10.2.3.2 Notes - Stokes v. Moore | rauvinj | September 25, 2012

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10.2.3.2 Notes - Stokes v. Moore

Original Creator: Kessler, Gilmore & Kronman Current Version: rauvinj
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NOTE

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1. The contract involved in Stokes v. Moore contained a provision empowering the employer to obtain an injunction against his employee in the event the latter breached his promise not to compete. In substance, if not in form, this provision represented an attempt by the parties to create a right of specific enforcement by contractual agreement. Should it have been enforced according to its terms, rather than treated merely as an important "influence" on the court's exercise of its discretionary power to grant or deny the injunction requested by the employer? MacNeil, Power of Contract and Agreed Remedies, 47 Cornell L.Q. 495, 521-522 (1962) comments:

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The question of "agreed specific performance clauses" apparently has arisen in court rarely. One can speculate on the reasons for this paucity, but the most likely one is historical. Since specific performance was an equitable remedy, its prerequisites were jurisdictional. And one scarcely went around attempting to confer jurisdiction on the Chancellor so blatantly. Consequently, the thought of putting such a provision in a contract would hardly have crossed the common-law mind, but such provisions are probably becoming more common.

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Professor MacNeil reports that, apart from the special situation of cooperative marketing agreements, he was 'able to find only six cases that raised the question of "agreed specific performance." Typically, the opinions make no more than passing reference to the contract clause but, in cases where the court has decided to give judgment for plaintiff, go on to demonstrate at length that on the facts specific performance (or a restraining order) is an appropriate remedy.

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2. Kronman, Specific Performance, 45 U. Chi. L. Rev. 351, 371-373 (1978):

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A private agreement that purports to give one party the right to specifically enforce the promise of another will be given some weight by courts in deciding whether to grant injunctive relief. But no court will consider itself foreclosed by the parties' contract from refusing specific relief. A contractual provision accompanied by a lengthy description of those aspects of the transaction that make specific performance desirable is likely to carry more weight than a provision unadorned by supporting explanation.[1] But in no event will the contract provision prevent a court from independently deter- mining the appropriateness of injunctive relief.[2]

Perhaps judicial unwillingness to honor provisions such as the one in Stokes reflects a desire to avoid private abuse of a powerful and intrusive remedy. This is a legitimate concern. But if the purpose in scrutinizing a private agreement of the Stokes variety is to prevent abuse by an overreaching promisee, this end could be served as adequately and more directly by other legal tools — for example, by traditional common law doctrines of fraud, duress, and good faith.[3] If the concern is abuse of the contracting process, courts should focus on the voluntariness of the parties' agreement.

It may be, however, that courts prohibit the private creation of injunctive remedies not because specific performance provisions evidence some procedural unfairness in the parties' dealings, but rather because they are perceived to be substantively unacceptable limitations on personal freedom. A provision of the kind involved in Stokes might be viewed as a modified contract of self-enslavement, an attempt to transfer an entitlement whose transfer is prohibited by law (an "inalienable" right or entitlement in the scheme proposed by Calabresi and Melamed).[4] This idea is echoed in some of the older specific performance cases involving construction and employment contracts.[5]

Such an argument carries little weight in a' case like Stokes, where the promise to be enforced is a negative one — a promise to refrain from doing something. More importantly, the argument is overdrawn. It is true that certain forms of domination (for example, slavery and peonage) are regarded as inherently bad. Our legal system prohibits these forms of domination, whether they are created by consensual act or by force. On the other hand, there are many relations of domination recognized and protected by law so long as they are voluntarily established and maintained. The relation created by a contract of employment is an important example of legally protected domination.

The nature, completeness, and duration of self-imposed limitations on personal freedom determine their legal and moral acceptability. Slavery is objectionable largely because it involves near-total control. By contrast the domination an employer exercises is partial and limited — the employer only controls certain aspects of his employee's life. Nevertheless, employees are not generally required by judicial order to submit to employer control. The judicial order, it may be argued, makes a crucial difference: if the employment relation is created or maintained by the threat of judicial sanctions, it is almost certain to be plagued by acrimony and ill-will. But although the unpleasantness of a forced employment relation should certainly be taken into account by an employer contemplating a suit for specific performance, it should not be a basis for refusing to impose such a relation upon parties who have agreed to an injunctive provision in their contract. Moreover, if the party in breach anticipates that the relation will be unbearable, he can buy his release from the contract.

Judicial insistence that the specific enforcement of certain contracts would create an objectionable form of personal servitude is made yet more puzzling by the numerous cases in which courts have been perfectly willing to negatively enjoin the party in breach from employing his time or talents save in performance of the contract.[6] This sort of decree will often have the same effect as a positive injunction to perform.

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3. In Stokes v. Moore, the contract also provided for the payment of liquidated damages in the amount of $500 in the event of the employee's breach. Provisions of this sort are subject to judicial review and may be invalidated if they are construed to be "penalties" rather than the product of a good-faith effort to estimate the expected loss from a possible future breach. For more on this distinction, see the cases on liquidated damages collected in Section 4 of this chapter. Suppose that liquidated damage provisions were not subject to any requirement of "non-penality." In that case, could not the employer in Stokes have achieved his aim simply by setting the penalty for breach at a sufficiently high level (say, $10,000 per violation)? Practically speaking, there is no significant difference, from the employee's point of view, between a penalty provision of this sort and an injunction ordering him to perform. It would seem, therefore, that the bar against penalty clauses and the invalidity of contractual provisions purporting to confer a right of specific enforcement on one of the parties have a similar justification (supposing, of course, that they are justifiable).

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4. Think back, for a moment, to Lumley v. Wagner. What is the practical effect of the injunction Mr. Lumley obtained? Suppose that you are in Mademoiselle Wagner's position and have been offered a very lucrative contract with Mr. Gye, Lumley's competitor. Will you simply disregard the injunction and perform in Gye's theatre anyway? Will you resign yourself to the Lord Chancellor's decree and return to work for Lumley? There is, of course, a third alternative: you may approach Lumley and attempt to buy your way of your contract with him (by offering him, in effect, a share of the extra money you will make by singing for Gye). Since Lumley has already obtained an injunction, he can set the price for releasing you from your contractual obligation to him, and if he refuses every offer you make, you must choose between singing for Lumley or not singing at all. Put more abstractly, a right of specific performance gives the promisee sole power to determine the price at which he will sell or transfer an asset he presently holds (the promisor's contractual obligation). In this respect, an injunction ordering specific performance differs fundamentally from an award of money damages, for in the latter case it is a court (and not the promisee himself) that fixes the value of the promisee's contractual entitlements - entitlements that the promisor may be said to appropriate by breaching. Does this way of looking at things help us to decide, in a more rational manner, when specific performance should be granted and when it should not? For conflicting answers, see Kronman, Specific Performance, supra p. 1084, at p. 351- 369, and Schwartz, The Case for Specific Performance, supra p. 1071, at 278-296. The article by Calabresi and Melamed, cited in Note 2, supra, provides the foundation for this way of looking at the distinction between damages and specific performance. Every contracts student should read the Calabresi and Melamed article (even though it is not directly concerned with problems of contract law); it remains one of the most fertile and suggestive law review essays written in recent years.

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5. Kronman, Paternalism and the Law of Contracts, 92 Yale L.J. 763, 778-779 (1983):

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. . . Every executory contract limits the freedom of the parties by creating an enforceable obligation, on both sides, to perform or pay damages: Once an individual has made a contractually binding commitment, his alternatives are limited to these two (assuming the other party is not himself in breach). The distinguishing mark of a contract of self-enslavement is that it purports to take away the latter alternative. From a legal point of view, it is not the length of service that makes a contract of employment self-enslaving, nor is it the nature of the services to be performed; even a contract of short duration that calls for the performance of routine and unobjectionable tasks is a contract of self-enslavement and therefore legally unenforceable if it bars the employee from substituting money damages for his promised performance.[7] The law will not permit an employee to contract away his right to "depersonalize" a relationship by paying damages in the event he chooses to breach. Whatever its other terms, an employment contract is enslaving if it gives the employer a right to compel specific performance of the agreement.[8]

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Do you agree with this way of characterizing the difference between an ordinary labor contract and a contract of self-enslavement? Can the refusal to permit contracts of the latter sort be explained on economic grounds? If we assume that no third parties are harmed by a contract of self-enslavement, and that its prohibition cannot be convincingly explained on economic grounds alone, what moral principles might account for the abhorrence it immediately stimulates? John Stuart Mill suggested that the liberty to sell oneself into slavery would be self-defeating — a liberty that would mean the end of liberty. But doesn't the prohibition against such contracts also limit a person's liberty, by making it impossible for him to pursue whatever personal goals (wealth, security, etc.) such a contract might be intended to secure? Which of these liberties should be sacrificed for the other? For one approach to this problem, see Kronman, supra, at p. 775.

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6. Shortly after the enactment of the Uniform Commercial Code in Pennsylvania, one of the lower courts in that state had occasion to consider a contract that provided "In the event of default by purchaser, seller shall have . . . in addition to any and all other rights under the Uniform Commercial Code and/or any other applicable law" the right to enter a judgment in replevin as well as the right to enter judgment for the full amount of the unpaid purchase price, with interest and costs, plus 15 percent for attorney's fees. (The goods involved were refrigerator cases and equipment for a food market and the contract price was $35,500; this was evidently a "commercial," as distinguished from a "consumer," transaction.) Counsel for the seller argued that this was a permissible "modification" of remedy under §2-719(1) [§2-719 is reprinted infra p. 1240]. The court, commenting that it was difficult to understand why anyone should sign such "a biased and one-sided agreement," concluded that the clause in question was "unconscionable and void." The court may have been influenced by the fact that another clause in the contract, not involved in the litigation, purported to give the seller the right to cancel the contract "at any time" before delivery, no comparable right being provided for the buyer. Denkin v. Sterner, 10 D. & C.2d 203 (C.P. of York County, 1956). Looking at §2-719 from a contract draftsman's point of view, what do you make of it?

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[1] See Peters, Remedies for Breach of Contracts Relating to the Sale of Goods Under the Uniform Commercial Code: A Roadmap for Article Two, 73 Yale L.J. 199, 252 (1963).

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[2] This is more frequently expressed by saying that specific performance is a discretionary remedy, and "the right to specific performance is not absolute. like the right to recover the legal judgment." [1. Pomeroy, A Treatise on the Specific Performance of Contracts §35 (J. Mann 3d ed. 1926).] It is well established that "(neither party to a contract can insist, as a matter of right. upon a decree for its specific performance." Snell v. Mitchell, 65 Me. 48, 50 (1876). Only if a promise would be specifically enforced in the absence of a contractual provision purporting to give the promisee the power to enjoin its performance, will a court compel the promisor to do what he initially agreed to do and not permit him to substitute money damages: "If one who contracts to render personal service agrees that in case of breach the remedies of specific performance and imprisonment shall be available to the employer, the agreement would not be effective." [Corbin §1432]

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[3] See Epstein, Unconscionability: A Critical Reappraisal, 18 J. Law & Econ. 293 (1976).

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[4] See Calabresi & Melamed, [Property Rules, Liability Rules and Inalienability: One View of the Cathedral, 85 Harv. L. Rev. 1089, 1111-1115 (1972).]

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[5] See [11 Williston §1423.]

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[6] See, e.g., Philadelphia Ball Club v. Lajoie, 202 Pa. 210, 51 A. 973 (1902).

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[7] This precise characteristic has been held to be the distinctive mark of the peonage system and other forms of involuntary servitude. [See Peonage Cases, 136 F. 707, 708 (E.D. Ark. 1905); Pollock v. Williams, 322 U.S. 4, 7-13 (1944); 18 U.S.C. §§1581-1588 (1976).] The peonage relationship — which often has a contractual origin — was distinguished from other legitimate employment contracts on the grounds that the peon only agreed to work for his master for a fixed or indefinite period of time, but also gave up his right to quit whenever he wished and avoid the contract by making a compensatory payment of money damages.

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[8] This theme links the Peonage Cases . . . to the well-established doctrine of contract law that an employee's obligations will not be specifically enforced, even if the parties have provided that they shall be. [11 Williston §1423.] The well-known case of Lumley v. Wagner ... is not to the contrary. Although the injunction awarded in that case prohibited the defendant from singing in other theaters, it did not subject her to the personal authority of the plaintiff; like money damages, the injunction in Lumley caused the defendant only economic loss (albeit a substantial one.)

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An employee may specifically enforce an employment contract against a corporate employer. Staklinski v. Pyramid Elec. Co., 6 N.Y.2d 159, 160 N.E.2d 78, 188 N.Y.S.2d 541 (1959). This is consistent with the view that the right to depersonalize a contractual relationship is inalienable, since a corporation, though a legal person, lacks the elements of personal integrity this right protects. Note, Constitutional Rights of the Corporate Person, 91 Yale L.J. 1641, 1652-1655 (1982). . . .

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In Canada, labor contracts are specifically enforceable against unions, which, like corporations; are deemed to lack the elements of personal integrity necessary to support the right to depersonalize contractual relationships. International Bhd. of Elec. Workers v. Winnipeg Builders Exch., 65 D.L.R.2d 242 (1967).

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February 15, 2015

10.2.3.2 Notes - Stokes v. Moore

10.2.3.2 Notes - Stokes v. Moore

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