This is the page for Caroline Bradley’s Contracts Class at the University of Miami School of Law. For the Fall Semester 2014 we will be using the following books: Farnsworth, Sanger, Cohen, Brooks and Garvin, Cases and Materials on Contracts (8th Ed. 2013) and Farnsworth, Sanger, Cohen, Brooks and Garvin, Selections for Contracts: Uniform Commercial Code, Restatement Second (2013).
WEEK 7: September 29-October 3 On Monday we will begin with Ricketts v Scothorn – please read to page 106 for Monday [corrected 9/28/14]. Please read to page 117 for Tuesday and 123 for Thursday.
At the beginning of the semester I suggested that there would be some themes running through the class. I think that one theme we are beginning to see develop is the contrast between an approach to contract law that focuses on formalities and one that is prepared to look beyond formalities – perhaps to fairness (e.g. promissory estoppel) or to the judges’ sense of the substance of the transaction (e.g. Cardozo in Wood v Lucy Lady Duff Gordon).
Here are two of the examples of courts characterizing promises relating to arbitration as illusory promises (leading to a conclusin there was no valid arbitration agreement):
1. Fortune Hi-Tech Marketing (FHTM) entered into agreements with people whereby they would sell products and services of different companies, promising that they would attain financial independence. The Federal Trade Commission took action against FHTM as a pyramid scheme:
To participate in the scheme, consumers paid annual fees ranging from $100 to $300. To qualify for sales commissions and recruiting bonuses, they had to pay an extra $130 to $400 per month and agree to a continuity plan that billed them monthly for products unless they canceled the plan. Those who signed up more consumers and maintained certain sales levels could earn promotions and greater compensation, but contrary to FHTM’s claims, the complaint alleged, its compensation plan ensured that, at any given time, most participants would spend more money than they would earn.
Some of the participants sued FHTM for for violations of Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. §§ 1961 68, the Kentucky Consumer Protection Act, and Kentucky common law. FHTM invoked an arbitration agreement in its agreement. The 6th Circuit held in Day v Fortune Hi-Tech Marketing, Inc. in September 2013 that the arbitration agreement was invalid because a provision in the agreement that allowed FHTM to amend it at will meant that the agreement was illusory.
2. The 7th Circuit adopted a similar approach in Druco Restaurants v Steak n Shake in August 2014:
…the district court correctly found that the franchise agreements’ arbitration clauses were illusory because performance was “entirely optional” with Steak n Shake….Steak n Shake was free to exercise or not exercise the arbitration clause at its whim. The company also retained the discretion to determine the circumstances and procedures under which arbitration may take place, including deciding which types of claims will be subject to arbitration. Indeed, nothing in any franchise contract precludes Steak n Shake from instituting a new system of nonbinding arbitration at any time, changing the rules and procedures as the company sees fit… Under Indiana law, such a clause is illusory because performance is entirely optional with the promisor.
Here is the Contracts Midterm Fall 2013 and the Memo on the Fall 2013 Contracts Midterm
Please note that by Monday afternoon we will have had fewer classes than the students who took this midterm had had by the time of their test.
Have a good weekend!
September 28: In today’s New York Times, in the Social Qs column in the Style Section this question appears (registration required):
A decade ago, I moved to Silicon Valley, got a job with people much, much smarter than I am, and prospered. I decided to leave the largest portion of my estate to a friend; she asked its value, and I told her. Since then, I have decided to leave more money to charity. And sadly, our friendship has soured. Thus I have changed my will and removed her bequest. Should I tell her?
The answer given says there’s no real harm in informing the putative beneficiary and does not refer to promissory estoppel. What answer would you give?
So far we have focused on:
Restatement §§ 1, 4, 71, 74, 79, 86, 205, 344, 347, 356.
UCC §§ 2-105, 2-306, 2-313, 2-314, 2-711, 2-712, 2-713, 2-714 and 2-716.