Contracts
Class Notes
More on Henningsen
The
result is good law in that you can count on it being followed today. You can limit remedies to repair and
replacement of defective parts, but not when there is an accident resulting in
personal injury or property damage. In
that case, the limit will fall out. §
2-719 is a statutory way of doing this, but you can count on this being the
result.
You
can explain the result in more than one way.
One way is to say that the average adherent to such a contract wouldn’t
understand a limitation to replacing defective parts as a bar to, for example,
a wrongful death claim or property damage claim.
If
the manufacturer makes it very clear that there was an agreement, you must
consider whether it’s an agreement society will let us make. Is the agreement unconscionable? Will we void it for its subject matter even
though it’s clear on its face?
How
can you argue that this kind of agreement should not be enforceable? Whatever restriction we put on the freedom of
contract must be balanced out by some other principle.
Note
the difference between Henningsen, Richards,
and Broemmer as opposed to Mundy,
Bova, Weisz and so on. When we
talk about personal injury or property damage, things change from the situation where we’re just talking about economic loss. We’ll allow much more freedom of contract
when we have merely economic loss than when we’re dealing with property damage,
personal injury, wrongful death, and so on.
Why is this so?
What
argument can you make for a decision like Henningsen
as a matter of policy?
There
are other incentives for manufacturers to produce safe goods besides liability. If they get a reputation for producing unsafe
goods, they won’t sell as much and they might go out of business. It is a matter of debate how this incentive
compares to the tort system. Another
incentive is government regulation. Yet
another is the morality of the manufacturers and whether they can sleep at
night.
But
a merchant can sell to a consumer a
car with no brakes or tremendously defective brakes and not be liable at all
for any injury to the consumer. The way
you can do it is to be a particular kind of seller: “Joe’s Junkyard”. If you sell cars by the pound, there’s no
particular expectation that the car will work.
If you sell cars as junk and the buyer must understand that it’s junk
because he’s paying a junk price for it then all he is entitled to is
junk. If the junk kills him, it’s tough,
unless the person was mentally incompetent or underage.
Some
items are inherently dangerous and might cause injury, but there won’t be liability
on the part of the seller, like kitchen knives or garbage disposals or guns.
If
we required that every used car sold should be in extraordinarily good
condition, that would run up the price of used cars, especially older used
cars, and it might make for a bad bargain for many members of the public. There would be, in other words, both benefits
and costs.
This
isn’t a sale case. This is a case where
Mr. Richards is a truck driver and employee of the Monkem Company, and Mrs.
Richards would like to ride along with him in the cab. The Monkem Company says that you can do that
if you get special permission. To get
that permission, you have to sign a form.
Mr. and Mrs. Richards as well as the company sign the form. The form exculpates Monkem from any liability. Mr. and Mrs. Richards get into an accident
and Mrs. Richards gets hurt. Mrs.
Richards sues her husband on a respondeat superior basis.
But
the main defense is that she signed a release agreeing that she wouldn’t seek
any damages from the trucking company if she was injured while riding in the
truck. Why doesn’t that work here?
The
court is quite divided: It was a 4-3 decision.
Why does the majority find that the release won’t work? They find that the agreement went against
public policy. They look at three
factors that make the contract unenforceable in combination.
First,
they find that the contract serves two purposes. But what’s wrong with serving two
purposes? Don’t most agreements serve
multiple purposes? The two purposes are
identified as “permission to ride” and “release from liability”. There is an obvious reason you would want
both provisions in one agreement: one is a consideration for the other. Mrs. Richards gets permission to ride in exchange for releasing the company
from liability. The problem is that the
title of the agreement only indicates one purpose. It doesn’t rub her nose in the aspect that’s bad for her. There isn’t a sufficient “poison label” on
this thing in the title.
Secondly,
the release is said to be too broad. This
release is full of legaldygook and is broader than it needs to be. It is poorly written. Why did the lawyer who drafted the agreement
do it this way? It was probably copied
from other, older forms and the lawyer was being extra cautious. It’s common that when you write releases from
liability that you make them super-extra broad so there won’t be difficulties
down the road. We want to make sure not
to leave any loopholes through which a potential plaintiff can march through. So the thing is inartistically drafted. So what?
It contributes to the unenforceability of the agreement. Would it be possible to read this agreement
as to cover what actually happened?
Maybe, but the court isn’t interested in doing this.
Finally,
this was a standardized agreement that Mrs. Richards didn’t have a change to
negotiate. It’s a take-it-or-leave-it
form. It’s a contract of adhesion. But standardized forms have a good side to
them too.
What
was the company thinking about under these circumstances? The employee who signed this form was
responsible for “risk management”. The
employee is concerned with limiting exposure to liability. They would have liability insurance to cover
lots of regular stuff. Also, Mr.
Richards would be covered by workman’s compensation. So how can they lower their risk and
insurance cost? They can have a
no-riders policy. If they can enforce
it, the only person in the cab will be the driver, and he’s entitled to workman’s
comp. Now here comes Mrs. Richards, who
wants to ride along. The approach taken
by the company is: “If you want to ride, you absolve us from liability.” But it doesn’t work!
What’s
the end result of this case? Will the
Monkem Company have their lawyer redraft the release for the future to make it
satisfy the Supreme Court of Wisconsin?
No way! You just really, really
don’t allow riders anymore!
Could
you really get a different result the next time around? Is this case really about agreements, or is
it about a public policy that disapproves of such an exculpatory
provision? Could you reverse the result
before this court if the draftsmanship is better? Could they find a way to get a different
result?
Broemmer v.
Abortion Services of
Melinda
Broemmer is pregnant, and she and her mother go to Abortion Services of
Phoenix. She is asked to fill out three
papers. One is a consent to an abortion
procedure. One is a medical
history. The third is an arbitration
agreement that says if there is any dispute, it will be submitted to arbitration
under the American Arbitration Association and will be governed by a
gynecologist.
Broemmer
goes through with an abortion and gets injured.
She decides that she wants to sue instead of go to arbitration, so she
does sue. The clinic urges that the case
should be stayed or dismissed because it’s supposed to go to arbitration. But the clinic loses out. The arbitration agreement is struck
down. How come?
There
is unequal knowledge and unequal bargaining power in this case. But that isn’t always dispositive. Is this only about unequal bargaining power?
To
keep this case in perspective, look at Vigil
v. Sears Nat’l Bank, 205 F.Supp.2d 566.
In that case, the arbitration clause was upheld even though there was
lots of unequal bargaining power. But
that was a credit card case, not a personal injury case.
But
what’s wrong in the present case? The
court says that the agreement is out of line with Broemmer’s reasonable
expectations. That comes out of § 211,
especially comment (f). An adherent of
an adhesion contract won’t be bound to unknown terms if those terms are beyond
the range of reasonable expectations.
They will be bound to such
terms if they are within the range of
reasonable expectation. That’s just in a
comment, though. It’s not as carefully
done as the back letter law, but a number of courts have hooked on to that
comment and it has become part of the jurisprudence in this area.
The
courts say that a credit card agreement to arbitrate is within the reasonable
expectation of the parties, but an agreement to arbitrate in an abortion
personal injury case is not within
the reasonable expectation of the parties.
The
thing about the contract in this case is that it’s big and explicit. So why shouldn’t she get the message if it’s
so clear? Is it true that you’re not
bound to what you sign unless it’s explained to you?
One
of the things to notice is that when we’re talking about personal injury,
things change. We want to deter the sale
of shoddy goods. We want to deter
malpractice. Generally, we disfavor
exculpatory clauses.
But
there is another perspective. What is
the underlying public policy that the courts don’t talk about? The policy is lining the pockets of
lawyers! These decisions are pro-trial
lawyer decisions. Why don’t we want to arbitrate? There’s a 40% fee if we litigate! If we arbitrate, the fee will be much
smaller. So perhaps there is a public
policy in favor of trial lawyers. Both plaintiffs’
lawyers and defense lawyers will agitate against arbitration. So who are the majority in these cases? They are judges in the courts whose election
campaigns have been supported by the state’s trial bar. The dissenters’ election campaigns were
probably paid for by the state’s business community. These are cases where you can probably
predict the result. Until the beginning
of the year, the Ohio Supreme Court always went 4-3 for plaintiffs’ trial attorneys,
now it goes 4-3 the other way.
Notice
that this idea, the idea of two different kinds of law depending on personal
injury, wrongful death, or property damage as opposed to only economic loss,
comes up again and again. The law of contracts
as codified in UCC Article 2 will allow you to avoid tort liability for purely
economic loss.
Brower v.
Gateway 2000, Inc.
If
the damages are purely economic, we’ll let an arbitration agreement stand, even
if it’s pretty outrageous. We want to
keep the large fees of tort lawyers out of the economic losses that might be
suffered.
We’re
going to start talking about policing a bargain. Sometimes a bargain definitely has been made,
but we won’t enforce it for one reason for another. We’ll deal with infancy, and also “dippiness”.