Category: Contract Law & Beyond

1

Is this form contract enforceable?

I taught Carnival Cruise Lines v. Shute today. So the issue of form contracts was particularly salient when I read the form contract for Pollhost.com, a site that provides polls for blogs. The contract is tightly drafted, with a number of clauses that vary what you’d normally think of as the default law. For example:

Pollhost’s failure at any time to enforce any provision of these terms of service shall not constitute a waiver or limitation of Pollhost’s right subsequently to enforce every provision of the terms of service.

Pollhost shall have the sole discretion as to what what constitutes a violation of any of these terms.

NOTWITHSTANDING ANYTHING ELSE IN THESE TERMS OF SERVICE OR OTHERWISE, POLLHOST SHALL NOT BE LIABLE FOR ANY DAMAGES, INCLUDING WITHOUT LIMITATION DIRECT, INDIRECT, CONSEQUENTIAL, SPECIAL, OR EXEMPLARY DAMAGES, INCLUDING WITHOUT LIMITATION DAMAGES FOR LOST PROFITS, PROCUREMENT OF SUBSTITUTE GOODS, GOODWILL, DATA, OR OTHER LOSSES (EVEN IF POLLHOST HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES) ARISING OUT OF OR RELATED TO YOUR USE OF OR INABILITY TO USE THE SERVICE.

What do you think, is this form contract enforceable? Take the poll!

Is the form contract enforceable in your state?

  
Free polls from Pollhost.com

2

Substance, Institutions, and the Real Value of Commercial Law Scholarship

Slums.jpgAs anyone who spends any time reading scholarship on contract law or commercial law can tell you, efficiency is a big deal. There are a lot of very smart people who spend a lot of their time worrying about whether this or that remedies rule is efficient or whether giving secured lenders complete priority in collateral is inefficient. I wonder, however, whether any of this stuff matters. What I am talking about is not the normal grumpiness that law and economics invokes in some — objections to the rational actor model, furious citations to Dworkin on the evils of efficiency as a normative criteria, or ritual invocations of various behavioral arguments — but rather the basic question of how much the content of the law matters. Imagine for a moment that you think that the primary goal of contract and commercial law ought to be the generation of wealth. Does the content of that law matter all that much?

In the context of American law this may seems like an odd question. After all, if we aren’t arguing about the content of the law, then what exactly would we be arguing about? The problem, it seems to me, is that the very success of American private law makes many of our discussions about it rather surreal. One can, of course, have lots of arguments about the extent to which the American markets that rely on American private law are efficient, or whether they would be made more efficient if we were to tweak this or that section of the Uniform Commercial Code. Yet, on the whole, it is difficult to deny that in the aggregate American markets are tremendously successful at creating wealth, indeed more wealth than has ever been seen by any society on the face of the planet ever in the history of the world. No small accomplishment that. On the other hand, there are places in the world where private law doesn’t seem to work particularly well, where whole societies are extremely poor, and the markets aren’t producing much in the way of wealth. My question, however, is the extent to which economic failure in such societies is a function of their substantive law or of their legal institutions.

Read More

6

Is Torture Insurance A Smart Investment?

torture.jpgThe Washington Post reports that CIA operatives and other government officials are buying “government-reimbursed, private insurance plan that would pay their civil judgments and legal expenses if they are sued or charged with criminal wrongdoing.” According to the article, the insurance costs around $300 a year and “would pay as much as $200,000 toward legal expenses and $1 million in civil judgments. Since the late 1990s, the CIA’s senior managers have been eligible for reimbursement of half the insurance premium.”

Suppose you are spook, who either already has, or plans to, engage in activities that some pesky court might deem to be torture. Are these policies a good buy? I have some questions.

First, I wonder whether the insurance contract is enforceable. Normally, contracts to indemnify promisees against intentionally illegal conduct are unenforceable, especially to the extent that the conduct is more than an “undesired possibility” and the promise “tend[s] to induce its commission.” Farnsworth, Contracts 5.2 (4th ed.) This makes for close calls (securities fraud indemnification, for example). But, in the event that these policies come due, torture won’t be a close call. That is because it seems obvious that the reason there is a run on these policies is that that our intelligence agencies, together with the futures markets, are betting against continued Republican occupation of the white house after ’08. As the article points out,

‘if an individual does get sued in the course of their official duties, then you get the biggest law firm in the world to step in’ — the Justice Department. Justice regulations allow defending federal workers if the conduct is within the scope of an employee’s job and doing so is in the government’s ‘interest.’

Presumably, a democratic victor in ’08 would face significant pressure to repudiate alleged torturers, and might decide that it isn’t in the United States’ interest to pay their legal bills. (The resulting potential lawsuits against the government remind me of the KPMG case.) In that event, presumably the anti-torture environment will be more stark, making it (a) less likely that the insurance companies will honor their contracts-to-defend; and (b) more likely that the merits litigation will go against the agents.

Second, the agents might think “who cares about the legal rule, won’t the company choose to defend me anyway to keep repeat business with the Agency?” This is a good argument, though it depends on a decidedly progressive relational contract theory. The company writing the claims is reportedly “a subsidiary of the private Special Agents Mutual Benefit Association created by former FBI officials,” and doesn’t appear to be or potentially subject to much public pressure. But according to (what looks like) the plan in question, they exclude coverage for “[d]amage arising out of willful violation of a penal statue or penal ordinance committed by or with the knowledge or consent of the member, or damages arising out of acts of fraud committed by or actual intent to deceive or defraud.” So the insurer has wiggle room in some cases to deny coverage.

Finally, I wonder about the interaction between this coverage and qualified immunity defenses. I assume that evidence of coverage would be a good indication that an agent’s purported good faith belief in the legality of his or her conduct was in fact not genuinely held. Perhaps this has been tested in an analogous context: do our readers know of a case on point?

(H/T TPM Muckraker)

3

Finding Your Inner-UCC

I just finished my first bit of teaching as an academic. The first day of class went really well. I am teaching Commercial Law (Secured Transactions). I started out by talking about contracts in Elizabethan drama — in particular in A Merchant of Venice and Dr. Faustus — and why they get treated so badly. We then went on to the central role of contract in a modern society and the problems that it creates. From there we moved on to the idea of security and how it interacts with contract, outlining the the central economic and normative problems that it creates. We finished up by discussing a California case the illustrated the policy and normative arguments. The students seemed very engaged and we had a good discussion going. The second day of class we went through the rules governing the attachment of security interests to personal property. It was a bit of a flop. The students hadn’t read the code. We worked through the problems and spent a large amount of time on basic questions and never even got to the difficult interpretive issues or policy questions. Afterwards I was talking to one of my colleagues about the difference between the two days. Why did the first day go so well, while the second day went so badly?

He responded, “The first day is easy. Talking nothing but big picture and policy is about getting students in touch with their inner moral sense. It’s not really all that hard. On the second day, you were teaching law. Students don’t have an inner Uniform Commercial Code to get in touch with, and getting them to grasp the real UCC is hard. Of course, you could be teaching con law, where there is no law to get in touch with and it is just students’ inner moral sense for the whole semester…”

6

Post-Nuclear Holocaust Movies and the Academic Job Market

thunderdom.jpgGordon Smith has a post about interview questions for prospective law professors. Having recently run the gauntlet of the meat market, this is a topic where memories are still fresh in my mind. I remember one question in particular. It was during an on-campus call back interview. I gave my job talk — a piece on the relationship between autonomy theories of contract and corporations — and then waited for the faculty questioning. By this time I had given the paper about a half dozen times, and I thought that I pretty well knew what points were going to get raised. Not so. A faculty member raised his hand and asked the following question: “Can you please explain to me how autonomy theories of contract would deal with the remedy provided for breach in Mad Max Beyond Thunderdome where the rule is ‘break a deal, face the wheel’?”

Mad Max Beyond Thunderdome, of course, is the classic Mel Gibson-Tina Turner movie about life in Australia after a nuclear holocaust has destroyed civilization as we know it. Those who breach their contracts in the post-apoclyptic world must spin a wheel — rather like the Wheel of Fortune — on which are written various punishments. Whatever punishment the wheel lands on is meted out to the breaching party.

I replied by pointing out that a commitment to an autonomy theory of contract requires a rather more expensive enforcement mechanism, because it is necessary for adjudicators to invest resources in discerning the actual intent of the parties in so far as they are able, rather than relying on cheaper, more formalistic modes of interpretation. Presumably in the post-apoclyptic world, the resources that society has available for the resolution of contractual disputes are reduced, and therefore they adopt remedies rules that require less fact finding. Spinning the wheel, for example, doesn’t require that the court invest any additional resources in calculating the value of the disappointed promisee’s expectation measure. In a world, however, that has not been devastated by nuclear war, society has the resources to devote to a more nuanced approach to contractual disputes, although if we take efficiency as the sole goal of contract law, then a process of largely randomized remedies like the wheel may be superior.

I thought it was a pretty good answer. On the other hand, I didn’t get an offer from that school…

13

Claim of Unilateral Mistake Confers Right to Repossess Non-Financed Car?

A quick contracts/property/tort/consumer law hypothetical for incoming first-year law students (and their professors) to ponder over:

Car dealer sells a used pick-up truck to Buyer for $8,100 and a trade-in. Buyer pays the full amount by personal check and drives the truck off the lot. Dealer then calls Buyer at home and tells him that they looked up the wrong number in their book; the truck actually costs $10,000 more. Dealer tells Buyer that either he has to return the car and they’ll pay him $500 for his trouble, or he needs to cough up the extra $10,000. Buyer refuses.

In the middle of the night, the Dealer comes and “repossesses” the truck from Buyer’s driveway. Buyer’s trade-in is returned to him. Buyer’s check is not cashed.

Dealer claims that the contract was invalid because “one party ma[de] a mistake, and the other party knew or should have known that a mistake was made.” (See here for more details from WTVF-Nashville, and note the video link on the upper right. The file-dropping bit seems right off the Daily Show.) Assume that the Blue Book value of the truck is $21,240, and the trade-in was worth only a nominal amount.

Discuss; was there a valid contract? What claims does Buyer have, and even more important, what remedies should he get?

(HT: Consumerist)

4

What doctrinal facts drive scholarship?

law-books.jpgI recently had a conversation with an acquaintance about the predicament of con law scholars. He made the point that the decline in the Supreme Court’s docket has had a big impact on con law scholarship. It used to be the case, he said, that the Court was churning out enough new decisions that con law professors could keep busy working out doctrinal puzzles and fitting the new cases into their vision of the fabric of constitutional law. With fewer cases to work on, however, con law professor have to find something else to do.

It got me thinking about how the law influences legal scholarship. For example, right now I am working on a project in contract law. Here it seems to me that one of the main legal facts influencing scholarship is the sheer stability of contract doctrine. It wouldn’t do to over state this, of course. Contract law continues to evolve and new cases come out that try to fit new practices into old categories. Still, thanks I suspect to the success of the Restatements, much of contract law is fixed, and has been fairly fixed for quite some time. Hence, one of the main puzzles is working out why the particular shape that the law has might or might not be justified. There is less interest in figuring out how the Georgia Supreme Court’s latest consideration case fits into the law than in trying to figure out what the basis of consideration might be. Indeed, one of the striking things about contract is that you can read theoretical discussions of contract doctrine from the 1930s and 1940s and in many ways (although not all) the doctrinal discussion doesn’t seem especially dated. There aren’t all that many cases where you read something by Lon Fuller or Morris Cohen and think, “Well that is no longer the rule….”

If con law is characterized by a decreasing flow of cases to write about and contract is characterized by a (relatively) stable set of rules, I wonder what the doctrinal facts driving discussions in other fields might be.

5

Carving Up Contracts

butcher.jpgI’ve been spending the day carving up my Contracts course. This coming year, Temple, following in the footsteps of many law schools, is transitioning from a two-semester, six-credit, glorious romp through the law of contracts to a one-semester, four-credit, forced march.

This isn’t a data point, it’s a trend. There is an article to be written – perhaps it has been? – about the long, slow, decline of the year-long first year course. While a generation ago, most courses were taught in the year format, today only a few schools have as many as one course taught this way. [I myself had year-long civil procedure and criminal law classes, but we were the only section at school so blessed.] For some reason, until recently contracts had been the holdout. Why? My preferred theory is that the course is uniquely complicated and foundational. Or, you might believe that contracts is so doctrinally incoherent that it demands more attention. Or, perhaps, it was Kingsfield‘s ghost.

So I’m cutting away. First, the fat of the class: cases marbled through with neat applications to other classes, wonderful diversions of history and policy, but not totally dedicated to the project of determining when and how to enforce promises. Tortious interference and the Texaco case? Gone. The restitution interest? Mostly ignored. Farewell as well to agency, third-party bennies, assignment and delegation, duress, incompetency, and infancy.

But that wasn’t enough. So, with a heavy heart, I’ve started to trim closer to the bone. Less interpretation and parol evidence, (much) less consideration, and now barely a touch on relational theory and impracticability. A consolation prize: I get to cut most of my promissory estoppel unit in good conscience. Good riddance!

Of course, I realize that the entire first year curriculum has experienced this loss over time, and law students have reaped compensatory benefits: electives in various subjects, less focus on common law instruction, more skills courses, and a greater variety of teachers in the first year. All to the good. But I can’t help thinking that each of the grand old first year subjects has lost a case (or a facet of its subject matter) to shrinkage, and (as a result, hypothesizes Larry Solum?) some areas of law aren’t getting the scholarly focus they used to. I know it isn’t a big tragedy for law students to graduate without having learned a thing about the infancy defense to a breach of contract action, but just now, as I cut that concept from my notes, it feels like a small one. And I’ve only taught the course twice through. Imagine if I’d gotten really attached!

3

18th Century Venture Capitalists

dismal.jpgAs I posted earlier, of late I have been reading Virginia history. I have one title to suggest: Charles Royster, The Fabulous History of the Dismal Swamp Company. It is an tremendously detailed history of one of the great 18th century land speculations, the attempt to drain and sell the Great Dismal Swamp on the Virginia-North Carolina border. George Washington was one of the movers and shakers in the company, but other characters in the story include names like George Wythe, Richard Henry Lee, Patrick Henry, and a host of other luminaries from the American Revolution, as well as lesser known names like Christopher Gist, a Virginia merchant who helped to found Lloyd’s maritime insurance business.

Royster is a good writer and — for me at least — the narrative works nicely. The research represented by the book is awe-inspiring and the result is an enormous wealth of detail about everything from family politics (everyone who was anyone is colonial Virginia was related to everyone else) to imperial politics. At the center of the story, however, is what amounts to a venture capital deal.

To me one of the most fascinating parts of the story is the role that the events of the American Revolution play in it. The Dismal Swamp Company was founded as the Seven Years War (aka the French and Indian War) was coming to an end and its story twists through the years leading up to independence. Furthermore, given the vast scale of the project it inevitably became entangled in colonial and ultimately metropolitan politics. Hence, the events of the Revolution play out in the story, but in a new angle. They are not at center stage. Rather, the Stamp Act and Patrick Henry’s fiery speeches in the House of Burgesses are secondary characters who come on and off stage only as they impact the unfolding drama of the deal.

If one sees history in legal terms, the plots are often structured around public law stories in general and constitutional ones in particular. Royster’s book is, in a sense, the private law story of the American Revolution. He is not a legal historian, but the law is hardly a bit player in his story. The drama, however, centers less around constitutional arguments about rights and representation than around bills of exchange, maritime insurance contracts, mortgages, debts, collection actions, wrangles over title to land, corporate governance, and the like, all of which propel the characters in the story via various complicated paths to ruin or fortune.

Definitely worth reading.

3

The Foie Gras Wars and the Ideology of Contract

gras.jpgGenerally speaking debates in contract law get played out according to a well-worn ideological script. On one side are the heartless conservatives who think that a contract is a contract is a contract and that folks ought to be able to deal or not deal on whatever terms they wish and that the law should confine itself to enforcing the deal as written. On the other side are the bleeding-heart liberals who insist that the vision of the marketplace as an arena of free choice and personal autonomy is an illusion and that a host of supposedly “voluntary” associations are shot through with coercion that the law ought to be policing. Or at least that is the way that the discussion tends to play out in a first year contracts class. Which is why foie gras is so much fun.

Read More