Category: Contract Law & Beyond

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SCOTUS Sustains Assault on Contractual Freedom

The Supreme Court continues to reject freedom of contract and the power of contracting and state contract law in favor of its national policy favoring arbitration.  Most recently, in a per curium opinion in Nitro-Lift v. Howard, it said Oklahoma is not allowed to apply its own contract law to evaluate the validity of classic contract terms (here covenants not to compete). Instead, due to SCOTUS takes on a federal law and the presence of an arbitration clause in the contract, arbitrators make that decision.

The Court’s opinion stresses its conception of a national policy favoring arbitration, which it has found in recent decades in a century-old statute, the Federal Arbitration Act.  That emphasis on this “national policy” marks a retreat from the false pretenses that infect the Court’s precedents on the subject, which pretend to be engaged in the application of contract law.

Despite that improvement in the Court’s honesty, it remains the case that the Court’s approach to this subject diminishes traditional principles of contract laws and the value of contracts.  People are held to bargains they did not make or that are recognized by contract law as illegal.  But the Court insists that no court is allowed to consider these questions, thanks to its statement of national policy.

In numerous past SCOTUS cases, dissenting opinions were routinely filed exposing the flaws in the Court’s jurisprudence. The recent per curium opinion may signal capitulation, indicating that there are no longer any Justices prepared to object to these mistakes. That defeat means it is clearly time for Congress to rein the Court in. It should make it clear that state courts are responsible for developing and applying state contract law, not SCOTUS, federal courts or private arbitrators.

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CELS VII: Low Variance, High Significance

[CELS VII, held November 9-10, 2012 at Stanford, was a smashing success due in no small part to the work of chief organizer Dan Ho, as well as Dawn Chutkow (of SELS and Cornell) and Stanford's organizing committee.  For previous installments in the CELS recap series, see CELS III, IV, V, and VI. For those few readers of this post who are data-skeptics and don’t want to read a play-by-play, resistance is obviously futile and you might as well give up. I hear that TV execs were at CELS scouting for a statistic geek reality show, so think of this as a taste of what’s coming.]

Survey Research isn't just for the 1%!

Unlike last year, I got to the conference early and even went to a methods panel. Skipping the intimidating “Spatial Statistics and the GIS” and the ominous “Bureau of Justice Statistics” panels, I sat in on “Internet Surveys” with Douglas Rivers, of Stanford/Hoover and YouGuv. To give you a sense of the stakes, half of the people in the room regularly use mTurk to run cheap e-surveys. The other half regularly write nasty comments in JELS reviewer forms about using mTurk.  (Oddly, I’m in both categories, which would’ve created a funny weighting problem if I were asked my views.) The panel was devoted to the proposition “Internet surveys are much, much more accurate than you thought, and if you don’t believe me, check out some algebraic proof.  And the election.”  Two contrasting data points. First, as Rivers pointed out, all survey subjects are volunteers, and thus it’s a bit tough to distinguish internet convenience samples from some oddball scooped up by Gallup’s 9% survey response rate.  Second, and less comfortingly, 10-15% of the adult population has a reading disability that makes self-administration of a survey prompt online more than a bit dicey.  I say: as long as the disability isn’t biasing with respect to contract psychology or cultural cognition, let’s survey on the cheap!

Lunch next. Good note for presenters: avoid small pieces of spinach/swiss chard if you are about to present. No one will tell you that you’ve spinach on a front tooth.  Not even people who are otherwise willing to inform you that your slides are too brightly colored. Speaking of which, the next panel I attended was Civil Justice I. Christy and I presented Clusters are AmazingWe tag-teamed, with me taking 9 minutes to present 5 slides and her taking 9 minutes to present the remaining 16 or so.  That was just as well: no one really wanted to know how our work might apply more broadly anyway. We got through it just fine, although I still can’t figure out an intuitive way to describe spectral clustering. What about “magic black box” isn’t working for you?

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1

F-Words: Fairness and Freedom in Contract Law

As I read “Facing Limits,” Larry’s chapter on unenforceable bargains, I had to pause and smile at the following line:

People often think that fairness is a court’s chief concern, but that is not always true in contract cases (p. 57).

I still remember the first time someone used the word “fair” in Douglas Baird’s Contracts class. “Wait, wait,” he cried, with an impish grin. “This is Contracts! We can’t use ‘the f-word’ in here!”Of course, Larry also correctly recognizes the flip side of the coin. If courts are not adjudicating contracts disputes based on what is “fair,” we might think that “all contracts are enforced as made,” but as Larry points out, “that is not quite right, either” (p. 57).

Pedagogically, Contracts in the Real World is effective due to its pairings of contrasting casebook classics, juxtaposed against relevant modern disputes. In nearly every instance, Larry does an excellent job of matching pairs of cases that present both sides of the argument. I don’t mean to damn with faint praise, because I love the project overall, but I feel like Larry may have missed the boat with one pairing of cases. Read More

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Using Contracts in the Real World in the Classroom

Aside from the deeper theoretical questions that Prof. Cunningham raises about contract theory in Contracts in the Real World,  the heart of the book is in its fun, rollicking, and thoroughly modern examples.

Every contracts professor should take a look at this book to glean ideas for real-world examples and hypotheticals.  Even if your textbook is stuck in the world of itinerant homesteaders, ships using astrolabes for navigation, and delayed industrial components (shout out to Kirksey, Raffles, and Hadley v. Baxendale!), your students will appreciate the use of some fun celebrity stories to liven up the classroom discussion.

The last time that I taught Contracts, for example, I did a series of hypotheticals based on Charlie Sheen’s contractual troubles.  Based on Prof. Cunningham’s materials, I was able to structure some hypotheticals based on Sheen for my unit on conditions.    The students seemed to appreciate it, and in fact, I have asked a student from my class last year to share her impressions with our blog readers. It appears here

 

Miriam Cherry is Professor of Law at Saint Louis University School of Law.  Some of her scholarship can be found at this link on SSRN.

0

Modern Technology: A Disruptive Influence on Contract Doctrine?

In my view, modern technology has exacerbated the doctrinal tensions within contract law.  Currently, clickwraps and browsewraps stretch the notion of mutual assent to its extreme, perhaps warping it in the process.

The recent literature on form contracting online has been substantial.  While some of this literature sees online contracting as a natural inheritance to traditional contract law doctrine, other commentators have argued that contracting online has distorted the doctrine.

In Contracts in the Real World, Prof. Cunningham attempts to reconcile two recent cases, Specht v. Netscape and Pro-CD v. Zeidenberg, as part of his treatment of the theme of contract formation and mutual assent.  As much as he tries, to me the cases still seem to be in conflict.

And if that weren’t enough, two well-known additional cases that dealt with late-arriving terms inside a computer box, Hill v. Gateway and Klocek v. Gateway, blatantly contradict each other, with contrary holdings on virtually identical facts.

In my mind, these contradictions reveal a mismatch in the doctrine and the reality on the ground.  If there is no way for consumers to read or understand, or perhaps even see these clickwrap agreements, it hardly seems fair to bind consumers to them.  As seen above, however, this leads to contradictory rulings.

Inconsistent holdings create the appearance of an arbitrary justice system, and these disputes, which are governed by the Uniform Commercial Code, should turn out in a uniform manner.  When they do not, it only intensifies the debate about how to deal with online contracting and adhesion contracts online.

As we all continue to click our way through countless EULAs and are told that we are subject to “terms and conditions” that no reasonable consumer has had the time to read,  I do not believe that it is enough to hope that antiquated laws will handle new situations.

Instead, I would suggest that we need to continue to build on the wisdom of contract law.  While there is much to celebrate in the received wisdom of ancient doctrines, we must also recognize that it is the common law’s dynamism and adaptability that have led to its genius.

 

Miriam Cherry is Professor of Law at Saint Louis University School of Law.  Some of her scholarship can be found at this link on SSRN.

0

Contracts Outside the Box

Let me start out with a criticism of Larry’s book: it is too much fun. I had a hard time breaking off just a chunk of Contracts in the Real World to write about and found myself spending several hours reading one interesting vignette after another on famous and infamous contracts.

The book will make a wonderful companion text to a traditional contracts casebook. Its value is not just in its engaging account of contract stories or in giving context to chestnut cases, but in providing a very intuitive framework for understanding contract law. The traditional contracts course, perhaps by virtue of having the doctrine of consideration at its heart, can be one of the most confusing in the One-L year. Students are often left to divine the inner structure (or lack thereof) of contract law on their own, likely while cramming for finals. Sometimes the epiphany comes. For many students it does not.

Larry has a real genius for laying out the doctrinal building blocks in a very thoughtful and accessible structure. He groups cases around a rough life cycle of contracts, with chapters devoted to “Getting In: Contract Formation,” to “Facing Limits: Unenforceable Bargains,” to “Paying Up: Remedies.” The layout of the book combined with its lucid writing demystifies contracts.

The layout may at first appear to make this book an ill fit as a companion text to many case books, because many of the cases appear in Contracts in the Real World under a different doctrinal heading than in a particular case book. For example, in the case book I currently use Batsakis v. Demotsis appears in the chapter on “consideration.” Larry places this classic next to cases on unconscionability. I also teach Lucy, Lady Duff Gordon in consideration, while Larry situates it in “Performing: Duties, Modification, Good Faith.”

These differences actually demonstrate a strength of the book. Some disconnect between the organization of a primary case book and a companion text forces students to move beyond a facile understanding of contract law in terms of rigid doctrines. Seeing cases in different contexts and fitting into different doctrinal boxes can help students see that lawyering involves more than memorizing black letter rules and putting issues into the right doctrinal box. Indeed, sometimes different doctrinal boxes can apply to the same problem and lead to the same result (witness rules on past consideration and duress). At other times, the choice of the doctrinal box makes a huge difference (see those same two doctrines). Accomplished students can move from memorizing blackletter law to seeing the possibility of creative lawyering. Larry’s organization – both intuitive and surprising – will help students at both stages.

One final strength of the book is Larry’s choice to include not only court cases but many contemporary contract disputes that never reached the courtroom (such as the dispute between NBC and Conan O’Brien). This brings into the classroom a wider panorama of how lawyers encounter and shape contractual problems in practice. After all, few contracts and few lawyers find their way into a courtroom. Most disputes are resolved in the shadow of law.

I also have a wish list for Larry’s next project (from personal experience, I can tell you how invigorating it is for an author who has just finished a book to be asked “what’s next?’). One of the limitations of the traditional contracts curriculum is how rarely students read and interpret – let alone negotiate or draft – actual contracts. It would be incredibly helpful as a professor to have some of the source contracts behind these stories. Although some of these contracts are already contained in a judicial opinion (Carbolic Smoke Ball) and many will not be public (Conan’s deal with NBC), others might be available with some digging. Having real and full contracts would allow professors to meet many of the items on Professor Collins’ wish list, such as transactional perspectives and drafting exercises. Although some lawyers litigate over failed contractual relationships, many more help parties plan prospectively – including by drafting and negotiating deals. For most attorneys, contracts are not an autopsy subject, to be dissected in a court opinion, but a living thing.

Professor Cunningham’s book provides a joyful reminder of the life in contracts.

2

Contracts in the Real World – At Last, a Book for Modern Minds

In a world where contract law, as typically taught, has one foot in the quicksand of the past, Lawrence Cunningham’s Contracts in the Real World is a most welcome and liberating alternative.  Just consider the domain of what is commonly offered up:

* sales of “Blackacre” circa the 18th and 19th centuries,

* sailing ships destined for Liverpool circa 1864,

* carloads of Mason green fruit jars circa 1899,

* a promise to pay ₤100 to anyone who contracted the flu after using a “Carbolic Smoke Ball,” circa late 19th century,

* a 12-word “contract of sale” penned on the back of a “counter check,” circa early 1950s,

* a material breach case about a dispute over the brand of pipe (Reading or Cohoes) to be used in the construction of a home (circa early 1920s),

* representations made in 1959 in connection with a grocery “chain” begun in 1922 (by 2010 the “chain” was down to a lone store in Green Bay, Wisc.),

* promises re an option to buy a ranch, circa 1960s, and

* a 1965 contract involving the 78 year-old actress Shirley MacLaine (co-star of the 1960 movie The Apartment).

One need not be wed to Henry Ford’s maxim that “history is bunk” to appreciate that much of what is presented in contracts casebooks is past tense, past perfect, and past its time.  While such an approach to teaching contracts may be a boon to slothful professors averse to updating their class notes, it does little to prepare today’s law students for the challenges facing them in the 2012 marketplace of digital deals.

Given the yester-world of many contracts casebooks, it is refreshing to have a book that brings modernity onto the stage of legal education.  While Professor Cunningham pays due deference to the canonical cases (e.g., Lawrence v. Fox, N.Y., 1859), he does so in ways that reveal their contemporary relevance (e.g., as in how that precedent applied to a 2005 Wal-Mart dispute).  Moreover, what is so stimulating about his book is that Cunningham highlights the law relevant to current business dealings of everyone from Bernard Madoff and Donald Trump to Lady Gaga and Paris Hilton, and 50 Cent, too.  There is even a case involving a dispute over the rights to the HBO TV series The Sopranos.

Likewise, Cunningham both identifies and understands the real-world contexts of modern contract law involving everything from electronic transactions and confidentiality of information, to agreements re season tickets subscriptions for sports events, to entertainment contracts, to Amazon’s provider contracts, to any variety of contemporary non-disclosure agreements, et cetera.

In all of these ways and many others, Contracts in the Real World stands alone as a work that ushers the law of contracts into our times.

At the risk of sounding unduly laudatory, this book was a joy to read. Both stylistically and substantively, it is a work of admirable achievement without a real rival.  When one offers such acclaim, there is a corresponding obligation to justify it.  Hence, permit me to explain my evaluation, at least in summary fashion. Read More

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Dichotomies in Contract Theory and Doctrine

In this blog post, I would like to examine some of the dichotomies in contract theory and doctrine that are noted in Professor Cunningham’s Contracts in the Real World.  Some would claim that contract law is revolutionary; others would argue that it is reactionary.  Compared to the status relationships of the Middle Ages, in which economic power was primarily determined through feudal or family relationships, contract and market relations promised a more egalitarian alternative.

In the classic text Ancient Law, Sir Henry Maine described the radical transformation from a feudal society governed by custom and hierarchy to one transformed by the industrial revolution, in which socio-economic mobility was not only possible, but which was expected.  On the other hand, many today would argue that contract acts as a reactionary force, for enforcing bargains strictly as written could result in reinforcing the power imbalances that already exist in society.

Contracts in the Real World notes these dichotomies and strikes a middle ground between them.  Prof. Cunningham characterizes the schism in contract law as a dispute between formalists and realists.  This schism, he posits, applies even to foundational matters, such as the question of whether a contract has been formed.  Prof. Cunningham notes that extreme formalists would champion a return to the days of the seal and enforce only those deals that meet the strict definitions of offer, acceptance, and consideration.

Realists, on the other hand, favor scrutinizing the context of every bargain, accepting the most informal of deals and even enforcing promises to make gifts as contracts.  Thus the dichotomy between formalists and realists turns into a debate over the extent of government or court involvement in private ordering.

Throughout the book, Prof. Cunningham walks a tightrope between these positions, often making reference to contract law’s “sensible center,” and noting that with many common problems, the rules that have evolved over the years make a good deal of sense.  In essence, he makes a case for the status quo, eschewing reform in either the direction of more government interference in contract, or government withdrawal from contract.

Prof. Cunningham suggests that current law strikes the proper balance between two rather extreme positions.  The book extols the earthy pragmatism of old precedents and wise judges, and suggests that these doctrines will ultimately win out and reach a balance.  In my next blog post, I will question whether this assertion holds true in the context of technological change.

Miriam Cherry is Professor of Law at Saint Louis University School of Law.  Some of her scholarship can be found at this link on SSRN.

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Contracts in the Real World and Contracts in Law School

Thank you to our hosts at Concurring Opinions for inviting me to participate in this online book symposium.   It is a pleasure for me to discuss Larry Cunningham’s engaging new book on contracts.

The title of Larry’s new book is Contracts in the Real World.   Intentionally or not, the title suggests that there may exist another realm for contracts other than the real world, a realm that is perhaps more theoretical and not completely real.   The alternate universe that most readily comes to mind is law school.  Contracts in the real world exist in partial contrast to contracts in law school.

Contracts in the real world bind parties and counterparties to one another.  Contracts in law school bind students to casebooks and laptops.  Contracts in the real world frequently revolve around compensation, obligations, and duties.  Contracts in law school frequently revolve around precedents, arguments, and defenses.  Contracts in the real world are about contracts.  Contracts in law school are about cases about contracts.  Needless to say more, there exists a meaningful and significant gulf between contracts in the real world and contracts in law school.

Larry’s book serves a bridge across this gulf.  Through wide-ranging popular stories about the prominent and the pedestrian crafted in accessible language yet not devoid of legal doctrine, the book connects contracts in law school with contracts in the real world.  Law school concepts like offer, acceptance, mitigation, and assignment are illuminated by real world stories of popular contracts involving Pepsi ads, Dateline NBC, Redskins tickets, and Haagen-Dazs ice cream.

The conceptual meditations of contract scholars like Cardozo, Corbin, and Williston are expressed and explained in contract controversies involving well-known figures such as Michael Jordan, Maya Angelou, and Lady Gaga, and through common experiences like purchasing lottery tickets, signing mobile phone agreements, and buying football tickets online.  Given the accessible language and popular stories, it is easy for the reader to be lulled into forgetting that they are reading and learning about the law, much in the same way that Tom Sawyer lulled his friends into whitewashing a fence by making it seem more like a treat than a chore.

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Prosecutors, Gambling and Dead Horses

Should federal prosecutors who settled a tax fraud case with the New York Racing Association back in 2003 (amended in 2005) be kicking themselves? Besides commitments typical of criminal settlement agreements (called deferred prosecution agreements), to improve internal control and governance, this one required the NYRA to continue its best efforts to install gambling machines at the track. It finally did so last year and the results have included the deaths of 21 horses during the winter meet.

Gambling is a controversial topic and New York State politicians had in 2003 just begun a push to expand the kinds of gambling that are legal in the state, starting with video gaming machines at horse racetracks. Why federal prosecutors settling a criminal tax suit should have anything to say about the NYRA’s role in advancing this agenda is not clear. Prosecutors did not explain their reasoning when signing the DPA.

In any event, the NYRA worked earnestly to move its gambling program along amid growing political and legal controversy in the state over gambling. It finally prevailed, opening a gambling emporium at the Aqueduct track in Queens in October 2011. In the ensuing season, an astonishingly high number of horses — 21 — died while racing.

In March, Governor Andrew Cuomo formed a task force to investigate and in May took state control over the track from the NYRA. The task force released its report last week identifying numerous causes for the deaths and prescribing extensive reforms of the NYRA and Aqueduct operations. Among the culprits: casino funding was allocated to massively increase awards to owners of winning horses in lower-level claiming races. Read More