Friday, October 16, 2020
My passion for Limericks ran out when my thesaurus broke. And still, the muse occasionally o'ertakes me, and I am powerless to resist. Especially since my muse is Seven of Nine.
The Alaska Supreme Court decided Brady v. State of Alaska in 1998. The state was experiencing an infestation of bark beetles. The Brady brothers thought they had a solution. If the state would just sell them 400 forested acres in a negotiated land sale, they would harvest the timber and then re-forest. This plan, they proposed, would address the beetle infestation.
The state seemed interested and entered into negotiations with the brothers. Seeking to ingratiate themselves with the authorities, the brothers offered to gather data that the state could use in developing a Forest Land-Use Plan (FLUP). The state accepted this offer. The state also accepted a $3000 "pre-sale deposit" and sent the brothers encouraging letters about an impending negotiated sale.
There was no sale. There never could have been such a sale, because such a non-competitive negotiated sale would circumvent state regulations that prohibited the negotiated sale of that much contiguous acreage. The Bradys then submitted an invoice for $26,250 for the professional services they provided in contributing to the FLUP.
The case is primarily a vehicle for teaching the contours of unjust enrichments doctrine. The Brady brothers were seeking a business advantage in offering their services, and so the state was not unjustly enriched. There are two exceptions to this general rule. The Bradys could have recovered had they manifested an expectation of payment in advance (they didn't). They also could have recovered if they had relied on the state's promise to pay (they didn't).
Along the way, the case touches on breach of contract and promissory estoppel. The court quickly concludes that there was no breach of contract because there never was a promise. No promise, no promissory estoppel. The case pairs well with Hoffman v. Red Owl Stores, another Limerickworthy case. Arguably there is no more of a promise in Hofmann than in Brady.
And now, the Limerick:
Brady’s FLUP seemed an ideal solution
To a plague of beetle pollution.
But when your work is done gratis,
You don’t earn the status
Of one who can claim restitution.
Thursday, October 1, 2015
I know. It's been a while. I thought I had moved on, but just when I thought I was out, they pull me back in.
After we concluded our discussion of Mitchill v. Lath this week, my students demanded a Limerick. I didn't have one. I wrote most of the Limericks in my first few years of teaching, and I didn't start teaching Mitchill until a few years ago. I've used all the easy rhyme schemes, so now any new Limericks I write will just feel recycled. But then one of my students sent me the beginnings of a poem. Her rhymes got my creative juices flowing (sort of) and this is the result.
As the Limerick suggests, I use Mitchill and Masterson v. Sine to illustrate the difference between Willistonian and Corbinian approaches to the parol evidence rule.
Mitchill v. Lath
In Mitchill's land deal with Lath,
He slipped down a cold primrose path.
That icehouse, it blights
His view, and his nights
Are consumed with Corbinian wrath.
Tuesday, February 12, 2013
I recently covered the implied duty of good faith and fair dealing in part through the fun case of Locke v. Warner Bros. In Locke, the LA County Superior Court found that Warner Brothers' alleged failure to even consider Ms. Locke's movie proposals could violate the implied duty of good faith and fair dealing in their contract. Although Warner Brothers was not obligated to produce Ms. Locke's projects, it was obligated to exercise its discretionary power regarding her proposals in good faith. If Warner Brothers had, as Ms. Locke alleged, never actually considered her proposals, it would have violated their contract.
After Ms. Locke survived summary judgment, the case later settled. Prior to that time, Ms. Locke also had suggested that Warner Brothers never seriously considered her proposals as a favor to her ex, Clint Eastwood. Locke and Eastwood had worked together on the movie, The Outlaw Josey Wales (poster pictured to the right), and cohabitated for several years therafter. When the two actors split, Eastwood allegedly convinced Warner Brothers to give Locke the "first look" deal as part of his settlement with her and perhaps had even reimbursed Warner Brothers for the money it paid to Locke under its deal with her.
Inspired by this tale of love and faith lost, student Catherine Witting crafted the following limerick and authorized me to share it with the world.
Locke sued the Dubya B,
Saying "Don't you patronize me!
Clint may pay the bill,
But discretion is still
Subject to good faith guarantee!"
For a more recent case that tracks the facts of Locke, see this post regarding director John Singleton from 2011.
Tuesday, February 5, 2013
In a previous post, I shared a way to illustrate the differences between certain types of chicken for the frequently-used ambiguity case, Frigaliment. For today's random teaching tip, I am leaving chicken behind and moving on to fish. Because I have the luxury of a six-credit Contracts course, I have time to cover warranties, both express and implied, for sales of goods. The case I use to teach the implied warranty of merchantability, Webster v. Blue Ship Tea Room, involves fish chowder. The primary issue is whether a fish bone in a cup of New England fish chowder sold to Ms. Webster at the Blue Ship Tea Room resulted in a breach of the implied warranty of merchantability. The court answered, "no," but not before going into the details of the way chowder is made in New England. After I call on a student to share the facts of the case, I say that I've unearthed this clip showing exactly how the fish chowder was made (start at 0:17):
I also encourage students to craft their own limericks for cases--just as our own Prof. Telman has done. The latest student limerick submitted was for Webster. Kudos to student Sareena Beasley for this one:
And to those who say that Contracts is the driest 1L class, I say,"puh-shaw!"
[Heidi R. Anderson]
Monday, November 5, 2012
This week we have a guest blogger, Chris Osborn (pictured), a relative newcomer to the world of contracts profs, but already setting cases to Limericks. Below is Chris's summary of Hooters of America v. Phillips, 173 F.3d 933 (4th Cir. 1999).
In Phillips, a waitress employed at a Hooters restaurant in Myrtle Beach, SC reported to her manager that she had been sexually harassed by the local franchise owner’s brother. Ms. Phillips claimed that the manager responded that she should “let it go,” whereupon she resigned and retained counsel. When her attorney contacted the franchisor, Hooters of America, Inc. (Hooters), and gave notice of the claim, Hooters invoked an arbitration clause in an employment agreement that the claimant had signed several years after she was hired. Hooters then filed a declaratory judgment action in federal district court and a motion to enjoin the plaintiff from filing suit (which was treated as a motion to compel arbitration).
In opposing the motion, Ms. Phillips contended that the arbitration clause was not entered knowingly and voluntarily, was unconscionable, and was not supported by consideration. The U.S. District Court for the District of South Carolina found the arbitration clause unenforceable, holding inter alia that since the clause was not contained in her initial employment contract, it had to be supported by some additional consideration. The court then examined the mutual promise to arbitrate unenforceable. In particular, the court found that the arbitration Rules & Procedures bound the employee but gave the employer alone the right to terminate the agreement to arbitrate at any time on 30 days’ notice. Moreover, the Rules and Procedures also held the employer to significantly less onerous pleading, discovery, and trial procedures. Accordingly, the court ruled that Hooters’ promise to arbitrate was illusory (which makes it reminiscent of another case recently reduced to a Limerick, Vassilkovska), and thus it could not serve as consideration for the employee’s promise to submit her claims to arbitration.
The Fourth Circuit affirmed.
Here are the (three!) Limericks:
When Miss Phillips, crying conduct discriminatory
Sought redress for her boss’ tomfoolery
Her employer said, “Wait,
You made a promise to arbitrate!”
But the court ruled the whole thing illusory.
“When harassed on the job (wouldn’t ya know?)
A young Hooter’s girl could not “let it go….”
When the restaurant stalled,
The court was appalled
“Was there any consideration here? No. “
When a harassed young waitress brought suit
Her employer did not give a hoot
It tried to stay litigation
And demand arbitration
But the court ruled the sham clause was moot.
Monday, October 29, 2012
At right is a drawing of the Ballantine brewery in Newark as it appeared in the late 19th century. Founded in 1840, the brewery grew to be one of the largest in the United States by the end of the 19th century. Recognizing that nobody without a gut full of beer could enjoy the American passtime, Ballantine cleverly partnered with the New York Yankees. Through its partnership of that storied team, Ballantine grew to become the third most popular beer in the United States.
Sadly, in the 1960s the brand declined. As Judge Friendly recounts in his opinion for the Second Circuit in Bloor v. Falstaff Brewing Corp., in 1969, the brewery suffered the indignity of acquisition by a real estate conglomerate with no experience in brewing. After bleeding money for a few years, the conglomerate sold Ballantine to Falstaff Brewing Corporation in return for some cash and a promise to use "its best efforts to promote and maintain a high volume of sales" of Ballantine beer. If it ceased to sell the beer entirely, the contract provided for liquidated damages.
Falstaff chose not to promote Ballantine beer. It's marketing strategy was summarized by Falsataff's controlling shareholder as follows: We sell beer, F.D.B. the brewery. You come and get it. That didn't work very well for Ballantine, and its volume of sales plummeted. The trustee of what remained of Ballantine sued alleging breach of the best efforst clause and seeking liquidated damages. Judge Friendly's conclusion is summarized below:
Bloor v. Falstaff Brewing Corp. Limerick
Falstaff had to adhere
To its deal to sell Ballantine beer.
Volume’s not killer
When there’s Bud, Coors and Miller.
Still, its efforts must be sincere.
Monday, October 15, 2012
In Halbman v. Lemke, Lemke sold an Oldsmobile to young Halbman, who being under the age of 18, was entiteld to avoid his contractual obligations. The sale price was $1250, part of which was payable in installments. However, apparently only weeks after the exchange was made, a connecting rod in the vehicle's enging broke. Although Lemke, who was the manager at a gas station, offered to install a used engine in the car if Halbman could find one. Instead, Halbman took the car to a repair shop, which charged him $637.40 for the repairs.
Although Halbman ceased payments on the car at that point, Lemke transferred title. Halbman returned the title, sought to avoid the contract and demanded the return of the $1100 already paid on it.
Halbman did not pay for the repairs, so the repair shop exercised its garageman's lien and canibalized the car for parts. It towed what remained of the car to Halbman's father's residence, where it sat, degraded and became unsalvageable. So matters stood when Halbman sued for the return of his $1100.
Those of you who read last week's Limerick can probably guess how this came out:
Halbman v. Lemke
Halbman, the young contract signer
Admitted that he was a minor.
When the car blew a rod
Lemke, poor sod,
Was left with some scrap and a shiner
Monday, October 8, 2012
The Kunz and Chomsky caebook features two cases that highlight the potential for harsh results arising from a mechanical application of the infancy doctrine. The first such case is the subject of this week's Limerick. The second, well, you'll have to wait and see.
In Webster Street Partnership, Ltd. v. Sheridan, the partnership rented an apartment to two infants and expected them to pay $250/month rent, plus some additional incidental costs and a $150 security deposit.. That's right, infants! The nerve! How are two little babies supposed to pay the rent? Sell their diapers for fertilizer? Pose for cute baby pictures? Awww, that is a cute baby!
Well, actually, contracts law considers you an infant if you are under 18. At common law, contracts with infants for non-necessaries are voidable at the election of the infant, and these two boys were under 18 at the time the contract was formed. The boys did not pay their rent, and the partnership sought to collect.
The first issue was whether an apartment is a necessary. Seems like it ought to be, but . . . nope. Second issue was whether the fact that the boys actually had use and enjoyment of the apartment should count for something. Nope. Finally, one of them turned 18 seven days before vacating the apartment, but the court found preposterous the notion that a mere seven days could be a sufficiently lengthy time to permit ratification of the earlier, voidable agreement. The partnership also had to return the deposit. Ugh.
A number of jurisdictions have introduced equitable limitations on the doctrine, and that just seems right. The concept of "necessary" is so elastic as to provide no notice or warning of the possibility of avoidance to parties that might have entered nto contracts with infants in good faith. The result in this case strikes me as highly unfair to the landlords and permits the two young rapscalions escape the consequences of their delinquencies.
Webster Street Partnership, Ltd. v. Sheridan Limerick
For indulging the two boys’
In contracting without capacity,
The landlord must tender,
And the court gets to render
A paean to doctrine’s opacity.
Monday, October 1, 2012
Once again, I have to express my gratitude to Christina Kunz and Carol Chomsky. Because of their casebook, I have finally had the opportunity to teach Wood v. Boynton, which is just a really fun case to teach. The students can relate to it, divide up relatively evenly on each side of the case, and can easily see the trouble with the old common law rule that tried to draw Aristotelian distinctions between mistakes as to essential qualities and mistakes that only go to the value of the consideration.
Mrs. Wood, being in need of cash, returned to Mr. Boynton's jewelry store to see if he was still intersted in purchasing for $1 a rough stone found by her husband. Boynton renewed his offer, and the two made the exchange. The rough stone, which Mr. Wood had guessed was a topaz, turned out to be a diamond. According to Wikipedia, Mr. Boynton sold it to Tiffany's for $850. Some time later, J.P. Morgan bought the diamond, now known as the Eagle Diamond, and gave it to the American Museum of Natural History in New York. It was later stolen and perhaps cut into smaller stones. The Eagle Diamond is no more, but here is a picture of it (from five angles) in its glory:
But to get back to our story. Upon learning that she had sold a diamond, Mrs. Wood sought rescission based on fraud or mutual mistake. There seems to have been no fraud, as Mr. Boynton, though a jeweler, had never seen an uncut diamond before. The court also rejected mistake, as there was no mistake that the thing was a stone. The only mistake, said the court, was as to its value, and such mistakes are not a ground for rescission.
Wood v. Boynton Limerick
Wood found and then sold a rough stone.
Its value was then quite unknown.
Later, she’d holler
Having sold for a dollar
Ere the doctrine “mistake” was full-grown.
I think that, under the test articulated in the Restatement (Second) of Contracts, rescission would have been available.
Monday, September 24, 2012
Last week, I taught B. Lewis Productions v. Angelou for the first time. For those unfamiliar with the case, Butch Lewis, a boxing promoter, entered into an agreement to be Maya Angelou's exclusive agent for the purpose of the marketing her writings for greeting cards, calendars and other items on which one could slap a few lines of verse. In 1997, Mr. Lewis negotiated a deal with Hallmark on Ms. Angelou's behalf. According to the case, their deal soured in March 1997 when Ms. Angelou saw Mr. Lewis "punctuate a conversation" with a group of white men in Las Vegas by grabbing his crotch. As the court put it, after witnessing this conduct, Ms. Angelou "burned up his [Mr. Lewis's] ears" and told him that their venture was at an end.
Although Ms. Angelou's literary agent wrote to inform Mr. Lewis that Ms. Angelou was not going to pursue a deal with Hallmark, there was some evidence that the two continued to work towards that goal in 1998. In 1999, Ms. Angelou went ahead with the deal on her own while also notifying Mr. Lewis that their agreement had terminated. In 2000, Ms. Angelou signed a deal with Hallmark that gave her a $1 million advance. After Judge Mukasey of the Southern District of New York denied Ms. Angelou and Hallmark's motion for summary judgment, Ms. Angelou settled with Mr. Lewis for $1 million.
Having been my colleague and BFF for five years but now dead to me, Alan White knows a Limerickworthy case when he sees one. So, a bit belatedly, here it is:
B. Lewis Productions v. Angelou Limerick
"Your actions were lewd and obtrusive,"
Said Maya, in language abusive.
But Butch still can sell
Her poems on "Get Well"
Cards, 'cause their deal said exclusive.
Monday, September 17, 2012
Speaking of Lucy v. Zehmer, I had never taught the case until this year. I don't know why so many casebooks no longer include it. My students responded very well to it, and we had a very interesting discussion both of the joke/dare issue and of the drunkenness issue. How drunk does one have to be to be adjudicated incompetent to enter into a contract? Zehmer claimed he was "high as a Georgia pine." That might have been enough, but the court didn't buy it.
Lucy v. Zehmer Limerick
come to Virginnie
Some come to draft contracts and sign.
As did Zehmer, and so
He was bound even though
He was high as an old Georgia pine.
Monday, September 10, 2012
The Kunz & Chomsky casebook contains a bounty of new cases that provide interesting perspectivs on contracts doctrine. Angel v. Murray is a vehicle for exploring the doctine of prior consideration/contract modification.
The City of Newport entered into a five-year contract with Maher for refuse collection, with a contract price of $137,000/year. Three years in, Maher requested an additional $10,000/year on the ground that the city had added 400 new dwelling units, which was unexpected, since the city had been growing at a rate of 20-25 new units per year. Under R.2d § 89, the case seems a no brainer. The modification is "fair and equitable in view of circumstances not anticipated by the parties at the time the contract was made."
The case would be more interesting if Mr. Maher were actually named Mr. Soprano and we had suspicions about the real reasons for the increase in the payments. We can imagine that such a Mr. Maher might defend himself as follows:
As Maher explained at Da Bing!
Waste management’s really our t’ing
It costs some cannoli
To dump your e coli;
‘Dis isn’t about buyin’ bling.
I thought I was done writing Limericks, but then I switched to the Kunz & Chomsky casebook and got inspired. In short,
Monday, September 3, 2012
The case is pretty plain vanilla. Vassilkovaska bought a car from Woodfield Nissan, Inc. (Woodfield). A dispute ensued over allegedly misleding terms in the finance agreement, and Vassilkovska sued in state court. However, Vassilkovska had also signed a separate arbitration agreement. The terms of the arbitration agreement provided that Vassilkovska had to arbitrate any "dispute" she had with Woodfield and provided for certain exceptions. The court found that the exceptions covered every sitution in which Woodfield would sue Vassilkovska and none in which Vassilkovska would sue Woodfield. As a result, the court found that there was no consideration for Vassilkovska's agreement to arbitrate. She promised to arbitrate; Woodfield promised nothing.
In the process of selling a car,
Woodfield took things too far.
Of compelled arbitration,
The parties must be on a par.
The last line should not of course be taken to indicate that there must be "adequate" consideration; only that both sides must give consideration that induces a reciprocal promise.
A student asked why Woodfield would have opted for a separate arbitration agreement over an arbitration clause in a purchase or finance agreement. I admit that I am stumped. Can anybody think of a reason why there could be an advantage to a separate arbitration agreement?
Monday, August 27, 2012
I've actually been in Limerick rehab for the past three years. But with a new casebook, I have some fresh material. I think I'm still a bit rusty because the facts of this case are highly Limerickworthy, and yet I'm uncertain that this is a keeper.
American Ash made available to paving companies a material known as AggRite -- all the paving companies had to do was cart it away. Pennsy Supply did so for use in paving driveways and parking lots in a high school in Northern York County, Pennsylvania. In fact, it carted away 11,000 tons of the stuff.
The AggRite didn't work so well, and the pavement cracked during its first winter. Pennsy perfomed all the repairs, which involved carting away and disposing of the AggRite, which it turns out is hazardous waste. I love the idea of dumping 11,000 tons of hazardous waste in a public high school parking lot. It's the kind of metaphor that could be at the heart of a Don DeLillo novel.
The Superior Court of Pennsylvania found that there was consideration and thus that Pennsy had a viable warranty claim (at least for the purposes of surviving a motion to dismiss/demurrer). American Ash received a benefit when Pennsy agreed to haul away 11,000 tons of hazardous waste for free.
Pennsy Supply, Innc. v. American Ash Recycling Corp. of Pennsylvania
The court found a bargain was closed
When American Ash Corp. disposed
Of its AggRite through Pennsy
In the ideal dispens’ry:
A lot to a school juxtaposed.
Friday, December 9, 2011
As I write, my students at the DePaul University College of Law are taking my Business Organizations exam. Because I visited at other law schools in Fall 2010 and this Fall, I have not taught contracts in two years. I miss it, but I had a great deal of fun with the DePaul students. They were very accepting of me despite the fact that I now have very long hair (for a business law professor) and I banned all use of laptops and electronic devices during class. As a result, my class had a rather unorthodox look to it, as the picture at right illustrates.
Somehow, a tradition developed in my afternoon class that one of the students would draw a little picture on the attendance sheet. But when I picked up the attendance sheet after the last day of class, there was no picture. I immeidately protested. After class, a student, who would neither confirm nor deny that he had drawn the previous pictures (the outcome of forensic testing is pending), drew a snowman holding a sign. On the sign, he wrote the following:
At first, I thought Telman a kook,
He looks like Jesus and no Facebook
But despite my apprehension
I actually paid more attention.
That Telman's okay in my book.
Monday, May 3, 2010
I turned up a Limerick from a case I haven't taught in a few years, so I thought I would share it. The connection to contracts law is pretty attenuated, but I'm sure we could find one if we looked hard enough. The issue in the case was whether or not Indiana's anti-takeover statute, the Control Share Acquisitions Chapter of Indiana's Business Corporation law, should be struck down as inconsistent with the Williams Act and the Commerce Clause.
The Williams Act provides for disclosure when any party gains control of over 5% of an issuer's shares. It also provides for certain procedural and substantive limitations on tender offers. The Indiana Act provided additional protections against tender offers for Indiana corporations by requiring a shareholder vote on whether or not the acquiror would be permitted to vote its shares once it crossed certain thresholds of ownership: 20%, 33.3%, 50%.
Judge Posner, writing for the Seventh Circuit and following the Supreme Court's plurality decision in Edgar v. MITE Corp., struck down the Indiana Act as inconsistent with the Williams Act and also with the Commerce Clause. Justice Powell (pictured), writing for the majority of the Supreme Court, reversed. While the Illinois statute at issue in MITE favored existing management over the rights of acquirors and shareholders alike, the Indiana Act was consistent with the aims of the Williams Act, in that it favored neither acquirors nor incumbent management and sought only to protect the rights of shareholders. It's impact on interstate commerce was negligible, and even if there was some slight discriminatory effect, that discrimination was acceptable in light of the internal affairs doctrine, that for the most part leaves the regulation of corporations to the state legislators that create corporations in the first place.
Justice Scalia concurred. He had no disagreement with Justice Powell on the law, but he was irked that Justice Powell ventured a judgment on the aim of the statute. He regarded it as "extraordinary to think taht the constitutionality of the Act should depend on" whether the Court thought that the Indiana Act aimed to protect shareholders of incumbent management. Justice Scalia seemed open to the view that the Indiana Act was idiotic but lawful and should be upheld regardless of its folly. Three dissenting Justices, following Posner's reasoning, would have found the Indiana Act to be a kind of unlawful folly.
CTS Corporation v. Dynamics Corporation of America
The Williams Act does not preclude
A state from protecting its brood.
Posner dislikes it;
Scalia won't strike it:
"It's law, so what if it's crude?"
Tuesday, March 30, 2010
Many who attended the Spring Contracts Conference at UNLV saw a presentation of the "Langdellian Limericks," in which the author explains to his dubious readers the educational purposes to which legal Limericks can be deployed. A few asked, if only to be polite, if the complete collection of contracts Limericks was available in one convenient place. The answer at the time was "no." But I have now revised the draft to include an appendix with my complete contracts oeuvre. The paper can be downloaded from SSRN here. Here is the abstract:
Theirs is no lone cri de coeur.
Now bashing Langdell’s de rigueur.
Knowing case law alone,
A young lawyer is prone
To resemble a high-priced poseur.
Monday, October 26, 2009
As I told my students, this Limerick makes history. It is the first time that a famous line of iambic pentameter has been slipped into a Limerick. The case to which it relates is a fairly simple one. Mr. Pittman and Mrs. Gilligan engaged in discussions about putting up a wall behind her beach-front property to protect it against erosion. The parties' accounts of these discussions differ. Mr. Pittman emerged with the belief that he had marching orders,so he constructed a large V-shaped barrier behind Mrs. Gillegan's Wisconsin property while she was in Chicago. Mrs. Gilligan was distracted because her husband kept yelling "SKIPPER!" Well, perhaps not. But in any case, she did not regard their conversation as resulting in an agreement, and she considered the new retaining wall a monstrosity.
The trial court chided Mr. Pittman for his careless way of doing business and found no meeting of the minds, but it granted Mr. Pittman leave to amend his complaint and to seek recovery based on unjust enrichment. The Supreme Court of Wisconsin was even less sympathetic, finding that there could be no recovery because Mrs. Gilligan did not in fact benefit from having a hideous concrete wall erected on her property. Mr. Pittman was simply going to have to absorb his labor and material costs.
This simple case inspired the following unprecedented legal Limerick:
Dunnebacke v. Pittman
Mrs. Gilligan was not in thrall;
No agreement could she recall.
Pittman may lose his biz,
But something there is
That doesn't love a wall.
After I recited this historic Limerick and informed my students that the last line two lines repeated a line from Robert Frost, one of my students uttered an incredulous, "That's it?!?" It was the first time one of my Limericks has been heckled. I have half a mind to go heckle her while she is studying.
I'll come upon her in the library, and say, "You call that reading? Come on, turn the page already! Pink highlighter, eh? You sure you got the right passages?"
Yeah. We stand-up law professors ought to give as good as we get.
Monday, October 19, 2009
There has been a lot of interest on the blog lately in the topic of contracts law and morality, e.g. here and here. Our comments section has been unusually active, which is terrific. A recent comment got me to thinking about Market Street Associates v. Frey.
That case involved a lease agreement between GE Pension Trust (GE) and Market Street Associates (MSA) as the assignee of JC Penny. The lease had a provision that allowed MSA to seek a loan from GE for the purpose of improving the property. If GE refused, MSA had an option to buy the property for the original purchase price plus 6% annual interest.
MSA offered to repurchase the property from GE, but GE demanded $3 million, which MSA thought was too much. MSA then requested financing, and when GE refused on the ground that it was not offering loans in amounts less than $7 million, MSA demanded the sale of the property pursuant to the lease provision. Under the terms of the lease, MSA would have been entitled to buy the property for about $1 million. GE claimed that because MSA had failed to remind it of the option in the lease, MSA had acted in bad faith.
The district court granted summary judgment to GE, finding that under the doctrine of good faith or simply as a matter of contract interpretation, MSA had a duty to remind GE of the option provision. This led Judge Posner to a lengthy rumination on the nature of terms such as “good faith” in contract law. Not surprisingly, Judge Posner does not find these terms very useful. However, he was able to explain the value of the doctrine of good faith in economic terms, and that permitted him to find that in fact MSA's conduct might well have violated the duty to act in good faith.
For Posner, what we call the duty of good faith is really just about reducing transactions costs by creating a disincentive to sharp practices in the course of performance. Sharp practices, says Judge Posner, are perfectly fine when negotiating a deal, but once the parties enter into an agreement, they are now in a “cooperative relationship” in which each lowers her guard. The doctrine of good faith thus protects against opportunistic behavior that can arise in the context of the sort of bilateral monopoly that can develop after the parties have committed themselves to a contractual relationship.
As many commentators on the blog have pointed out, there are many reasons to doubt that the moralizing tone underlying terms such as “good faith” could or should be eliminated from contracts law. But even assuming we were to attempt to understand contracts law entirely in terms of transactions costs, Posner’s position remains highly dubious.
First, at least since the Restatement (2d) and the UCC, contracts law has been sensitive to the difficulty of attempting to pinpoint the moment at which a threshold from a pre-contractual to a post-contractual relationship has been crossed. Parties continue to negotiate and change deals as they go. There is thus little reason to suspect that parties immediately let down their guards once they have entered into a cooperative relationship.
Second, if sharp practices increase transactions costs, then they do so regardless of when they occur. A party that engages in sharp practices will get a reputation for doing so. Other parties dealing with that party will be cautious and will engage in extra diligence that will complicate negotiations and may ultimately prevent many deals from occurring because a fundamental mistrust cannot be overcome satisfactorily.
Finally, if one is really interested in reducing transactions costs, then hold sophisticated, well-resourced parties to the terms of the agreements they sign. If GE wants a provision requiring notice before its contractual partner triggers its option to purchase, it can very easily write that duty to notify into the contract. A party like GE should have no recourse to a doctrine like good faith when it had the means and the ability to protect its own interests in both the pre- and the post-contractual moments.
Still, Posner opinions are always stimulating and thus Limerickworthy:
Market Street Associates v. Frey
“Don’t get moralistic with me,”
Said Judge Posner to trustee, GE.
“Though when I hear ‘good faith,’
I reach for my . . . Wraith.
Opportunists ain’t my cup o’ tea.”
Monday, October 5, 2009
I promised last week that I would discuss Brackenbury v. Hodgkin, 102 A.2d 106 (1917), and provide a companion Limerick to go with Fitzpatrick v. Michael. In that case, I suggested that specific performance might have led the parties to a reasonable settlement of their dispute. Ms. Fitzpatrick had been serving as Mr. Michael’s live-in nurse and caretaker. Apparently induced by his grasping, conniving relatives to oust her, Mr. Michael terminated the relationship. The court felt uncomfortable ordering two people to live together. I think the court could have done so confident in the knowledge that they would quickly come to an agreement that would give Ms. Fitzpatrick at least a partial benefit of the bargain but would not involve court-supervised cohabitation.
But the next case suggests at least one reason why law
professors might make lousy judges.
People have this nasty habit of not always behaving as rational choice
theory suggests they should. Sarah
Hodgkin (pictured), an aging widow, had six children, none of whom were willing to look
after her. Her one daughter
agreed to do so in return for income from the farm on which Sarah lived, use of
the household goods and ownership after the property after Sarah’s demise. So, the Brackenbury family moved from
Independence, Missouri to the outskirts of Lewiston, Maine.
But the next case suggests at least one reason why law professors might make lousy judges. People have this nasty habit of not always behaving as rational choice theory suggests they should. Sarah Hodgkin (pictured), an aging widow, had six children, none of whom were willing to look after her. Her one daughter agreed to do so in return for income from the farm on which Sarah lived, use of the household goods and ownership after the property after Sarah’s demise. So, the Brackenbury family moved from Independence, Missouri to the outskirts of Lewiston, Maine.
It took all of two weeks before “the relations between the parties grew most disagreeable,” and Sarah sought to get out of her promise by transferring ownership of the property to her son Walter. The Supreme Judicial Court of Maine found: (1) a contract that (2) created an equitable interest, (3) that Sarah had breached her duty of performance because she was primarily at fault; and (4) that the Brackenbury family had no adequate remedy at law.
The parties were ordered to continue their arrangement, which included cohabitation. If they had been rational, the parties ought to have either quickly settled or learned to get along. They chose to do neither. Poor Sarah was forced to eat with an old iron fork with two tines broken off and when she asked that food be passed her way at the table, it was passed in the Peyton Manning sense of the word.
This conduct is Limerickworthy. As the Fitzpatrick Limerick is from the perspective of the judge, this one of from Brackenbury’s perspective:
Brackenbury v. Hodgkin
I’d sooner kiss a chimera
Than put up with my in-law, Old Sarah,
Now whenever she dines,
Her fork has but two tines,
And her home ain't no French Riviera.