Contracts : Week of Novermber 5

Reading for 5 November

• Note that trade secrets are property law, not contracts, even though confidentiality agreements may talk about them.
• Note also that a lot of the time some people don't knwo that a former employee is even working for another competitor.
• Conflict of interest (lawyers run into this): can you use information learned from one case in another? The classic case is Saab: the guy who wrote their contract cannot be an interpreter of the contract for the Saab dealer.
• A lot of settlements contain the clause "you will not represent anybody against us ever again." That's pretty fishy: you'd have learned a lot of useful information in a suit.
• Fullerton Lumber Co. v. Torborg
  Commentary in class
  Limitations on contract. That's the start of this. So obviously juveniles and the insane will not be able to make contracts, but this is another area in which we won't leave contracts totally free.

  For most workers, pensions and retirement plans, etc., arise after WWII. It's an interesting plan: workers will like it, but you can pay them less (because you're just putting money in trust for them). Of course, it winds up not being so simple... Of course CEOs, etc., had this before, but the front-line worker did not.

  Anyway, this sort of thing makes written contracts necessary.

  Note that the best thing you can do is become a CEO and then fail badly enough that you can get paid big bucks to leave.

  Anyway Torborg pretty much depopulates Fullerton's yard. And at the time, we have an all-or-nothing rule in WI. But the WI supreme court reverses its standing, and adopts the "blue pencil" rule: a 10-year covenant would be unreasonable, but a 3-year one is reasonable.

  "The Facts" in an appellate opinion are the ones we assume to be true. There's a difference between what happens in the world, and what we can prove, for one thing. And sometimes the jury's finding will be different from what the true events were. As lawyers, we'll probably worry a lot more about proving the facts than we will about figuring out what the law is. Witnesses fool themselves (selective memories). Then there's the question of what the judge emphasizes or ignores in summarizing the facts. Sometimes they just have it wrong.

  "Fugitive documents:" the library has only one copy, and is not likely to loan it out. Briefs on appeal, for example. Now Westlaw has much of this (and Lexis, to an extent).

  Why is Torborg such a key (and beloved) guy? He decides which contractors get credit, and when to blow the whistle. Construction businesses are always on the ragged edges of failing, because bidding is such a high-risk deal. So someone who will or can offer credit, and who can do it with business accuracy, is HIGHLY desirable.

  Basically, the court double-crosses the lawyer (who relied on the court's prior decisions), and then declines to grant a re-hearing. They say that the area and the duration on non-competes must be reasonable.

  So you get the appellate decision, and then what happens? Sometimes it's way less dramatic (and more frustrating) than you'd expect, given the language of the decision. Well, Al puts all his stock in his wife's name, and takes a job in Green Bay, sitting out his three years. Fullerton is basically run out of town: sympatheic press, well-loved and well-known guy, and maybe some friendliness from the bank. We can't prove that Al told Betty anything about how to run the business while he was enjoined not to. Maybe she was the brains all along.

  Fullerton wins all the battles, but Al wins the war.

  Why didn't the court enjoin Betty? Because she hadn't signed the non-compete! They can't do it. Now if trade secrets had been disclosed, they could go after him further on property concerns, but there is no way to figure out what Al and Betty talked about. Or even if they talked at all.

  Then the legislature steps in, only months after the decision, to right this wrong. The Legislative Drafting Service is actually pretty close to reason (a rare thing in legislature): a legislator comes in and says what kind of bill they'd like, and then the service starts asking them questions.

  The blue pencil rule: you can cross off specific clauses or words. You can wipe things out, but you can't alter them (i.e., change 10 years to 3). This is like the Frankenstein Veto.

  Note that CA has no non-competes (they are fussy about trade secrets): you should be able to run off and start your own company.

  Why not preserve super-restrictive employement agreements? Because they eliminate competition, and we don't 100% want that.

• So this is a major theme for the rest of the course: is it safe to assume that people have read and understood things, or just that they signed them blindly?
• The world will go around better if we treat people as if they have read and understood: a classic legal fiction
• These agreements are going to control until the employee knocks them down. They try their hardest to make them bulletproof, and to actually attack them will be costly and maybe risky.
• Eyewash: write a document that really looks fair, but basically says "whatever happens, I win."
• The example agreements handed out in class: Is this ethical? Do they know they are cheating someone? Do they know if they are misrepresenting themselves?
• Pretty much all of these agreements are signed under some degree of duress (i.e., I want the job). Some theorists allege that "property is just good duress." We'll see a bit more of this.
• Nobody ever asks a lawyer until they get in trouble.
• That's why we don't just "let people do what they want to do:" it's not what they want, and they don't even know what it is. So the courts supervise, to one degree or another, depending on jurisdiction.
• So if we supervise this, why not some other things? How do we decide what contracts are worthy of oversight? And how far are we going to supervise (are the procedures fair)?
• We'd be nervous about a contrat in invisible ink: how different are some of these?

Reading for 7 November

• Tests and standards may vary, but everyone agrees it's no good to make contracts with the insane. But what degree of trouble might disqualify one? And don't the insane need contracts, too? Can we take someone at face value? What about a person who walks into a jewelry store and buys something. And then another thing. And then another thing. At what point do we begin to doubt their sanity? It would slow down commerce if we had to have psychiatric evaluations before we sold anyone anything.
• Contracts between clients and lawyers are an interesting case: mostly people come to see lawyers either because they are in trouble or they want to avoid trouble. See family law, for example.
• Ideally, we wouldn't make contracts with anyone who couldn't make a free and rational choice. But those are hard terms. Efficiency: it ain't good, but it's cheap.
• Can we imagine people who are crazy but have lucid intervals?
• Restatement (second) §15. This is from ALI, the same folk who promulgated the Model Penal Code. The Model Penal Code changed the test for sanity. So they're trying to change the expression of the law (even if it still gets applied to the facts in similar ways. A "voidable" contract is a one-way contract: if it's not advantageous to the party, the guardian can avoid it. Otherwise, it can be affirmed if it's beneficial.
• Ortelere v. Teachers' Retirement Fund
  Commentary in class
  Note that we don't say "nervous breakdown" any more: that's part of the stuff that has changed. D'Angelo, incidentally, was famous enough to get an obit in the NY Times. He was the last defender of shock treatment.

  Her letter is pretty darn intelligent. Her election is not per se unreasonable.

  So she gets almost nothing out of her pension plan that she contributed to for so long. This is the nature of an insurance plan: the people who don't have fires pay for the people who do. People who die early pay for the retirement of those who survive.

  Who is Charles Breitel (chief judge)? Remember the Tribune photo of Truman holding up the Dewey headline? He was Gov. Dewey's chief counsel. This is what governors do for lawyers who have helped them out: they appoint them to courts. He was also on the ALI board that did the Restatement (Second). So he adopts §15, and then qualifies it by saying it requires a "medically classified psychosis." So, he means that the problem has to be serious, and there has to be reasonable consensus that it's serious. It does put some limits on expert witnesses, because they have an elaborate vocabulary for describing problems.

  The letter she wrote seems like a strong indication that she was not incapacitated mentally. So should the court then investigate whether her husband was a jerk and she wanted to disinherit him? Or whether she just wanted more money now?

  There's an agency problem as well: who is the "other party" here that is supposed to know about her condition? The State? Who is that: the governor? all the legislators? The way §15 is written, it sounds like the parties to a contract are two individuals. But here we're concerned about massive government departments and vast paper records.

  Cognitive test: did the person know what was going on (i.e., did she know she was making this benefits election, and what it was)?

  Somebody is going to lose the case. It is possible that neither side has done something wrong, but one needs to lose. Consider the case of Sarah (holocaust survivor) and Murray, who buys her house for a low-ish (but not insane) price.

• Infancy: anyone under 17. Used to be 21, at common law. That got adjusted during Viet Nam. Infants can make contracts for necessaries (and this is understood to be things that are actually necessary), but not other things. Some courts are very strict indeed about this. And in order to get out of the transaction, the minor must make restitution of what he or she can. This has the virtue of being easy to win on (you can get out of transactions on the basis of warranty or fraud, but it's hard). Note that moving the age down from 21 to 17 has the side effect of reducing the number of cases.
• If you're under 18 you can disaffirm your contracts, but not your torts. So they make you "represent" that you are older, because then if you misrepresent your age, you are guilty of the tort of misrepresentation. Very clever.
• What about cases when you really really need something, and someone won't sell it to you (assume that you're not in a protected class or other things that would make this a crime).
• So let's say we have a scarce good: are we justified in charging whatever you want for it? Well, we are contracting freely: you have other options (buy from someone else, don't buy, etc.).
• What about if you hold a gun to my head and say, "sign here?" That would be duress: we're not contracting freely.
• So if the thing being threatened is seriously illegal, the case for duress is nice and clear cut.
• But people can be put under pressure for all kinds of reasons. Suppose A says to B, "sign this document or I will tell the police about the money you've embezzled." A's threat is to comply with the law, or at least do something that is perfectly legal. But there are cases that say this is duress. There are also cases that say a threat to do what you have a legal right to do can not be duress.
• Mitchell v. C.C. Sanitation Company, Inc.
  Commentary in class
  The insurance company says "settle the whole claim, not just pieces of it, or we won't settle." The employer needs to get an employee to sign a release, so the company says, "sign the release, or be terminated" (he's an employee at will). Nobody is threatening anything apparently illegal. But the court says the threat is unlawful and the product of opression.

  Employers can boss employees into doing all sorts of things, so why is this duress? "Not illegal but unlawaful" is a funny sort of notion for a court to take.

  What did he get but for signing this? The job he already had. If he hadn't signed, he might have gotten some money. So this makes the trouble: the guy is railroaded into a contract without consideration. Note that not every court sees things this way: some places asserting legal rights cannot be duress. Here it can, though: you can't be made to sign away some of your rights.

• What if I own a pharmacy: is there an upper limit on what I can charge for some medicine? On a stormy night? Near closing time?
• The "Common Callings:" Inkeepers were obliged to provide services to stranded folks, who would otherwise be robbed, etc.
• Wolf v. Marlton: contract for construction of a house (can the boke-up husband recover his downpayment)? He threatens to sell to an undesirable person (possibly a Jew, given the social climate at that time in New Jersey), and the builder relents instantly.

  The court says this is duress. Ironically, just when the whole civil rights thing is in full swing: they're striking down restrictive covenants left and right.