Saturday, May 8, 2010

This Blog has moved to Learning to be a Lawyer

I've migrated all the old posts and comments to Learning to be a Lawyer.

Sunday, May 2, 2010

It all begins with you.

Ray Ward at Minor Wisdom quotes one of the greatest trial lawyers I have ever seen in action, Gerry Spence, from Spence's article Persuading Yourself You Can Win, 36 Litigation 14, 15 (Winter 2010):
I tell lawyers that it all begins with you. Let me repeat it: It all begins with you. Yet we have been convinced from our earliest times that we do not measure up. We are not as bright as our older brother; we are not as beautiful as our younger sister. We are dumped into school where we are sorted and graded like cattle at the killing pens, according to the standards of teachers and administrators who have no idea about who we are—or, for that matter, who they are either.
* * * 
But the truth? The truth is each of us is unique! Each of us is the only person in the world like us. There has never been a person like us—not from the beginning of time. Never. Our beauty is distinct and singular. Our worth is incomparable. Moreover, there will never be another like us. No, never! Not if the human race endures forever.
* * * 
Why, then, would you want to discard your own beauty to concoct a poor imitation of someone else’s? Why would you even want to be like someone else rather than celebrating your own one-of-a-kind self? The fact that we are unique and therefore incomparably beautiful is a truth we have not been permitted to see. It is as if our eyes for our own beauty have been burned from our piteous skulls, and so far as seeing ourselves, we are blind.

Thursday, April 29, 2010

How can you both know less than you think you know and know more than you think you know?

Dan Hull and I seem to share a lot in our views of legal practice. Today he writes:
Legal reasoning. Lots of people finally acquire it. Some are famously better and faster at it than others. . . .
But can you think on your own? Can you work? Legal reasoning is critical--but it's never enough by itself to become an outstanding lawyer. The rest is frame of mind: energy, ambition, organization, logistics-sense, re-thinking everything all the time, a take-charge orientation, genuine people skills, and an urgent passion to solve tough problems.
But you say you need a "form"? You say do well in "cookie cutter" workplaces after you get the hang of things? Consider selling women's shoes. The DMV. Or perhaps insurance defense work. . . . 
If you are new, "steal our clients", please. Be that good. That will take a while. While you are learning, please understand that you are getting more than you are giving. You don't know much. (Not PC but true--get used to it.) So it's not unreasonable for us to ask you to try to do perfect research, editing and proofreading.
But we love your ideas, your first impressions, and the trick is to be confident enough to ask dumb questions and make comments. Often, your first impressions or "reactions" to a problem or project are very good--but we don't always hear them right away.
You may not know at first very much law, or how to apply it to facts for a fee, and then give the "right advice". But you have instincts evolving all the time--they have little to do with law school--that may surprise you. You had them all along.

Wednesday, April 28, 2010

Eric G. Andersen on Materiality in Contract Law

Just in case you think your professor is making something much more complicated and confusing than he would if he really knew what he was talking about, you might want to know what another law professor has written about materiality. From Eric G. Andersen, A New Look at Material Breach in the Law of Contracts, 21 U.C. Davis L. Rev. 1073, 1074-1076 (1987-1988)(footnotes omitted):
Every year beginning law students embark on a tour of the basic principles of contract law. The journey may be hurried through a single semester or extended across the entire first year, but inevitably the course encounters the topic of material breach. Inquiring minds want to know the difference between a material breach and any other breach of contract. The instructor has a ready answer: any breach entitles the victim to a remedy, usually damages. But a material breach has additional con- sequences. It constitutes the nonoccurrence of a constructive condition of exchange, which gives the victim the power to treat the breach as total. The exercise of that power brings the contract to an end, discharges all executory duties of both parties and gives the victim a right to damages in lieu of the future performance of the other. Using the terminology of the Uniform Commercial Code, the victim is entitled to "cancel" the contract.' Some students are not satisfied. They understand that they have been given an explanation of the consequences of a material breach, but not of its substance. They insist on knowing what makes a breach material or not. The instructor, beginning to feel uncomfortable, responds that "[Ithere is no simple test to ascertain whether a breach is material."' It depends on "whether on the whole it is fairer'" to permit the victim to cancel than not to permit cancellation. "It is always a question of fact, a matter of degree, a question that must be determined relative to all the other complex factors that exist in every instance. The variation in these factors is such that generalization is difficult and the use of cases as precedents is dangerous."' The students persist: surely the law can do better than that. Even if no mathematically precise test for materiality exists, there must be a standard, an approach of some kind that governs so important a question. The instructor is relieved to direct them to the First and Second Restatements of Contracts,6 in which careful attention is devoted to the meaning of materiality. The Restatements set out a number of "circumstances" to be considered to determine whether a breach is material. Some students may accept this approach to materiality, especially when assured that scores of courts have dutifully noted or quoted the Restatement factors and applied them to resolve disputes. Others are more skeptical; to them the relevant Restatement provisions seem enigmatic at best. Then the students become lawyers and encounter the material- breach case law in practice. Any confidence they may have had that those cases reflect a basic coherence and rationality is likely to be shaken. They soon discover that many courts that purport to follow the Restatements actually ignore them when the time comes to decide the materiality question.' Others seem to pick and choose among the stated factors without justifying their choices. Still others do not even attempt to apply the "circumstances" of the Restatements, but follow tests under which materiality is simply "a question to be decided on 'the inherent justice of the matter'." A close look at the relevant Restatement provisions makes it difficult to blame the courts for falling into confusion or completely bypassing them. The provisions resemble a list of ingredients rather than a recipe; no real guidance is provided on the order or proportions in which to combine the provisions. Indeed, a careful analysis suggests that some of the Restatement factors are substantively irrelevant or misleading as elements of the materiality analysis." In a cynical moment, the lawyer - whether practitioner, jurist, or academic - may wonder whether a paraphrase of Professor Gilmore's quip about the inclusion of section 90 in the First Restatement might also apply to the materiality factors in the Restatements: An attentive study leads to the despairing conclusion that no one has any idea what the damn things mean.

Sunday, April 25, 2010

Peter Gabriel & Kate Bush: Don't Give Up

A lot -- perhaps most -- of you weren't even born when this Peter Gabriel album came out, but it was a very, very difficult time for me, and this song not only meant a lot to me then. Experience has proved its message is true. Though I understand, of course, that it's far easier at the moment to relate to this.

Friday, April 16, 2010

Should the freedom of contract include the freedom to unknowingly sell your soul to Satan?

I don't think Robert Johnson made any deal with Satan to obtain his remarkable talents; he listened to and made his own the sounds of his contemporaries. Apparently, however, the British game retailer GameStation is counting on its customers believing talent is more a matter of divine or satanic inspiration than the creative reworking of existing culture. GameStation's current end user license agreement requires online purchasers of its products to agree to the following:
By placing an order via this Web site on the first day of the fourth month of the year 2010 Anno Domini, you agree to grant Us a non transferable option to claim, for now and for ever more, your immortal soul. Should We wish to exercise this option, you agree to surrender your immortal soul, and any claim you may have on it, within 5 (five) working days of receiving written notification from or one of its duly authorised minions.
As further reported, "While all shoppers during the test were given a simple tick box option to opt out, very few did this, which would have also rewarded them with a £5 voucher, according to news:lite. Due to the number of people who ticked the box, GameStation claims
believes as many as 88 percent of people do not read the terms and conditions of a Web site before they make a purchase." The fact that so few people read the contracts they sign is no news to me. The troublesome part is that these contracts are generally enforced, although GameStop "noted that it would not be enforcing the ownership rights, and planned to e-mail customers nullifying any claim on their soul." They are enforced because contract law is founded on the notion that we are all free and equal individuals left to our own devices to enter those transactions we wish. Moreover, many believe that any limitations on what individuals can be allowed to agree to (within certain well-accepted limits) are counter to economic wisdom. But when we face up to the fact so few people actually read these agreements, sooner or later we're likely to have to face the fact we'll have to limit what consumer retailers can require in these agreements.

Tuesday, March 30, 2010

A discourse on materiality and conditions

When is the term of a contract "material"? When is the failure to perform a promise "material"? When is the performance of a condition "material"?

When the parties intended it to be material.

But what is the definition of "material"? West's Encyclopedia of American Law states that something is material if it "is sufficiently significant to influence an individual into acting in a certain way, such as entering into a contract." In securities law, in determining whether a company has complied with the requirement that it disclose all material facts pertaining to the public offering of any security (for example, stock or bonds), "a fact will be deemed 'material' if there is a substantial likelihood that a reasonable investor would consider the fact to be important in deciding whether to invest in the company."
Thus, in making a determination of materiality [in connection with a decision to offer securities for sale to the public], company officials must place themselves in the shoes of a hypothetical reasonable investor and ask themselves, "What matters would I want brought to my attention to assist me in making an informed investment decision"?
Comment a to the Restatement (2d) if Contracts § 241, which addresses "Circumstances Significant In Determining Whether A Failure Is Material," states that
[A] standard of materiality that is necessarily imprecise and flexible. . . . It is to be applied in the light of the facts of each case in such a way as to further the purpose of securing for each party his expectation of an exchange of performances. This Section therefore states circumstances, not rules, which are to be considered in determining whether a particular failure is material. 
So, in order to determine whether a term {or the failure of the term} is material, you need to determine in light of the facts of the particular situation you are considering whether the parties entered into the contract with an understanding that that the term was a significant reason they entered into the contract. The circumstances set forth in Section 241 should of course be considered. Note, however, the emphasis in Comment a that § 241's list is a list of "circumstances, not rules." Note too that it states that while you should consider those circumstances, there is no suggestion (nor should you infer one) that other things should not be considered. You should consider in each case any facts that persuade you regarding what the parties considered significant reasons for entering into the contract. Or, in other words, you should consider the purposes of the parties in entering into the contract and agreeing to what they agreed to.

The circumstances § 241 states you should consider in determining whether the failure to perform a contractual obligation are the following, which I will comment on in order:

(a) the extent to which the injured party will be deprived of the benefit which he reasonably expected

It seems pretty self evident that the greater the difference is between what the promisee reasonably expected to get the more likely the difference is material. But the hard part is figuring out what the promisee reasonably expected to get. Did the buyer in Beachcomber Coins v. Boskett reasonably expect to get a coin that was genuine, or did he reasonably expect to get a coin that probably was genuine but that inherently carried the risk of forgery? Did the banker in Sherwood v. Walker get what he reasonably expected?

(b) the extent to which the injured party can be adequately compensated for the part of that benefit of which he will be deprived

If the loss suffered as a result of the promisor's failure to perform can easily be remedied, then the promisee is getting substantially what he expected. That's not to say he isn't entitled to recover from the promisor the cost of remedying the failure, but it is to say that the failure wouldn't be material.

(c) the extent to which the party failing to perform or to offer to perform will suffer forfeiture;

Comment d to Section 241 explains:
[A] failure is less likely to be regarded as material if it occurs late, after substantial preparation or performance, and more likely to be regarded as material if it occurs early, before such reliance. For the same reason the failure is more likely to be regarded as material if such preparation or performance as has taken place can be returned to and salvaged by the party failing to perform or tender, and less likely to be regarded as material if it cannot. 
The loss the builder in Jacobs & Young v. Kent would have suffered had the court found for the owner no doubt is a further reason for the court's finding that the contract's specification of pipe manufactured by the Reading Pipe Company was not a material term. It certainly is not the only reason for reaching that conclusion, but the fact the house was completed and the pipe would have been worthless if removed is further reason for finding the court's conclusion to be sound.

(d) the likelihood that the party failing to perform or to offer to perform will cure his failure, taking account of all the circumstances including any reasonable assurances.
This factor relates to anticipatory breach and repudiation -- if the promisor has breached but the promisee believes there is still a reasonable likelihood the promisor will perform in a manner that would make his breach non-material, the breach is not yet material. Thus, Illustration 5 to Section 241 explains:
A contracts to sell and B to buy land for $25,000. B is to make a $5,000 down payment and pay the balance in four annual installments of $5,000 each. A is to proceed immediately to have abstracts of title prepared showing a marketable title and to deliver them prior to the time for payment of the first annual installment. Without explanation, A fails to have abstracts prepared for delivery prior to the time for payment of the first annual installment. B refuses to pay that installment. Under the circumstances stated in Subsections (a)-(d), the failure of performance is material and A has no claim against B. B has a claim against A for damages for partial breach based on the delay if A cures his failure and a claim for damages for total breach if he does not

 (e) the extent to which the behavior of the party failing to perform or to offer to perform comports with standards of good faith and fair dealing.
The more your breach is evidence of being bad or of being sleazy, the more likely it is a court will find your breach to be material.

None of these factors easily explains why Dove's presence at Rose Acre Farm every single Monday through Friday for ten weeks was material to Rust, but does anyone seriously doubt that Dove's failure to be there for 4% of that time constituted a significant departure from Rust's purposes and expectations in entering into the contract? How do we know that 100% compliance was material to Rust? Because the evidence showed that Rust regularly asked for and received in exchange for significant reward the same sort perfect compliance with absolute standards of a sort rare in other workplaces. In short, we know (or are at least convinced) that the essence of the contract was perfect attendance and nothing less for 5 weeks in exchange for $5000.

It is important to note too that the absence of evidence that something is significant to the promisee can be very persuasive in determining that something was not material. If there appeared any reason at all that the banker in Sherwood v. Walker had wanted (a) Rose of Alberone in particular or  (2) a cow that was likely barren but possibly fertile, it would be much easier to find for the banker. But in fact, based on what we know, there's no reason to believe he wanted anything but $70 worth of living beef. Similarly, there's no reason we know of other than the contract language itself in Jacobs & Young v. Kent for us to believe that the homeowner cared on whit whether the pipe was manufactured by Reading or Cohoes as long as it was of a certain quality.

In addition, if there's a good explanation for the promisee to want to escape his obligation and little reason to believe the breach he is insisting was material really was of such great importance to him, it is easier to believe the breach was not material. The homeowner in Jacobs & Young v. Kent was doing a common thing: stiffing the contractor for the last payment based on whatever departure from the contract's terms he could find. Once a job is complete, the contractor loses the leverage he has earlier of walking off the job if the owner is not paying him.

Similarly, I would bet that in Oppenheimer & Co. v Oppenheim, Appel, Dixon & Co., 86 N.Y.2d 685, 690 (1990),  the subtenant found a less expensive space after he had signed the lease that provided that he would not have to perform unless the landlord provided written consent to the sublessee's planned renovations. .

The fact that the sublessee in Oppenheim was allowed to walk away from the lease despite getting oral consent emphasizes two other points. The language of the contract is of course another piece of evidence regarding what the parties intended their contract to be. And if you write a term in conditional language, the court is far more likely to let the obligee walk away from the contract if the condition is not satisfied than if the contract is not written in conditional language. But don't forget, a condition is something you determine the parties intended to be a condition. The court in Oppenheim even went so far as to state that the use of terms such as "if," "unless" and "until" constitute "unmistakable language of condition." 86 N.Y.2d at 690 (emphasis added). But it was especially easy for the court to refuse to look behind the conditional language in Oppenheim because the disputants were sophisticated commercial parties represented by high priced, sophisticated lawyers, and the lease was long, detailed, and negotiated between parties of equal bargaining power at arms' length. The court seems almost to be opining that if people like that, and especially the lawyers, write that the sublessee's obligations under the sublease are discharged if it does not get written consent from the landlord for the requested renovations,  the court will take them at their word.

Friday, March 26, 2010

Research only begins with information: patience, insight, and imagination are the most important parts of it.

Suffering from one of my occasional bouts with insomnia the other night, I came upon a message on the legal writing professors’ listserv from a professor who was seeking advice from students who were wondering what tricks or tools they might use to find the analogies and legal arguments that they were finding so difficult to discover in the course of their legal research. No doubt the hour contributed to the poor quality of my response. In her poem “4 a.m.,”Wislawa Szymborska writes that “No one feels fine at four a.m.” But the passionate rage I felt at the belief that there are simple tips and tricks to effective research of any sort was not purely the product of what Szymborska describes as “Hollow. Vain./Rock bottom of all the other hours.”

We have a serious misunderstanding these days about what constitutes research.
According to the Oxford English Dictionary, research is the
Systematic investigation or inquiry aimed at contributing to knowledge of a theory, topic, etc., by careful consideration, observation, or study of a subject.
Let’s assume that the inquiry is into a legal topic. The first element of research is a “systematic investigation or inquiry.” I suppose location of a database or the use of a particular search algorithm could be considered one sort of a systematic investigation, but to suppose that the notion of systematic investigation is exhausted by the location of sources is nonsensical. I can point students to particular treatises I personally find of great value in certain subjects, and of course legal research is filled with secondary sources and finding tools that fill virtually any style one might find useful in such sources. And we live in the age of databases — there are databases for everything.

But systematic investigation is barely begun, if even begun at all, by merely finding a source or set of sources in which answers might lie. The real art of research lies in the second part of that definition of the term: “careful consideration, observation, or study.”

The answers to difficult legal questions don’t lie around waiting to be found as if they are treasure chests left lying on forest floors. They are constructed and created by elements buried within the our universe of databases. Thus, research that is genuine research not only requires Sisyphean patience in combing through the sources, it requires also consideration, observation, and study of what one finds within those sources so that one can, first, identify the elements that matter, and, second, put those important, buried, and isolated elements together in some useful and novel way.
Perhaps more importantly, the identification of the elements that matter cannot be done without simultaneously developing ways of putting those elements together in some useful and novel way. How can you know what matters without knowing what purpose you are putting it to? And how can you decide what purpose you are trying to accomplish if you don’t know what elements you’ll have to use?

In short, research, analysis, and theorizing are all a single activity — finding things, making sure they are the right things, and putting them together in the right ways.

To suggest otherwise would be to suggest that finding the historical sources concerning the U.S. Civil War that James McPherson used in writing his brilliant history of that conflict was virtually all the work that had to be done to produce the book. After all, once one has found the sources, the writing is just a matter of stringing the information in those sources together, right?

Of course not. One must find the sources, of course. But the research is inseparable from the perspicacious mind that finds within those sources the elements that the creative and original mind then can mold into a work that educates, entertains, moves, and even convinces.

There is no such thing as research apart from insight and imagination. And an enormous amount of work.
And so, in perhaps the most coherent part of my e-mail the other night, I wrote:
Research is about drawing connections between ideas and words from wildly disparate sources, connections that can only be found by means of painstakingly patient reading of one source after another, tracing connections between sources that might be as seemingly trivial as the bare citation in one case to a another case in connection with a discussion in the first case that strikes the attentive and imaginative reader as potentially relevant to the legal issue he or she is researching. Obviously, tracing such connections (and the myriad of similarly subtle connections effective researchers exploit) requires an enormous amount of concentration, and enormous amount of patience with the continual following up of leads that go nowhere, an enormous amount of imagination to spot connections that courts don’t make explicit (and often don’t even recognize the true significance of), and an abandonment of the idea that engaging in research in this manner is to neglect (in some Luddite fashion) “tools” that can do the job so much more quickly and effectively.
Research is painstaking work that requires enormous imagination and is inextricably intertwined with and develops simultaneously with the development of the legal analysis the research is intended to support. (Which is one reason I go ballistic anytime someone suggests librarians rather than legal writing professors should be teaching research to first year law students, as if legal research is simply a matter of knowing sources and databases and how to develop effective word searches rather than being part and parcel of the writing and analysis.)
I’ve always told my students that law is as requires as much creativity and originality as any human endeavor. I mean it.

One last point: I don’t think Google is making us stupid. Yes, there is more information available to us than ever before. But, again, we can’t confuse information with research. Research is inquiry that contributes to knowledge. Information may be a sine qua non of research, but without attention, insight, and imagination, it isn’t research at all.

Thursday, March 25, 2010

The estate of Mr. George Edward Kent, the man who tried to stiff his home's builder out of the last installment payment.

Pictured above is the residence of Mr. George Edward Kent in Jericho, New York (on Long Island), the house that was the subject of the dispute in Jacobs & Young v. Kent, 230 N.Y. 239, 129 N.E. 889 (1921)(opinion embedded below). You will notice from the photo, at whatever resolution in which you might be able to view it, that the fact the galvanized, lap welded pipe used in the house's plumbing was not manufactured by the Reading Pipe Company is impossible to discern. Nor would you be able to discern that fact unless you tore open the walls or dug into the ground. As the opinion points out, however, the pipe used was equal in quality to that of the same type manufactured by the Reading Pipe Company. Accordingly, the court determined that Mr. Kent owed the home's builder the last installment of the contract price for the construction of the house, a payment Mr.Kent had refused to make even after living in the house for one year. His defense to the builder's claim for payment was that the contract called for the use of "wrought-iron pipe [that] must be well galvanized, lap welded pipe of the grade known as ‘standard pipe’ of Reading manufacture.’’ Instead, as mentioned above, the builder used well galvanized, wrought-iron, lap welded pipe of the same quality as Reading's "standard pipe" but that had not been manufactured by the Reading Pipe Company.

It seems to this reader, at least, that the contractual language specifying the use of pipe manufactured by Reading was to establish a measure of quality, that Mr. Kent got pipe of that quality, and that he was using the fact the pipe no one could see was not manufactured by Reading as an excuse to stiff the builder out of the last payment. If there were some reason that Mr. Kent genuinely cared to have Reading manufactured pipe rather than pipe of equal quality manufactured by another company, he is by all means entitled to contract for Reading pipe. Other than the literal language of the contract, there is no evidence in the case whatsoever that the use of pipe other than Reading pipe mattered on whit to Mr. Kent.

The reality of language is that it is always symbolic, and we are always using terms that can be read in multiple ways. If the point of contract law is to give effect to the intent of the contracting parties, why should we interpret "Reading" literally when (1) there is no apparent reason it was intended literally, and (2) there is good reason to believe Mr. Kent was insisting on the literal meaning to save him the expense of paying the home builder the final installment of the construction contract. It is not at all unusual for brand names to be used by people (even in contracts) as measures of quality rather than as literal requirements of goods manufactured solely by the company specified. If I ask you for a Kleenex, after all, I will gladly accept a Puff's tissue instead.

Jacobs & Young v Kent

Friday, March 5, 2010

Substantive Unconscionability in Credit Card Terms

One of the rare cases finding credit card interest rates and penalties unconscionable was Discover Bank v. Owens (Cleveland Muni. Ct. 2004). The court recounted the facts disclosed at trial as follows:
[I]n January 1996 Owens received her Discover card statement, which showed a new balance of $1,460.73. The statement further reflected that her credit limit was set at $1,900. Owens had not used the credit card the previous month, but had incurred monthly finance charges. Additionally, her account was debited $10.34 for a Discovercard product called CreditSafe Plus, which evidently would put her payments and finance charges on hold without affecting her credit rating should she become unemployed, hospitalized, or disabled. Presumably, since Owens was on Social Security Disability and already unemployed, the CreditSafe product pertained only to the eventuality of her becoming hospitalized. The January 1996 statement further reflected a timely payment on her account.
{¶ 7} From January 1996 to March 1997, Owens did not make any purchases on her Discovercard. She continued to incur monthly debits for the CreditSafe Plus product and continued to incur monthly finance charges on the balance due on the account. During this time period,Owens did make payments on her account, but on several occasions (as set forth in the credit card agreement) she incurred additional fees for being late with her payments.
{¶ 8} On March 27, 1997, Owens used her card for the last time, taking a $300 cash advance from Sears. With that transaction, her April 1997 statement showed that she now had a new balance of $1,895.53.
{¶ 9} In May 1997 Owens made another payment; however, it was less than the minimum payment due. As a result she incurred another late-payment fee. Without making any purchases or taking any further cash advances, but with the accrual of monthly finances charges, Owens's balance now rose to $1,962.82. Because these additional charges had now put her over her credit limit, Owens incurred an additional $20 over-limit fee.
{¶ 10} Over the next six years Owens continued to make payments on her account, but because of finance charges and fees her balance was never again to be under her credit limit of $1,900. Despite never using her credit card again, Owens was charged a monthly over-limit fee ranging from $20 to $29 per month. From May 1997 to May 2003, Owens was assessed a total of $1,518 in over-limit fees from the time her balance went above $1,900 because of accrued finance charges in May 1997.
{¶ 11} During this time period, despite the growing record of payment difficulties, Discover also continued to debit Owens's account for its CreditSafe Plus product. From May 1997 to May 1999, Owens was charged a total of $369.52 for a product which, despite her being on Social Security Disability, evidently did not apply to her credit predicament.
{¶ 12} During this six-year period, Owens continued to attempt to meet her obligation and did make numerous payments. From May 1997 to May 2003 Owens paid Discover a total of $3,492. Since many of the payments were below the minimum monthly payment required and because others monthly payments were in fact not timely made, Owens further was assessed numerous late-payment fees, which over the six-year period totaled $1,160.
{¶ 13} In short, despite never using the credit card again and having paid $3,492 on a $1,900 debt, with all the fees and accrued finance charges, Owens was nevertheless faced with a $5,564.28 balance still owing on the account.
{¶ 14} How does something like this happen? Had Owens simply stopped paying on her account in May 1997, as perhaps some unscrupulous person might have considered, her account would have been closed and charged off at approximately $2,000, an amount thatDiscover would have sought to collect at the court seven years ago. If common practice at the court is any indicator at all, Discover might have readily agreed to negotiate a settlement at a small fraction of the amount due. Discover perhaps would have been surprised, but most likely content, to collect the entire amount, but most certainly it would never have anticipated collecting nearly 75 percent over what was owed in the first place.
{¶ 15} But because Owens was not unscrupulous and evidently did her absolute best despite being on Social Security Disability, she found herself in debt so deeply that she ultimately came to the sad conclusion that it was a debt out from under which she could never climb. The court does not have before it the records prior to January 1996 to know just what Owens may have purchased for a few hundred dollars using her Discover card. Whatever it was it certainly cannot have been worth the thousands of dollars she actually paid and most certainly was not worth the additional thousands of dollars still expected today by Discover.

Thursday, March 4, 2010

Of course, states other than New Jersey say a loan is a loan unless it's called a rent-to-own contract.

From the State PIRG Consumer Protection Site (emphasis added):
Problem: The predatory rent-to-own industry promises consumers the American dream of ownership. "For only 78 weekly payments of $10, you, too, can own this television." The industry doesn't tell you that the that the effective interest rate on that loan, however, is 220%APR with $560 in iterest and finance charges.
Many states have enacted industry-friendly laws that allow the rent-to-own industry to deceive consumers by disguising their loans as rentals. But a few states enforce tough consumer protection laws. New Jersey PIRG has helped defend its strong law for years.
Unable to win in the state legislatures, the RTO industry has asked Congress to preempt, or over-ride, those strong state consumer protection laws and replace them with a weak industry-friendly federal law.
Background: The multi-billion dollar rent-to-own industry (Rent-A-Center, Rentway and others) sells televisions, appliances, computers, jewelry and furniture by making consumers loans payable on a weekly or a monthly basis. A television with a market value of $220 typically requires 78 weekly payments of ten dollars, or a total of $780. A customer who rents-to-own, or purchases, that television has paid $560 of finance charges at an imputed annual percentage rate (APR) of 220%. But the industry contends it does not sell. It claims it only rents, because if a consumer wants to stop making payments, he or she can do so and return the goods without further payments. RTO stores generally refuse to comply with state usury ceilings or interest rate disclosure laws such as the Truth In Lending Act. The industry, over the years, has also been accused of selling used goods as new, tacking on deceptive add-on fees and worse, bullying and sometimes illegal tactics when consumers are late with payments.
Over ten years ago, RTO operators convinced about 45 states to enact weak legislation that treats rent-to-own as a lease. Yet, several states -- backed by consumer groups -- insist on treating rent-to-own sales as small loans, requiring compliance with usury ceilings (New Jersey), APR disclosures (Vermont), or other consumer protection provisions (Minnesota, Wisconsin, North Carolina).

A loan is a loan is a loan, even if it it doesn't look like a loan.

In Perez v. Rent-A-Center, Inc, 892 A.2d 1255, 186 N.J. 188 (N.J. 2006), the New Jersey Supreme Court was confronted with the question whether rent-to-own contracts are subject to 30% limit on interest applicable to installment sales set forth in the state's Retail Installment Sales Act ("RISA"), N.J.S.A. 17:16C-1 to -61.

The case arose because the plaintiff had rented from Rent-a-Center a number of items over time that had a total cash price of $9,301.72. Had she paid the weekly rates called for under her rental agreement and the additional option payments called for under that agreement, she would only achieve ownership after having spent $18,613.32. In the court's words, "[t]he difference between the market value of the goods and their ultimate cost was Rent-A-Center's interest charge for the privilege of buying the products over time. By May 2002, the Plaintiff had paid $8,156.72. It was at that point that she stopped paying.

Rent-A-Center thereafter filed a small claims complaint seeking money damages against Perez arising out of her failure to pay for or return the rental items.

One of the first points the court rejected was Rent-a-Center's claim that a rent-to-own agreement should not come under a statute forbidding interest in excess of 30% because the rent-to-own agreement in no way expresses it as a financing agreement:

Historically, the law treated the taking of interest in connection with the sale of goods entirely different from the taking of interest on a loan of money per se. Indeed, in the nineteenth and early twentieth centuries, courts first distinguished between the two kinds of loans and decided that the latter required regulation but the former did not. The rationale behind those cases was the notion that the compulsion facing an individual who owes or needs money is much more compelling than that motivating a person who seeks to buy goods, the latter having the option of foregoing the purchase. See, e.g., General Motors Acceptance Corp. v. Weinrich,218 Mo.App. 68, 262 S.W. 425, 428 (1924)("[A] purchaser is not like the needy borrower, a victim of a rapacious lender, since he can refrain from the purchase if he does not choose to pay the price asked by the seller."). On that basis, courts concluded that although money lenders were subject to the usury laws, those who made loans to sell their merchandise were not.
The idea that the two types of loans were distinct was reflected in the judicial coining of the term "time price differential." Courts used that term to refer to interest incurred in connection with the time sales of goods thus guaranteeing that such sales would escape the usury statutes that by their terms only governed "interest." See Eric A. Posner, Contract Law in the Welfare State: A Defense of the Unconscionability Doctrine, Usury Laws, and Related Limitations on the Freedom to Contract, 24 J. Legal Stud. 283, 303 (1995)("[C]ourts generally upheld retail installment contracts, on the ground that usury laws prohibit excessive interest on money loans, not on loans of goods."). Eventually the term "time price differential" made its way into the statutes.
Legal scholars have challenged the economic basis for drawing a distinction between interest and a time price differential — concluding that the time price differential is nothing more than interest on a loan in the amount of the purchase price extended by a seller to a borrower. Steven W. Bender, Rate Regulation at the Crossroads of Usury and Unconscionability: The Case for Regulating Abusive Commercial and Consumer Interest Rates Under the Unconscionability Standard, 31 Hous. L.Rev. 721, 727 (1994)("[T]he `time price' exemption ... employed the strained judicial fiction that merchants don't receive `interest' when selling their goods on time. Merchants charging more for goods paid over time than goods purchased for cash were thus freed from usury."). Commentators have also debunked the "compulsion" rationale, concluding that the need for the basic necessities of life is no less compelling than the need for money.
However, the view that the time price doctrine insulated retail installment sales from usury continued to have currency in America through the mid-twentieth century. In fact, the charges associated with the credit sale of goods went generally unregulated up until the 1950s. At that point, in response to the drumbeat of scholarly criticism and consumer complaints, some states, including New Jersey, recognized that the credit sale of goods required regulation and began to adopt retail installment sales acts that set interest rate limits on credit sales transactions. Through the incorporation of interest rate caps, those enactments effectively repudiated the historic treatment accorded the credit sale of goods and essentially replaced the usury laws that had been previously declared off-limits.
Like other state initiatives, New Jersey's RISA, which became law in 1960, was "part of a package of laws designed to protect consumers from overreaching by others, to protect consumers from overextending their own resources and also to promote the availability of financing to purchase various goods and services." Among other things, the statute prescribed the general form that retail installment contracts should take, required certain financial disclosures, detailed prohibited practices, and imposed a 10% cap on the time price differential (interest) chargeable in connection with a sale, Penalties for violation were also provided. 
 892 A.2d at 1263-1265 (some citations omitted; emphasis added).

Tuesday, February 23, 2010

Why didn't they just write it down?

Ken Adams exerpts an article by Sathnam Sanghera in the Times Online:
On the one hand, written agreements protect parties if things go wrong and provide a useful framework for engagement. But, on the other, drafting contracts slows business down—something Stephen Covey emphasises in The Speed of Trust: The One Thing that Changes Everything, with the words: “When trust goes down, speed goes down and cost goes up”. It also creates work for lawyers—in itself something worth avoiding—promotes bureaucracy and undermines trust by discouraging spontaneous displays of goodwill.
This last point is something that a decade-long study of outsourcing contracts by Warwick Business School demonstrated when it found that deals conducted on the basis of trust, instead of precisely worded agreements, could lead to benefits for both parties to the tune of as much as an additional 40 per cent of the total value of a contract.

Law school is harder than a Ph.D. program in history.

So says Kris Nelson, who's in a Ph.D. program after having finished law school. Why? Because law school is unlike anything you've ever previously done:
The entire 1L year is like this: shaking up your analysis and forcing you to approach problems in a different way.
Yes, grad school requires learn ing new approaches, new theories, new ways of thinking. Some of this even makes your head spin. But it simply doesn’t require the same radical realign ment that law school does. What you learned as an under graduate applies to grad school — but not so much to law school. It’s like starting a new job, ver sus emigrating to a new country.
And that’s why I think law school is harder than grad school.