Time to Reform Copyright Law?

The Economist certainly seems to think so:

Parliament had given them rights, but it had set a time limit on them: 21 years for books already in print and 14 years for new ones, with an additional 14 years if the author was still alive when the first term ran out. After that, the material would enter the public domain so that anyone could reproduce it. The lawmakers intended thus to balance the incentive to create with the interest that society has in free access to knowledge and art. The Statute of Anne thus helped nurture and channel the spate of inventiveness that Enlightenment society and its successors have since enjoyed.

Over the past 50 years, however, that balance has shifted. Largely thanks to the entertainment industry’s lawyers and lobbyists, copyright’s scope and duration have vastly increased. In America, copyright holders get 95 years’ protection as a result of an extension granted in 1998, derided by critics as the “Mickey Mouse Protection Act”. They are now calling for even greater protection, and there have been efforts to introduce similar terms in Europe. Such arguments should be resisted: it is time to tip the balance back.

Law School Carol

The Stud has recently picked up a document review gig. The other three attorneys working with him are actually from his own section at law school. Class of '08, Section 2, represent!

AA introduced us to this series of videos. It was very funny, but also a little depressing. Still, it's good advice for those contemplating law school.

Part 1:

Part 2:

Part 3:

Part 4:

Part 5:

Epilogue:

If you enjoyed that, check out the creator's blog, Esq. Never!

Problems with iPhones

Sure, Apple's iPhone is very cool. However, it is not particularly secure. As a law student, it's a great distraction; but as a professional, you may not want to use it, at least for confidential communications. The ABA Journal notes that at least one mid-sized law firm has abandoned iPhones after discovering the problem.

Congratulations New California Attorneys!

You've done it! Last night, you found out that your hard work paid off. For the rest of your life you will remember the moment that you found out. You will always remember the phrase, "The name above appears on the pass list for the July 2009 California Bar Examination." It is the sweetest feeling in the world. The high will take you at least as far as the swearing in ceremony, for those of you who will be participating in one of the pre-scheduled ceremonies.

For those of you that will be swearing in at Loyola Law School, Loyola will be taking care of sending the papers and payments in for your state court admissions. As for your Central District of California federal admission, although a federal judge (for us it was Judge Gary Klausner) will administer the oath, your admission will not be complete until you remit a payment (for us it was $180), either by mail, or at the Federal District Court itself.

I do ask one thing of you, when your new status has finally sunk in: there are some who did not make the list. When you find out who they are, hopefully you will also realize that their status had nothing to do with how smart they are. I know fewer people this year who didn't get the desired result, but I knew plenty from the July 2008 exam. Keep them in your thoughts, and be supportive as they work to join those of us who are now attorneys.

To those of you who did not make it, if you're still reading: you'll be fine! My advice, if you went to law school in California, is not to take the February exam. The only February 2009 test takers I know that passed were those who were taking it for the first time, or had gone to school outside California and thus just needed the first time to get a feel for California style. Remember, on the February exam, there is every possibility that, even if your raw score would have been enough to pass the July exam, it may not be enough for the February, as the State Bar hopes to balance out the (typically) high July pass rate in February. So far, all of those that had been third-time examinees this past July that I've heard from have passed.

And, if it doesn't work after the fourth time, you can always run for mayor of Los Angeles!

Once again, congratulations to the new California attorneys; we are so proud of you!

Outline: Constitutional Law I - Government - VI - Separation of Powers

Constitutional Law I - Government (Spring 2006, Burcham)

VI. SEPARATION OF POWERS

1. Presidential Powers
   1. Executive may not assume legislative functions [Youngstown Sheet & Tube Co. v. Sawyer – Where Congress rejected proposed legislation, President may not act as if it was passed]
      1. Acting under express or implied Congressional authorization, President’s authority is at maximum, includes all independent powers, plus all that Congress may delegate.
      2. Acting in absence of Congressional denial or grant of authority, President has independent powers, but may have concurrent or uncertainly distributed authority with Congress. [Dames & Moore v. Regan]
      3. Acting at odds with expressed or implied will of Congress, President’s authority is at lowest ebb, has constitutional powers less those constitutional powers of Congress over the matter. [Youngstown Sheet & Tube Co. v. Sawyer]
   2. Failure of Congress to anticipate and legislate for every possible action does not imply disapproval. [Dames & Moore v. Regan – Executive Order releasing frozen Iranian funds in exchange for release of American hostages within President’s power]
2. War Powers
   1. President may not declare war, but may call out militia and use military forces in case of invasion or rebellion. [The Prize Cases – President had authority to institute blockade of southern ports which neutrals were bound to respect]
   2. War Powers Act – Act which requires Congressional approval for military engagements beyond 60 days, has been deemed unconstitutional by all Presidents, and is still at issue. [Mora v. McNamara]
   3. Writ of Habeas Corpus may not be suspended by President, even in war time. [Ex parte Quirin, Hamdi v. Rumsfeld]
3. Line Item Veto – Congress may not delegate legislative powers to Executive. [Clinton v. City of New York]
4. Presidential Prerogatives
   1. Legislative Veto – Inclusion of one-House Congressional veto in statute delegating authority to executive and independent agencies violates Presentment Clause. [I.N.S. v. Chadha]
   2. Appointments – Statute establishing Office of Independent Counsel, by allowing Attorney General to remove Independent Counsel “for good cause”, does not completely strip Executive power, and does not violate separation of powers.
5. Presidential Immunities
   1. Criminal proceedings – Where special prosecutor has complied with rules of criminal procedure, President may be compelled to produce subpoenaed evidence for examination in camera; there is no violation of President’s general privilege of confidentiality. [U.S. v. Nixon]
   2. Civil proceedings – Presidential immunities cover only official conduct, not personal conduct, particularly before assumption of office; civil trial may not be postponed, as President does not need to appear in person at court. [Clinton v. Jones]

Outline: Constitutional Law I - Government - IV - National Power

Constitutional Law I - Government (Spring 2006, Burcham)

IV. NATIONAL POWER

1. Analysis
   1. What is the scope of the power of the federal government to regulate the private realm?
   2. What are the limits on the powers of the states?
   3. Does the Constitution impose any special limitations?
   4. What immunities do states enjoy from lawsuits brought against them to enforce national norms?
2. Basic National Power
   1. Necessary and Proper - “Let the end be legitimate, let it be within the scope of the constitution, and all means which are appropriate, which are plainly adapted to that end, which are not prohibited, but consist with the letter and spirit of the constitution, are constitutional …” [McCulloch v. Maryland – State tax on federal bank is tax on operations of whole nation, and thus unconstitutional under Supremacy Clause.]
   2. Supremacy
      1. Constitutional - U.S. Term Limits, Inc. v. Thornton – States lack power to add to Constitutional qualifications for Congress; States may not interpose themselves between the National Government and the people.
      2. Congressional
         1. Exclusive - Gibbons v. Ogden - Where Congressional act defines authority to private vessels to navigate interstate waters, State law prohibiting federally licensed vessels from navigating state waters is repugnant to Constitution.
         2. Concurrent - Cooley v. Board of Wardens of the Port of Philadelphia – Mere grant to Congress of power to regulate commerce did not deprive states of power to regulate pilots, particularly where Congress explicitly leaves this up to States.
3. Commerce Power
   1. Standards of Review
      1. Strict scrutiny - No deference to Congress; tends to be applied to civil rights cases
         1. compelling interest
         2. closely tailored
      2. Intermediate scrutiny - Tends to be applied to gender discrimination
         1. substantial interest
         2. actually advances purpose
      3. Rational basis - close enough for government work
         1. legitimate interest
         2. rationally related
   2. Early Era - See II.B.2.b
   3. Depression Era
      1. Necessary and Proper Clause extends power of Congress to regulate interstate commerce to intrastate activities that affect interstate commerce. [U.S. v. Darby – Congress can regulate minimum wages]
      2. Commerce Clause allows Congress to regulate local, non-commercial activity if it exerts a substantial economic effect on interstate commerce. [Wickard v. Filburn – Congress may regulate home-grown wheat]
   4. Civil Rights Era
      1. Heart of Atlanta Motel, Inc. v. U.S. – Civil Rights Act of 1964 is constitutionally valid in covering motels, because motel clients are travelers in interstate commerce.
      2. Katzenbach v. McClung – Restaurant which obtains food through interstate commerce is subject to Civil Rights Act of 1964, Title II.
   5. Modern Analysis – There are 3 broad categories of activities that Congress may regulate under its commerce power [U.S. v. Morrison – Congress may not regulate gender-related violent crimes under Commerce Clause]:
      1. Use of channels of interstate commerce
      2. Instrumentalities of interstate commerce, or persons or things in interstate commerce
      3. Activities having a substantial relation to interstate commerce [Wickard v. Filburn]
4. Taxing Power – Just because a tax is regulatory in effect does not make it not a tax, as all taxes are regulatory in some way: As long as a tax generates some revenue, Court will not question the motive. [Sonzinsky v. U.S. – Congress may impose an annual firearms dealers tax]
5. Spending Power [South Dakota v. Dole – Congress may withhold a portion (5%) of federal highway funds which a state is otherwise entitled to if it allows purchase or public possession of alcohol by those under 21]
   1. Pursuit of “general welfare” (Congress entitled to considerable deference – Hamiltonian view) [contra U.S. v. Butler]
   2. Conditions imposed “unambiguously”
   3. Conditions related to “federal interest in particular national projects or programs”
   4. Other Constitutional provisions may bar (e.g., coercion of states through reliance on disbursements violates 10th Amendment)
6. War and Treaty Powers
   1. War Powers
      1. War and treaty powers are inherent in sovereignty, and are not to be found in the constitution. [U.S. v. Curtiss-Wright Export Corp.]
      2. War powers do not necessarily end with cessation of hostilities. [Woods v. Cloyd W. Miller Co. – Rent control]
   2. Treaty Powers
      1. Congress may enact legislation pursuant to a non-self-executing treaty as long as it does not contravene any prohibitory words in Constitution: Matters not within commerce power can come under treaty power. [Missouri v. Holland – Migratory Birds Act]
      2. Executive agreements have same status as treaties. [U.S. v. Belmont – Pursuant to executive agreement recognizing U.S.S.R., U.S. may bring claims against American company holding deposits of Russian companies seized by Soviets]
      3. Regulations and procedures necessary to carrying out agreements with foreign nations nevertheless may not abridge rights of citizens. [Reid v. Covert – UCMJ provision to court martial military widow for murder of serviceman unconstitutional]
7. Property Power [Kleppe v. New Mexico – “Complete power” Congress has over public lands necessarily includes power to regulate and protect wildlife living there]
8. Regulation of Aliens – Congressional power to regulate admissions is consistent with sovereign powers. [Kleindienst v. Mandel]

Outline: Constitutional Law I - Government - V - State Power

Constitutional Law I - Government (Spring 2006, Burcham)

V. STATE POWER

1. State Immunity (Limitation on federal power over states) – Requirements to challenge federal legislation:
   1. Commandeering - Challenged statute regulates “states as states”. [New York v. U.S. – Provision forcing state to take title to and possession of low level radioactive waste if it is tardy in implementing national scheme is unconstitutional for commandeering state government; federal government may not compel States to enact or administer federal regulatory program]
   2. Regulation addresses matters of state sovereignty. [Printz v. U.S. - Brady Act violates Constitution in commanding state and local law enforcement officers to conduct background checks on prospective handgun purchasers]
   3. State compliance would directly impair states’ “traditional governmental functions”. [Garcia v. San Antonio Metropolitan Transit Authority – Minimum wage statute does not apply where railroad operator is a political subdivision of a state]
2. Dormant Commerce Clause (Limitation on state powers)
   1. Is there a legitimate purpose?
      1. A purely economic means to a distant but legitimate purpose is economic protectionism and is per se unconstitutional. [Baldwin v. G.A.F. Seelig, Inc.]
      2. Buck v. Kuykendall – State may not require common carriers using state highways to obtain certificates based on existence of adequate facilities; contra
      3. Bradley v. Public Utilities Commission – State may deny certificate for operating on specific routes due to severe congestion causing accidents.
      4. Hannibal & St. Joseph R. Co. v. Husen – State may pass quarantine laws to protect itself, but only to the degree absolutely necessary.
      5. Hughes v. Oklahoma – Conservation is legitimate, but must not discriminate.
   2. Is there a rational relationship between legislation and purpose? [Southern Pacific Co. v. Arizona – Number of cars in trains not rationally related to safety]
   3. Balance benefits to and burdens on national, interstate commerce. Note: Non-deferential to legislature. [Southern Pacific Co. v. Arizona – Limits on numbers of cars in trains adversely affected interstate commercial demands for efficiency and economy; Bibb v. Navajo Freight Lines, Inc. – State mudguard specifications pose too much inconvenience on interstate commerce; Pike v. Bruce Church, Inc. – Court suspicious of state statutes requiring business operations to be performed in home state that could be more efficiently performed elsewhere]
      1. If purpose is safety, no balancing test unless justifications are illusory. [Kassel v. Consolidated Freightways Corporation (less deference due where local regulation bears disproportionately on out-of-state residents and businesses); contra South Carolina State Highway Department v. Barnwell Brothers (in absence of Congressional regulation of truck width and weight, judiciary will not second-guess state legislature’s numbers)]
      2. Least burdensome alternative. [Kassel v. Consolidated Freightways Corporation – Where alternatives (doubles and semis) are roughly equal in effect, choose least burdensome one]
   4. Is it the least discriminative alternative available? [Dean Milk Co. v. City of Madison, Wis. – Where reasonable, nondiscriminatory, and adequate measure exists, state may not impose discriminatory burden]
      1. West Lynn Creamery v. Healy – Non-discriminatory tax with rebates only to locals is unconstitutional.
      2. C & A Carbone v. Town of Clarkstown – Ordinance which limits waste processing to in-town operator is no less discriminatory for restricting other in-state processors as well as out-of-state processors.
      3. Philadelphia v. New Jersey – Law blocking importation of out-of-state waste in effort to saddle those outside state with entire burden of slowing flow of refuse to home state’s remaining sites is impermissible.
      4. Sporhase v. Nebraska – Prohibition of shipping water out of state without license, where goal is conservation of water, and in-state residents also burdened, is permissible.
      5. Market Participation – If state participates in market, it may discriminate as a private interest, except in civil rights areas.
         1. Reeves, Inc. v. Stake – State may restrict sales of state-owned cement plant to in-state companies.
         2. White v. Massachusetts Council of Construction Employers, Inc. – City may require general contractors to hire 50% employees and subcontractors, because “market” can be narrowly defined by expert testimony as “those who work for city”.
         3. South-Central Timber Development v. Wunnicke – State involved in timber market may not regulate timber processors, which market is not narrowly defined. Note: State may regulate timber processors if it owns processing plate.
3. Privileges and Immunities Clause (Limitation on state powers) – Article IV § 2; individuals only; applies to municipalities [Camden – In-state residents at least have chance to repeal state laws allowing for discriminatory municipal ordinances]
   1. Fundamental Right [Corfield v. Coryell]
      1. Rights covered
         1. right “of a citizen of one State to pass through, or to reside in any other State, for the purposes of trade, agriculture, professional pursuits, or otherwise”
         2. right “to take, hold and dispose of property, either real or personal; and an exemption from higher taxes or impositions than are paid by the other citizens of the State.”
      2. Interest is fundamental to formation of Union [Supreme Court of Virginia v. Friedman – Practice of law is fundamental to formation of Union]
   2. Substantial Reason for Discrimination – Non-resident is “peculiar source of evil”
   3. Narrowly Tailored Means
4. Supremacy Clause – Preemption (Limitation on state powers) [Rice v. Santa Fe Elevator Corp.] Note: This is strong medicine, so there is a “presumption of non-preemption”.
   1. Express – Federal law explicitly declares preemption.
   2. Implied
      1. Field - Federal regulation so pervasive as to make reasonable inference no room left for States
      2. Conflict [Gade v. National Solid Wastes Management Association – Dual impact state regulation which frustrates full effect of federal law cannot avoid preemption just because it serves several objectives rather than one]
         1. Impossibility – Federal and state schemes yield inconsistent results
         2. Purpose - Federal and state schemes aim for same purpose

Outline: Constitutional Law I - Government - III - Justiciability

Constitutional Law I - Government (Spring 2006, Burcham)

III. JUSTICIABILITY

1. Standing (this is the most litigated element; court often invokes standing to duck controversial issues)
   1. Elements [Warth v. Seldin]
      1. Injury in fact (Article III Cases and Controversies)
         1. Does plaintiff have strong enough case? [Warth v. Seldin – Plaintiff who fits profile of those who may have been hurt by allegedly discriminatory zoning ordinances, but who has not been harmed or denied relief, cannot sue town for those ordinances]
         2. Is the claim one the court can fix?
         3. Associations (Equal Protection Clause does not apply) [Village of Arlington Heights v. Metropolitan Housing Development Corp.]:
            1. individual members would have standing
            2. relief would benefit individual members, but not necessary for individual members to be in court (e.g., anti-trust class action)
      2. Causation/redressability
         1. Causation - Is the statute or action the cause of the injury?
         2. Redressability - If the plaintiff wins, will his injuries be redressed?
      3. Asserting own rights (see Third-Party Standing for exceptions)
      4. No generalized grievances
         1. If an injury is general, legislature may be better venue
         2. Some grievances may be so general as to cease being injury in fact [Lujan v. Defenders of Wildlife]
   2. Third Party Standing [Craig v. Boren - 3.2% beer]
      1. Litigant is injured (vendor economically injured)

         and

      2. Special relationship between litigant and third party whose rights are asserted; or
      3. Things keep mooting third party’s standing (pace of litigation always moots case because litigants turn 21)
   3. Taxpayer Standing – Standing to challenge Congressional action established only when [Flast v. Cohen]:
      1. Challenge to Congress’ spending power; and
      2. Allegation that spending violates Establishment Clause [Valley Forge]

         Establishment of these elements satisfies injury, causation, grievance requirements.

      3. Cases
         1. Lujan v. Defenders of Wildlife – Allegation that Executive fails to execute laws too generalized to be injury in fact.
         2. Raines v. Byrd – Line Item Veto does not in fact personally injure legislator that voted against it.
         3. FEC v. Akins – Informational injury to right to vote is not a generalized grievance, but injury in fact.
2. Mootness
   1. DeFunis v. Odegaard – Plaintiff challenging law school’s admission standards who has been allowed to enroll during litigation does not have a live case, and, plaintiff being about to graduate, case is moot.
   2. Exception – Capable of Repetition Yet Evading Review
      1. Simple cases
         1. litigated issue will always be mooted by passage of time during litigation; and
         2. plaintiff subject to challenged action in future
      2. Complex cases
         1. litigated issue will always be mooted by passage of time during litigation; and
         2. plaintiff may not face action in future, but others similarly situated will (e.g., Roe v. Wade)
3. Ripeness [City of Los Angeles v. Lyons – Prior illegal police activity does not establish real and immediate threat of same harm being repeated]
   1. Statute or state action prohibits plaintiff from engaging in Constitutionally protected activity.
   2. But for statute, plaintiff would engage in that activity.
   3. Substantial probability plaintiff will be injured by statue if he engages in the activity, so there’s a “chilling effect” on Constitutional rights.
4. Political Question
   1. Is there a textual commitment of this issue to one of the other two branches of government?
      1. Powell v. McCormack – Where Constitution is clear about qualifications for election of Member of Congress, and activity challenged is preclusion despite qualification, Court may enjoin Congress from excluding qualified Member from taking oath.
      2. Nixon v. U.S. – Impeachment trial process not textually committed, but left to Senate, so case is nonjusticiable.
      3. Goldwater v. Carter – Constitutional silence on Presidential power to abrogate treaties means it is a political question.
   2. Is the Court competent to decide the issue?
   3. Are there prudential considerations against intervention?

Outline: Constitutional Law I - Government - II - Jurisdiction

Constitutional Law I - Government (Spring 2006, Burcham)

II. JURISDICTION

1. State Court Decisions [Martin v. Hunter's Lessee - State courts may not refuse to implement Supreme Court interpretations of law of the land including treaties]
   1. 28 USC 1257 Bridge
      1. Final decision from highest court of state in which decision could be had (e.g., if state supreme court denies review of a state appellate court decision, appellate decision is final decision from the highest court that can review)
      2. Federal question [28 USC 1331]
   2. Adequate and Independent Grounds
      1. Adequate
         1. Avoid advisory opinions
            1. Murdoch v. Memphis - Supreme Court will not review state interpretations of state constitution
            2. Supreme Court will not review state decisions granting more rights than federal Constitution
         2. Procedural
            1. Does not deny due process
            2. Advances legitimate state interest
            3. Applied consistently
         3. Substantive
            1. State decision fully supports decision
            2. No interference with Constitution, federal law, or treaty
      2. Independent - State decision not based on understanding of federal law [Michigan v. Long – States should use “plain statement” of grounds for decision; where ambiguous, assume federal grounds, reviewable by Supreme Court]
2. Federal Court Decisions
   1. Cause of Action [42 USC 1983 - Civil Rights]
      1. any person
      2. acting under color of state law
      3. and deprives one of federally guaranteed rights
      4. (federal officials are sued directly under the Constitution)
   2. Subject Matter Jurisdiction
      1. 28 USC 1331 – Federal Question
      2. 28 USC 1332 - Diversity
      3. 28 USC 1343(a)(3) – Designer statute for 1983
   3. 11th Amendment
      1. Sovereign Immunity [Hans v. Louisiana] – States may not be sued directly unless Congress abrogates immunity under 11th Amendment; complete abrogation allows suit for money damages.
         1. Abrogation
            1. unmistakably clear language
            2. must act under 14th Amendment § 5 [Seminole Tribe of Florida v. Florida – Legislation under Indian Commerce Clause does not abrogate sovereign immunity under 11th Amendment]
         2. Cities, municipalities, counties, may be sued directly
      2. Stripping Doctrine – State officials may not be sued unless they can be stripped of “state garb” [Ex parte Young]
         1. action violates federal law [Pennhurst State School & Hospital v. Halderman – 11th Amendment bars federal injunctive relief against state officials on basis of state law]; and
         2. prospective, injunctive relief only (no payment from state treasury except attorney’s fees), unless plaintiff can overcome official’s personal immunity, in which case, official is personally liable for money damages
            1. qualified good faith - state officials immune unless reasonably knew or should have known action would violate federal law
            2. absolute - court officials and legislators immune
   4. Justiciability (see next section)

Outline: Constitutional Law I - Government - I - Judicial Review

Constitutional Law I - Government (Spring 2006, Burcham)

I. JUDICIAL REVIEW

1. Legitimacy [Marbury v. Madison - Laid out foundations of analysis]
   1. Does the government have the power?
   2. What are the limitations on this power?
      1. Structural
      2. Textual
2. Congressional Control
   1. Supreme Court
      1. No limits on regulating jurisdiction
      2. Congress may regulate number of justices
   2. Lower federal courts
      1. Ex parte McCardle - Congress may withdraw Supreme Court appellate jurisdiction over appeals from lower federal courts, but not ex post facto. Note: McCardle got his day in court.
      2. US v. Klein - Congress may not dictate how courts must decide facts, such as whether a recipient of a pardon has in fact given aid and comfort to the enemy. Note: Klein hadn’t gotten his day in court yet.
   3. Analysis
      1. What was the purpose in restricting jurisdiction?
      2. Structural limitations (separation of powers)
         1. Congress may not insulate all of its actions from judicial review
         2. Congress may not overturn the Court on a Constitutional matter
         3. Congress may not dictate to the Court how to decide a case
      3. Textual limitations

Outline: Constitutional Law I - Government

Constitutional Law I - Government (Spring 2006, Burcham)

1. JUDICIAL REVIEW
2. JURISDICTION
3. JUSTICIABILITY
4. NATIONAL POWER
5. STATE POWER
6. SEPARATION OF POWERS

Google Scholar

Now, anyone can search legal opinions, thanks to Google Scholar. Once you click on a case, you can even find some rudimentary "Shepardization" or "Key Cite" under the "How cited" tab. Unfortunately, it is still very basic, so there is no way to tell what kind of treatment the citing work made of it. Nevertheless, if Google can get a team of lawyers to wade through it and index treatments, it would give LexisNexis and West a real run for their money.

By the way, Google, if you're reading this, I'm available for such a project!

Cracking Down on Loan Mod Scams

This past month, Governor Schwarzenegger signed SB94 into law, which criminalizes certain behavior involved in performing loan modifications. The bill is aimed at loan mod scam artists. However, some attorney groups are concerned, because the bill may be overly broad, in criminalizing the acceptance of up-front fees. While this provision is sound as against non-attorneys, it nevertheless punishes attorneys, who do take money up front but are already required both by the law and by the California State Bar to maintain the money in a client trust account known as an IOLTA. This practice protects the lawyer from free-loading clients, and protects clients from lawyers who might otherwise take the money and run.

You can read the text of the bill in HTML form or download it as a PDF file.

Los Angeles Bankruptcy Law Monitor

The Stud is a member of the Central District Consumer Bankruptcy Attorneys Association. One member of the CDCBAA runs the Los Angeles Bankruptcy Law Monitor blog, which has been added to the Law Law Links at right.

Business Records

A US Bankruptcy Court in suburban New York waived a homeowner's mortgage debt after the mortgagee failed to provide documentation establishing that it had a claim on the property. Martha C. White has more.

Score one for the little guy!

Ring On!

In these tight economic times (and sometimes even before), everyone's trying to milk everything for more money. The American Society of Composers, Authors, and Publishers brought a case trying to get royalties whenever a cell phone went off, on the argument that ring tones are protected works of art, and that when they ring, particularly in public, they are a "public performance" within the meaning of the Copyright Act.

They lost that argument this month. The trial court ruled that "when a ringtone plays on a cellular telephone, even when that occurs in public, the user is exempt from copyright liability, and [the cellular carrier] is not liable either secondarily or directly." The Electronic Frontier Foundation has more.

Income Based Repayment Plan for Student Loans

Those who have student loan repayments coming due, if you're not yet aware of this, you can now base your level of your repayments on your income.

California Supreme Court: Breathalyzer Test Not Enough In Se

The California Supreme Court seems now to be saying that blowing a 0.08 is not enough in itself to warrant a DUI arrest. This is nothing new to DUI lawyers, of course.

Outline: Contracts - X - Damages (Legal Remedy)

Contracts (Spring 2006, Hull)

X. DAMAGES (LEGAL REMEDY)

1. Expectancy vs. Reliance
   1. Monetary damages
      1. Reliance – Out-of-pocket expenditure; restore plaintiff to original position
      2. Restitution – Make breaching party disgorge any benefit conferred; prevents unjust enrichment
      3. Expectation – Put injured party in position it would have been in if contract had been performed
   2. R.2d 347 – Measure of Damages in General
      1. loss in value to injured party of breaching party’s performance, plus
      2. any other loss, including incidental or consequential loss, caused by the breach, less
      3. any cost or other loss that injured party has avoided by not having to perform
   3. R.2d 349 – Reliance Damages – As an alternative to R.2d 347, injured party has right to damages based on reliance, including expenditures made in preparation for performance or in performance, less loss that breaching party can prove with reasonable certainty injured party would have suffered had the contract been performed
   4. Sullivan v. O’Connor – Victim of botched nose job entitled to out-of-pocket expenditures, worsening of condition, and pain and suffering beyond that "contracted for" (which she had waived).
      1. "Values"
         1. Promised nose = $15
         2. Original nose = $5
         3. Botched nose = $4
         4. "Contracted for" pain and suffering = $3
         5. Additional pain and suffering = $2
         6. Doctor's fees = $1
      2. Expectation = ($15 - $4) + $2
      3. Reliance = ($5 - $4) + $2 + $3 + $1
      4. Restitution = $1
      5. Court = ($5 - $4) + $2 + $1
   5. Role of Certainty [Gruber v. S-M News Co. - Card manufacturer whose distributor did not exercise "diligence" (contract term) in distribution entitled to difference between actual payment and payment given reasonable "diligence" (which manufacturer must prove); distributor has burden to prove actual payments would have resulted in loss]
2. Time of Measuring Value - Measure of damages for breach of land sale contracts is increased value, if any, of land at time of breach, in excess of contract price. [Bachewicz v. American Nat. Bank & Trust Co. – Where date of breach and date originally contracted for performance are close, market value of property not likely to have been far off contract price, so damages are nominal.]
3. Right to Sue for Payments Not Yet Due
   1. If duties remain on both sides, injured party can sue for everything now, as long as damages are foreseeable and terms are certain
   2. If the only duty on part of repudiating party is to pay money, injured party must wait until money is due before suit (majority). [R.2d 243] [Greguhn v. Mutual of Omaha Insurance Co. – Although insurance company is not relieved of payment obligations, insured may continue to file disability claims, but only as they are breached by insurance company]
4. Limitations on Damage Recovery
   1. General limitations
      1. No emotional distress damages (R.2d 353)
      2. No punitive damages (needs tort) (R.2d 355)
      3. Must be reasonably certain (R.2d 352 – factor willfulness)
      4. Must be foreseeable (R.2d 351)
      5. No disproportionate compensation (R.2d 351)
      6. Mitigation (R.2d 350)
      7. "Economic waste" (R.2d 348)
      8. Prejudgment interest (generally limited to liquidated sums) (R.2d 354)
      9. Lawyer’s fees (Cal. Civil Code 1717)
   2. Foreseeability – Where there are special circumstances, defendant only liable for foreseeable losses unless informed of those circumstances by plaintiff. [Hadley v. Baxendale – Carrier who could not have known of production stoppage at miller due to broken shaft not responsible for lost profits]
   3. Mitigation
      1. R.2d 350 – Avoidability as Limitation on Damages – No recovery for loss injured party could have avoided without undue risk, burden or humiliation, except to the extent he has made reasonable but unsuccessful efforts at avoidance.
      2. George v. School District No. 8R – Teacher/coach who was unaware he could not be reinstated did not fail to mitigate when he declined full-time job at another district.
   4. "Economic Waste"
      1. Possible damages
         1. value as promised to plaintiff less value as performed to plaintiff (preferred; closest to placing plaintiff in position he would have been in had contract been performed)
         2. cost of repair to make as promised
         3. cost of repair to make of same value as promised
         4. diminution in market value caused by breach
      2. R.2d 348 – Alternatives to Loss in Value of Performance
         1. Uncertain loss of value from delay of property use: recovery based on rental value or interest on value of property
         2. Uncertain loss of value from defective or unfinished construction: recovery based on a) diminution in market price caused by breach; b) reasonable cost of completing performance or remedying defects if not clearly disproportionate to probable loss in value
         3. Breach of promise conditioned on fortuitous event which was not certain to have occurred in absence of breach: recovery based on value of conditional right at time of breach
      3. County of Maricopa v. Walsh & Oberg Architects, Inc. – Where defects in completed structure could not be physically remedied without tearing down and rebuilding at imprudent and unreasonable cost, damages may be awarded for difference in value of building completed in accordance with contract and value of building actually erected, rather than for reasonable cost of completion.
5. Liquidation of Damages Provisions
   1. Analysis
      1. Reasonable alternative performance?
      2. If liquidated damages, is amount reasonable?
      3. At what point to examine reasonableness?
         1. time of contract?
         2. after the breach?
   2. Ridgley v. Topa Thrift and Loan Association – Liquidated damages clause conditioned on prepayment conditioned on late interest payments unenforceable because charge unrelated to purported function as alternative performance.
   3. Blank v. Borden – Withdrawal-from-sale clause stipulating 6% of “price of property” set elsewhere in exclusive-right-to-sell contract valid where parties freely negotiated, and contract reserved to homeowner power to make realistic and rational choice.
   4. Schrenko v. Regnante – Sellers who profited on sale of property after first buyer defaulted, and who retained first buyer’s deposit but demanded more costs, have made deposit into minimum charge rather than liquidated damages, and are not entitled to retain deposit.

Outline: Contracts - IX - Specific Performance (Equitable Remedy)

Contracts (Spring 2006, Hull)

IX. SPECIFIC PERFORMANCE (EQUITABLE REMEDY)

1. Prerequisites for Specific Performance
   1. Inadequate legal remedy
      1. Unique property (land presumed unique)
      2. Inability to pay damages
   2. Administratively feasible
   3. Certain terms
2. Inadequacy of Legal Remedy
   1. Severson v. Elberon Elevator, Inc. – Specific performance available when contract involves property which is unique or possesses special value, such as real estate.
   2. R.2d 360 – Factors Affecting Adequacy of Damages
      1. difficulty of proving damages with reasonable certainty,
      2. difficulty of procuring suitable substitute performance by means of monetary award, and
      3. the likelihood that award of damages could not be collected
   3. R.2d 361 – Effect of Provision for Liquidated Damages – Specific performance or injunction may be granted to enforce duty even if there is a provision for liquidated damages for breach of that duty
   4. R.2d 363 – Effect of Insecurity as to the Agreed Exchange – Specific performance or injunction may be refused if substantial part of agreed exchange for performance to be compelled is unperformed and performance not secured to court’s satisfaction
   5. UCC 2-719(1)(b) – Contractual Modification or Limitation of Remedy – Resort to remedy as provided is optional unless remedy expressly agreed to is exclusive, in which case it is sole remedy
3. Problems with Specific Performance
   1. Judicial burden
   2. Deters efficient breaches (sometimes, society benefits from certain kinds of breaches, because it incentivizes better allocation of resources, and everybody basically wins; compensation still available to injured party)
   3. Distate for compulsion
4. Construction and Employment Contracts
   1. R.2d 365 – Effect of Public Policy – No specific performance that would entail compulsion contrary to public policy [Petry v. Tanglwood Lakes, Inc. – Court will not compel specific performance of developer’s promise to homeowner to build lake because it counters developer's promise to HOA not to build lake, especially where developer financially unable to build lake]
   2. R.2d 362 – Effect of Uncertainty of Terms – No specific performance unless the terms of contract are sufficiently certain [Goldblatt Bros., Inc. v. Addison Green Meadows, Inc. – Developer’s failure to pave access road justifies specific performance; but failure to provided explicitly stated number of parking spaces is not, if a sufficient number has been provided]
   3. R.2d 367 – Contracts for Personal Service or Supervision [Nassau Sports v. Peters – Hockey player who signed on to competing league in violation of contract not compelled to play for original league, but enjoined from playing for new league]
      1. promise to render personal service will not be specifically enforced
      2. promise to work exclusively for one employers will not be enforced by injunction against serving another if result will compel performance involving personal relations that are undesirable if continued, or to leave the employee without other reasonable means of making a living
5. Equitable Defenses
   1. Balance of hardships [Goldblatt]
   2. Unfair price
   3. "Unclean hands" - Party seeking equity must be acting equitably
   4. "Laches" - Unreasonable delay in asserting rights against other party

Outline: Contracts - VIII - Termination and Rescission

Contracts (Spring 2006, Hull)

VIII. TERMINATION AND RESCISSION

1. Termination, Rescission, Setoff, and Suspension
   1. Termination - Affirms existence of contract, discharges injured party from performance, and grants injured party right to recover damages
   2. Rescission - Disaffirms contract; arose from equity court
   3. Rescission may occur only by mutual consent or in case of material breach. [Woodruff v. McClellan – Where buyer in real property refused to sign closing papers despite repeated extensions, there is no mutual consent, thus no rescission, so attorney’s fees applicable]
   4. Courts are merging termination (law) and rescission (equity), and sometimes confuse terms.
   5. Setoff - Similar to dependency of obligations [GTM Investments v. Depot, Inc. – Dispute over placing of sign in business lease does not entitle tenant to withhold rent, particularly where lease explicitly provides against setoffs]
   6. Suspension of Performance [Romig v. De Vallance – Where real estate buyer discovered defect and refuses to finish payment, and agreement requires seller to deliver clear title upon full payment and not before, buyer’s potential remedy to be determined based on:]
      1. Did buyer have reasonable grounds for insecurity with respect to seller’s performance?
      2. If so, and buyer demanded adequate assurance of performance, and such was not provided, buyer’s failure to pay is not breach. [2-609 – Right to Adequate Assurance of Performance – Failure to perform is not breach without adequate written assurance of due performance.]
      3. If seller’s failure to provide adequate assurance was repudiation, seller is in breach. [2-610 – Anticipatory Repudiation]
2. When Can a Party Terminate or Rescind?
   1. Express Conditions – If there is a condition, it hasn’t been met, and it hasn’t been excused, there is a termination.
      1. Elements
         1. Is there a condition to performance?
         2. If so, has the condition been satisfied?
         3. If not, has the condition been excused?
      2. Haymore v. Levinson – Term “satisfactory” in construction contract where purchase price is held in escrow conditioned on “satisfactory completion” must be reasonable.
      3. ARD Dr. Pepper Bottling Co. v. Dr. Pepper Co. – Where contract spells out method of determining satisfactory conditions, contract is not otherwise illegal, and injured party has made good-faith determination of breach, termination is proper.
      4. Waiver of condition
         1. No consideration required to enforce waiver.
         2. Waiver may be inferred from conduct. [Burger King Corp. v. Family Dining, Inc. – Where franchiser has not demonstrated history of holding franchisee to literal interpretation of development plan, it has waived terms, and is not entitled to termination]
         3. Waiver of one right does not waive other rights. [American Continental Life Ins. Co. v. Ranier Construction Co., Inc. – Where both parties have deviated from formal requirements in other terms, builder’s obligation to issue final certificate for payment to secure buyer’s payment has not been waived]
      5. Language of promise, condition, or both? [see R.2d 227]
         1. Language of promise: Non-breaching party may still be required to perform, but has cause of action for breach.
         2. Language of condition: Failure of condition means that party whose performance was conditional need not perform unless condition is excused.
         3. Language of promise & condition: Party whose performance is conditioned need not perform and can sue for breach.
   2. Implied Conditions [Jacob & Youngs v. Kent – Builder who used different brand of pipe entitled to payment despite contractual requirement to use original brand of pipe, where branding is only difference, and buyer already occupies house; implied condition was one of substantial completion]
   3. Material breach
      1. Walker & Co. v. Harrison – Seller’s delay in maintaining sign as stipulated in contract, while annoying, is not sufficiently material to warrant repudiation by buyer.
      2. R.2d 241 – Factors of Material Breach
         1. extent to which injured party will be deprived of reasonably expected benefit
         2. extent to which injured party can be adequately compensated for part of benefit deprived of
         3. extent to which failing party will suffer forfeiture [policy to avoid forfeiture]
         4. likelihood failing party will cure failure, taking account of circumstances including any reasonable assurances
         5. extent to which behavior of failing party comports with standards of good faith and fair dealing
   4. Anticipatory Repudiation
      1. R.2d 250 – A repudiation is:
         1. by words – statement that party will commit breach
         2. by conduct – act renders party unable or apparently unable to perform
      2. R.2d 253 – Effect of Repudiation
         1. Repudiation alone makes repudiator liable for damages for total breach
         2. Injured party relieved of remaining duties to perform
      3. Stonecipher v. Pillatsch – Buyer entitled to restitution or rescission when seller manifested intent to repudiate through, and is not obliged to wait until original date of performance.
      4. R.2d 256 – Nullification of Repudiation
         1. Repudiation by statement may be nullified by retraction if injured party notified of retraction before materially changing position in reliance or indicating to breaching party that he considers repudiation final
         2. Repudiation by action may be nullified if injured party notified that events have ceased to exist before materially changing position in reliance or indicating to breaching party that he considers repudiation final
3. Effect of Rescission and Restitution
   1. R.2d 373 – Restitution When Other Party is in Breach
      1. Breach by non-performance, or repudiation, entitles injured party to restitution for benefits already conferred in reliance.
      2. Injured party has no right to restitution if he has finished performance and no performance remains due by breaching party other than payment.
   2. Ennis v. Interstate Distributors, Inc. – Although rescission usually granted only to restore status quo ante, inability to return to former position where there has been material breach (loss of consideration paid for covenant which was breached) which, though partial, goes to the essence of the contract, makes rescission proper.
   3. Divisible Contracts – If a contract is divisible into corresponding pairs of equivalent performances, breach of one pair does not excuse breach of another. [R.2d 240]
      1. Siemans v. Thompson – Where salary promise and stock purchase promise were dependent, failure to pay salary obviated obligation to purchase shares.
      2. Rudman v. Cowles Publishing – Promise to employ in return for acquisition was independent of promise of “number one man” position, supported by fact that promises were independently signed, so breach of one was adequately compensated by damages, and restitution is impracticable as acquisition was complete.
   4. Delay as Bar to Rescission
      1. 2-607(3)(b) – Where tender has been accepted, if claim is for infringement [2-312(3)], and buyer is sued as a result, he must notify seller within reasonable time after notice of litigation, or be barred from remedy for that litigation.
      2. R.2d 381 – Loss of Power of Avoidance by Delay – Party which does not manifest intention to avoid within reasonable time loses power to avoid. [Snyder v. Rhoads – Buyer of dry cleaning business that continued to operate it despite claims of profitability by seller and to make payments cannot after such unreasonable delay bring counterclaim for both rescission and affirmance [R.2d 380], but may bring suit for damages under fraud after counterclaim for affirmance]
   5. Restitution
      1. R.2d 374 – Restitution for Breaching Party – Reasonable value of services provided, capped at contract price minus damages from breach
         1. Injured party must get what it bargained for – e.g., if one pays $3000 for a project built to certain specifications, one should not pay more than that. [Kutzin v. Pirnie – Where real estate purchase contract did not contain liquidated damages clause, buyer who paid deposit then decided not to buy is entitled to recover portion of deposit in excess of loss caused to seller by buyer’s breach]
         2. Breaching party should recover reasonable value of work done, as long as injured party gets what it bargained for.
      2. Innocent Party’s Action for Restitution [see R.2d 373]
         1. Reasonable value of services provided, no cap unless work is entirely performed (capped at contract price), if injured party elects rescission
         2. United States v. Western Casualty & Surety Co. – If rescission is proper, supplier entitled to value of goods supplied, not percentage of price equivalent to percentage of contract performed.
   6. Hypos – Restitution for Breaching Party
      1. Hypo 1
         1. Facts: contract price = $3000; FMV of work completed = $3000; cost to complete = $500
         2. Restitution = $2500
         3. Damages = $2500
      2. Hypo 2
         1. Facts: contract price = $3000; FMV of work completed = $1500; cost to complete = $500
         2. Restitution = $1500 (value conferred)
         3. Damages = $2500 (assuming substantial completion and no material breach)
   7. Breach of Accord
      1. Terminology
         1. Executory accord - Original contract is dischargeable only upon performance of accord; if accord is breached, injured party may sue on original contract
         2. Substitute contract - Original contract discharged by making of substitute agreement; upon breach of substitute, injured party may sue only on substitute, not original contract [R.2d 279]
         3. Novation - Substitute contract where 3rd party is substituted to perform obligations of one of original parties
      2. Bradshaw v. Burningham – Where modified agreement in well-drilling contract stipulates that original contract was "still effective except for changes mentioned herein", and terms were not defined in original contract, new contract is substitute contract, not executory accord.

Outline: Contracts - VII - Unenforceability

Contracts (Spring 2006, Hull)

VII. UNENFORCEABILITY

1. Misunderstanding - Related to ambiguity exception to PER. [Frigaliment Importing Co. v. B.N.S. International Sales Corp. – Where buyer has not established narrower meaning of "chicken", contract is unenforceable with narrower meaning]
2. Mistake of Fact
   1. Mutual Mistake
      1. R.2d 152
         1. Mutual mistake regarding basic assumption
         2. Materiality
         3. No risk assumption under R.2d 154
      2. Reilley v. Richards – Where buyer and seller both mistaken as to character of land which was material (FEMA designation which prevented building), rescission is proper.
      3. Woyma v. Ciolek – Signature of release for personal injury may be set aside in case of latent injuries, which neither side would have known about (so no assumption of risk on her part), and which was material to release.
   2. Unilateral Mistake
      1. R.2d 153
         1. Unilateral mistake regarding basic assumption
         2. Material
         3. Non-mistaken party had reason to know of mistake or enforcement would lead to unconscionable result
         4. No risk assumption under R.2d 154
      2. Donovan v. RRL Corporation – Rescission is proper where typo in ad in one of many local papers establishes good-faith unilateral mistake on part of car dealer, which was not assumed because typo was made at newspaper.
   3. R.2d 154 – When Party Bears Risk of Mistake
      1. Risk is allocated by agreement of parties; or
      2. Party is aware of its limited knowledge but treats it as sufficient; or
      3. Risk is allocated by court on grounds of reasonability
3. Impossibility
   1. Impracticability - Seller's excuse
      1. Impracticable performance
      2. Caused by event which contract assumed would not occur [Mishara Construction Co. v. Transit-Mixed Concrete Corp. – Labor strikes which disrupt delivery of concrete subject to jury determination of foreseeability]
      3. Event not caused by party seeking excuse
      4. Party seeking excuse did not assume risk
   2. R.2d 266(1) - Where a party’s performance under a contract is impracticable without his fault at time of formation because of a fact he has no reason to know, and whose non-existence is assumed, there is no duty to perform. [Sunflower Electric Co-Op. v. Tomlinson Oil Co. – Where gas reserves were exhausted, provider should have known that reserves are inherently unknowable, and use of word "guarantee" assumed risk, for which provider is liable]
   3. Foreseeability
      1. Economic Theory (Posner) – Supplier in better position to anticipate and prevent loss of production due to strikes by its employees, so should incorporate them in contracts
      2. Relational Contract Theory – Risk should be distributed to prevent burdening one party and to minimize loss, so parties should compromise/adjust to continue contractual relationship
   4. Frustration of Purpose - Unusual, not readily available; buyer’s excuse, because when purpose is gone, no sense for buyer to continue to perform [Chase Precast Corporation v. John J. Paonessa Company, Inc. – Government deletion of order for concrete was beyond buyer contractor’s control, seller provider was aware of the risk, and buyer paid for concrete already produced, contract had no more purpose, and is unenforceable]
      1. Event causes substantial frustration of principal purpose of contract
      2. Contract made assumption that event would not occur
      3. Event not caused by party seeking excuse
      4. Party seeking excuse did not assume risk
4. Adhesion Contracts and Unconscionability
   1. Adhesion Contracts – An adhesion contract is not enforceable if it [Graham v. Scissor-Tail, Inc. – Reasonably expectable arbitration clause in concert promotion contract was unconscionable for designating arbitrator with identical interests]:
      1. Does not fall within reasonable expectations of weaker or adhering party
      2. Is unduly oppressive or unconscionable, even if expectations are reasonable
   2. 2-203 – Unconscionability Analysis [Williams v. Walker-Thomas – Contract which redistributed balance of payment so that buyer would always have balance until every item is paid off is subject to UCC analysis]
      1. Purpose - prevent oppression and unfair surprise
      2. Procedural element - Problems in bargaining process, lack of meaningful choice, need of person bargaining, vitality of service, alternatives, lack of education, sophistication, legalese, fine print, deceptive sales practices
      3. Substantive element – Terms unreasonably favorable to one party
      4. Determination - At time of contract
      5. Decision for judge - May enforce clause to some extent or not at all
   3. R.2d 208 - Unconscionable Contract or Term – Court may refuse to enforce contract, or may enforce without unconscionable term, or limit application of unconscionable term to avoid unconscionable result.
   4. Price Unconscionability
      1. Jones v. Star Credit Corp. – Mathematical disparity between $300 retail price and $900 purchase price, fact that welfare buyer already paid $600 of an estimated $1200 in installments, weigh in favor of reforming contract to amend payment to amount already paid.
      2. Remco Enterprises, Inc. v. Houston – Use FMV retail price to figure ratio; limit contract-to-retail ratio ~ 5:2; where ratio is low (108%), and buyer need not maintain good, no price unconscionability.

Outline: Contracts - VI - Parol Evidence Rule

Contracts (Spring 2006, Hull)

VI. PAROL EVIDENCE RULE

1. The Rule – If two parties have made a contract and expressed it in a writing to which both have assented as the complete and accurate integration of that contract, evidence, parol or otherwise, of prior agreements and negotiations will not be admitted for the purpose of changing or denying the writing.
2. Analysis
   1. Is there a written contract?
   2. Is there evidence of prior agreement or contemporaneous oral agreement? Note: PER does not apply to modifications.
   3. Did parties intend writing to be final expression of terms in agreement (partial integration)?
   4. Did parties intend writing to be final expression of all terms of contract (complete integration)? [W.W.W. Associates v. Giancontieri – Extrinsic and parol evidence inadmissible to create ambiguity in written agreement which is complete and clear on its face]
3. Integrated Writing
   1. Detail of contract
   2. Sophistication of parties
   3. Merger clause
   4. Do parties in such circumstances frequently leave things out of written contract?
   5. Form contract
4. Exceptions to Rule
   1. Contracts not even partially integrated
   2. Condition precedent [Scott v. Wall – Contract conditional on obtaining acceptable 3-year lease not enforceable without lease]
   3. Consistent additional term (not completely integrated) [Masterson v. Sine – Where contract is not explicitly integrated (deeds don’t usually cover all details, especially when family involved) and does not address assignability of personal option on real property, PER does not apply]
      1. R.2d 216(2)(b) - Parol evidence is permissible if the unwritten term is such "as in the circumstances might naturally be omitted from the writing."
      2. UCC 2-202, comment 3 – "If the additional terms are such that, if agreed upon, they would certainly have been included in the document in the view of the court, then evidence of their alleged making must be kept from the trier of fact."
   4. Ambiguity – [Frigaliment Importing Co. v. B.N.S. International Sales Corp. – Buyer’s burden to prove narrower meaning of "chicken"]
   5. Course of performance, course of dealing, usage of trade [Columbia Nitrogen Corp. v. Royster Co. – Despite merger clause, evidence of trade usage of “gentlemen’s agreements” admissible where not specifically negated in contract]
   6. Misrepresentation [Keller v. A.O. Smith Harvestore Products, Inc. – Existence of disclaimer does not preclude finding of reliance; evidence of negligent misrepresentation admissible as tort]
      1. R.2d 164 - Misrepresentation
         1. Contracts induced by misrepresentation by one party are void.
         2. Contracts induced by misrepresentation by third party are void unless non-assenting party in good-faith did not know, and gives value for or relies on transaction.
      2. R.2d 196 – Consequences of Misrepresentation – A term unreasonably exempting a party from consequences of misrepresentation is unenforceable.
      3. R.2d 214 – Non-Fraudulent Misrepresentations – Evidence of prior or contemporaneous agreements admissible to establish
         1. Integration of writing
         2. Degree of integration
         3. Meaning (explanatory)
         4. Illegality, fraud, duress, mistake, lack of consideration, or other invalidating cause
         5. Ground for granting or denying rescission, reformation, specific performance, or other remedy
   7. Mistake – "scrivener’s error" – Extrinsic evidence not allowed to contradict terms of contract, but to show contract was not final. [Thompson v. Estate of Coffield – To obtain reformation, seller must show (1) instrument representing prior agreement to be reformed, (2) mutual mistake or mistake by one and inequitable conduct by other, resulting in instrument not reflective of what either intended, and (3) proof of these by clear and convincing evidence.]

Outline: Contracts - V - Statute of Frauds

Contracts (Spring 2006, Hull)

V. STATUTE OF FRAUDS

1. What's Covered
   1. One Year Term
      1. Performance cannot be completed by one year
      2. Time runs from making of contract
      3. Impossibility does not take contract out of Statute of Frauds
         1. Personal service
         2. Employment – Definite terms covered; lifetime employment subject to contingencies less than one year not covered [Burton v. Atomic Workers Federal Credit Union – Employer’s oral promise not to fire employee except for just cause until retirement age is unenforceable because not in writing, but equitable estoppel may be available.]
         3. Furnishing support
   2. Land Sales [Jolley v. Clay – Despite oral contract for land sale, payments, substantial improvements to land, and payment of taxes constitute partial performance sufficient to compel specific performance.]
   3. Goods >$500 – UCC 2-201
2. Functions
   1. Evidentiary - Writing shows that contract exists
   2. Cautionary - Attestation forces signers to think twice
   3. Channeling - Notarization shows intent to be bound
3. Statute of Frauds under Restatement
   1. R.2d 131 - Type of writing required
      1. Signed by or on behalf of party to be charged
      2. Reasonable identification of subject
      3. Indication of existence of contract
      4. Reasonably certain essential terms
   2. R.2d 132 - Memorandum may consist of several writings [Hoffman v. Sun Valley Co., Inc - An unsigned writing may be considered a part of the memorandum only where express reference to it is made in a signed writing.]
   3. Exception - R.2d 139 - Reliance
4. Statute of Frauds under UCC [2-201]
   1. 2-201(1) – Transactions involving sales of goods over $500 must be in writing, signed by the party to be charged, and need only reflect the quantity of goods sold even if it omits or incorrectly states a term.
   2. 2-201(2) – Merchant’s Exception – Silence is acceptance if reasonable, written contract is received, unless there’s an objection by writing within 10 days. [Bazak International Corp. v. Mast Industries, Inc. - Annotated purchase order forms that had been signed by a buyer, sent to a seller, and retained without objection, qualify as sufficient writing.]
   3. 2-201(3) - A contract which does not satisfy (1) but is otherwise valid is enforceable if:
      1. (a) - Special Goods - Goods specially manufactured and not suitable for sale to others, if seller has substantially begun manufacture before notice of repudiation is received
      2. (b) - Admissions - If the party charged admits, there is a contract
      3. (c) - Partial Performance - Acceptance of goods or of payment validates a contract that otherwise violates Statute of Frauds. [Allied Grape Growers v. Bronco Wine Company – Where there is no partial performance under 2-201(3)(c), a separate oral contract may still be enforceable by promissory estoppel when one party changes its position to its detriment in reliance on the contract.]
5. Restitution - Restitution is a middle ground between enforcement and invalidation. R.2d 375 – A contract otherwise invalidated by the Statute of Frauds is not exempt from resolution by restitution.
6. Oral Modifications under Restatement (complicated)
   1. R.2d 149(1) – No oral modifications for contracts under statutes of fraud.
   2. R.2d 150 – Reliance trumps R.2d 149

Oral Modifications under UCC (see Modifications under UCC)

Outline: Contracts - IV - Express and Implied Promises

Contracts (Spring 2006, Hull)

IV. EXPRESS AND IMPLIED PROMISES

1. Express Promises – Promise must be reasonably definite (i.e., provide a basis for finding breach and rendering remedy) to be enforceable. R.2d 33. [Abrams v. Illinois College of Podiatric Medicine – A vague and indefinite promise prevents the creation of a binding and enforceable oral contract.]
2. Exception – Facts can overcome express promises. [Payne v. Sunnyside Community Hospital – Inconsistent representations and/or contradictory practices may negate an express disclaimer.]
3. 2-313(1)(b) – Express Warranties – Any description of [the quality, character, or condition of] the goods which is made part of the basis of the bargain creates an express warranty that the goods shall conform to the description.
   1. UCC 2-313(2) - Formal words not required. [Carpenter v. Chrysler Corporation – Statements of fact (i.e., conveying sufficiently definite information about the quality of a product) create an express warranty. Implied warranty of merchantability.]
   2. Puffery – Exaggerations by the seller do not create an express warranty unless they are statements of fact. [Scheirman v. Coulter – Seller’s statement that a product has been discontinued is puffery; express warranties do not include price.]
4. Inchoate Agreements
   1. Traditional View – An agreement to agree is not enforceable.
      1. Cottonwood Mall Company v. Sine – An agreement to extend or renew lease without specifying rate and duration of the lease is not enforceable.
      2. Exception – promissory estoppel [Hoffman v. Red Owl Stores, Inc. – A promise unenforceable for lack of definite terms may still be enforced under promissory estoppel if injustice would otherwise result because defendant’s conduct induce plaintiff to act to his detriment.]
      3. Unjust enrichment [Dursteler v. Dursteler – Buyer in failed mink farm deal without adequately comprehensive contract entitled to restitution for reasonable value of benefits conferred.]
   2. R.2d 27 - Where parties clearly intend to agree, but have not have filled out every detail, the court may attempt to fill in the gaps. [Berrey v. Jeffcoat – In a failure to agree to rental amount for a renewal of an existing lease, a court can determine reasonable terms for renewal.]
5. Implied Terms
   1. Good Faith
      1. R.2d 205 - Good Faith and Fair Dealing - Every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement.
         1. Carrico v. Delp – Where induced by promise to extend credit, extra collateral is consideration, making agreement enforceable, with implied good faith obligation to exercise reasonable discretion.
         2. Triangle Mining Co., Inc. v. Stauffer Chemical Co. – Absent special elements of reliance and unequal bargaining power, no implied good faith limitation on a contract with unambiguous terms of termination.
         3. Casa D’Angelo, Inc. v. A & R Realty Company – Burden on plaintiff to demonstrate bad faith; where base rent is substantial, there is no implied covenant to generate percentage rent.
      2. 2-203 - Obligation of Good Faith [Brewster of Lynchburg, Inc. v. Dial Corporation – A requirements contract allows a buyer to reduce the quantity demanded to any amount, including zero, so long as it does so in good faith.]
   2. 2-314 – Implied Warranty of Merchantability – A merchant’s wares carry an implied warranty of merchantability.
   3. 2-315 - Implied Warranty of Fitness - If a seller has reason to know particular purpose of purchase, there is an implied warranty that the goods are fit for that purpose.

Outline: Contracts - III - Modifications and Mutuality of Obligation

Contracts (Spring 2006, Hull)

III. MODIFICATIONS AND MUTUALITY OF OBLIGATION

1. Modification – An agreement to amend a prior agreement must be supported by consideration. [Jole v. Bredbenner – An adjustment in grace period does not modify a rental agreement because there was no consideration.]
   1. R.2d 73 – Prior Promise – Promising to perform a prior promise is not consideration. [Gilbert Steel Ltd. v. University Construction Ltd. – Oral agreement to modify contract not enforceable because promise to “give a good price” is not consideration.]
   2. R.2d 89 - Modifications Without Consideration – A promise modifying a duty under a contract not fully performed on either side is binding
      1. Fair and equitable (good faith)
      2. Statute
      3. Promissory estoppel
   3. NOM Clauses are not enforceable. [Wagner v. Graziano Construction Company – Even where the contract specifically states no oral modification will be recognized, the parties may yet alter their agreement by parol negotiation.]
2. Duress
   1. R.2d 175(1) - Duress; R.2d 176 - Improper Threat
   2. 1-103 - Duress among factors that can be considered.
3. Settlement of Claims - Settlement requires consideration. [Mathis v. St. Alexis Hospital – A promise to forbear pursuit of a legal claim can be sufficient consideration to support a contract when the promisor has a good faith belief in the validity of the claim.]
4. Mutuality
   1. R.2d 79 - If there is no consideration, mutuality of obligation ("promise for promise") will do. [Weiner v. McGraw-Hill – Mutuality is not required where there is valid consideration.]
   2. Requirements Contracts – The seller promises to supply the buyer for a certain period of time at an agreed price, and the buyer promises that he will buy exclusively from the seller.
      1. Requirements contracts require mutuality. [USAA v. Schlang – Where the seller doesn’t promise to supply the buyer during a certain time, and the buyer doesn’t promise to buy only from the seller, there is no valid requirements contract.]
      2. Mutuality may be implied. [Laclede v. Amoco – Required 30-day notice negated buyer’s unilateral right to cancel, and hooking pipes up to seller’s system implicitly bound buyer to buy only from seller.]
5. Modifications under UCC [2-209]
   1. 2-209(1) - "An agreement modifying a contract . . . needs no consideration to be binding."
   2. 2-209(2) - NOM Clauses - Enforceable; but between merchants, the other party must sign.
   3. 2-209(3) - Original Contract in SoF - If original contract is within statute of frauds (UCC 2-201), need writing. [Wixon Jewelers, Inc. v. Di-Star, Ltd. – Where one was in breach of the original contract, the other did not have to honor the contract or oral modifications of it.]
   4. 2-209(3) - If original contract is not within statute of frauds, and quantity increased in sales case, need writing.
   5. 2-209(4) - If modification doesn’t meet (2) or (3), it can operate as a waiver (of own rights). (Oral waivers are allowed.)
   6. 2-209(5) - A waiver under (4) may be retracted by reasonable notification unless the other party has relied on the waiver.
6. Settlement of Claims under UCC
   1. 1-107 - Settlement of Claims - No consideration needed if signed and delivered by aggrieved party.
   2. 2-209(1) - "An agreement modifying a contract . . . needs no consideration to be binding." Implies requirement of good faith (per 1-203).
   3. 3-311 - Payment in Full - Cashing a "payment in full" check is acceptance of settlement. [County Fire Door Corporation v. C.F. Wooding Company – Any sum paid toward dispute is sufficient consideration; creditor may not cross out "payment in full" and cash check as partial payment. "You can’t eat your cake and have it too."]

Outline: Contracts - II - Contract Formation

Contracts (Spring 2006, Hull)

II. CONTRACT FORMATION

1. Offer - An offer must be sufficiently definite and made in such a manner that a reasonable person receiving the offer would believe that all he must do is accept the offer in order for a contract to be formed (or that acceptance will form a contract).
   1. Leonard v. Pepsico - An advertisement is not an offer, but an invitation to begin negotiations, unless it has words of limitation, or is otherwise “clear, definite, and explicit, and leaves nothing open for negotiation.”
   2. The offeror is the master of the offer
   3. Revocation - Offer can be revoked at any time before acceptance [R.2d 42, Allen R. Krauss Co. v. Fox – Arizona land deal, seller took property off market before buyer closed escrow] unless:
      1. Option supported by consideration. R.2d 45.
      2. Firm offer rule - UCC 2-205
      3. Option contract - R.2d 87 applies (purported consideration, fair terms, reasonable time) [Newberger v. Rifkind – Stock option agreements constituted enforceable contracts in consideration of the continued employment.]
      4. Promissory estoppel - R.2d 87(2) [S.M. Wilson & Co. v. Prepakt Concrete Co. – Because the two parties remained in communication after the expiration of the original proposal, the original proposal is enforceable.]
   4. Revocation learned "through the grapevine" still counts. R.2d 43.
2. Acceptance - A manifestation of assent of the terms made by the offeree in a manner invited or required by the offer.
   1. Forms of acceptance – R.2d 50
      1. Bilateral - By promise. R.2d 50(3).
      2. Unilateral - By performance. R.2d 45.
         1. No revocation once performance begins. R.2d 45(1).
         2. No enforcement until performance completed. R.2d 45(2).
      3. Where unspecified, offeree chooses. R.2d 32
      4. Where unspecified, and offeree begins performance, (1) he has chosen acceptance by performance, with (2) a promise to render complete performance. R.2d 62.
   2. Mailbox Rule - Acceptance is complete once the mail is posted. R.2d 63(a).
      1. Henthorn v. Fraser – When it is reasonable to communicate by post, an acceptance is complete as soon as it is posted.
      2. Worms v. Burgess – If the acceptance is lost in the mail, it is still effective.
   3. Expiration of Offer
      1. Lapse of time – If no expiration time specified, reasonable time. R.2d 41. 3 months max. 2-206(3).
      2. Death/Incapacity – No power of acceptance if either party is dead or incapacitated. R.2d 48.
   4. Rejection is effective when offeror learns of it. R.2d 40.
   5. Acceptance by Silence
      1. Generally, silence does not equal acceptance. [Curtis v. Mason]
      2. Exceptions (R.2d 69):
         1. Offeree takes benefit with reasonable opportunity to reject.
         2. Offer gives notice that silence equals acceptance, and offeree intends to accept.
         3. Prior dealings create reasonable expectation that offeree will object unless he intends to accept.
      3. Contrast UCC 2-206(1)(b)
3. Formation under UCC
   1. 2-204 – In General
      1. 2-204(1) - Any manner sufficient to show agreement, including conduct.
      2. 2-204(2) – Sufficient agreement may be found even if moment of making it is unknown.
   2. 2-205 - Firm Offer (no consideration required)
      1. In signed writing
      2. Explicit assurance to hold offer open
      3. Irrevocability cannot exceed 3 months
   3. 2-206 - Acceptance
      1. (1)(a) General – Acceptance can be in any reasonable manner unless offer specifies mode of acceptance. (Silence can be acceptance.)
      2. (1)(b) Prompt Shipout – For offers including prompt shipment, acceptance is manifested by prompt shipment or prompt promise to ship.
      3. (2) Time Lapse Rule - If there has been no notification to offeror within a reasonable time, the offer may be voided.
4. Discrepancy Between Offer and Acceptance
   1. Common Law
      1. "Mirror Image Rule" – Acceptance must mirror offer. Discrepancies mean “acceptance” is really a rejection and counteroffer. R.2d 39.
      2. "Last Chance Doctrine" - Performance indicates acceptance of counteroffer. Terms in the counteroffer thus “win” the battle of the forms. R.2d 50.
   2. Change of Terms – Acceptance invalidates contract only if proposals make contract dependent on changed or additional terms. R.2d 61.

      UCC

   3. 2-207 - Additional Terms
      1. 2-207(1) - An acceptance can contain additional terms unless the acceptance expressly limits assent to those terms. [Brown Machine v. Hercules, Inc. – The order acknowledgement did not make acceptance of indemnification clause a condition for shipment, therefore indemnification is not a term of the contract.]
      2. 2-207(2) - Additional terms are proposals for addition to the contract; between merchants, they become part of the contract unless:
         1. (a) Offer expressly limits acceptance to terms of offer.
         2. (b) Proposals materially alter terms (there is surprise or hardship to offeror). [Ohio Grain Co. v. Swisshelm – Agricultural commodities are typically subject to conditions, so proposal to add terms are not material alterations.]
         3. (c) Party proposing additional terms reasonably notified of objection.
      3. 2-207(3) - If the writings do not establish a contract, conduct by both parties consistent with existence of a contract establishes a contract.
      4. Contrast “Rolling Contract Theory” – “money now, terms later”. If you buy it, and you keep it, you have accepted the terms of the contract. [ProCD – Shrinkwrap license is an ordinary contract. UCITA § 209. UCITA view on software license is in the minority.] This approach is favorable to manufacturers, not consumers.
   4. Proposed 2-207 - If there’s a contract, the terms are:
      1. terms that appear in the records of both parties;
      2. terms, whether in a record or not, to which both parties agree; and
      3. terms supplied or incorporated under any provision of this Act.
   5. 2-208(2) - Practical Construction - If the following are not reasonably consistent with each other, construction follows this order of priority:
      1. express terms
      2. course of performance
      3. course of dealing
      4. usage of trade (1-205)
      5. other implied terms (e.g., good faith obligation)

Outline: Contracts - I - Basics

Contracts (Spring 2006, Hull)

I. BASICS

1. Promise - A contract is a promise for a promise (bilateral) or a promise for performance (unilateral). R.2d 32.
2. Consideration - A promise is unenforceable without consideration. R.2d 71.
   1. Act - Benefit to promisor [Cash v. Benward – Promise to fill out insurance form is not a benefit to the promisor, as general niceties are not enforceable promises.]
   2. Forbearance - Detriment to promisee
      1. Hamer v. Sidway – Promise to pay in return for refraining from vices until turning 21, and subsequent compliance, is a detriment to promisee because he gave up what would have been a legal right.
      2. Kirksey v. Kirksey – Sister-in-law who moved did not have detriment because she did not give up a legal right.
   3. California Civil Code § 1605 – "Any benefit conferred, or agreed to be conferred, upon the promisor, by any other person, to which the promisor is not lawfully entitled, or any prejudice suffered, or agreed to be suffered, by such person, other than such as he is at the time of consent lawfully bound to suffer, as an inducement to the promisor, is a good consideration for a promise."
3. Exceptions
   1. Moral Obligation/Past Consideration – Promise for a benefit previously received. R.2d 86.
      1. Webb v. McGowin – Promisee who prevented bricks from falling on promisor was entitled to payments promised by promisor, who had kept paying during his life.
      2. Harrington v. Taylor – Promisor who did not pay in full for saving him from an axe was not compelled to pay remainder, because promisee had not acted with expectation of compensation.
   2. Promissory Estoppel - Where there is no contract, courts will still enforce a promise where justice requires. R.2d 90.
      1. Ricketts v. Scothorn – Granddaughter who relied, to her detriment, on grandfather’s wish for her not to work was entitled to promised money despite lack of consideration.
      2. Hayes v. Plantations Steel Company – Employee who announced his own retirement before the promise did not rely on that promise.
      3. Other situations (R.2d 90, comment b)
         1. Definite and substantial character of reliance
         2. Reasonableness of reliance
         3. Formality of promise
   3. Reliance - R.2d 139(a)
      1. Reasonable expectation to induce action or forbearance
      2. Actual induction of action or forbearance
      3. Injustice can be avoided only by enforcement
4. Implied-in-Fact Contract - Obligation to pay for goods or services implied from facts (i.e., flagging down a taxi implies an obligation to pay)
5. Quasi-Contract/Implied-in-Law Contract
   1. Schott v. Westinghouse Electric Corporation – Company who offers employees rewards for improvement ideas, then uses submitted ideas without payment, is unjustly enriched, and has entered a quasi-contract.
   2. Restitution – Where there is a quasi-contract, restitution is a measure of recovery: Reasonable value of goods or services (cost saved or benefit conferred).
   3. Officious intermeddler – A person who voluntarily enriches someone else.
      1. The law does not require compensation here.
      2. Exceptions: Emergency medical care rendered to someone incapacitated so that he is incapable of soliciting such care.
   4. Matter of Estate of Milborn – Couple who helped non-relative decedent had an implied-in-fact contract.
   5. Palimony - When people live together, some services may be legally compensable. On the same facts you can argue either that the service provided were gratuities, or were legally compensable services.
6. UCC Basics
   1. 1-103 - UCC to be supplemented by general principles of law
   2. 1-203 - Obligation of Good Faith (always applicable)
   3. 2-104 - Merchant
   4. 2-105 - Goods - Services under Restatement; Goods under UCC; Mixed:
      1. Majority - Predominance Test
      2. Minority - Gravamen test

Outline: Contracts

Contracts (Spring 2006, Hull)

1. BASICS
   
2. CONTRACT FORMATION
   
3. MODIFICATIONS AND MUTUALITY OF OBLIGATION
   
4. EXPRESS AND IMPLIED PROMISES
   
5. STATUTE OF FRAUDS
   
6. PAROL EVIDENCE RULE
   
7. UNENFORCEABILITY
   
8. TERMINATION AND RESCISSION
   
9. SPECIFIC PERFORMANCE (EQUITABLE REMEDY)
   
10. DAMAGES (LEGAL REMEDY)