From the Interwebs: Arbitration, Checklists, Easy Reading

From the Interwebs

If you are still applying to law school, you might be an idiot. The title of this Above the Law article made me laugh out loud. Law schools have been taking a beating in the press lately as people are questioning the value of a law degree in today’s business world. The Above the Law piece discusses a recent Atlantic article about the recent drop in the number of law school applicants with high entrance exam scores and the much lower drop in applicants with low scores. Hat tip to Bradley Clark who tweets under the handle @BradleyBClark and blogs at the Texas Law Blog.

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Missouri State Contract Cases 2012 (Part 02): Punitive Damages for Conspiracy to Breach a Contract

Missouri Contract Cases

J M Neil & Associates, Inc. v. Alexander Robert William, Inc.

J M Neil & Associates, Inc. (“JMN”), a woman-owned business, entered into a teaming agreement in 2005 with Alexander Robert William, Inc. (“ARW”), a veteran-owned business, in hopes of being awarded a veteran set-aside General Services Administration contract. Under the teaming agreement, ARW would be the prime contractor under the GSA contract, and JMN would serve as a subcontractor to ARW. The teaming agreement contained a non-compete agreement that prohibited ARW from hiring the JMN employees who were to work on the GSA contract or attempting to influence them to remain with ARW after termination of the GSA agreement.

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From the Interwebs: sleep, NASCAR tweeter, lawyers in school

From the Interwebs

Here are some recent tidbits from the web.

Lawyers need more sleep. The ABA Journal reported on a study sponsored by the Sleep’s mattress chain that found that lawyers are the second most sleep-deprived workers. We average seven hours of sleep a night. Loggers are the most sleep deprived and they get seven hours and 20 minutes of sleep a night. I think the real story here isn’t that lawyers sleep less than others, but that we all need more sleep.

Fast tweeting. The NASCAR season kicked off Monday night after the sport’s biggest race of the year, the Daytona 500, was postponed a day due to rain. Juan Pablo Montoya crashed into a safety vehicle, which exploded (it was carrying 200 gallons of jet fuel), delaying the race for a couple of hours. In an impressive display of multi-tasking, fellow driver Brad Keselowski pulled out his smart phone, snapped a picture of the fire, and started tweeting while he was sitting in his car on the track. His tweets went viral, and he more than doubled his following during the delay. See this Mashable article for a full report.

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Battle of the Forms Explained (Using a Few Short Words)

Battle of the Forms

battle of the formsA tremendous amount of business is conducted via purchase orders without signed contracts. Overall, this is good for commerce because business doesn’t have to screech to a halt every time a company needs to buy something, to give the lawyers time to work out the legal terms. But if there’s no signed contract, how do you know when a contract has been formed, and how do you know what the terms of the contract are?

These are million-dollar questions that are very difficult to answer and which are often litigated. In fact, it’s impossible to know the answers until after the fact because they depend on the specific facts and circumstances of each individual transaction.

Typical battle of the forms scenario

In the typical scenario, the purchaser submits a purchase order with unreasonable one-sided standard terms (often called “boilerplate”) printed in small print on the back, and the seller sends an acknowledgement with equally unreasonable vendor-friendly terms printed on the back. Of course, these days this is usually done electronically, and there are numerous variations (e.g., maybe the seller first issues a quotation, then the purchaser issues a purchase order), but the concept is the same–form documents that contain different terms are exchanged between the buyer and the seller and no contract is signed. So with competing terms and no signed contract, what’s the agreement, assuming there is one?

The common law mirror image rule

Contract formation requires an offer and an acceptance (plus consideration, but that’s the subject for another day). When someone extends a contract offer to another party, the power to create a contract is placed in the hands of the other party. All the other party has to do is accept the offer. Once that happens, the legal relationship between the two parties changes, because they are now bound legally to do what they’ve agreed to. They’ve formed a contract. If the offer was to sell a kayak for $400, for example, the person offering to sell the kayak can’t renege once the offer is accepted. If the offer is rejected, however, the kayak owner doesn’t have to sell.

The acceptance has to match the offer exactly

Under the common law, the acceptance has to match the offer in every detail. This is known as the mirror image rule. (For a brief description of the role of the common law and the Uniform Commercial Code in contract law, see this post.) If the terms of the acceptance differ from the offer at all, it constitutes a counteroffer. A counteroffer is a rejection of the original offer, plus a new offer, which vests the original offeror with the power to create a contract by accepting the counteroffer. Going back to our kayak example, if the potential buyer agrees to buy the kayak for $400, but only if she can pay in 10 days, this is a counteroffer. The original offer is terminated and a new offer is on the table — $400 on 10-day payment terms. The kayak owner can accept the counteroffer or reject it.

Now let’s take these concepts of offer, acceptance, and counteroffer and apply them to the purchase order/acceptance scenario. Let’s say a buyer submits a purchase order to buy a kayak for $400 with payment due before shipment. The purchase order is sent with the buyer’s standard purchase order terms and conditions. The seller responds by sending an “acceptance,” agreeing to sell the kayak for $400 with payment due before shipment. Accompanying the acceptance are the seller’s standard terms and conditions of sale, which are substantially different from the buyer’s purchase order terms. Is there a contract?

The last shot rule

Under the common law, there wouldn’t be a contract because the acceptance doesn’t exactly match the offer. If the buyer sent payment, however, there would be a contract. The seller’s “acceptance” functions as a counteroffer, the terms of which are $400 with payment due before shipment, plus all of the seller’s standard terms and conditions of sale. The buyer’s payment of the purchase price functions as an acceptance by performance. Obviously, this would be a bad deal for the buyer, because both parties sent their standard terms, yet the seller’s terms control, because they were contained in the last document to be sent before the contract was performed. This is known as the last shot rule.

So under the common law we have the mirror image rule, which means that boilerplate terms in a responsive document that differ from the terms of the initial document function as a counteroffer. Plus, we have the last shot rule, which means that the boilerplate document that is sent just before performance governs the contract. Obviously, in this scenario, you want to send the last document. Also, there’s a winner and a loser because one party’s terms might govern the contract in every respect.

Another problem with this scenario that isn’t readily apparent is that the parties can renege until a contract is formed through performance. If the ordering documents are such that the buyer sends the last document and then decides that she wants to get out of the transaction, say because the price of kayaks falls dramatically and she can get a better deal elsewhere, all she has to do is let the seller know that she’s not going to buy the kayak because no contract is formed until the seller actually ships the kayak or accepts the buyer’s offer in every detail.

UCC 2-207

Now that I’ve weeded out the imposters, and only real contract aficionados are still reading, let’s talk about the Uniform Commercial Code. UCC section 2-207 was designed to solve both the problem of reneging and the unfairness that can result from the last shot rule. As I discussed in The Law of Stuff Isn’t the Same as the Law of Services, article 2 of the Uniform Commercial Code applies to the sale of goods. Section 2-207, which has generously been described as a “murky bit of prose,” governs the battle of the forms situation I describe above in contracts that involve the sale of goods.

Here’s section 2-207, in full, as codified in the Missouri Revised Statutes:

Additional terms in acceptance or confirmation.

(1) A definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms.

(2) The additional terms are to be construed as proposals for addition to the contract. Between merchants such terms become part of the contract unless:

(a) the offer expressly limits acceptance to the terms of the offer;

(b) they materially alter it; or

(c) notification of objection to them has already been given or is given within a reasonable time after notice of them is received.

(3) Conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract for sale although the writings of the parties do not otherwise establish a contract. In such case the terms of the particular contract consist of those terms on which the writings of the parties agree, together with any supplementary terms incorporated under any other provisions of this chapter.

[Mo. Rev. Stat. section 400.2-207]

It would be impossible to exhaustively break down all of the issues raised in this short section of the UCC, but here is a brief summary of what section 2-207 does.

UCC 2-207 ensures (usually) that there is a contract once the documents are exchanged

Section 2-207 overrules the mirror image rule and the last shot rule. If the parties exchange writings demonstrating that they intend to enter into a contract, differences in standard terms won’t prevent the formation of a contract. The second writing, therefore, acts as an acceptance, rather than as a counteroffer, even when it contains additional or different terms. (Note, however, that this result can be overridden if the second writing conditions acceptance on assent to additional or different terms contained in the second writing.) This solves the problem of the unfairness that often results from the last shot rule and it solves the problem of reneging. Unfortunately, it also opens up a huge can of worms, because a contract is formed, but neither document controls in all respects. So how do you know what the terms of the contract are?

Additional and different terms in the acceptance might be worked into the contract

The standard terms of the second document passed between the parties will undoubtedly differ in many respects from the standard terms of the first document. The terms are “additional terms” if they don’t contradict a term in the initial document, and they are “different terms” if they contradict a term in the initial document. In some states, whether a term is “additional” or “different” makes a big difference, but for our current purposes, we’ll gloss over that issue. If the parties aren’t “merchants”–another interesting issue–neither additional nor different terms become part of the contract. If both parties are merchants, however, additional or different terms in the second document become part of the contract unless the first document expressly limits acceptance to its terms (“my terms only”), the additional or different terms are material, or the initial document objects to additional or different terms.

If a contract isn’t formed under UCC 2-207(1) and (2), there still might be a contract

Sometimes the writings of the parties don’t form a contract, but the parties act as if there were a contract. What happens then? For example, a buyer sends a purchase order containing its standard terms, and the seller responds with an acceptance containing language that conditions acceptance on the buyer’s assent to the additional or different terms contained the seller’s standard terms and conditions of sale. The “acceptance” is thus a counteroffer, so it doesn’t form a contract. The seller ships the goods, however, and the buyer pays for them. Is there a contract? Yes. Although the writings themselves don’t form a contract, section 2-207(3) provides that a contract is still formed because the conduct of the buyer and seller recognizes the existence of a contract.

The terms of contracts that are formed by conduct

Section 2-207(3) provides that the terms of the contract are the terms on which the parties agree, together with supplementary terms from article 2 of the UCC. Exactly what “supplementary terms incorporated under any other provisions of this chapter” means is yet another interesting issue.

[If you’d like to receive posts from theContractsGuy via email click here.]

Quick and dirty flow chart for solving UCC 2-207 puzzles

Here’s a link to a battle of the forms chart to help you figure out whether you’ve got a contract and what the terms are. Although it looks complicated, it’s deceivingly simplistic

[Note: I updated this post on January 28, 2018 to address AAD’s and Mike’s comments regarding confusing conditional acceptance and “my terms only.”]

[Note: I’ve heard from several people that the battle of the forms chart at Picjur is no longer available, so on August 18, 2020, I replaced the link with a link to the Wayback Machine archives.]

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Missouri Federal Contract Cases 2012 (Part 02)

Missouri Contract Cases

AMCM, Inc. v. Philadelphia Indemnity Insurance Co.

The U.S. District Court for the Eastern District of Missouri granted the defendant’s motion for summary judgment, finding that a hobby farm was not intended for a “similar use” under a newly-acquired property clause of an insurance policy covering a day care center.

Secure Energy, Inc. v. Philadelphia Indemnity Insurance Co.

The U.S. District Court for the Eastern District of Missouri denied the defendant insurance company’s motion to dismiss, holding that the plaintiff had pled facts sufficient to withstand the motion.

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Can the Crowd Produce a Decent Contract?

Law Business

Bill Carleton wrote a piece last week about law firm Gunderson Dettmer making form agreements available on Docracy’s website. In case you haven’t heard of Docracy, here’s how the web company describes itself:

Docracy is a social repository of legal documents. Our mission is to make useful legal documents freely available to the public. We also hope to make them easier to find, customize and sign. No more crappy templates behind a paywall that you download hoping everything will be alright. Instead: reputable, transparent sources and social proof to help you find something as close as possible to the perfect document.

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From the Interwebs: Throttling, Sleep, Love Isn’t Enough

From the Interwebs

Here are a few things I’ve read lately. Maybe you’ll find them interesting too.

AT&T Throttling. AT&T has been throttling its heaviest users whose iPhone accounts were grandfathered under unlimited data plans when AT&T introduced tiered plans. The throttling affects its heaviest users and apparently slows data speeds to a crawl. An affected subscriber recently won an $850 judgment in small claims court in California. It’ll be interesting to see whether subscribers attempt to mount a class action suit and whether the class arbitration waiver in AT&T’s subscriber agreements holds up.

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Missouri Federal Contract Cases 2012 (Part 01): Indemnification for One’s Own Negligence

Missouri Contract Cases

XTRA Lease LLC v. Pacer International, Inc.

Pacer Transport, an affiliate of Pacer International, Inc., the defendant in this case, leased a flatbed semi-trailer from XTRA Lease LLC. The trailer was involved in a serious accident when a wheel came off the trailer and struck a car, killing the driver of the car and seriously injuring the passenger. XTRA was sued for the personal injuries and death resulting from the accident. XTRA looked to Pacer for indemnification under its lease agreement with Pacer, and brought suit when Pacer refused.

Is Pacer required to indemnify XTRA for its own negligence?

The issue before the court on the plaintiff’s and defendant’s motions for summary judgment was whether the lease’s indemnification provision required Pacer to indemnify XTRA for its own negligence. The indemnification provision in the lease reads,

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Missouri State Contract Cases 2012 (Part 01): Covenant of Good Faith and Fair Dealing

Missouri Contract Cases

Glenn v. HealthLink HMO, Inc.

Dr. Byron Glenn brought breach of contract claims against HealthLink HMO and HealthLink PPO (HealthLink) alleging breach of an HMO Agreement and a PPO Agreement. The Circuit Court of Girardeau County granted summary judgment in favor of HealthLink, and the Missouri Court of Appeals affirmed in part and reversed in part.

Background

Glenn signed HMO and PPO agreements in 2001 to become a network provider for HealthLink. Beginning in 2007, after receiving complaints about Glenn’s services, HealthLink provided Glenn with various notices of termination of the agreements and subsequently rescinded the notices. HealthLink eventually terminated the PPO agreement and provided timely notice of non-renewal of the HMO agreement. HealthLink removed Glenn’s name from two of HealthLink’s online provider directories before the HMO agreement expired.

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Illinois State Contract Cases 2012 (Part 1): Attorney Suing Client, the Moorman Doctrine

Illinois Contract Cases

Hess v. Loyd

Attorney Lawrence Hess sued a client of his former law firm alleging breach of contract, among other claims. The circuit and appellate courts denied his claims and imposed sanctions for bringing the claims for an improper purpose.

Hess’s employment agreement and breach of contract suit

Hess had an employment contract with his former law firm, Kanoski & Associates, where he had been an associate. The contract stated, “Employee acknowledges that while licensed employees must perform all legal services, the clients contracting for said services are clients of the Corporation and not of any individual employee.”

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