for the transactional skills space and for the legal education genre generally. I hope folks find it helpful.

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More information on Picturing Corporate Practice is available here. Thanks to Jay Mitchell for providing this guest post.

Do you have any innovative contracts, commercial, or transactional teaching materials that would be of interest to our readers that we could highlight on ContractsProf Blog? If so, drop me (Mark Burge) an email with the information, and you might be our next featured guest post.

If You Want to Hold Your Real Estate Development to Its Master Plan, Make Sure It's in Your Contract

A recent case out of Idaho, Swafford v. Huntsman Springs, Inc., Docket No. 44240, serves as a word of warning for those purchasing plots in real estate developments. As someone who recently purchased a plot of land in an in-progress real estate development, I read this case with interest.

The Swaffords bought a plot of land early on in the development's life, based on a master plan that they had viewed. Later, as the development continued underway, Huntsman Springs altered its plans, so that they way it turned out was not as it had been in the master plan the Swaffords had viewed. The Swaffords then sued for breach of contract. 

The problem was that the "master plan" had never been part of the Swaffords' contract with Hunstman Springs. The contract did not incorporate the master plan and in fact the contract stated in several places that Huntsman Springs was bound by no other representations outside of the four corners of the contract and, in an integration clause, that the contract was the entire agreement. The contract was much less specific in Huntsman Springs's obligations to the Swaffords, but Huntsman Springs did comply with all of them. Therefore, there was no breach of contract. 

Important lesson learned: If you want your developer bound by a master plan, make sure it's in your contract. (Of course, that's possibly easier said than done, depending on power differentials. But, if you allow for reasonable modifications of that master plan in some way, maybe you could accomplish it.)

Contracts and Commercial Law Scholarship: Weekly Top Ten SSRN Downloads (July 6, 2017)

Top Downloads For:

Contracts & Commercial Law eJournal

1.	Surveying the Law of Emojis Eric Goldman Santa Clara University - School of Law	1,055
2.	A New Dawn for the Law of Illegality Andrew Burrows University of Oxford - Faculty of Law	122
3.	Determining the Territorial Scope of State Law in Interstate and International Conflicts: Comments on the Draft Restatement (Third) and on the Role of Party Autonomy Hannah L. Buxbaum Indiana University Bloomington Maurer School of Law	114
4.	Making Finance More Competitive Rory Van Loo Boston University School of Law	110
5.	Paternalism and Contract Law Péter Cserne University of Hull	92
6.	The Design of Staged Contracting Albert H. Choi and George G. Triantis University of Virginia School of Law and Stanford Law School	87
7.	The Failures of State Insurance Regulation Daniel Schwarcz University of Minnesota Law School	71
8.	Over-Reliance Under Contractual Disgorgement Yehonatan Givati and Yotam Kaplan Hebrew University of Jerusalem - Faculty of Law and Hebrew University of Jerusalem	61
9.	Postscript to Just Relationships: Reply to Gardner, West, and Zipursky Hanoch Dagan and Avihay Dorfman Tel Aviv University - Buchmann Faculty of Law and Tel Aviv University - Buchmann Faculty of Law	58
10.	Springwell-watch: New Insights into the Nature of Contractual Estoppel Joanne P. Braithwaite London School of Economics - Law Department

 

Top Downloads For:

Law & Society: Private Law - Contracts eJournal

1.	Determining the Territorial Scope of State Law in Interstate and International Conflicts: Comments on the Draft Restatement (Third) and on the Role of Party Autonomy Hannah L. Buxbaum Indiana University Bloomington Maurer School of Law	114
2.	Delaware's Fall: The Arbitration Bylaws Scenario Lynn M. LoPucki University of California, Los Angeles (UCLA) - School of Law	92
3.	Paternalism and Contract Law Péter Cserne University of Hull	92
4.	The Design of Staged Contracting Albert H. Choi and George G. Triantis University of Virginia School of Law and Stanford Law School	87
5.	Politicized Dispute Settlement in the Pre-Investment Treaty Era: A Micro-Historical Approach Jason W. Yackee University of Wisconsin Law School	75
6.	Over-Reliance Under Contractual Disgorgement Yehonatan Givati and Yotam Kaplan Hebrew University of Jerusalem - Faculty of Law and Hebrew University of Jerusalem	61
7.	Customary Principles Regarding Public Contracts Concluded with Foreigners Regis Bismuth Sciences Po Law School (Ecole de Droit de Sciences Po)	57
8.	Property and Sovereignty Imbricated: Why Religion Is Not an Excuse to Discriminate in Public Accommodations Joseph William Singer Harvard Law School	53
9.	Springwell-watch: New Insights into the Nature of Contractual Estoppel Joanne P. Braithwaite London School of Economics - Law Department	52
10.	Disclosure Rules in Contract Law Oren Bar-Gill and Ariel Porat Harvard Law School and Tel Aviv University

New York Court Explains What It Takes for Promissory Estoppel to Trump the Statute of Frauds

A recent case out of New York, In re Estate of Edmund Felix Hennel, No. 78, explains when promissory estoppel will overcome the statute of frauds, and the answer is: not always. Sometimes unfairness may result from the failure to overcome the statute of frauds, but promissory estoppel only saves a party in cases of unconscionable injury. 

In the case, Hennel's grandsons allegedly reached an agreement  with him whereby they would assume maintenance for a particular property and eventually assume ownership, and their grandfather would pay off the property's mortgage in his will. A 2006 will seemed to have terms that supported this oral agreement. However, a 2008 will revoked all previous wills and did not include the same terms, although the grandsons claimed Hennel told them nothing had changed in their agreement. The grandsons assumed ownership of the property but the 2008 will failed to pay off the property's mortgage. 

After Hennel's death, his grandsons sued to have the property's mortgage satisfied by their grandfather's estate, but they admitted that they could not satisfy the statute of frauds, since their agreement with their grandfather had been oral. Instead, the grandsons sought to rely on promissory estoppel. The court held, however, that even if they satisfied the elements of promissory estoppel, they would not suffer unconscionable injury if the statute of frauds was enforced, and unconscionable injury was required to allow promissory estoppel to trump the statute of frauds. Here, the grandsons had been able to pay the mortgage out of the rental income the property generated, and the grandsons did not have to expend any personal money to pay the mortgage. In such a case, there was no unconscionable injury.

The court noted that the grandsons could always sell the property if they wished to get out from under the mortgage, considering that the property had an estimated $150,000 worth of equity. The grandsons contended that, had the mortgage been paid as they had been promised, they would have received the full value of the property ($235,000) as equity. The court agreed this loss was unfair, but it was not unconscionable. In fact, the court stated, "cases where the party attempting to avoid the statute of frauds will suffer unconscionable injury will be rare." 

RoboLawyer Draws Nearer? Contract Analytics Software ContraxSuite Goes Open Source

What happens when contract and document legal analytic software goes open source? Is RoboLawyer on the horizon? Are unmet needs to legal transactional services about to be fulfilled?  Maybe some of both. LexPredict, a legal software company associated with Chicago-Kent law prof Daniel Katz, announced today that we are about to find out. The results should be of great interest to those of us who follow trends in legal tech. Below are some key paragraphs from the press release on the open-sourcing of ContraxSuite:  

Over the last decade, we’ve spent many thousands of effort-hours and hundreds of thousands of dollars developing the contract and document analytics tools that we use with clients. These tools, based on enterprise-quality open source frameworks for natural language processing, machine learning, and optical character recognition, have allowed us to quickly and easily attack many problems, from securities filings and court opinions to articles of incorporation and lease agreements.

Today, we are proud to announce that we plan to open source our core platform for document analytics as ContraxSuite. This code base will be hosted on Github under a permissive open-source licensing model that will allow most organizations to quickly and freely implement and customize their own contract and document analytics. Like Redhat does for Linux, we will provide support, customization, and data services to "cover the last mile" for those organizations who need support or assistance.

We believe that the future of law lies in its central role in facilitating and regulating the modern information economy. But unless we start treating law itself like the production of information, we’ll never get there. We hope our actions today will help lawyers and other LegalTech companies accelerate the pace of improvement through more open collaboration.

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The real challenge in contract analytics is to develop the so-called "training data" - the set of documents and labels used to "teach" the machine what separates a lease agreement from a purchase/sale agreement from a retirement benefits plan. Herein lies the true value of the current software and service providers. But, paradoxically, almost all providers get their information from one of two sources - either public sources of agreements, like the SEC’s EDGAR database or evidence from public courts, or private sources of agreements - their clients. Many organizations have therefore paid for the privilege to give away their own information so that someone else can profit.

By open-sourcing ContraxSuite, we hope to change this dynamic. The analysis and standardization of contracts and corporate governance material is key to the transformation of our economy. But blockchain and Smart Contracts aside, there are significant improvements in risk management, compliance, and profitability that can be gained by treating contracts as valuable data. Until legal departments and law firms can be "sequentially motivated," to borrow Professor Agarwal’s language, we will not see this maturation of the industry.

In the near future, we’ll be revealing more details about this open source strategy - including partnerships, support and customization services, and open-source license model. In the meantime, we hope to get everyone thinking fundamentally about how we do business in legal tech. What does the client really want - software licenses, or a real solution?

The full text of the press release is available here.