Category: Contract Law & Beyond


William of Ockham Goes to Commercial Law Class

Ockham.jpgA lot of legal argument consists of mastering the reasons for and against various recurring dualisms in the law. For example, there is the well-worn dichotomy between rules and standards. Rules provide ex ante certainty and easy resolution of disputes ex post. Standards reduce the incentives for parties to engage in undesirable but rule-skirting behavior ex ante and provide greater substantive fairness ex post. Another example is substance vs. procedure. For example, in administrative or corporate law should judges scrutinize the substance of the decisions that were made, or should they confine themselves to looking only at the procedures used to reach the decision?

A key to understanding the U.C.C., and with it commercial law, is another distinction that students have a harder time wrapping their minds around. I call it the divide between realism and nominalism. During the middle ages scholastic philosophers debated whether or not universals had actual existence independent of any particular instance of the universal, or whether ultimately all that existed was the particulars themselves. The U.C.C. makes a lot more sense, I believe, once you recognize that it in so far as it is possible, it is aggressively committed to nominalism.

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Pay the Poor to Be Citizens

money.jpgA colleague suggests that there might be a relationship between a series of seemingly random observations:

  • A sudanese cell-phone billionaire announced a prize for good governance, to be awarded to current African leaders when they step down from office. According to news reports, “each leader awarded the prize will receive $5 million spread over 10 years after leaving office. If still alive when the initial prize is exhausted, prize-winners will receive another $200,000 annually until they die.”
  • The Arizona Voter Reward Act, which would establish a $1,000,000 prize whose proceeds would go to a randomly-selected voter, is on November 7th’s ballot. The state’s Chamber of Commerce is opposed: Harvard’s Info/Law project is more open minded. Most think the law would be plainly illegal preempted by federal law even if passed.
  • Jury pay rates are embarassingly low, if meant to be compensatory. Some jurisdictions are funding pilot projects to study if pay raises will increase compliance with jury service.

Here is the question for debate: is there any meaningful way to distinguish the African prize (which many legal commentators no doubt would celebrate) from the voting and jury service problems? Or, more provocatively, are the powerful the only people who we will allow to make money from being good citizens?

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A Romantic Contract?

This story has been floating around for a while, but is still great. The basic plot: after a blind date, the man demands that his date (who didn’t call him back) pay him for half the cost of their meal, on an implied contract theory of recovery. Various emails and voicemails follow.

In some ways, it is a nice hypo for a contracts exam. Under what underlying legal theory would a court refuse to get involved in this dispute? Is consideration lacking? Is the subject matter of the contract too personal?

Food for thought.


Legal Scholarship and the Nixon Effect

nixon.jpgLegal thinking often seems to be cyclical. Constitutional law scholarship provides (to my ignorant outsiders perspective) a clear example of this. In the 1960s and 1970s the law reviews were filled with articles exalting the role of the courts as guardians of liberty and searching for various jurisprudential philosophers’ stones that would allow the courts to bestow items from the liberal wish list upon the nation e.g. constitutionally mandated rights to welfare payments, etc. The country, however, had the bad manners to proceed along its own political path without reference to the concerns of the legal academy and five GOP presidents to two Democratic presidents later, the federal judiciary is filled with conservatives. Academic panegyrics to judicial modesty and minimalism according sprout like mushrooms. There is, of course, the temptation to see such a cycle in crassly political terms, and perhaps have the bad manners to suggest that left-of-center constitutional law professors are simply modifying their jurisprudential theories in the face of right-of-center election results.

Private law scholarship is also prone to its own intellectual cycles. In the 1970s, Grant Gilmore was confidently predicting the Death of Contract and Farnsworth and his associates were putting the finishing touches on the second Restatement, which confidently set out to deliver us from the horrid formalism of Williston’s work. The gentle establishment liberal sanity of the Legal Process movement seemed to reign supreme, troubled only by the pesky legal economists, whose influence Morton Horton Horwitz assured us peaked in about 1980. Fast forward twenty-five years, and one can read defenses in the Yale Law Journal of formalistic contract interpretation that Williston never imagined of in his headiest pre-Realist dreams. Of course here too, there are crassly political explanations. Flinty-hearted Chicago-school economists are no doubt more attracted to private law subjects like contracts or corporations rather than the intricacies of substantive due process. Furthermore, more than one aspiring conservative legal academic has been advised to go into business law by Federalist Society elders on the grounds that it constitutes a kind of safe preserve for right wingers. Finally, the results at the elections have given ambitious projects for say consumer protection the same surreal feel as articles arguing that the courts should announce a constitutional right to welfare payments. It ain’t going to happen, so why bother?

For all of the fun involved in spinning out political stories to account for the cycles of legal thought, however, there is a simpler academic imperative at work. There is a sense in which young scholars have no choice but to slay their elders. Writing an article saying “amen” to the reigning theoretical consensus is probably not the route to tenure and academic fame. Hence, the discredited ideas of one generation are going to inevitably find their champions in the next generation for the simple reason that no scholar wants to write articles saying “Me too.”

Think of it as the Nixon effect. When he left office the intellectual consensus on Nixon was overwhelmingly negative. Not surprisingly, Nixon’s reputation has risen with time for the simple reason that no one is interested in a new book suggesting that Nixon is a crook, but a book suggesting that Nixon wasn’t so bad after all will get some attention. Not to worry. In the fullness of time, a consensus in favor of a more positive view of Nixon will develop, and some young Turk historian will make his reputation by pointing out that at the end of the day Nixon was a lying, paranoid, un-indicted co-conspirator.


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, 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.


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

Is the form contract enforceable in your state?

Free polls from


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.

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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)


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…”


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…


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)