ContractsProf Blog

Weekend Frivolity: Simulated Graduation

Sharing this lovely display put together by a Brooklyn Law School graduate.  (Hat Tip: Blog Emperor Paul Caron)

Weekend Frivolity: Old School Zoom

Will there be a time when the word "Zoom" will again trigger the wave of nostalgia it did for me up until the experience of the last few months replaced nostalgia with revulsion? 

Hat tip to Bridget Crawford over at The Faculty Lounge for reminding us of the older meaning of "Zoom."

Covid, Contracts and Universities

As reported here, a South Carolina law firm has brought class action lawsuits against three universities and is threatening more to come.  The suits allege the the universities committed breach of contract and were unjustly enriched when they retained tuition payments and fees that will not be expended in ways that benefit students.  

University of Miami, one of the Universities named in the suits

The suits allege that online classes do not have the same value as in-person classes and that the universities' decision to move to a pass/fail grading system lessened the value of the plaintiffs' degrees.  Meanwhile, suits against the Arizona Board of Regents and Liberty University seek recovery of fees for recreation, health services, room and board, and meal plans that students could not use once the universities shut down in the Spring.  

As a parent of a college student, I note that we received a partial refund for our daughter's room and board.  I am surprised to learn that there are universities that have not done the same.  As to the claim that that online classes do not have the same value as in-person classes, plaintiffs point to Drexel's online business administration program that costs 40% less than their regular program on a per-credit basis.

At the same time colleges and universities are trying to get out ahead of any potential exposure to liabilities that might arise from re-opening to live, in-person teaching in the Fall.  They have appealed to Congress for temporary and targeted liability protection and relief.

(Hat tip to our founding editor, Frank Snyder!)

New Scholarship: Nancy Kim on the Proposed Restatement of Consumer Contracts Law

Nancy Kim, our Nancy Kim, has posted "Ideology, Coercion, and the Proposed Restatement of the Law of Consumer Contracts" on SSRN.  Her essay focuses on Sections 2 and 3 of the proposed Restatement (RLCC), which adopt the standard of notice and manifestation of assent and permit modifications under that standard.  According to Nancy, these provisions entail two significant shifts from what the case law establishes. First, the RLCC assumes a coherence and stability with respect to the law of electronic contracts that is without support in the case law.  Second, it ignores the different ways that courts have dealt with different categories of wrap contracts. As a result of these two moves, the RLCC ignores the purpose of a law of consumer contracts. By prioritizing efficiency over fairness, the RLCC dismisses the value of consent and sanctions coercive contracting.

Nancy begins by explaining why people are generally bound by contracts they sign under the so-called "duty to read."  She then notes that the duty to read makes less sense in the context of consumer contracts that are often contracts of adhesion.  Legislatures responded to the harsh terms in such contracts of adhesion by creating defenses, such as unconscionability, and by creating implied warranties in the Uniform Commercial Code.  In addition, courts will enforce the reasonable expectations of the consumer.  So, for example, if an insurance contract creates a reasonable expectation of coverage, courts will require the insurer to pay the claim.  In some jurisdictions, courts require that the contract terms be communicated to the consumer in a manner that is clear and understandable (the "reasonable communicativeness test").

According to Nancy, the two-pronged test adopted by the RLCC, reasonable notice and manifestation of assent, derives from Judge Easterbook's opinions in ProCD v. Zeidenberg  & Hill v. Gateway, the latter of which we have previously discussed (in passing) on the blog.  Those cases gave rise to the "rolling contract theory" in which a vendor can offer terms after the contract has been formed, which the consumer accepts by retaining and using the goods.  But Easterbrook's reasoning is not universally adopted, as the then-Judge Gorsuch noted, and as Klocek v. Gateway illustrates.  

Determinations of reasonable notice and a manifestation of assent must be sensitive to the various forms of wrap contracts now in use.  Easterbrook was addressing shrink-wrap contracts, but there are now "click-wraps," involving clicking a box on a web-based form, and "browse-wraps," which involve links to terms and conditions that most consumers never open.  Courts have not adopted a uniform approach to determining what constitutes meaningful assent to contractual terms in these contexts.  Rather, the analysis tends to be context-specific.  In recent cases, courts have been more attuned to the different technologies of electronic contracting and have adjusted their standards for establishing consent accordingly.

In Nancy's view, the RLCC errs in adopting the rolling contract theory, which transforms the notice and manifestation standard into an "if/then safe-harbor rule."  Sanctioning such a standard, Nancy argues, "would impede the development of the common law in a particularly unhelpful manner."  Courts are working out ways to contextualize the questions of assent relevant to contract formation.  We need to give them time to arrive at consensus rather than force consensus through premature efforts at standardization.  The RLCC's § 3 goes farther still, construing rolling contracts so broadly as to eliminate the requirement of consideration in connection with contract modification. In the context of ubiquitous mandatory arbitration clauses and class action waivers, combined with form contracts, the RLCC's approach undermines the fundamental principle that contractual obligations are based on disclosure of terms and voluntary consent.

Contracts Adjacent Issues Raised by Mask Policies

Last week, Jeremy blogged about the tension surrounding masks. Call it the Great Mask Divide, this tension that has resulted in sometimes violent flare-ups between those who refuse to wear masks and those who don’t want the maskless anywhere near them. As so often happens when people talk about their constitutional rights, there have been some egregious examples of legal ignorance regarding what a “right” is. The Great Mask Divide also raises contracts-adjacent issues having to do with consent, autonomy and authority.

There have been reports of people refusing to wear masks in stores and even resorting to violence to protect their so-called “freedom” to go maskless. But the Mask-Averse are wrong. There is no such freedom – in fact, there is no right to do much of anything on someone else’s private property. A store owner can enforce a strict “no-shirt, no-shoes, no-mask, no service” policy. The misguided shoppers who belligerently refuse to obey store policies can and should be kicked out – and if they don’t leave when asked, they are trespassing.

Shoppers who argue vehemently for their right to go without masks fail to recognize the rights of others. If you don’t want to wear a mask, shop elsewhere. But you have no right to stay on the premises and you certainly don’t have a right to physically attack the security guard who is asking you to leave.

On private property, the property owner gets to set the rules. Mask policies are contractual the way that other private property notices are contractual. Think of mask policies as real world TOS – you “click” when you walk onto their property. They are less intrusive than actual TOS, however, because they do not purport to restrict you even after you have left their premises.

Store policies that require masks are not just for the protection of the shoppers – they are for the protection of the store’s employees. The employees have no choice but to enforce store policies, and they often have no choice but to work at that store and breathe in customers’ exhalations.

These employees have rights, too. They have a right to a safe workplace. The store’s policies are designed to protect the health and safety of their employees, too. These policies are contractual – or quasi-contractual - between the business and its employees.  Businesses have a right to adopt their own business practices including their own employment policies which protect their employees from illness and reduce their chances of getting sued.

The Great Mask Divide is essentially the classic American conflict that arises when individual liberties collide with the collective interest. In these individual v. collective conflicts, it helps to remember that the rights accorded to Americans belong to all Americans. Autonomy is not a possession held by one individual; it is a concept that applies to every individual.

The rights granted under the Constitution are not intended to protect any one individual’s autonomy, but to protect the autonomy of individuals. I refer to this in my book Consentabiity: Consent and Its Limits as “collective autonomy” rather than individual autonomy because the autonomy interest applies to every individual and does not privilege any one individual over any other.  Contract law recognizes collective autonomy and it is most obvious in doctrines such as illegality, fraud, duress and unconscionability, where the expectation interest of one party is outweighed by a greater societal interest.

One person’s right to participate in or refrain from participating in any activity – whether it’s carrying a gun, refusing to wear a mask, or refusing to get vaccinated – depends upon whether it conflicts with the interests of another person. If there are more people whose interests are directly and adversely affected by one individual’s activity, that activity should be regulated, restricted or banned (depending upon the nature of the interests affected). Wearing a mask while shopping is a minor inconvenience compared to the risk of contracting a deadly virus while shopping/working from someone who is not wearing one.  

The Mask-Averse threaten not only the health of those around them, but the economy. Businesses must adopt reasonable safety measures, or many of their customers may stay home and their employees may quit or get sick. There may be a second-flare up if businesses are not careful about how they restart.

The collective autonomy interest in avoiding death, serious bodily injury and economic devastation far outweigh any one individual’s right to breathe without a mask within six feet of another whenever and wherever they want. Mask-mandatory policies will facilitate the opening of the economy and help make it go much more smoothly. As this pandemic has made clear, our fates are tied together and the only way to transition successfully into the New Normal is through cooperation and compromise – not by being wrong about what is a “right.”

 

Return of the SSRN Top Ten Downloads List (May 26, 2020)

With appropriately excessive kudos to our new-and-returning Blogarch Jeremy Telman (Blogarch, if you were wondering, is a high level network official just a step below the undisputed Blog Emperor, Paul Caron), I'm delighted to bring back the weekly Top Ten Contracts and Commercial Law SSRN download list. COVID-19 is unsuprisingly a prominent player is this week's list of prospective lockdown reading. Enjoy!

Top Downloads For:

Contracts & Commercial Law eJournal

Recent Top Papers (60 days)

As of: 27 Mar 2020 - 26 May 2020

Rank	Paper	Downloads
1.	Force Majeure and Hardship in the Age of Corona: A Historical and Comparative Study Klaus Peter Berger and Daniel Behn University of Cologne and Queen Mary University of London	1,041
2.	Force-Majeure under Contract Law in the Context of Covid-19 Pandemic Renjith Mathew Hindustan Petroleum Corporation Limited	216
3.	Veil Peeking: The Corporation as a Nexus for Regulation Mariana Pargendler Fundação Getulio Vargas Law School at São Paulo	163
4.	Smart (Legal) Contracts, or: Which (Contract) Law for Smart Contracts? Giesela Ruhl Friedrich-Schiller-University Jena	147
5.	The Law and Economics of Investing in Bankruptcy in the United States Jared A. Ellias University of California, Hastings	144
6.	The Legal Effect of Coronavirus Epidemic on the Doctrine of Force Majeure in Commercial Contracts; The Lagos-Ibadan Rail Project Example Adeniyi Aderinboye 'Dipo Okpeseyi & Co.	141
7.	A Comparative Perspective on Commercial Contracts and the Impact of Covid-19 - Change of Circumstances, Force Majeure, or What? Christian Twigg-Flesner University of Warwick - School of Law	141
8.	The Folly of Credit As Pandemic Relief Pamela Foohey, Dalié Jiménez and Christopher K. Odinet Indiana University Maurer School of Law, University of California, Irvine School of Law and University of Iowa - College of Law	131
9.	Sneak in Contracts: An Empirical and Legal Analysis of Unilateral Modification Clauses in Consumer Contracts Shmuel I. Becher and Uri Benoliel Victoria University of Wellington and College of Law and Business - Ramat Gan Law School	122
10.	Deal Protection Devices Albert H. Choi University of Michigan Law School	121

 

Top Downloads For:

Law & Society: Private Law - Contracts eJournal

Recent Top Papers (60 days)

As of: 27 Mar 2020 - 26 May 2020

Rank	Paper	Downloads
1.	Force Majeure and Hardship in the Age of Corona: A Historical and Comparative Study Klaus Peter Berger and Daniel Behn University of Cologne and Queen Mary University of London	1,041
2.	Force-Majeure under Contract Law in the Context of Covid-19 Pandemic Renjith Mathew Hindustan Petroleum Corporation Limited	216
3.	Smart (Legal) Contracts, or: Which (Contract) Law for Smart Contracts? Giesela Ruhl Friedrich-Schiller-University Jena	147
4.	The Legal Effect of Coronavirus Epidemic on the Doctrine of Force Majeure in Commercial Contracts; The Lagos-Ibadan Rail Project Example Adeniyi Aderinboye 'Dipo Okpeseyi & Co.	141
5.	A Comparative Perspective on Commercial Contracts and the Impact of Covid-19 - Change of Circumstances, Force Majeure, or What? Christian Twigg-Flesner University of Warwick - School of Law	141
6.	Sneak in Contracts: An Empirical and Legal Analysis of Unilateral Modification Clauses in Consumer Contracts Shmuel I. Becher and Uri Benoliel Victoria University of Wellington and College of Law and Business - Ramat Gan Law School	122
7.	Consumer Financial Protection in the COVID-19 Crisis: An Emergency Agenda Richard Cordray, Diane E. Thompson and Christopher Lewis Peterson Independent, Consumer Rights Regulatory Engagement and Advocacy Project and University of Utah - S.J. Quinney College of Law	119
8.	Reducing The Wealth Gap Through Fintech 'Advances' in Consumer Banking and Lending Pamela Foohey and Nathalie Martin Indiana University Maurer School of Law and University of New Mexico - School of Law	95
9.	The Domain of Private Law Hanoch Dagan and Avihay Dorfman Tel Aviv University - Buchmann Faculty of Law and Tel Aviv University - Buchmann Faculty of Law	83
10.	The Deceptive Efficiency of Smart Contracts: Hidden Opportunism in Certainty Mingyu Ma IESE Business School	66

Teaching Assistants: Covid & Contracts Round-Up

If you are looking for some material to make your contracts course more topical, here are some recent articles on the effects of the pandemic on contractual relations.  You may want to have a look at this scholarship to see if any of it presents materials that you can use to supplement your teaching.  Or you may want to have a look to make certain that you are up-to-date on the state of play in the world of commercial contracts law.

First, Klaus Peter Berger and Daniel Behn have posted a draft of their forthcoming paper, Force Majeure and Harship in the Age of Corona: A Historical and Comparative Study.  Because it is a draft, we will just share their abstract:

Force Majeure and Hardship provide legal tools to deal with the effect of unexpected future events and unforeseen changes in circumstances, particularly in long-term contracts. Given its global and unprecedented dimensions, its lethal potential and its drastic effects on international contracts the COVID-19 pandemic will generate years, if not decades, of post-pandemic litigation and arbitration focusing on the application of these two concepts. The paper examines the two concepts, from their historic origins over the different paths they took in civil and common law to modern transnational contract law as applied by international arbitral tribunals. Based on this historic and comparative analysis, the paper shows that in such extraordinary times, the doctrines of Force Majeure and Hardship assume the role of regular, rather than exceptional legal remedies, allowing for the risks emanating from the unprecedented crisis to be evenly distributed between the players in the global economy.

Christian Twigg-Flesner has posted on SSRN his contribution to Law in the Time of Covid-19, a chapter entitled "A Comparative Perspective on Commercial Contracts and the Impact of Covid- 19 - Change of Circumstances, Force Majeure, or What?".  The chapter provides a comparative perspective on contractual provisions relevant to the challenges that commercial parties will face in enforcing, or escaping liability for, contracts that may not be performable due to the pandemic.  This short article is notable for its discussion of the International Chamber of Commerce's force majeure clause, updated in March 2020, and recommended for inclusion in international commercial contracts.  The article then addresses affirmative defenses in the absence of a force majeure clause under English, German and  French law, as well as under Article 79 of the UN Convention on the International Sale of Goods and Articles 7.1.7. and 6.2.2. UNIDROIT Principles of International Commercial Contracts.

Three common features of these legal regimes will arise frequently in disputed cases: whether the event arose or become known after the contract was formed; whether it was foreseeable; and whether the party seeking to have its performance excused assume the risk.  Dating when the pandemic was known or knowable can be a challenge, as can assessing its foreseeability.  After all, there have been other incidents in recent memory of global health challenges, although none had anything like the economic impact of Covid-19.  Assumption of risk has to be assessed through a review of contractual terms.

Before concluding, Twigg-Flexner assesses whether existing contractual doctrine provides adequate tools for addressing the new challenges that the pandemic raises.  Traditional contracts tools can be supplemented.  Standstill agreements, for example, can be legislatively required, as in a recent German law permitting consumers and small enterprises to withhold performance on defined economic grounds until June 30, 2020 for contracts entered into before March 8, 2020.  

For students capable of grasping more sophisticated material, Patrick Bolton and others have posted Born Out of Necessity: A Debt Standstill for COVID-19 on ssrn here.  The authors first address the very different impact the pandemic is having on rich and poor countries.  While the Group of 20 leading economies has already agreed to a temporary debt service standstill on bilateral official loan repayments for 76 of the poorest states, the authors advocate expanding the standstill in two ways.  First, is should encompass middle-income states, such as Mexico.  Second, it should cover private creditors, which hold the majority of the sovereign debt of such middle-income states.  The authors

propose that multilateral institutions such as the World Bank or other multilateral development banks create a central credit facility allowing countries requesting temporary relief to deposit their stayed interest payments to official and private creditors for use for emergency funding to fight the pandemic.

The article then explains what is at stake, what motivates the proposal, the mechanics of how it will work, and the advantages of their proposal over alternatives.

Sid DeLong, A Streetcar Named Deontology

What follows is Sid DeLong's inaugural post:

Most of you are familiar with the ethics conundrum known as The Trolley Problem: “Should I throw a switch to divert an unstoppable trolley that would otherwise kill ten people if doing so would cause it to kill one person standing on the siding”?

CC BY-SA 4.0

In the comfort of the classroom, most people side with the Utilitarians, who say that switching is justified because, although it causes the death of an innocent person, it saves the lives of ten.  But a substantial minority vote with the Kantians, on the grounds that deliberate homicide is never justified regardless of its effects.

Jeremy Bentham

Oddly, however, studies show that most people would refuse to save ten people if, instead of diverting a trolley, they were required to throw an innocent bystander into its path. A lot of Utilitarians vote with the Kantians on this one, displaying a selective squeamishness that has inspired generations of research in philosophy and neuroscience.

Efficient breach of contract can raise an even more complicated moral anomaly. Consider The Vaccine Problem. Assume that a monopolist seller of a scarce, life-saving vaccine enters into a contract to sell its last batch of 10,000 units to Buyer1, a private hospital with patients suffering from the deadly disease it cures. Seller is then approached by Buyer2, another private hospital with many more such patients. It becomes apparent that, if the vaccine goes to Buyer 1, ten people at Buyer1 will live and one hundred people at Buyer2 will die. If it goes to Buyer2, one hundred people at Buyer2 will live and ten people at Buyer1 will die.

Scenario 1: While the vaccine is still in Seller’s possession, Buyer2 offers Seller ten times the contract price for the vaccine. Should Seller breach its contract with Buyer1 and sell the vaccine to Buyer2? By “should,” I mean would it be the right thing to do?

Immanuel Kant

In this version of the Trolley Problem, instead of saving lives by tortious means, the Seller saves them by breaching a contract. Pro-efficient-breach Utilitarians would argue that the deaths at Buyer1 are outweighed by the lives saved at Buyer2 under a sort of biological Kaldor-Hicks standard. In a vaccine auction, Buyer2 would outbid Buyer1. Anti-efficient-breach Kantians would argue that deliberate breach of contract is never justified by its consequences. An auction would be bogus because human lives cannot be valued in any currency, even in other human lives.

But the Vaccine Problem forces the Kantians to address a new moral question that they are able to duck in the typical efficient breach case: What are the relative moral claims of Buyer1 and Buyer2? Kantians must not only weigh the sacredness of the Seller’s promise against the value of human life; They must also weigh the value of one hundred human lives against the value of ten. Deontologists abjure weighing of any kind because absolute moral principles are incommensurable, unquantifiable, and never in conflict.

Scenario 2: Seller delivers the vaccine to Buyer1. Buyer2’s agents then steal the shipment from Buyer1. Buyer2 sends Buyer1 a check for ten times the purchase price.

Stealing the shipment after delivery is the analogue of pushing the person into the path of the trolley. Pro-efficient breach Utilitarians have always been haunted by the specter of “efficient theft.” While act utilitarians might vote to steal the vaccine, fair weather rule utilitarians, who hold property rights are efficient, will join the Kantians in condemning the theft even if it costs lives. The best they can do is to insist that Buyer2 engage in a market exchange with Buyer1.

But if the right answer to Scenario 1 is to allocate the vaccine to Buyer2 because that is where it is most needed, then why isn’t that also the right answer to Scenario 2? Is property more sacred than promise even when life hangs in the balance? Conversely, however, if theft is justified in Scenario 2, “Where will it all end?”

(Thanks to Greg Klass, who identified an earlier version of this hypothetical as a version of the Trolley Problem on the Contracts Listserve.)

Introducing Sid DeLong

It is a great pleasure to introduce our readers to Professor Sidney DeLong.  Law profs already know him from his reliably interesting, erudite, practical, and provocative contributions to the contracts listserv.  We recruited him heavily because his writings on contract law are not only engaging and entertaining but also composed with an eye towards the real world of contracts.

Sid teaches at the Seattle University School of Law.  We look forward to getting a sense of what he has been sharing with students all these years.

Weekend Frivolity: Movies of Contagion and Confinement

Building on the runaway success of yesterday's frivolity (silence is not necessarily ridicule), today was invite our remaining readers to share ideas for movies (or films if they are fancy) on the theme of contagion and confinement.

We'll get things rolling with two picks:

The Andromeda Strain tops the list for being about contagion within the necessarily confined quarters of  an isolated lab. 

And then there's World War Z, which is just fun, even though I usually hate zombie movies.  Also, the zombies' "fleetness of foot" reminds me of my favorite dialogue from Breaking Bad:

Weekend Frivolity: Literature of Contagion and Confinement

This weekend, the frivolity is a bit different.  Please share in the comments your recommendations for materials on contagion and confinement well-suited for reading while in isolation.  Extra credit if there is a contracts law hook!

We'll get things started with Thucydides' account of the plague that hit Athens during the Peloponnesian War.  Thucydides' account is notable for its placement directly after Pericles' Funeral oration.  Having given space for a speech that encapsulates all that was best in Athenian society, Thucydides then artfully demonstrates the precarity of refined existences.  This paragraph sums up the psychology of terror that serves as the midwife of social collapse:

So they resolved to spend quickly and enjoy themselves, regarding their lives and riches as alike things of a day. Perseverance in what men called honor was popular with none, it was so uncertain whether they would be spared to attain the object; but it was settled that present enjoyment, and all that contributed to it, was both honorable and useful. Fear of gods or law of man there was none to restrain them.

Thucydides is silent on the matter, but it is to be presumed that even contractual obligations gave way, with or without force majeure clauses, in the chaotic climax of the plague

Reading the Covid-Related News on Bloomberg

A few stories caught my eye this week.  

CC BY-SA 3.0

First, Paige Smith and Robert Iafolla bring us news that refusing to wear a mask at work can cost you your job.  Companies that are re-opening are following CDC guidelines by requiring that returning workers wear masks.  

The story suggests that there has been little resistance from workers; on the contrary,  workers are more likely to complain that their employers are taking too few precautions against contagion rather than too many.  There are apparently religious and medical exemptions (don't those usually require face coverings rather than prohibit them?), but workers cannot claim a free-speech right to refuse to wear a mask.  So long as the requirement that employees wear masks is generally applicable and generally enforced, with appropriate accommodations where reasonable, it is likely to survive any legal challenge.

Two quick points: first, I am always struck by the lack of outrage at private actors who do things that spark outrage when the government does them, even though the private actors are motivated by profit and the government is motivated, at least in part, by concerns like public safety or national security.  The supposed difference is that workers consent to their terms of employment, but when you combine the ubiquity of at-will employment, form employment contracts that eliminate recourse, and a 15% unemployment rate, it is hard to take seriously claims that workers give meaningful consent to terms of employment. Nancy Kim and I explored this topic in the context of data-mining in connection with consumer contracting in a pre-Covid world.

Second, I wonder if the Bloomberg article underestimates the power of the argument that refusing to wear a mask is symbolic political speech.  When I go shopping these days, only about half of the people in the store wear masks.  Their refusal to do so puts me and other shoppers at risk.  It's possible that they just don't know where to get a mask (try Etsy!), but it is hard not to view their choice not to wear mask as a statement, and perhaps they view my mask as a mark of my self-subordination to the nanny-state as well. 

What do you do if you need to have someone to do some work in your home, and they show up without a mask?  Do you tell them to leave and come back with a mask?  Do you hide in the bathroom until they finish and then disinfect all surfaces with which they might have come in contact?  Do you leave a Yelp review and give them a low rating in the public health and safety category?  Confronting them seems like borrowing trouble.  They have access to the same information that you have.  Telling adults that they've made a poor decision (or implying that they have) rarely goes over well.

Meanwhile, Jef Feeley and Joshua Fineman report on another acquisition now on hold because of the pandemic.  In Forescout Technologies Inc. v. Ferrari Group Holdings LP, 2020-0385, Delaware Chancery Court (Wilmington), Forescout, a cybersecurity company, is claiming that private equity group, Advent International, ought not to be permitted to back out of its $1.9 billion deal to acquire Forescout.  Forescout claims that Advent assumed the risks associated with any possible impact that the pandemic might have on the deal.  According to the report, this is one of at least nine deals that resulted in Covid-related litigation in May, including $10 billion in disputed mergers and acquisition deals that landed in Delaware's Chancery Court during one seven-day period in May.  "Material adverse effect" clauses need to be carefully drafted or they will be carefully scrutinized by a court or arbiter.

Alan White Insists on Continuing to Make Sense

The following is a guest post (our first in the new era!) by Alan White.

Many thanks to Jeremy for his excellent summary of Stop Teaching Consideration, as usual written with more clarity and wit than I can manage.

I’ll begin my response by explaining the two motivations that led me to write this article. The first motivation grew out of consulting with lawyers around the country litigating mortgage foreclosures after the 2008 crisis, and in particular, litigating the practice of financial institutions systematically reneging on promises to modify loan terms to assist homeowners in default on their loans. When confronted with written modification agreements that lenders were later refusing to honor, lenders’ clever attorneys were arguing, and often persuading courts, that these loan modifications lacked consideration and could therefore not be enforced by the homeowners.

The zombie-like resilience of the pre-existing duty rule 

As I discussed these arguments with homeowner attorneys I naively asked why they didn’t simply rely on Restatement 2^nd of Contracts Section 89, which calls for contract modifications to be enforced regardless of consideration when they reflect voluntary adjustments based on changed circumstances (in the event, a 30% nationwide decline in home values) not anticipated by the parties. To my surprise I learned how few state high courts had adopted, or even considered, Restatement 2^nd Section 89. I dispatched an excellent research assistant to undertake the dreaded 50-state survey, and learned of the zombie-like resilience of the pre-existing duty rule.

This first motivation led to a related, second motivation. Year after year, my students rebel at the notion that there can be more than one contract law rule to govern a particular issue, and ask which rule they must memorize for the final exam. I sometimes respond vaguely that there may be a majority rule and minority rule, or perhaps an old rule and a modern rule, and if I have taught more than one, they should discuss more than one, and for full credit, the competing values behind the rules.

Answering these student questions often prompted me to consult the casebook or treatises to confirm which rule was in fact the dominant rule in the case law, only to find very uncertain or dated guidance. So, I committed myself one summer to canvassing the case law not only on the modification/pre-existing duty rule, but for all the other consideration-derived rules. I made the task manageable by arbitrarily limiting my survey to 3 years, partly because of Westlaw’s search filtering options, although for some consideration topics I went back as far as the 1980’s adoption date of the Restatement Second. What I found was considerably more confusion and misapplication of consideration doctrine, or even of the word “consideration,” than, as Jeremy puts it, my Marie Condo taste for tidiness could tolerate.

I have to grant much of what Jeremy says in his critique, that is to say, that one cannot responsibly ignore consideration doctrine completely in teaching contracts law, because of its regrettable persistence in the minds of lawyers and judges. On the other hand, this seems to me a vicious cycle of legal conservatism, if we must continue teaching a completely unsatisfactory doctrine and set of rules merely because we were taught them. So despite my categorical title, I am proposing a transition rather than a clean break, by reducing the prominence of consideration doctrine in the first-year class, not offering it as a unified theory, and teaching modern Restatement and UCC rules first rather than second.

My call I suppose is to cabin the theoretical discussion of consideration by identifying it as marginal in the real world of contract drafting, negotiation, and litigation. What I imagine is devoting most of classes to contract formation, enforceability defenses, and remedies, postponing the discussion of bargain theory, reliance, restitution and gift. Certainly students should not be ignorant of consideration, but they should be fully equipped with all the by now well-known critiques.

Jeremy makes the point that absence of consideration may serve as a simpler defense for litigators, perhaps even grounds for a motion to dismiss, compared with say unconscionability or public policy arguments. My response is that in the hundreds of cases I reviewed, I don’t think there was a single example where a court would not either have had better alternative grounds for dismissal, such as the absence or indefiniteness of a promise, or would have needed to resolve factual issues to decide the consideration defense.

As for the nostalgia for teaching Hamer v. Sidway and Dougherty v Salt, I would urge Jeremy to look at the dozens of contemporary cases surveyed in the article, many of which are at least as entertaining and certainly more accessible for our students than Victorian-era tales of wealthy white men. The alienation experienced by many law students often begins when we first confront them with these ancient yet oddly ahistorical texts. I prefer instead to use for a first reading a case featuring struggles between the powerful and the underdog, say Peevyhouse or Alaska Packers, cases that connect economic struggles of the past to controversies of our time.

Disney's Tweet Wrap

Given all of the troubles Disney’s having, I feel kind of bad sharing this story about Disney’s attempted “tweet-wrap” but it captures so perfectly our current state of contracts run amok that I couldn’t resist. Some of you may have heard that Disney encouraged its followers to share their favorite Star Wars memory with the hashtage #MayThe4th in honor of Star Wars Day. (Confession: I didn’t know this was a thing despite having a boxed DVD set of the movies). Disney’s lawyers (who I guess were trying to earn their keep given that other Disney employees were being furloughed) added an additional legal tweet that sharing the message or using the hastag #MayThe4th constituted agreement to the company’s terms of use. It later clarified via another tweet several hours later that the “legal language applied ONLY” to replies using the hashtag and mentioning @DisneyPlus. Mark Rasch dissects Disney’s terms of use at Security Boulevard and notes that they include New York choice of law, forum in Los Angeles or New York, copyright assignment to some materials, waiver of class action, mandatory arbitration and $1,000 limitation of liability clause for Disney, among other goodies.

Incredible (or not) Contractual Greed

As was reported in popular media just a few days ago, a politically connected firm, Bear Mountain, recently earned a contract with the state of California to provide 600 million face masks for a total value of $800 million.  However, the company apparently failed to deliver most of the supply in a timely manner.  The state thus “cancelled” the agreement on May 2, but will pay the company for the masks that had been delivered at that point in time.  In another instance, California had to terminate a deal after paying $500 to the company and having to claw that back when that company also failed to perform acceptably under the contract.

Sadly, it is not new that in times of crises, the worst in humankind often seem to come out: greed, disregard for other people’s lives, ineptness, and opportunism.  Even the administration in one of the world’s largest economies is not beyond contractual fraud at worst or at least becoming the victim of material breach.  That raises the question of how to best vet companies with which one enters into contracts?  The state of California had never done business with Bear Mountain before, which might have been one red flag.  There were worse ones: the founder was Alabama’s attorney general from 2004-2011.  He now heads a small personal-injury law firm in Alabama. 

Of course, in a case such as this, the state also had to act fast to get the equipment it needed, but it still seems amazing how much gall some companies have to try to take advantage of the situation and the extent everyone has to go to in order to avoid contractual scams of various sorts.  Apparently, no or little upfront vetting took place here.  Private and public contractual parties should be even more aware of the scam artists always ready to strike when one party may have let its guard down. Loyalty to known vendors may have paid off time-wise here. 

Alan White, Stop Making Sense!

Yesterday, I summarized Alan White's article, Stop Teaching Consideration.  Today, I argue that Alan needs to stop making sense and embrace the common law of contracts, in all of its lunacy.

Alan wants to be the Marie Condo of contracts doctrine, decluttering our lives, by removing consideration, a concept that no longer sparks joy for him.  True to his Gallic, Cartesian roots and his MIT training, Alan is a dogged rationalist determined to écrasez l'infâme of historical detritus polluting contacts law.  It won't work, for good reasons and bad ones.  I can imagine an idyllic future in which happy lawyers and judges resolve all contractual issues without even mentioning consideration, but I can also embrace an eschatological vision in which virtuous pagan contracts profs pass the time in limbo by exploring the finer points of the doctrine of consideration.

My good reasons for rejecting Alan's advice that we stop teaching consideration run as follows:

• Consideration is the umbrella that has kept us dry, so we shouldn't discard it -- Alan can't find a lot of cases that raise issues of consideration because it is a basic concept that we have successfully taught our students and it is incorporated into all standard form contracts;
• As Alan argues, if you teach offer and acceptance in the context of bargain theory, you have captured formation without needing to discuss consideration, but that still leaves a lot of doctrines (firm offers, modification, moral obligation, illusory promises) for which you need to introduce the concept;
• Alan thinks you can cover all those doctrines through alternative legal theories, but better to use consideration to destroy plaintiff's prima facie case than to rely on affirmative defenses (or throw the dice with public policy arguments); 
• Alan's primary argument is about pedagogy, but he has a shadow argument about law reform, and promoting ignorance of a key contractual doctrine seems unlikely to best arm students to engage in law reform; and
• Alan argues that, in a lot of cases that turn on the doctrine of consideration, the courts misapply the doctrine, but our students will be better able to avoid those outcomes if they can explain to the courts what consideration is rather than dismissing it as a historical curiosity.

My bad reasons for teaching consideration include:

• Courts think it's a thing, so whether or not that thing has value, there is value in speaking the language that courts understand;
• Students think it's a thing, so if you leave it out, they will bring it up, and if you don't spend the time to explain it right, they will leave with only a little knowledge, which is a dangerous thing;
• Alan acknowledges that even in his consideration-free syllabus, you have to make passing reference to it, because it pops up in cases and ancillary materials, so really a consideration-free syllabus is a species of unobtainium; and, the worst reason of all
• I frickin' love teaching consideration and all of those musty old cases that come with it!

Also, I'm concerned that after Alan achieve his goal, he may ask himself, "MY GOD, WHAT HAVE I DONE?!?"

Alan presents a series of doctrines that he thinks explain cases better than consideration. I think Alan will end up spending as much time explaining why he doesn't think consideration is a helpful notion as he would spend teaching consideration.   And he may get push back, since his students may believe, as do I, that while contracts doctrine is fluid, and the doctrines are not easily untangled, there is no doctrine that entirely eliminates the need for consideration.  The end result may be a more thorough engagement with consideration than is typical, and so Alan's approach of not teaching consideration may end up being the perfect vehicle for teaching it well.

Teaching Assistants: White, Stop Teaching Consideration

My good friend and former colleague, Alan White (right), recently published Stop Teaching Consideration, 20 Nev. L.J. 503 (2020).  As the title suggests, Alan makes a strong case that we contracts profs should stop teaching consideration to first year law students.  Consideration doctrine confuses students, and courts can't get it right either.  It is riddled with exceptions that we require our students to commit to memory.  As Alan puts it, "Consideration doctrine, and the courts’ dogged refusal to abandon it, causes confusion, undermines good contract analysis, and subverts the values that should drive the resolution of contract disputes" (507).  Alan offers a consideration-free syllabus that conveys the relevant legal doctrine without what he considers the unnecessary historical baggage of a doctrine that has outlived its usefulness.  Whether or not one agrees with Alan, I encourage contracts profs to read and consider Alan's arguments before we all return to teaching in the Fall.

In Alan's view, consideration was not found in the law but invented by Holmes, Langdell, and Williston late in the 19th century.  It was a mechanism for explaining why gift promises should not be enforceable, and once invented, it was applied to a range of other situations -- pre-existing duties, modifications, moral consideration, firm offers, illusory promises, and third party guarantees.  In Alan's view, there are other, more-straightforward doctrines available for addressing these situations.

As to donative promises, Alan's review of the case material suggests that bargain theory plays little role in the adjudication of cases.  With respect to contractual modifications, Alan highlights contexts like at-will-employment and the 2008 mortgage crisis where consideration doctrine becomes an impediment to the achievement of just, or even just reasonable, results.  The UCC has already partially eliminated the requirement of consideration in connection with a promise to hold an offer open.  One could move beyond the UCC and eliminate that requirement entirely.  Cases on lapsed obligations do not arise often enough to justify covering them in a first-year contracts course, and Alan suggests, consideration doctrine is not very helpful in resolving them.  Illusory promise cases are rarely resolved on the basis of consideration doctrine, and even when they are, they could just as easily have been decided based on unconscionability or public policy.  Third-party guarantees are routinely enforced notwithstanding the lack of additional consideration that benefits the guarantor.

Alan then proceeds to a review of cases in which consideration doctrine is invoked. He finds that he can categorize such cases as follows: sometimes courts invoke consideration doctrine but do not decide the case on that basis; sometimes they do decide the cases based on consideration but they could have decided them on some other basis; and sometimes courts misapply consideration doctrine.

Finally, the revised contracts syllabus replaces references to "consideration" with "bargain theory" or "exchange theory."  Alan relegates "consideration" to the dustbin of antiquated legal terms like "assumpsit" and "trespass on the case." More alarmingly, he would eliminate coverage of donative promises.  No more Hamer v. Sidway; sorry Charlie, no Dougherty v. Salt.  The course covers bargain theory, supplemented with detrimental reliance, promises recognizing past obligations, and restitution.  The rest of material can be taught without requiring students to learn consideration doctrine, except as a historical curiosity.

Having summarized Alan's case, tomorrow I will offer my objections.  Stay tuned!

Weekend Frivolity: Music to Quarantine by from Sarah Dooley

One of the great benefits of being at a small law school in a small town is that you get to know not only your colleagues but also their delightful and talented children.  Among the most delightful and talented is the incomparable Sarah Dooley, daughter to my former colleague, Laura Dooley.  Sarah is trying to continue to entertain us from her small New York apartment.

If you enjoy this video and would like to see more content from Sarah, you can follow here on Instagram or on Twitter at @iamsarahdooley

 

Another Constitutional Sidebar: Is an Oath a Legal Obligation?

The Blogosphere and Twitter have been ablaze this week with debates about the Article VI oath and whether those subject to the oath are obligated to be originalists.  Chris Green (pictured) summarizes the debate and his role in it in this useful post.  

These arguments leave me cold.  I have taken a few oaths I suppose, and I do not think I have ever knowingly violated an oath, but not because I took the oath.  An oath is to me a nudum pactum and pure theater.  It entails no binding legal obligation, nor do I consider oaths a supplement to the moral obligation one has without taking the oath.  They serve a purpose of solemnizing some transitional moment, and they may serve to establish some sort of communal bond.  Or they may be empty gestures to which people pay no mind once the moment has passed.  

I have a clear memory of taking an oath when I began my clerkship on the Eleventh Circuit Court of Appeals.  We new clerks came together at an en banc sitting of our court, and the chief judge administered the oath.  He asked us to repeat after him and then said "I [insert your name] do solemnly swear or affirm . . . ."  I recited my bit but also listened as many of my co-clerks said their name and then repeated "do solemnly swear or affirm."  I winced, and the chief judge smiled both grimly and indulgently as he continued with the rest of the ceremony, which for me was now bereft of its grandeur, let alone solemnity.  I have no recollection of what I affirmed that day.  All I recall was the farce.  

This no doubt says something about my hard-wiring and how it differs from people who are able to take oaths seriously.  But I do have two less idiosyncratic points to make about Chris Green's oath argument.

First, earlier today I posted about the Emoluments Clauses case, In re Trump.  One possible outcome of that case is that the courts will eventually conclude that the parties bringing the case do not have standing to enforce the Emoluments Clauses.  Another possibility is that the Clauses are not self-executing and that nobody has standing to enforce them unless and until Congress passes a statute creating a cause of action and jurisdiction in the federal courts for such a claim.  I think the same problem would arise all the more clearly should anybody seek to claim that some constitutional decision-making body had violated its oath by failing to adhere to originalism.  The problem with respect to the oath is still more difficult than with the Emoluments clause because originalism can mean so many different things.  

To wit, and this is my second point, Chris's post includes an eight-step synopsis of his argument, culminating in this:

 The meaning expressed by the text of the Constitution, on the basis of the legal interpretive conventions that existed at the time, applied to the original context, binds office-holders today

But what if you believe, as I do, that something along the lines of living constitutionalism was an original interpretive convention?  That is, there were occasions during the Early Republic when constitutional decision-makers essentially concluded that, although the Constitution had one meaning at the time it was adopted, experience has led us to accept that it is better to read it as meaning something entirely different.

Unconstitutional Contractual Relations? The Emoluments Clause and In re Trump

Pictured at left is the building now known as the Trump International Hotel in Washington, DC, but this photo is from 1911, back when the building housed the post office.  Contractual relations relating to this building are at the heart of  In re Trump, in which the Fourth Circuit, sitting en banc this week denied the President's petition for a writ of mandamus ordering the district court to permit an interlocutory appeal from its refusal to dismiss the case.

Maryland and the District of Columbia brought the suit, claiming that the President's ownership of the hotel, through a business that he controls, violates the Constitution's Foreign Emoluments Clause (Article I, § 9, cl. 8) and the Domestic Emoluments Clause (Article II, § 1, cl. 7).   The heart of the allegations (from the Amended Complaint) run as follows:

President Trump, acting through companies he owns or controls, has violated both the Foreign Emoluments Clause and the Domestic Emoluments Clause by receiving millions of dollars in payments, benefits, and other valuable consideration from foreign governments and persons acting on their behalf, as well as federal agencies and state governments. His repeated, ongoing violations include remuneration derived from: (a) leases of Trump properties held by foreign-government-owned entities; (b) purchase and ownership of condominiums in Trump properties by foreign governments or foreign-government-controlled entities; (c) other property interests or business dealings tied to foreign governments; (d) hotel accommodations, restaurant purchases, the use of venues for events, and purchases of other services and goods by foreign governments and diplomats at hotels, restaurants, and other domestic and international properties owned, operated, or licensed by President Trump; (e) continuation of the General Services Administration lease for President Trump’s Washington, D.C. hotel despite his breach of the lease’s terms, and potential provision of federal tax credits in connection with the same property; and (f) payments from foreign-government-owned broadcasters related to rebroadcasts and foreign versions of the television program “The Apprentice” and its spinoffs. Moreover, President Trump, by asserting that he will maintain the interests at issue, is poised to engage in similar constitutional violations for the duration of his presidency.

The President challenged that suit on various grounds, and the District Court granted the President's motion to dismiss (on standing grounds) as to properties other than the Trump International Hotel in Washington, DC.   The President sought certification for an interlocutory appeal of the district court's decision, which the court denied.  The President than petitioned the Fourth Circuit for a writ of mandamus that would force the district court to allow the case to proceed.  A Fourth Circuit panel not only granted the mandamus petition but ordered the suit dismissed for lack of standing. 

This week's en banc opinion reversed the panel, stressing the extraordinary nature of mandamus relief as a mechanism for challenging a decision within the discretion of a district court.  The majority opinion clearly will not be the last word.  It merely states that, even if the district court's decision to deny the President an interlocutory appeal was clearly erroneous, that error would not justify the grant of a writ of mandamus.  The standard is abuse of discretion, and the district court, even if its decision was incorrect, did not abuse its discretion. The majority acknowledged that the District and Maryland raise novel claims as to standing and as to the ability of courts to imply an injunctive remedy without statutory authorization.  However, the majority did not view those claims as so tenuous as to justify summary dismissal.

But here on the ContractsProf Blog, we are more interested in the District and Maryland's  substantive claims, and it is to be hoped that the district court at least will eventually address the merits of those claims.  It would be nice to know if the Emoluments Clauses are an actual limit on a President's ability to enter into contractual relations with foreign governments or with U.S. governmental agencies.  This issue becomes more acute during the current economic crisis.  The Trump Organization has sought relief from the Trump Administration on its $3 million lease for the Trump International Hotel.  I understand that there are issues of standing and the enforceability of the Emoluments Clause through the courts, but it is hard to read my preceding sentence and not think o tempora o mores!

Unfortunately, it seems that the barriers to getting a judicial answer to the questions at the heart of this case may be insuperable.  In any case, with the en banc court sending the case back to the district court, more than three years into the litigation, we are still pretty much at square one.  The answer may be that the plaintiffs don't have standing or courts cannot invent a remedy where the Constitution does not provide one.  Or the case might become moot because we have a new President before the case can be decided.