Category: Contract Law & Beyond

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Incorporating Skills Training in Substantive Courses

Historically, skills training was not part of the education students received in law school. Things have changed, of course, and recently many have emphasized the need for practice-ready law grads. Incorporating skills training in substantive courses offers one promising option for improving students’ education. I’m prepping Sales (UCC Article 2) for the fall, and the course seems to lend itself well to a more skills-oriented approach. I plan to use problem-solving exercises and assignments which will not only teach students the law governing sales of goods, but will also enhance their statutory and contractual interpretation, drafting, and client-counseling skills. I have extensive experience litigating contractual disputes, so I know these skills are essential for commercial litigators. And they seem equally important to transactional lawyers.

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Top Differences Between the UCC and the Common Law of Contracts

“What are the top dozen (or so) differences between the common law of contracts and Article II of the Uniform Commercial Code?” The following is a reliable list.  (For more on this topic, especially the common law aspects in an entertaining treatment of disputes in the headlines, see Contracts in the Real World: Stories of Popular Contracts and Why They Matter).

1. Firm Offers: even without consideration, offers by merchants can be irrevocable for reasonable time periods. 2-205.

2. Battle of the Forms: an acceptance need not mirror an offer’s terms to form a contract, unless the offer says so, the variation is a big deal or is protested promptly by the other side.  2-207.

3.  Definiteness / Open Price Term: even without a stated price, a contract may be sufficiently definite so long as the parties manifest an intention to be bound and there is a basis to provide a remedy on breach.  UCC 2-204; 2-305; 2-311.

4. Warranties: (a) implied warranty of merchantability; (b) implied warranty of fitness when seller knows buyer is relying on seller’s expertise; and (c) express warranties based on promises or representations. 2-314; 2-315.

5. Perfect Tender Rule: buyers may insist on performance to a tee, no room for the substantial performance doctrine of common law (though there are complex and vital wrinkles, including giving time to cure before covering).  2-601.

6.  Acceptance by Shipment: buyer orders for “prompt shipment” can be accepted either by promise or prompt shipment, at the seller’s election. 2-206.

7.  Good Faith Modifications: no consideration required. 2-209.

8.  Time: absent contractual definiteness as to time, a reasonable good faith time is supplied

9.  Assurance of Due Performance: reasonable grounds for insecurity about the other side’s performance permit suspending performance and demanding assurance—absent which, the contract is deemed repudiated.  2-609

10.  Damages on Repudiation: buyer damages when seller repudiates are the difference between the contract price and the market price when buyer learned of the repudiation (plus incidental damages).  2-713.

11.  Statute of Frauds: Not so much a variation from common law as from non-goods statutory law, a memo of some sort is generally required for transactions in goods over $500, with exceptions for confirmations not protested and specially manufactured goods after serious work begins.  2-201.

12.  Parol Evidence Rule: bit more liberal concerning course of dealing.  2-202.

13.  Assignable Requirements Contracts: so long as assignee’s quantity is not unreasonably disproportionate to assignor’s quantity.  2-306.

14.  Lost Volume Seller: duty to mitigate obviated.  2-718.

Lists such as these abstract specific detail from the richer mix of differences in philosophy, history, purpose, application and context between the common law and commercial code.  This is the start of the discussion, not the end!  (Again: see Contracts in the Real World: Stories of Popular Contracts and Why They Matter).

 

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Warren Buffett’s Single Bid Rule

Among the many ways that Warren Buffett is unusual is his approach to the role of price in business acquisition negotiations. Other people commonly haggle over price. Tactics include sellers naming an asking price that is higher than warranted or buyers making a low-ball bid. Some people enjoy the give and take and many believe it is a way to produce value in exchange.

Buffett eschews such exercises as a waste of time. One of Berkshire’s acquisition criteria (in addition to size, proven earnings power, quality management in place and relative simplicity of the business) is having a price. Eschewing the games so many negotiators like to play over ranges of values, Buffett wants a single price at which each side can say yes—or walk away. His bid is his bid; when he gives you a bid, what you have is what most people classify as the “best price,” “final offer,” or “highest bid.”

Buffett has repeatedly statesd this policy, along with the other acquisition criteria, in every Berkshire Hathaway annual report since 1983 (and once in a 1986 ad in the Wall Street Journal). Yet I know many people who are skeptical about whether Buffett and Berkshire actually adhere to this policy—doesn’t he engage in price negotiations in at least some cases, they ask? Aren’t there situations in which the value of an exchange is not discovered other than through the dynamic of negotiations, including about appropriate methodology?

To answer such questions, I examined the 16 Berkshire Hathaway acquisitions over the past two decades that involved public company targets. Unlike private company targets, those companies are required by U.S. federal law to publicly disclose the background of the transaction, including negotiation over all material terms, such as price. Read More

4

Tribute to James Gandolfini From Contracts in the Real World

As a tribute to the actor, James Gandolfini, who died at the age of 51 yesterday in Rome while on vacation, the following is a story about his hit television series, The Sopranos, taken from my 2012 book, Contracts in the Real World: Stories of Popular Contracts and Why They Matter.  I did not know Mr. Gandolfini, but I admired his tenacity and skill; I also met him once in my Greenwich Village neighborhood, and had a delightfully memorable chat. The story is not about him but is the best tribute I can offer; and for a great actor such as him, it seems apt. 

a Sopranos HouseIn 2002, Robert Baer, a former municipal judge and county prosecutor from hardscrabble Elizabeth, New Jersey, claimed a right to half the value of the Emmy Award-winning HBO television series, “The Sopranos,” believing he had a deal with writer David Chase to co-develop it.

Baer’s dream was to write television shows and, eventually, he persuaded a mutual friend to interest Chase in reading one of his scripts. Chase, a native of North Jersey, was already an accomplished figure in television, with several Emmy Awards to his credit, as well as shows such as the “Rockford Files,” “Alfred Hitchcock Presents,” and “Northern Exposure” under his belt.

The two met in June 1995 in California. At the time, Chase was developing an idea for a television series about a mob boss undergoing psychiatric therapy. In this meeting, Baer suggested that Chase shoot it in North Jersey and the two kicked around some other ideas.

In August 1995, Chase submitted a program proposal to Fox Broadcasting, which agreed one month later to finance a pilot for the show. Chase thereafter asked for Baer’s help in compiling information about the mafia’s inner workings. In response, Baer contacted acquaintances in the local prosecutor’s office, including Lieutenant Robert Jones, an organized crime expert. Based on their conversation, Baer prepared notes for Chase profiling some underworld characters and detailing the mob’s role in the sanitation business and gambling activities.

In October of that year, the two met again in New Jersey for Chase to do more research. There, Baer regaled Chase with New Jersey true-crime stories during a three-day tour of the region. Baer also introduced Chase to other experts: Detective Thomas Koczur, a homicide specialist, and Antonio Spirito, an Italian waiter and riveting storyteller. Koczur played the tour guide, driving Baer and Chase around to view area landmarks, mob hangouts, and criminal crannies. Some of these later provided the backdrop for the show’s regular opening sequence, while others appeared in various episodes.

Koczur also arranged for the group to dine with the local mobster, Antonio Spirito, who plied them with personal gangland tales and became the model for the show’s protagonist, Tony Soprano. One tidbit Spirito shared referenced two cat-burglar mob brothers called “Little Pussy” and “Big Pussy,” the latter a name Chase gave to a character in the series. Jones profiled the Jewish Mafioso, Morris Levy, then in prison, who bore a close resemblance to the role of Hesh Rabkin on “The Sopranos.”

After the trip, Chase polished up his pilot and submitted it to Fox, also sending a copy to Baer, who later provided written comments on it. Throughout, there was some discussion of payment between Baer and Chase, but no actual agreement was ever reached and Chase never paid Baer any money. The two had only agreed that Chase would read another of Baer’s scripts in return for the help he had given.

“The Sopranos” launched in 1999 on HBO, became a popular and critical hit, and ran through 2007. In May 2002, Baer sued, claiming the show and its protagonist were his ideas, entitling him to half the millions in profits Chase had received. Baer asserted breach of contract and quasi-contract, among other claims. The suit sickened Chase’s stomach, he sobbed upon learning of it, and five years of litigation followed.        Read More

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The Problems and Promise with Terms of Use as the Chaperone of the Social Web

electric_fenceThe New Republic recently published a piece by Jeffrey Rosen titled “The Delete Squad: Google, Twitter, Facebook, and the New Global Battle Over the Future of Free Speech.” In it, Rosen provides an interesting account of how the content policies of many major websites were developed and how influential those policies are for online expression.  The New York Times has a related article about the mounting pressures for Facebook to delete offensive material.

Both articles raise important questions about the proper role of massive information intermediaries with respect to content deletion, but they also hint at a related problem: Facebook and other large websites often have vague restrictions on user behavior in their terms of use that are so expansive as to cover most aspects of interaction on the social web. In essence, these agreements allow intermediaries to serve as a chaperone on the field trip that is our electronically-mediated social experience.

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Contract Evolution

There’s a fantastic symposium issue out of NYU this month, devoted to evolution and innovation in contract terms.  There are articles by the ridiculously productive trinity of Choi/Gulati/Posner, a wild piece by Kevin Davis on Contracts as Technology, and a very cool empirical paper by Marotta-Wurgler and Taylor on evolving terms in standard form contracting online.  I’m obviously biased toward empirical work on this exact topic, so I’m a sucker for this stuff.  But I do think that this kind of empirical and theoretical work is where contract scholarship should be heading in the next 10-20 years.  Check it out.

 

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Last Call for Contracts Survey

 

 

 

 

 

Contracts teachers are asked to complete a brief online survey to help the planning and execution of a symposium Washington Law Review is preparing to host on the exciting new book, Contracts in the Real World: Stories of Popular Contracts and Why They Matter, by Lawrence A. Cunningham of George Washington University (published by Cambridge University Press in 2012).

This innovative text embraces a modern, narrative approach to contract law, exploring how cases ripped from the headlines of recent years often hinge on fundamental principles extracted from the classic cases that appear in contracts casebooks. Such an approach suggests new ways to imagine modern casebooks.  In addition to an article by Prof. Cunningham, the WLR will publish in its December 2013 issue  a half dozen pieces by many luminaries and notables, including:

Charles Knapp (NYU/Hastings)

Brian Bix (Minnesota)

Erik Gerding (Colorado)

Jake Linford (Florida State)

Jennifer Taub (Vermont)

To help these scholars and WLR editors with this effort, please fill out the online survey today!

 

4

Why Is Privatized Procedure So Rare?

For some time, I’ve been mulling over how closely parties can tailor the rules of civil procedure to their own purposes. That is: can parties write enforceable contract terms which state that if they sue each other, the ordinary procedural rules won’t apply? Do such contracts exist? For example, parties might contract to be able to take 5 depositions in a case instead of the default 10. Or they might dispose of the rules of hearsay.  The literature on this topic of private procedure arguably started with the Scott/Triantis piece, Anticipating Litigation in Contract Design, and has gotten new momentum from Bone, Kapeliuk/Klement, Dodge, and Drahozal/Rutledge. My contribution, freshly up on SSRN, ended up being slightly more empirical than I’d expected — though I guess this won’t surprise any of our long-time readers.  In Why Is Privatized Procedure So Rare?, I try to explain why there is actually so little private procedure in places we’d expect to see it:

“Increasingly we hear that civil procedure lurks in the shadow of private law. Scholars suggest that the civil rules are mere defaults, applying if the parties fail to contract around them. When judges confront terms modifying court procedures — a trend said to be explosive — they seem all-too-willing to surrender to the inevitable logic of private and efficient private ordering.

How concerned should we be? This Article casts a wide net to find examples of private contracts governing procedure, and finds a decided absence of evidence. I search a large database of agreements entered into by public firms, and a hand-coded set of credit card contracts. In both databases, clauses that craft private procedural rules are rare. This is a surprising finding given recent claims about the prevalence of these clauses, and the economic logic which makes them so compelling.

A developing literature about contract innovation helps to explain this puzzle. Parties are not rationally ignorant of the possibility of privatized procedure, nor are they simply afraid that such terms are unenforceable. Rather, evolution in the market for private procedure, like innovation in contracting generally, is subject to a familiar cycle of product innovation. Further developments in this field will not be linear, uniform and progressive; they will be punctuated, particularized and contingent.”

Download it here. I’d love your comments. It’s out in the scrum, but I’m intending to continue to revise it as data continues to come in.

6

Pick up the Phone!

From Redstone Federal Credit Union’s credit card agreement:

“Collection. If your Account should become past due, or otherwise in default, you will accept telephone calls from us regarding collection of your Account. You understand that the calls may be automatically dialed and a recorded message may be played. You agree that such calls shall not be “unsolicited” calls for the purpose of state or federal law.”

Translation: screening us is breach of contract!

16

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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