Paradine, WTC, and the beauty of property and contract
posted by Mark Edwards
One of my most vivid memories of my 1L year was being called upon to present Paradine v. Jane in my property class. I had escaped my stern professor’s lottery system for almost the entire semester. Nervously briefing the case, I discovered that it was (a) written in clipped, indecipherable, Shakespearian English and (b) about as relevant to my life as the second law of Hammurabi. Naturally, I was called upon to explain it.
As I stumbled through it, my classmates giggled at the absurdity of the facts. For those who don’t remember, the facts are these: in 1642, Jane had leased land from Paradine, with rent owing at “the four usual feasts.” Shortly thereafter, the land was occupied by an army that had “invaded the realm,” commanded by the ruthless Prince Rupert. Jane did not regain possession of the land for 3 years. When he regained possession, Paradine sued him for back rent. Jane refused to pay, arguing that he was not liable for rent for land he couldn’t use and possess through no fault of his own.
The court found for Paradine, holding that the lease included an implied covenant to pay rent, come hell, high water, or invading princes. The court reasoned that Jane could have avoided liability under such circumstances by contracting to avoid it; that risk allocation was presumably reflected in the price of the lease; and that since Jane stood to take the upside of unanticipated profits, he must also assume the downside of unanticipated losses. The case is often taught in contracts courses as an impossibility case, but the facts struck me as just a bit unlikely to resemble any issue I might confront in practice.
My doubts about the continuing relevance of Paradine v. Jane were erased by the attacks on September 11, 2001. On that day, a contemporary Prince Rupert attacked again. At the WTC, lessees were deprived of use and possession of land through no fault of their own, and would be for years. As in Paradine, the question arose: who should bear the cost?
Paradine and the WTC attacks are, I now believe, ideal vehicles for teaching several critical concepts about the roles property and contract law play in society.
To see how, it helps to examine the terms of the lease between the owner of the WTC properties, the Port Authority of New York and New Jersey, and their lessee/sublessor, Silverstein Properties. In July, 2001, the Port Authority entered into a 99-year net lease with Silverstein for WTC building 1, 2, 4 and 5. The terms of the lease required a $600M up-front payment, followed by rent of $102M per year, plus a percentage of revenue. The lease provided that Silverstein would be responsible for restoring the buildings in the event of casualty, and that rent would not abate during the restoration period.
The deal nearly fell apart several times during negotiations, in part because Silverstein was required to obtain sufficient insurance to meet its obligations. At first, students usually think that Silverstein got the short end of the stick. But the price he paid reflected carefully planned risk allocation.
And when disaster struck on September 11, the duties and obligations of the parties were relatively clear, and the web of risk allocation was relatively stable. It’s true that there have been many disputes – including, most famously, whether the attacks constituted one or two “events,” and therefore whether Silverstein was entitled to $3.5B or $7B from the insurers – and several modifications to the terms of the lease as rebuilding commences. Silverstein eventually settled with the insurers for $4.6B. In 2006, the Port Authority reacquired rights to WTC 1 and 5 from Silverstein, while Silverstein acquired rights to WTC 3. After several false starts, the Port Authority and Siverstein agreed to a framework and timeline for reconstruction of the complex, as well as construction of a memorial and the proposed Freedom Tower.
But, on the whole, the system of duties and obligations designed through our property and contract law traditions absorbed the disaster and allowed the social and economic system to continue working. The expectations of the parties were reflected in the bargain they struck in July, 2001, including the allocation of risk, and those expectations were enforced. Because it was foreseeable that those expectations would be enforced, the parties took sufficient measures to insure that risk. As horrific as the attacks were, the social and economic duties defined through property and contract law held. The system absorbed the shock and moved on.
There’s a beauty in that system, because it is the product of hundreds of years of careful, thoughtful and democratic human endeavor. It’s undoubtedly wishful thinking, but I like to imagine Al Qaeda frustrated. They planned a massive, ambitious attack for years. They sacrificed 20 of their most ardent adherents. They pulled off a once-in-a-lifetime spectacular blow, toppling WTC 1 and 2, in the economic hub of the United States, murdering thousands of innocent people. And what result? Economic collapse? Civil war? Rioting? None of the above. When we needed it most, law worked. It took Al Qaeda’s worst blow and shook it off.
To my mind, where we have gone wrong in fighting Al Qaeda is where we have decided that our legal traditions are inadequate to the task of coping with this “new reality.” Some have claimed that we must operate under a new system that permits us, among other things, to listen to private conversations without warrant, to detain people indefinitely without charge or trial, to torture, to act in “pre-emptive self-defense.” The lesson of Paradine v. Jane, and of the WTC leases, is that a thoughtful, predictable and just legal system can absorb almost any blow, and preserve the social bonds upon which it is based.
December 8, 2008 at 4:53 pm
Posted in: Property Law
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Responses (7)
James Grimmelmann - December 8, 2008 at 10:17 pm
I’m not sure that Paradine v. Jane will bear the weight you’d like to place on it. The ruthless Prince Rupert was actually a nephew of King Charles I, and the occupation at issue in the case involved a Royalist army. It was only possible for the legal system to describe Rupert as an “enemy” in hindsight, once Parliament had taken control and imprisoned Charles. There’s a kind of willful blindness to politics and government in the case; it stands for a set of orderly legal principles within an overall framework that pushed at the meaningful limits of the rule of law. Note, for example, that poor Jane had no recourse against his actual disposessor, nor did either King or Parliament take responsibility for compensating him.
Mark Edwards - December 8, 2008 at 10:25 pm
I know the history. I think Prince Rupert’s reputation among the rebels was one of singular ruthlessness. The picture of him embedded in the post depicts his penchant for burning cities and killing civilians. He later went on to a career as a pirate, until the Royalists regained power.
I think blindness to politics and government is, unfortunately for Jane, a strength of the decision. The parties are free to bargain among themselves and will be held to the terms of the bargain.
More importantly, Paradine, in its small way, helped set the stage for the types of arrangements that helped absorb the blow of September 11th.
A.J. Sutter - December 8, 2008 at 11:55 pm
As the Talmud says, let your ears hear what your mouth is saying. The aspect of law that “took Al Qaeda’s worst blow and shook it off” is the law of private property. When it comes to the law of human rights, though, you yourself note that this took a very big hit. Wouldn’t it have been more of a triumph of our legal system if these priorities had been reversed? It is heart-warming when insurers are forced to pay for the risks they insured, but did we really “shake off the blow” when we resorted to the dubious or even brutal measures you describe in your last paragraph? The parallel to Paradine may be nice to mention in class, but in drawing your larger lessons from the WTC case you’re foregrounding the wrong story.
James Grimmelmann - December 9, 2008 at 10:16 pm
By “arrangements that helped absorb the blow,” you mean things like the Victim Compensation Fund?
Lori Ringhand - December 10, 2008 at 1:03 pm
Name names! I want to know who this allegedly “stern professor” is who taught you property. I’m not buying it.
Mark Edwards - December 10, 2008 at 1:20 pm
James — No, I was thinking of the insurance and re-insurance contracts the net lessee (Silverstein) obtained, knowing that he was liable for the costs of restoration without rent abatement. When the parties know where they stand, because they are free to contract to allocate risk and will be held to the terms of the contract, they are able to prepare. The web of insurance and reinsurance acted like a net the dispesed the economic shock of the attacks. Ultimately, in terms of economics — and clearly not in terms of human life — the planes hitting the towers were like rocks hitting a pond. The effect rippled out, was absorbed, and the system’s equilibrium was not disturbed.
Lori, my former classmate — ha ha, I think you can guess who the stern professor was. At least, he seemed stern to my 1L self (I later discovered he was a very, very nice man). But at the time, he had a very intimidating moustache, and that alone was enough to scare the bejeesus out of me.
Mark Edwards - December 10, 2008 at 1:24 pm
For “the dispesed” please read “that dispersed.” All of a sudden I’m writing like the judge in Paradine.
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