Tuesday, February 28, 2023
Tuesday Top Ten - Contracts & Commercial Law Downloads for February 28, 2023
Top Downloads For:
Contracts & Commercial Law eJournalRecent Top Papers (60 days)
As of: 29 Dec 2022 - 27 Feb 2023| Rank | Paper | Downloads |
|---|---|---|
| 1. | 643 | |
| 2. | 266 | |
| 3. | 171 | |
| 4. | 150 | |
| 5. | 120 | |
| 6. | 116 | |
| 7. | 96 | |
| 8. | 92 | |
| 9. | 85 | |
| 10. | 74 |
Top Downloads For:
Law & Society: Private Law - Contracts eJournalRecent Top Papers (60 days)
As of: 29 Dec 2022 - 27 Feb 2023| Rank | Paper | Downloads |
|---|---|---|
| 1. | 186 | |
| 2. | 171 | |
| 3. | 95 | |
| 4. | 67 | |
| 5. | 58 | |
| 6. | 47 | |
| 7. | 24 | |
| 8. | 16 |
February 28, 2023 in Recent Scholarship | Permalink
Jonathan Harris on How to Get out of TRAPs with Consumer Law as Work Law
We've talked about Training Repayment Agreement Provisions or (TRAPs) recently here. Over on the Law and Political Economy Project Blog, Jonathan Harris has a new post on the subject. He tells the story of Breanne Scally and her class-action lawsuit against PetSmart, who worked briefly as a pet groomer and then was charged $5500 under a TRAP when she quit before the TRAP's two year term had expired.
Jonathan also has a forthcoming article, Consumer Law as Work Law (forthcoming Calif. L. Rev. 2024), about how consumer law encompasses protecting employees from TRAPs and other unfair and deceptive acts and practices.
February 28, 2023 in Contract Profs, Current Affairs, Labor Contracts, Recent Cases, Recent Scholarship | Permalink | Comments (0)
Harvard Settles Suits Over Its Response to the COVID Pandemic
As reported by Miles J. Herszenhorn and Claire Yuan in The Harvard Crimson, Harvard students (now Harvard graduates) filed suit beginning in May, 2020, based on Harvard's move to online education in Spring 2020 without a reduction in tuition. The cases evolved into class actions brought by students in all twelve schools within Harvard University. The students sought recovery of $5 million in damages, or 0.01% of Harvard's $53.2 billion endowment as of June 2021 and under 2% of its $283 million surplus during the 2020-21 academic year.
A judge at first dismissed the students clams, but that dismissal was reversed with respect to students enrolled in schools other than the Graduate School of Education, the Law School, and the School of Public Health. In January, Harvard settled with the remaining students. Both sides have been tight-lipped about the details of the settlement.
February 28, 2023 in Current Affairs, In the News, Recent Cases | Permalink | Comments (0)
Monday, February 27, 2023
Eleventh Circuit Reinstates Ph.D. Student's Breach of Contract Claim Against Grand Canyon University
In Young v. Grand Canyon University, Inc. Plaintiff Donrich Young enrolled in a Ph.D. program at Grand Canyon University (GCU). He was told that he would need to complete 60 hours of course work and was promised faculty support so that he could complete his dissertation. He alleges that GCU made it impossible for him to complete his coursework, requiring him to take and pay for additional courses. He sued alleging breach of contract and other claims, but the District Court dismissed his claims.
The Eleventh Circuit upheld the dismissal of his claim that GCU promised a Ph.D. after the completion of 60 course hours, it reinstated Mr. Young's claims about GCU's failure of provide faculty to support. Arizona law applies to Mr. Young's claims. Mr. Young's case began as a proposed class action, but for reasons the case does not make clear, he is now proceeding individually. Given the outcome of the case, there are probably other frustrated Ph.D. candidates out there who may have claims against GCU. Commonality might be a challenge, but this is the ContractsProf Blog, not the ComplexLitigationProfs Blog. In the alternative, perhaps this is something the Department of Education ought to look into. Are federal loans going to universities that are taking students' money based on promises on which they cannot deliver?
The availability of breach of contracts claims by students against their universities varies from state to state, but Arizona law permits such claims. However, contrary to the allegations of the complaint, the Eleventh Circuit found that GCU never represented that students could earn a Ph.D. by completing 60 hours of courses. On the contrary, 60 hours is the minimum.
Things went better for Mr. Young on his lack of faculty support claim. The Eleventh Circuit found that GCU had promised to provide such support and failed to do so in the ways specified in the materials it promulgated which, taken together, constituted contractual promises, at least for the purposes of surviving at 12(b)(6) motion.
Mr. Young's claim on the breach of the implied duty of good faith and fair dealing also survived in connection with the promised provision of faculty support. His claim arising under Arizona's consumer fraud statute failed because he did not meet the heightened pleading standard associated with fraud claims.
The opinion nowhere states what sort of dissertation Mr. Young was seeking. As a holder of Ph.D. from an esteemed university, I frequently come upon students who aspire to be addressed as "Doctor." Many good things came from my seven years of dissertating. I traveled, I made friends for life, I met my wife. Those things are counterbalanced by the fact that I delayed my launch into full-time gainful employment by nearly a decade. To those considering a post-graduate degree, caveat emptor sums up my advice.
February 27, 2023 in Commentary, Recent Cases | Permalink | Comments (0)
Friday, February 24, 2023
Sid DeLong, Caveat Donee
BEWARE OF BITCOIN GEEKS BEARING GIFTS: FRAUDULENT TRANSFERS FROM INSOLVENT DEBTORS MAY BE CLAWED BACK
Sidney DeLong
A few weeks ago, it was reported that the principals of the bankrupt crypto firm FTX made political donations to both parties totaling tens of millions of dollars in the last election cycle.
When FTX went into bankruptcy, some of the politicians who received the “tainted” donations announced that they intended to donate the funds to charity. Those who did so may by now have discovered that their virtuous gesture proved to be quite costly. Under Bankruptcy Code 11 U.S.C. § 548, the trustee can avoid (i.e., reverse) any transfer of funds made by the debtor within one year of the petition if the transfer was made at a time when the debtor was insolvent and if the transfer is made for less than reasonable value. Insolvency is determined on an assets basis at the time of the transfer. 11 U.S.C. § 101 (32). In other words, if FTX made a political contribution at a moment in time when it was later found to have been technically insolvent, then the trustee can claw back the amount of the contribution and the politician who received it is personally liable for its return. A transferee’s duty to turn over such property to the trustee is set forth in 11 U.S.C. § 543. Limited exceptions for gifts to charitable or religious donees are set forth in 11 U.S.C. 548 (a) (2).
Readers familiar with the common law should note that a fraudulent transfer under §548 differs from a fraudulent conveyance in several ways that are relevant to a donee. A person who conveys property with the intention to hinder, delay or defraud their creditors has made a fraudulent conveyance. The recipient of a fraudulent conveyance must, upon demand, disgorge the amount of the conveyance to any creditor of the debtor who establishes that the conveyance when made. There is no indication that FTX made the political contributions as fraudulent conveyances.
By contrast, a fraudulent transfer under the Bankruptcy Act has no intent requirement. It is established purely by the financial facts of the debtor’s insolvency and inadequate consideration paid by the transferee, matters that may be unknown to either party at the time of the transfer. Nor need the transferee be able to foresee that the transferor will declare bankruptcy within a year of the transfer.
Unfortunately for those politicians who may have spent the FTX contributions or donated them to charity, they remain liable to return the transferred funds to the trustee. As expected, the trustee of FTX has indeed announced that it will seek the return of $92 million in funds from the politicians who received contributions from the debtor. The trustee may also trace the funds into the hands of the charities to which they were donated.
Although we all should be aware of the fraudulent transfer risk, this is a risk that really cannot be minimized by careful planning or precautionary record searches. It is impossible for an institution that depends on gifts for its income to eliminate the possibility that a donor may end up in bankruptcy, leaving the institution on the hook for the amount of the gift. And it is certainly impossible to minimize the possibility that a donation may be traceable to an earlier fraudulent transfer to the donor. For wealthy institutions, perhaps it would be prudent to wait for 12 months before spending donated funds if the institution can afford to do so. Otherwise, Caveat Donee.
One might minimize a donee’s complaint at a clawback by the well-known legal principle “easy come, easy go,” even creditors who have been paid valid debts by someone who later files for bankruptcy may be required to return the payment to the trustee if it is held to be a preference under § 547. Law students who plan to practice business, financial, or commercial law are well-advised to take the law school course in bankruptcy whether or not they anticipate practicing in bankruptcy court, if only to help their clients minimize the risk of serious disasters like this one.
February 24, 2023 in Commentary, Current Affairs, In the News | Permalink | Comments (0)
Thursday, February 23, 2023
Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part IV: Nancy Kim
The Dynamic Theory of Contracts
Nancy Kim
There are many theories of contract law but in my opinion the one that best explains what contract law is and what it should be is Professor Mel Eisenberg’s dynamic theory of contracts. Prof. Eisenberg described his theory in a symposium article, The Emergence of Dynamic Contract Law, 88 CAL. L. REV. 1743 (2000) and further expounded on it in his masterful book, Foundational Principles of Contract Law (2018). In his article, Eisenberg states that rather than being used to support doctrine, principles of contract law should reinforce social values. He explains that doctrines are not “self-evident or established by deduction”; rather “social values… underlie doctrinal stability.” (at 1753) In Eisenberg’s view, contract law should be “individualized rather than standardized, subjective rather than objective, complex rather than binary, and dynamic rather than static.” (at 1745)
In Foundational Principles of Contract Law, Eisenberg elaborates on four underlying principles of contract law. These four principles are:
- The aim of contract law should be to effectuate the objectives of parties to promissory transactions, provided appropriate policy and moral conditions, such as freedom from duress and fraud, are satisfied, and subject to appropriate constraints, such as capacity and legality.
This is the first and most basic underlying principle of contract law.
- The conditions to and the constraints on effectuating the objectives of parties to promissory transactions, and the way in which those objectives are to be ascertained, should consist of those rules that best take into account all applicable and meritorious policy, moral, and empirical propositions. When more than one such proposition is applicable a court should exercise good judgment to give each proposition appropriate weight considering the issue at hand and, based on those weights, should either subordinate some propositions to others or formulate a rule that is the best vector of the applicable propositions, given their relative weights and the extent to which an accommodation can be fashioned that reflects those weights.
- Where contracting parties have not explicitly or implicitly addressed an issue, the issue should be governed by a default rule whose content is determined in the same way that the condition to and the constraints on effectuating the parties’ objectives should be determined.
- The remaining rules of contract law- such as those that govern the enforceability of promises, remedies for breach of promise, excuse for nonperformance of enforceable promises, the effect of nonfulfillment of conditions, the rights of persons who are not parties to a contract but would benefit by its performance-should also be determined in the same way.
But how should a court determine the weighting of various policy, moral and empirical propositions? This is where dynamic contract law might appear to stall because it intersects with real world judges who come to the bench with their own worldview and values. Certainly, there is plenty of lip service to the belief that judges only call balls and strikes, but those calls can be pretty subjective. A judge with a law and economics worldview might weigh efficiency more heavily than equity. A judge with a distributive justice worldview might weigh equity more heavily than efficiency or predictability. Dynamic contract law considers a multiplicity of values. Furthermore, rather than relying upon the text as the sole basis for determining contractual obligations, a dynamic approach considers the context of social and business interactions, the background norms and practices that are the implied terms of contracts.
A dynamic approach is reflected in the Restatement Second of Contracts rather than the formalistic approach of the Restatement First. Dynamic contract law prioritizes what the parties expect to get out of the transaction and is manifested by the standard of reasonable expectations. Reasonable expectations essentially starts with the (actual, subjective) intent of the parties, and assesses it within the context of social norms and the need to protect the security of transactions. The contractual language helps prove what those expectations are but is not be determinative if there is other persuasive evidence.
Eisenberg explains that generally there are three basic categories of contract theories: formalist, interpretive, and normative. Formalist theories “treat doctrine as autonomous from policy and morality.” (p. 9) In other words, doctrine is self-evident and axiomatic, and rules are what matters, rather than a way to get to what matters. Interpretive theories seek to rationalize or justify the doctrine. They seek to explain why the law is the way it is, rather than aspire to something better. The problem with interpretive theories is that their application “will often result in an undesirable body of contract law because the aim of the theory is not to produce the best possible contract law but only an intelligible order in the law.” (p. 16). Normative theories seek to formulate “the best possible rules” of contract law. They can be monistic or pluralistic. Dynamic contract law is normative and pluralistic.
But how does dynamic contract law fit into the contracting world we live in today, where adhesive terms hijack people who have no intention of entering into a legally binding “transaction” – who may not read or even see the terms - and where courts recognize those terms as contracts? How can it explain cases like ProCD v. Zeidenberg and Fteja v. Facebook, Inc., which ignore contracting realities and intent? In a world where contracts formed by “reasonable notice and manifestation of consent” vastly outnumber those formed by mutual assent, is dynamic contract law obsolete?
The standard of “reasonable notice and manifestation of consent” used in wrap contract cases (clickwrap, browsewrap, etc) is itself dynamic as it accommodated changes in contracting culture driven by technology. But the way that the standard has been applied often ignored intent and weighed too heavily the values of efficiency and predictability, while ignoring other values. Dynamic contract law starts with intent and while it recognizes the value of efficiency and its role in contracts law, it recognizes other values as well. Dynamic contract law expressly rejects single-value approaches and so does not rationalize or justify the ProCD line of cases that ignore contracting realities and seem to value only transactional efficiency. It is a theory, not magic. It explains what the law and by extension, judges, should do, but it has no power to make them do it.
The early Internet contracting cases reflected a certain judicial unfamiliarity with technology, a reluctance to stifle online commerce, and a deference to a definition of efficiency which was both too narrow (as it was limited to eliminating transactional hurdles) and paternalistic (as it presumed what consumers wanted and ignored what they themselves said they wanted). However, more recent cases have shifted toward an application of the standard that better reflects the online contracting experience and the various considerations raised by a particular contract. More notice is required for certain provisions (e.g. arbitration, fees) than for others (e.g. codes of conduct). Several cases suggest that the blanket assent approach is being replaced, at least in the online context, with a specific assent requirement. The Ninth Circuit, perhaps the most dynamic of courts, in cases like Berkson v. Gogo and the more recent, Berman v. Freedom Financial Network, LLC have taken a close and careful look at the context in which terms are presented, as well as what those terms are. State courts have been even more dynamic in their approach, and have engaged in a careful contextual analysis to determine online assent to specific terms, including the “website flow” and whether the drafter could have presented terms in a more visible manner. The contextual, fact-intensive inquiry that many courts are now engaging in when assessing notice indicates that a course correction is taking place regarding how the standard of reasonable notice and manifestation of consent is being applied. Dynamic contract law is alive and well.
A symposium on Eisenberg’s work would not be complete without at least some discussion of his teaching. I had the great fortune of being a student in Prof. Eisenberg’s small contracts session. I had absolutely no interest in the subject or anything having to do with corporate or business law. Of course, I knew that Eisenberg was a giant of contract law which only made the prospect of being in his small section more terrifying as there would be no place to hide if he called on me.
It was clear that he expected the most from us 1Ls, but his were reasonable expectations -- he was not the kind of professor who sought to dominate or humiliate his students like some Prof. Kingsfield clone. Prof. Eisenberg made the subject of contracts interesting, less about boring fine print and more about the actions (and yes, intent) of people and businesses. His love for the subject was contagious and his kind, respectful, and inclusive manner of soliciting participation made what could have been an intimidating subject my all-time favorite. Notably for such a prolific and serious scholar, Prof. Eisenberg discussed practical issues that I would remember years later as a practicing attorney. Rules such as the parol evidence rule were taught in context, and he pointed out where doctrine (e.g. modifications) could be changed by contract (e.g. a NOM clause) and vice versa, and how both could be affected or altered by legislation. As a teacher, too, Eisenberg’s approach to contract law was dynamic.
Related posts from the Mel Eisenberg Symposium:
Virtual Symposium: Mel Eisenberg and Contracts Law Scholarship
Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part I: Shawn Bayern
Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part II: Douglas Baird
Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part III: Ethan Leib
Posts from the second week:
Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part V: Introducing the Second Week
Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part VI: Mark Gergen
Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part VII: Jennifer Martin
Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part VIII: Harris Hartz
Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part IX: Hila Keren
Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part X(A): Response to Ethan Leib
Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part X(B): Response to Nancy Kim
Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part X(C): Response to Sid DeLong
February 23, 2023 in Books, Commentary, Conferences, Contract Profs, Recent Scholarship, Teaching | Permalink | Comments (0)
Wednesday, February 22, 2023
Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part III: Ethan Leib
My Relationship with Mel Eisenberg About Relational Contracts
Ethan J Leib
When I was a fresh-faced contracts professor in San Francisco, I was lucky enough to be invited to Mel Eisenberg’s class to defend a paper I was then publishing about relational contract theory. It felt exciting to be welcomed to the big leagues by a leading light in the field – but also daunting to be subjected to scrutiny by someone I was criticizing and by someone who knew a lot more contract law than I would ever know. The class was deeply stimulating and the students especially probing and thoughtful. I met a future co-author in that class, an intellectual partnership that continues to inform my scholarship.
But what I remember most – and the thing that shaped me most from that encounter – was Mel’s graciousness in engaging a young punk with sympathy and care. Experiencing someone who knows it all dealing with a know-it-all in a workshop setting provided a model for how I come to workshops today: Is there something I can learn here? Mel showed me how it is done, and I can still remember him asking me seriously rather than facetiously, “Do you think I am making a mistake, and am too rigidly interested in rules rather than standards in my approach to relational contract theory?” He saw intellectual exchange as a way to see his own thinking from others’ standpoints – and more than any specific paper of Mel’s, this is the most important mode of thinking he added to my life back when I was still impressionable.
I’ll admit I came to Chapter 54 of his Foundational Principles of Contract Law hoping to see him convinced by our dialogue. I had tried to impress upon him all those years ago that searching for a “relational contract law” that would apply only to “relational contracts” with specialized rules was not really the objective of a thoroughgoing relational contract theory. Although he was always happy to concede that many contracts do not fit the paradigm of contracts between strangers that occur in a single moment in time in a perfect market, as classical contract law often seemed to assume, he remained skeptical that the acknowledgement that many real-world contracts involve dynamic and ongoing relationships could do more than inform our economics and sociology. In short, he always felt that until one could really successfully define in a legally operationalizable way “relational contracts” there could be no “relational contract law.” In his recent book, he sticks to his guns, highlighting why using duration or incompleteness won’t do the trick in dividing the world between relational and discrete contracts.
I’m sticking to my guns, too. There is nothing legally impossible about a spectrum approach if one is comfortable with loose standards and judicial discretion. Here is what Mel says about that: “Under this approach a contract is characterized as lying at the discrete end of the spectrum if it has less of certain characteristics—for example, less duration, less personal interaction, less future cooperative burdens, and less in the way of units of exchange that are difficult to measure—and as lying at the relational end of the spectrum if it has more.” (735) Mel doubles-down here to say that the spectrum approach works if you are doing economics or sociology but not law: “the enterprise of contract law entails the formulation of rules and a spectrum approach is inadequate to that enterprise because it cannot be operationalized . . . Rules whose applicability depends on how many relational indicia a contract has . . . would be rules in name only.” (735)
By my lights, the law routinely uses a set of indicia to make legal categorizations. Contract and tax lawyers will easily be able to think of the employee/independent contractor distinction as an example (even if they aren’t sure whether it is a 9-factor test, a 20-factor test, or a 3-factor test). Notwithstanding that some want bright-line rules rather than multi-factor analysis, it would be hard not to acknowledge that these efforts to classify workers are legal rather than merely economic or sociological.
Thus it seems to me still, all these years later, that Mel continues to prefer not to adopt the spectrum approach largely because it feels too messy to him and isn’t “rule-like” enough to his taste. There is nothing wrong with that sensibility, of course, but it doesn’t prove that relationalists are unable to advocate for a spectrum approach in the law. I also don’t think the spectrum approach ultimately requires a legal system to proliferate regimes that toggle between different types of contracts necessarily; one could have one law and one “good faith” requirement – and then implement it differentially depending on relational dimensions. What counts as good faith for two companies in a multi-decade relationship may be different from what it requires for two companies in a new venture dealing far at arms’ length.
That seems like a relationalist contract law even Mel could live with – and it doesn’t seem to require a singular technical definition of a relational contract. I always like to point out the first line of Eastern Air Lines, Inc. v. Gulf Oil Corporation to my students: “Eastern Air Lines, Inc. and Gulf Oil Corporation, have enjoyed a mutually advantageous business relationship involving the sale and purchase of aviation fuel for several decades.” Isn’t this just a judge setting the stage for his decision-making by telling us that relationships matter in the application of contract law? Isn’t that enough to help remind us that there is such a thing as relationalist contract law, after all?
Related posts from the Mel Eisenberg Symposium:
Virtual Symposium: Mel Eisenberg and Contracts Law Scholarship
Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part I: Shawn Bayern
Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part II: Douglas Baird
Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part IV: Nancy Kim
Posts from the second week:
Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part V: Introducing the Second Week
Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part VI: Mark Gergen
Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part VII: Jennifer Martin
Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part VIII: Harris Hartz
Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part IX: Hila Keren
Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part X(A): Response to Ethan Leib
Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part X(B): Response to Nancy Kim
Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part X(C): Response to Sid DeLong
February 22, 2023 in Books, Commentary, Conferences, Contract Profs, Famous Cases | Permalink | Comments (1)
Tuesday, February 21, 2023
Tuesday Top Ten - Contracts & Commercial Law Downloads for February 21, 2023
Top Downloads For:
Contracts & Commercial Law eJournalRecent Top Papers (60 days)
As of: 23 Dec 2022 - 21 Feb 2023| Rank | Paper | Downloads |
|---|---|---|
| 1. | 618 | |
| 2. | 249 | |
| 3. | 167 | |
| 4. | 137 | |
| 5. | 119 | |
| 6. | 95 | |
| 7. | 94 | |
| 8. | 86 | |
| 9. | 81 | |
| 10. | 67 |
Top Downloads For:
Law & Society: Private Law - Contracts eJournalRecent Top Papers (60 days)
As of: 23 Dec 2022 - 21 Feb 2023| Rank | Paper | Downloads |
|---|---|---|
| 1. | 174 | |
| 2. | 167 | |
| 3. | 91 | |
| 4. | 56 | |
| 5. | 43 |
February 21, 2023 in Recent Scholarship | Permalink
Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part II: Douglas Baird
Unscrambling Excuse
Douglas Baird
The domain of classical contract law has discrete boundaries and hard edges. Legally enforceable promises are limited to bargained-for exchanges. There must be an offer and an acceptance. A contract exists, or it does not. You receive expectation damages or nothing. Such rigid traditionalism, however, no longer captures what contract law is about, if it ever did. Mel Eisenberg’s corpus, in particular his exemplary work on excuse, makes this manifest. See Melvin A. Eisenberg, Impossibility, Impracticability, and Frustration, 1 J. Legal Analysis 207 (2009).
Boundedly rational parties do not always precisely spell out their contracts to account for the unexpected, and hence promises that appear unqualified on their face should not be understood literally. If a bargain rests upon assumptions about future states of the world, the deal is sensibly called off if those assumptions for unexpected reasons do not hold. You agree to rent my theater for an evening and, through no fault of mine, it burns down. In this event, we each should go our separate ways. Similarly, if I have an apartment that overlooks the King’s coronation, and you are eager to see it, it is too bad for both of us if the event is called off. I lose the handsome sum from letting out my apartment for a day, and you lose the chance to entertain your friends with a spectacular view of the pageant.
Frustration and excuse are heavily fact dependent. The doctrine in the first instance is merely a default term. Dickered contracts contain elaborate force majeure clauses. We can spill ink over what counts as excuse or frustration, but Mel Eisenberg shows that this is not what is conceptually hard. The problem comes from what happens next. Money may have changed hands, and both parties might have spent money in reliance on the contract. Unexpected events typically bring with them a loss, and someone must bear it. This makes it fruitless to reduce excuse and frustration to a simple yes/no, on/off affair. Any coherent account of excuse and frustration must couple the finding of excuse or frustration with the appropriate relief. The egg must be unscrambled.
It is well accepted that restitution operates in this environment. If one party pays the other in advance, that party should be able to get its money back. But beyond this, much hard thinking needs to be done. It might seem that reliance damages should have no role to play. Both parties to a contract spend money in anticipation of the performance, and it makes little sense for each party to hold the other liable for her expenses. But the two parties do not necessarily stand in symmetrical positions. Often it is too simple to say that no one was responsible. The theater owner, while not at fault, controlled the theater and had some capacity to reduce the chance of fire. Even when excuse applies, some parties may be more at fault or better positioned than another.
Mel Eisenberg (right) draws on a series of old Massachusetts cases to shed light on the problem. A general contractor’s contract to build a hospital was cancelled and awarded to another bidder instead. The general contractor then faced its own subcontractors, and the doctrine of excuse applied. The general contractor could not be sued for expectation damages. The cancelation of the main contract called off the contract between the general contractor and the subcontractor. At the same time, however, the general contractor was, at least to some extent, responsible for the contract being voided. The subcontractor should be able to recover some of its reliance expenditures. See Albre Marble and Tile Co., Inc. v. John Bowen Co., 338 Mass 394 (1959).
What remains a mystery is how far this idea extends. The testing excuse case is one in which the unexpected event keeps both parties from performing and money passes from one to the other. Consider two singers. They agree to perform together at a specific time and specific venue and then split the gate. One singer faces $100 in expenses that the other does not. To ensure that they come out even in the end, the second singer gives $50 to the first. An unforeseeable act of God renders the venue unusable and the joint performance is cancelled. What happens now? If the first singer had been spent none of the $100 she received from the second, the second singer should have a restitution action for $50. But what if the $100 has been spent? Does the second singer still get her $50 back? It might seem that the two singers invested in a joint enterprise and should share the losses equally.
Assume that your intuition suggests that the losses should be shared in this case, and the second singer is not entitled to recover the $50 she gave to the first. How much does one have to change the facts to alter your intuition and for you to find that one party can recover what she has given the other notwithstanding the expenses the other has incurred? Consider, instead of two singers, there is a couple that engages a restaurant for their wedding reception and pays in advance. Power is lost halfway through the event. It is not the fault of either party, and the contract explicitly lists a power failure as an event of excuse. The unhappy wedding couple can obtain restitution of the money they gave to the venue less any benefit they received before the power failed. Facto v. Pantagis, 915 A.2d 59 (N.J. App. 2007). But does it make sense that the venue bears the entire loss for the food that is uneaten and has to be thrown out?
I suspect that many share my intuition that the couple should have an easier time recovering the money they have paid notwithstanding the substantial loss the restaurant faces, but how is the restaurant different from the first singer? English law allows some account to be taken for the out-of-pocket reliance costs as an offset against restitution in excuse cases. See Gamerco SA v. ICM/Fair Warning (Agency) Ltd., [1995] E.M.L.R. 263 (High Court, Queen’s Bench). But when exactly should this happen?
The genius of Mel Eisenberg’s work here, as elsewhere, shows how best to cope with such questions. He does not confront this problem in particular, but his work does suggest, perhaps, that regardless of where one draws the line, the wedding couple has a better chance of recovery than the first singer. To be sure, the restaurant is not at fault for the power failure. If it were, there would be no excuse. Nevertheless, it is possible to lay some responsibility at its doorstep, and it is not something that rigid formalism should require us to ignore. Again, the law of excuse, like the law of contract, need not be a rigid, yes/no, on/off affair.
Related posts from the Mel Eisenberg Symposium:
Virtual Symposium: Mel Eisenberg and Contracts Law Scholarship
Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part I: Shawn Bayern
Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part III: Ethan Leib
Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part IV: Nancy Kim
Posts from the second week:
Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part V: Introducing the Second Week
Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part VI: Mark Gergen
Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part VII: Jennifer Martin
Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part VIII: Harris Hartz
Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part IX: Hila Keren
Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part X(A): Response to Ethan Leib
Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part X(B): Response to Nancy Kim
Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part X(C): Response to Sid DeLong
February 21, 2023 in Commentary, Conferences, Contract Profs, Famous Cases | Permalink | Comments (2)
Monday, February 20, 2023
Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part I: Shawn Bayern
Contracts as Contracts
Shawn Bayern
Despite—or maybe because of—its richness as a legal subject, there has been a persistent attempt to reduce contract law to simple or even singular propositions. In Contract as Promise, Charles Fried aimed to explain contract law in terms of the morality of promises. Based I think on Fried’s title, many articles have been titled in the same pattern, presenting contracts as something else. Not all of those articles are reductive, but their titles perhaps reflect a commonplace impulse to argue that contract law has some singular purpose that can be achieved in a straightforward way.
In this post I want to highlight three related lessons I have learned from Mel Eisenberg’s work. They each resist the tendency to oversimplify contract law.
The first lesson is that no singular discipline or methodology—for example, no isolated axiomatic, economic, or philosophical approach—is sufficient to describe or justify the rules of contract law. Classical contract law was an elaborate system of axioms; it has eroded, as Mel’s work has shown in detail, because it was not responsive to social propositions—like business norms, moral norms, and policy. There is little reason to apply a rule just because professors in 1880 thought it was “logical,” particularly when they assumed potentially arbitrary premises. Law is not imposed on us by aliens or by the past, and its goal is not to make professors happy when they admire its structure or simplicity.
Unlike the old axiomatic commentators, the Chicago-style law-and-economics analysis of law pays attention to policy—but only to one kind of policy and only in its own limited way. Like the axiomatic scholars, the more militant forms of the law-and-economics movement have tended to assume their conclusions—just in more sophisticated ways. Also, the movement for the most part ignores morality, which Mel’s work has shown is another important pillar of contract law.
Modern philosophical attempts to unify or reduce contract law suffer from similar problems, either because they focus too much on a single moral proposition (rather than many) or because they try to analyze contract law at the wrong level of generality. For example, when legal philosophers try to connect contract law to abstract and high-level values, like liberal democracy, they tend not to do very well. I once mentioned this last point to Mel, observing that it was odd to try to defend modern contract law in terms specifically of the values of liberal democracy, because the common law didn’t arise in such a political system and because many rules of contract law are arguably functionally similar around the world (though they can be discussed with very different terminology). Mel responded, with his characteristic humor and insight, by saying something like: “People still want to make money in a dictatorship.”
The second lesson is that to explain and improve law, we need imagination; relying on convention alone isn’t enough. Many of the errors of the classical axiomatic scholars seem to have arisen just from conceptual blinders—taking something conventional as if it were mandatory. For example, in a well-known exchange on the floor of the ALI, Williston seemed to express the belief that a contract either must be enforceable by expectation damages or not enforceable at all; there was no middle ground. As it happens, this appears to be a commonplace mistake; I have seen students make it, for example—that is, I have seen them regard Williston’s idea on the point as intuitive and obviously right. But clearly there is no absolute restriction against, say, reliance damages or some other enforcement mechanism; there at least is a debate to be had about remedies.
In his work, Mel has argued specifically against “binary” conceptions of the law—the idea that rules must have an “on/off” quality, with no middle ground—and I take his work to be an example of the proposition that there is often further imaginative work to do in improving law. Features of some legal rules may represent zero-sum games, but the law as a whole is not zero-sum in the same way, and thoughtful new ideas to analyze doctrine can work like any other development in technique, technology, or art.
The third lesson is that law is dynamic—it must change because society changes. In civil-law systems particularly, but also in much commentary on the common law, people talk as if “certainty” is a first-order goal for the law on its own—and maybe for some people it is even the primary value of the law. On the contrary, certainty is useful or right only because of other values that it serves as a shorthand or proxy for; for example, undermining parties’ reasonable reliance on a rule is unfair. If we really believed certainty were as important as some legal commentators say it is, we would (for example) outlaw all technological and social progress.
The vision of contract law that Mel’s work points toward is one that is responsive to social concerns and dynamic in the face of change. Contract law in particular has changed markedly in the last 100 years, which is fortunate because many and perhaps most of the rules in contract law 100 years ago were entirely wrong—as Mel has, again, shown in detail.
To be clear, the absence of grand theories does not imply the absence of principle. Instead, what Mel did over decades was to develop, systematically, analyses that elaborated and expanded principles. His work in contract law charts new but always meticulously justified categories of cases. It explains sound cases but is willing to reject wrongly decided ones. It incorporates insights from other disciplines but doesn’t accept their purported conclusions uncritically. It always exercises judgment.
In the end, contract law isn’t more or less than contract law, and contracts are contracts—not just promises, not easily explained as property or through tort law, not all reducible to simple propositions of college-level economics. If nothing else, maybe in honor of Mel’s work we can give up the series of article titles that treat contract law as if it must really be something else.
Related posts from the Mel Eisenberg Symposium:
Virtual Symposium: Mel Eisenberg and Contracts Law Scholarship
Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part II: Douglas Baird
Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part III: Ethan Leib
Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part IV: Nancy Kim
Posts from the second week:
Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part V: Introducing the Second Week
Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part VI: Mark Gergen
Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part VII: Jennifer Martin
Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part VIII: Harris Hartz
Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part IX: Hila Keren
Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part X(A): Response to Ethan Leib
Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part X(B): Response to Nancy Kim
Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part X(C): Response to Sid DeLong
February 20, 2023 in Commentary, Contract Profs | Permalink | Comments (0)
Virtual Symposium: Mel Eisenberg and Contracts Law Scholarship
This week we kick off a virtual symposium on the contracts scholarship of Mel Eisenberg (left). For readers unfamiliar with Professor Eisenberg's work, we recommend his 2018 Foundational Principles of Contract Law as a great way to learn contracts law from one of the generational giants in the field. The book is comprehensive, and at 900 pages, it may not be the sort of thing you want to read cover-to-cover, but it is a great thing to have on your shelf and to pull off as you are preparing to teach your contracts class and are looking for a new perspective on familiar material.
The symposium will feature guest posts by some of Professor Eisenberg's students and colleagues. Some of the posts will discuss specific chapters of Foundational Principles, others will provide thoughts on other aspects of Professor Eisenberg's writings on contract law, and some will also include personal reflections on what it is like to work and interact with Professor Eisenberg as a colleague, mentor, and scholar.
This week will feature guest posts from the following scholars:
Shawn Bayern is the Larry and Joyce Beltz Professor of Torts and Associate Dean for Academic Affairs at the Florida State University College of Law. Professor Bayern's research focuses on common-law issues, primarily in contracts, torts and organizational law. He has recently written articles criticizing formalism and economic simplifications of the law. He teaches Torts, Contracts, Agency & Partnership and other related courses. In addition to his numerous law review articles, Professor Bayern has published three books (one co-authored with Mel Eisenberg) and has three more forthcoming!
Douglas Baird is the Harry A. Bigelow Distinguished Service Professor at the University of Chicago and Chair, National Bankruptcy Conference. Baird received his undergraduate degree from Yale University summa cum laude and his J.D. from Stanford. He joined Chicago’s faculty in 1980 and served as its Dean from 1994 to 1999. He is the editor of the eleventh edition of the Dawson & Harvey contracts casebook and the author of Reconstructing Contracts (Harvard University Press 2013). We have previously highlighted Professor Baird's outstanding contracts scholarship on the blog here.
Ethan Leib is the John D. Calamari Distinguished Professor of Law at Fordham Law School. He teaches in contracts, legislation, and regulation. His most recent book, Friend v. Friend: Friendships and What, If Anything, the Law Should Do About Them, explores the costs and benefits of the legal recognition of and sensitivity to friendship; it was published by Oxford University Press. Leib’s scholarly articles have recently appeared in the Yale Law Journal, Virginia Law Review, Georgetown Law Journal, University of Pennsylvania Law Review, University of Chicago Law Review, California Law Review, and elsewhere. He has also written for a broader audience in the New York Times, USA Today, Policy Review, Washington Post, New York Law Journal, The American Scholar, and The New Republic.
Nancy Kim is the inaugural Michael Paul Galvin Chair in Entrepreneurship and Applied Legal Technology at the Chicago-Kent College of Law. Professor Kim's scholarship focuses on consent, contracts, privacy, and the effect of technology on society, and she has written dozens of scholarly articles and essays on these subjects. She is also the author of the books, Consentability: Consent and Its Limits (Cambridge University Press, 2019); The Fundamentals of Contract Law and Clauses (Edward Elgar, 2016); and Wrap Contracts: Foundations and Ramifications (Oxford University Press, 2013). Professor Kim’s scholarship has been cited by federal courts and in legal treatises, and she is a frequently quoted in the media, including the New York Times, NPR, the Los Angeles Times, and Popular Mechanics.
Professor Kim received her J.D. degree from the UC Berkeley School of Law where she was an associate editor of the California Law Review, and her LL.M. degree from the UCLA School of Law where she was a Ford Foundation Fellow. Kim was also a Women’s Law and Public Policy Fellow at Georgetown University Law Center. She graduated Phi Beta Kappa from UC Berkeley with a B.A. in Rhetoric and a minor in French. She is the author of two novels.
We look forward to an exciting week of contributions from our guest bloggers!
Related posts from the Mel Eisenberg Symposium:
Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part I: Shawn Bayern
Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part II: Douglas Baird
Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part III: Ethan Leib
Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part IV: Nancy Kim
Posts from the second week:
Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part V: Introducing the Second Week
Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part VI: Mark Gergen
Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part VII: Jennifer Martin
Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part VIII: Harris Hartz
Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part IX: Hila Keren
Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part X(A): Response to Ethan Leib
Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part X(B): Response to Nancy Kim
Virtual Symposium on the Contracts Scholarship of Mel Eisenberg, Part X(C): Response to Sid DeLong
February 20, 2023 in About this Blog, Books, Conferences, Contract Profs, Recent Scholarship | Permalink | Comments (0)
Friday, February 17, 2023
Teaching Assistants: Victor Goldberg on The Golden Victory
This is the third in our series of posts on Victor Goldberg's second volume of collected essays on contracts law, Rethinking the Law of Contract Damages (RLCD). Links to previous posts on the first volume, Rethinking Contract Law and Contract Design (RCL), can be found here. Today's post covers the second chapter of RLCD.
In his chapter on The Golden Victory [2007] UKHL 12; [2007] 2 WLR 691, Professor Goldberg again illustrates why the best way calculate damages for breach of a long-term commercial contract is to determine the value of the contract as an asset at the time of the breach (or the time repudiation is accepted by the non-breaching party). The Golden Victory involved a seven-year time charter of a shipping vessel, which began in 1998 and was to terminate in 2005. The charterer repudiated in 2001. An arbitrator determined that there had been breach in 2002. The award was not calculated until late 2004, and in the interim the second Persian Gulf War broke out, which would have triggered a clause in the time charter that permitted termination in case of war or hostilities between named states, including the United States and Iraq (RLCD 36-37).
The House of Lords, in a 3-2 decision, determined that damages must take into account the fact that the United States' invasion of Iraq in March, 2003 would have triggered a right of termination regardless of the breach, and therefore reasoned that granting damages beyond that point would result in a windfall to the owner. This seems obviously daft. If damages were determined in 2002, they would have compensated the owner for the full term of the time charter, but they also would have taken into account that the allocation of risk between the parties meant that the value of the time charter might be something less than the most advantageous recovery sought by the owner. That allocation of risk would include the chance of war or hostilities but also the chance of numerous other contingencies that the parties anticipated might have occurred but did not occur. The amount of damages should not turn on what the adjudicator knows at the time of the award; it should turn on what can can be known about the value of the contract at the time of the breach (RLCD 37-39).
Professor Goldberg discusses, Flame v. Glory Wealth, which seems to take the mistake of The Golden Victory one step further. In Flame a charterer repudiated a contract based on its belief that the owner, due to its deteriorated financial position, would not be able to provide the vessels it required. The owner's position had deteriorated because the collapse of Lehman Brothers had resulted in a 75% decline in the market for freight. Here we have a dispute involving a fact in control for the non-breaching party (RLCD 39).
The court determined that Glory Wealth suffered no loss because it indeed could not have supplied the vessels. Professor Goldberg argues that, having taken a short position in vessel market, its position was not as dire as the court assumed, and granting it recovery that reflected the discounted market value of contract at the time of the repudiation would not have resulted in a windfall to Glory Wealth (RLCD, 40). There would be no injustice if the repudiating party paid for its breach. Its "decision to breach is evidence of its contemporaneous belief in the owner's ability to perform" RLCD 41).
In The Golden Victory, the court awarded lessened damages because of an event that it knew had taken place but that seemed unlikely at the time of the breach. In Bunge SA v. Nidera BV, the court similarly bungled the damages award in a case in which both parties knew that a bargained for right of termination was likely to be triggered. In that case, a decision by the Russian government to place an embargo on wheat exports triggered a right of cancellation. Under the contract, a delivery of wheat was to be made at the end of August. Buyer, citing the Russian legislation, cancelled the contract on August 9th, and this repudiation was accepted on August 11th (RLCD, 41).
Here again, the UK Supreme Court followed The Golden Victory and awarded nominal damages of $5. It did so notwithstanding the parties' "damages clause" which specified that damages should be the contract-market differential at the time of the breach (RLCD, 42). The court just could not accept that the clause could apply in these circumstances.
The case thus illustrates two of Professor Goldberg's themes. First, courts err in associating the value of the contract with the value of the goods at issue at the time of the award rather than considering the value of the contract as an asset at the time of the breach. In so doing, they should not consider subsequent events. Second, courts err in refusing to respect the allocation of risk to which sophisticated parties have agreed. Courts apply the default damages rules that they have devised, even if those rules are daft and even when the parties have chosen to depart from those daft default rules. "Properly understood, the compensatory principle would compensate the promisee for the change in value of the contract at the time of the breach."
Below are links to previous posts on RLCD and the first post links to post posts on RCL:
Teaching Assistants: Victor Goldberg, Volume II, An Introduction
Teaching Assistants: Victor Goldberg on Valuation of the Contract as an Asset
February 17, 2023 in Books, Commentary, Contract Profs, Famous Cases | Permalink | Comments (3)
Thursday, February 16, 2023
Guest Post by Otto Stockmeyer on Wood v. Boynton and Murph the Surf
Otto Stockmeyer (left) has taught at the WMU-Cooley Law faculty since 1977. He has also taught as a visiting professor at California Western School of Law and Mercer University Law School, and in the "Down Under" Foreign Study Program. He has taught Contracts, Criminal Law, Equity/Remedies, Legal Writing, and Research & Writing
A three-time recipient of the Stanley E. Beattie Teaching Award, Professor Stockmeyer was named national Outstanding Professor in 1985 by Delta Theta Phi Law Fraternity. He has also received the Socrates Award from the Hellenic Bar Association and the Student Bar Association's first Barrister Award.
Professor Stockmeyer is the editor and co-author of the book Michigan Law of Damages (1989) and is the author of articles in a wide variety of professional journals and newsletters. He is a past president of Scribes — the American Society of Legal Writers. In 2009, he was named to the ABA Communication Skills Committee. You can find his recent publications on SSRN.
A former president of the Michigan State Bar Foundation, Professor Stockmeyer has also served on the State Bar Board of Commissioners and in the ABA House of Delegates. He is a Life Fellow of the Michigan and American Bar Foundations and was named Professional of the Year by the Michigan Association of the Professions.
The Lansing State Journal recognized Professor Stockmeyer in 1988 as one of mid-Michigan's "88 Greats" for his service to the community and the legal profession. He was profiled in Michigan Lawyers Weekly as one of Michigan's "Leaders in the Law" in 2005.
Professor Stockmeyer's post follows:
I haven’t taught Wood v. Boynton in a decade. But I remain intrigued by its dramatic backstory. So I was excited to learn that MGM+ is streaming a four-part series on the life of Jack Roland Murphy: “Murf the Surf: Jewels, Jesus and Mayhem in the USA.”
Episode 1, “The Heist,” covers Jack’s sensational 1964 theft of world-renown gems. His haul included the “Eagle Diamond” (left), the mystery stone at issue in Wood’s case. Presumably upcoming episodes will detail Jack’s subsequent major life events: a double-murder conviction, self-proclaimed prison conversion, parole, ministry, and recent death.
I prefer the less-dramatic 1992 American Justice documentary “Murph the Surf” (Season 1, Episode 3). It’s narrated by lawyer-commentator Bill Kurtis. A 1975 movie (“Live a Little, Steal a Lot: The True Story of ‘Murph the Surf’”) is also based on his exploits. Whether “Murf” or “Murph,” Jack Murphy led a cinematic life, for sure.
My blog post “The Adventure of the One-Dollar Diamond“ includes links to more information on Wood’s aftermath. I should have included Jack’s slim autobiography “Jewels for the Journey” (1989).
February 16, 2023 in Contract Profs, Famous Cases, Film, Television | Permalink | Comments (0)
Wednesday, February 15, 2023
From the Frying Pan of Non-Competes into the Fire of TRAs/TRAPs
We wrote about non-competes as recently as Monday. Previously, we featured a guest post by Jonathan Harris (left) about news ways employers are finding to bind workers to their positions without non-competes.* Now, Karla L. Miller of The Washington Post has also got wind of Jonathan's work, and she's written about it here (if you don't subscribe, you can do the next best thing and follow her Twitter feed here).
The story focuses on a dog-trainer. She learns how to train work detection dogs that can sniff out drugs, bombs, or bedbugs. Bedbugs?!? In order to get what seemed like a fun job, the trainer had to sign on for three years. If she quits before her three-year term is up, she has to pay the company $35,000 to reimburse it for the training she has received. The is a Training Repayment Agreement (TRA), also known as a Training Repayment Agreement Provision (TRAP). The "training" consists of her employers treating her shabbily and yelling at her for every mistake. She is miserable and wants to leave but cannot afford to do so. According to Jonathan Harris, TRAPs are on the rise in many categories of high-turnover, low-pay jobs, including transportation, health-care, retail, construction, and service industries.
The article also quotes from Rachel Dempsey (right), an attorney with Towards Justice, which together with the Student Borrower Protection Center, is representing workers subject to TRAPs. The employers who are the targets of these lawsuits are charging workers for training that the companies themselves provide. It is not as if the workers are getting degrees or certificates that would be valuable to them in seeking future employment. The dollar value of on-the-job training is likely minimal and certainly well shy of the $5000-$35,000 that employers seek to claw back from departing employees.
Moreover, the commitment is one-sided. Employees have to pay if they leave -- and in some cases, even if they are fired -- but employers are under no obligation to retain employees until the end of their term of indentured servitude. Unconscionability perhaps? The circumstances under which employees agree to TRAPs have some indicia of procedural unconscionability. The one-sidedness of the provisions suggests substantive unconscionability. Rachel Dempsey points out that TRAPs may also violate state or federal statutes.
California and Connecticut already impose limits on the enforceability of TRAPs. The new FTC rules on non-competes might also cover schemes like TRAPs that have the same effect, and the CFPB is also considering regulation in this area.
* Via SSRN, I just learned of this nifty short piece that Jonathan published in the Northwestern University Law Review's blog, Of Note.
February 15, 2023 in Contract Profs, Current Affairs, In the News, Labor Contracts | Permalink | Comments (0)
Tuesday, February 14, 2023
Tuesday Top Ten - Contracts & Commercial Law Downloads for February 14, 2023
For this Valentine's Day, consider giving the contract prof in your life the gift of great new scholarship. Sound intriguing? We thought so, and it just so happens that we have a shopping list right here, courtesy of our friends at SSRN!
Top Downloads For:
Contracts & Commercial Law eJournalRecent Top Papers (60 days)
As of: 16 Dec 2022 - 14 Feb 2023| Rank | Paper | Downloads |
|---|---|---|
| 1. | 579 | |
| 2. | 231 | |
| 3. | 161 | |
| 4. | 121 | |
| 5. | 118 | |
| 6. | 91 | |
| 7. | 86 | |
| 8. | 80 | |
| 9. | 65 | |
| 10. | 63 |
Top Downloads For:
Law & Society: Private Law - Contracts eJournalRecent Top Papers (60 days)
As of: 16 Dec 2022 - 14 Feb 2023| Rank | Paper | Downloads |
|---|---|---|
| 1. | 161 | |
| 2. | 75 | |
| 3. | 53 | |
| 4. | 41 |
February 14, 2023 in Recent Scholarship | Permalink
Electricity! Good? No Good?
When I first started teaching Sales, I used the Whaley/McJohn casebook, and I loved it. It has fun problems, and there are clear answers. Is electricity a good? You might ask. Whaley/McJohn has an answer: the vast majority of courts have determined that electricity is moveable ("and how!"). Works for me. My current casebook is wise to the complexities of the world and refuses to take a position on whether electricity is a good. What would Ben say?
In the most recent case on the subject, PacifiCorp v. N.Pac. Canners & Packers, Inc., the Federal District Court for the District of Oregon answers the question decisively in the negative. The District Court was reviewing a decision of the bankruptcy court. The issue was whether electricity was a good for the purposes of Bankruptcy Code, 11 U.S.C. § 503(b)(9). The priority of PacifiCorp's claim turned on the answer. The Bankruptcy Code does not define "goods," and so the court turned to the UCC definition of a good: “all things (including specially manufactured goods) which are movable at the time of identification to the contract for sale” U.C.C. § 2-105(1).
The Bankruptcy Court reasoned as follows:
Electricity moves through the wire at near the speed of light and so by the time it is recorded by the meter, the electricity has already been consumed by the end user. As a result, the electricity “is not movable at the time of identification because it has already been used.”
Huh?
The District Court adds very little to this logic in upholding the decision:
Electricity is not “identified” until it has been recorded by the meter and, because of the speed that electricity moves through the wire and the comparative slowness of the meter, the electricity has been consumed by the time that identification occurs. The electricity is not, therefore, movable at the time of identification.
It's fast, so it doesn't move. Got it.
I read this with no small amount of perplexity. I shared my frustration with a colleague, who does criminal law. She had strong views that electricity was not a good. "Is wind a good? It moves." I am stumped. The CISG does the sensible thing and simply handles the matter with a definition: Electricity? Not a good, or at least not covered by the CISG (Art. 2(f)).
Works for me. Hey UCC revisers! A little help here?
February 14, 2023 in Commentary, Recent Cases | Permalink | Comments (2)
Monday, February 13, 2023
The State of the Union and Non-Competes
I have been writing a lot lately about non-competes. So I was a bit annoyed when that word showed up as a pangram on Saturday. First off, I was annoyed because I think it's hyphenated, and Sam Ezersky doesn't usually allow us to use hyphenated words. Worse, it was one of five pangrams on Saturday. It was the only one that I didn't get, and my non-lawyer wife got it!!! Argh. She is the poet in the family, and of course I don't lord it over her when I find 'villanelle" or "iambic" any more than the situation requires, but I will never hear the end of this one. Ugh.
There was some consolation.
Segueing from the state of the Spelling Bee to the State of the Union, friend of the Blog, Timothy Murray shared with us the following excerpt from last week's State of the Union Address, which touches on a subject (non-competes) that we blogged about recently here and here:
f
For too long, workers have been getting stiffed, but not anymore.
We’re beginning to restore the dignity of work.
For example, I should have known this but I didn’t until two years ago: 30 million workers had to sign noncompete agreements with the jobs they take. Thirty million. So a cashier at a burger place can’t walk across town and take the same job at another burger place to make a few bucks more. It just changed — well, they just changed it because we exposed it. That was part of the deal, guys. Look it up.
But not anymore.
We’re banning those agreements so companies have to compete for workers and pay them what they’re worth.
Tim Murray wonders how many cashiers are going to benefit from the administration's plan to prohibit non-competes. If they are subject to non-competes, are the burger joints of the world really enforcing them? I have had encounters with hair stylists/barbers who work for places like HairCuttery or SuperCuts and are made to sign non-competes. I think those might be enforced or they might have an in terrorem effect rendering enforcement unnecessary. It will be interesting to see how service industries adjust if the new FTC rule goes into effect.
As we will see in Wednesday's post, the response has already begun.
February 13, 2023 in Commentary, Current Affairs, Food and Drink, In the News | Permalink | Comments (0)
Friday, February 10, 2023
Teaching Assistants: Victor Goldberg on Valuation of the Contract as an Asset
Last week, we resumed our series of posts on Victor Goldberg's collected writings on contracts. Links to previous posts on Rethinking Contract Law and Contract Design (RCL) can be found here. Last week's post was the first in a new series of posts on the second volume, Rethinking the Law of Contract Damages (RLCD). Today's post covers the first chapter of RLCD.
Expectation damages are the standard measure of contracts damages, and they put a party in as good a position as they would have been had the promise been performed. But how does one measure expectation? Professor Goldberg proposes that the best way to do so is to value the contract as an asset and seek to restore to the non-breaching party the value of the asset at the time of the breach. He illustrates this approach in connection with concepts of cover, lost profits, and mitigation.
As to cover costs, Professor Goldberg begins with a discussion of the controversy over UCC sections 2-706 and 2-708, which seem to give the non-breaching seller the option of choosing between contract price and market price at the time of the breach or contract price and market price at the time of sale. It seems like using the latter could result in a windfall to the seller if the price rises after sale. Courts seem to allow it, and this has always annoyed me. For Professor Goldberg, the issue is simple. Give the seller the value of the contract at the time of the breach. If the price has dropped, seller may choose to recover the certainty of expectation damages, and Professor Goldberg notes that a seller that recovers expectation damages from a breaching buyer under § 2-708(1) retains the goods. If the seller then sells those goods at a price above the contract price, the result is the same as if the seller had waited and recovered the difference between contract price and re-sale price under § 2-706. E.g., a seller may have a contract to sell goods for $100,000. When the buyer breaches, the market price is $70,000. Seller can recover $30,000 in expectation damages, but he might then re-sells the goods six months later for $120,000. The outcome is the same if we take the difference between re-sale price and contract price. In both cases seller gets $120,000 for the goods (RLCD, 4-9). No windfall; no tension between the sections. Eureka!
Professor Goldberg also notes in passing the reason why buyers' remedies are more limited than sellers. The court in Peace River Seed Co-operative explained the difference in terms of the conjunctions used in Article 2. "The issue was not grammar," Professor Goldberg observes, "it was economics" (RLCD, 7-8).
As to anticipatory repudiation where the court decision comes after all performance was due, Professor Goldberg argues that damages should be reckoned from the time the repudiation was accepted (or deemed accepted) (RLCD, 10). This accords with the general approach of awarding damages that treat the contract as an asset. In cases of repudiation, the cover price is often good evidence of that value (RLCD, 15), but is not the only evidence, and so we ought not to become overly enamored of cover. Yet Professor Goldberg concedes that calculation of damages in this context can be challenging, especially in thin markets (Id.).
The challenge becomes more daunting when a party repudiates a twenty-year contract in year three. To make matters worse, the contract might not be for a fixed quantity and the price might be variously indexed. Courts attempt to value the goods at the time of the repudiation, but that is a mistake. What they need to do is value the contract at the time of the repudiation (RLCD, 16). Judge Richard Posner (left) took this approach in NIPSCO v. Carbon County Coal (RLCD, 17). Courts struggle to fit such contracts into the boxes provided in UCC damage provisions.
"Take-or-pay" contracts, in which parties commit to buying a certain quantity or, in the alternative, to pay for a percentage of the contract quantity at a certain price, pose special challenges. Here too, courts err in trying to figure out the price of the underlying commodities rather than trying to value the contracts as assets, taking all of their components into account (RLCD, 17-23).
On the whole, the UCC's damages provisions work well enough when the problem is shortfalls in installment contracts. But courts struggle with repudiations of long-term contracts, because the UCC's damages provisions do not address fluctuating quantities, and it ignores relevant contractual provisions, like termination rights and price re-determination rights. And overall, the model is incorrect to the extent that it focuses on the valuation of the goods rather than the valuation of the contract as an asset (RLCD 24-25).
Professor Goldberg's approach to minimum quantity contracts, such as that at issue in Lake River Corp. v. Carborundum, another Posner decision previously discussed in Chapter 7 of RCL, is essentially the same:
The damages should be the change in the value of the contract at the moment of repudiation -- the present value of the difference in expected cash flows. That would be based on the projected market-contract price differential or the lost profits, depending on whether the seller could do something else with the goods in the remaining years (RLCD, 30).
Professor Goldberg entertains the possibility of alternatives. Courts could order specific performance, although Judge Posner gave good reasons why doing so was less than ideal in NIPSCO. But an order of specific performance can be a good way to foster settlement, and Professor Goldberg thinks the parties might do a better job valuing the contract as an asset than the courts do (RLCD, 31-32).
While Professor Goldberg suggests that damages should be measured at the time of breach, because the value of the contract will fluctuate, the parties could pick any time to measure damages. All that matters is that they set the time for measuring damages before the dispute arises. While cover that occurs immediately after breach is highly useful evidence of the value of a contract, cover becomes less relevant in long-term contracts, where the court is going to have to determine damages before cover is possible (RLCD, 32).
Professor Goldberg concludes the chapter by returning to his acknowledgement of the uncertainties involved in calculating damages for repudiation of long-term contracts. He ruminates on the wide variation in valuation reports presented before the Chancery Court and proposes ways to return us from "the outer margins of plausibility" where these expert reports too often reside (RLCD, 33-34).
February 10, 2023 in Books, Famous Cases | Permalink | Comments (0)
Thursday, February 9, 2023
Orin Kerr on Terms of Service and Fourth Amendment Rights
Orin Kerr's latest article is the top-downloaded article on the Contracts Top Ten list this week, and it likely will be for some time. The article is especially interesting to me because it is about the interaction between contractual rights and constitutional principles, a topic that I have been writing about a lot in connection with the First Amendment. See, e.g. this article uploaded to SSRN (I have since revised it, but you get the idea) and this blog post. Also this one and this one, which links to six other posts on the subject.
While my subject has been the First Amendment, Orin's is the Fourth Amendment. However, Nancy Kim and I touched on the relationship of Terms of Service to the Fourth Amendment in our article on Internet Giants as Quasi-Governmental Actors. We wrote in a pre-Carpenter context, and my limited understanding is that Carpenter is a game changer. I look forward to diving in to Orin's article and thinking about its impact on the arguments Nancy and I made back in 2015. I am also interested in thinking about his argument that Terms of Service should have little or no effect on Fourth Amendment rights and whether I need to reconsider my view that courts should weigh Terms of Service when they engage in rights mediation in the context of First Amendment rights.
This is a topic about which I may have more to say, but for now, I just wanted to flag Orin's work as of potential interest to readers of the blog. I do hope to take the (for me) less-traveled road of actually reading articles I note with the intention of reading. Knowing how way leads on to way, there is reason to doubt I will make my way back.
February 9, 2023 in Recent Scholarship | Permalink | Comments (0)
Wednesday, February 8, 2023
A Priest, A Cellphone Camera, and Two Dominatrices Walk Onto an Altar . . . .
We are taking a bit of a detour this week into criminal law. My discussion on Monday of the case of government (and classified) documents in the possession of our current and former Presidents served a pedagogical purpose, illustrating the importance of distinguishing cases. Today, we have a straight-up contract issue involving a mental incapacity defense to a breach of a parole agreement. Also, the facts are of the sad, but you can't make this stuff up variety.
Travis Clark was a Catholic priest in Louisiana until 2020 when he decided to film himself having sex with two dominatrices on the altar of his church. As Vanessa Serna reports here for The Daily Mail, the altar was stage lit and decked out with sex toys. A passerby noticed lights on in the building after hours and peered in. That something you just can't unsee. The police were summoned. Mr. Clark pleaded guilty to an obscenity charge and was fined and given three years' probation. His accomplices (accomplimatrices?) pleaded guilty to lesser charges.
I pause here to note that it's pretty bad for a priest to film himself having sex with two dominatrices on an altar. However, were he a police officer, he never would have been convicted because he would have enjoyed qualified immunity. "How was I supposed to know that I couldn't have sex on an altar with two dominatrices?" He undoubtedly would have averred. "Show me a case or a statute that specifically addresses this issue. Absent such a case or statute, we have no clearly-established law that addresses the conduct at issue!"
Mr. Clark returned to the news recently because he was jailed for violating parole. The story is here behind a paywall. I am relying on an account I heard on Wait, Wait, Don't Tell Me. Mr. Clark was granted a suspended sentence in exchange for his promise that he would not seek to benefit in any way from his crime. Recently, Mr. Clark gave a television interview. According to Wait, Wait, he did not understand himself to have done so in violation of his parole agreement because he took no money for the interview. His sole aim was to respond to all of the negative publicity that he faced and to attempt to persuade viewers that he was a person worth of forgiveness.
It's a worthy cause, and I am sympathetic to the view that people, including Mr. Clark, are worthy of forgiveness from their fellow human beings, notwithstanding their crimes. The real question turns on the clarity of his parole agreement, about which very little information is available. The court might have been justified in seeing the interview as self-serving. According to Wait, Wait, Mr. Clark's attorney attempted to argue that Mr. Clark should not be held to the terms of his parole agreement, because he is autistic and could not understand it.
This sounds like a mental incapacity defense that would excuse Mr. Clark from breach of his agreement. It's a pretty weak one. Saying that someone is autistic says nothing about their ability to understand the nature or consequences of a contract or about their ability to behave rationally in relation to their contractual obligations. The court questioned Mr. Clark and ascertained that he understood his contractual obligations. The court sentenced Mr. Clark to six months in jail.
February 8, 2023 in Current Affairs, In the News | Permalink | Comments (1)
