Sunday, November 11, 2018
In a recent case, employment agency Robert Half International, Inc. (“Robert Half”) brought suit against a former employee, Nicholas Billingham, and Billingham’s current employer, Beacon Hill Staffing (a competitor of Robert Half) for actual and anticipatory breach of contract. Billingham’s contract with Robert Half included the agreement that Billingham would not compete with or solicit clients from Robert Half if leaving the company. Nonetheless, Billingham accepted employment with Robert Half’s direct competitor where he stated that he intended to “add to my team quickly and take market share from Beacon Hill’s competitors.” Robert Half brought suit. Billingham and Beacon Hill moved to dismiss the complaint for failure to state a claim.
Billingham first defended himself arguing that unilateral contracts cannot be anticipatorily breached since they technically seen do not arise until the actual performance has been rendered. He argued that his contract was unilateral since his remaining obligations were not yet due. (Strangely, he did so although he had already terminated the relationship himself.) The court corrected him on this point, noting that a unilateral contract is one that “occurs when there is only one promisor and the other party accepts, not by mutual promise, but by actual performance or forbearance.” (Quoting Williston § 1:17). To help my students distinguish accepting by beginning of performance in bilateral contracts from offers for unilateral contracts, which is sometimes confusing for them, I tell them that they must scrutinize what type of acceptance is sought by the offeror: if onlythe actual performance, then there is a truly an offer for a unilateral contract. If this is not clearly the case, there is an offer for a “regular” bilateral contract. In this instance, the contract between Billingham and Plaintiff was bilateral, not unilateral. Robert Half promised to employ Billingham in exchange for Billingham's promise to abide by the restrictive covenants in the Agreement. Billingham's promise included the prospectiveagreement that he would refrain from certain activities upon departing the company. Billingham was thus not correct that the agreement “became unilateral” after his resignation. That is a legal impossibility. His obligations to forbear from the non-competitive agreements became due the moment he left Robert Half. As with many other contractual issues, unilaterality and bilaterality are examined at the point of contract formation, not by looking at what actually happened thereafter.
The court thus found that plaintiffs had sufficiently pled a claim of anticipatory, if not actual, breach of contract.
Plaintiffs also stated a claim for unjust enrichment. Defendants argued that Robert Half has not actually “conferred” any benefits on Beacon Hill and would thus not be liable for compensation under that theory. The court noted that this is wrong. Beacon Hill received a “benefit” from Billingham's employment through the revenue that he generates, his professional training, his relationships with customers and candidates, and his industry knowledge. Beacon Hill's retention of these benefits is “unjust” as they are benefits that Billingham is barred, by the agreement, from conferring on Beacon Hill.
The case is Robert Half International Inc. v. Billingham, 317 F.Supp.3d 379, 385 (D.D.C., 2018).
Friday, October 26, 2018
The California anti-SLAPP provisions state that “[a] cause of action against a person arising from any act of that person in furtherance of the person's right of petition or free speech under the United States Constitution or the California Constitution in connection with a public issue shall be subject to a special motion to strike unless the court determines that the plaintiff has established that there is a probability that the plaintiff will prevail on the claim. An act in furtherance of a person's right of petition or free speech under the United States or California Constitution in connection with a public issue includes ... any written or oral statement or writing made in connection with an issue under consideration or review by a ... judicial body....”
A client alleged that his attorney misrepresented his labor law expertize when negotiating the retention agreement between the two and that the attorney conducted settlement negotiations with the opposing party in order to drive up fees. When the attorney sued his client to collect his fees, the client cross-complained for fraud and breach of contract. The attorney then moved to strike the cross-complaint under the California anti-SLAPP statute, Code of Civil Procedure § 425.16.
The court found that merely because attorneys occur as part of litigation – the client’slitigation – a malpractice claim such as this is not subject to anti-SLAPP. Said the court, “[i]t is the principal thrust or gravamen of the plaintiff's cause of actionthat determines whether the anti-SLAPP statute applies, and when the allegations referring to arguably protected activity are only incidental to a cause of action based essentially on non-protected activity, collateral allusions to protected activity should not subject the cause of action to the anti-SLAPP statute.”
“Although attorney retention negotiations may in a sense be ‘connected’ with judicial proceedings involving the client, they in no way relate to the substance of an issue under review in the proceedings or further the attorney's petition or free speech rights in them. If they did, then every communication between an attorney and a client who is or may become involved in judicial proceedings would constitute an exercise of the attorney's petition and free speech rights, and every lawsuit for malpractice would be required to undergo a second-prong anti-SLAPP analysis. No principle or authority supports such a proposition.
The case is Mostafavi Law Group v. Ershadi, 2018 WL 4690887, (Cal.App. 2 Dist., 2018)
Tuesday, October 16, 2018
From WMU-Cooley Distinguished Professor Emeritus Otto Stockmeyer:
In my view, Contracts is the quintessential first-year course. It presents an excellent introduction to the common law and legal reasoning. The course is foundational to several upper-level courses, and the best predictor of law school success. Lawyers have reported that they use Contracts in their practice almost twice as much as any other law school subject.
Although traditionalists begin the course with offer and acceptance, there are both pedagogical and practical reasons to start with remedies. Studying remedies is not easy going for beginning students, who tend to hate working with numbers. But they tell me that they like difficult topics placed early in the term so they have longer to process the material.
The most important reason to start with remedies is the opportunity to begin the first day’s class with Hawkins v. McGee.
Here are my Top Ten reasons why:
10. The opinion immediately demonstrates to beginning students their need for a law dictionary. The first paragraph alone contains five legal terms.
9. The opinion shows how judges sometimes load their opinions with empty overstatements, such as “clearly” and “obviously” when the facts were neither.
8. The opinion demonstrates the process of analysis that courts employ when direct legal authority is lacking.
7. The opinion allows an early exploration of some distinctions between tort (medical malpractice) and contract (promise of 100 percent success) in a context readily understood by beginning students.
6. The opinion revolves around two of the central themes in Contract law: the objective theory of assent and the expectation objective of contract remedies.
5. The opinion is an excellent introduction to remedies and the difference between tort and contract damages.
4. The opinion illustrates that general principles are easier to state than to apply.
3. The opinion has more poignancy than the commercial disputes that will follow.
2. The case has a rich subsequent history that can be explored as time permits.
1. Three words: The Paper Chase. Many students will have read the book or rented the movie. They expect Contracts to begin with a study of the “hairy hand” case. Disappoint them the first day and they may question their choice of law schools.
The Paper Chase
The movie version of this law school classic contains two scenes that I’ve used in my class. The first is Professor Kingsfield’s ‘skull full of mush’ explanation of why law schools use the Socratic method. That needs to be addressed the first day.
The second is Kingsfield’s encounter with a student, Mr. Hart. After recapping the facts of Hawkins v. McGee, Kingsfield asks, ‘Now Mr. Hart, what sort of damages do you think the doctor should pay?’
I then would call on several students and ask whether Mr. Hart gave the right answer (no, he didn’t). The ice having been broken, another term of Contracts has been successfully launched.
Read the full text of Professor Stockmeyer’s paper on the Social Science Research Network.
Thursday, July 5, 2018
A recent Indiana case demonstrates the continued necessity of distinguishing between the common law and the UCC. Nothing too new in the case legally as I see it, but it lends itself well to classroom use.
A medical center entered into two contracts with a medical billing services company for records-management software and related services. In Indiana and elsewhere, “where a contract involves the purchase of preexisting, standardized software, courts treat it as a contract for the sale of goods governed by the UCC. However, to determine whether the UCC applies to a mixed contract for both goods and services, Indiana uses the “predominant thrust test.” Courts ask whether the predominant thrust of the transaction is the performance of services with goods incidentally involved or the sale of goods with services incidentally involved. Id. To determine whether services or goods predominate, the test considers (1) the language of the contract; (2) the circumstances of the parties and the primary reason they entered into the contract; and (3) the relative costs of the goods and services.
In the case, the contractual language was neutral. Next, the primary reason for executing the agreements was to obtain billing services. The software was merely a conduit to transfer claims data to the billing services company in order to allow it to perform those services. The goods – the software – were incidental. The third and final factor—the relative cost of the goods and services—also pointed toward that conclusion. As the Indiana Supreme Court has explained, “[i]f the cost of the goods is but a small portion of the overall contract price, such fact would increase the likelihood that the services portion predominates.” Under the agreement, the medical center paid a one-time licensing fee of $8,000 for software; a one-time training fee of $2,000; and $224.95 each month for services and support for about nine years. Thus, for the life of the Practice Manager agreement, the services totaled approximately $26,294—more than three times the $8,000 licensing fee for the software. Under the agreement, the medical center also paid a one-time licensing fee of $23,275 for the software; a one-time training fee of $4,000; and $284 per month for services and support for about six years. Thus, the services totaled about $24,448—slightly more than the $23,275 software licensing fee. The relative-cost factor reinforces the conclusion that services predominated. Thus, the ten-year common-law statute of limitations and not the four years under the UCC applied.
Interestingly, the case also shows that because the UCC did not apply, plaintiff’s claim for good faith performance under the UCC dropped out too. In Indiana, a common-law duty of good faith and fair dealing arises “only in limited circumstances, such as when a fiduciary relationship exists,” which was not the case here. The parties were thus not under a duty to conduct their business in good faith. Yikes! This should allow for some good classroom discussions.
Friday, June 15, 2018
New scientific studies have proven what we might all have been jokingly saying, but which apparently is true: the world population is increasing, but IQ levels are decreasing. The reason? Nurture, not nature.
The studies claim that after 1975, IQ levels started to drop because of, it is thought, "environmental factors." These could include pollution, changes in the education system and media environment, nutrition, reading less, and being online more. Yikes.
"It's not that dumb people are having more kids than smart people, to put it crudely. It's something to do with the environment, because we're seeing the same differences within families," said one of the co-authors and lead researchers on the project.
For us, this is not good news for obvious reasons. But are we, in fact, a contributing cause? I know that some of my students, for example, do not enjoy and sometimes simply will not read long homework assignments, don't read privately, and indeed spend large amounts of time online. I'm sure your students are not very unlike mine in that respect. Other studies that I don't have handy here also demonstrate that our students have difficulty reading longer texts simply because they are not used to reading anything much longer than blog posts, twitter feeds, and maybe the occasional article here and there, but certainly not books.
Read the entire findings. References to "changes in the education system" and "decreasing access to education" are disturbing.
Wednesday, May 30, 2018
Although this post does not have anything to do with contracts law, it is hopefully interesting to many of you law professors anyway.
Scientific research shows that in years with warmer temperatures, students score worse on tests. The link is "significant." Researchers calculated that for every 0.55° C increase in average temperature over the year, there was a 1% fall in learning.
Colder days did not seem to damage achievement - but the negative impact began to be measurable as temperatures rose above 21° degrees C. The reduction in learning accelerated once temperatures rose above 32° C and even more so above 38° C.
A simple solution could be to use more airconditioning on test days. The more complex, but necessary, solution is to curb climate change. The world is still not doing enough in that respect despite the 2015 Paris Agreement. In particular, it is problematic that the USA has announced its withdrawal from the climate change agreement.
Could increasing temperatures also be part of the reason for our students' worse and worse bar performances? Apparently so.
Tuesday, May 29, 2018
The Supreme Court of Delaware just issued a contracts law case suitable for teaching purposes in relation to several different issues including contract formation, the parol evidence rule and forum selection clauses. It also raises some puzzling questions regarding the Court’s own analyses and conclusions.
The Court first analyzes whether three investment and tech companies displayed sufficient overt manifestation of assent – not subjective intent - to be bound by any contract at all. Referring to Professor Williston, the Court found this to be the case when a signature is present because it “naturally indicates assent, at least in the absence of an invalidating cause such as fraud, duress, mutual mistake, or unconscionability....” Because both parties here signed the contract and hugged each other after doing so (!), there was an objective manifestation of assent.
The Court then stated that “a contract must contain all material terms in order to be enforceable … Until it is reasonable to conclude, in light of all of the[ ] surrounding circumstances, that all of the points that the parties themselves regard as essential have been expressly or (through prior practice or commercial custom) implicitly resolved, the parties have not finished their negotiations and have not formed a contract.” Common sense, found the Court, “suggests that parties to a sophisticated commercial agreement … would not intend to be bound by an agreement that does not addressall terms that they considered material and essential to that agreement.” Consequently,“all essential or material terms must be agreed upon before a court can find that the parties intended to be bound by it and, thus, enforce an agreement as a binding contract.” In the case, the precise consideration under the contract was highly material to the parties. One of the documents addressed the consideration to be exchanged, although not in a concise manner. The recordregarding other terms was also “woefully undeveloped.” Some key terms were missing. Others were contested by the parties.
Nonetheless, the Court somewhat strangely did not find this to be a major problem. The real dispute was, per the Court, whether the terms relating to that consideration were sufficiently definite. The majority found this to be the case under the Restatement (Second) of Contracts § 33(2). Said the Court: “A contract is sufficiently definite and certain to be enforceable if the court can—based upon the agreement's terms and applying proper rules of construction and principles of equity—ascertain what the parties have agreed to do. Indeed, as Corbin has stated, “[i]f the parties have concluded a transaction in which it appears that they intend to make a contract, the court should not frustrate their intention if it is possible to reach a fair and just result, even though this requires a choice among conflicting meanings and the filling of some gaps that the parties have left.” Because the agreement's recitals summarized that technology company owner was to contribute to the holding company all his rights in certain intellectual property and technology company securities in exchange for units in holding company, technology company owner warranted that he could deliver all securities as promised, and agreement provided for situation of employees making successful claims for technology company securities, the Court found the consideration to be sufficiently definite. Fair enough, but what about several terms either having been omitted or “differing in reality from the parties’ statements”? The Court relied on parol evidence to resolve these issues.
The Court remanded for the lower court to make explicit findings as to whether or not the parties agreed to be bound.
The dissenting justices raise some good questions. Among other things, they identify valid issues regarding the missing material terms, whether the parties even agreed on the contract at all given its short-lived nature, and whether it was a waste of judicial and party resources to remand the case when the Supreme Court found it to be sufficiently specific. Most importantly and for good reason, the dissenters focus on the contract formation issue that the majority did away with for, it seems, the somewhat simplistic reasons that the parties had signed the documents and hugged each other. If our students concluded their analyses of contract formation on this ground, we would probably also point out the problem in so doing.
Of course, the parties may also consider reaching a solution amongst themselves at this point. Said Justice Strine: One hopes that before the parties engage in remand proceedings of great expense, they exhale and consider a sensible solution so that they can move on, with [one party] receiving fair compensation for his investments, but without harming themselves or others by continuing a bitter battle over whether they should be declared to have had a brief, loveless marriage, only to then commence immediate divorce proceedings.
The case is Eagle Force Holdings, LLC and EF Investments, LLC v. Stanley V. Campbell, C.A. No. 10803-VCMR. H/t to Professor Chiappinelli for bringing this case to my attention, and congratulations to Professor Stark for being cited to by the Delaware Supreme Court.
Thursday, May 24, 2018
The life of a blogger can sometimes feel like toiling sometimes in relative obscurity. And then there's the moment when you get cited as evidence in a case!
A recent decision out of the District of Columbia in Mawakana v. Board of Trustees of the University of the District of Columbia, 14-cv-02069-ABJ, referenced ContractsProf Blog. The case was a tenure dispute between the plaintiff professor and the defendant university. The plaintiff alleged he was denied tenure because of racial discrimination. The defendant moved for summary judgment, which was granted.
Part of the plaintiff's evidence was a number of favorable comments on his scholarship, including "honorable mention from ContractsProf Blog." The court cites to the plaintiff's opposition, which is sealed, so I can't see exactly what was stated about the entry. I found the school's write-up of it, but the link the school provides to the blog entry doesn't work for me (maybe my computer is just being fickle and you'll have better luck).
Despite the favorable comments, including the ContractsProf Blog entry, the court noted that there were also less favorable comments about the plaintiff's scholarship (the court actually noted in a footnote that one of the reviewers did not give the ContractsProf Blog honorable mention "any weight"). The court also found that the favorable comments did not mean that the plaintiff's denial of tenure must have been based on racial discrimination. The court eventually concluded, after much analysis (a great deal of it redacted), that the plaintiff wished for the court "to weigh in on the merits of the University's academic judgments in a manner that is contrary to the legal principles governing these disputes."
The court also found the plaintiff's contract claims to be time-barred, but, even if not time-barred, not supported by evidence.
(This is not, btw, the first time we blogged about this case.)
h/t to Prof. Eric Goldman at Santa Clara for sending this case to our attention!
Wednesday, May 23, 2018
The dream of becoming a practicing attorney still attracts many students to law school. As we know, many will make it in the legal industry, but many will never get a chance as they will either be attrited from their law schools or, yet worse, never be able to pass the bar. Still, many law schools continue contracting with students they know have a poor chance of ever making it. From a contracts point of view, this is arguably at least bad faith in contracting if not worse. See well-known bar passage analyst David Frakt's blog on the issue here.
Monday, April 2, 2018
Allow me to share some good “personal” news for once: I just received word that all levels of the USD administration has voted for granting me tenure! The Board of Regents will cast its final vote on this in early May.
As some of you will know, it has not been an easy process. I encountered several tiring and stressful procedural hurdles with the USD administration, but the law school was at all times supporting me intensely just as I only got excellent scholarship reviews, so it all ended well! I could also not have done this without the excellent, tireless, and creative legal assistance not to mention very highly encouraging support of David Frakt, Esq.
Sunday, March 11, 2018
I have the great honor and pleasure of posting the below guest blog written by noted environmental scholar Dan Farber, the Sho Sato Professor Of Law and the Faculty Director of the Center For Law, Energy, & The Environment at UC Berkeley.
There has been increasing interest in the environmental law community in the role that private firms can play in sustainability. For example, many major corporations bemoaned Trump’s withdrawal from the Paris Agreement and pledged to continue their own environmental efforts. In fact, as a recent book by Michael Vandenbergh and Jonathan Gillian documents, these firms already have their own programs to cut emissions. It’s worth thinking about the ways in which contracts between these companies could serve some of the same functions as government action.
Group action, based on contracting, could be a way of amplifying these efforts by individual firms. One possibility would stick pretty close to the structure of the Paris Climate Agreement. Under the Paris Agreement, nations agree to engage in certain types of monitoring and to implement emissions cuts that they set themselves. There are already ways that corporations can publicly register their climate commitments. The next step would be to
enter into contracts to engage in specified monitoring activities and report on emissions. The goal would be to make commitments more credible and discourage companies from advertising more emissions efforts than they actually undertake.
The contracts could be structured in different ways. One possibility is for each company to contract separately with a nonprofit running a register of climate commitments. The consideration would be the nonprofit’s agreement to include the company in the register and require the same monitoring from other registered companies. An alternative structure would be for the companies making the pledge to contract with each other, ensuring that there would be multiple entities with incentives to enforce the agreement against noncompliant firms. The biggest contract law issue is probably remedial. It would be difficult to prove damages, so a liquidated damage clause might be useful, assuming the court could be persuaded that significant liquidated damages are reasonable. An alternative set up would be to require representations by the company about compliance with monitoring protocols at they make their reports, providing a basis for a misrepresentation action.
We can also imagine something like a private carbon tax in which companies pledge to pay a nonprofit a fixed amount based on their carbon emissions. The nonprofit would use the funds to finance renewable energy projects, promote sustainability research, or fund energy efficiency projects such as helping to weatherize houses. Such pledges would probably be enforceable even without consideration under Cardozo’s opinion in Allegheny College. Damages would presumably be based simply on the amount of unpaid “taxes.”
It’s also possible to think in terms of a private cap-and-trade scheme, something like the ones used by California and by the Northeastern states. In these markets, governments set caps on total emissions and auction or otherwise distribution allowances, each one giving the owner the right to emit a single ton of carbon. In the contractual version, firms would agree to create a market in carbon allowances and to buy as many allowances as they need to cover their emissions. For instance, firms could agree to cut their emissions on a schedule of, say, 2% per year for five years. Every year, they would get allowances equal to their current target, which could be traded. Firms that were able to cut their emissions more than 2% could recoup the cost by selling permits to firms that found it too expensive to make their own cuts. Each firm would have to be bound contractually to pay for purchased allowances coupled with an enforceable obligation to achieve the target. If firms fail to buy the needed allowances, the measure of expectation damages seems to be the market price of the allowances the contract required them to purchase from other firms.
One advantage of government regulation is that the government can assess penalties, while contract law does not enforce penalties. For that reason, arguments for substantial compensatory damages will be crucial to provide an incentive for compliance. There will also be questions about how to structure the contracts (between firms or only between each firm and the nonprofit administering the scheme). And of course, all the usual issues of contract interpretation, materiality of breach, etc., will surface. (If nothing else, this could be the basis for an interesting exam question.)
Whether any of this is practical remains to be seen. There are also potential antitrust problems to contend with. But it is intriguing to think about ways that private contracting could be used to address societal issues such as climate change, particularly in situations where the government seems unlikely to act. There might be real gains from using private-law tools like contract to address public-law problems.
Monday, December 11, 2017
Were you aware of this? A first-of-its-kind study exploring the relationship between specific law school courses and components of the bar exam has identified Contracts as making the greatest contribution to performance on the Multistate Bar Examination among first-time takers. Most of the other MBE-subject courses showed no significant contribution to overall MBE performance. Austin, Christopher, and Dickerson, Will I Pass the Bar Exam?: Predicting Student Success Using LSAT Scores and Law School Performance, 45 Hofstra Law Review 753, 772 (2017), available here: http://www.hofstralawreview.org/wp-content/uploads/2017/06/BB.2.Austin-et-al.NEW_.pdf
Hat tip to Otto Stockmeyer for this story!
Tuesday, November 21, 2017
As widely reported elsewhere such as by David Frakt in The Faculty Lounge, law schools seem to be turning desperate to hide their student recruiting practices and ABA communications (see, e.g., Desperation Times at Thomas Cooley). That blog post was cited to by the ABA in its brief in opposition to a motion filed by the Cooley law school for a temporary restraining order and preliminary injunction in an attempt to prevent the ABA from publishing a letter online stating Cooley's noncompliance with at least one accreditation standard.
Of course, law students choosing to attend law school execute legally binding contracts with their schools. So do employees choosing to work for these schools, many of which seem to be on the brink of discontinuation of operations. For how much longer can we as law schools continue defending _not_ telling applicants the real truth about their prospects for passing the bar given our applicants' LSAT scores which are, we have to admit, highly determinative in predicting ultimate bar passage rates? Is what we do ethical and professional? Do we even follow contract laws against fraud in the inducement, or torts fraud laws, when we as schools have information that could and likely is crucial to applicants' decision-making?
David Frakt developed what he calls a "risk band" that correlates LSAT scores and students' risk of failing the bar. Taking that even further, shouldn't applicants be told their _individual_, percent-wise chance of passing the bar? If, for example, students know that with an LSAT score of 143 (this is just a random example), they have virtually zero chance of passing the bar, would they still execute a three-year contract with a law school that may cost them upward of $100,000? I doubt it. More honesty and transparency is clearly required in both the law school hiring and admissions world.
Sunday, October 29, 2017
As reported on The Hill and in several other national and international news outlets, tiny Montana energy company Whitefish Energy – located in Interior Secretary Ryan Zinke’s very small hometown – stands to profit greatly from its contract with the Puerto Rico Electric Power Authority. That’s fine, of course. However, highly questionable issues about the contract have surfaced recently. For example, Whitefish very famously prohibited various government bodies from “audit[ing] or review[ing] the cost and profit elements of the labor rates specified herein.”
What were those? The Washington Post reports that under the contract, “the hourly rate was set at $330 for a site supervisor, and at $227.88 for a ‘journeyman lineman.’ The cost for subcontractors, which make up the bulk of Whitefish’s workforce, is $462 per hour for a supervisor and $319.04 for a lineman. Whitefish also charges nightly accommodation fees of $332 per worker and almost $80 per day for food.” Another news source notes that “[t]he lowest-paid workers, according to the contract, are making $140.26 an hour. By comparison, the minimum wage in Puerto Rico is $7.25 an hour … [T]he average salary for a journeyman electrical lineman is $39.03 per hour in the continental U.S. However, a journeyman lineman on Whitefish Energy's Puerto Rico project will earn $277.88 per hour.”
Little wonder why the company did not want anyone to “audit or review” its labor rates. If it wasn’t for the apparent “old boy”/geographical connections that seemed to have led to this contract to have been executed in the first place, hopefully no Puerto Rican official would have accepted this contract in the form in which it was drafted.
But it doesn’t end there. When the San Juan mayor called for the deal to be “voided” and investigated, Whitefish representatives tweeted to her, “We’ve got 44 linemen rebuilding power lines in your city & 40 more men just arrived. Do you want us to send them back or keep working?”
To me, this entire contract to violate several established notions of contract law such as, perhaps, undue influence or duress (in relation to contract formation but perhaps also, if possible, to continued contractual performance), bad faith, perhaps even unconscionability, which is a alive and well in many American jurisdictions.
This could work as an interesting and certainly relevant issue-spotter for our contracts students. It also gives one a bad taste in the mouth for very obvious reasons. It will be interesting to see how this new instance of potentially favoring contractual parties for personal reasons will pan out.
Wednesday, October 25, 2017
Here is your classic Parol Evidence Rule and oral contracts case, diamonds, faulty translations, millions of dollars, and all.
In 2009, David Daniel invested $3.35 in a 50% ownership interest in the jewelry and coin business Continental Coin, thus co-owning it with Nissim Edri. The partnership agreement was oral only. In 2014, Daniel sought to sell his interest. Edri agreed to pay half of the initial contribution as well as some other amounts for a total of $4.2 million. Edri could not pay this amount and thus suggested Daniel taking approx.. 95 diamonds from the inventory instead. This time, the parties did get a writing that, however, was in Hebrew.
The problem with that was that Edri could not understand the first two pages and subsequently did not agree with the poorly translated version of the contract. This stated, among other things (my emphasis):
“We the undersigned, David Daniel and Nissim Edri, hereby declare, in full faith, that the merchandise to be collected today, Friday, 2/21/2014 from CONTINENTAL COIN & JEWLERY CO is and [sic] a payment in full complete repayment for David Daniel's investment in CONTINENTAL COIN & JEWELRY in the sum total of $4,000,000.
“This agreement is signed with a complete understanding that, in the event there are any adjustments to be made between David Daniel and Nissim Edri, they will be handled with good will and in complete consent by both parties.
“David takes from the partnership four million dollars in merchandise that was evaluated by the company while he was a partner[.]”
Of course, a dispute arose as to the true value of the 95 diamonds collected. Daniels claims they were worth less than $2 m. Edri responded that if Daniel was not satisfied with the diamonds, he could return the merchandise in its entirety whereupon Edri would sell them and pay Daniels as each was sold. Daniels brought suit, citing to their prior oral agreement to deliver diamonds worth $4m and to an agreement on the valuation method, which was to be settled in good faith.
As you can guess, the court made short shrift of Daniels’ attempt to bring in any prior oral agreements on what was to happen if the diamonds delivered were actually not worth $4 m. Said the court: “Daniel contends the merchandise he collected upon signing the written agreement was worth substantially less than $4 million under the valuation method specified in the parties' former oral agreement. In direct conflict with that claim, the written agreement provides that “the merchandise” he collected was “a payment in full complete repayment For David Daniel's investment in CONTINENTAL COIN & JEWELRY in the sum total of $4,000,000.” Because Daniel's claim was premised on a purported oral agreement that was inconsistent with the integrated terms of a final written agreement, the trial court properly rejected his breach of oral contract claim under the parol evidence rule.
So there. Perhaps out $2m. Goes to show that you can never really trust anyone in contractual processes, not even apparent friends.
The case is David Daniel v. Nissim Edri, et al., 2017 WL 4684347
Monday, October 2, 2017
A contract worth $11 b. Two such major parties as Yahoo!, Inc. and SCA Promotions, Inc. And still the contract does not specify precisely what the payments due are supposed to be for.
In 2014, Yahoo wanted to sponsor a perfect bracket contest in connection with the 2014 NCAA Men's Basketball Tournament, with a $1 billion prize for any contestant who correctly predicted the winner of all 63 games. SCA provides risk management for marketing and prize promotions. In return for a fee, SCA agreed to pay the $1 billion prize if any contestant won the contest.
Two invoices, dated December 27, 2013, were attached to the Contract with continuous pagination. According to the second invoice, the contract fee was $11 million. Yahoo owed an initial deposit of $1.1 million to SCA “[o]n or before December 31, 2013”; the remaining $9.9 million was due to SCA “[o]n or before February 15, 2014.”
The contract permitted Yahoo to cancel the contract with fees varying depending on when Yahoo cancelled. The relevant provision read as follows:
Cancellation fees: Upon notice to SCA to be provided no later than fifteen (15) minutes to Tip-Off of the initial game, Yahoo may cancel the contract. In the event the contract is cancelled, Yahoo will be entitled to a refund of all amounts paid to SCA subject to the cancellation fees set forth in this paragraph … Should the signed contract be cancelled between January 16, 2014 and February 15, 2014, a cancellation penalty of 50% of the fee will be paid to SCA by Sponsor (emphasis added).
Yahoo subsequently cancelled, but argued that it only owed SCA a cancellation fee of $550,000 because “50% of the fee” means 50% of the $1.1 million that Yahoo had already paid to Yahoo as an interim payment. SCA argued that the cancellation fee was $5.5 because “50% of the fee” means 50% of the $11 million total contract fee.
The Fifth Circuit Court of Appeals agreed with SCA: “The district court determined that the Contract's terms do not expressly set an $11 million fee. According to the district court, nowhere does the Contract specify or identify the invoices, when they will be paid, or otherwise provide that the fee is $11 million. But the Contract references invoices several times, and it provides that “this contract, including exhibits and attachments, represents the entire final agreement between Sponsor [Yahoo] and SCA, and supersedes any prior agreement, oral or written.” Although the Contract does not explicitly identify the invoices to which it refers, two invoices are attached to the Contract with pagination continuous with the rest of the Contract … It is clear from the Contract's terms that the invoices are part of the Contract. See In re 24R, Inc., 324 S.W.3d 564, 567 (Tex. 2010) (“Documents incorporated into a contract by reference become part of that contract.”). Accordingly, the district court's conclusion that the Contract does not specify an $11 million fee was in error.”
Once again, students and practitioners: be clear when you draft documents! Unambiguous language and specific references can be worth millions, if not billions, of dollars.
The case is SCA Promotions, Inc., v. Yahoo!, Inc., 868 F.3d 378 (Fifth Cir. 2017).
Friday, July 28, 2017
Our friend and esteemed colleague, Professor Charles Calleros, has kindly sent the following as a guest contribution to the ContractsProf Blog. Enjoy!
Recently Val Ricks has collected a number of essays from colleagues on best and worst cases for the development or application of contract law. In addition to participating in that project, Charles Calleros invites faculty to upload and post links to essays about their favorite cases as teaching tools (regardless whether the cases advance the law in an important way). He starts the ball rolling with this Introduction to his essay on "Why Pyeatte v. Pyeatte Might be the Best Teaching Tool in the Contracts Casebook":
Pyeatte v. Pyeatte, a 1983 decision of the Arizona Court of Appeals, did not break new ground in the field of contracts. Nonetheless, I assert that it is one of the best pedagogic tools in the Contracts casebook, for several reasons:
- * The facts are sure to grab the attention of first-semester law students: A law grad reneges on a promise to support his ex-wife through graduate school after she supported him through law school during their marriage;
* This 1980’s opinion is written in modern plain English, allowing students to focus on substance, while also learning a few necessary legal terms of art.
* After their immersion in a cold and rather unforgiving bath of consideration and mutual assent, students can finally warm up to a tool for addressing injustice: quasi-contract;
* The opinion’s presentation of background information on quasi-contract provides an opportunity to discuss the difference between an express contract, an implied-in-fact contract, and an implied-in-law contract;
* Although the wife’s act of supporting her husband through law school seems to beg for reciprocation or restitution, students must confront judicial reticence to render an accounting for benefits conferred between partners in a marriage, exposing students to overlap between contract law and domestic relations law;
* The appellate ruling of indefiniteness of the husband’s promise – presented in a later chapter in my casebook, but looming vaguely in the background of the discussion of quasi-contract – invites critique and perhaps even speculation that the appellate panel felt comfortable denying enforcement of the promise precisely because it knew it could grant restitution under quasi-contract; and
* The court’s admonition that expectation interest forms a ceiling for the calculation of restitution reveals a fascinating conundrum that brings us back to the court’s ruling on indefiniteness. . . .
You can find the whole essay here.
Tuesday, April 11, 2017
Everyone is surely, by now, aware of the (most recent) United Airlines scandal. Numerous questions abound: Was the airline racist in asking a non-white person to give up his seat or was the selection of which passenger to bump truly random? If the latter, was the airline racist in pursing this action after seeing that the selected passenger was not white whereas it might have given up taking such drastic action if it the passenger had been white? Equally importantly, what in the world is going on when law enforcement officers act as they did in this situation?! Is it fair to consider United Airlines responsible for actions that were, after all, not taken by its employees, but rather by the authorities?
While these questions are being addressed in many other locations, I find it interesting that several news sources correctly point out that United was legally entitled to bump a passenger, but that several sources seem to incorrectly state that under Department of Transportation rules, airlines may only pay passengers “up to a” $1,350 limit for delays of more than two hours. I have not had the time to fully research this rule, but as I read the rules, there is nothing saying that there is a limit to how much airlines may choose to pay, only what the DOT rules guarantee a pay-out (that one can, incidentally, insist on getting as payment, not a voucher) of $1,350, not more under the federal rules. The DOT guideline states as follows (from a website version only, admittedly):
“If the substitute transportation is scheduled to get you to your destination more than two hours later (four hours internationally), or if the airline does not make any substitute travel arrangements for you, the compensation doubles (400% of your one-way fare, $1350 maximum).”
If my understanding is correct, United could have chosen to voluntarily pay out a lot more than what they reportedly did ($800-1,000) and, as many correctly point out, most likely found some taker. Surely, the rules do not prohibit this. Instead, however, United chose to do what seems to increasingly be the order of the day: stand on their own rights and disregard the interests of their customers in the name of making a few extra dollars. Why am I not surprised?
Thursday, March 30, 2017
Teaching Spotlight: "Reflections on Teaching the First Day of Contracts Class" (Norman Otto Stockmeyer - Western Michigan)
We at ContractsProf Blog love to highlight recent scholarship by our readers, but we are fans of teaching, as well. If you are the author of a recent work of contracts or commercial law scholarship or of teaching-related materials that you have posted on SSRN, send me (Mark Edwin Burge) a copy of your abstract or summary along with an SSRN link, and we may spotlight your work here. Today's spotlight is on an essay by Otto Stockmeyer.
Reflections on Teaching the First Day of Contracts Class
Norman Otto Stockmeyer (Western Michigan University Cooley Law School)
A veteran of the law school classroom offers his thoughts on why Contracts is the most significant course in the first-year curriculum, why the study of contract law should begin with the subject of remedies, and why the “hairy hand” case of The Paper Chase fame makes an ideal starting point. The author also shares his first-day advice on how to succeed in law school. Along the way he explains why he prefers a problems-based casebook, opposes use of commercial briefs and outlines, and makes robust use of a course website.
SSRN link: https://ssrn.com/abstract=2927249
Wednesday, March 22, 2017
The conference is over but the scholarship lives on. This is one of a series of posts highlighting several KCON XII presenters who graciously provided me with abstracts or summaries of their presentations.
A PROPOSAL TO ELIMINATE UCC § 2-315
Robert Brain, Loyola Law School, Los Angeles
It is my contention that UCC § 2-315, the provision on the implied warranty of fitness for a particular purpose, is: (1) unnecessary; and (2) causes more problems than it solves. As such, I believe it should be eliminated from the UCC.
The implied warranty of fitness for a particular purpose is unnecessary because a fitness case is, in truth, an express warranty case and can be analyzed under § 2-312. The only difference from what the Code now recognizes as an express warranty situation and a fitness situation is that the attribute of the good comes initially from the buyer and not the seller. However, in both cases that parties are contracting based on a shared belief that the good has certain, specified (not implied) qualities. This can be seen by the two situations below:
Situation One: A scuba diver walks into a dive shop, looking for a watch that will be waterproof down to 200 feet. She tells the sales associate that she’s looking for a watch for a deep dive. The clerk says, “This one is guaranteed to be watertight down to 200 feet.” She buys the watch.
Situation Two: The same woman walks into the same shop and talks to the same associate. She says, “I’m doing deep diving, and am looking for a dive watch that will stay watertight down to 200 feet.” The associate picks up the same watch as before, and says, “Here you go.” The woman buys the watch.
If the watch starts leaking at 60 feet, under current law, the woman would sue for breach of express warranty under Situation One, but would have to sue for breach of the implied warranty of fitness under Situation Two. The legitimate expectation of the consumer is identical in the two situations and should be analyzed identically. If the words and actions of the associate in Situation Two are taken as affirming the 200 foot watertight attribute initially broached by the buyer, there is no difference between the two. As such, what are now fitness cases could, and should, be analyzed as breaches of express warranty.
Conceptually it is difficult to justify the fitness warranty as an “implied” warranty. In the merchantability cases under § 2-314, it is the attribute of the good – that it is of ordinary quality, for example – that is implied into the transaction. But under § 2-315, the attribute of the good is expressed; what is “implied” is some representation by the seller as to that expresses attribute, but as noted above, the words and actions of the seller can easily be viewed as communicating that the seller is warranting the attribute under existing law. It is an “implied” warranty in the same way we say a contract by conduct is an “implied-in-fact” contract. But we treat implied-in-fact contracts as if they were express contracts, and we should so the same for fitness.
Another issue is that courts have problems determining whether particular cases should be analyzed as a fitness or a merchantability case. For example, suppose the buyer asks for “heavy-duty hiking boots” and suppose the shoes come apart upon their first wearing. Is the proper claim that the boots are not fit as ordinary heavy-duty hiking boots (or even as just boots), or is it a fitness problem because they do not measure up as heavy-duty boots? Courts have struggled with this issue from the first English case in which the fitness warranty was birthed.