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3. What are the main sources and costs of unsecured and secured short-term financing?
How do firms raise the funding they need? They borrow money (debt), sell ownership shares (equity), and retain earnings (profits). The financial manager must assess all these sources and choose the one most likely to help maximize the firm’s value.
Like expenses, borrowed funds can be divided into short- and long-term loans. A short-term loan comes due within one year; a long-term loan has a maturity greater than one year. Short-term financing is shown as a current liability on the balance sheet and is used to finance current assets and support operations. Short-term loans can be unsecured or secured.
Unsecured Short-Term Loans
Unsecured loans are made on the basis of the firm’s creditworthiness and the lender’s previous experience with the firm. An unsecured borrower does not have to pledge specific assets as security. The three main types of unsecured short-term loans are trade credit, bank loans, and commercial paper.
Trade Credit: Accounts Payable
When Goodyear sells tires to General Motors, GM does not have to pay cash on delivery. Instead, Goodyear regularly bills GM for its tire purchases, and GM pays at a later date. This is an example of trade credit: the seller extends credit to the buyer between the time the buyer receives the goods or services and when it pays for them. Trade credit is a major source of short-term business financing. The buyer enters the credit on its books as an account payable. In effect, the credit is a short-term loan from the seller to the buyer of the goods and services. Until GM pays Goodyear, Goodyear has an account receivable from GM, and GM has an account payable to Goodyear.
Bank Loans
Unsecured bank loans are another source of short-term business financing. Companies often use these loans to finance seasonal (cyclical) businesses. Unsecured bank loans include lines of credit and revolving credit agreements. A line of credit specifies the maximum amount of unsecured short-term borrowing the bank will allow the firm over a given period, typically one year. The firm either pays a fee or keeps a certain percentage of the loan amount (generally 10 to 20 percent) in a checking account at the bank. Another bank loan, the revolving credit agreement, is basically a guaranteed line of credit that carries an extra fee in addition to interest. Revolving credit agreements are often arranged for a period of two to five years.
Commercial Paper
As noted earlier, commercial paper is an unsecured short-term debt—an IOU—issued by a financially strong corporation. Thus, it is both a short-term investment and a financing option for major corporations. Corporations issue commercial paper in multiples of \$100,000 for periods ranging from 3 to 270 days. Many big companies use commercial paper instead of short-term bank loans because the interest rate on commercial paper is usually 1 to 3 percent below bank rates.
Secured Short-Term Loans
Secured loans require the borrower to pledge specific assets as collateral, or security. The secured lender can legally take the collateral if the borrower doesn’t repay the loan. Commercial banks and commercial finance companies are the main sources of secured short-term loans to business. Borrowers whose credit is not strong enough to qualify for unsecured loans use these loans. Typically, the collateral for secured short-term loans is accounts receivable or inventory. Because accounts receivable are normally quite liquid (easily converted to cash), they are an attractive form of collateral. The appeal of inventory—raw materials or finished goods—as collateral depends on how easily it can be sold at a fair price.
Another form of short-term financing using accounts receivable is factoring. A firm sells its accounts receivable outright to a factor,a financial institution (often a commercial bank or commercial finance company) that buys accounts receivable at a discount. Factoring is widely used in the clothing, furniture, and appliance industries. Factoring is more expensive than a bank loan, however, because the factor buys the receivables at a discount from their actual value.
CONCEPT CHECK
1. Distinguish between unsecured and secured short-term loans.
2. Briefly describe the three main types of unsecured short-term loans.
3. Discuss the two ways that accounts receivable can be used to obtain short-term financing. | textbooks/biz/Business/Introductory_Business/Book%3A_Introduction_to_Business_(OpenStax)/16%3A_Understanding_Financial_Management_and_Securities_Markets/16.04%3A_Obtaining_Short-Term_Financing.txt |
4. What are the key differences between debt and equity, and what are the major types and features of long-term debt?
A basic principle of finance is to match the term of the financing to the period over which benefits are expected to be received from the associated outlay. Short-term items should be financed with short-term funds, and long-term items should be financed with long-term funds. Long-term financing sources include both debt (borrowing) and equity (ownership). Equity financing comes either from selling new ownership interests or from retaining earnings. Financial managers try to select the mix of long-term debt and equity that results in the best balance between cost and risk.
Debt versus Equity Financing
Say that the Boeing Company plans to spend \$2 billion over the next four years to build and equip new factories to make jet aircraft. Boeing’s top management will assess the pros and cons of both debt and equity and then consider several possible sources of the desired form of long-term financing.
The major advantage of debt financing is the deductibility of interest expense for income tax purposes, which lowers its overall cost. In addition, there is no loss of ownership. The major drawback is financial risk: the chance that the firm will be unable to make scheduled interest and principal payments. The lender can force a borrower that fails to make scheduled debt payments into bankruptcy. Most loan agreements have restrictions to ensure that the borrower operates efficiently.
Equity, on the other hand, is a form of permanent financing that places few restrictions on the firm. The firm is not required to pay dividends or repay the investment. However, equity financing gives common stockholders voting rights that provide them with a voice in management. Equity is more costly than debt. Unlike the interest on debt, dividends to owners are not tax-deductible expenses. Table 16.1 summarizes the major differences between debt and equity financing.
Debt Financing
Long-term debt is used to finance long-term (capital) expenditures. The initial maturities of long-term debt typically range between 5 and 20 years. Three important forms of long-term debt are term loans, bonds, and mortgage loans.
Major Differences between Debt and Equity Financing
Debt Financing Equity Financing
Have a say in management Creditors typically have none, unless the borrower defaults on payments. Creditors may be able to place restraints on management in event of default. Common stockholders have voting rights.
Have a right to income and assets Debt holders rank ahead of equity holders. Payment of interest and principal is a contractual obligation of the firm. Equity owners have a residual claim on income (dividends are paid only after paying interest and any scheduled principal) and no obligation to pay dividends.
Maturity (date when debt needs to be paid back) Debt has a stated maturity and requires repayment of principal by a specified date. The company is not required to repay equity, which has no maturity date.
Tax treatment Interest is a tax-deductible expense. Dividends are not tax-deductible and are paid from after-tax income.
Table16.1
A term loan is a business loan with a maturity of more than one year. Term loans generally have maturities of 5 to 12 years and can be unsecured or secured. They are available from commercial banks, insurance companies, pension funds, commercial finance companies, and manufacturers’ financing subsidiaries. A contract between the borrower and the lender spells out the amount and maturity of the loan, the interest rate, payment dates, the purpose of the loan, and other provisions such as operating and financial restrictions on the borrower to control the risk of default. The payments include both interest and principal, so the loan balance declines over time. Borrowers try to arrange a repayment schedule that matches the forecast cash flow from the project being financed.
Bonds are long-term debt obligations (liabilities) of corporations and governments. A bond certificate is issued as proof of the obligation. The issuer of a bond must pay the buyer a fixed amount of money—called interest, stated as the coupon rate—on a regular schedule, typically every six months. The issuer must also pay the bondholder the amount borrowed—called the principal, or par value—at the bond’s maturity date (due date). Bonds are usually issued in units of \$1,000—for instance, \$1,000, \$5,000, or \$10,000—and have initial maturities of 10 to 30 years. They may be secured or unsecured, include special provisions for early retirement, or be convertible to common stock.
A mortgage loan is a long-term loan made against real estate as collateral. The lender takes a mortgage on the property, which lets the lender seize the property, sell it, and use the proceeds to pay off the loan if the borrower fails to make the scheduled payments. Long-term mortgage loans are often used to finance office buildings, factories, and warehouses. Life insurance companies are an important source of these loans. They make billions of dollars’ worth of mortgage loans to businesses each year.
CONCEPT CHECK
1. Distinguish between debt and equity.
2. Identify the major types and features of long term debt. | textbooks/biz/Business/Introductory_Business/Book%3A_Introduction_to_Business_(OpenStax)/16%3A_Understanding_Financial_Management_and_Securities_Markets/16.05%3A_Raising_Long-Term_Financing.txt |
5. When and how do firms issue equity, and what are the costs?
Equity refers to the owners’ investment in the business. In corporations, the preferred and common stockholders are the owners. A firm obtains equity financing by selling new ownership shares (external financing), by retaining earnings (internal financing), or for small and growing, typically high-tech, companies, through venture capital (external financing).
Selling New Issues of Common Stock
Common stock is a security that represents an ownership interest in a corporation. A company’s first sale of stock to the public is called an initial public offering (IPO). An IPO often enables existing stockholders, usually employees, family, and friends who bought the stock privately, to earn big profits on their investment. (Companies that are already public can issue and sell additional shares of common stock to raise equity funds.)
But going public has some drawbacks. For one thing, there is no guarantee an IPO will sell. It is also expensive. Big fees must be paid to investment bankers, brokers, attorneys, accountants, and printers. Once the company is public, it is closely watched by regulators, stockholders, and securities analysts. The firm must reveal such information as operating and financial data, product details, financing plans, and operating strategies. Providing this information is often costly.
Going public is the dream of many small company founders and early investors, who hope to recoup their investments and become instant millionaires. Google, which went public in 2004 at \$85 a share and soared to \$475 in early 2006 before settling back to trade in the high-300 range in August 2006. More than a decade later, in October 2017, Google continues to be a successful IPO, trading at more than \$990 per share.
In recent years, the number of IPOs has dropped sharply, as start-ups think long and hard about going public, despite the promise of millions of dollars for investors and entrepreneurs. For example, in 2017, Blue Apron, a meal-kit delivery service, went public with an opening stock price of \$10 per share. Several months later, the share price dropped more than 40 percent. Some analysts believe that Amazon’s possible entry into the meal-kit delivery sector has hurt Blue Apron’s value, as well as the company’s high marketing costs to attract and retain monthly subscribers.8
Some companies choose to remain private. Cargill, SC Johnson, Mars, Publix Super Markets, and Bloomberg are among the largest U.S. private companies.
Dividends and Retained Earnings
Dividends are payments to stockholders from a corporation’s profits. Dividends can be paid in cash or in stock. Stock dividendsare payments in the form of more stock. Stock dividends may replace or supplement cash dividends. After a stock dividend has been paid, more shares have a claim on the same company, so the value of each share often declines. A company does not have to pay dividends to stockholders. But if investors buy the stock expecting to get dividends and the firm does not pay them, the investors may sell their stocks.
At their quarterly meetings, the company’s board of directors (typically with the advice of its CFO) decides how much of the profits to distribute as dividends and how much to reinvest. A firm’s basic approach to paying dividends can greatly affect its share price. A stable history of dividend payments indicates good financial health. For example, cable giant Comcast has increased its dividend more than 20 percent over the past five years, giving shareholders a healthy return on their investment.9
If a firm that has been making regular dividend payments cuts or skips a dividend, investors start thinking it has serious financial problems. The increased uncertainty often results in lower stock prices. Thus, most firms set dividends at a level they can keep paying. They start with a relatively low dividend payout ratio so that they can maintain a steady or slightly increasing dividend over time.
Retained earnings, profits that have been reinvested in the firm, have a big advantage over other sources of equity capital: They do not incur underwriting costs. Financial managers strive to balance dividends and retained earnings to maximize the value of the firm. Often the balance reflects the nature of the firm and its industry. Well-established and stable firms and those that expect only modest growth, such as public utilities, financial services companies, and large industrial corporations, typically pay out much of their earnings in dividends. For example, in the 2016 fiscal year, ExxonMobil paid dividends of \$3.08 per share, Altria Group paid \$2.64 per share, Apple paid \$2.23 per share, and Costco paid \$2.00 per share.
Most high-growth companies, such as those in technology-related fields, finance much of their growth through retained earnings and pay little or no dividends to stockholders. As they mature, many decide to begin paying dividends, as Apple decided to do in 2012, after 17 years of paying no annual dividends to shareholders.10
Preferred Stock
Another form of equity is preferred stock. Unlike common stock, preferred stock usually has a dividend amount that is set at the time the stock is issued. These dividends must be paid before the company can pay any dividends to common stockholders. Also, if the firm goes bankrupt and sells its assets, preferred stockholders get their money back before common stockholders do.
Like debt, preferred stock increases the firm’s financial risk because it obligates the firm to make a fixed payment. But preferred stock is more flexible. The firm can miss a dividend payment without suffering the serious results of failing to pay back a debt.
Preferred stock is more expensive than debt financing, however, because preferred dividends are not tax-deductible. Also, because the claims of preferred stockholders on income and assets are second to those of debtholders, preferred stockholders require higher returns to compensate for the greater risk.
Venture Capital
Venture capital is another source of equity capital. It is most often used by small and growing firms that aren’t big enough to sell securities to the public. This type of financing is especially popular among high-tech companies that need large sums of money.
Venture capitalists invest in new businesses in return for part of the ownership, sometimes as much as 60 percent. They look for new businesses with high growth potential, and they expect a high investment return within 5 to 10 years. By getting in on the ground floor, venture capitalists buy stock at a very low price. They earn profits by selling the stock at a much higher price when the company goes public. Venture capitalists generally get a voice in management through seats on the board of directors. Getting venture capital is difficult, even though there are hundreds of private venture-capital firms in this country. Most venture capitalists finance only about 1 to 5 percent of the companies that apply. Venture-capital investors, many of whom experienced losses during recent years from their investments in failed dot-coms, are currently less willing to take risks on very early-stage companies with unproven technology. As a result, other sources of venture capital, including private foundations, states, and wealthy individuals (called angel investors), are helping start-up firms find equity capital. These private investors are motivated by the potential to earn a high return on their investment.
CONCEPT CHECK
1. Compare the advantages and disadvantages of debt and equity financing.
2. Discuss the costs involved in issuing common stock.
3. Briefly describe these sources of equity: retained earnings, preferred stock, venture capital. | textbooks/biz/Business/Introductory_Business/Book%3A_Introduction_to_Business_(OpenStax)/16%3A_Understanding_Financial_Management_and_Securities_Markets/16.06%3A_Equity_Financing.txt |
6. How do securities markets help firms raise funding, and what securities trade in the capital markets?
Stocks, bonds, and other securities trade in securities markets. These markets streamline the purchase and sales activities of investors by allowing transactions to be made quickly and at a fair price. Securities are investment certificates that represent either equity (ownership in the issuing organization) or debt (a loan to the issuer). Corporations and governments raise capital to finance operations and expansion by selling securities to investors, who in turn take on a certain amount of risk with the hope of receiving a profit from their investment.
Securities markets are busy places. On an average day, individual and institutional investors trade billions of shares of stock in more than 10,000 companies through securities markets. Individual investors invest their own money to achieve their personal financial goals. Institutional investors are investment professionals who are paid to manage other people’s money. Most of these professional money managers work for financial institutions, such as banks, mutual funds, insurance companies, and pension funds. Institutional investors control very large sums of money, often buying stock in 10,000-share blocks. They aim to meet the investment goals of their clients. Institutional investors are a major force in the securities markets, accounting for about half of the dollar volume of equities traded.
Types of Markets
Securities markets can be divided into primary and secondary markets. The primary market is where new securities are sold to the public, usually with the help of investment bankers. In the primary market, the issuer of the security gets the proceeds from the transaction. A security is sold in the primary market just once—when the corporation or government first issues it. The Blue ApronIPO is an example of a primary market offering.
Later transactions take place in the secondary market, where old (already issued) securities are bought and sold, or traded, among investors. The issuers generally are not involved in these transactions. The vast majority of securities transactions take place in secondary markets, which include broker markets, dealer markets, the over-the-counter market, and the commodities exchanges. You’ll see tombstones, announcements of both primary and secondary stock and bond offerings, in the Wall Street Journal and other newspapers.
The Role of Investment Bankers and Stockbrokers
Two types of investment specialists play key roles in the functioning of the securities markets. Investment bankers help companies raise long-term financing. These firms act as intermediaries, buying securities from corporations and governments and reselling them to the public. This process, called underwriting, is the main activity of the investment banker, which acquires the security for an agreed-upon price and hopes to be able to resell it at a higher price to make a profit. Investment bankers advise clients on the pricing and structure of new securities offerings, as well as on mergers, acquisitions, and other types of financing. Well-known investment banking firms include Goldman Sachs, Morgan Stanley, JP Morgan, Bank of America Merrill Lynch, and Citigroup.
A stockbroker is a person who is licensed to buy and sell securities on behalf of clients. Also called account executives, these investment professionals work for brokerage firms and execute the orders customers place for stocks, bonds, mutual funds, and other securities. Investors are wise to seek a broker who understands their investment goals and can help them pursue their objectives.
Brokerage firms are paid commissions for executing clients’ transactions. Although brokers can charge whatever they want, most firms have fixed commission schedules for small transactions. These commissions usually depend on the value of the transaction and the number of shares involved.
Online Investing
Improvements in internet technology have made it possible for investors to research, analyze, and trade securities online. Today almost all brokerage firms offer online trading capabilities. Online brokerages are popular with “do-it-yourself” investors who choose their own stocks and don’t want to pay a full-service broker for these services. Lower transaction costs are a major benefit. Fees at online brokerages range from about \$4.95 to \$8.00, depending on the number of trades a client makes and the size of a client’s account. Although there are many online brokerage firms, the four largest—Charles Schwab, Fidelity, TD Ameritrade, and E*Trade—account for more than 80 percent of all trading volume and trillions in assets in customer accounts.11 The internet also offers investors access to a wealth of investment information.
MANAGING CHANGE
Competition Causes Online Fees to Drop
With the U.S. stock market reaching an all-time high in 2017, private investors continue to look for ways to get in or stay in the market without paying exorbitant fees to execute their own trades. Historically, fees associated with buying and selling stocks have been high and considered one reason why investors sought alternatives via online trading platforms offered by firms such as Fidelity, Charles Schwab, TD Ameritrade, and E*Trade. With advances in technology, including the use of artificial intelligence, the costs associated with handling stock trades has dropped dramatically over the last decade, and investors are looking for the best possible deal.
With competition from companies such as Robinhood, a start-up app that offers \$0 fees for stock trades, online trading firms have rushed to reduce their fees to attract more overall business, and a price war has ensued. Fidelity and Charles Schwab lowered their fees for online stock and exchange-traded funds to \$4.95; Ameritrade and E*Trade reduced their fees from \$9.99 to \$6.95.
So how will these firms continue to make money? They believe that lowering the price of entry for trading stocks will allow them to “sweep up” customer assets—meaning firms have an opportunity to attract new customers who not only will take advantage of low trading fees but will be interested in other financial products offered by these investment companies. Some of the other services being touted by online trading firms include loaning money to investors to buy stock and cross-selling customers on wealth management services and other investment products.
According to some industry analysts, one downside to matching competitors’ low fees could be a strategy of consolidation within the online trading industry. Unless firms can increase their overall business by reaching out to current customers and potential ones, some may be forced to join up with competitors.
Critical Thinking Questions
1. From a business standpoint, do you think the “almost-free” trading fees make sense? Explain.
2. What can online trading firms do to increase their overall business, particularly when it comes to attracting new investors?
Sources: Simone Foxman, “The Future Price of Investing: Zilch,” Bloomberg Businessweek, http://www.bloomberg.com, October 31, 2017; Evelyn Chang, “Robinhood, Trading App for Millennials, Still Betting on Stocks over Bitcoin,” CNBC,https://www.cnbc.com, October 10, 2017; Taylor Tepper, “You Probably Have the Wrong Idea When It Comes to Investments. Let’s Fix That,” http://www.bankrate.com, July 19, 2017; Trevor Hunnicutt and Tim McLaughlin, “Brokerages’ Race to Zero Fees Points to a Bigger War to Come,” Reuters, https://www.reuters.com, February 27, 2017.
Investing in Bonds
When many people think of financial markets, they picture the equity markets. However, the bond markets are huge—the Securities Industry and Financial Markets Association (SIFMA) estimates that the global bond market is nearly \$88 trillion. In the United States, companies and government entities sold about \$2 billion in new bond issues in 2016. Average daily trading volume exceeded \$760 billion, with U.S. Treasury securities accounting for more than 60 percent of the total.12
Bonds can be bought and sold in the securities markets. However, the price of a bond changes over its life as market interest rates fluctuate. When the market interest rate drops below the fixed interest rate on a bond, it becomes more valuable, and the price rises. If interest rates rise, the bond’s price will fall. Corporate bonds, as the name implies, are issued by corporations. They usually have a par value of \$1,000. They may be secured or unsecured (called debentures), include special provisions for early retirement, or be convertible to common stock. Corporations can also issue mortgage bonds, bonds secured by property such as land, buildings, or equipment. Approximately \$1.5 trillion in new corporate bonds were issued in 2016.13
In addition to regular corporate debt issues, investors can buy high-yield, or junk, bonds—high-risk, high-return bonds often used by companies whose credit characteristics would not otherwise allow them access to the debt markets. They generally earn 3 percent or more above the returns on high-quality corporate bonds. Corporate bonds may also be issued with an option for the bondholder to convert them into common stock. These convertible bonds generally allow the bondholder to exchange each bond for a specified number of shares of common stock.
U.S. Government Securities and Municipal Bonds
Both the federal government and local government agencies also issue bonds. The U.S. Treasury sells three major types of federal debt securities: Treasury bills, Treasury notes, and Treasury bonds. All three are viewed as default-risk-free because they are backed by the U.S. government. Treasury bills mature in less than a year and are issued with a minimum par value of \$1,000. Treasury notes have maturities of 10 years or less, and Treasury bonds have maturities as long as 25 years or more. Both notes and bonds are sold in denominations of \$1,000 and \$5,000. The interest earned on government securities is subject to federal income tax but is free from state and local income taxes. According to SIFMA, a total of \$1.7 trillion U.S. treasuries were issued in 2016, down 20 percent from 2015.14
Municipal bonds are issued by states, cities, counties, and other state and local government agencies. Almost \$445.8 billion in municipal bonds were issued in 2016.15 These bonds typically have a par value of \$5,000 and are either general obligation or revenue bonds. General obligation bonds are backed by the full faith and credit (and taxing power) of the issuing government. Revenue bonds, on the other hand, are repaid only from income generated by the specific project being financed. Examples of revenue bond projects include toll highways and bridges, power plants, and parking structures. Because the issuer of revenue bonds has no legal obligation to back the bonds if the project’s revenues are inadequate, they are considered more risky and therefore have higher interest rates than general obligation bonds.
Municipal bonds are attractive to investors because interest earned on them is exempt from federal income tax. For the same reason, the coupon interest rate for a municipal bond is lower than for a similar-quality corporate bond. In addition, interest earned on municipal bonds issued by governments within the taxpayer’s home state is exempt from state income tax as well. In contrast, all interest earned on corporate bonds is fully taxable.
Bond Ratings
Bonds vary in quality, depending on the financial strength of the issuer. Because the claims of bondholders come before those of stockholders, bonds are generally considered less risky than stocks. However, some bonds are in fact quite risky. Companies can default—fail to make scheduled interest or principal payments—on their bonds. Investors can use bond ratings, letter grades assigned to bond issues to indicate their quality or level of risk. Ratings for corporate bonds are easy to find. The two largest and best-known rating agencies are Moody’s and Standard & Poor’s (S&P), whose publications are in most libraries and in stock brokerages. Table 16.2 lists the letter grades assigned by Moody’s and S&P. A bond’s rating may change if a company’s financial condition changes.
Other Popular Securities
In addition to stocks and bonds, investors can buy mutual funds, a very popular investment category, or exchange-traded funds (ETFs). Futures contracts and options are more complex investments for experienced investors.
Mutual Funds
Suppose that you have \$1,000 to invest but don’t know which stocks or bonds to buy, when to buy them, or when to sell them. By investing in a mutual fund, you can buy shares in a large, professionally managed portfolio, or group, of stocks and bonds. A mutual fund is a financial-service company that pools its investors’ funds to buy a selection of securities—marketable securities, stocks, bonds, or a combination of securities—that meet its stated investment goals. Each mutual fund focuses on one of a wide variety of possible investment goals, such as growth or income. Many large financial-service companies, such as Fidelity and Vanguard, sell a wide variety of mutual funds, each with a different investment goal. Investors can pick and choose funds that match their particular interests. Some specialized funds invest in a particular type of company or asset: in one industry such as health care or technology, in a geographical region such as Asia, or in an asset such as precious metals.
Mutual funds are one of the most popular investments for individuals today: they can choose from about 9,500 different funds. Investments in mutual funds are more than \$40 trillion worldwide, of which U.S. mutual funds hold more than \$19 trillion. About 94 million individuals, representing 55 percent of all U.S. households, own mutual funds.16 Mutual funds appeal to investors for three main reasons:
Moody’s and Standard & Poor’s Bond Ratings
Moody’s Ratings S & P Ratings Description
Aaa AAA Prime-quality investment bonds: Highest rating assigned; indicates extremely strong capacity to pay.
Aa, A AA, A High-grade investment bonds: Also considered very safe bonds, although not quite as safe as Aaa/AAA issues; Aa/AA bonds are safer (have less risk of default) than single As.
Baa BBB Medium-grade investment bonds: Lowest of investment-grade issues; seen as lacking protection against adverse economic conditions.
Ba B BB B Junk bonds: Provide little protection against default; viewed as highly speculative.
Caa Ca C CCC CC C D Poor-quality bonds: Either in default or very close to it.
Table16.2
• They are a good way to hold a diversified, and thus less risky, portfolio. Investors with only \$500 or \$1,000 to invest cannot diversify much on their own. Buying shares in a mutual fund lets them own part of a portfolio that may contain 100 or more securities.
• Mutual funds are professionally managed.
• Mutual funds may offer higher returns than individual investors could achieve on their own.
Exchange-Traded Funds
Another type of investment, the exchange-traded fund (ETF), has become very popular with investors. ETFs are similar to mutual funds because they hold a broad basket of stocks with a common theme, giving investors instant diversification. ETFs trade on stock exchanges (most trade on the American Stock Exchange, AMEX), so their prices change throughout the day, whereas mutual fund share prices, called net asset values (NAVs), are calculated once a day, at the end of trading. Worldwide, ETF assets in 2016 were more than \$3.5 trillion, with the U.S. ETF market accounting for 73 percent of the global market.17
Investors can choose from more than 1,700 ETFs that track almost any market sector, from a broad market index such as the S&P 500 (described later in this chapter), industry sectors such as health care or energy, and geographical areas such as a particular country (Japan) or region (Latin America). ETFs have very low expense ratios. However, because they trade as stocks, investors pay commissions to buy and sell these shares.
Futures Contracts and Options
Futures contracts are legally binding obligations to buy or sell specified quantities of commodities (agricultural or mining products) or financial instruments (securities or currencies) at an agreed-on price at a future date. An investor can buy commodity futures contracts in cattle, pork bellies (large slabs of bacon), eggs, coffee, flour, gasoline, fuel oil, lumber, wheat, gold, and silver. Financial futures include Treasury securities and foreign currencies, such as the British pound or Japanese yen. Futures contracts do not pay interest or dividends. The return depends solely on favorable price changes. These are very risky investments because the prices can vary a great deal.
Options are contracts that entitle holders to buy or sell specified quantities of common stocks or other financial instruments at a set price during a specified time. As with futures contracts, investors must correctly guess future price movements in the underlying financial instrument to earn a positive return. Unlike futures contracts, options do not legally obligate the holder to buy or sell, and the price paid for an option is the maximum amount that can be lost. However, options have very short maturities, so it is easy to quickly lose a lot of money with them.
CONCEPT CHECK
1. Distinguish between primary and secondary securities markets. How does an investment banker work with companies to issue securities?
2. Describe the types of bonds available to investors and the advantages and disadvantages they offer.
3. Why do mutual funds and exchange-traded funds appeal to investors? Discuss why futures contracts and options are risky investments. | textbooks/biz/Business/Introductory_Business/Book%3A_Introduction_to_Business_(OpenStax)/16%3A_Understanding_Financial_Management_and_Securities_Markets/16.07%3A_Securities_Markets.txt |
7. Where can investors buy and sell securities, and how are securities markets regulated?
When we think of stock markets, we are typically referring to secondary markets, which handle most of the securities trading activity. The two segments of the secondary markets are broker markets and dealer markets, as Exhibit 16.6 shows. The primary difference between broker and dealer markets is the way each executes securities trades. Securities trades can also take place in alternative market systems and on non-U.S. securities exchanges.
The securities markets both in the United States and around the world are in flux and undergoing tremendous changes. We present the basics of securities exchanges in this section and discuss the latest trends in the global securities markets later in the chapter.
Broker Markets
The broker market consists of national and regional securities exchanges that bring buyers and sellers together through brokers on a centralized trading floor. In the broker market, the buyer purchases the securities directly from the seller through the broker. Broker markets account for about 60 percent of the total dollar volume of all shares traded in the U.S. securities markets.
New York Stock Exchange
The oldest and most prestigious broker market is the New York Stock Exchange (NYSE), which has existed since 1792. Often called the Big Board, it is located on Wall Street in downtown New York City. The NYSE, which lists the shares of some 2,400 corporations, had a total market capitalization (domestic and foreign companies) of \$25.8 trillion at year-end 2016. On a typical day, more than 3 billion shares of stock are traded on the NYSE.18 It represents 90 percent of the trading volume in the U.S. broker marketplace. Major companies such as IBM, Coca-Cola, AT&T, Procter & Gamble, Ford Motor Co., and Chevron list their shares on the NYSE. Companies that list on the NYSE must meet stringent listing requirements and annual maintenance requirements, which give them creditability.
The NYSE is also popular with non-U.S. companies. More than 490 foreign companies with a global market capitalization of almost \$63 trillion now list their securities on the NYSE. 19
Until recently, all NYSE transactions occurred on the vast NYSE trading floor. Each of the companies traded at the NYSE is assigned to a trading post on the floor. When an exchange member receives an order to buy or sell a particular stock, the order is transmitted to a floor broker at the company’s trading post. The floor brokers then compete with other brokers on the trading floor to get the best price for their customers.
In response to competitive pressures from electronic exchanges, the NYSE created a hybrid market that combines features of the floor auction market and automated trading. Its customers now have a choice of how they execute trades. In the trends section, we’ll discuss other changes the NYSE is making to maintain a leadership position among securities exchanges.
Another national stock exchange, the American Stock Exchange (AMEX), lists the securities of more than 700 corporations but handles only 4 percent of the annual share volume of shares traded on U.S. securities exchanges. Because the AMEX’s rules are less strict than those of the NYSE, most AMEX firms are smaller and less well known than NYSE-listed corporations. Some firms move up to the NYSE once they qualify for listing there. Other companies choose to remain on the AMEX. Companies cannot be listed on both exchanges at the same time. The AMEX has become a major market, however, for exchange-traded funds and in options trading.
Regional Exchanges
The remaining 6 percent of annual share volume takes place on several regional exchanges in the United States. These exchanges list about 100 to 500 securities of firms located in their area. Regional exchange membership rules are much less strict than for the NYSE. The top regional exchanges are the Boston, Chicago, Philadelphia, and National (formerly the Cincinnati) exchanges. An electronic network linking the NYSE and many of the regional exchanges allows brokers to make securities transactions at the best prices.
The regional exchanges, which have struggled to compete, benefited from the passage of the Securities and Exchange Commission’s (SEC’s) Regulation NMS (National Market System), which became fully effective in 2007. Regulation NMS makes price the most important factor in making securities trades, and all orders must go to the trading venue with the best price.20
Dealer Markets
Unlike broker markets, dealer markets do not operate on centralized trading floors but instead use sophisticated telecommunications networks that link dealers throughout the United States. Buyers and sellers do not trade securities directly, as they do in broker markets. They work through securities dealers called market makers, who make markets in one or more securities and offer to buy or sell securities at stated prices. A security transaction in the dealer market has two parts: the selling investor sells his or her securities to one dealer, and the buyer purchases the securities from another dealer (or in some cases, the same dealer).
NASDAQ
The largest dealer market is the National Association of Securities Dealers Automated Quotation system, commonly referred to as NASDAQ. The first electronic-based stock market, the NASDAQ is a sophisticated telecommunications network that links dealers throughout the United States. Founded in 1971 with origins in the over-the-counter (OTC) market, today NASDAQ is a separate securities exchange that is no longer part of the OTC market. The NASDAQ lists more companies than the NYSE, but the NYSE still leads in total market capitalization. An average of 1.6 billion shares were exchanged daily in 2016 through NASDAQ, which is now the largest electronic stock market.21 It provides up-to-date bid and ask prices on about 3,700 of the most active OTC securities. Its sophisticated electronic communication system provides faster transaction speeds than traditional floor markets and is the main reason for the popularity and growth of the OTC market.
In January 2006, the SEC approved NASDAQ’s application to operate as a national securities exchange. As a result, the NASDAQ Stock Market LLC began operating independently in August 2006.22 The securities of many well-known companies, some of which could be listed on the organized exchanges, trade on the NASDAQ. Examples include Amazon, Apple, Costco, Comcast, JetBlue, Microsoft, Qualcomm, and Starbucks. The stocks of most commercial banks and insurance companies also trade in this market, as do most government and corporate bonds. More than 400 foreign companies also trade on the NASDAQ.
More than a decade ago, the NASDAQ changed its structure to a three-tier market:
• The NASDAQ Global Select Market, a new tier with “financial and liquidity requirements that are higher than those of any other market,” according to NASDAQ. More than 1,000 NASDAQ companies qualify for this group.
• The NASDAQ Global Market (formerly the NASDAQ National Market), which will list about 1,650 companies.
• The NASDAQ Capital Market will replace the NASDAQ Small Cap Market and list about 550 companies.
All three market tiers adhere to NASDAQ’s rigorous listing and corporate governance standards.23
The Over-the-Counter Market
The over-the-counter (OTC) markets refer to those other than the organized exchanges described above. There are two OTC markets: the Over-the-Counter Bulletin Board (OTCBB) and the Pink Sheets. These markets generally list small companies and have no listing or maintenance standards, making them attractive to young companies looking for funding. OTC companies do not have to file with the SEC or follow the costly provisions of Sarbanes-Oxley. Investing in OTC companies is therefore highly risky and should be for experienced investors only.
Alternative Trading Systems
In addition to broker and dealer markets, alternative trading systems such as electronic communications networks (ECNs) make securities transactions. ECNs are private trading networks that allow institutional traders and some individuals to make direct transactions in what is called the fourth market. ECNs bypass brokers and dealers to automatically match electronic buy and sell orders. They are most effective for high-volume, actively traded stocks. Money managers and institutions such as pension funds and mutual funds with large amounts of money to invest like ECNs because they cost far less than other trading venues.
Global Trading and Foreign Exchanges
Improved communications and the elimination of many legal barriers are helping the securities markets go global. The number of securities listed on exchanges in more than one country is growing. Foreign securities are now traded in the United States. Likewise, foreign investors can easily buy U.S. securities.
Stock markets also exist in foreign countries: more than 60 countries operate their own securities exchanges. NASDAQ ranks second to the NYSE, followed by the London Stock Exchange (LSE) and the Tokyo Stock Exchange. Other important foreign stock exchanges include Euronext (which merged with the NYSE but operates separately) and those in Toronto, Frankfurt, Hong Kong, Zurich, Australia, Paris, and Taiwan.24 The number of big U.S. corporations with listings on foreign exchanges is growing steadily, especially in Europe. For example, significant activity in NYSE-listed stocks also occurs on the LSE. The LSE also is getting a growing share of the world’s IPOs. Emerging markets such as India, whose economy has been growing 6 percent or more a year, continue to attract investor attention. The Sensex, the benchmark index of the Bombay Stock Exchange, increased close to 40 percent between 2013 and 2017 as foreign investors continue to pump billions into Indian stocks.25
Why should U.S. investors pay attention to international stock markets? Because the world’s economies are increasingly interdependent, businesses must look beyond their own national borders to find materials to make their goods and markets for foreign goods and services. The same is true for investors, who may find that they can earn higher returns in international markets.
Regulation of Securities Markets
Both state and federal governments regulate the securities markets. The states were the first to pass laws aimed at preventing securities fraud. But most securities transactions occur across state lines, so federal securities laws are more effective. In addition to legislation, the industry has self-regulatory groups and measures.
Securities Legislation
Congress passed the Securities Act of 1933 in response to the 1929 stock market crash and subsequent problems during the Great Depression. It protects investors by requiring full disclosure of information about new securities issues. The issuer must file a registration statement with the SEC, which must be approved by the SEC before the security can be sold.
The Securities Exchange Act of 1934 formally gave the SEC power to regulate securities exchanges. The act was amended in 1964 to give the SEC authority over the dealer markets as well. The amendment included rules for operating the stock exchanges and granted the SEC control over all participants (exchange members, brokers, dealers) and the securities traded in these markets.
The 1934 act also banned insider trading, the use of information that is not available to the general public to make profits on securities transactions. Because of lax enforcement, however, several big insider trading scandals occurred during the late 1980s. The Insider Trading and Fraud Act of 1988 greatly increased the penalties for illegal insider trading and gave the SEC more power to investigate and prosecute claims of illegal actions. The meaning of insider was expanded beyond a company’s directors, employees, and their relatives to include anyone who gets private information about a company.
Other important legislation includes the Investment Company Act of 1940, which gives the SEC the right to regulate the practices of investment companies (such as mutual funds managed by financial institutions), and the Investment Advisers Act of 1940, which requires investment advisers to disclose information about their background. The Securities Investor Protection Corporation (SIPC)was established in 1970 to protect customers if a brokerage firm fails, by insuring each customer’s account for up to \$500,000.
In response to corporate scandals that hurt thousands of investors, the SEC passed new regulations designed to restore public trust in the securities industry. It issued Regulation FD (for “fair disclosure”) in October 2000. Regulation FD requires public companies to share information with all investors at the same time, leveling the information playing field. The Sarbanes-Oxley Act of 2002 has given the SEC more power when it comes to regulating how securities are offered, sold, and marketed.
Self-Regulation
The investment community also regulates itself, developing and enforcing ethical standards to reduce the potential for abuses in the financial marketplace. The Financial Industry Regulatory Authority (FINRA) oversees the nation’s more than 3,700 brokerage firms and more 600,000 registered brokers. It develops rules and regulations, provides a dispute resolution forum, and conducts regulatory reviews of member activities for the protection and benefit of investors.
In response to “Black Monday”—October 19, 1987, when the Dow Jones Industrial Average plunged 508 points and the trading activity severely overloaded the exchange’s computers—the securities markets instituted corrective measures to prevent a repeat of the crisis. Now, under certain conditions, circuit breakers stop trading for a 15-minute cooling-off period to limit the amount the market can drop in one day. Under revised rules approved in 2012 by the SEC, market-wide circuit breakers kick in when the S&P 500 Index drops 7 percent (level 1), 13 percent (level 2), and 20 percent (level 3) from the prior day’s closing numbers.26
ETHICS IN PRACTICE
Blowing the Whistle on Financial Fraud
As part of the 2010 Dodd-Frank legislation passed by Congress in response to the 2008 financial crisis, the Securities and Exchange Commission (SEC) established a whistleblower-rewards program to provide employees and other individuals with the opportunity to report financial securities misconduct. More than seven years after starting the Office of the Whistleblower, the SEC reports that the rewards program has recovered almost \$1 billion in financial penalties from companies that have done things to damage their own reputation as well as those of employees and other stakeholders.
According to a recent SEC report, 2016 was a banner year for individuals reporting financial wrongdoings and whistleblowers being rewarded for what they discovered. In 2016 alone, more than \$57 million was awarded to whistleblowers—an amount greater than the total amount of rewards issued since the program’s inception in 2011.
The whistleblower program is based on three key components: monetary awards, prohibition of employer retaliation, and protection of the whistleblower’s identity. The program requires the SEC to pay out monetary awards to eligible individuals who voluntarily provide original information about a violation of federal securities laws that has occurred, is ongoing, or is about to take place. The information supplied must lead to a successful enforcement action or monetary sanctions exceeding \$1 million. No awards are paid out until the sanctions are collected from the offending firm.
A whistleblower must be an individual (not a company), and that individual does not need to be employed by a company to submit information about that specific organization. A typical award to a whistleblower is between 10 and 30 percent of the monetary sanctions the SEC and others (for example, the U.S. attorney general) are able to collect from the company in question.
Through September 2016, the whistleblower program received more than 18,000 tips, with more than 4,200 tips reported in 2016 alone. The program is not limited to U.S. citizens or residents; foreign persons living abroad may submit tips and are eligible to receive a monetary award. In fact, the SEC gave the largest monetary award to date of \$30 million to a foreign national living abroad for original information relating to an ongoing fraud.
Despite criticisms from some financial institutions, the whistleblower-rewards program continues to be a success—reinforcing the point that financial fraud will not go unnoticed by the SEC, employees, and others individuals.
Critical Thinking Questions
1. Despite assurances that companies involved in financial fraud are not allowed to retaliate against their accusers, would you blow the whistle on your employer? Why or why not?
2. What can companies do to make sure their employees are aware of the consequences of financial securities fraud? Provide several examples.
Sources: “Office of the Whistleblower,” https://www.sec.gov, accessed November 1, 2017; Erika A. Kelton, “Four Important Dodd-Frank Whistleblower Program Developments to Watch for in 2017,” https://wp.nyu.edu, accessed November 1, 2017; Jason Zuckerman and Matt Stock, “One Billion Reasons Why the SEC Whistleblower-Reward Program Is Effective,” Forbes, http://www.forbes.com, July 18, 2017; John Maxfield, “The Dodd-Frank Act Explained,” USA Today, https://www.usatoday.com, February 3, 2017; Eduardo Singerman and Paul Hugel, “The Tremendous Impact of the Dodd-Frank Whistleblower Program in 2016,” Accounting Today, https://www.accountingtoday.com, December 28, 2016; Samuel Rubenfeld, “Dodd-Frank Rollback to Spare SEC Whistleblower Program, Experts Say,” The Wall Street Journal, www.blogs.wsj.com, November 15, 2016.
CONCEPT CHECK
1. How do the broker markets differ from dealer markets, and what organizations compose each of these two markets?
2. Why is the globalization of the securities markets important to U.S. investors? What are some of the other exchanges where U.S companies can list their securities?
3. Briefly describe the key provisions of the main federal laws designed to protect securities investors. What is insider trading, and how can it be harmful? How does the securities industry regulate itself? | textbooks/biz/Business/Introductory_Business/Book%3A_Introduction_to_Business_(OpenStax)/16%3A_Understanding_Financial_Management_and_Securities_Markets/16.08%3A_Buying_and_Selling_at_Securities_Exchanges.txt |
8. What are the current developments in financial management and the securities markets?
Many of the key trends shaping the practice of financial management echo those in other disciplines. For example, technology is improving the efficiency with which financial managers run their operations. In the wake of a slowing economy and corporate scandals, the SEC assumed a stronger role and implemented additional regulations to protect investors from fraud and misinformation. A wave of merger mania hit the global securities markets as the securities exchanges themselves have begun to consolidate to capture larger shares of the world’s trading volume in multiple types of securities. Online brokerage firms are seeking new ways to capture and keep their customers by broadening the services they offer and keeping the fees they charge highly competitive. Let’s now look at two key trends in greater detail. In the era of the Sarbanes-Oxley Act, CFOs find themselves balancing a strategic focus with overseeing corporate compliance with the act. The NYSE and NASDAQ are battling for supremacy as the regional exchanges look for niche markets to exploit.
Finance Looks Outward
No longer does finance operate in its own little world of spreadsheets and banking relationships. Most CFOs want the finance function to be viewed by their company’s business units as a strategic partner who can contribute to their success. Finance professionals therefore need a broad view of company operations to communicate effectively with business unit managers, board members, creditors, and investors. The goal is productive cooperation and teamwork between finance and the business units to meet corporate objectives. CFOs are more highly visible and active in company management than ever before. They serve as both business partner to the chief executive and a fiduciary to the board.
In the aftermath of recent accounting scandals and the global recession of 2008–2009, CFOs consider accuracy of financial reporting their top priority, and they also must now provide more detailed explanations of what’s behind the numbers to board members and other stakeholders. Rather than showering the board with financial reports and statistics, CFOs are crafting more focused presentations that deal with the company’s overall financial health and future prospects.27 They must also educate board members about the implications of Sarbanes-Oxley and other legislation, such as Dodd-Frank, and what the company is doing to comply with federal regulations.
Vying for the Crown
The NYSE and NASDAQ continue to wage a heated battle for supremacy in the global securities markets. The NYSE fell behind its more nimble rival, which already had an electronic platform. Its answer was to make sweeping changes in its organizational structure by going public and merging with Archipelago, a major ECN, to enter the electronic marketplace. NASDAQ responded immediately by acquiring another ECN, Instinet’s INET. The NYSE then made history by signing an agreement to merge with Euronext and create the first exchange to span the Atlantic. Not to be outdone, the NASDAQ increased its ownership of shares in the London Stock Exchange to 25 percent. These transactions reduced the fragmentation in the marketplace and also eliminated many of the differences between the two exchanges.
But the competition between the two companies continued in 2017, as the London Stock Exchange looks for a buyer after the European Commission refused to allow a merger between LSE and Germany’s Deutsche Borse.28 It remains to be seen whether either U.S. exchange is ready to purchase an international exchange; however, their recent strategic moves have made them stronger and more competitive.
CONCEPT CHECK
1. How has the role of CFO changed since the passage of the Sarbanes-Oxley Act?
2. Describe the major changes taking place in the U.S. securities markets. What trends are driving these changes? | textbooks/biz/Business/Introductory_Business/Book%3A_Introduction_to_Business_(OpenStax)/16%3A_Understanding_Financial_Management_and_Securities_Markets/16.09%3A_Trends_in_Financial_Management_and_Securities_Markets.txt |
Learning Outcomes
After reading this chapter, you should be able to answer these questions:
1. How can you enhance your interpersonal skills?
2. Why is learning to plan so important in school and in the real world?
3. What skills should you develop in school that can transfer easily to your professional life and make it a success?
4. What are some strategies that will help you find, keep, and advance in your dream job?
5. What key attributes do employers look for when interviewing job candidates?
You Are a Winner Because You Elected to Go to College!
Never Quit Until You Have Your Degree in Hand!
What makes someone a winner in life? A winner is someone who goes through the various stages of life satisfied in knowing that they have done their best: their best at work, home, and in all pursuits of life. A big part of having a happy life is pursuing a career that offers job satisfaction and financial rewards. If you are going to “be all that you can be,” you need a good education.
A college degree unlocks doors to economic opportunity.
Why get a degree?
• Get and keep a better job. Because the world is changing rapidly and many jobs rely on new technology, more jobs require education beyond high school. With a college education, you will have more jobs from which to choose.
• Earn more money. People who go to college usually earn more than those who do not. Currently, a bachelor’s degree is worth a minimum of \$20,000 a year more than a high school diploma. If your career spans 45 years, you could earn close to \$1 million more than a high school graduate.
• Get a good start in life. A business college education helps you acquire a wide range of knowledge in many subjects as well as an advanced understanding of your specialized area of business. College also trains you to express your thoughts clearly in speech and in writing and to make informed decisions.
Simply stated, a degree in business gives you the chance to achieve the quality of life you deserve. The lifestyle, the new friends, the purchasing power of a degree won’t guarantee happiness but will put you well on the road to finding it.
17.02: Learn the Basics of Business
You might want to pursue a career as a physician, florist, game warden, systems analyst, or any of a thousand other opportunities. One thing that all careers have in common is that you need to have a basic understanding of business. We hope that you will consider a career in business, but if not, your success in whatever you choose will partially depend on your basic business skills. And that is why this text is so important.
Choose a Career
Because this introductory business course gives you a detailed overview of all of the areas of commerce, it will guide you in selecting a major should you elect to get a degree in business. Choosing a major in college is one of life’s true milestones. Your major essentially determines how you will spend the next four decades of your life. A marketing major will find a career in sales, marketing research, advertising, or other marketing-related fields. An accounting major will become (you guessed it) an accountant. Never take selecting a major lightly. If you work 40 hours a week for the next 45 years (less vacations), you will put in about 90,000 hours on the job. Don’t you think you should choose something that you will enjoy? | textbooks/biz/Business/Introductory_Business/Book%3A_Introduction_to_Business_(OpenStax)/17%3A_Your_Career_in_Business/17.01%3A_Introduction.txt |
A degree in business is going to offer you many great career opportunities. Once you take your first job, how rapidly you move up the ladder is up to you. People with great interpersonal skills will always do better on and off the job than those who lack them. It has been estimated that up to 90 percent of our workplace success depends on an understanding of other people.1 Here’s how to enhance your interpersonal skills:
1. Build your people skills. Learn to build alliances in a group and establish harmony. Make a concerted effort to know what is happening in the lives of those on your team at school and work. About once a month, get together with your group, and pass out a list of issues, concerns, fears, and potential problems. Then invite everyone to give input to solve little problems before the problems become big. If something goes wrong, try to find out where things are not running smoothly and improve them. Be sure to compliment someone in your group who is doing an exceptional job.
Become a good listener. When you listen well, you are in effect telling the other person that he or she is worth listening to. Listening well includes listening to both what is said and what is not said. Learn to read unspoken gestures and expressions. When giving feedback, plan what you will say in advance. Be positive and specific. Ask the person receiving the feedback if they would like to discuss your comments further.
2. Understand how to persuade others. Remember: we all must sell ourselves and our ideas to get ahead in life and in business. Influencing others means overcoming objections, igniting passions, or changing minds. The first step is to build esprit de corps, a shared enthusiasm and devotion to the group. Make your vision their vision so that everyone is working toward a common goal. Praise the team as a whole, but recognize the unique contributions different team members have made. The trick is to praise everyone but for different reasons. When you and your team successfully solve a problem, change will result.
Persuasion rests on trust. You can build trust by being honest, fulfilling your commitments, being concerned about others, and minimizing problems and pain for others whenever possible. In short, if you have integrity, building trust becomes a simple task.
When people raise objections to your plans or ideas, try to fully understand their comments and the motivation for making them. When you feel that you understand the true objection, answer the objection in the form of a benefit: “Yes, you will need to work next Saturday, but then you can have compensatory time off anytime you wish next month.” Determine your persuasion skills by taking the quiz in Table 17.1.
3. Learn to think on your feet. Top executives say that thinking and speaking well on your feet while under pressure is the best thing that you can do for your career. If you cannot quickly express yourself with confidence, others will lose confidence in you. 2
Fun Self-Test—Can You Persuade Others?
Rate your level of agreement with the statements below using the following scale:
Strongly Agree Agree Neither Agree nor Disagree Disagree Strongly Disagree
1. I prefer to work in a team rather than individually.
2. I enjoy motivating others to help accomplish objectives.
3. I avoid working with difficult people or trying to resolve group differences.
4. I can learn more working in a team rather than working by myself.
5. I would prefer to work with individuals I have known previously.
6. I give up if my team members do not agree with me.
7. I may not always convince my team members to agree with my opinions, but I will go ahead and do what I feel is correct.
8. I think people who can persuade others always possess sound judgment.
9. I will do the work myself if others do not agree to do it.
10. To get the work done, I will listen to a person to understand how he/she wants it to be done.
11. I can get people to voluntarily make commitments and get the work done.3
See the scoring guidelines at the end of this chapter to obtain your score.
Table17.1
It will not happen overnight, but you can become an outstanding thinker and speaker. A simple technique is to set a timer for two minutes and ask a friend to begin speaking. When the timer goes off, your friend stops speaking, and you begin talking. The challenge is to use the final thought that your friend spoke as the first word of your two-minute talk. Another technique is to have someone supply you with a series of quotes. Then, without hesitation, give your interpretation.
4. Empower yourself. No matter who you are, what position you will hold, or where you will work, you probably will have to report to somebody. If you are fortunate enough to work in a culture of empowerment, you are allowed control over your job (not complete control, but enough control to make you feel your opinion matters). When you are not given an opportunity to provide input, you will eventually lose interest in your job. When empowered, you have the confidence to do something to alter your circumstances. On the job, empowerment means that you can make decisions to benefit the organization and its customers.
If you want to gain empowerment in your life and work, here are a few tips: be assertive, ask for credit for yourself when it is due, propose ideas to your group and your supervisor, initiate projects without being asked, tie your personal goals to those of the organization, develop your leadership skills, plan to learn on a continuous basis, be informed, don’t let others intimidate you, and don’t complain about a bad situation—instead, take action to improve it.
5. Become politically savvy. Politics is an inevitable part of every organization in the United States, including your school. Politics has always been a part of the workplace and always will be. The trick is to learn to play the political game to your own advantage and to the advantage of others without causing harm to anyone else. Being political means getting along with others in order to move them toward accomplishing a specific goal. It does not mean maneuvering for selfish purposes, manipulating in order to deceive, or scheming so others lose while you win.
Here are some tips and techniques to be an effective player in the political game:
• Think about what you say. Understand the effect your words will have on others before you say or write them.
• Empathize. Try to think of a situation from the other person’s perspective.
• Suggest a trial period if you meet opposition to an idea you’re proposing. If you are as successful as you are confident, you can then ask to have the trial period extended.
• Learn about the political climate in which you are working. This means knowing, among other things, what actions have led to failure for others, knowing who is “in” and why, determining who is “out” and why, and learning what behaviors lead to promotion.
• Volunteer to do the jobs no one else wants to do. Occasionally pitching in shows your willingness to get the job done. However, do not make this your trademark; you do not want others to think they can take advantage of you.
• Work hard to meet the needs of those in authority. Make certain you fully understand management’s requirements; then go out of your way to meet them. If in time you do not think you are getting the recognition or respect you deserve, make your own needs known.
• Give credit to others. You never know who may be in a position to hurt or harm you. Consequently, the best policy is to treat everyone with respect and dignity. Show your appreciation to everyone who has helped you. Do not steal credit that belongs to someone else.
• Learn your supervisor’s preferences. The more you are in sync with your supervisor’s style, wishes, and preferences, the better you can do your job. However, do not be a rubber stamp. Rather, work the way your manager works. When necessary, suggest better ways of doing things.
• Keep secrets—your own and others’. Resist the temptation to tell all. Not only do you run the risk of being labeled a gossip, but if you share too much about yourself, your words may come back to haunt you. If you are revealing information told to you in confidence, you are bound to lose the trust and respect of those who originally confided in you.
Find out how well you play the political game by taking the quiz in Table 17.2.
6. Become a team builder. Throughout your college and business career, you will participate on teams. Most U.S. business organizations employ some sort of teamwork. An effective team is one that meets its goals on time and, if a budget is involved, within budget. The first step in creating an effective team is to have goals that are clear, realistic, and supported by each team member and that parallel the larger organization goals. Table 17.3 lists the questions that teams should answer to ensure their success.
Fun Self-Test—Can You Play the Political Game?
Rate your level of agreement with the statements below using the following scale:
Strongly Agree Agree Neither Agree nor Disagree Disagree Strongly Disagree
1. To be successful, you should have a strong relationship with your boss and subordinates.
2. Office politics is not very challenging.
3. Tough people give you a tough time but also teach you tough lessons.
4. Networking and observation play a major role in being good at office politics.
5. There is no ethics or morals in office politics.
6. Corporate politics is not about the individuals; it is about the survival of the corporation.
7. Office politics is the only way; you gain real access to your boss’s ear.
8. Those who avoid being political at work may not move forward in their careers, may find themselves resentful and frustrated, and run the risk of being isolated.
9. If you do all of the work on a project, you won’t tell the boss because you don’t want your coworkers to get in trouble.
10. When faced with gossip and rumors, you prefer to be silent but aware.
11. To master office politics, you should seek a win-lose situation.
12. If a person in authority is out to get rid of you, a good tactic would be to establish allies and position yourself for another job in the company.
13. If you have made any significant contribution to a project, you always make sure that others know about it, which, in turn, adds to your reputation.4
See the scoring guidelines at the end of this chapter to obtain your score.
Table17.2
Key Questions That Teams Should Answer before Starting a Project
1. What are the goals?
2. Who provides the mission statement?
3. What are our limits?
4. Where will support come from? Who will be our sponsor?
5. Who will be team leader? How is that person selected?
6. What are the deadlines we face?
7. What resources are available?
8. What data will we need to collect?
9. For how long will our team exist?
10. Who are the customers for our team results? What do they expect of us?
11. Will our team responsibilities conflict with our regular jobs?
12. What is the reward for success?
13. How will decisions be made?
14. How will our efforts be measured?
15. Will our intended success be replicated? If so, how and by whom?5
See the scoring guidelines at the end of this chapter to obtain your score.
Table17.3
7. Handle conflict well. The world is not a perfect place, and there are no perfect people living in it. The best we can hope for is people’s willingness to improve life’s circumstances. If we are truly committed to the idea of reducing school and workplace conflict, there is much we can do to inspire such willingness in others. Bringing conflict into the open has its advantages. Talking about conflict often helps to clear the air, and thinking about the possibility of conflict often helps to avoid it.
When conflicts occur, try the K-I-N-D technique. The letters stand for:
• K = Kind
• I = Informed
• N = New
• D = Definite
The technique involves your requesting a meeting with the difficult person, whether he or she is having a conflict with you or with others. Start off with kind words, words that encourage cooperation, words that show your determination to make the conflict situation better. Next, demonstrate that you have taken the time to learn more about the person, what is important to him or her, what he or she prefers in terms of work. Show by your words that you have taken the time to become informed about the individual.
The third step requires you to do something novel, something you have not tried before. Put your creativity to work, and discover a plan to which you can both subscribe (for example, keeping a journal regarding the problem and possible solutions).
Finally, do not permit the exchange to conclude until you have made a definite overture to ensure future success. What can you promise the other person you will do differently? What are you asking him or her to do differently? Set a time to meet again and review your individual attempts to achieve collective improvement. | textbooks/biz/Business/Introductory_Business/Book%3A_Introduction_to_Business_(OpenStax)/17%3A_Your_Career_in_Business/17.03%3A_Developing_Interpersonal_Skills_Is_Key_to_Your_Success.txt |
There is a natural conflict between planning and being impulsive, between pursuing a long-range goal and doing what you feel like doing right now. If you have ever had to study while the rest of the family was watching television, you know what that conflict feels like. If you have ever been invited to go eat pizza and hang out with friends but stayed home to work on a class assignment, you know that sticking to a plan is not easy.6
Of course, planning and being impulsive are both good. They both have a place in your life. You need to balance them. Having a plan does not mean that you can’t act on the spur of the moment and do something that was not planned. Spontaneous events produce some of the happiest, most meaningful times of your life. Problems arise when you consistently substitute impulsive actions for goal-oriented planning. Success in life requires a balance between the two.
If you do not engage in long-range planning and lack the discipline for it, you may limit your opportunities to be impulsive. You are not going to take a weekend fun trip just because you need a break if you have not saved the money to do it. In the short run, planning involves sacrifice, but in the long run, it gives you more options.
What Is a Plan?
A plan is a method or process worked out in advance that leads to the achievement of some goal. A plan is systematic, which means it relies on using a step-by-step procedure. A plan also needs to be flexible so that it may be adapted to gradual changes in your goal.
The Planning Process
Whether choosing a college or finding financial aid, you should understand how the planning process helps you accomplish your goals. The following steps outline the planning process.
Step 1: Set a Goal. Identify something you want to achieve or obtain, your goal. The goal, which is usually longer term in nature, will require planning, patience, and discipline to achieve. Just living in the present moment is not a goal.
Step 2: Acquire Knowledge. Gain an understanding of your goal and what will be required to achieve it. Gather information about your goal through research, conversation, and thought.
Step 3: Compare Alternatives. Weigh your options, which are the different paths you might take to achieve your goal. Analyze the pluses and minuses of each—the costs, the demands, the likelihood of success.
Step 4: Choose a Strategy. Select one option as the best plan of action. The choice is based on sound information, the experience of others, and your own interests and abilities.
Step 5: Make a Commitment. Resolve to proceed step-by-step toward achieving your goal. Keep your eyes on the prize.
Step 6: Stay Flexible. Evaluate your progress, and when necessary, revise your plan to deal with changing circumstances and new opportunities.
An Example of Planning
The following example illustrates the process of buying a new pair of wireless headphones using this planning process.
Step 1: Set a Goal. Purchase a pair of wireless headphones.
Step 2: Acquire Knowledge. Ask friends if you can try out their headphones. Study standards and specifications. Check on retailers, brands, models, and prices. Consult Consumer Reports.
Step 3: Compare Alternatives.
• Alternative 1: Purchase a pair of headphones from an online auction website such as eBay.
• Pro: Affordable high-end equipment. Can buy right now.
• Con: Uncertain condition of equipment. Limited warranty.
• Alternative 2: Buy wireless headphones for \$110.
• Pro: Can afford now; new equipment with warranty.
• Con: Not the best sound quality.
• Alternative 3: Buy a high-quality pair of headphones for \$500.
• Pro: Excellent sound; new equipment with warranty.
• Con: Costs more than prepared to pay now.
Step 4: Choose a Strategy. Decide to buy the high-quality headphones, but rather than using a credit card and paying interest, will delay the purchase for six months in order to save for them.
Step 5: Make a Commitment. Give up going to the movies or buying coffee drinks from Starbucks for the six-month period, carry a lunch and stop eating out, and place the savings in a designated headphones fund.
Step 6: Stay Flexible. Four months into the plan, a model change sale provides an opportunity to buy comparable equipment for \$300. Make the purchase, paying cash.
Planning for Your Life
Using the planning process to make a buying decision is a simple exercise. Making a decision about major parts of your life is far more complex. You will see that no part of life is exempt from the need for planning. It is important to apply thought, creativity, and discipline to all the interrelated phases of our lives. These phases include the following:
• Career: Choosing a field of work and developing the knowledge and skills needed to enter and move ahead in that field. We will offer you some tips to get started on a great career later in this chapter.
• Self: Deciding who you are and what kind of person you want to be, working to develop your strengths and overcome your weaknesses, refining your values.
• Lifestyle: Expressing yourself in the nature and quality of your everyday life, your recreation and hobbies, how you use your time and money.
• Relationships: Developing friendships and learning to get along with people in a variety of contexts. Building family and community ties.
• Finances: Building the financial resources and the economic security needed to pursue all the other dimensions of your life.
Dreams and Plans
People are natural dreamers. Dreams give us pleasure. They are also part of making a future. If you do not have dreams or think that you are not worthy of dreaming, something very important may be missing from your life. You have a right to your dreams, and you need them—even if there is little possibility that they will ever come true.
Planning is not the same as dreaming, but it uses dreams as raw materials. It translates them into specific goals. It tests them. It lays out a course of action that moves you toward realizing these goals and sets up milestones you need to achieve. Planning brings dreams down to earth and turns them into something real and attainable. For example, assume you have a dream to visit Spain as an exchange student. To translate this dream into a specific goal, you will need to follow the planning process—gather information about the exchange process, discuss the program with parents and teachers, and improve your Spanish-language skills.
Directions for Your Life
One of the best things about pursuing our dreams is that, even when you fall short, the effort leads to growth and opens a path to other opportunities. The person who practices the piano every day may not achieve the dream of becoming a concert pianist but may eventually put appreciation of music to work as the director of an arts organization. A basketball player may not make it to a professional team but may enjoy a satisfying career as a coach or a sports writer. Without a plan, dreams simply dissolve. With a plan, they give shape and direction to our lives.
Planning involves a lot of thinking and finding answers to lots of questions. The answers and even the plan will change over time as you gain more knowledge and life experience. Planning is a skill that is useful in every area of your life. It is something you have to pursue consciously and thoughtfully. When you plan, you translate your goals and dreams into step-by-step strategies, specific things you can do to test your goals and bring them to reality. You often have to revise your plans, but even when your plans are not fulfilled, planning will have a positive effect on the course of your life. | textbooks/biz/Business/Introductory_Business/Book%3A_Introduction_to_Business_(OpenStax)/17%3A_Your_Career_in_Business/17.04%3A_Make_Your_Future_Happen-_Learn_to_Plan.txt |
You have already had one of your dreams come true—you are in college. It is indeed a rare privilege because far less than 1 percent of traditional college-age people around the world get to attend college. You’re lucky! So make the best of it by finishing your degree and learning the following college skills.7
Learn to Concentrate
Concentration is the art of being focused, the ability to pay attention. Without concentration, you have no memory of what you hear, see, and read. Concentration is a frame of mind that enables you to stay centered on the activity or work you are doing. You know when you’re concentrating because time seems to go by quickly, distractions that normally take you off task don’t bother you, and you have a lot of mental or physical energy for the task.
You are ultimately in charge of how well you concentrate. Here are some ways to make it happen:
• Choose a workplace. Avoid the bed—you associate it with relaxing or sleeping. Try a desk or table for studying; you will concentrate better and accomplish more in less time. You will also have a convenient writing space and plenty of space to spread out. Be sure to have good lighting.
• Feed your body right. What you eat plays an important role in how well or how poorly you concentrate. Protein foods (such as cheese, meat, fish, and vegetables) keep the mind alert, while carbohydrates (such as pasta, bread, and processed sugars) make you sleepy. Caffeine (commonly found in coffee, tea, soft drinks, and chocolate) acts as a stimulant in low doses.
• Avoid food. Food and serious learning don’t mix well. Think about it. When you try to eat and study at the same time, which gets more of your concentration? The food, of course. You will be more effective if you eat first and then study.
• Listen to your own thoughts. Listening to anything but your own thoughts interferes with good concentration. Eliminating distractions such as music, television, cell phones, email and text beeps, and other people can greatly increase the amount of studying you can accomplish. Hold all calls, and let email and texts wait.
• Make a to-do list. If you are trying to study but get distracted by all of the things you need to do, take time to make a to-do list. Keeping track of your thoughts on paper and referring to the paper from time to time can be very effective for clearing your mind and focusing on your task.
• Take short, frequent breaks. Since people concentrate for about 20 minutes or less at a time, it would make sense to capitalize on your natural body rhythms and take a short break every 20 to 30 minutes. If you feel you are fully concentrating and involved in a task, then work until a natural break occurs.
Learn to Manage Your Time
There are two ways to make sure you have more time in a day. The first and most important way to gain more time is to plan it. It’s like getting in a car and going somewhere. You need to know where you are going and have a plan to get there. Without a plan, you will waste your time and take longer to get to your destination—if you get there at all!
A weekly project planner will allow you to keep track of your assignments in more detail. It contains a to-do list specific to one day. It looks like a calendar but is divided into five one-day periods with plenty of space to write. Using a weekly project planner is an effective way to keep track of assignments and plan study time according to the school calendar. Free calendars are available at https://calendar.google.com.
A second way to gain more time in a day is to do more in less time. This can be as simple as doubling up on activities. For example, if you have three errands, you might try to combine them instead of doing one at a time, making one round-trip instead of three. If you commute on a bus, on a train, or in a carpool, you can study during your ride. At lunch, you can review notes. Use your imagination as to how you can get more done in less time.
Here are some ideas to help you master your time:
• Prepare for the morning the night before. Put out your clothes; make lunches; pack your books.
• Get up 15 minutes earlier in the morning. Use the time to plan your day, review your assignments, or catch up on the news.
• Schedule a realistic day. Avoid planning for every minute. Leave extra time in your day for getting to appointments and studying.
• Leave room in your day for the unexpected. This will allow you to do what you need to do, regardless of what happens. If the unexpected never happens, you will have more time for yourself.
• Do one thing at a time. If you try to do two things at once, you become inefficient. Concentrate on the here and now.
• Learn to say “No.” Say no to social activities or invitations when you don’t have the time or energy.
How well do you manage your time? Take the quiz in Table 17.4 to find out.
Use Your Money Wisely
You can get college money from several different sources, including the following.
• Grants and Scholarships. This refers to aid you do not have to repay. Grants are usually based on need while scholarships are frequently based on academic merit or other qualifying factors.
• Educational Loans. These are usually subsidized by federal and state governments, private lenders, or the colleges themselves. Generally, the loans carry lower interest rates than commercial loans, and you do not have to pay them off until after graduation.
• Work Aid. This is financial aid you have to work for, frequently 10 or 15 hours a week on campus.
There are many ways to cut the cost of going to college. Consider these:
• Going to a community college for the first two years and then transferring to a four-year institution
• Attending a nearby college and living at home
• Enrolling in one of thousands of college and universities with cooperative educational programs that alternate between full-time studies and full-time employment
• Taking a full-time job at a company that offers free educational opportunities as an employee benefit
Fun Self-Test—How Well Do You Manage Your Time?
Rate your level of agreement with the following statements using the scale below:
Strongly Agree Agree Neither Agree nor Disagree Disagree Strongly Disagree
1. I rarely feel driven by the urgencies that come my way.
2. I keep a log of each activity to be performed in a day. I prioritize them accordingly.
3. I prioritize not by the importance of the work but by its nature.
4. I can manage my schedule without preparing a weekly plan that includes specific activities.
5. I always want to do all the work myself, thinking I can do it better than anyone else.
6. I plan my weekends with my family and friends.
7. I can delegate work to people so that the work gets done on time and the people feel they are a part of the team.
8. I allow time for the unexpected things I cannot control.
9. If something doesn’t happen as per my schedule, it doesn’t get done.
10. To accomplish a set of objectives doesn’t mean to avoid other unexpected problems.
11. I seldom work after office hours.
12. I would never work by hand if a machine could do it faster.
13. I feel it is easier and time-saving to try new ways of doing things.
14. I always find time to do what I want to do and what I should do.8
See the scoring guidelines at the end of this chapter to obtain your score.
Table17.4
To learn about college costs and financial aid, one of the first sources to consult is the website of The College Board, a not-for-profit organization that connects students to college success and opportunity. Some of the important topics covered at www.collegeboard.org include explaining financial aid, facilitating the application process, and finding colleges that fit. There are other websites that also offer information on financial aid:
• http://www.fastweb.com: Fastweb has a database of more than 1.5 million private-sector scholarships, grants, and loans.
• http://www.ed.gov: This is the U.S. Department of Education information site for federal aid programs, including student loans and grants.
Gain some insight into your money management skills by taking the quiz in Table 17.5.
Study Well
The first key to doing well in a subject is to complete your assignments on time. Most instructors base their assignments on what they will be discussing in class on a given day. So, if you read the pages you are assigned for the day they are due, you will better understand the day’s lecture. If you don’t complete an assignment when it is due, not only will you be at a disadvantage in the class, but you will also have twice as much work to do for the following class.
Second, know what material to study. This may sound simple, but all too often students do not ask what material they should study and find out too late that they studied the wrong information. The easiest and most accurate way to learn what will be covered on a test is to ask your instructor or read the syllabus.
Tests measure your working memory and knowledge base. To help yourself remember, you can use several memory devices to recall the information you need to study. Here are a few memory devices that have been proven to work:
Fun Self-Test—Are You Good at Managing Money?
Rate your level of agreement with the following statements, using the scale below:
Strongly Agree Agree Neither Agree nor Disagree Disagree Strongly Disagree
1. I eagerly wait for the day I get my paycheck, because my bank balance is generally below the minimum.
2. I have set my savings and spending priorities and have a budget.
3. When I go shopping, I don’t buy anything unless it is on sale or is required.
4. I can easily spend money when I am in school.
5. I can differentiate between what I want and what I truly need.
6. I always max out my credit cards.
7. I don’t need to plan for my child’s education because there will be plenty of government programs.
8. I don’t plan to open or have a savings account.
9. I was raised in a family where I always felt that money was quite tight.
10. Credit cards have been useful to me during times of emergency.
11. It is easy for me to resist buying on credit.9
See the scoring guidelines at the end of this chapter to obtain your score.
Table17.5
• Recite information using your own words. You will learn more when you reinforce your learning in as many ways as possible. You can reinforce your learning through hearing, writing, reading, reviewing, and reciting.
• Develop acronyms. Acronyms are words or names formed from the first letters or groups of letters in a phrase. Acronyms help you remember because they organize information according to the way you need or want to learn it. For example, COD means “cash on delivery,” and GDP refers to “gross domestic product.” When you study for a test, be creative and make up your own acronyms.
• Try mnemonic sentences, rhymes, or jingles. Mnemonic sentences are similar to acronyms; they help you organize your ideas. But instead of creating a word, you make up a sentence. Creating a rhyme, song, or jingle can make the information even easier to remember. The more creative and silly the sentence, the easier it is to remember. Take, for example, the nine planets listed in order according to their distance from the sun:
Mercury Venus Earth Mars Jupiter Saturn Uranus Neptune
The first letters of these words are: M V E M J S U N .
An acronym using these letters would be difficult to remember. But if you create a sentence using the letters in order, you will remember the sequence better. For example: My Very Educated Mother Just Served Us Nine Pizzas.
• Visualize. Visualization refers to creating or recalling mental pictures related to what you are learning. Have you ever tried to remember something while taking a test and visualized the page the information was on? This is your visual memory at work. Approximately 90 percent of your memory is stored visually in pictures, so trying to visualize what you want to remember is a powerful study tool.
Table 17.6 helps you evaluate your study skills.
Become a Master at Taking Tests
Taking a formal test is like playing a game. The object is to get as many points as possible in the time you are allowed. Tests are evaluations of what you know and what you can do with what you know. Here are the rules of the test-taking game:
• Rule 1: Act As If You Will Succeed. Thought is powerful. When you think negative thoughts, your stress level rises. Your confidence level may drop, which often leads to feelings of failure. When this happens, think about success. Smile and take deep, slow breaths. Close your eyes, and imagine getting the test back with a good grade written at the top.
Fun Self-Test—Do You Have Good Study Habits?
Answer “yes” or “no” to the following questions:
1. Do you usually spend too much time studying for the amount you are learning?
2. Do you spend hours cramming the night before an exam?
3. Do you find it easy to balance your social life with your study schedule?
4. Do you prefer to study with sound (TV or music) around you?
5. Can you sit for long periods and study for several hours without getting distracted?
6. Do you always borrow notes/materials from your friends before the exam?
7. Do you review your class notes periodically throughout the semester while preparing for tests?
8. Is it easy for you to recall what you studied at the beginning of the semester?
9. Do you need to change your reading/learning style in response to the difficulty level of the course?
10. Do you normally write your papers or prepare for your presentations the night before they are due?
11. Do you feel comfortable contacting the instructor and asking questions or for help whenever you need it?
12. Do you prefer to study lying on a bed or couch rather than sitting at a desk or table?10
See the scoring guidelines at the end of this chapter to obtain your score.
Table17.6
• Rule 2: Arrive Ahead of Time. Being on time or early for a test sets your mind at ease. You will have a better chance of getting your favorite seat, relaxing, and preparing yourself mentally for the game ahead.
• Rule 3: Bring the Essential Testing Tools. Don’t forget to bring the necessary testing tools along with you, including extra pens, sharpened pencils, erasers, a calculator, laptop, dictionary, and other items you may need.
• Rule 4: Ignore Panic Pushers. Some people become nervous before a test and hit the panic button, afraid they don’t know the material. Panic pushers are people who ask you questions about the material they are about to be tested on. If you know the answers, you will feel confident; however, if you don’t, you may panic and lose your confidence. Instead of talking with a panic pusher before a test, spend your time concentrating on what you know, not on what you don’t know.
• Rule 5: Preview the Playing Field. Here’s how to do a preview:
• Listen to instructions, and read directions carefully.
• Determine the point spread. Look at the total number of questions and the point value of each. Decide how much time you can spend on each question and still finish the test on time.
• Budget your time. If you budget your time and stick to your time limits, you will always complete the test in the amount of time given.
• Use the test as an information tool. Be on the lookout for clues that answer other questions. Frequently, instructors will test you on a single topic in more than one way.
• Rule 6: Write in the Margin. Before you begin the test, write key terms, formulas, names, dates, and other information in the margin so you won’t forget them.
• Rule 7: Complete the Easy Questions First. Answering easy questions first helps build your confidence. If you come across a tough question, mark it so you can come back to it later. Avoid spending so much time on a challenging question that you might run out of time to answer the questions you do know.
• Rule 8: Know If There Is a Guessing Penalty. Chances are your tests will carry no penalty for guessing. If your time is about to run out and there is no penalty, take a wild guess. On the other hand, if your test carries a penalty for guessing, choose your answers wisely, and leave blank the answers you do not know.
• Rule 9: Avoid Changing Your Answers. Have you ever chosen an answer, changed it, and learned later that your first choice was correct? Research indicates that three out of four times, your first choice is correct; therefore, you should avoid changing an answer unless you are absolutely sure the answer is wrong.
• Rule 10: Write Clearly and Neatly. If you are handwriting your test (versus using a computer), imagine your instructor reading your writing. Is it easy to read or difficult? The easier your test is for the instructor to read, the better your chances of getting a higher grade.
Here are some websites to help you learn more about taking tests:
• Essay tests and a checklist for essay tests
• www.calpoly.edu/~sas/asc/ael/tests.essay.html
• Checklist for essay tests
• www.mtsu.edu/~studskl/essay.html
• General test taking
• www.calpoly.edu/~sas/asc/ael/...s.general.html
• Post-test analysis
• www.calpoly.edu/~sas/asc/ael/....analysis.html | textbooks/biz/Business/Introductory_Business/Book%3A_Introduction_to_Business_(OpenStax)/17%3A_Your_Career_in_Business/17.05%3A_Going_to_College_Is_an_Opportunity_of_a_LifetimeNever_Drop_Out.txt |
Mark this section of the text with a permanent bookmark because you are going to want to refer back to it many times during the remainder of your college career. Yes, we are going to give you a road map to find, keep, and advance in that job that is perfect for you.
Think Positively
To be successful in life and in a career, you need to be positive. Positive thinking is making a conscious effort to think with an optimistic attitude and to anticipate positive outcomes. Positive behavior means purposely acting with energy and enthusiasm. When you think and behave positively, you guide your mind toward your goals and generate matching mental and physical energy.
Positive thinking and behavior are often deciding factors in landing top jobs: your first job, a promotion, a change of jobs—whatever career step you are targeting. That’s because the subconscious is literal; it accepts what you regard as fact. Follow these steps to form the habit of positive thinking and to boost your success:
1. Deliberately motivate yourself every day. Think of yourself as successful, and expect positive outcomes for everything you attempt.
2. Project energy and enthusiasm. Employers hire people who project positive energy and enthusiasm. Develop the habit of speaking, moving, and acting with these qualities.
3. Practice this positive-expectation mindset until it becomes a habit. Applicants who project enthusiasm and positive behavior generate a positive chemistry that rubs off. Hiring decisions are influenced largely by this positive energy. The habit will help you reach your peak potential.
4. Dwell on past successes. Focusing on past successes to remind yourself of your abilities helps in attaining goals. For example, no one is ever born knowing how to ride a bicycle or how to use a computer software program. Through training, practice, and trial and error, you master new abilities. During the trial-and-error phases of development, remind yourself of past successes; look at mistakes as part of the natural learning curve. Continue until you achieve the result you want, and remind yourself that you have succeeded in the past and can do so again. You fail only when you quit trying!11
Take a Good Look at Yourself
Once you’ve developed a positive, “can do” attitude, the next step is to better understand yourself. Ask yourself two basic questions: “Who am I?” and “What can I do?”
Who Am I? This question is the start of self-assessment, examining your likes and dislikes and basic values. You may want to ask yourself the following questions:
• Do I want to help society?
• Do I want to help make the world a better place?
• Do I want to help other people directly?
• Is it important for me to be seen as part of a big corporation? Or do I prefer to be part of a smaller organization?
• Do I prefer working indoors or outdoors?
• Do I like to meet new people, or do I want to work alone?
Are you assertive? Assess your assertiveness by taking the quiz in Table 17.7.
What Can I Do? After determining what your values are, take the second step in career planning by asking, “What can I do?” This question is the start of skill assessment, evaluating your key abilities and characteristics for dealing successfully with problems, tasks, and interactions with other people. Many skills—for instance, the ability to speak clearly and strongly—are valuable in many occupations.
Be sure to consider the work experience you already have, including part-time jobs while going to school, summer jobs, volunteer jobs, and internships. These jobs teach you skills and make you more attractive to potential employers. It’s never too early or too late to take a part-time job in your chosen field. For instance, someone with an interest in accounting would do well to try a part-time job with a CPA (certified public accountant) firm.
Fun Self-Test—How Assertive Are You?
Rate your level of agreement with the following statements using the scale below:
Strongly Agree Agree Neither Agree nor Disagree Disagree Strongly Disagree
1. I don’t easily agree to work for others.
2. There are some people who make jokes about the way I communicate and put me down repeatedly.
3. I speak up without fear of what others will think of me.
4. I rarely have to repeat my thoughts to make people understand.
5. I sound like I am asking a question when I am making a statement.
6. I’m more reluctant to speak up on the job than in other situations.
7. I can always think of something to say when faced with rude remarks.
8. I tend to suffer in silence when unfairly criticized or insulted.
9. I tend to respond aggressively when criticized unfairly.
10. People don’t listen when I am speaking.
11. If I say “no,” I feel guilty.
12. When I have a conflict with someone, the results seem to always go their way.
13. When I speak, people listen.12
See the scoring guidelines at the end of this chapter to obtain your score.
Table17.7
In addition to examining your job-related skills, you should also look at your leisure activities. Some possible questions: Am I good at golf? Do I enjoy sailing? Tennis? Racquetball? In some businesses, transactions are made during leisure hours. In that case, being able to play a skillful, or at least adequate, game of golf or tennis may be an asset.
It’s hard to like your job if you don’t like the field that you’re in. Most career counselors agree that finding work you’re passionate about is one of the critical factors behind career success. That’s why so many career counselors love all those diagnostic tools that measure your personality traits, skill levels, professional interests, and job potential.
The internet is virtually exploding with tests and assessments that you can take. Try, for example, http://www.self-directed-search.com. This test is based on the theory that people and work environments can be classified into six basic types: realistic, investigative, artistic, social, enterprising, and conventional. The test determines which three types best describe you, and it suggests occupations that could be a good match. The Keirsey Character Sorter (http://www.keirsey.com) is a first cousin of Myers-Briggs. It sorts people into four temperaments: idealists, rationals, artisans, and guardians. Like Myers-Briggs, it not only places you in an overall category, but it also offers a more detailed evaluation of your personality traits. To find a bunch of tests in one place, use a search engine and search “online personality tests.”
Understand What Employers Want
Employers want to hire people who will make their businesses more successful. The most desirable employees have the specific skills, transferable career competencies, work values, and personal qualities necessary to be successful in the employers’ organizations. The more clearly you convey your skills as they relate to your job target, the greater your chance of landing your ideal job.13
Job-Specific Skills. Employers seek job-specific skills (skills and technical abilities that relate specifically to a particular job). Two examples of job-specific skills are using specialized tools and equipment and using a custom-designed software program.
Transferable Skills and Attitudes. Change is a constant in today’s business world. Strong transferable career skills are the keys to success in managing your career through change. The most influential skills and attitudes are the abilities to:
• Work well with people.
• Plan and manage multiple tasks.
• Maintain a positive attitude.
• Show enthusiasm.
Employers need workers who have transferable career competencies—basic skills and attitudes that are important for all types of work. These skills make you highly marketable because they’re needed for a wide variety of jobs and can be transferred from one task, job, or workplace to another. Examples include these:
• Planning skills
• Research skills
• Communication skills
• Human relations and interpersonal skills
• Critical thinking skills
• Management skills
• Project management skills
Take, for example, a construction supervisor and an accountant. Both must work well with others, manage time and specific tasks, solve problems, read, and communicate effectively—all transferable competencies. They both must be competent in these areas even though framing a house and balancing a set of financial information (the job-specific skill for each field, respectively) are not related. In every occupation, transferable competencies are as important as technical expertise and job-specific skills.
Find Your First Professional Job
The next step is landing the job that fits your skills and desires. You need to consider not only a general type of work but also your lifestyle and leisure goals. If you like to be outdoors most of the time, you might be very unhappy spending eight hours a day in an office. Someone who likes living in small towns may dislike working at the headquarters of a big corporation in Los Angeles, New York City, or Chicago. But make sure that your geographic preferences are realistic. Some parts of the country will experience much greater growth in jobs than others in the coming years.
According to recent research by Glassdoor, the online job listings and career site, the top 10 best cities for jobs in 2017 are:
1. Pittsburgh, PA
2. Indianapolis, IN
3. Kansas City, MO
4. Raleigh-Durham, NC
5. St. Louis, MO
6. Memphis, TN
7. Columbus, OH
8. Cincinnati, OH
9. Cleveland, OH
10. Louisville, KY14
You might start answering the question “What will I do?” by studying the Occupational Outlook Handbook, published every two years by the U.S. Department of Labor (https://www.bls.gov/ooh). The most recent Handbook edition projects job opportunities by industry through the year 2026. The Handbook is divided into 25 occupational clusters describing 325 job profiles (with a section on military careers). Among the clusters are education, sales and marketing, transportation, health, and social services. Each job description tells about the nature of the work, working conditions, required training, other qualifications, chances for advancement, employment outlook, earnings, related occupations, and sources of more information. Another good source of job information is the website for the National Association of Colleges and Employers (http://www.naceweb.org). If you are a member of a minority group, you might want to check out https://www.blackcareernetwork.com or http://www.saludos.com.
Use the Internet to Find a Job
Today, most job searches are done online. Rarely do job seekers use “snail mail” to send a résumé to a potential employer. Therefore, you need to do your homework when it comes to creating a résumé and posting it to various websites, as well as sending it electronically to a specific company’s careers web page.
Let’s start with the résumé. There are thousands of job-related sites and millions of résumés on the internet. To break through the clutter, you must start with a great résumé—a written description of your education, work experience, personal data, and interests. There are plenty of online resources that can provide you with tips and actual templates to use when creating your résumé. For example, CollegeGrad (https://collegegrad.com) provides more than 100 preformatted templates for over 30 college majors on its website that you can use to tailor your résumé and highlight your specific skills and talents.15 Of course, there are many other sources for creating a résumé, including the actual websites of most online job-listing services.
Once you have created an electronic résumé, you have several options when it comes to your job search. First, you can target specific companies where you would like to work. Then go to their corporate websites and look for a careers page on the website. For example, Google has an extensive careers section on its website that provides detailed information on how to apply to become a “Googler,” along with a section on what the company’s interview process entails and how Google makes hiring decisions.16
You can also try posting your résumé on the top 10 most popular job websites. They are so large that they are worth checking out first. They tend to have more jobs listed, represent more companies, and have larger résumé databases, which attract even more companies.17
The Multimedia Résumé
If you are going to become a computer programmer, web developer, graphics designer, artist, sculptor, singer, dancer, actor, model, animator, cartoonist, or anyone who would benefit by the photographs, graphics, animation, sound, color, or movement inherent in a multimedia résumé, then this résumé is for you. For most people, however, a multimedia résumé and personal home page on the internet aren’t necessary. Most internet service providers and commercial online services provide some space on their sites for subscriber home pages.18
Getting Your Electronic Résumé into the Short Pile
Applicant tracking systems (ATSs) screen for keywords, which either reject your résumé or move it on to the short list. Your task is to use keywords that will produce as many “hits” as possible. Keywords tend to be more of the noun or noun phrase type (Total Quality Management, Walmart, Sales Manager) as opposed to power action verbs often found in traditional résumés (developed, coordinated, organized). Every occupation and career field has its own jargon, acronyms, and buzzwords. There are also general keywords that apply to transferable skills important in many jobs, such as teamwork, writing, and planning.
Use these tips for adding effective keywords to your résumé:
• The best source of keywords is the actual job listing, which is likely to contain many, if not all, of the keywords that an employer will use to search the résumé database.
• Include plenty of keyword nouns and noun phrases throughout your résumé. If you have a “Summary of Qualifications” section at the beginning of your résumé, try not to repeat verbatim the contents of this section.
• If you are applying for technical positions, you can list your skills, separating each noun or phrase by a comma.
• In some fields, a simple list of skills does not sufficiently describe the job seeker’s background. Where appropriate, include accomplishments, as well, but be sure to include enough keywords to satisfy the ATS searches.19
There are several ways to determine what keywords are appropriate for your industry and job.
• Look through recent job postings online. Certain words will reappear consistently. Those are your “key” words.
• Make sure your résumé contains the keywords and concepts used in the particular job listing you are applying to.
• Talk to people in the career field you are targeting, and ask them what keywords are appropriate to the positions you are applying to.
• Research specific company websites that appeal to you in terms of getting a job with that specific organization, and review the “About Us” section. Try to use some of the key words the company uses to describe its corporate environment as part of your résumé descriptions.20
• Visit professional association websites, and read the content carefully. Many of these are loaded with industry-related jargon that may be appropriate for your résumé.
If you are still in college, try to get at least one internship in the career field you’re targeting. Even if your internship lasts only a few weeks, you will significantly increase your keyword count to build a resume, not to mention gain valuable experience that will get the attention of hiring professionals.21
I’ve Landed a Job Interview
If some of the companies you contacted want to speak with you, your résumé achieved its goal of getting you a job interview. Look at the interview as a chance to describe your knowledge and skills and interpret them in terms of the employer’s specific needs. To make this kind of presentation, you need to do some research on the company. A great place to start is the company’s own corporate website.
As you do your information search, you should build your knowledge in these three areas:
1. General Information about the Occupational Field. Learn about the current and predicted industry trends, general educational requirements, job descriptions, growth outlook, and salary ranges in the industry.
2. Information about Prospective Employers. Learn whether the organization is publicly or privately owned. Verify company names, addresses, products, or services (current and predicted, as well as trends); history; culture; reputation; performance; divisions and subsidiaries; locations (U.S. and global); predicted growth indicators; number of employees; company philosophies and procedures; predicted job openings; salary ranges; and listings of managers of your targeted department within the organization. Also learn about the competitors and customers.
3. Information about Specific Jobs. Obtain job descriptions; identify the required education and experience; and determine prevalent working conditions, salary, and fringe benefits.
Interview Like a Pro
An interview tends to have three parts: icebreaking (about five minutes), in which the interviewer tries to put the applicant at ease; questioning (directly or indirectly) by the interviewer; and questioning by the applicant. Almost every recruiter you meet will be trying to rate you in 5 to 10 areas. The questions will be designed to assess your skills and personality.
Many firms start with a screening interview, a rather short interview (about 30 minutes) to decide whether to invite you back for a second interview. Sometimes screening interviews can take place online via Skype, FaceTime, or some other form of videoconferencing. Only about 20 percent of job applicants are invited back. The second interview is usually a half day or a day of meetings set up by the human resource department with managers in different departments. After the meetings, someone from the human resource department will discuss other application materials with you and tell you when a letter of acceptance or rejection is likely to be sent. (The wait may be weeks or even months.) Many applicants send follow-up letters in the meantime to show they are still interested in the firm.
For the interview, you should dress conservatively. Plan to arrive about 10 to 15 minutes ahead of time. Try to relax. Smile and make eye contact with (but do not stare at) the interviewer. Body language is an important communicator. The placement of your hands and feet and your overall posture say a good deal about you. Here are some other tips for interviewing like a pro:
1. Concentrate on being likable. As simplistic as it seems, research proves that one of the most essential goals in successful interviewing is to be liked by the interviewer. Interviewers want to hire pleasant people others will like working with on a daily basis. Pay attention to the following areas to project that you are highly likable:
• Be friendly, courteous, and enthusiastic.
• Speak positively.
• Smile.
• Use positive body language.
• Make certain your appearance is appropriate.
• Make eye contact when you speak.
2. Project an air of confidence and pride. Act as though you want and deserve the job, not as though you are desperate.
3. Demonstrate enthusiasm. The applicant’s level of enthusiasm often influences employers as much as any other interviewing factor. The applicant who demonstrates little enthusiasm for a job will never be selected for the position.
4. Demonstrate knowledge of and interest in the employer. “I really want this job” is not convincing enough. Explain why you want the position and how the position fits your career plans. You can cite opportunities that may be unique to a firm or emphasize your skills and education that are highly relevant to the position.
5. State your name and the position you’re seeking. When you enter the interviewer’s office, begin with a friendly greeting and state the position you’re interviewing for: “Hello, Ms. Levine, I’m Bella Reyna. I’m here to interview for the accounting position.” If someone has already introduced you to the interviewer, simply say, “Good morning, Ms. Levine.” Identifying the position is important because interviewers often interview for many different positions.
6. Focus on how you fit the job. Near the beginning of your interview, as soon as it seems appropriate, ask a question similar to this: “Could you describe the scope of the job and tell me what capabilities are most important in filling the position?” The interviewer’s response will help you focus on emphasizing your qualifications that best match the needs of the employer.
7. Speak correctly. Grammatical errors can cost applicants the job. Use correct grammar, word choice, and a businesslike vocabulary, not an informal, chatty one. Avoid slang. When under stress, people often use pet phrases (such as you know) too often. This is highly annoying and projects immaturity and insecurity. Don’t use just or only. “I just worked as a waiter.” Don’t say “I guess.” Avoid the word probably because it suggests unnecessary doubt. Ask a friend or family member to help you identify any speech weaknesses you have. Begin eliminating these speech habits now.
Also, you should avoid the following “disqualifiers” at all costs. Any one of these blunders could cost you your dream job:
1. Don’t sit down until the interviewer invites you to; waiting is courteous.
2. Don’t bring anyone else to the interview; it makes you look immature and insecure.
3. Don’t smoke or bring a beverage with you.
4. Don’t put anything on or read anything on the interviewer’s desk; it’s considered an invasion of personal space.
5. Don’t chew gum or have anything else in your mouth; this projects immaturity.
6. If you are invited to a business meal, don’t order alcohol. When ordering, choose food that’s easy to eat while carrying on a conversation.
7. Don’t offer a limp handshake; it projects weakness. Use a firm handshake.22
Select the Right Job for You
Hard work and a little luck may pay off with multiple job offers. Your happy dilemma is deciding which one is best for you. Start by considering the “FACTS”:
• Fit: Do the job and the employer fit your skills, interests, and lifestyle?
• Advancement and growth: Will you have the chance to develop your talents and move up within the organization?
• Compensation: Is the employer offering a competitive salary and benefits package?
• Training: Will the employer provide you with the tools needed to be successful on the job?
• Site: Is the job location a good match for your lifestyle and your budget?
A great way to evaluate a new location is through Homefair (http://www.homefair.com). This site offers tools to help you calculate the cost of moving, the cost of living, and the quality of life in various places. The Moving Calculator helps you figure out how much it will cost to ship your worldly possessions to a particular city. The Relocation Crime Lab compares crime rates in various locations. The City Snapshots feature compares demographic, economic, and climate information for two cities of your choosing. The Salary Calculator computes cost-of-living differences between hundreds of U.S. and international cities and tells you how much you’d need to make in your new city to maintain your current standard of living.
Start Your New Job
No time is more crucial, and possibly nerve-racking, than the first few months at a new job. During this breaking-in period, the employer decides whether a new employee is valuable enough to keep and, if so, in what capacity. Sometimes the employee’s whole future with the company rides on the efforts of the first few weeks or months. Most firms offer some sort of formal orientation. But generally speaking, they expect employees to learn quickly—and often on their own. You will be expected to become familiar with the firm’s goals; its organization, including your place in the company; and basic personnel policies, such as coffee breaks, overtime, and parking.
Here are a few tips on making your first job rewarding and productive:
• Listen and learn: When you first walk into your new job, let your eyes and ears take everything in. Do people refer to one another by first names, or is the company more formal? How do people dress? Do the people you work with drop into one another’s open offices for informal chats about business matters? Or have you entered a “memo mill,” where anything of substance is put on email and talks with other employees are scheduled through their administrative assistants? Size up where the power lies. Who seems to most often assume a leadership role? Who is the person others turn to for advice? Why has that person achieved that position? What traits have made this person a “political leader”? Don’t be misled by what others say, but also don’t dismiss their evaluations. Make your own judgments based on what you see and hear. Effective listening skills help you learn your new job responsibilities quickly. Take the quiz in Table 17.8 to see if you are a good listener.
• Do unto others: Be nice. Nice people are usually the last to be fired and among the first to be promoted. Don’t be pleasant only with those who can help you in the company. Be nice to everyone. You never know who can help you or give you information that will turn out to be useful. Genuinely nice people make routine job assignments, and especially pressure-filled ones, more pleasant. And people who are dealt with pleasantly usually respond in kind.
• Don’t start out as a maverick: If every new employee tried to change tried-and-true methods to suit his or her whims, the firm would quickly be in chaos. Individual needs must take a back seat to established procedures. Devote yourself to getting things done within the system. Every manager realizes that it takes time for a new person to adjust. But the faster you start accomplishing things, the faster the boss will decide that you were the right person to hire.
• Find a great mentor: The leading cause of career unhappiness is working for a bad boss. Good jobs can easily be ruined by supervisors who hold you back. In contrast, your career will soar (and you will smile every day) when you have a great mentor helping you along the way. If you find a job with a super mentor, jump at the chance to take it.
Fun Self-Test—Are You a Good Listener?
Rate your level of agreement with the statements below using the following scale:
Strongly Agree Agree Neither Agree nor Disagree Disagree Strongly Disagree
1. A person who takes time to ask for clarification about something that might be unclear is not a good listener.
2. While listening, I am distracted by the sounds around me.
3. I try to not only understand what is being said but also analyze the strength of any ideas that are being presented.
4. I ask questions, make observations, or give opinion when necessary for clarifications.
5. While I am listening, I avoid eye contact but am polite.
6. I am tempted to judge a person whether or not he or she is a good speaker.
7. I feel more comfortable when someone talks to me about a topic that I find interesting.
8. I always jot down key phrases/points that strike me as important points of concern that require a response.
9. My listening style varies from the speaker’s style of communication.
10. A good listener requires a good speaker.23
See the scoring guidelines at the end of this chapter to obtain your score.
Table17.8
Moving Up
Once you have been on the job for a while, you will want to get ahead and be promoted. Table 17.9 offers several suggestions for improving your chances of promotion. The first item might seem a bit strange, yet it’s there for a practical reason. If you don’t really like what you do, you won’t be committed enough to compete with those who do. The passionate people are the ones who go the extra mile, do the extra work, and come up with fresh out-of-the-box ideas.
So there you have it. Remember: it’s never too early to begin planning your career—the future is now.
How to Move Up
• Love what you do, which entails first figuring out who you are.
• Never stop learning about new technologies and new skills that will help you build a successful career.
• Try to get international experience even if it is only a short stint overseas.
• Create new business opportunities—they could lead to a promotion.
• Be really terrific at what you’re doing now, this week, this month.
Table17.9 | textbooks/biz/Business/Introductory_Business/Book%3A_Introduction_to_Business_(OpenStax)/17%3A_Your_Career_in_Business/17.06%3A_Get_Your_Career_Off_on_the_Right_Track.txt |
After you answer the questions in each of the fun self-tests that appear in this chapter, determine your score and evaluate your skills using the following scoring guidelines.
Table 1 Fun Self-Test: Can You Persuade Others?
For questions 1, 2, 4, 8, 10, and 11, use the following to calculate your score:
Strongly Agree Agree Neither Agree nor Disagree Disagree Strongly Disagree
2 points 1 point 0 points 0 points 0 points
For questions 3, 5, 6, 7, and 9 use the following to calculate your score:
Strongly Agree Agree Neither Agree nor Disagree Disagree Strongly Disagree
0 points 0 points 0 points 4 points 5 points
If your score is between 40 and 55, you have an excellent ability to persuade others. A score between 30 and 39 means you have reasonably good persuasion skills. However, you may need to improve your listening and communicating skills. A score below 30 means that you should consider reading a book or taking a short course on how to persuade others.
Table 2 Fun Self-Test: Are You Good at Office Politics?
For questions 1, 3, 4, 7, 8, 10, 12, and 13, give yourself 1 point if you said “true.” For questions 2, 5, 6, 9, and 11, give yourself 1 point if you said “false.” If your score is 9 or below, you may be good at managing your work, but you need to improve your political skills. Being political means getting along with others in order to move them toward accomplishing a specific goal. If your score is low, consider reviewing the tips offered in the chapter on how to be an effective political player.
Table 4 Fun Self-Test: How Well Do You Manage Your Time?
For questions 2, 6, 8, 9, 11, 13, 14, and 15, use the following to calculate your score:
Strongly Disagree Disagree Neither Agree nor Disagree Agree Strongly Agree
0 points 0 points 0 points 4 points 5 points
For questions 1, 3, 4, 5, 7, 10, and 12, use the following to calculate your score:
Strongly Disagree Disagree Neither Agree nor Disagree Agree Strongly Agree
5 points 4 points 0 points 0 points 0 points
If your score is 60 or higher, you have excellent time management skills. Congratulations—you use your time well! If your score is below 60, consider reading a book on time management, taking a course on time management, or investing in time-management tools such as a weekly project planner. The chapter has additional tips that may be useful in improving your time-management skills.
Table 5 Fun Self-Test: Are You Good at Managing Money?
For questions 2, 3, 5, 6, 10, and 11, use the following to calculate your score:
Strongly Disagree Disagree Neither Agree nor Disagree Agree Strongly Agree
0 points 0 points 0 points 4 points 5 points
For questions 1, 4, 7, 8, and 9, use the following to calculate your score:
Strongly Disagree Disagree Neither Agree nor Disagree Agree Strongly Agree
5 points 4 points 0 points 0 points 0 points
If your score is 44 or higher, you are able to manage money while balancing your expenses and income. You will be ready to handle financial emergencies without turning to friends or relatives. If your score is between 36 and 43, your savings habits may be inconsistent. To achieve better savings, control your expenses and avoid unnecessary purchases. If your score is 35 or below, you spend too much! Remember: it’s a lot more painful to earn money than to spend it. You need to gain control of your finances by limiting your spending, paying off credit cards, or investing in a good personal finance book or course. You may also need to meet with a financial advisor to seek direction on your spending and saving habits.
Table 6 Fun Self-Test: Do You Have Good Study Habits?
If you answered “yes” to questions 3, 5, 7, 8, and 11, give yourself 1 point for each answer.
If you answered “no” to questions 1, 2, 4, 6, 9, 10, and 12, give yourself 1 point for each answer.
If your score is 10 or above, congratulations! You have good study habits. If your score is below 10, read the tips offered in the chapter on improving your study skills. You may also meet with someone at your school to help maximize your study time.
Table 7 Fun Self-Test: How Assertive Are You?
For questions 1, 3, 4, 7, 9, and 13, use the following to calculate your score:
Strongly Agree Agree Neither Agree nor Disagree Disagree Strongly Disagree
5 points 4 points 0 points 0 points 0 points
For questions 2, 5, 6, 8, 10, 11, and 12, use the following to calculate your score:
Strongly Agree Agree Neither Agree nor Disagree Disagree Strongly Disagree
0 points 0 points 0 points 4 points 5 points
If your score is 44 or higher, you stand up for your rights while showing respect for others. You quickly respond to unfair criticism. You should be able to fare well in office politics. If your score is 43 or lower, you may want to consider ways to become more comfortable communicating your ideas and opinions and managing your relationships with others.
Table 8 Fun Self-Test: Are You a Good Listener?
For questions 3, 4, 8, and 9, use the following to calculate your score:
Strongly Agree Agree Neither Agree nor Disagree Disagree Strongly Disagree
5 points 4 points 0 points 0 points 0 points
For questions 1, 2, 5, 6, 7, and 10, use the following to calculate your score:
Strongly Agree Agree Neither Agree nor Disagree Disagree Strongly Disagree
0 points 0 points 0 points 4 points 5 points
Listening is an important communication skill that will help you succeed in your career. By becoming an effective listener, you gain respect from your colleagues, pick up insights and ideas on improving your job performance, and develop a skill that is important in managing others. If you have a score of 32 or above, then you are a good listener. If your score falls below 32, you need to improve your listening skills. Search the internet for articles and ideas on becoming a better listener, and begin practicing your new skills with your friends and coworkers. | textbooks/biz/Business/Introductory_Business/Book%3A_Introduction_to_Business_(OpenStax)/17%3A_Your_Career_in_Business/17.07%3A_Self-Test_Scoring_Guidelines.txt |
Learning Outcomes
After reading this appendix, you should be able to answer these questions:
1. How does the legal system govern business transactions and settle disputes?
2. What are the required elements of a valid contract, and what are the key types of business law?
3. What are the most common taxes paid by businesses?
Understanding the Legal Environment
1. How does the legal system govern business transactions and settle disputes?
Our legal system affects everyone who lives and does business in the United States. The smooth functioning of society depends on the law, which protects the rights of people and businesses. The purpose of law is to keep the system stable while allowing orderly change. The law defines which actions are allowed or banned and regulates some practices. It also helps settle disputes. The legal system both shapes and is shaped by political, economic, and social systems. As Judge Learned Hand wrote in The Spirit of Liberty, “Without [the law] we cannot live; only with it can we insure the future which by right is ours.”
In any society, laws are the rules of conduct created and enforced by a controlling authority, usually the government. They develop over time in response to the changing needs of people, property, and business. The legal system of the United States is thus the result of a long and continuing process. In each generation, new social problems occur, and new laws are created to solve them. For instance, in the late 1800s corporations in certain industries, such as steel and oil, merged and became dominant. The Sherman Antitrust Act was passed in 1890 to control these powerful firms. Eighty years later, in 1970, Congress passed the National Environmental Policy Act. This law dealt with pollution problems, which no one had thought about in 1890. Today new areas of law are developing to deal with the internet and the recent financial scandals.
The Main Sources of Law
Common law is the body of unwritten law that has evolved out of judicial (court) decisions rather than being enacted by legislatures. It is also called case law. It developed in England and came to America with the colonists. All states except Louisiana, which follows the Napoleonic Code inherited from French settlers, follow the English system. Common law is based on community customs that were recognized and enforced by the courts.
Statutory law is written law enacted by legislatures at all levels, from city and state governments to the federal government. Examples of statutory law are the federal and state constitutions, bills passed by Congress, and ordinances, which are laws enacted by local governments. Statutory law is the chief source of new laws in the United States. Among the business activities governed by statutory law are securities regulation, incorporation, sales, bankruptcy, and antitrust.
Related to statutory law is administrative law, or the rules, regulations, and orders passed by boards, commissions, and agencies of federal, state, and local governments. The scope and influence of administrative law have expanded as the number of these government bodies has grown. Federal agencies issue more rulings and settle more disputes than all the courts and legislatures combined. Some federal agencies that issue rules are the Civil Aeronautics Board, the Internal Revenue Service, the Securities and Exchange Commission, the Federal Trade Commission, and the National Labor Relations Board.
Business law is the body of law that governs commercial dealings. These laws provide a protective environment within which businesses can operate. They serve as guidelines for business decisions. Every businessperson should be familiar with the laws governing his or her field. Some laws, such as the Internal Revenue Code, apply to all businesses. Other types of business laws may apply to a specific industry, such as Federal Communications Commission laws that regulate radio and TV stations.
In 1952 the United States grouped many business laws into a model that could be used by all the states. The Uniform Commercial Code (UCC) sets forth the rules that apply to commercial transactions between businesses and between individuals and businesses. It has been adopted by 49 states; Louisiana uses only part of it. By standardizing laws, the UCC simplifies the process of doing business across state lines. It covers the sale of goods, bank deposits and collections, letters of credit, documents of title, and investment securities.
The Court System
The United States has a highly developed court system. This branch of government, the judiciary, is responsible for settling disputes by applying and interpreting points of law. Although court decisions are the basis for common law, the courts also answer questions left unanswered by statutes and administrative rulings. They have the power to assure that these laws do not violate the federal or state constitutions.
Trial Courts
Most court cases start in the trial courts, also called courts of general jurisdiction. The main federal trial courts are the U.S. district courts. There is at least one federal district court in each state. These courts hear cases involving serious federal crimes, immigration, postal regulations, disputes between citizens of different states, patents, copyrights, and bankruptcy. Specialized federal courts handle tax matters, international trade, and claims against the United States.
Appellate Courts
The losing party in a civil (noncriminal) case and a losing defendant in a criminal case may appeal the trial court’s decision to the next level in the judicial system, the appellate courts (courts of appeals). There are 12 U.S. circuit courts of appeals. Cases that begin in a federal district court are appealed to the court of appeals for that district. These courts may also review orders from administrative agencies. Likewise, the states have appellate courts and supreme courts for cases tried in state district or superior courts.
No cases start in appellate courts. Their purpose is to review decisions of the lower courts and affirm, reverse, or modify the rulings.
The Supreme Court
The U.S. Supreme Court is the highest court in the nation. It is the only court specifically established by the U.S. Constitution. Any cases involving a state or in which an ambassador, public minister, or consul is a party are heard directly by the Supreme Court. Its main function is to review decisions by the U.S. circuit courts of appeals. Parties not satisfied with a decision of a state supreme court can appeal to the U.S. Supreme Court. But the Supreme Court accepts only those cases that it believes will have the greatest effect on the country, only about 200 of the thousands of appeals it gets each year.
Administrative Agencies
Administrative agencies have limited judicial powers to regulate their special areas. These agencies exist at the federal, state, and local levels. For example, in 2017, the Federal Trade Commission (FTC) ordered satellite TV provider Dish Network to pay a fine of \$280 million for violating the Do Not Call Registry, a clearinghouse for consumers who do not want to be contacted by telemarketers. A federal judge ruled that Dish Network was liable for more than 66 million calls that violated the FTC’s Telemarketing Sales Rule.24
24Lesley Fair, “Court Orders \$280 Million from Dish Network, Largest Ever Do Not Call Penalty,” https://www.ftc.gov, accessed June 23, 2017.
A list of selected federal agencies is shown in Table A1.
TableA1Federal Regulatory Agencies
Agency Function
Federal Trade Commission (FTC) Enforces laws and guidelines regarding unfair business practices and acts to stop false and deceptive advertising and labeling.
Food and Drug Administration (FDA) Enforces laws and regulations to prevent distribution of adulterated or misbranded foods, drugs, medical devices, cosmetics, veterinary products, and hazardous consumer products.
Consumer Products Safety Commission Ensures compliance with the Consumer Product Safety Act and seeks to protect the public from unreasonable risk of injury from any consumer product not covered by other regulatory agencies.
Federal Communications Commission (FCC) Regulates wire, radio, and TV communication in interstate and foreign commerce.
Environmental Protection Agency (EPA) Develops and enforces environmental protection standards and researches the effects of pollution.
Federal Energy Regulatory Commission (FERC) Regulates rates and sales of natural gas products, thereby affecting the supply and price of gas available to consumers; also regulates wholesale rates for electricity and gas, pipeline construction, and U.S. imports and exports of natural gas and electricity.
Federal Aviation Administration (FAA) Oversees the policies and regulations of the airline industry.
Federal Highway Administration (FHA) Regulates vehicle safety requirements.
Nonjudicial Methods of Settling Disputes
Settling disputes by going to court is both expensive and time-consuming. Even if the case is settled prior to the actual trial, sizable legal expenses can be incurred in preparing for trial. Therefore, many companies now use private arbitration and mediation firms as alternatives to litigation. Private firms offer these services, which are a high growth area within the legal profession.
With arbitration, the parties agree to present their case to an impartial third party and are required to accept the arbitrator’s decision. Mediation is similar, but the parties are not bound by the mediator’s decision. The mediator suggests alternative solutions and helps the parties negotiate a settlement. Mediation is more flexible than arbitration and allows for compromise. If the parties cannot reach a settlement, they can then go to court, an option not available in most arbitration cases.
In addition to saving time and money, corporations like the confidentiality of testimony and settlement terms in these proceedings. Arbitration and mediation also allow businesses and medical professionals to avoid jury trials, which can result in large settlements in certain types of lawsuits, such as personal injury, discrimination, medical malpractice, and product liability.
Contract Law
1. What are the required elements of a valid contract, and what are the key types of business law?
Linda Price, a 22-year-old college student, is looking at a car with a sticker price of \$18,000. After some negotiating, she and the salesperson agree on a price of \$17,000, and the salesperson writes up a contract, which they both sign. Has Linda legally bought the car for \$17,000? The answer is yes, because the transaction meets all the requirements for a valid contract.
A contract is an agreement that sets forth the relationship between parties regarding the performance of a specified action. The contract creates a legal obligation and is enforceable in a court of law. Contracts are an important part of business law. Contract law is also incorporated into other fields of business law, such as property and agency law. Some of the business transactions that involve contracts are buying materials and property, selling goods, leasing equipment, and hiring consultants.
A contract can be an express contract, which specifies the terms of the agreement in either written or spoken words, or an implied contract, which depends on the acts and conduct of the parties to show agreement. An example of an express contract is the written sales contract for Linda Price’s new car. An implied contract exists when you order and receive a sandwich at Jason’s Grill. You and the restaurant have an implied contract that you will pay the price shown on the restaurant’s menu in exchange for an edible sandwich.
Contract Requirements
Businesses deal with contracts all the time, so it’s important to know the requirements of a valid contract. For a contract to be legally enforceable, all of the following elements must be present:
• Mutual assent. Voluntary agreement by both parties to the terms of the contract. Each party to the contract must have entered into it freely, without duress. Using physical or economic harm to force the signing of the contract—threatening injury or refusing to place another large order, for instance—invalidates a contract. Likewise, fraud—misrepresenting the facts of a transaction—makes a contract unenforceable. Telling a prospective used-car buyer that the brakes are new when in fact they have not been replaced makes the contract of sale invalid.
• Capacity. Legal ability of a party to enter into contracts. Under the law, minors (those under 18), mental incompetents, drug and alcohol addicts, and convicts cannot enter into contracts.
• Consideration. Exchange of some legal value or benefit between the parties. Consideration can be in the form of money, goods, or a legal right given up. Suppose that an electronics manufacturer agrees to rent an industrial building for a year at a monthly rent of \$1,500. Its consideration is the rent payment of \$1,500, and the building owner’s consideration is permission to occupy the space. But if you offer to type a term paper for a friend for free and your offer is accepted, there is no contract. Your friend has not given up anything, so you are not legally bound to honor the deal.
• Legal purpose. Absence of illegality. The purpose of the contract must be legal for it to be valid. A contract cannot require performance of an illegal act. A contract to smuggle drugs into a state for a specified amount of money would not be legally enforceable.
• Legal form. Oral or written form, as required. Many contracts can be oral. For instance, an oral contract exists when Bridge Corp. orders office supplies by phone from Ace Stationery Store and Ace delivers the requested goods. Written contracts include leases, sales contracts, and property deeds. Some types of contracts must be in writing to be legally binding. In most states, written contracts are required for the sale of goods costing more than \$500, for the sale of land, for contract performance that cannot be carried out within a year, and for guarantees to pay the debts of someone else.
As you can see, Linda Price’s car purchase meets all the requirements for a valid contract. Both parties have freely agreed to the terms of the contract. Linda is not a minor and presumably does not fit any of the other categories of incapacity. Both parties are giving consideration, Linda by paying the money and the salesperson by turning over the car to her. The purchase of the car is a legal activity. And the written contract is the correct form because the cost of the car is over \$500.
Breach of Contract
A breach of contract occurs when one party to a contract fails (without legal excuse) to fulfill the terms of the agreement. The other party then has the right to seek a remedy in the courts. There are three legal remedies for breach of contract:
• Payment of damages. Money awarded to the party who was harmed by the breach of contract, to cover losses incurred because the contract wasn’t fulfilled. Suppose that Ajax Roofing contracts with Fred Wellman to fix the large hole in the roof of his factory within three days. But the roofing crew doesn’t show up as promised. When a thunderstorm four days later causes \$45,000 in damage to Wellman’s machinery, Wellman can sue for damages to cover the costs of the water damage because Ajax breached the contract.
• Specific performance of the contract. A court order requiring the breaching party to perform the duties under the terms of the contract. Specific performance is the most common method of settling a breach of contract. Wellman might ask the court to direct Ajax to fix the roof at the price and conditions in the contract.
• Restitution. Canceling the contract and returning to the situation that existed before the contract. If one party fails to perform under the contract, neither party has any further obligation to the other. Because Ajax failed to fix Wellman’s roof under the terms of the contract, Wellman does not owe Ajax any money. Ajax must return the 50 percent deposit it received when Wellman signed the contract.
Warranties
Express warranties are specific statements of fact or promises about a product by the seller. This form of warranty is considered part of the sales transaction that influences the buyer. Express warranties appear in the form of statements that can be interpreted as fact. The statement “This machine will process 1,000 gallons of paint per hour” is an express warranty, as is the printed warranty that comes with a computer or a telephone answering machine.
Implied warranties are neither written nor oral. These guarantees are imposed on sales transactions by statute or court decision. They promise that the product will perform up to expected standards. For instance, a man bought a used car from a dealer, and the next day the transmission fell out as he was driving on the highway. The dealer fixed the car, but a week later the brakes failed. The man sued the car dealer. The court ruled in favor of the car owner because any car without a working transmission or brakes is not fit for the ordinary purpose of driving. Similarly, if a customer asks to buy a copier to handle 5,000 copies per month, she relies on the salesperson to sell her a copier that meets those needs. The salesperson implicitly warrants that the copier purchased is appropriate for that volume.
Patents, Copyrights, and Trademarks
The U.S. Constitution protects authors, inventors, and creators of other intellectual property by giving them the rights to their creative works. Patents, copyrights, and registration of trademarks and servicemarks are legal protection for key business assets.
A patent gives an inventor the exclusive right to manufacture, use, and sell an invention for 20 years. The U.S. Patent Office, a government agency, grants patents for ideas that meet its requirements of being new, unique, and useful. The physical process, machine, or formula is what is patented. Patent rights—pharmaceutical companies’ rights to produce drugs they discover, for example—are considered intangible personal property.
The government also grants copyrights. A copyright is an exclusive right, shown by the symbol ©, given to a writer, artist, composer, or playwright to use, produce, and sell her or his creation. Works protected by copyright include printed materials (books, magazine articles, lectures), works of art, photographs, and movies. Under current copyright law, the copyright is issued for the life of the creator plus 70 years after the creator’s death. Patents and copyrights, which are considered intellectual property, are the subject of many lawsuits today.
A trademark is a design, name, or other distinctive mark that a manufacturer uses to identify its goods in the marketplace. Apple’s “bitten apple” logo (symbol) is an example of a trademark. A servicemark is a symbol, name, or design that identifies a service rather than a tangible object. The Travelers Insurance umbrella logo is an example of a servicemark.
Most companies identify their trademark with the ® symbol in company ads. This symbol shows that the trademark is registered with the Register of Copyrights, Copyright Office, Library of Congress. The trademark is followed by a generic description: Fritos corn chips, Xerox copiers, Scotch brand tape, Kleenex tissues.
Trademarks are valuable because they create uniqueness in the minds of customers. At the same time, companies don’t want a trademark to become so well known that it is used to describe all similar types of products. For instance, Coke is often used to refer to any cola soft drink, not just those produced by The Coca-Cola Company. Companies spend millions of dollars each year to keep their trademarks from becoming generic words, terms used to identify a product class rather than the specific product. The Coca-Cola Company employs many investigators and files many lawsuits each year to prevent its trademarks from becoming generic words.
Once a trademark becomes generic (which a court decides), it is public property and can be used by any person or company. Names that were once trademarked but are now generic include aspirin, thermos, linoleum, and toll house cookies.
Tort Law
A tort is a civil, or private, act that harms other people or their property. The harm may involve physical injury, emotional distress, invasion of privacy, or defamation (injuring a person’s character by publication of false statements). The injured party may sue the wrongdoer to recover damages for the harm or loss. A tort is not the result of a breach of contract, which would be settled under contract law. Torts are part of common law. Examples of tort cases are medical malpractice, slander (an untrue oral statement that damages a person’s reputation), libel (an untrue written statement that damages a person’s reputation), product liability (discussed in the next section), and fraud.
A tort is generally not a crime, although some acts can be both torts and crimes. (Assault and battery, for instance, is a criminal act that would be prosecuted by the state and also a tort because of the injury to the person.) Torts are private wrongs and are settled in civil courts. Crimes are violations of public law punishable by the state or county in the criminal courts. The purpose of criminal law is to punish the person who committed the crime. The purpose of tort law is to provide remedies to the injured party.
For a tort to exist and damages to be recovered, the harm must be done through either negligence or deliberate intent. Negligenceoccurs when reasonable care is not taken for the safety of others. For instance, a woman attending a New York Mets baseball game was struck on the head by a foul ball that came through a hole in the screen behind home plate. The court ruled that a sports team charging admission has an obligation to provide structures free from defects and seating that protects spectators from danger. The Mets were found negligent. Negligence does not apply when an injury is caused by an unavoidable accident, an event that was not intended and could not have been prevented even if the person used reasonable care. This area of tort law is quite controversial, because the definition of negligence leaves much room for interpretation.
Product-Liability Law
Product liability refers to manufacturers’ and sellers’ responsibility for defects in the products they make and sell. It has become a specialized area of law combining aspects of contracts, warranties, torts, and statutory law (at both the state and federal levels). A product-liability suit may be based on negligence or strict liability (both of which are torts) or misrepresentation or breach of warranty (part of contract law).
An important concept in product-liability law is strict liability. A manufacturer or seller is liable for any personal injury or property damage caused by defective products or packaging—even if all possible care was used to prevent such defects. The definition of defective is quite broad. It includes manufacturing and design defects and inadequate instructions on product use or warnings of danger.
Product-liability suits are very costly. More than 100,000 product-liability suits were filed against hundreds of companies that made or used asbestos, a substance that causes lung disease and cancer but was once used widely in insulation, brake linings, textiles, and other products. Scores of companies were forced into bankruptcy as a result of asbestos-related lawsuits, and the total cost of asbestos cases to defendants and their insurers exceeds \$70 billion (most of which was paid not to the victims but to lawyers and experts).
Bankruptcy Law
Congress has given financially distressed firms and individuals a way to make a fresh start. Bankruptcy is the legal procedure by which individuals or businesses that cannot meet their financial obligations are relieved of their debts. A bankruptcy court distributes any assets to the creditors.
Bankruptcy can be either voluntary or involuntary. In a voluntary bankruptcy, the debtor files a petition with the court, stating that debts exceed assets and asking the court to declare the debtor bankrupt. In an involuntary bankruptcy, the creditors file the bankruptcy petition.
The Bankruptcy Reform Act of 1978, amended in 1984 and 1986, provides for the resolution of bankruptcy cases. Under this act, two types of bankruptcy proceedings are available to businesses: Chapter 7 (liquidation) and Chapter 11 (reorganization). Most bankruptcies, an estimated 70 percent, use Chapter 7. After the sale of any assets, the cash proceeds are given first to secured creditors and then to unsecured creditors. A firm that opts to reorganize under Chapter 11 works with its creditors to develop a plan for paying part of its debts and writing off the rest.
The Bankruptcy Abuse Prevention and Consumer Protection Act went into effect October 17, 2005. Under this law, Americans with heavy debt will find it difficult to avoid meeting their financial obligations. Many debtors will have to work out repayment plans instead of having their obligations erased in bankruptcy court.1
The law requires people with incomes above a certain level to pay some or all of their credit-card charges, medical bills, and other obligations under a court-ordered bankruptcy plan. Supporters of the 2005 law argue that bankruptcy frequently is the last refuge of gamblers, impulsive shoppers, the divorced or separated, and fathers avoiding child support. Now there is an objective, needs-based bankruptcy test to determine whether filers should be allowed to cancel their debts or be required to enter a repayment plan. Generally, people with incomes above the state median income would be required to use a plan to repay their debts. People with special circumstances, such as serious medical conditions, would be allowed to cancel debts despite this income level.
Also, companies will need a lot more cash to enter into a bankruptcy than in the past. Before the 2005 law, utilities could not discontinue service as a result of a bankruptcy filing. But under the new act, the filing company must post a cash deposit or equivalent in order to continue their service. Sellers also have priority over other claims with regard to merchandise distributed to the debtor within 20 days prior to the bankruptcy filing.
The act limits the debtor’s exclusivity period, which was a real boon of filing for bankruptcy. Past law allowed for indefinite extensions, which served to drag out the time before bondholders and other creditors get any money. But now that period is capped at 18 months, with no room for extension. For large corporations with complicated bankruptcies, such a quick turnaround may not be possible, and if a plan is not filed at the end of 18 months, the company must put itself at the mercy of creditors.
Laws to Promote Fair Competition
Many measures have been taken to try to keep the marketplace free from influences that would restrict competition. These efforts include antitrust regulation, laws that prevent companies from entering into agreements to control trade through a monopoly. The first act regulating competition was the Sherman Antitrust Act, passed in 1890 to prevent large companies from dominating an industry and making it hard for smaller firms to compete. This broad act banned monopolies and contracts, mergers, or conspiracies in restraint of trade. In 1914 the Clayton Act added to the more general provisions of the Sherman Antitrust Act. It outlawed the following:
• Price discrimination. Offering a customer discounts that are not offered to all other purchasers buying on similar terms
• Exclusive dealing. Refusing to let the buyer purchase a competitor’s products for resale
• Tying contracts. Requiring buyers to purchase merchandise they may not want in order to get the products they do want
• Purchase of stock in competing corporations so as to lessen competition. Buying competitors’ stock in such quantity that competition is reduced
The 1950 Celler-Kefauver Act amended the Clayton Act. It bans the purchase of one firm by another if the resulting merger decreases competition within the industry. As a result, all corporate acquisitions are subject to regulatory approval before they can be finalized. Most antitrust actions are taken by the U.S. Department of Justice, based on federal law. Violations of the antitrust acts are punishable by fines, imprisonment, or civil damage payments that can be as high as three times the actual damage amount. These outcomes give defendants an incentive to resolve cases.
The Federal Trade Commission Act, also passed in 1914, bans unfair trade practices. This act created the Federal Trade Commission (FTC), an independent five-member board with the power to define and monitor unfair trade practices, such as those prohibited by the Sherman and Clayton Acts. The FTC investigates complaints and can issue rulings called cease-and-desist ordersto force companies to stop unfair business practices. Its powers have grown over the years. Today the FTC is one of the most important agencies regulating the competitive practices of business.
Regulation of Advertising and Pricing
A number of federal laws directly affect the promotion and pricing of products. The Wheeler-Lea Act of 1938 amended the Federal Trade Commission Act and gave the FTC authority to regulate advertising. The FTC monitors companies’ advertisements for false or misleading claims.
The most important law in the area of pricing is the Robinson-Patman Act, a federal law passed in 1936 that tightened the Clayton Act’s prohibitions against price discrimination. An exception is made for circumstances like discounts for quantity purchases, as long as the discounts do not lessen competition. But a manufacturer cannot sell at a lower price to one company just because that company buys all its merchandise from the manufacturer. Also, if one firm is offered quantity discounts, all firms buying that quantity of goods must get the discounts. The FTC and the antitrust division of the Justice Department monitor pricing.
Consumer Protection Laws
Consumerism reflects the struggle for power between buyers and sellers. Specifically, it is a social movement seeking to increase the rights and powers of buyers vis-à-vis sellers. Sellers’ rights and powers include the following:
• To introduce into the marketplace any product, in any size and style, that is not hazardous to personal health or safety, or if it is hazardous, to introduce it with the proper warnings and controls
• To price the product at any level they wish, provided they do not discriminate among similar classes of buyers
• To spend any amount of money they wish to promote the product, so long as the promotion does not constitute unfair competition
• To formulate any message they wish about the product, provided that it is not misleading or dishonest in content or execution
• To introduce any buying incentives they wish
Meanwhile, buyers have the following rights and powers:
• To refuse to buy any product that is offered to them
• To expect products to be safe
• To expect a product to be essentially as the seller represents it
• To receive adequate information about the product
Many laws have been passed to protect consumer rights. Table A2 lists the major consumer protection laws.
Key Consumer Protection Laws
Mail Fraud Act (1872) Makes it a federal crime to defraud consumers through use of the mail.
Pure Food and Drug Act (1906) Created the Food and Drug Administration (FDA); protects consumers against the interstate sale of unsafe and adulterated foods and drugs.
Food, Drug, and Cosmetic Act (1938) Expanded the power of the FDA to cover cosmetics and therapeutic devices and to establish standards for food products.
Flammable Fabrics Act (1953) Prohibits sale or manufacture of clothing made of dangerously flammable fabric.
Child Protection Act (1966) Prohibits sale of harmful toys and gives the FDA the right to remove dangerous products from the marketplace.
Cigarette Labeling Act (1965) Requires cigarette manufacturers to put labels warning consumers about health hazards on cigarette packages.
Fair Packaging and Labeling Act (1966) Regulates labeling and packaging of consumer products.
Consumer Credit Protection Act (Truth-in-Lending Act) (1968) Requires lenders to fully disclose to borrowers the loan terms and the costs of borrowing (interest rate, application fees, etc.).
Fair Credit Reporting Act (1971) Requires consumers denied credit on the basis of reports from credit agencies to be given access to their reports and to be allowed to correct inaccurate information.
Consumer Product Safety Act (1972) Created the Consumer Product Safety Commission, an independent federal agency, to establish and enforce consumer product safety standards.
Equal Credit Opportunity Act (1975) Prohibits denial of credit on the basis of gender, marital status, race, religion, age, or national origin.
Magnuson-Moss Warranty Act (1975) Requires that warranties be written in clear language and that terms be fully disclosed.
Fair Debt Collection Practice Act (1978) Makes it illegal to harass or abuse any person, to make false statements, or to use unfair methods when collecting a debt.
Alcohol Labeling Legislation (1988) Provides for warning labels on liquor saying that women shouldn’t drink when pregnant and that alcohol impairs our abilities.
Nutrition Labeling and Education Act (1990) Requires truthful and uniform nutritional labeling on every food the FDA regulates.
Children’s Television Act (1990) Limits the amount of advertising to be shown during children’s television programs to not more than 10.5 minutes per hour on weekends and not more than 12.0 minutes per hour on weekdays.
Americans with Disabilities Act (ADA) (1990) Protects the rights of people with disabilities; makes discrimination against the disabled illegal in public accommodations, transportation, and telecommunications.
Brady Law (1998) Imposes a 5-day waiting period and a background check before a gun purchaser can take possession of the gun.
Children’s Online Privacy Protection Act (2002) Regulates the collection of personally identifiable information (name, address, e-mail address, phone number, hobbies, interests, or other information collected through cookies) online from children under age 13.
Can-Spam Anti-Spam Law (2004) Requires marketers to remove customers from their lists when requested, and provide automated opt-out methods as well as complete contact information (address and phone) with alternate means of removal. It also bans common practices such as false headers and e-mail harvesting (the use of software that spies on Web sites to collect e-mail addresses). Subject lines must be truthful and contain a notice that the message is an ad.
Credit Card Accountability and Disclosure Act (2009) Amends the Truth in Lending Act to prescribe open-end credit lending procedures and enhanced disclosures to consumers, limit related fees and charges to consumers, increase related penalties, and establish constraints and protections for issuance of credit cards to minors and students.
Dodd Frank Wall Street Reform and Consumer Protection Act (2010) The act established after the financial crisis of 2008 created a number of new government agencies tasked with overseeing various components of the act and by extension various aspects of the banking system. President Donald Trump has pledged to repeal Dodd-Frank, and on May 22, 2018, the House of Representatives voted to roll back significant pieces of Dodd-Frank.
TableA2
Deregulation of Industries
During the 1980s and 1990s, the U.S. government actively promoted deregulation, the removal of rules and regulations governing business competition. Deregulation drastically changed some once-regulated industries (especially the transportation, telecommunications, and financial services industries) and created many new competitors. The result has been entries into and exits from some industries. One of the latest industries to deregulate is the electric power industry. With almost 200 investor-owned electric utilities, it is the largest industry to be deregulated so far.
Consumers typically benefit from deregulation. Increased competition often means lower prices. Businesses also benefit because they have more freedom to operate and can avoid the costs associated with government regulations. But more competition can also make it hard for small or weak firms to survive.
Regulation of the Internet
Use of the internet has exploded over the past decade. Recent estimates suggest that more than half of the world’s population use the web to purchase goods and services, book travel plans, conduct banking and pay bills, stream original content, read the latest news and sports information, look up facts and figures, and keep up with friends, family, and business associates via Skype, FaceTime, Twitter, Facebook, and other platforms.2
Internet access and regulation continue to be a concern for many interest groups, including privacy advocates, internet providers, private citizens, technology companies, and the government, to name a few. In 2017, President Trump signed legislation overturning the internet privacy protections originally put in place by the Obama administration. Under the new legislation, internet providers will now be able to collect, store, share, and sell certain types of customer information without their consent. Under previous legislation, sharing this type of data would have required consumers’ permission. With this new law, companies such as Verizon and Comcast will be able to mine user data and use that information to compete in the \$83 billion digital advertising market with companies such as Google and Facebook.3 The internet environment is extremely dynamic, so consumers and other interest groups should monitor how regulations and other policies will continue to change the ground rules for internet use.
Understanding the Tax Environment of Business
1. What are the most common taxes paid by businesses?
Taxes are sometimes seen as the price we pay to live in this country. Taxes are assessed by all levels of government on both business and individuals, and they are used to pay for the services provided by government. The federal government is the largest collector of taxes, accounting for 52 percent of all tax dollars. States are next, followed closely by local government taxes. The average American family pays about 37 percent of its income for taxes, 28 percent to the federal government and 9 percent to state and local governments.
Income Taxes
Income taxes are based on the income received by businesses and individuals. The income taxes paid to the federal government are set by Congress, regulated by the Internal Revenue Code, and collected by the Internal Revenue Service. These taxes are progressive, meaning that rates increase as income increases. Most of the states and some large cities also collect income taxes from individuals and businesses. The state and local governments establish their own rules and tax rates.
Other Types of Taxes
Besides income taxes, individuals and businesses pay a number of other taxes. The four main types are property taxes, payroll taxes, sales taxes, and excise taxes.
Property taxes are assessed on real and personal property, based on the assessed value of the property. They raise quite a bit of revenue for state and local governments. Most states tax land and buildings. Property taxes may be based on fair market value (what a buyer would pay), a percentage of fair market value, or replacement value (what it would cost today to rebuild or buy something like the original). The value on which the taxes are based is the assessed value.
Any business that has employees and meets a payroll must pay payroll taxes, the employer’s share of Social Security taxes and federal and state unemployment taxes. These taxes must be paid on wages, salaries, and commissions. State unemployment taxes are based on the number of employees in a firm who have become eligible for unemployment benefits. A firm that has never had an employee become eligible for unemployment will pay a low rate of state unemployment taxes. The firm’s experience with employment benefits does not affect federal unemployment tax rates.
Sales taxes are levied on goods when they are sold and are a percentage of the sales price. These taxes are imposed by states, counties, and cities. They vary in amount and in what is considered taxable. Some states have no sales tax. Others tax some categories (such as appliances) but not others (such as clothes). Still others tax all retail products except food, magazines, and prescription drugs. Sales taxes increase the cost of goods to the consumer. Businesses bear the burden of collecting sales taxes and sending them to the government.
Excise taxes are placed on specific items, such as gasoline, alcoholic beverages, cigarettes, airline tickets, cars, and guns. They can be assessed by federal, state, and local governments. In many cases, these taxes help pay for services related to the item taxed. For instance, gasoline excise taxes are often used to build and repair highways. Other excise taxes—such as those on alcoholic beverages, cigarettes, and guns—are used to control practices that may cause harm. | textbooks/biz/Business/Introductory_Business/Book%3A_Introduction_to_Business_(OpenStax)/18%3A_Appendix_-_Understanding_the_Legal_and_Tax_Environment.txt |
Chapter 1 Learning Outcomes
After reading this chapter, you should be able to do the following:
1. Define the term “customer service”.
2. Define the term “customer experience”.
3. Define the term “customer journey”.
4. Define the term “customer centricity”.
5. Discuss how changes in consumer behaviour affect how companies serve customers.
6. Discuss how technological advances affect how companies serve customers.
Customer Service
Customer service is the assistance and advice provided by a company to customers throughout the customer journey; before, during, and after the sale. Humans usually provide customer service to other humans, but some service comes from machines, technologies, animals, etc. The service a customer receives becomes part of the experiences they have with the company.
For example, if you purchase a product and need to return it because it is missing a part, you might drive to the store, get the product out of your back seat, put it in a cart, wheel it into the store, visit the return counter, speak with an employee about your return, and so on. You may even phone the store before driving there. In this example, your perception of the company and your experience with the company will be based on many factors:
• Availability of parking
• Availability of carts
• Wait time in the line-up at the return counter
• The manner in which the employee speaks to you at the return counter (courteous, professional)
• The efficiency of the employee implementing the return process (equipment, cash)
• The manner in which the employee speaks to you on the phone (courteous, professional)
Now, imagine if when you first phoned the store, the representative at the return counter had informed you that many customers have had this same issue and that the manufacturer is able to send you the missing part by express delivery, free of charge. As well, the manufacturer will include a small gift, an accessory item for your product, due to the inconvenience. Will you now decide to keep the product? You may or may not, but you will feel that the information the customer service representative shared with you over the phone was valuable and you will appreciate that they did so. This touch-point, over the phone, is an experience that should leave you with a positive view of the manufacturer and the retail store, even though the manufacturer made an error by not including one of the parts in the first place. Would your perception of your experience have been negative if the representative on the phone did not share this information with you, and you found out only after you had driven all the way to the store and stood in the return line for some time? Most likely it would not be as positive as hearing this information before you put in the effort to return the product. That is why it is so important for leaders and managers to build a culture of customer centricity, train employees, build standards and measure performance pertaining to customer service. Companies need to retain customers to stay in business. You will read more about these concepts in subsequent chapters.
A final note about the scenario above, the retailer is actually a customer of the manufacturer (product supplier or vendor); therefore, the manufacturer also has a desire to keep the relationship positive with their customer (the retailer). If the manufacturer did not satisfy the retailer’s customers by offering a free replacement part with express shipping, the retailer’s customers would become angry at the retailer (the place they purchased from) and the retailer would most likely begin to look for another product supplier or at least stop purchasing that product from that specific supplier. So not only is it important to keep individual customers happy in business-to-consumer sales (B-2-C), it is also important for businesses to keep their business customers satisfied in business-to-business sales (B-2-B).
In subsequent chapters you will learn about providing customer service in both a face-to-face retail environment as well as in a contact center environment, and about managing customer service teams and customer service technologies.
Watch the “Poor versus Great Customer Service” YouTube video below for an example of what bad service looks like compared to good service.[1] Transcript for “Poor vs Great Customer Service” Video [PDF–New Tab]. Closed captioning is available on YouTube.
Customer Experience (CX)
Customer experience is the result of an interaction between the customer and the company. It is how customers perceive their interactions with the company or brand. A customer touch-point is a point in time when the company connects in some form with the customer (e.g., website, phone, email, social media, retail store, returns, service, and products). There are many different customer touch-points, for example, when a customer phones the contact center for support, or when a customer first visits the company website to review its products, or when the customer visits the store. The customer will get an impression of the company from each of these interactions. If the store is unclean or the products are difficult to find or the staff are rude this could leave the customer with a negative impression of the company and they might perceive the store in a negative way, thus, having a negative customer experience. The customer’s perception IS the customer’s experience.
Companies work hard to create a positive experience for customers, but things do go wrong at times, and some customers will perceive that the company has not met their expectations in some way, thus, leaving those customers with a negative impression or perception of the company.
Over time, as the customer has more and more experiences with the company, these experiences may shape the customer’s perception negatively or positively, while too many negative experiences will most likely cause the customer to discontinue engaging with the company. They will visit a competitor’s store instead.
Explore the Concept – Customer Experience (CX)
Consider the following questions:
• When shopping or eating at a restaurant, what might occur that would cause you to have a negative customer experience? What might occur that would cause you to have a positive customer experience?
• What were your expectations when you entered the establishment? Did the company meet your expectations?
• If you visited this restaurant twice and had positive experiences both times, but then on the third visit you had a negative experience, would you return a fourth time?
• What would you suggest as three “best practices” for creating a positive customer experience?
There is a popular saying, “a company is only as good as its people”. This statement refers to the need to hire good people, train employees, and create a positive corporate culture. When the employees are happy working for the company they will most likely do their best work to help the company provide positive experiences to customers. Of course, while the interactions your employees have with customers are a large part of the customer experience, other factors are also important.
Customers have certain expectations of service and what they experience with the company, for example, when you shop at a Dollar Store (e.g., Dollarama, Dollar Tree, Dollar Store, Dollar Shop, etc.) you probably expect low prices and do not expect that every product the company sells is of high quality and comes with a warranty. You might expect those things from Apple, BMW, Harley Davidson, or other company that is known for high quality and prestige. From a dollar store, you expect the store to be clean and the products arranged in a manner that makes it easy to find the products you are looking for. You expect prices to be low. You probably expect the staff to be helpful, friendly, and professional. If for example, you walked into the store and the lights were not working, it might upset you, or if it was the middle of winter and the store had no heat, you might not shop very long. If the products were not on the shelves and there were boxes blocking the aisles, you might become annoyed.
What if you had received poor service at the store, the store was a mess, the cash register was not working the day you visited the store, and you could not find the product you wanted in stock? What would you do or say to the staff? What would you think about the store? Would you shop there again? Would you tell your friends about the poor experience you had? Most likely, you would not go back, you would think the store was not professional, you would not shop at that location again, and you would probably tell your friends and family what a bad experience you had there.
Organizations that do not improve their customer experiences through improved customer service, improved customer journeys, and improved customer centricity will not stay in business long in today’s global and technological world. Consumers can go online and buy whatever they need and want quickly and easily. Consumers can switch to a competitor, in most cases, with little risk or switching costs. Consumers today are savvy. They research and learn about products they want before they buy and they expect much from the organizations they patronize.
Customer experience (CX) is the new marketing battlefront. More than two-thirds of marketers responsible for CX say their companies compete mostly on the basis of CX, according to the 2017 Gartner Customer Experience in Marketing Survey. And in two years’ time, 81% say they expect to be competing mostly or completely on the basis of CX.[2]
Customer Journey
The customer journey is the complete sum of experiences that customers go through when interacting with a company and its brands. It considers the complete path from brand discovery to purchasing and beyond. The focus is not on purchases made, but rather on how the customer feels about the interactions throughout their journey with the company.
In building a customer-centric business, personas and customer journey maps are important strategic tools that help provide an in-depth understanding of who a company’s customers are, what they need, and how they interact with the company across all touchpoints.[3] These tools help to share customer insights across the organization and can be critical for building employee buy-in and helping teams take targeted action to improve customer experience.
Personas are fictional customer types created to represent real target customer groups. They are more than generalized customer segments because they have individual names and stories that reflect personal attributes and behavioural characteristics such as customer needs, motivations, and attitudes. For example, a company may target Reza, female, mid-40s, a college professor, a parent of three teenage children, shops online due to time constraints, orders delivery from restaurants a few times per week, enjoys exercise, eats vegan, etc. The company creates these personas to help them better understand all the needs of their target customers, which in turn helps them provide products, services, and processes that will meet or exceed the customers’ expectations.
Once a company fully understands the lifestyle and demands, responsibilities, attitudes, and desires of their target customer; they can map the customer journey. Mapping the customer journey will allow the company to identify where they may not be serving the customer to the best of their ability so they can make improvements to the customer experience.
The customer journey map is a visual depiction (diagrammed or written) detailing the path the customer takes from the time the customer first discovers the brand, to purchasing, and beyond. The customer journey map examines the full experience of being a customer with the company and examines all touch-points and channels.
A customer journey example
Tom is shopping online for a new car (website touch-point). He decides to phone a car dealership to ask about a vehicle he saw online (phone touch-point). Tom is greeted in a friendly manner and has all his questions answered by a salesperson (employee touch-point). Tom makes an appointment and comes to the dealership to test-drive the vehicle he is interested in (location/organization touch-point). The salesperson, Jordon, who Tom spoke with on the phone greets him, answers his questions, demonstrates a friendly and professional manner while dealing with Tom, and sends him out on a test drive (employee and product touch-points). Tom decides to purchase the vehicle and Jordon completes the paperwork, processes the sale and payment, and offers to deliver the vehicle within two days (employee and company policies/practices touch-points).
Jordon assures Tom that the vehicle comes with warranties, and should Tom change his mind about the purchase, he may return the vehicle within the first 30 days no questions asked (employee, manufacturer, and company policy touch-point). Jordon asks if Tom would like to register for a loyalty program whereby Tom will receive emails on future promotions and receive gifts for referring others (if they purchase a vehicle too). Tom is interested and Jordon gathers Tom’s email. Jordan provides Tom with a \$100 gas card as a thank you gift for purchasing the new vehicle (employee and company policies touch-points). Later in the week, Tom tweets a picture of himself standing in front of his new vehicle and he mentions the dealership and the excellent service he received from Jordon. He even recommended the dealership on dealerrater.ca. A few months later, Tom feeling loyal to the dealership, and remembering the loyalty rewards program, refers a friend to Jordon at the dealership.
It is important to create many personas and scenarios because every customer’s journey will be slightly different. It is also important for companies to talk to customers (and employees) to learn more about the customer journey and experiences customers have. Creating personas and customer journey maps will help organizations identify poor service issues so they can take action to improve their customers’ experiences.
Customer Centricity
Customer centricity is a way of doing business that fosters a positive customer experience before, during, and after the sale in order to drive repeat business, build customer loyalty (which leads to customer referrals), increase business growth, and gain a competitive advantage.
A customer-centric company is more than a company that offers good customer service. Anytime a customer-centric business makes a decision, it deeply considers the effect the outcome will have on its customers. An organization that forgets about customers is destined to fail. They will build the wrong products, invest in the wrong resources, and lose goodwill with customers.[4]
Customer-centric organizations identify their most valuable customers and ensure their satisfaction. These organizations focus on ensuring employees understand how important customers are to the company. Often the organization’s mission, vision, and values include a customer-centric focus as more and more companies see a need to build relationships with their customers. Based upon the company’s mission, vision, and values the company aligns goals, distributes resources, develops products and services, defines processes, and develops strategies for competitive advantage.
Markets have moved from product centricity to customer centricity. Companies used to focus on design, manufacturing and logistics and in the past when products and services could achieve a clear product/service difference, sustainable and beneficial, a product-centric approach made sense. Today, we have informed consumers, competitive markets and few tangible product/service benefits—a combination that has resulted in the focus shifting to customers.[5]
Don Peppers has a very good article on LinkedIn explaining why businesses have moved from an era of product centricity into an era of customer centricity. For a good read, visit Product-centricity and customer-centricity – source Don Peppers – read on LinkedIn
The main reason organizations should follow a customer-centric strategy is because if they do not acquire and retain customers they will not survive. Many company leaders believe their business is customer centric, but employees and customers do not always agree. Why do you think that is?
Why do so many companies struggle to get customer centricity right? The volume, velocity, and variety of customer data that now exists overwhelm many organizations. Some companies do not have the systems and technology to segment and profile customers. Others lack the processes and operational capabilities to target them with personalized communications and experiences.[6]
Being customer centric is about more than just offering a good product or staffing a contact center. It becomes a cultural way of life for the company and impacts everything from employee engagement to customer experience. Forbes provides a list of 100 customer-centric companies from ten industries including Retail, Finance, Healthcare, B2B, Software, Hospitality, Insurance, Telecom, Manufacturing, and Agriculture.[7] Some of the companies on the list include:
• Trader Joe’s excels at quick response times and employees who will do anything to make customers happy.
• Sephora, the beauty brand, uses technology to create a personalized experience with a comprehensive app, virtual try-on of makeup products, and a strong online community for a seamless customer experience.
• Amazon is constantly innovating with new customer solutions, including one-day shipping, easy returns, and creative physical locations that integrate for a truly omnichannel experience.
• Slack helps customers be successful in their own businesses and listens to their feedback to fine-tune their service.
• FedEx, the shipping company, stays on top of new technology to empower its customers and provide quick and reliable deliveries.
• Google’s employees understand all of the products and can assist customers wherever needed.
• Apple employees use the Three F’s: Feel, Felt, and Found to empathize and help customers get the perfect tech solutions for their lives.
• Hilton empowers its front-line staff with customer feedback and gives them data to provide personalized, proactive service to every guest.
• TELUS customers have a choice of how they get support help, from online tutorials to detailed instructions on any possible issue.
• Verizon combines artificial intelligence (AI) with human employees to create a powerful experience that is personal for customers and available through multiple channels.
• Netflix knows its customers inside and out and leverages data to recommend shows they actually want to watch.
• LG, the appliance manufacturer, often receives recognition for its innovation and ability to add customer-friendly features.
• 3M employees feel trusted and part of a community, which leads to fulfilling customer needs and creating innovative products to solve future problems.
• Indigo combines agriculture with technology by using data analytics regarding sustainably growing common crops like cotton and rice.
If a company is committed to making customer-centricity a corporate priority for the organization, the absolute first step is to fully understand the customer’s needs and expectations. While much of this happens through the customer-facing employees, they will require the support of the rest of the organization to succeed. As such, everyone, regardless of department or role, should actively contribute information, background, tools, resources, and training to achieve a unified understanding of the customer. Once this happens, the organization will be well on its way to becoming customer-centric.[8]
Factors Impacting the Service Sector
The service sector accounts for 75% of Canadian jobs and 78% of the country’s GDP. As a vital part of the Canadian economy, the most popular sector is retail with some big franchise names including Walmart and Future Shop. In recent years, the financial services, real estate, and communications industries have grown exponentially, especially in the business hubs of Vancouver, Montréal, and Toronto.[9]
Services play a key role in economies around the world and Canada is no exception. The economy is divided into three sectors; the primary sector of an economy is the sector in which companies make direct use of natural resources, the secondary sector produces finished goods, while the tertiary sector, also known as the service sector, makes use of people’s knowledge and time to improve productivity, performance, and potential. This sector includes businesses that offer services in the following areas: transportation, government, health care, construction, banking and finance, communication, retail, tourism, education, utilities, recreation, social work, real estate, etc.
Many factors have caused an economic shift from manufacturing to service, some of which include globalization of the economy, government deregulation, government programs, customers expecting personalized experiences, and increased use of technology both by customers and businesses.
Customers Want Personalized Experiences
Consumers need products and services to function the way they need them to in order to solve their problems or desires, but companies can no longer rely on their products and services as their primary competitive differentiator; today, they can only compete based on delivering an outstanding experience. Customers want personalized experiences, they want companies to know their name and understand their needs and wants. Companies that offer these experiences are able to differentiate their brands and create competitive advantage.
“According to Janrain 48% of consumers spend more when their experience is personalized while 74% of people hate being shown irrelevant content. So what does this say about personalization? In customer experience, personalization is a winning strategy that can help companies advance their relationship with customers. 88% of marketers claim that they’ve seen a measurable improvement in their businesses after implementing customer experience personalization tactics.”[10]
Millennials are prioritizing their cars and homes less and less, and assigning greater importance to personal experiences—and showing off pictures of them. This trend is ultimately helping fuel the growth of billion-dollar-plus start-ups like Uber, WeWork, and Airbnb.[11]
Personalization has become integral to the customer journey and is now a key driver of brand loyalty across all channels. Consumers are much more likely to buy from brands, both in-store and online when offers are personalized. Consumers are also interested in purchasing more personalized products and services and are willing to wait longer to get them.[12]
Canada Goose is getting personal with its customers, offering an immersive experience; it has a Cold Room that blends both entertainment and functionality, making it a good example of experiential retail that actually serves a purpose. It has a faux-rock crevasse, a room that snows, and a floor that cracks like ice, but it does not have any products the customers can take home. Customers can only order products for delivery later, with limited sizes and models to try on. In fact, the luxury coat retailer is not calling the store, a store, it is calling it “The Journey: A Canada Goose Experience.” Staff will guide customers through a series of themed rooms, before ending in an area where customers can browse a digital catalogue, talk to sales staff about fit and place an order. A certain proportion of people visiting the store do not intend to buy a jacket, but are just curious about the Cold Room experience. This gives the brand an opportunity to make a good impression on people who are not yet Canada Goose customers, but might be in the future. The Cold Room is a fun, unusual experience that helps customers make more informed shopping decisions.[13]
The Running Room, which is a store for people who like to run, provides personalized customer experiences through training programs that meet the needs of a wide variety of customers, ranging from those who are just getting into a fitness routine to those contemplating a marathon. The store sells a selection of top brand-name running shoes and apparel and offers training programs such as Walking, Learn to Run, 5K Training, Marathon and Half Marathon training, 10K Training, and For Women Only Running. The Running Room training programs are committed to educating customers on a lifestyle of fitness. Running Room’s free Run Club meets twice weekly, where runners of all levels run in a social, supportive group. This social component brought to running by the Running Room builds a true sense of community in each location. Communicating with its customers via its in-store team, its website, Running Room Magazine, forums, Twitter, and Facebook keeps the company agile and innovative. “We believe that the Running Room philosophy and our in-store environment are unlike any other retail business in North America. While we offer clothing, shoes, products, and accessories for walkers and runners, we also help people to change their lives through fitness activities,” says the Stanton family.[14]
Explore the Concept – Customers Want Personalized Experiences
Conduct an Internet search for companies that are innovating with personalized customer experiences. Consider the following questions:
• Why do you think consumers are seeking these types of experiences? What are customers saying about these experiences?
• What types of companies are developing these innovations? Have the companies’ revenue or market share increased since investing in these added-value strategies?
Increased Use of Technology
Digital transformation is the integration of digital technology into all areas of a business, resulting in fundamental changes in the way a business operates and the value it delivers to its customers. Digital transformation is forcing companies to change their business models and adapt to the new market reality. Today, customers expect relevant content in relation to what they are doing anytime, anywhere, and in the format, and on the device of their choosing. It is the customer’s journey that dictates the company’s strategy.[15]
Customers have always wanted efficient, friendly, and reliable service, but with the development of new technology, their expectations have increased. Customers no longer tolerate poor service because there are just too many businesses out there that will meet or exceed customer expectations.
With online shopping and mobile apps, consumers have virtually every product they can think of available at their fingertips. The growth of online shopping has skyrocketed. In 2018, an estimated 1.8 billion people worldwide purchased goods online, and the global online sales amounted to \$2.8 trillion; and, is estimated to grow to \$4.8 trillion by 2021.[16] An online store and social media presence are essential for companies selling in this global and digital business world. Customers want simple, direct, and easy transactions; technology has taught them to expect it.
Customers today are more informed than ever before. They use technology to shop online, conduct research, and compare prices, products, and services among competing companies. According to Outerboxdesign.com, 80% of shoppers use mobile phones in-store to check product reviews, compare prices or find other store locations.[17] With so many individuals owning cell phones today, social media is a great way to connect with customers.
In order to keep up with this new kind of “always-connected” customer, businesses must embrace technology to deliver unmatched customer experiences. Fortunately, putting the customer first is already at the center of many organizations’ strategies. Two-thirds of the CEO’s of Global 2,000 companies will shift their focus from traditional, offline strategies to more modern digital strategies to improve the customer experience before the end of 2019 – with 34% of companies believing they will fully adopt digital transformation within 12 months or less.[18]
Business intelligence (BI) leverages software and services to transform data into actionable insights that inform an organization’s strategic decisions. Business intelligence and performance analytics leverage software to transform data into crucial insights that inform company decisions, thereby empowering employees to make better business decisions.
Machine learning is a data analysis technique that automates analytical model building. Some advantages of machine learning include intelligent customer service chatbots, improved product search, and fraud detection and prevention.[19]
Telecommuting is also referred to as telework, mobile work, flexible workplace, flex-hours, e-commuting, or remote work and is a work arrangement in which employees do not commute to a central location instead they work outside the office location from various locations. Many workers can work from home (WFH) when they have access to the technologies they need to do their jobs. Telecommuting has become a popular choice and employee incentive in some cases for those who wish to work from home. Customer service and sales representatives need to learn how to use customer relationship building (CRM) software in order to meet customer expectations, whether working from home, at the office, or on the road. With access to technology, employees can be located in the same city as the company they work for, or located anywhere in the world.
Customer-centric virtual and augmented reality (AR) retail applications today focus on helping consumers experience brands and products without having to go into stores. Beauty brand Cover Girl, for example, opened an AR makeup station in its flagship store in New York where shoppers can virtually try on a range of cosmetics and then share their makeovers on social media with friends. Pottery Barn offers an AR app for its Pottery Barn and PBteen brands that lets users drag and drop items in a room to see how they work with existing furniture and decor. They also can completely empty a room to start the design process from scratch, and shoppers can purchase the items they like right from the app. Swedish retail IKEA has a similar offering with its “Place” app, helping users to visualize how an item will look in their homes before they purchase it.[20]
The Internet of Things (IoT) is made up of billions of smart, connected devices, and gives any “thing” a voice through the data it gathers, produces, and distributes. With around 26 “smart objects” for every human being on Earth predicted by 2020, the ability for companies to leverage connected products and other sensor-generated data to enhance the customer experience is unprecedented.[21] IoT devices will change eCommerce by turning everyday objects into potential sales channels for retailers. IoT products and devices include smart and digitized vehicles, laptops, smartphones, smart gadgets, and smartwatches. You may already own some of these devices. Have you heard of the Amazon Dash Button? A device that connects over Wi-Fi to ensure that you do not run out of household items such as milk, bread, medicine, soap, or dog food, ever again. Maybe, you have a Google Home Voice Controller. It allows you to enjoy features like media, alarms, lights, thermostats, control the volume, and many more functions just using your voice.
Explore the Concept – Increased Use of Technology
Consider the following questions:
• Do you own an IoT device?
• What forms of digital or technology-driven customer service have you experienced? For example, does your library have a live chat with a librarian available from the library’s website?
• Have you experienced speaking with a chatbot or an automated attendant on the phone?
• Have you watched live video streaming from a company?
• Have you experienced personalization on the websites or social media you frequent?
• How does technology impact the way you shop and the way companies interact with you?
Key Takeaways
1. Customer experience is the result of an interaction between the customer and the company. It is how customers perceive their interactions with the company or brand.
2. A customer touch-point is a point in time when the company connects in some form with the customer (e.g., website, phone, email, social media, retail store, returns, service, and products).
3. Customer service is the assistance and advice provided by a company to customers throughout the customer journey; before, during, and after the sale.
4. In building a customer-centric business, personas and customer journey maps are important strategic tools that help provide an in-depth understanding of who a company’s customers are, what they need, and how they interact with the company across all touchpoints.
5. Personas are fictional customer types created to represent real target customer groups.
6. The customer journey map is a visual depiction (diagrammed or written) detailing the path the customer takes from the time the customer first discovers the brand, to purchasing, and beyond. The customer journey map examines the full experience of being a customer with the company and examines all touch-points and channels.
7. Customer centricity is a way of doing business that fosters a positive customer experience before, during, and after the sale in order to drive repeat business, build customer loyalty (which leads to customer referrals), and increase business growth.
8. Many factors have caused an economic shift from manufacturing to service, some of which include globalization of the economy, government deregulation, government programs, customers expecting personalized experiences, and increased use of technology both by customers and businesses.
9. Personalization has become integral to the customer journey and is now a key driver of brand loyalty across all channels. Consumers are much more likely to buy from brands, whether in-store or online, when offers are personalized. Consumers are also interested in purchasing more personalized products and services and are willing to wait longer to get them.
10. Digital Transformation is forcing companies to change their business models and adapt to the new market reality. Today, customers expect relevant content in relation to what they’re doing anytime, anywhere, and in the format, and on the device of their choosing. It is their journey that dictates the company’s strategy.
11. Business intelligence (BI) leverages software and services to transform data into actionable insights that inform an organization’s strategic decisions. Business intelligence and performance analytics leverage software to transform data into crucial insights that inform company decisions, thereby empowering employees to make better business decisions.
12. Machine learning is a data analysis technique that automates analytical model building. Some advantages of machine learning include intelligent customer service chatbots, improved product search, and fraud detection and prevention.
13. Telecommuting, also referred to as telework, mobile work, flexible workplace, flex-hours, e-commuting or remote work is a work arrangement in which employees do not commute to a central location instead they work outside the office location from various locations.
14. Customer-centric virtual and augmented reality (AR)retail applications today focus on helping consumers experience brands and products without having to go into stores.
15. The Internet of Things (IoT) is made up of billions of smart, connected devices, and gives any “thing” a voice through the data it gathers, produces, and distributes.
End-of-Chapter Exercises
1. Service Sector. Research one of these companies and explain how this company is addressing the changes impacting the service sector: Bank of Nova Scotia, Canadian Tire, PepsiCo, McDonald’s, IKEA.
2. Customer Journey. Map your customer journey for any purchase you recently made. Identify the company touch-points, your experience at each touch-point, and the perception you were left with after the purchase.
3. Annual Report. Locate an annual report for the GAP Inc. (or some other company) and review it. What does it say about brands, customer service, multiple service channels, and technology? Does the report mention specific details that relate to this chapter’s content? If so, what does it say?
Query \(1\)
Additional Resources
1. LinkedIn Learning Customer Service Training
2. 8 Tips for Becoming a Customer-centric Organization
3. How to Create a Customer-centric Strategy for Your Business
4. Customer Experience (CX) versus Customer Service: What They Are and Why They Matter
References
(Note: This reference list was produced using the auto-footnote and media citation features of Pressbooks; therefore, the in-text citations are not displayed in APA style).
Media Attributions
1. Odyssey Training. (2018, August 30). Poor vs great customer service. [Video]. YouTube. https://youtu.be/Zy1h49_L8ME
2. Pemberton, C. (2018, March 18). Key findings from the Gartner customer experience survey. Gartner. https://www.gartner.com/en/marketing/insights/articles/key-findings-from-the-gartner-customer-experience-survey
3. August, G. J., & Ramirez, S. J. (2020, January 14). Personas and journey maps: Strategic tools for improving customer experience. Beyond the Arc. https://beyondthearc.com/blog/2014/customer-experience/improve-customer-experience-with-personas-and-journey-maps
4. Johnson, B. (2020, February 28). 8 tips for becoming a customer-centric organization. Hubspot. https://blog.hubspot.com/service/customer-centric
5. Poynter, R. (2020, February 6). Dissecting the difference between being customer centric and being customer focused. Alida. https://www.visioncritical.com/blog/customer-centric-versus-customer-focused
6. Yohn, D. (2018, October 2). 6 ways to build a customer-centric culture. Harvard Business Review. https://hbr.org/2018/10/6-ways-to-build-a-customer-centric-culture
7. Morgan, B. (2019, June 30). 100 of the most customer centric companies. Forbes. https://www.forbes.com/sites/blakemorgan/2019/06/30/100-of-the-most-customer-centric-companies/#34a0d33063c3
8. Geldart, P. (2019, December 13). Customer centricity is the key to a competitive advantage. Entrepreneur. https://www.entrepreneur.com/article/343531
9. Canadianvisa. (2019). Service industry. https://canadianvisa.org/life-in-canada/key-industries/service-industry
10. Atif, M. (2019, May 30). Reinventing personalization for customer experience. Toward Data Science. https://towardsdatascience.com/reinventing-personalization-for-customer-experience-235d8c75aa38
11. Uptin, S. (2016, May 5). Millennials are prioritizing ‘experiences’ over stuff. CNBC. https://www.cnbc.com/2016/05/05/millennials-are-prioritizing-experiences-over-stuff.html
12. IBM Watson Marketing. (2019, February 19). Personalizing Customer Experiences at scale: How human creativity and AI-based automation make a winning combination. Marketing Land. https://marketingland.com/personalizing-customer-experiences-at-scale-256563
13. Segran, E. (2018, December 21). Canada Goose’s cold room was the best retail experience of the Year. Fast Company. https://www.fastcompany.com/90285098/canada-gooses-cold-room-was-the-best-retail-experience-i-had-this-year
14. The Running Room. (2020). About Us. Running Room. http://www.runningroom.com/ca/inside.php?id=3036
15. Lund, J. (2020, March 4). How digital transformation is driving customer experience. SuperOffice. https://www.superoffice.com/blog/digital-transformation/
16. Mohsin, M. (2019, October 30). 10 online shopping statistics you need to know in 2020. Oberlo. https://www.oberlo.ca/blog/online-shopping-statistics
17. Smith, J. (2020, January 2). Mobile eCommerce stats in 2019 and the future online shopping trends of mCommerce. OuterBox. https://www.outerboxdesign.com/web-design-articles/mobile-ecommerce-statistics
18. Lund, J. (2020, March 4). How digital transformation is driving customer experience. SuperOffice. https://www.superoffice.com/blog/digital-transformation/
19. Vishnoi, L. (2020, March 12). 11 effective customer trends that will drive success in 2020. Aquire. https://acquire.io/blog/customer-service-trends-2020/
20. Abramovich, G. (2019). 5 Technologies that are Reshaping Customer Experience. CMO. https://cmo.adobe.com/articles/2019/1/these-5-emerging-technologies-will-impact-your-business-most-in-2019.html#gs.18yata
21. McorpCX. (n.d.) 11 Customer Experience Technology Trends to Watch for Through 2020. Retrieved from https://www.mcorpcx.com/articles/11-tech-trends-in-cx-innovation | textbooks/biz/Business/Introductory_Business/Customer_Centric_Strategy_(Shields)/1.01%3A_Defining_Customer_Centricity.txt |
Chapter 2 Learning Outcomes
After reading this chapter, you should be able to do the following:
1. Describe the role of the customer service representative.
2. Identify skills required by customer service representatives.
3. List the benefits of providing excellent customer service.
4. Use positive language that will enhance customer relationships.
5. Use a variety of non-verbal communication strategies.
6. Describe why active listening is important to customer service.
7. Practice daily rituals to maintain a positive attitude.
8. Apply time management techniques.
9. Apply stress management techniques.
“Customer service is both a type of job and a set of job skills. As a job, customer service professionals are responsible for addressing customer needs and ensuring they have a good experience. As a skill set, customer service entails several qualities like active listening, empathy, problem-solving, and communication. Customer service is used in many jobs at every level. While traditionally you might think of customer care as a service from a business to a consumer, it is also applicable within a business. For example, you may be in a role that provides services to other, internal teams. In this case, you would want to ensure that you understood and were able to meet their needs.”[1]
When you think of the people that work in a customer service role, who do you think of? Do you think of the person that greets you at the restaurant, the person who answers the phone when you call your phone service provider for support, or the person who delivers the products you ordered online to your home? Each of these people is certainly working in a customer service role. What you might be surprised to know is that every job position has some degree of customer service embedded in the role. People who work in the information technology, human resources, or finance departments do not usually interface with the external customer on a day-to-day basis, but they do interact with their colleagues regularly. Internal customers are the company employees who need support, information, or action from other employees. These internal customers may work just down the hall, in another building, or in another country, but they are still part of the company and working to help satisfy external customers. External customers are the customers who purchase products or services from the company. Employees who work in job positions that require them to interface with external customers directly might be referred to as front-line/front-facing/front-end/customer-facing employees. Those that work to serve internal customers are working in back-end/back-office/behind-the-scene job positions.
An example of an employee working to serve an external customer might be a situation where a customer phones the store’s service desk and the employee who answers the phone listens attentively to the customer’s story, then places the customer on a brief hold while they check with the manager or another employee about the customer’s concern or query. The employee who is asking for help has become an internal customer at that moment in time, then they return the phone to follow up with the external customer and finish the call. It takes a team working together to provide excellent customer service. Those external customers who purchase the products and services the company provides are the ones keeping the company alive, and ensuring employees have jobs. If there were no customers there would be no need for employees.
As a service professional, you are the “face” of your organization in customer interactions. Your primary function is to listen actively and gather the information needed in order to make a decision on what course of action is needed to best serve the customer in any given situation. This typically requires a polite, professional demeanor and effective and efficient answers to questions or resolutions to problems.[2]
Capabilities Customer Service Professionals Require
How can employers ensure they are hiring the right people to represent their brand or uphold their company image? What skills can customer service professionals develop to get better at their jobs? There are many skills customer service professionals need to be excellent in their jobs, these include the ability to communicate clearly, use positive language, use positive body language, serve diverse customers, be persuasive, use active listening, interact positively in a team, learn continuously, manage time, and manage stress. They also need to be able to show empathy and think critically to solve problems creatively. These skills and more are critical to creating outstanding customer experiences, and most require a lot of time and practice to truly master.
Some of the capabilities customer service professionals must have, include the following:
Each of the customer service skills that are necessary for success in this key role is detailed below.
Ability to Demonstrate a Customer Service Orientation
You might notice in some job advertisements the phrase, “must have a Customer Service Orientation”. Customer Service Orientation means that as an employee you are able to display positive attitudes and behaviours, and demonstrate an awareness of the importance of meeting or exceeding customer needs and expectations. Many businesses today think more about attracting new leads, maximizing sales, upselling, expanding market share, and obtaining a bigger “share of wallet”, than they do about meeting and exceeding customer needs. While increasing profit is important, a company with a genuine customer-first approach will care about customers and their needs because they understand that this is how they can grow profit.
In practice, it might mean that the company trains its service representatives not to upsell products or services to customers that do not need them or want them. It may mean that service representatives do not encourage customers to upgrade a subscription if the customer will not benefit from upgrading. Sometimes, it even means letting a customer go or referring them to a competitor if the solutions your company offers are not best suited for the customer. Have you ever shopped at a company and discovered they did not sell what you needed or wanted? Did a service representative suggest you visit a competing company for that particular product or service? Why do you think they referred you to a competitor rather than trying to sell you something else, or just saying, “We don’t carry that item”? There may be some good reasons for referring customers to competitors, such as creating a positive company image, spreading positive word-of-mouth, connecting with other businesses in a joint effort that will benefit both your company and your competitor, supporting the values the company has around true customer centricity, building trust and loyalty with customers, and highlighting your company’s confidence in the products and services you do sell. A great example of this comes from Zappos, “Zappos ‘refer to competitor’ tactic (when they don’t have an item in stock)–reflects an incredibly strong customer-centric DNA. The primary focus is not only to maximize revenues but to get the customer exactly what they’re looking for. “[3] It’s also ‘un-corporation like’ to center on the customer to such a degree that you try to sell them something similar that is in stock that they don’t really want, instead of referring them to a competitor to get the exact product they want.
Service culture in an organization means putting customers at the center of the business model, developing policies, procedures, values, norms, and beliefs that are centered around focusing on customer satisfaction and understanding their needs and wants.
Company policies, procedures, and employees’ actions contribute to the organization’s service culture. Employees communicate the company culture through their appearance, interactions with customers, product knowledge, skills, and attitude. Maintaining a friendly, positive and professional attitude in the workplace will take you far. Here are a few of the benefits of providing excellent customer service, for the employee, the company, and the customer.
Employee Benefits from Providing Excellent Customer Service
• Receive promotions, bonuses, recognition
• Receive project opportunities, growth opportunities
• Retain employment
• Intrinsic rewards from knowing you did the best job you could
• Better relationships with customers
• Better relationships with colleagues
• Better relationships with management
• Happier life
Company Benefits from Providing Excellent Customer Service
• Positive reviews from customers
• Increased revenues, customers spend more, give referrals
• Positive word-of-mouth, positive company image
• Retain employees longer
• Company growth
• Customers involved in company projects
• Increased customer lifetime value (CLV)
• Retaining customers longer thereby reducing costs in recruiting new customers
Customer Benefits from Receiving Excellent Customer Service
• Obtain objectives and have issues resolved
• Get involved in company projects
• Rewards for continued loyalty
• Build relationships with employees
• Take advantage of company opportunities
• Happier life
Ability to Apply Fundamental Work Skills
Ability to Communicate Verbally and Non-Verbally
It is important that a service professional fully understands the customer’s needs and is careful to clearly provide answers, directions, facts, or any other information required to make the sale or serve the customer and build a positive customer relationship. When communication is unclear, customers may misunderstand or misinterpret the message and this could lead to lost business. For example, a customer may ask, “Are there any fries?” when they really mean, “Are fries included with the meal at no extra charge.” The service provider may answer, “Yes” only to discover that the customer is upset when the bill arrives to see that they were charged extra for the fries they thought were included in the price. A service provider may need to ask a customer some questions to clarify the customer’s expectations and needs before the food order is placed to ensure nothing is left to doubt.
In its Employability Skills 2000+, the Conference Board of Canada lists “the skills you need to enter, stay in, and progress” in the 21st-century workplace. The ability to apply fundamental work skills is one of the skills listed.[4]
Specifically, communication skills:
• read and understand information presented in a variety of forms (e.g., words, graphs, charts, diagrams)
• write and speak so others pay attention and understand
• listen and ask questions to understand and appreciate the points of view of others
• share information using a range of information and communications technologies (e.g., voice, e-mail, computers)
• use relevant scientific, technological, and mathematical knowledge and skills to explain or clarify ideas
Face-to-face communication is the richest form of communication because it allows for the simultaneous interpersonal exchange of cues from linguistic content, tone of voice, facial expressions, direction of gaze, gestures, and postures.[5] Verbal communication coexists alongside non-verbal communication, which can affect people’s perceptions and exchanges in subtle but significant ways.
Verbal communication refers to the ability of a customer service representative to think of the right words in order to appease a customer and provide a solution. It does not necessarily mean that a service representative should sound too formal and robotic while communicating with customers. Though being too informal is not good either as it could leave the customer with a negative impression. Keeping a balance is what a customer representative should strive for.
10 Tips for Effective Communication with Customers[6]
• Patience is a must
• Accuracy of information is key
• Proactive approach always delights customers
• Attentiveness helps
• Avoid interrupting
• Know your product/service offered inside out
• Honesty works every time
• Active Listening and acknowledgments do wonders
• Analogies help in getting your message across
• Don’t take shortcuts
Non-verbal communication refers to gestures, facial expressions, eye contact, body language, posture, and other ways people can communicate without using language. Your nonverbal communication skills can create a positive (or a negative) impression. Crossed arms can seem defensive. Poor posture may appear unprofessional. A downward gaze or avoiding eye contact can detract from your being seen as confident.
During cross-cultural communication, one should follow one general suggestion: write or speak simply and clearly. Avoid slang, vague words, or colloquialisms. Listen carefully with a positive approach. Speak slowly and be specific. The more you learn about various cultures the better communicator you will become. It is suggested to avoid non-verbal hints because they have different meanings in different cultures; for example, some hand gestures have different meanings among different cultures, so be cautious when using them.
Watch the “Positive Body Language” YouTube video below for tips on positive body language as it pertains to Canadian culture.[7] Transcript for “Positive Body Language” Video [PDF–New Tab]. Closed captioning is available on YouTube.
Ability to Use Positive Language
Positive language is the art of using words and phrases to communicate a positive, supportive tone to your customers (or anyone else for that matter). Using positive language is important for building rapport with others. Sharing bad news with customers is a part of being a customer service professional. Customer service professionals must learn how to share negative information without being negative. When sharing negative information that may make a customer upset, sad, or angry it is always best to speak face-to-face, but that may not always be possible, and sometimes negative messages must be sent through email or postal mail.
Watch the “Service Recovery – Do Say / Don’t Say” YouTube video below to learn key words and phrases to de-escalate tense situations.[8] Transcript for “Service Recovery – Do say/Don’t say” Video [PDF–New Tab]. Closed captioning is available on YouTube.
Language is a crucial part of how we interact with others and the perceptions they form of us. For example, a customer may contact the company seeking a specific product, but the product happens to be on back-order until next month. The way the customer service professional uses words to convey that the product is on back-order will help to make or break the sale. Without using positive language, the sales might say, “Sorry, the product is on back-order and won’t be available until next month.” With positive language, the sales representative might say, “The product will be available next month, and I’m happy to place the order now for you and have it shipped directly to you as soon as it arrives.” Do you see the difference using positive language makes? The first example seems abrupt and impersonal and may upset customers, while the second example is saying the same thing but it focuses on when and how the issue will be resolved rather than focusing on the negative.
Watch the “Sharing Negative Information without Being Negative” YouTube video below to learn how to share negative information with others.[9] Transcript for “Sharing Negative Information without Being Negative” Video [PDF–New Tab]. Closed captioning is available on YouTube.
Ability to Listen Actively
Active listening means that you focus on what your customer is saying. You try not to let your mind wander while your customer is speaking. You paraphrase what the customer has said and ask the customer if your understanding of what they have told you is correct. You may ask customers questions to obtain more details of what the issue is. You may have to calm an upset customer. Certainly, the customer is there to gather answers and see results so put yourself in the customer’s shoes, and really listen to their story so you can provide the best customer service you can.
Watch the “Customer Service Fundamentals – Actively listening to Customers” YouTube video below to learn about active listening.[10] Transcript for “Customer Service Fundamentals – Actively Listening to Customers” Video [PDF–New Tab]. Closed captioning is available on YouTube.
Ability to Think and Solve Problems
Service breakdowns occur daily in all types of organizations. They happen whenever the product or service delivered fails to meet customer needs, wants, and expectations. When the customer purchases a product or service that fails to meet the advertised promises or standards, dissatisfaction and frustration can result which may lead to confrontation and/or loss of business.
“Customer expectations can affect how service is delivered and perceived. Today’s customers are more discerning and better educated, have access to more up-to-date and accurate information. They also have many more options offered by your competitors. They are often more demanding than in the past. Their expectations about your products and services and the way that you will provide them may create a situation where little you do or say can meet their perceptions. In such cases, remain professional, positive and offer alternatives or concessions, if appropriate, in order to maintain the relationship and provide what the customer needs or wants.”[11]
The training video below was posted on YouTube by Kantola Training Solutions and includes valuable tactics for dealing with angry, upset, difficult, or irate customers, and includes the following topics:
• Connect with the angry customer.
• Show empathy or apologize if appropriate.
• Guide the customer’s attention toward solving the problem.
• Use positive language.
• Have the customer make small decisions.
• Take a timeout or draw the line.
• Know what you can offer.
Watch the “Dealing with an Angry Customer Training” YouTube video below to learn more about dealing with angry customers.[12] Transcript for “Dealing with an Angry Customer Training” Video [PDF–New Tab]. Closed captioning is available on YouTube.
When dealing with angry customers it is important to use positive language, for example, let them know what you can do for them rather than what you cannot do for them to resolve their issue. Avoid saying, “We don’t.” If you are unable to offer something or provide a service the customer wants, then you might say, “What I can do for you is offer you is…” or “I’m sorry, we don’t actually sell that product, although we do sell something similar if you are interested,” or “I’ sorry, we do not sell that product, but you might try Best Buy,” or “I’m sorry, we do not have that item in stock, would you like me to check our other store locations for you,” instead of saying, “We don’t have that,” or “We don’t do that.” Avoid saying, “I cannot,” “Our policy does not allow for that,” or “No.” Instead try saying, “I understand why you may be upset. I might be upset too in this situation. You have had the cell phone longer than the 30-day exchange window, so what I can do for you in this situation is…” or “I understand what you are asking for, and my manager will need to consider this request. Would you mind waiting a minute while I get my manager?”
Service recovery is a company’s resolution of a problem from a dissatisfied customer, converting them into a loyal customer. It is the action a service provider takes in response to service failure. It entails the organization taking actions in response to a service failure. The service failure may have occurred for all sorts of reasons–the service may be unavailable when promised, it may be delivered too late or too slowly, the outcome may be incorrect or poorly executed, or employees may be rude or uncaring. If you are the customer service representative serving a customer experiencing a service failure, you represent the company, therefore you need to apologize, solve the problem, compensate the customer with something of value. Managers need to create a service recovery process and train employees on the process. Starbucks and other fast-pasted businesses make a point of training via acronyms and other mnemonics because these can help employees mentally walk through the steps at times when they may be flustered and struggling with a situation. Starbucks uses the acronym LATTE for the customer service recovery sequence where L=Listen to the customer, A=Acknowledge the problem/situation by verbally explaining it, T=Take action and solve the problem (this is an opportunity to turn a bad experience into a good one), T=Thank the customer for bringing this to your attention, E=Explain what you did and encourage the customer to return another time. The service recovery sequence at Marriott Hotels spells LEARN where L=Listen, E=Empathize, A=Apologize, R=Respond, and N=Notify.[13]
Another great way to solve customer problems is to apply a problem-solving model. Aproblem-solving model provides you with concrete, easy to remember steps you can work through when faced with any issue, customer service related or other. Your company may have its own version of how to approach customer problems, but here is a simple breakdown used by many customer service teams around the world in some similar variation.
1. Identify or Define the Real Problem. What exactly is the problem? You may need to ask the customer some open-ended questions to gather more information or do some research to look into some facts, then determine with the customer what the exact problem is. You want to be solving the customer’s problem and not assuming you know what they are upset about.
2. Compile and Analyze the Data. To be able to effectively determine a course of action you need as much information as possible. You may need to collect information from a variety of sources. Collate the information in a structured way, and focus in on the underlying causes of the problem.
3. Develop Alternative Solutions. Analytical, creative problem solving is about creating a variety of solutions, not just one. At this stage, it is not about finding one solution but eliminating the options that will prove less effective at dealing with both the symptoms and the root cause.
4. Select a Solution. You need to examine which alternative solutions best solve the problem as well as which solutions are doable. If your company, for example, is not able to provide the solution you selected, then you would not want to offer it to the customer. You might offer a choice of solutions to the customer, those that are feasible, and let your customer select the one they prefer. If the solution is too unrealistic, too expensive, too time consuming, or too risky for your company, then you need to go back a step and consider additional alternatives. As well, if the solution is not satisfying the customer or solving the problem, you need to backup and consider alternative solutions; you may even need to bring your manager into the conversation.
5. Implement the Solution. Take action. You may need to communicate with other team members or your manager to put the solution into action, or you may simply need to apologize to the customer, thank them for bringing this issue to your attention, and/or refund the customer. If the problem was more complex you may have to reorder an item and provide the customer with a receipt and expected delivery date. Following up with the customer is a best practice in these more complex cases.
6. Evaluate the Outcome. Follow up with the customer and/or your team to ensure the solution was implemented and the customer is satisfied. You may need to take action to correct something if things did not go as planned and it is better to catch this before you lose the customer completely. You might even ask the customer to provide feedback, evaluate the service, or complete a survey. You might need to adjust the customer service process if the process was an issue, and this may include sharing the experience with your manager, especially if the process is broken and causes several customers to become dissatisfied. You can suggest improvements to your manager and avoid repeat customer service breakdowns. Your manager will be happy you did.
Ability to Manage Information
Email
Email is a business tool used around the world in millions of businesses. It is fast, inexpensive and can send a message to almost any place in the world. As a customer service representative, you will use email to correspond with managers, colleagues, customers, and partners. It is important to follow company guidelines when sending any correspondence. Often companies have guidelines for font size, type, letterhead, signature blocks, etc. It is equally important to use professional language, steer clear of text chat short-cuts you may use with your friends, and ensure a polite and caring tone; after all, you are representing the company.
The Indeed Career Guide offers 20 Best Practices for Email Etiquette in the Workplace [14]and includes these tips:
1. Use standard fonts and formatting
2. Include a clear subject line
3. Email from a professional email address
4. Use professional greetings
5. Use an introduction
6. Know the culture
7. Be cautious with “Reply All”
8. Use sentence case
9. Double-check attachments
10. Proofread
11. Don’t use emojis
12. Be positive
13. Reply within 24 hours
14. Keep your tone professional
15. Check the recipient’s name
16. Shorten URLs
17. Perfect your email signature
18. Use BCC appropriately
19. Think before forwarding
20. Set informative out-of-office replies
Phone
Often you will be responsible for answering incoming phone calls or placing outgoing calls to customers. Starting each call with a greeting, then stating your purpose, and asking the right questions or providing insightful answers will be very important. Ending the call on a positive note is also important to maintain customer goodwill and keep the company image positive. Some companies, especially call centers, provide employees with scripts to guide their conversations with customers. Learning how to use the script without sounding robotic is a skill you will develop over time.
Watch the “Proper Telephone Etiquette” YouTube video below to learn about proper telephone etiquette.[15] Transcript for “Proper Telephone Etiquette” Video [PDF–New Tab]. Closed captioning is available on YouTube.
Texting
For many years now texting has been viewed as a personal communication method and was not used in business often. Today, however, texting is used to enhance communication between businesses and their customers, employees, and partners. Have you noticed that many service providers, such as dental offices, are using texting as a way to remind customers/patients of their appointments? Texting is not only being used to remind customers of appointments but also to confirm appointments or change appointments. Companies often have guidelines for when texting should be used and how it should be used.
Social Media
Customer service takes place through many media and social media is one realm. Companies often have Facebook, Twitter, YouTube, and Web Chat platforms through which they communicate with customers. This may be one aspect of your job especially when working in a customer contact center. Many organizations offer customized training for employees to learn how to manage these technology tools in offering excellent customer service experiences.
Virtual Meetings and Videoconferencing
Online meetings are often used to conduct business meetings when the participants are not physically in the same location. It is a good idea to practice with these tools before holding a meeting to ensure you can manage the settings for participants, audio, camera, etc. It is also a good idea to review best practices for holding an online meeting.
Ability to Apply Personal Management Skills
In its Employability Skills 2000+, the Conference Board of Canada lists “the skills you need to enter, stay in, and progress” in the 21st century workplace. The ability to apply personal management skills is one of the skills listed.[16]
Ability to Be Responsible and Professional
“Develop self-awareness. Learn to manage your emotions and gain awareness of your emotional triggers so you can manage your reactions positively and productively. Accept and reflect on feedback to assist as you learn and grow.”[17] Professionalism leads to workplace success, a strong professional reputation, and a high level of work ethic and excellence. When you demonstrate positive attitudes and behaviours, are reliable and adaptable, work safely, and follow company policies and procedures you are working in a professional manner. Professionalism may include expert knowledge and skills in a specific area or subject. It may include your ability to consider customer needs and wants in conjunction with company goals and provide exceptional options to customers. Finally, professionalism may include your ability to work as part of a team and place team goals over personal preferences.
Mindtools describes professionalism as:[18]
• Professionalism involves consistently achieving high standards, both in the work you do and the way you behave.
• Being professional helps you to achieve high-quality results while impressing and inspiring others – and feeling good about yourself.
• The eight core characteristics of professionalism are competence, knowledge, conscientiousness, integrity, respect, emotional intelligence, appropriateness, and confidence.
• By finding ways to strengthen each of these attributes, you can become confident to act professionally wherever you find yourself working.
• These qualities are particularly important when the normal “rules” of professionalism are blurred, such as when you’re working from home.
Watch “The Five Zones of Professional Etiquette” YouTube video below to learn about professional etiquette.[19] Transcript for “The Five Zones of Professional Etiquette (Student Version)” Video [PDF–New Tab]. Closed captioning is available on YouTube.
Ability to Learn Continuously
“To provide the right answers, you must know your product, service, or advocacy issues extremely well. Familiarize yourself with how the product works, special features and other uses, and your company’s policies on warranties, returns and exchanges. If you are discussing a service, know the limitations and mention them in a positive manner at the appropriate time. There is no substitute for product knowledge when it comes to selling a product or service.”[20]
Ability to Maintain a Positive Attitude
A positive attitude is a mindset that helps you see and recognize opportunities. It is not always easy to stay positive especially when things do not go as planned, or when dealing with angry customers. There are some practices you can put into place to help you stay positive throughout the day. Of course, being positive does not mean ignoring problems, it means dealing with whatever comes your way with an open-minded, solution-seeking, and forward-thinking attitude.
To maintain a positive outlook throughout each day, try these daily rituals:
• Eat a nutritious breakfast. Breakfast can set you up for a happier, more positive day. As well, it can boost your metabolism, cognitive functions, and reduce fatigue.[21]
• Exercise. When you exercise, the brain excretes chemicals that will boost your mood, and are proven to help to relieve both anxiety and depression.[22] Most people associate exercise with running, playing a sport, or working out in a gym, but exercise might also be doing yoga, dancing, gardening, or washing the car.
• Smile. Smiling can trick your brain into happiness—and boost your health.[23]
• Listen to music. Music increases happiness, decreases stress, improves sleep, reduces depression, and may strengthen learning and memory.[24]
• Practice gratitude. In positive psychology research, gratitude is strongly and consistently associated with greater happiness. Gratitude, focusing on and being thankful for what you have, helps people feel positive emotions, relish good experiences, improve their health, deal with adversity, and build strong relationships.[25]
• Positive visualization. To put visualization in a real life situation, if you have a big assignment or project due, visualize yourself finishing it and handing it in, and feeling that sense of relief and happiness. [26]
• Practice one random act of kindness each day. Kindness promotes empathy and compassion; which in turn, leads to a sense of interconnectedness with others. It releases positivity: We feel better and the recipients of our acts feel better, which then makes them more likely to be kind to other people. Simply buying the next person in a line a coffee, or holding the door open for someone with their hands full, or letting someone skip ahead of you at the cash check-out can release an enormous chain of positive events.[27]
• Surround yourself with positive people. You cannot have a life of positivity while spending a lot of time with people who drag you down. The good news is that there is a simple solution! Surround yourself with people who build you up and make you the best version of you.[28]
• Practice mindfulness/meditation. Perhaps the most widely publicized benefit of meditation is that it makes you happier. A Swedish study found that practicing mindfulness was “strongly related” to a positive state of mind and reduced stress.[29]
Ability to Manage Stress
Identifying what causes you stress will help you manage stress. Managing your time will help you reduce stress; so keeping a calendar and recording when you have appointments or meetings, etc. will help you reduce stress by not panicking when you forget something that you need to do or somewhere you need to be.
Many of the rituals you may do to maintain a positive attitude will also help you reduce stress. Eating healthy foods and getting enough rest will help you have the strength you need to deal with stressful situations. Exercising regularly, doing yoga or meditation will also help you deal with stress better. Seek out social or professional support when needed and do not rely on drugs or alcohol to relieve stress as this may lead to bigger issues.
When dealing with difficult customers you can take a deep breath, count to three in your head, then address the customer in a calm and professional manner. Remember when a customer is angry is usually is not at you personally; their frustrated and upset about some interaction they had with the company. Ignore any personal attacks and exaggerations because a very angry, upset customer may not be acting rationally. Call your manager if the situation escalates and remember not to take it personally. Often upset customers are really nice people underneath it all, and once you fix the issue, they will probably thank you profusely. “Uncovering their expectations will help defuse the emotion, help you keep cool, and keep the conversation focused on problem solving. Keep focusing on what you can do to close the gap between their unmet expectations and their experience of your company’s services and products. When customers are dealt with sincerely and professionally, they are more open to alternative solutions.”[30]
Try to keep a positive attitude and, in your personal life, surround yourself with others who think positively. Accept that there are events that you cannot control. Be assertive instead of aggressive by asserting your feelings, opinions, or beliefs instead of becoming angry, defensive, or passive. Do something every day that brings you joy.
Ability to Manage Time
Managing your time will make you more productive and reduce stress. Use a calendar or schedule book, whether paper or electronic, to keep track of tasks you need to complete. Make a list, assess the value of each task and prioritize tasks, and allow for flexibility.
Watch the “Time Management Techniques for Stress Free Productivity” YouTube video below for some time management tips for stress-free productivity.[31] Transcript for “Time Management Techniques for Stress Free Productivity” Video [PDF–New Tab]. Closed captioning is available on YouTube.
Ability to Work in Teams Effectively
In its Employability Skills 2000+, the Conference Board of Canada lists “the skills you need to enter, stay in, and progress” in the 21st century workplace. The ability to apply teamwork skills is one of the skills listed.[32]
Characteristics of an Effective Team Member
• Shows commitment to the team and its goals
• Works for consensus on decisions
• Shares openly and authentically with others
• Demonstrates reliability to complete tasks
• Involves others in the decision-making process
• Treats others in a respectful and supportive manner
• “Owns” problems rather than blaming them on others
• Listens actively, and attempts to see other’s points of view
• Encourages the development of other team members
• Cooperates and pitches in to help
• Acknowledges and works through conflict constructively
• Considers and uses new ideas and suggestions from others
• Encourages and accepts feedback on their own behavior
• Works toward win-win results
Ability to Contribute to Team Performance
To be a good contributor you must make an effort to support your team members and show interest in working toward team goals. You should learn to compromise and understand things may not always be done as you suggest. You need to be able to negotiate with your team members to settle disputes and make sure everyone is happy with the team’s choices.
Clearly communicating in a timely fashion with team members, and making sure your tone is always professional but friendly, is key to being a positive team contributor.
The bigger the project, the more linked and interdependent are the people and the tasks. Often one task must be done before another one can be completed. This means relying on each other and trusting each other to do what needs to be done in the time given. Your quality of work and ability to meet milestones (intermittent deadlines) are critical to everyone getting their part of the project done on time and with quality results.
Ability to Participate in Team Presentations
To present as a team, you must know each person’s part of the presentation so that should someone need help or become ill the day of the presentation you can step up and present their portion of the overall presentation. You should introduce each member of your team when you begin the presentation and have an introduction. Then as each member presents you use a transition between members; which is simply a sentence to transition from one member’s part to the next.
Each member will accept a task and complete their portion of the presentation, but also help the whole team finalize and make a professional final presentation. When using slides ensure there are no spelling errors and that each slide does not contain too much text. If giving presentations is a part of your job role then it would be wise to review a course or lesson on how to deliver a presentation.
Ability to Participate in Team Meetings
Team meetings are crucial for sharing ideas, disseminating data to everyone at the same time, allowing for discussions, and making decisions. It is important to create an agenda for the meeting and send it out to all members prior to the meeting along with any accompanying documents that may be reviewed during the meeting. This will help keep the meeting discussion on track and moving forward. Often people complain that meetings are a waste of time because nothing gets accomplished. Using an agenda will help the meeting planner get through the tasks intended.
Ability to Participate in Projects and Tasks
Ability is what you’re capable of doing. Motivation determines what you do. Attitude determines how well you do it. It is important to participate in projects and tasks contributing to the team effort even when you are not that interested in your job or the project itself; otherwise, your colleagues and managers may get a negative impression of you which will only hurt your ability to get promotions, bonuses, recognition or work on interesting projects you may wish to be included on. Even if you plan to switch jobs in the near future you may need references from your manager and possibly colleagues so you certainly do not want anyone to see you as non-participative, difficult to get along with, lacking in team spirit, or providing a low quality of work.
Key Takeaways
1. Internal customers are the company employees who need support, information or action from another employee. These internal customers may work just down the hall, in another building, or in another country, but they are still part of the company and working to help satisfy external customers.
2. External customers are the customers who purchase products or services from the company.
3. Customer Service Orientation means that as an employee you are able to display positive attitudes and behaviors, and demonstrate an awareness of the importance of meeting or exceeding customer needs and expectations.
4. Service culture in an organization means putting customers at the center of the business model, developing policies, procedures, values, norms, and beliefs that are centered around focusing on customer satisfaction and understanding their needs and wants.
5. Verbal communication refers to the ability of a customer service representative to think of the right words in order to appease a customer and provide a solution
6. Non-verbal communication refers to gestures, facial expressions, eye contact, body language, posture, and other ways people can communicate without using language.
7. Positive language is the art of using words and phrases to communicate a positive, supportive tone to your customers (or anyone else for that matter).
8. Active listening means that you focus on what your customer is saying.
9. A problem-solving model provides you with concrete, easy to remember steps you can work through when faced with any issue, customer service related or other.
10. A positive attitude is a mindset that helps you see and recognize opportunities. It is not always easy to stay positive especially when things do not go as planned, or when dealing with angry customers.
11. Service recovery is a company’s resolution of a problem from a dissatisfied customer, converting them into a loyal customer. It is the action a service provider takes in response to service failure.
12. To be a valued team member you should make a commitment to the team goals, create a collaborative working environment, and support team decisions.
13. Identifying what causes you stress will help you manage stress.
14. Managing your time will help you reduce stress; so keeping a calendar and recording when you have appointments or meetings, etc. will help you reduce stress by not panicking when you forget something that you need to do or somewhere you need to be.
End-of-Chapter Exercises
1. Cultural Diversity. Understanding cultural diversity in customer service. Search the Internet for differences between cultures and how these differences might affect working relationships between colleagues, interactions with customers, or even interactions with your manager. Searching for power distance, high and low cultural context, individualistic versus communitarian, deductive versus inductive persuasion, time scheduling, and neutral versus emotional cultures will provide you with several starting points.
2. Jobs. Search the Internet for “customer service jobs in Toronto” or whatever city you live in. You will probably get many websites in the results. Click on a few and review the job responsibilities, the hourly pay, and the skills you need to perform these jobs. Do any of them interest you? Why or why not? You may find some of these jobs have perks. They offer training and sometimes career paths to a management position. It is a good idea to research the company websites offering these jobs and read more about their mission and values to determine if you would be a good fit.
3. Practice Pleasantries. Give yourself a challenge. The next four people you interact with practice saying, please and thank you, and smiling. Do these at the right times, not too much, and not insincerely. Did these small pleasantries enhance your communication? Will you try this more often? Hopefully you will try this when serving customers.
4. Angry Customers. Search the Internet for information on “providing customer service to irate customers.” You might try rewording the search criteria using the following topics: conflict resolution, handling difficult customers, and handling angry customers. Share your findings with your class and/or professor.
5. Service Breakdowns. Based on your personal experience, why do you think service recovery efforts are often limited in small companies as compared to large organizations? What can be done to better prepare employees of a small company to better handle service breakdowns?
6. Negative Phrases. Consider negative phrases. What else could you say to a customer besides, “It’s not my department.” “It’s not my fault.” “She’s away and won’t be back for two weeks and she’s the only one who does that so you will have to wait.” “That’s not our policy.” Discuss these with a partner and see if you can devise some alternative statements that are more positive in tone and bring more value to the customer. Share your examples with the class and/or professor.
7. Roleplay Difficult Situation. Roleplay a Difficult Customer Situation. How would you handle this difficult customer situation? Assume you work as a cashier at Loblaws Super Store and as you are scanning a customer’s products for purchase a second customer squeezes up through the line of customers waiting and says, “I am in a hurry and I just have this loaf of bread. Can you just tell me how much it costs and I’ll leave the money right here on the register?” Work with a partner and role-play this scenario, practice how you would handle this situation if you were the employee. Discuss strategies with the class and/or professor.
8. Gestures. Gesture Meanings Around the World. Common gestures take on different meanings around the world. As a customer service representative, you may think giving the “thumbs up” to your customer means great, good, OK, but depending on where you are in the world or the culture your customer comes from, you may actually be offending them. Explore the Internet to discover what these gestures mean in different countries. Some countries to compare include: Canada, China, Russia, Mexico, Turkey, India, Greece, and Australia.
Common Gestures
Query \(1\)
Additional Resources
1. LinkedIn Learning Customer Service Training
2. I was Seduced by Exceptional Customer Service, John Boccuzzi, TedX Bryant U
3. 20 Customer Service Training Ideas and Activities for Busy Teams
4. Test your communication skill level with a quiz
5. 17 Hand Gestures That Can Cause Offense Around the World
6. How to Get a Job in Customer Service
7. 5 Important Reasons Why Teamwork Matters
8. 15 Time Management Tips for Achieving Your Goals
9. Stress Management by Mayo Clinic Staff
References
(Note: This reference list was produced using the auto-footnote and media citation features of Pressbooks; therefore, the in-text citations are not displayed in APA style).
Media Attributions
1. Career Guide. (2020, March 11). Customer service skills: Definitions and 17 examples. Indeed. https://www.indeed.com/career-advice/resumes-cover-letters/customer-service-skills
2. Lucas, Robert W. Customer service skills for success. McGraw Hill Education: New York, USA, 2015.
3. Mike (2016, February 13). Why it's absolutely OK to send customers to competitors. Digital Spark Marketing. https://digitalsparkmarketing.com/send-customers-to-competitors/
4. Employability Skills 2000+. (2020). Employability skills. The Conference Board of Canada. https://www.conferenceboard.ca/docs/default-source/educ-public/esp2000.pdf?sfvrsn=dd440e69_0
5. Jablonski, N. (2017). What scientific term or concept ought to be more widely known? Edge. https://www.edge.org/response-detail/27212
6. Dev, K. (2017, September 26). 10 tips for effective communication with customers. Customer Think. https://customerthink.com/10-tips-for-effective-communication-with-customers/#:~:text=10%20Tips%20for%20Effective%20Communication%20with%20Customers%201,your%20message%20across.%2010%20Don%E2%80%99t%20take%20short%20cuts
7. Ober, K. (2015, December 22). Positive body language. [Video]. YouTube. https://youtu.be/6vT6sqjBFrs
8. Gilbert-Jamison, T. (2018, April 26). Service recovery - Do say/Don't say. [Video]. YouTube. https://youtu.be/U2rooZp4SDA
9. Bovee, C. & Thill, J. (2017, September 20). Student version: Sharing negative information without being negative. [Video]. YouTube. https://youtu.be/ewIKhqK0ySQ[/
10. Toister, J. (2016, January 30). Customer service fundamentals - Actively listening to customers. [Video]. YouTube. https://youtu.be/rccne8eevxE
11. Lucas, R. (n.d.). What is a service breakdown? [Blog]. Customer Service Skills. http://www.customerserviceskillsbook.com/wordpress/what-is-a-service-breakdown/#:~:text=Service%20breakdowns%20occur%20daily%20in%20all%20types%20of,fails%20to%20meet%20customer%20needs%2C%20wants%20and%20expectations
12. JMC The Director. (2016, February 10). Dealing with an Angry Customer Training. [Video]. YouTube. https://youtu.be/T20hV4ynU7o
13. Solomon, M. (2017, November 19). Thanks a latte: How to fix a customer service failure per Starbucks, Marriott, and Me. https://www.forbes.com/sites/micahso...h=4bb0ea84462a
14. Indeed Career Guide (2020, January 27). 20 Best practices for email etiquette in the workplace. https://www.indeed.com/career-advice/career-development/email-etiquette#:~:text=20%20Best%20Practices%20for%20Email%20Etiquette%20in%20the,email%20address%20if%20possible.%20...%20More%20items...%20
15. Gilbert-Jamison, T. (2020, July 13). Proper Telephone Etiquette. [Video]. YouTube. https://youtu.be/1KtKNkg4j3s
16. Employability Skills 2000+. (2020). Employability skills . The Conference Board of Canada. https://www.conferenceboard.ca/docs/default-source/educ-public/esp2000.pdf?sfvrsn=dd440e69_0
17. Virginia Tech. (n.d.) Professionalism. https://career.vt.edu/develop/professionalism.html
18. Mindtools. (n.d.). Professionalism. Meeting the standards that matter. https://www.mindtools.com/pages/article/professionalism.htm
19. Bovee, C. & Thill, J. (2020, January 18). The five zones of professional etiquette. [Video]. YouTube. https://youtu.be/A9Q20hZ5ZX4
20. Best Hospitality Degrees. (n.d.) What skills does a customer representative need? Best Hospitality Degrees. https://www.besthospitalitydegrees.com/faq/what-skills-does-a-customer-service-representative-need/
21. Steen, J. (2016, July 15). Breakfast can set you up for a happier, positive day. Huffpost. https://www.huffingtonpost.com.au/20...ay_a_21429436/
22. Australian Fitness Academy. (2018, March 7). How exercise makes you happy. Australian Fitness Academy. https://www.fitnesseducation.edu.au/blog/health/how-exercise-makes-you-happy/
23. Spector, N. (2018, January 9). A smile can trick your brain into happiness—and boost your health. Better. https://www.nbcnews.com/better/health/smiling-can-trick-your-brain-happiness-boost-your-health-ncna822591
24. Deflin, K. (2016, February 16). 10 Positive benefits of listening to music, according to science. Live for Live Music. https://liveforlivemusic.com/features/10-positive-benefits-of-listening-to-music-according-to-science/
25. Harvard Health Publishing. (n.d.). Giving thanks can make you happier. Harvard Medical School. https://www.health.harvard.edu/healthbeat/giving-thanks-can-make-you-happier
26. Steen, J. (2016, July 15). Breakfast can set you up for a happier, positive day. Huffpost. https://www.huffingtonpost.com.au/2016/07/10/breakfast-can-set-you-up-for-a-happier-positive-day_a_21429436/
27. Srennivasan, S, Ph.D., and Weinberger, L., Ph.D. (2017, November 16). Why random acts of kindness matter to your well-being. Psychology Today. https://www.psychologytoday.com/ca/blog/emotional-nourishment/201711/why-random-acts-kindness-matter-your-well-being
28. Stoneking, T. (n.d.). 8 Amazing things will happen when you surround yourself with positivity. Lifehack. https://www.lifehack.org/338213/8-amazing-things-will-happen-when-you-surround-yourself-with-positivity
29. Webb, A. (2017, January 12). Can meditation make you happier and more productive? Policygenius. https://www.policygenius.com/blog/can-meditation-make-happier-productive/
30. Earl, D. (n.d.). Stress management tips for customer service professionals. Donna Earl Training. https://www.donnaearltraining.com/articles-quizzes/stress-management-tips-for-customer-service-professionals/
31. Young Entrepreneurs Forum. (2016, August 15). Time management techniques for stress free productivity. [Video]. YouTube. https://youtu.be/IGVQPU-L7cQ
32. Employability Skills 2000+. (2020). Employability skills . The Conference Board of Canada. https://www.conferenceboard.ca/docs/default-source/educ-public/esp2000.pdf?sfvrsn=dd440e69_0 | textbooks/biz/Business/Introductory_Business/Customer_Centric_Strategy_(Shields)/1.02%3A_Being_a_Customer_Service_Representative_%28CSR%29.txt |
Chapter 3 Learning Outcomes
After reading this chapter, you should be able to do the following:
1. Describe how to create a customer service philosophy for your company, department or team.
2. Explain the purpose of having service standards and goals.
3. Describe why it is important to set SMART goals for customer service teams.
4. Explain why it is important to measure service quality.
5. Identify obstacles to outstanding service.
6. Describe what service recovery looks, sounds, and feels like.
7. Suggest ways in which to improve service quality.
8. Identify the costs of poor customer service.
Customer Service Philosophy
“If you’re looking to improve your customer experience, start by creating a customer service philosophy for your support team. Having a shared philosophy keeps everyone focused on the same goal and helps them understand the holistic approach to achieving that goal.”[1]
In an environment in which your front-line staff deal with an endless stream of unpredictable scenarios, having a strong philosophy helps empower team members, provides a coherent story to understand where those values come from, and sets the foundation for a customer-first strategy that’s proactive rather than reactive. No matter which employee a customer interacts with, they will experience the same delightful service that epitomizes your company values.
“A customer service philosophy is a shared mission for your support team, a set of guiding principles that ensure you’re upholding your core values with every customer interaction.”[2]
Generally, a customer service philosophy is composed of two parts: vision and values.
Customer Service Vision
The first section of a customer service philosophy is a customer service vision statement, which Jeff Toister defines as “a statement that clearly defines the type of customer service employees are expected to provide.”[3]
Customer Service Values
Your vision statement is followed by your team values. Customer service values impact the experience the customer receives and they help to define the personality and attitude the business is trying to put forth. Often companies offer training to employees on how to uphold these values. For example, “The staff at Apple retail stores are all screened and trained with a great deal of scrutiny before they make it out onto the sales floor to interact with customers. Apple’s Genius Training Student Workbook reveals a great deal about the extent to which the company goes to sufficiently train and produce the level of quality service anyone who’s visited an Apple store comes to expect. In fact, everything you’ve expected from the moment you arrive until the time you leave has been tediously thought out and most of it scripted. So what does A.P.P.L.E. really stand for when it comes to training staff on how to sell?[4] It actually means:
Approach customers with a personalized, warm welcome.
Politely try to understand all the customer’s needs.
Present a solution for the customer to take home today.
Listen for and resolve any issues or concerns.
End with a fond farewell and an invitation to return.
Creating a Customer Service Philosophy for Your Team
Careful contemplation is the first step. Ask yourself some key questions. What is the purpose of your company? What is the role of customer service within your company? What experience should the customer have for your company to fulfill this role? What does this look like for your customer service representatives? What are your company’s core values and how are they prioritized? What are the principles that should guide your employees who interact with customers daily? How will employees easily remember these principles?
There’s no fixed format to a customer service philosophy. But having it down on paper — preferably a digestible one-pager — will allow your service reps to reread and internalize it. Take your answers from above and integrate them into a coherent piece.[5]
Although good customer service philosophies have a few things in common, no two should be the same. For a philosophy to succeed, it needs to align with your team’s specific values, goals, and long-term vision for your relationship with customers.
Develop Service Standards
Service standards are guidelines for employees to follow when interacting with customers. Do not make them too rigid or strict as not all standards will apply to every customer situation. This gives employees the flexibility to adapt to each customer’s unique needs within a standard framework. Customer service guidelines should align with the company’s brand.
Standards may be as simple as:
1. Make the customer feel welcome (e.g., greetings, body language)
2. Efficiently serve customer’s needs (e.g., listen actively, ask probing questions, offer suggestions, take action)
3. Look for additional ways to serve the customer (e.g., ask if there is anything else you can do, share promotions or new opportunities)
4. End the customer interaction (e.g., thank the customer, follow up if needed, summarize what you have done if necessary)
As the Canada Revenue Agency puts it, “Service standards publicly state the level of performance that citizens can reasonably expect to encounter from the Canada Revenue Agency (CRA) under normal circumstances. The CRA is committed to developing, monitoring, and reporting on a full suite of service standards in areas of importance to taxpayers and benefit recipients. Service standards support the CRA‘s commitment to Canadians for transparency, management accountability, and citizen-focused service.”[6]
“Starbucks strongly believes in meeting customer service standards. For example, employees are taught to put effort into the visual look of each drink. When you order a caramel macchiato at Starbucks, it has a precise pattern of caramel sauce. It has a lattice of seven vertical and horizontal lines with two full circles around it. They also pay attention to every detail in the store — from the lighting to the furniture, they’re on point!”[7]
Provide your team with clear documentation regarding how to handle common customer service complaints, what language to use and to avoid, how to document service issues, guidelines for escalation, the lengths employees can go for customers, and where to go with any questions or problems. The more process and procedure you can put into place, the easier it will be for your team to understand how to act in a given situation.[8] With that said, you do not want the company processes and procedures to be overly cumbersome or complicated, otherwise, employees may have difficulty following them.
Develop Customer Service Goals
Setting customer service goals can serve an important role in managing service teams. Set SMART goals. Good goals focus attention on the right things, while poorly shaped goals focus attention on other things.
The service provided to customers, at every touchpoint, must be excellent and demand little effort from the customer in order to foster their loyalty. Customer service should make extra effort to ensure customer happiness and satisfaction. Customer interactions need to be pleasant experiences, customer problems must be resolved quickly and customers need to be totally confident in the services provided. Having a broad understanding of what excellent customer service looks like is a good step toward defining specific goals along with a plan that will lead to their attainment.[9]
SMART Goals
S = Specific Make your goals specific and narrow for more effective planning
M = Measurable Determine what evidence will prove you are making progress. Re-evaluate when necessary.
A = Attainable Ensure you can reasonably accomplish your goal within a certain time frame given available resources. Stakeholders agree it is achievable.
R = Relevant Goals should align with your values and long-term objectives.
T = Timebound Set a realistic end date. This will help with task prioritization and motivation.
For example, a manager may set a goal for the service team to “increase customer satisfaction”, but this goal does not inform the team of how to obtain this goal or the specific amount of increase the manager is expecting. We might do better by saying, “increase customer satisfaction by 10% over the next month”. The manager and staff should know how customer satisfaction is measured and that a 10% increase is a realistic expectation. The manager would then provide strategies on how this might be done. As well, incentives might be set for the service team to encourage their best performance.
There are many goals for achieving excellent customer service. The image below shows a list of 25 company goals for customer service.
Watch the “What are SMART Goals? Quick Overview with 21 SMART Goals Examples” YouTube video below to learn about SMART goals.[10] Transcript for “What are SMART Goals? Quick Overview with 21 SMART Goals Examples” Video [PDF–New Tab]. Closed captioning is available on YouTube.
We cannot blame a wait staff who fails to increase the number of customers served in a given week if we later discover that due to having live entertainment all week, customers were sitting longer at their tables which resulted in fewer table changeovers, meaning staff were serving the same customers longer rather than serving new ones. The goals you set for your staff will impact how the staff perform and what they choose to focus on. So if speed is your objective then customer care may suffer as staff become obsessed with serving each customer quickly rather than serving each customer exceptionally. You need a balance between efficient service and quality, effective service, and you must set goals that will drive employees in that performance direction.
“Profit-focused goals can hurt the customer relationship and unrealistic goals demotivate and burn out employees. The goal structure should be set in a way that if your customer support representatives achieve their goals it will propel the support manager closer to meeting his or her goals. Which in turn moves the director of support closer to meeting their goals. Typically, the goals of the director will be broad and align with specific company objectives. The customer support manager’s goals will be positioned more towards operational objectives – make sure everything is running smoothly and efficiently. Customer support representatives will have more direct customer-centric goals like reducing response times, and improving resolution rates.”[11]
Train Your Team
Investing the time and money in customer service training can prove to be an invaluable investment for businesses of diverse sectors and sizes. Teaching members of staff the competencies, knowledge, and skills required to increase customer satisfaction and therefore customer retention is a shrewd way for businesses to ultimately increase their sales performance. Offering workplace training can provide staff with the necessary skills to strengthen their customer service skills, including communication, empathy, patience, and consistency, as well as adaptability. Whatever industry a business operates in, if it deals with customers, strong customer service skills are essential in ensuring customers remain loyal and a high level of customer retention is achieved. Workplace training that is focused on customer care will give employees valuable insight into how to develop and fine-tune customer service abilities. Such training will empower course participants to have to knowledge and confidence to provide effective solutions when they are faced with problems or difficult customers.[12]
First off, hire the right people. During an interview tell potential employees what your customer service philosophy is and share your company’s missions, values, and goals. Then test applicants to see if they are a good fit.
Once hired, orient your new hire to the company and to the team of employees they will work with. Let them observe how things are done and how customer issues are resolved. Provide information on the company’s mission, vision, values, and goals, and explain how your department/area fits into the overall company goals.
Provide specific training on how to serve customers, even the difficult ones. Many service representatives do not know how to recover from a bad service situation with an upset or angry customer. A new employee can work alongside an experienced employee for a while and learn how to do things that will delight customers as well as support company goals. Such programs are often termed, coaching, mentoring, on-the-job training, or job shadowing. Training may entail a more structured form such as classes teaching new employees how to use customer relationship management software, use phone systems; deal with service breakdown and service recovery; learn how to provide value to customers to encourage long-term loyalty, learn how to upsell or cross-sell in a way that customers will value; learn about the company vision, mission and goals; or manage social media platforms to serve and interact with customers.
Watch the “Service Recovery – Look, Sound, Feel” YouTube video below to learn about effective service recovery.[13] Transcript for “Service Recovery – Look, Sound, Feel” Video [PDF–New Tab]. Closed captioning is available on YouTube.
The Disney Institute does a great job at training Disney employees, so much so, that they offer on-demand online training to other companies who may wish to provide customer service training to their own employees. Disney’s website states, “In this on-demand course, our team will highlight how excellent service is the result of truly understanding your customer expectations and how to put the right service standards in place to exceed them. Begin to learn not only how to start to differentiate your organization from competitors, but how to build customer loyalty through quality service. In this on-demand course, you will learn to:
• Assess and improve your organization’s commitment to quality service
• Differentiate and elevate your service to become a provider of choice
• Design standards for quality service and create a consistent service experience
• Gauge the needs, wants, stereotypes, and emotions of your customers at an individual level
• Understand the processes necessary to develop a workplace culture that consistently delivers exceptional service
• Recover effectively from a service failure and turn it into an opportunity to strengthen customer relations”[14]
Of course, there are many other training programs a company may utilize, such as those offered in LinkedIn Learning or those created in-house that are customized to the way your particular company goes about performing operations and serving customers.
Evaluate Service Quality
As a service manager, you continually need to be evaluating the quality of customer care your team provides. Key performance indicators (KPIs) measure how effectively a company is achieving its goals against a set of targets, objectives, or industry peers. Organizations use KPIs at multiple levels to evaluate their success in reaching targets.
Listed below are some of the ways in which you might measure service quality.
The Net Promoter Score (NPS) is a customer loyalty metric that businesses use to gauge how their customers feel about them. It measures your customers’ willingness to recommend your company, product, or service to others. Companies with a high NPS are more likely to achieve long-term profitable growth.
Customer retention rate is another way to evaluate service quality. “Even a 1% improvement in retention means a 5% profit increase per customer. Think about that. It’s easy to see why every organization must do what they can to maximize customer retention.”[15]
Customer Satisfaction Score (CSAT) Surveys. Obtaining customer feedback through customer satisfaction surveys is one way to gain customer insights. Surveying employees and asking for suggestions on customer service processes and procedures may lead to customer service improvements. Customer Satisfaction Score (CSAT) is a customer loyalty metric used by companies to gauge how satisfied a customer is with a particular interaction or overall experience.
Watch the “How to Use the Customer Satisfaction Score (CSAT) Metric” YouTube video below to learn how to use customer satisfaction scores.[16] Transcript for “How to Use the Customer Satisfaction Score (CSAT) Metric” Video [PDF–New Tab]. Closed captioning is available on YouTube.
Mystery shoppers and observation. Simply observing your team in action can help you identify common issues. Having a mystery shopper experience the service and processes your company provides and then reporting this experience back to you can help you understand where service breakdowns may occur.
Customer engagement metrics. Customer engagement starts from the first touch point and incorporates subsequent interactions, including the time customers spend with your brand and the actions they take throughout their journey. Customer engagement metrics are effective in measuring service accessibility and the quality of customer experience.[17]
Social media monitoring. Monitoring tools help understand what people are saying about you on social media. Insights like this paint a richer picture than simply relying on traditional media. Available in the market are the likes of Keyhole, Addict-o-Matic, CyberAlert, Sysomos among others.[18]
Identify Obstacles to Outstanding Service
There can be many obstacles creating barriers to your ability to provide excellent customer service. Some of which include the following.
Ineffective Employee Incentives
As a manager, you must ensure incentives focus employees on the right performance. Incentives can be an obstacle to good performance when employees take action to gain incentives at the expense of doing what is right or good for the customer. Have you ever wondered about the motivation of the auto-mechanic, when they tell you your car needs more work than you anticipated? What about when the salesperson sounds very convincing as they try to sell you more than you think you need? Employees may be tempted to bend the rules, working against the concepts of good quality service, in order to win incentives. Ensure incentives are set up to encourage better service and not encourage unethical behaviour.
Inefficient or Ineffective Service Systems
Sometimes service systems just don’t work; maybe it’s cumbersome processes customers must follow, unreliable service (works intermittently), poor quality products, or procedures that just don’t work. Often customer service representatives get blamed by customers for these things, but in reality, these things are beyond the scope of the service representatives’ control. With that said, certainly, service representatives should alert their managers when they observe such issues. For example, if several customers have complained about the same thing, then it might be time to change it. As a manager, if your employees have informed you of processes that are not working you should examine them and consider how to make improvements.
Ineffective Policies, Processes, or Procedures
A lack of policies, processes, or procedures can also be an obstacle to providing great customer service. If these are missing or lacking in structure, customer service agents will not be guided in providing exceptional service. If the company does not clearly communicate its customer service vision and provide the tools for employees to do their job, then the lack of processes and procedures will become an obstacle. On the other hand, if there are too many policies, processes, or procedures agents may be restricted in offering the best service they can. In either of these cases, customer service managers should work with the cross-functional management team to develop clear guidelines for policies, processes, and procedures and communicate those to employees in order to provide exceptional service.
Watch the “How to Avoid Roadblocks to Great Customer Service” YouTube video below to learn about avoiding roadblocks to great customer service.[19] Transcript for “How to Avoid Roadblocks to Great Customer Service” Video [PDF–New Tab]. Closed captioning is available on YouTube.
Lack of Communication
A lack of communication or support from other departments can be an obstacle to providing great customer service. Often the front-line employee, those facing the customer, need support from other departments within an organization. This means depending on others within the company to do their jobs and to do a quality job. Not every employee is dedicated to the company or performs quality work. As a manager, if your employees are having difficulty getting what they need from other departments you should step in and connect with the other department’s manager to discuss what can be done to make working together easier and more effective. They may not care about what is happening with your team, but they should care about fixing a problem that is costing the company money and customers.
Unanticipated Customer Demand
Customer demand can exceed what was expected or the number of customers can be far greater than anticipated which can create an obstacle to providing excellent customer service. If customer demand is so great that your company runs out of products or not everyone can be served efficiently, then customers may become dissatisfied. If your company gets far more customers than anticipated there may not be enough staff on hand to serve each customer, again, this can lead to customer loss and dissatisfaction. Managers need to schedule enough employees to serve all customers and serve them through various channels. Managers may forecast demand by reviewing past trends or patterns in sales and service. They may anticipate demand by analyzing the environment, for example, if there is an event in town bringing in vacationers then maybe the company will require additional staff on hand that week. Managers may also hire contingent workers, or workers they can hire when short-staffed on an ad-hoc basis, but having them trained may be an issue.
Improve Service Quality
According to this great quote from Sam Walton, There is only one boss. The customer – and he can fire everybody in the company from the chairman on down, simply by spending his money somewhere else.” Great customer service is just the first stage, but by making sure you build in analytics and other ways of measuring this success, their hard work and effort can be quantified and your outstanding customer support team’s progress can be measured.[20]
Some of the things that annoy customers so much that they switch to another company, include:
• Unhelpful or rude staff. 68% of customers believe the key to great customer service is a polite customer service representative. – AE
• Being passed around to multiple agents. 72% of consumers see having to explain their problem to multiple people as poor customer service. – Dimensional Research
• Being kept on hold for too long. Consumers will wait on hold for an average of 11 minutes before hanging up. – Channels
• Feeling unappreciated. 48% of consumers expect specialized treatment for being a good customer. – Accenture
• Ignoring customers’ feedback. 52% of people around the globe believe that companies need to take action on feedback provided by their customers. – Microsoft
• Not being present on the channels your customers are. 68% of consumers say it increases their perception of a brand when companies send them proactive customer service notifications. – Microsoft
Empower Your Employees
One way to improve service quality is to empower your employees. Empowering employees means giving them the authority to make some decisions without needing approval. This way they can make decisions to resolve customer issues without delay or making the customer wait. You will eliminate the “let me ask my boss” barrier by handing over a level of decision-making power to front-line employees. You also need to empower employees by giving them access to the data and systems they need in order to solve customer problems. Ensure boundaries are clearly defined, this may mean that an employee may be given the authority and be empowered to correct a customer issue up to a certain dollar amount.
Of course, to do this well, supervisors must be trained on how much power to give employees and in which areas; then, these supervisors coach their employees on making win-win decisions for their customers and company. When employees have the authority to solve customer problems, customers are served more quickly and receive more efficient and effective service thereby meeting or exceeding customer expectations. Customers who are satisfied with the service they receive become loyal and may even refer other customers.
Make Doing Business Easy
Make it easy for customers to do business with you. If it is too cumbersome or too complex for customers to do business with you, they will go elsewhere. That might mean making your website easier to read and use, offering a delivery option, or accepting several different payment methods. Make the processes customers use easy and clear. Customers who feel they waste too much time standing in lines, being transferred from one staff to another, waiting on answers, or sifting through web pages and papers to figure out what they need to do to return an item will certainly become frustrated and possibly take their business and recommendations elsewhere.
Provide Employees with Feedback and Training
Train employees as needed and provide meaningful feedback in a constructive manner on a regular basis to employees. Feedback should be thoughtful whether you are providing encouragement on a job well done, or providing constructive feedback for a performance correction. You may need to offer specialized training when you observe your team is lacking skills in a particular area and this lack of skill is negatively affecting the quality of service being delivered. Orientation training or onboarding is not the only time you need to train your employees; when systems or procedures are updated, employees should be trained so they are able to offer the best customer service possible. Communication between management and employees is key in ensuring employees understand what is expected of them, what the company policies and procedures are, and how to serve customers in a way the company wants them to.
Implement an Effective Rewards system
Reward your team for providing excellent service. A customer service incentive program can improve employee morale and job satisfaction, but there are some drawbacks you need to steer clear of. Focusing on monetary rewards won’t necessarily have the results you expect. It might look good initially but often ends up creating a competitive environment and a team pitted against each other. Implementing a reward system that aligns with clearly defined goals is the best approach. when it comes to monetary rewards. Many companies call this compensation based on performance results. These monetary rewards are targeted toward individuals meeting performance targets. On the other hand, monetary rewards that incite competition have different effects. For example, if you reward the person who sells the most product, then only one person on the team wins. This sets up the team to work against each other which has negative effects on team collaboration. Instead, you might have a threshold that when met, you reward your employees; in this type of system, several employees might meet the threshold. You also need to make the threshold attainable; something so difficult, that no one can attain the reward, will only have negative effects on employee motivation.
“With previous generations, employers focused on monetary rewards but the expectation of a healthy work-life balance by the millennial generation makes cash rewards less appealing. Instead, time off and experiences are more highly valued which is a boon for employees and employers. Rather than offering bonuses for rewards programs, consider offering a long lunch, a shopping spree, a day off, a certificate of accomplishment posted in an area everyone can view, or an afternoon team building with the company. Time is more highly valued by employees and increases overall productivity for the company by allowing employees time to refresh. Implement rewards that value time over cash.”[21]
“One reason that businesses cite not implementing a reward system for employee performance is temporary compliance. An employee of the month program may increase productivity the first month, but interest quickly dwindles. All the work of creating that program provides only short-term benefits. To avoid employees lapsing back into pre-reward productivity, it’s important for employers to keep the incentive programs new and exciting. Change up employee reward systems quarterly or yearly to reignite excitement about the plan.”[22]
Evaluate Your Personal Management Skills
You need to develop and improve your managerial skills on an ongoing basis as your career develops and as you meet new managerial challenges. Whether you manage a department or a project team, it is important to know how to get the work done right. You must develop not only your technical skills but your management skills as well. Delegating, motivating, communicating, and understanding team dynamics are some of the key skills needed. With those skills, along with patience and a strong sense of balance, you can become a very effective manager.[23]
A good manager sets their employees up for success. They provide the time and tools to accomplish tasks. They often have experience in the field of work they are supervising. They are capable of solving problems, managing time and money, and inspiring employees to perform optimally. A manager is responsible for the effective and efficient operations within a company, department, or team. A manager who is not able to create efficient schedules, keep employees motivated, or manage time and money will not perform optimally and may impede the ability of their subordinates to do the same. A bad manager may be someone who gives employees directives without any explanation, tools, or context. A good manager supports employees, chooses appropriate projects, and allocates resources (people, time, money, materials, and equipment) where needed and when needed in a reasonable manner to support the company goals. Management skills are important to lead a team and move the organization in the right direction. If the manager has weak management skills customer service quality may suffer. To be a good manager it is important to have skills such as planning, organizing, leading, and controlling. Managers need to create effective strategies, have good communication skills, be able to make decisions responsibly, be able to solve problems whenever they arise, be able to manage time effectively, be able to manage projects effectively, have conceptual skills, be able to motivate employees to lead their team, etc.
Some new managers are coached or mentored for the first few months on the job. Others take training courses in managing people and projects, emotional intelligence, negotiation, handling difficult people, sales, and management. To be a manager who is great at their job, you will need to:
• Learn about the company’s vision, mission, goals, and values, and understand how your specific department/area supports the overall company goals.
• Learn what is expected of you and your department/area in terms of output, results, interactions with customers, and daily, weekly, and monthly reporting.
• Learn how to communicate well in all situations, including when you have to deliver negative information to an employee or customer, when you need to negotiate a contract, or when you need to persuade someone to do something. There are many books and courses on these subjects.
• Learn how to motivate others. What does it take to make employees want to work to their best ability? Often, recognition, rewards, involvement, and knowing that their manager cares about them and supports them in their jobs is enough.
• Learn how to manage projects. Everything that gets done in the workplace is a project, small or large.
Optimize Service Delivery
In a highly competitive market, service-based businesses need to set themselves apart from their competitors. Listed below are a few ways to drive growth in your company by committing to exceptional service delivery:
Communicate with Customers
When it comes to customers, there’s no such thing as over-communication — your clients feel more comfortable when they know what’s going on. That being said, the amount of communication is not so imperative as the timeliness, its context, and its ability to clearly identify the value added to the client. In a world of constant connectivity, your ability to cut through the flood of subpar information with quality and timely answers can go a long way.[24]
Set Customer Expectations
Define for customers what level of service they can expect from your company. Keep your message consistent across channels and train staff to deliver service to meet the expectations the company has set. One example might be turn-around time. If you promise to get back to a customer within 24 hours make sure you do; even when you don’t have the answer, you can follow up to let the customer know you are still working on the problem. Under promise and over deliver is one way to exceed customer expectations. Do not promise to do something if you are not sure you can, this may result in a dissatisfied customer. You might say, “We will make every attempt to deliver by Friday, but I cannot promise it will arrive on time. I will try my best.” Then if the package arrives on Thursday or Friday you have delighted the customer.
Automate When Possible
Offer customers a choice of full-serve or self-serve processes. Today we see online shopping, self-checkouts at retailers and grocery stores, and online accounts such as Amazon which allow customers to customize their options and subscriptions. Automation, when working optimally, can increase customer satisfaction, streamline processes and services, and reduce the workload on employees. Ensure automated systems are not difficult to use and are working optimally, otherwise, your customers may become dissatisfied and may decide to do business with your competitor instead. Shipping processes may be automated as well, and it is important to ensure speedy delivery because if your customers can get the item from your competitor faster, they just might. Implementing automated systems may reduce costs for a company in the long run, but there will always be some customers who prefer personalized service provided by a real, live person. Automation comes with a high upfront cost but usually increases productivity so in the long run saves money and increases revenue.[25]
Schedule Employees Effectively
Service organizations need to schedule employees in accordance with forecasted customer demand. For example, during holidays stores might anticipate an influx of customers and plan to have additional cashiers and customer service employees on the schedule. The company does not want too many employees working at one time when it leads to some employees standing around with nothing much to do. This is a waste of resources and costs the company money, it may also lower employee morale and motivation to do their best work. The company also does not want too few employees scheduled if they are so busy that customer service wains due to being rushed, exhausted, and frustrated. Situations such as these may lead to higher turnover rates (employees quitting), increased customer dissatisfaction, lower employee morale, and negative corporate culture. Managers should schedule resources (employees, equipment, raw materials) in accordance with current projects and sales forecasts, and ensure that no resource is over-or underutilized.
Foster a Strong Culture
After establishing a feasible service concept, there is no other factor so instrumental to the success of a service organization as its culture. Employees should be aligned when it comes to a specific set of overarching principles — and, while methodology is crucial to service delivery, this should feel more like a philosophy. Don’t take it for granted that your culture is strictly internal — it shows up in your service delivery, your methodology, and your relationships and interactions with customers. The better employees understand the company’s service vision, the better it translates to customers. More often than not, your customers will know if you and your employees aren’t on the same page.[26]
Costs of Poor Customer Service
Bad customer service costs businesses \$338 billion in revenue every year, globally. That’s the real cost of bad customer service.[27]
Not listening to customers is one of the biggest mistakes companies can make. It may lead to angry customers, lost business, and damaged company reputation. In order to satisfy customers, companies have to keep up with the latest technological advances and train their staff on how to meet or exceed customer expectations. Social media is growing in popularity and customers will use it to talk about their customer service experiences, good and bad. Often disgruntled customers do not tell you or your employees directly, instead, they complain to friends, family, coworkers, and on social media about your company, products, and services.
Watch the “How Poor Customer Service Can Lead to Big Losses!” YouTube video below to learn how bad customer service can cost a company money.[28] Transcript for “How Poor Customer Service Can Lead to Big Losses!” Video [PDF–New Tab]. Closed captioning is available on YouTube.
Key Takeaways
1. A customer service philosophy is a shared mission for your support team, a set of guiding principles that ensure you’re upholding your core values with every customer interaction.
2. The first section of a customer service philosophy is a customer service vision statement, which Jeff Toister defines as “a statement that clearly defines the type of customer service employees are expected to provide”.
3. Your vision statement is followed by your team values. Customer service values impact the experience the customer receives and they help to define the personality and attitude the business is trying to put forth. Often companies offer training to employees on how to uphold these values.
4. Service standards are guidelines for employees to follow when interacting with customers. Do not make them too rigid or strict as not all standards will apply to every customer situation. This gives employees the flexibility to adapt to each customer’s unique needs within a standard framework. Customer service guidelines should align with the company’s brand.
5. Setting customer service goals can serve an important role in managing service teams. Set SMART goals. Good goals focus attention on the right things, while poorly shaped goals focus attention on other things.
6. Key performance indicators (KPIs) measure how effectively a company is achieving its goals against a set of targets, objectives, or industry peers.
7. Ensure employee incentives are set up to encourage better service and not encourage unethical behaviour.
8. Sometimes service systems just don’t work; maybe it’s cumbersome processes customers must follow, unreliable service (works sometimes), poor quality products, or procedures that just don’t work.
9. A lack of, or too many, policies, processes, or procedures can also be an obstacle to providing great customer service.
10. A lack of communication or support from other departments can be an obstacle to providing great customer service.
11. Unanticipated customer demand can exceed what was expected or the number of customers can be far greater than anticipated which can create an obstacle to providing excellent customer service.
12. Empowering employees means giving them the authority to make some decisions without needing approval.
13. Make it easy for customers to do business with you. If it is too cumbersome or too complex for customers to do business with you, they will go elsewhere.
14. Train employees as needed and provide meaningful feedback in a constructive manner on a regular basis to employees.
15. You need to develop and improve your managerial skills on an ongoing basis as your career develops and as you meet new managerial challenges.
16. When it comes to customers, there’s no such thing as over-communication — your clients feel more comfortable when they know what’s going on.
17. Define for customers what level of service they can expect from your company.
18. Automation comes with a high upfront cost but usually increases productivity so in the long run saves money and increases revenue.
19. Service organizations need to schedule employees in accordance with forecasted customer demand.
20. After establishing a feasible service concept, there is no other factor so instrumental to the success of a service organization as its culture.
21. Bad customer service costs businesses \$338 billion in revenue every year, globally.
End-of-Chapter Exercises
1. Service Philosophy. Search the Internet for “customer service philosophy” or “Examples of customer service philosophy” or visit a specific company website and locate their customer service philosophy. Compare a few examples and identify things they may have in common. What are three of the most prevalent concepts in organizations’ customer service philosophies?
2. SMART Goals. Practice setting a SMART goal. Maybe you want to lose weight, quit smoking, get a part-time job, or make the people close to you happier. Set a SMART goal to help you get started.
3. Management Skills Quiz. Take a quiz from MindTools to see if you have good management skills.
4. Jobs. Visit Best Job Interview to learn more about the tasks, duties, responsibilities, education, experience, skills, and competencies one must have in order to obtain a customer service management position. Consider how you might grow and develop your own skills so that one day you may become a team manager. Are you taking courses currently in college or university that may help you develop some of the required skills and abilities to be a team manager? Where else might you develop some of these skills?
5. Obstacles. Consider the obstacles to outstanding customer service discussed in this chapter. Can you think of, or research, three additional service obstacles you might encounter? What could a service manager do to overcome those obstacles? Discuss with the class and/or professor.
6. Training. Assume you are the customer service manager in a large retailer store such as Walmart or Loblaws. You will be developing a training program for your customer service employees. Conduct a bit of research about employee training methods and jot down some notes on how you will train your team. Will you offer in-person training? If so, how many days? Will you offer online courses? Will you offer mentoring or coaching programs? What are three concepts you will teach your team? Discuss with the class and your professor.
7. Incentive Programs. Search the Internet for “employee incentive program” and review a few. Assume you are a manager for a mobile phone service provider, Koodo or Fido or such. What type of employee incentive program would you set up? Why?
Query \(1\)
Additional Resources
1. LinkedIn Learning Customer Service Training
2. I was Seduced by Exceptional Customser Service
3. 7 Management Practices that Can Improve Employee Productivity
4. 10 Barriers to Outstanding Customer Service
5. How to Write a Customer Service Vision Statement
6. How to Evaluate Customer Service
7. 10 Phrases to Avoid in Customer Service, YouTube Video
8. 7 Customer Service KPIs to Evaluate Your Team
9. 21 Goals for Customer Service Teams to Strive for in 2021
10. Improve Your Customer Experience with Customer Journey Mapping, YouTube Video
References
(Note: This reference list was produced using the auto-footnote and media citation features of Pressbooks; therefore, the in-text citations are not displayed in APA style).
Media Attributions
1. Wellington, E. (2020, August 6). How to create an inspiring customer service philosophy. Help Scout. https://www.helpscout.com/blog/customer-service-philosophy/
2. Wellington, E. (2020, August 6). How to create an inspiring customer service philosophy. Help Scout. https://www.helpscout.com/blog/customer-service-philosophy/
3. Toister, J. (2016, May 24). How to write a customer service vision statement. Toister Performance Solutions, Inc. https://www.toistersolutions.com/blog/2016/5/23/how-to-write-a-customer-service-vision-statement
4. Khan, H. (2016, April 28). The Apple store guide to insanely great customer service. Shopify. https://www.shopify.com/retail/119535811-the-apple-store-guide-to-insanely-great-customer-service
5. Pascal (2016, October 20). How to create a strong customer service philosophy. Userlike. https://www.userlike.com/en/blog/customer-service-philosophy
6. Government of Canada. (n.d.) Service standards in the CRA. CRA. https://www.canada.ca/en/revenue-agency/services/about-canada-revenue-agency-cra/service-standards-cra.html
7. Dinardi, G. (2020). The 10 best customer service examples for 2020. nextiva. https://www.nextiva.com/blog/customer-service-examples.html
8. Landsman, I. (2016, August 16). How to create realistic customer service guidelines. helpspot. https://www.helpspot.com/blog/customer-service-guidelines
9. Customer Thermometer. (n.d.). Measurable customer service goals with examples. https://www.customerthermometer.com/customer-service/measurable-customer-service-goals-with-examples/
10. Develop Good Habits. (2020, October 5). SMART goals quick overview with 21 SMART goals examples. [Video]. YouTube. https://youtu.be/elJcG83m-qg
11. Richards, R. (2020, August 7). How to set measurable customer support goals that drive growth. Jitbit. https://www.jitbit.com/news/customer-support-goals/
12. Luke, H. (2016, August 1). How customer service training can improve customer service skills and ultimately sales performance. [Blog]. https://www.mycustomer.com/community/blogs/hadyn-luke/how-workplace-training-can-improve-customer-service-skills-and-ultimately
13. Gilbert-Jamison, T. (2020, July 28). Service recovery - Look, sound, feel. [Video]. YouTube. https://youtu.be/AeC5nNYhlA8
14. Disney Institute. (n.d.). On-Demand: Disney's approach to quality service.https://www.disneyinstitute.com/disneys-approach-quality-service-online/?ef_id=eff625c563ad159d6b7b7a600e68d939:G:s&s_kwcid=AL!5052!10!80745491051194!80745603288295&CMP=KNC-FY21_DI_INS_CAN_PDI_LGN_DIQS_Course_QualityService%7CB%7C1165729.DI.SM.01.04%7CMALWT9Z%7CNB%7C80745491051194&msclkid=eff625c563ad159d6b7b7a600e68d939
15. Dhangal, A. (2020, June 19). How do you measure customer service performance and success? With 10 useful KPIs. Acquire. https://acquire.io/blog/measure-customer-service-success/
16. SurveyMonkey. (2020, June 26). How to use the customer satisfaction score (CSAT) metric. [Video]. YouTube. https://youtu.be/8ANkDCHkjew
17. Dhangal, A. (2020, June 19). How do you measure customer service performance and success? With 10 useful KPIs. Acquire. https://acquire.io/blog/measure-customer-service-success/
18. Dhangal, A. (2020, June 19). How do you measure customer service performance and success? With 10 useful KPIs. Acquire. https://acquire.io/blog/measure-customer-service-success/
19. Hyken, S. (2020, September 17). How to avoid roadblocks to great customer service. [Video]. YouTube. https://youtu.be/A5YhrLnxOTQ[/
20. commbox. (n.d.). Best customer support strategies, evaluate and reward your team. https://www.commbox.io/best-customer-support-strategies-evaluate-and-reward-your-team/
21. Team Synerion. (2015, April 3). Building a reward system for employee performance. Synerion. https://blog.synerion.com/building-a-reward-system-for-employee-performance
22. Team Synerion. (2015, April 3). Building a reward system for employee performance. Synerion. https://blog.synerion.com/building-a-reward-system-for-employee-performance
23. Mindtools. (n.d.). How good are your management skills? https://www.mindtools.com/pages/article/newTMM_28.htm
24. Mullen, R. (2017, April 4). 5 ways to improve service quality in your organization. https://www.replicon.com/blog/5-ways-improve-service-delivery-organization/
25. Mullen, R. (2017, April 4). 5 ways to improve service quality in your organization. https://www.replicon.com/blog/5-ways-improve-service-delivery-organization/
26. Mullen, R. (2017, April 4). 5 ways to improve service quality in your organization. https://www.replicon.com/blog/5-ways-improve-service-delivery-organization/
27. Widmer, B. (2017, January 4). The real cost of bad customer service (and how to avoid it). formilla. https://www.formilla.com/blog/the-real-cost-of-bad-customer-service-and-how-to-avoid-it/
28. Hyken, S. (2018, July 5). How poor customer service can lead to big losses! [Video]. YouTube. https://youtu.be/5T_Wme6pres | textbooks/biz/Business/Introductory_Business/Customer_Centric_Strategy_(Shields)/1.03%3A_Managing_a_Customer_Service_Team.txt |
Chapter 4 Learning Outcomes
After reading this chapter, you should be able to do the following:
1. List five different technologies used within a contact center.
2. Explain two customer benefits from contact centers using technology to improve service.
3. Explain two employee benefits from contact centers using technology to improve service.
4. Explain two company benefits from contact centers using technology to improve service.
5. Describe three benefits of customer relationship management software.
6. Discuss the pros and cons of contact centers becoming purely automated.
Types of Call/Contact Centers
The first step to investing in a contact center is to determine which services and tasks you wish to support. That will help you determine the type of structure, technology, and resources needed. Here’s a brief definition of each type:
Outbound call center: In an outbound call center, agents call potential or existing customers rather than receiving calls from them. This type of call center is mainly used for sales, fundraising, promotions and customer surveys, but it’s not always the case. Some businesses choose to welcome their new clients with the so-called welcome call, during which agents provide further information on the company’s products or policies.[1]
Inbound call center: Inbound call centers tend to focus on assistance for customers who need instructions, a technician, problems solved, questions answered, or other assistance with products, services, and orders. For example, if your internet connection stops working or if it’s too slow, you can call your internet provider’s customer service center to report the issue and get it fixed. Apart from on-call support, inbound contact center agents often provide email responses or chat support.[2]
Blended call center: In a blended call center customer service agents take care of both inbound and outbound call operations. Agents can fill in for each other while handling all the calls. This functionality boosts a call center’s productivity.[3]
Virtual call center: Many businesses have opted for virtual or cloud-based contact centers with blended services. Cloud-based call centers can be operated from anywhere, the set-up is very easy and quick and you don’t need any special programming skills or equipment. Users only need a computer or a phone with an internet connection to access the service. A huge advantage of virtual call centers is the possibility to integrate them with your existing tools, such as CRM or sales support systems.[4]
International and domestic contact centers: Contact centers can be further divided into domestic and international contact centers. Domestic contact centers make and receive calls from people within the same country. So if the company contact center operates in France, agents will be in touch with customers living in France only. On the other hand, international call centers receive and make calls to people from all over the world. International call centers often use several local phone numbers or toll-free numbers to minimize fees for their customers.[5]
Offshore and nearshore contact centers: Companies often outsource their customer service management to overseas call centers. India and the Philippines are the most prominent countries where offshore call centers are located. Overseas call centers typically offer lower rates, because the labor costs in these countries are much lower than in the U.S. However, it’s important that companies do not lose sight of what’s important if they are considering moving their call center operations overseas. Businesses need to make sure the provider they choose will not compromise their brand or the customer experience.[6]
Nearshore call centers are designed to blend the quality of service found in domestic call centers with the cost-effectiveness of offshore call centers. These contact centers are typically located in Central America or the Caribbean and have significant numbers of bilingual agents as well as native English speakers. Nearshore call centers also tend to minimize cultural barriers because there is more travel back and forth between nearshore countries compared to truly overseas call centers.[7]
Onsite configuration: With onsite configurations, contact centers are owned and operated by the company itself. This means that the company’s team takes care of the installation, configuration and maintenance with in-house software and hardware.[8] This can be a costly choice but offers more control over setup, upgrades, customizable options, and changes when needed.
Cloud-based configuration: Cloud-based configurations are hosted offsite in the cloud by a business phone service provider. Users access telephone service through an app installed on their computer or mobile device. This solution relies on internet access with sufficient bandwidth to comfortably accommodate all users, plus other internet activity. Your business or call center’s data is hosted on the cloud, and the corresponding servers either belong to the service provider, or to a third party.[9]
Hybrid configuration: Hybrid configuration means that your call center’s software is hosted off-site and accessed through the internet or intranet. This solution combines the pros and cons of the previous two models, but it does have some drawbacks. The startup costs are cheaper than onsite solutions, and your business won’t need physical space to store servers. However, adjustments and troubleshooting still require third-party maintenance, making an on-premise solution less flexible than cloud solutions. Call routing structures can’t be changed at a moment’s notice, and users/numbers cannot be added as quickly. A combined onsite and virtual approach also has drawbacks in terms of security and overall expenses.[10]
What is Call Center Software?
Call center software is software that allows businesses to make or receive phone calls to and from customers for the provision of good customer service. It offers certain features, such as inbound queueing, call routing, outbound contacting, interactive voice responses (IVR), automatic call distribution (ACD), call scripting, and call monitoring, to help the agents efficiently manage all the calls.
What is Contact Center Operations Software?
Contact center operations software includes traditional dedicated telephone-based call center technology as well as computer systems integration and management tools. These products integrate with customer relationship management (CRM) applications to access customer information and update customer records. Contact centers often integrate contact center workforce software, speech analytics software, and auto-dialer software solutions. Contact center operations features can overlap with telecom services software beyond adding communication channels–analytics, real-time call guidance for agents, and authentication or permission services, among others.[11]
A contact center is supported by many technologies designed to enhance the customer experience and improve operating and management efficiency, or lower the overall costs of running a contact center. These technologies include:
Common Features of Contact Center Software
ACD-–Automatic Call Distributor: ACD is a telephony system that recognizes, answers, and routes incoming calls to the terminal or agent that is best suited to handle the caller’s needs. Knowing where to send incoming calls before they are answered is a huge help for companies receiving a large volume of calls. ACDs help companies meet customer needs more efficiently. It can also create customer call waiting queues, collect phone system usage data, allow for call monitoring and coaching, and allow for social media and CRM VoIP integrations. [12]
Call Recording: Call recording enables agents and managers to record inbound and outbound calls. The recordings can be searched through and heard later for quality coaching.[13]
Call Scripting: Call scripting helps agents follow a dialogue template for easy reference. They can fill their responses directly into the customer relationship management tool (CRM) to design workflows. [14] Scripting is especially helpful to new agents who may not know what to say to a customer or to an experienced agent who may be dealing with a very difficult customer or complex problem. Scripting helps the company portray a similar image to each customer and create a positive experience for each customer. While scripting helps agents follow a specific line of questions and answers it is important for agents to have the authority to deviate from the script when needed otherwise the script may be too rigid or not aligned with specific customers’ needs.
CMS–-Campaign Management System: A CMS is most helpful for outbound contact centers. The software provides the agent with a contact list, or other info needed to reach out to the right people.[15]
CTI-–Computer Telephony Integration: CTI is a type of technology that enables computer and telephone systems to interact together. Contact centers implementing CTI can use computers to manage all telephone calls, which in turn leads to increased efficiency and better results. When agents using CTI receive incoming notifications, a screen is displayed, showing the caller’s account information on the agent’s computer screen. This saves time for both parties by giving the agent the customer info they need to lead the call and solve the problem. CTI screen pop is often used in tandem with a unified desktop so an agent has complete access to customer data.[16]
CRM–Customer Relationship Management System: CRM software gives agents the 360° customer info they need to solve customer needs as quickly as possible. Contact center agents can also use the servicing application to document customer interactions that can be brought up if the caller needs more help in the future. Having a record can help agents resolve customer issues more efficiently. It can also help manage issues that need to be transparent to a sales team leader for further relationship building. CRM systems enable an organization to provide insight into all customer interactions across business units. Because they provide visibility into customer interactions with an organization, they also help with case and issue management: routing customer issues or cases through internal processes and keeping the customer apprised throughout the entire case lifecycle. Your call center software should integrate with your CRM solution. This would help you centralize all the data, including history of communication, agent notes on every interaction, customer issues, and the offers emailed to customers.[17]
Email Response: Email response empowers agents to answer customer queries and manage requests across platforms, such as email, chat, or mobile apps, from a centralized interface.[18] An email response management system is a computerized system that receives, acknowledges, analyzes, and organizes email inquiries submitted by customers and routes the emails to the appropriate resources for response. The system tracks the status of the inquiries from receipt to completion and provides tools such as auto-responses, auto-suggestions, and response libraries to help contact center staff respond to inquiries more efficiently.[19]
Intelligent Call Routing: Call routing is a management process that routes calls as per categories, which are based on predefined business rules, wait time, and customer value. This allows agents to prioritize calls that need to be answered first based on their value, urgency, etc. They can also transfer the caller to another queue and define wait limits for the queues.[20] It is also sometimes referred to as an automatic call distribution (ACD) system.
IVR–Interactive Voice Response: IVR is an automated telephony system that interacts with callers before routing them to the right agent or department, based on the required expertise. The feature aims to ease the situation for callers. The IVR greets them first and prompts them to choose from a series of options to talk to a team member, pay bills, check their account balance, and more.[21]
KMS–Knowledge Management System: KMS is a computerized system designed to support the creation, storage, and dissemination of information. Such a system contains a central repository of information that is well structured and employs a variety of effective and easy-to-use search tools that users can use to find answers to questions quickly. One of the greatest challenges of running a contact center is making sure that customers are getting consistent, accurate, and timely information. KMS are developed to help contact center operators meet this challenge. By having answers to frequently asked questions in a central repository, agents and/or customers can search and retrieve the correct answers quickly and consistently.[22]
Predictive Dialing : A predictive dialer automatically dials from a list of phone numbers. This saves the agent time as the dialer will detect busy signals, voicemail messages, disconnected phone numbers, and when there is no answer. Predictive dialing is applicable across channels: mobile, text, social, chat, and email. It detects a customer’s channel of choice and delivers the interaction directly to an agent. It can also be used to deliver proactive outreach in the case of an emergency or to educate a customer on where their case is in the queue. This feature automatically connects agents to calls when an agent becomes available. The dialer runs through the calling lists and dials at the pace at which the calls can be handled to ensure higher contact rates and lower abandoned call rates. [23]
QM-–Quality Management: QM applications give managers insight into employee performance so that any areas of weakness can be identified. Managers can also use QM to ensure that agents are adhering to internal policies and procedures. For instance, if contact center agents are not taking their break at the scheduled time, it could offset staff to customer demand levels. Knowing how contact center agents adhere to scheduling, training, and workload balance creates a more efficient contact center.[24]
Social Listening: Social listening lets your agents listen to customer issues online using predefined keywords and hashtags on social media. Social media posts are immediately routed to agents and prioritized so that they can provide immediate resolution to customers. The feature also allows you to identify the problem areas based on the online feedback and then use it for improvement.[25] Salesforce Social Studio is software that helps marketing, sales, and customer service teams to come together and manage a brand’s social media presence all in one place. Hootsuite Insights is software that also empowers companies with social listening capabilities.
Here are a few benefits of using Social Media Listening:
1. Learn what customers think about the company and its products and improve the customer experience accordingly
2. Engage with customers and find opportunities for new sales, new customers, and new product development
3. Listen to customer’s complaints and solve their problems or answer their questions
4. Track the brand’s performance as well as competitors’ performance and create social media posts accordingly
5. Connect with influencers and get reviews
6. Address public relations disasters or crises before they get out of hand
Texting Response: Mobile devices have become indispensable tools of the twenty-first century. Studies show that two-way text messaging systems offer a more direct and expedient means of contacting call centers.[26]
Ticketing Software: A ticketing system collects customer support requests from all the sources and centralizes them with the customer data about contact history. Integrating ticketing software with a call center system allows your agents to respond to all the queries efficiently.[27]
TDM-–Time Division Multiplexing and IP – Internet Protocol: TDM was developed in 1870 for large system telegraphy implementation. The technology transports contact center interactions by segmenting multiple data streams and then putting them in a single signal. IP has replaced TDM as the primary mechanism for transporting contact center transactions. IP offers easy access and value-added services such as instant messaging, video calling, and making phone calls directly from websites – all while moving through a less costly network.[28]
Toll-Free Telephone Service: Toll-free or “800” service lets customers call the company free of charge. The company or agency pays the phone bill for all incoming calls. There are different levels of service, and depending on the package selected, it can accommodate callers from the U.S. and U.S. Territories, and Canada. With special arrangements, it can accommodate callers from other countries. The public doesn’t want to pay long-distance charges to obtain government information and services. Toll-free telephone networks can help your agency manage customer calls more efficiently and effectively. They offer a combination of toll-free telephone service and call routing services to optimize the operation and management of contact centers. You can serve a wide geographic region, with multiple locations and staggered hours of operation across time zones.[29]
Trunk Circuit Networks: Used in the context of contact centers, a basic “trunk circuit” is a telephone line connecting the phones at the contact center to the telephone network. Each circuit can handle one phone call at a time. The number of circuits required depends on the number of simultaneous callers the contact center wishes to accommodate. For smaller contact centers, a special trunk circuit known as T-1 is commonly used to connect the contact center system to the telephone network. Each T-1 circuit can accommodate up to 24 simultaneous phone calls at a time. For example, if your contact center wishes to accommodate 36 simultaneous phone calls, you’ll need to put in 2 T-1s.[30]
TTY/TDD Communications: A Text telephone is a special device that lets people who are deaf, hard of hearing, or speech-impaired use the telephone to communicate. The process is similar to chat on computers, where one person types text to the other on these devices. Both individuals in the conversation must have a TTY at each end of the telephone line in order to communicate. Some TTYs can be connected to the phone line by placing the telephone handset in an acoustic coupler; others can connect directly to the phone line.[31]
Web Chat: Web chat is a real-time communications system between agents and the company’s customers that uses a simple, Web interface. Users need browser access in order to use the service. It allows agents to handle multiple chat sessions at the same time. Webchat can be implemented as a hosted service provided by a service provider or as an application on the organization’s server.[32]
WFM – Workforce Management System: WFM is used to forecast the volume of customer voice and digital channel interactions. Contact center managers can use the forecasts to hire the optimal number of agents to ensure customer transactions meet a certain standard of service. WFM systems often tie into other workforce optimization solutions to provide the tools to empower contact center agents. Integrating this software will help contact center managers better manage agents’ productivity. Managers can plan agents’ schedules with a clear understanding of the call volume (derived from forecasting data).[33]
Watch the “Contact Center Technology Finally Enables You to Be Customer Centric” YouTube video below to learn about how technology can help a company be more customer centric.[34] Transcript for “Contact Center Technology Finally Enables You to Be Customer Centric” Video [PDF–New Tab]. Closed captioning is available on YouTube.
Benefits of Using Contact Center Technologies
Some of the benefits contact center agents receive from using technology to improve customer service include increased productivity, accuracy, efficiency, better time management, and possible promotions/recognition/perks for a job well done.
Some of the benefits the company receives from using technology in contact centers include increased customer spending, referrals, and satisfaction resulting in increased customer retention; improved employee retention as technology enables employees to be more efficient and effective; and cost savings.
Some benefits customers receive from contact centers using technology include faster service, fewer errors in ordering and billing, reduced stress, and loyalty rewards.
Some benefits of using customer relationship management software (CRM) include improved customer satisfaction, retention, and spending; better internal communication; more targeted and cost-effective marketing campaigns; and easier analysis of performance as a whole. The company thereby gains valuable insights such as revenues generated, leads, and results of marketing campaigns enabling effective decision making thus improving revenue in the long run. A CRM system can help maximize business performance by increasing up-sell and cross-sell opportunities.
Should Contact Centers Be Purely Automated?
“It’s unquestionable that automation technology provides significant cost savings. For every second that bots shave off average handle times, contact centers save about \$1 million in annual customer service costs. Businesses can reduce customer service costs by up to 30 percent by implementing conversational solutions like virtual associates and chatbots. Automation can, for certain business processes, replace humans (what usually is known as RPA or unattended automation). But there are many things bots can’t do. Bots can’t handle unusual or complex requests. They can’t match a human in expressing empathy. This is why enterprises that have blended automation with humans report that their customer service efforts are more effective at improving both customer satisfaction (61 percent) and associate satisfaction (69 percent).”[35]
Key Takeaways
1. In an outbound call center, agents call potential or existing customers rather than receiving calls from them. This type of call center is mainly used for sales, fundraising, promotions, and customer surveys, but it’s not always the case. Some businesses choose to welcome their new clients with the so-called welcome call, during which agents provide further information on the company’s products or policies.
2. Inbound call centers tend to focus on assistance for customers who need instructions, a technician, problems solved, questions answered, or other assistance with products, services, and orders.
3. In a blended call center, customer service agents take care of both inbound and outbound call operations.
4. Many businesses have opted for virtual or cloud-based contact centers with blended services. Cloud-based call centers can be operated from anywhere, the set-up is very easy and quick and you don’t need any special programming skills or equipment.
5. Contact centers can be further divided into domestic and international contact centers.
6. Offshore call centers are international call centers that, due to their location, can often pay lower wages and thus charge less for third-party customer service.
7. With onsite configurations, contact centers are owned and operated by the company itself.This means that the company’s team takes care of the installation, configuration, and maintenance with in-house software and hardware.
8. Cloud-based configurations are hosted offsite in the cloud by a business phone service provider. Users access telephone service through an app installed on their computer or mobile device.
9. Hybrid configuration means that your call center’s software is hosted off-site and accessed through the internet or intranet. This solution combines the pros and cons of the previous two models, but it does have some drawbacks.
10. There are many technologies used in contact centers today to help improve customer service, sales, customer relationships, customer experience, customer retention, and more. A list of some of these technologies has been included in this chapter:
• ACD – Automatic Call Distributor System
• Call Recording
• Call Scripting
• CMS – Customer Relationship Management System
• Computer Telephone Integration
• CRM – Contact Center Servicing Application
• CTI – Computer Telephony Integration
• Email Response
• Intelligent Call Routing System
• IVR – Interactive Voice Response
• KMS – Knowledge Management System
• Predictive Dialing
• Quality Management
• Social Listening
• Texting Response
• Ticketing System
• TDM – Time Division Multiplexing & IP – Internet Protocol
• Toll-Free Telephone Service
• Trunk Circuit Networks
• TTY/TDD Communications
• Web Response
• WFM – Workforce Management System
11. Some of the benefits contact center agents receive from using technology to improve customer service include increased productivity, accuracy, efficiency, better time management, and possible promotions/recognition/perks for a job well done.
12. Some of the benefits the company receives from using technology in contact centers include increased customer satisfaction resulting in increased customer retention, increased customer spending, increased referrals; improved employee retention as technology enables employees to be more efficient and effective.
13. Some benefits customers receive from contact centers using technology include faster service, fewer errors in ordering and billing, and reduced stress.
14. Some benefits of using customer relationship management software (CRM) include improved customer satisfaction, retention, and spending; better internal communication; more targeted and cost-effective marketing campaigns; and easier analysis of performance as a whole. The company thereby gains valuable insights such as revenues generated, leads, and results of marketing campaigns enabling effective decision making thus improving revenue in the long run. A CRM system can help maximize business performance by increasing up-sell and cross-sell opportunities.
15. Businesses can reduce customer service costs by up to 30 percent by implementing conversational solutions like virtual associates and chatbots. Automation can, for certain business processes, replace humans (what usually is known as RPA or unattended automation). But there are many things bots can’t do. Bots can’t handle unusual or complex requests. They can’t match a human in expressing empathy. This is why enterprises that have blended automation with humans report that their customer service efforts are more effective at improving both customer satisfaction (61 percent) and associate satisfaction (69 percent).
End-of-Chapter Exercises
1. Influencers. Search the Internet for how a company might find influencers through social listening. Why might a company want to do that? Discuss with your classmates and professor.
2. Better Service. Search the Internet to see if you can find an article or story about a company that recently reorganized its contact center or adopted some new technology or configuration in order to provide better customer service and build customer relationships. Share your findings with your classmates and professor.
3. Quality Management. Search the Internet for best practices in quality management in contact centers. How do managers ensure quality customer care within contact centers? How would an agent be dealt with who may be lacking in quality care? Discuss with your classmates and professor.
4. Outsourcing. Search the Internet for the pros and cons of outsourcing contact centers. What are some of the cons of outsourcing contact centers to foreign countries? Discuss with your classmates and professor.
5. Automating. Search the Internet for the pros and cons of automating contact center services. Do customers like to use automated systems? Why or why not? Thinking beyond contact centers, when might customers prefer automated systems rather than interacting with a live person/employee? Provide examples. Discuss with your classmates and professor.
6. Social Media. Search the Internet for the most popular social media tools used by companies today. Search the customer segments that use each of these tools. Did you discover any trends? For example, are there specific customer segments using Twitter? Are there more Facebook users in Canada per capita compared to India? Do younger customers use Pinterest more than seniors do or vice versa? How might knowing the type of customer using each social media platform help a company better serve and sell to customers? Discuss with your classmates and professor.
7. Trailhead Training. Visit Trailhead at Trailhead | The fun way to learn (salesforce.com) and complete the Social Studio Basics training module for free. It should only take you a little more than one hour to complete and just think of all the knowledge you will gain. A great thing about Trailhead is when you complete a trail you receive a certificate of completion to add to your portfolio. In addition to free training on Salesforce, Trailhead assigns badges and rankings making it fun to learn!
8. Trailhead Training. Visit Trailhead at Trailhead | The fun way to learn (salesforce.com) and complete the Knowledge Basics for Lightning Experience module for free. It should only take you about 30 minutes to complete and just think of all the knowledge you will gain. Discuss with your classmates and professor the questions a company might ask when creating a knowledge base.
Query \(1\)
Additional Resources
1. Top Rated Contact Center Products
2. Top Customer Experience Management Trends in Telecoms
3. How does Contact Center AI Work? YouTube Video
4. Introducing the All-New Webex Contact Center: The technology enabling the future of CX, YouTube Video
5. Disrupting and transforming the contact center experience., YouTube Video
6. 2021 Customer Experience Strategies, YouTube Video
7. Hootsuite Platform, Free Training
8. Social Listening with Hootsuite Streams, Free Training
9. What is Social Listening, Why it Matters, and 10 Tools to Make it Easier
10. Hands-on Free Training for Salesforce
References
(Note: This reference list was produced using the auto-footnote and media citation features of Pressbooks; therefore, the in-text citations are not displayed in APA style).
Media Attributions
1. Cloudtalk. (2019, May 13). Types of call centers. [Blog]. https://www.cloudtalk.io/blog/types-of-call-centers#:~:text=Types%20of%20Call%20Centers%201%20Inbound%20call%20center,calls%20from%20them.%20...%203%20Virtual%20call%20center
2. Cloudtalk. (2019, May 13). Types of call centers. [Blog]. https://www.cloudtalk.io/blog/types-of-call-centers#:~:text=Types%20of%20Call%20Centers%201%20Inbound%20call%20center,calls%20from%20them.%20...%203%20Virtual%20call%20center
3. GetApp. (n.d.). Buyers guide call center. https://www.getapp.com/customer-service-support-software/call-center/#key-call-center-software-industry-trend
4. Cloudtalk. (2019, May 13). Types of call centers. [Blog]. https://www.cloudtalk.io/blog/types-of-call-centers#:~:text=Types%20of%20Call%20Centers%201%20Inbound%20call%20center,calls%20from%20them.%20...%203%20Virtual%20call%20center
5. Cloudtalk. (2019, May 13). Types of call centers. [Blog]. https://www.cloudtalk.io/blog/types-of-call-centers#:~:text=Types%20of%20Call%20Centers%201%20Inbound%20call%20center,calls%20from%20them.%20...%203%20Virtual%20call%20center
6. Uzialko, A. (2021, January 26). Pros and cons of outsourcing customer service to an offshore call center. Business News Daily. https://www.businessnewsdaily.com/5333-offshore-call-center.html
7. Uzialko, A. (2021, January 26). Pros and cons of outsourcing customer service to an offshore call center. Business News Daily. https://www.businessnewsdaily.com/5333-offshore-call-center.html
8. Cloudtalk. (2019, May 13). Types of call centers. [Blog]. https://www.cloudtalk.io/blog/types-of-call-centers#:~:text=Types%20of%20Call%20Centers%201%20Inbound%20call%20center,calls%20from%20them.%20...%203%20Virtual%20call%20center
9. Barbier, L. (2020, March 30). On premise vs. cloud based call center software: How to make the call. [Blog]. Aircall. https://aircall.io/blog/call-center/cloud-based-call-center-software/
10. Barbier, L. (2020, March 30). On premise vs. cloud based call center software: How to make the call. [Blog]. Aircall. https://aircall.io/blog/call-center/cloud-based-call-center-software/
11. Best contact center operations software. (n.d.). https://www.g2.com/categories/contact-center-operations
12. ptp. (n.d.). Contact center technology 101.https://www.ptpinc.com/glossary/call-center-technology-101/#:~:text=16%20CONTACT%20Center%20Technologies%20You%20Should%20Know%20About,...%203%20Intelligent%20Call-Back.%20...%20More%20items...%20
13. GetApp. (n.d.). Buyers guide call center. https://www.getapp.com/customer-service-support-software/call-center/#key-call-center-software-industry-trend
14. GetApp. (n.d.). Buyers guide call center. https://www.getapp.com/customer-service-support-software/call-center/#key-call-center-software-industry-trend
15. ptp. (n.d.). Contact center technology 101. https://www.ptpinc.com/glossary/call-center-technology-101/#:~:text=16%20CONTACT%20Center%20Technologies%20You%20Should%20Know%20About,...%203%20Intelligent%20Call-Back.%20...%20More%20items...%20
16. ptp. (n.d.). Contact center technology 101. https://www.ptpinc.com/glossary/call-center-technology-101/#:~:text=16%20CONTACT%20Center%20Technologies%20You%20Should%20Know%20About,...%203%20Intelligent%20Call-Back.%20...%20More%20items...%20
17. ptp. (n.d.). Contact center technology 101. https://www.ptpinc.com/glossary/call-center-technology-101/#:~:text=16%20CONTACT%20Center%20Technologies%20You%20Should%20Know%20About,...%203%20Intelligent%20Call-Back.%20...%20More%20items...%20
18. GetApp. (n.d.). Buyers guide call center. https://www.getapp.com/customer-service-support-software/call-center/#key-call-center-software-industry-trend
19. Digital.gov. (n.d.). Contact center technologies. https://digital.gov/resources/contact-center-guidelines/contact-center-technologies/
20. GetApp. (n.d.). Buyers guide call center. https://www.getapp.com/customer-service-support-software/call-center/#key-call-center-software-industry-trend
21. GetApp. (n.d.). Buyers guide call center. https://www.getapp.com/customer-service-support-software/call-center/#key-call-center-software-industry-trend
22. Digital.gov. (n.d.). Contact center technologies. https://digital.gov/resources/contact-center-guidelines/contact-center-technologies/
23. ptp. (n.d.). Contact center technology 101. https://www.ptpinc.com/glossary/call-center-technology-101/#:~:text=16%20CONTACT%20Center%20Technologies%20You%20Should%20Know%20About,...%203%20Intelligent%20Call-Back.%20...%20More%20items...%20
24. ptp. (n.d.). Contact center technology 101. https://www.ptpinc.com/glossary/call-center-technology-101/#:~:text=16%20CONTACT%20Center%20Technologies%20You%20Should%20Know%20About,...%203%20Intelligent%20Call-Back.%20...%20More%20items...%20
25. GetApp. (n.d.). Buyers guide call center. https://www.getapp.com/customer-service-support-software/call-center/#key-call-center-software-industry-trend
26. Lemzy, A. (2017, September 18). Texting tools for call centers: Because nobody likes to be left on hold. Text Magic. https://www.textmagic.com/blog/texting-tools-for-call-centers/
27. GetApp. (n.d.). Buyers guide call center. https://www.getapp.com/customer-service-support-software/call-center/#key-call-center-software-industry-trend
28. ptp. (n.d.). Contact center technology 101. https://www.ptpinc.com/glossary/call-center-technology-101/#:~:text=16%20CONTACT%20Center%20Technologies%20You%20Should%20Know%20About,...%203%20Intelligent%20Call-Back.%20...%20More%20items...%20
29. Digital.gov. (n.d.). Contact center technologies. https://digital.gov/resources/contact-center-guidelines/contact-center-technologies/
30. Digital.gov. (n.d.). Contact center technologies. https://digital.gov/resources/contact-center-guidelines/contact-center-technologies/
31. Digital.gov. (n.d.). Contact center technologies. https://digital.gov/resources/contact-center-guidelines/contact-center-technologies/
32. Digital.gov. (n.d.). Contact center technologies. https://digital.gov/resources/contact-center-guidelines/contact-center-technologies/
33. ptp. (n.d.). Contact center technology 101. https://www.ptpinc.com/glossary/call-center-technology-101/#:~:text=16%20CONTACT%20Center%20Technologies%20You%20Should%20Know%20About,...%203%20Intelligent%20Call-Back.%20...%20More%20items...%20
34. Call Center Coach. (2019, January 2). Contact center technology finally enables you to be customer centric. [Video]. YouTube. https://www.youtube.com/watch?v=BtwtDtsnosA
35. Aquino, J. (2020, February 18). Contact center vs. call center: Six key differences and why it matters. [Blog]. https://www.ttec.com/blog/contact-center-vs-call-center-6-key-differences-and-why-it-matters | textbooks/biz/Business/Introductory_Business/Customer_Centric_Strategy_(Shields)/1.04%3A_Using_Contact_Center_Technology_to_improve_CX.txt |
Chapter 5 Learning Outcomes
After reading this chapter, you should be able to do the following:
1. Describe the difference between the traditional call center and the modern contact center.
2. List five duties a contact center representative performs.
3. List five issues a contact center representative may deal with.
4. List three things a contact center representative may do to provide quality customer service.
The Role of the Contact Center Representative
“A Customer Service Representative (CSR) – also called an agent – is a person who works in a call or contact center and helps customers with their issues. They may do this using a variety of channels, including phone, chat, email and social media. Customer service representatives (CSRs) play an important role in influencing the customer experience.”[1] The role of the customer service representative (CSR) is to offer outstanding service to customers in order to maintain satisfaction by meeting or exceeding customer expectations. A CSR must have many skills including good communication skills, excellent problem-solving skills, and strong interpersonal skills.
“A traditional call center, as the name suggests, is focused on voice calls. Even if a call center provides some multi-channel customer service, the interactions are siloed in the individual channels. This does not provide a clear view of the full customer journey. On the other hand, a modern contact center, as the name indicates, allows customers to contact a company not just via calls, but across whatever channel they choose.”[2]
“A contact center is the central point from which all customer contacts are managed. This requires the coordination and integration of people, processes, and technology across the business. Contact center agents, for instance, need to be trained in the best practices of each channel for engaging customers.” [3]
Watch the “Contact Center vs Call Center: What’s the difference?” YouTube video below to learn the difference between contact centers and call centers.[4] Transcript for “Contact Center vs Call Center: What’s the difference?” Video [PDF–New Tab]. Closed captioning is available on YouTube.
Customer Service Representatives have the ability to help retain existing customers as well as help obtain new customers, so it’s a highly valuable position for any company. You may be wondering if a position as a contact center representative is the right job to begin your career.
Most likely you have interacted with a contact center at some point, but you may wonder what a day in the life of a customer service representative may include. “To work in a call center, you’ll need to be motivated by customer success. Call center agents are tenacious problem-solvers who are committed to enhancing customers’ experience with a company or brand. A call center agent’s workday is typically fast-paced and requires them to manage a handful of different responsibilities. Often times, agents need to be flexible with their workflow and capable of handling unexpected roadblocks. While this causes their workday to look different each day, agents will still perform the same core call center duties regardless of the task they’re completing.”[5]
Contact Center Agent Duties
The job of a contact center agent can be quite varied and interesting. Responsibilities may include:[6]
• Responding to short SMS queries.
• Answering inbound phone calls.
• Answering emails.
• Responding to support tickets filled out over a web form.
• Engaging in live chats.
• Making outbound phone calls.
• Identifying and escalating issues to supervisors.
• Providing product and service information to customers.
• Researching, identifying, and resolving customer complaints using applicable software.
• Processing orders, forms, and applications using applicable software.
• Documenting all call information according to standard operating procedures.
• Recognizing, documenting, and alerting the management team of trends in customer calls.
• Following up on customer calls where necessary.
• Upselling or cross-selling products and services.
• Working with colleagues when necessary to resolve customer complaints.
• Learning about the company products to be able to answer any questions from customers.
Agents may have to deal with a wide variety of issues ranging:
• Pre-sales
• Inbound sales and service
• Outbound sales and service
• General account queries
• Bill payments
• Complaints
• Technical support
• Warranty claims
• Product returns
• Account upgrades
• Account closures
• Appointment bookings or reminders
Agents must make sure that they:
• Answer calls within a specific period of time.
• Answer the call correctly, usually giving their name, the company they represent, and the department.
• Resolve most calls on the first contact or refer them to the correct department.
• Ensure that the customer is happy and that they do not have any other queries.
• Log the nature of the call accurately against the customer’s account.
• Handle an appropriate number of calls per day (or at the very least be in the ‘ready’ state to accept calls for the right amount of time, if call volumes are low).
Some call center agents work in-house, directly for their employer while others may be working for an outsourcing company and accept calls for a range of clients. Some agents work from home (also known as virtual agents), while others work from a central office and commute to work each day. Some companies operate their own contact centers while others outsource their contact center operations, or part of it, to an agency.
Depending on the specialization of the agent, they may handle calls falling into several of the above categories, or they may be focused on one or two specific areas. Some companies, such as financial companies, may assign high-value clients a designated “account advisor” agent who will answer the majority of their calls. This helpful customer retention strategy and ensures that the customer interacts with someone who knows the status of their account and who can answer their questions promptly. For complex issues and high-value accounts, this kind of continuity is essential.[7]
All companies benefit from contact center computerized systems that pull together customer information into a reporting system (usually a customer relationship management (CRM) database) which makes it easy for any agent on the team to locate the customer’s history with the company, orders pending and filled, interactions such as complaints, and notes left by other agents before and during an interaction with the customer. This makes for a positive customer experience and aids in customer retention.
Contact Center Agent Workload
Contact center agents may be working in very busy environments and be expected to answer 50 or more calls per day. An agent may be working in an inbound center or an outbound center. Inbound centers are usually for customer service calls coming into the company from customers seeking information, looking for product support, returning products, or paying bills. Outbound centers are usually for calls initiated by the company going out to customers either attempting to make a sale, or provide information about a promotion, improve customer relationships, or solicit new business.
An agent not only takes phone calls but also works with various channels responding to customer inquiries and solving customer issues. Some issues take time and must be researched, reviewed with a manager, or collaborated on with other departments so an agent must set aside time for these tasks and follow-up with the customer later in the day or the next day (as agreed upon). Even if there is no resolution to the problem, the agent should contact the customer at the agreed upon time to provide a status update and let them know the problem is still being worked on.
“Depending on the nature of the calls, working in a call center can be quite repetitive. Agents who work in departments doing bill payments or inbound sales need to be good typists, since they must record addresses and card details quickly and accurately. Those working in support roles need to be able to complete ticket information accurately, demonstrate good listening skills, and communicate instructions clearly.”[8]
Being flexible and adaptable may help an agent overcome the boredom of the repetition of similar calls. Agents may be asked to work in both inbound and outbound centers, or offer support on more than one product, or answer bilingual calls, or swap between different communication channels. Having agents who can work in different areas and on different systems is a benefit for the employer too as it means less agent downtime.
“Call center work can be stressful if the callers become hostile, but it can also be quite rewarding if the callers are polite and are grateful for the help that they are given. Outbound sales agents, and those who do outbound surveys, can sometimes face hostile responses from call recipients. A good call center agent will handle it gracefully and remove the recipient from the database so they don’t get called again.”[9]
Watch the “Mock Call Sample Recording With Call Flow Guide” YouTube video below for examples of customer calls in the call center.[10] Transcript for “Mock Call Sample Recording With Call Flow Guide” Video [PDF–New Tab]. Closed captioning is available on YouTube.
Contact Center Agent Wages
Many contact center agents earn minimum wage, but agents with multiple skills or who speak multiple languages often earn higher pay rates than those who handle only one type of customer call. Agents working in technical support, medical or financial areas often receive higher pay rates. Agents working in sales roles will usually earn commission on top of their regular salary.[11]
“Because of the relatively low rate of pay for the entry-level positions, the turnover rate for office-based call center work is high. Virtual call center agents usually enjoy better job satisfaction, and a better pay rate in real terms, since they do not have to commute to work and don’t have to worry about packed lunches/eating out or buying work clothes. Since they work from home, their work day feels shorter and they may enjoy more leisure time while still getting the same rate of pay for the hours they work.”[12]
Contact Center Agent Training
Most organizations train their contact center representatives during the first few weeks on the job. Representatives need to become familiar with the company’s mission and vision and specifics around the image the company wishes to portrait to customers. After a few weeks of training, the manager will often coach and monitor new representatives on the job, correcting any service issues they observe. As new technology is introduced into the call center, customer procedures change, trends in service change, or legal or company policies change, representatives may need to be trained on the changes. Once an agent is trained they may be offered additional training to grow their skills and knowledge so as to work in multiple departments, for multiple customers, or learn more about selling or servicing various products.
Watch the “How to Survive Your Call Center Training” YouTube video below for information call center trainees will want to know.[13] Transcript for “How to Survive Your Call Center Training” Video [PDF–New Tab]. Closed captioning is available on YouTube.
Providing Quality Service in a Contact Center
No matter how experienced you are, never assume you know more about the customer’s needs than they do. These types of assumptions can lead to miscommunication and frustration for both of you. Instead, communicate thoughtful, personalized solutions. No two customers are alike. Each one has their own unique needs and goals that are specific to their situation. Recognizing these differences and adapting your communication to align with each customer is a great way to build rapport.[14]
To stand out from competitors, you need to do more than just provide the right answer. Exceeding customer expectations and providing positive, memorable experiences help retain customers and make them loyal advocates which means more revenue for the company. When customers have questions, they want answers quickly. That means you need to be organized and capable of thinking on your feet. It also means that you need to be proficient with call center technology. Most agents will receive training during onboarding or orientation on how to use the computerized systems. You need to document and respond to tickets (issues to respond to) efficiently.
Observe recurring patterns or customer roadblocks. If several customers complain about the same thing then this may be a significant problem and you should report these issues to management. The company can then correct the issue whether it be a processing problem or a product flaw. Correcting the issue early means avoiding future angry customers and ensures a better customer experience. This makes your job as an agent easier too.
It’s tempting to provide a customer with an easy, short-term solution; however, it’s important to solve for the customer’s long-term needs and not for your own convenience. Customers will recognize the difference and will remain loyal to your business if you truly go above and beyond for them.[15]
Stay calm under pressure, especially when dealing with angry customers. Your professionalism may be tested when dealing with angry customers, but doing a quality job means actively listening to complaints, calming the situation, and resolving the issue as effectively and efficiently as possible. This may mean following up with the customer after you have done some research on the problem. Sometimes you need to transfer the customer to a manager when you do not have the authority needed to solve the issue. Other times it may mean working with another department to get the customer issue resolved. All you can do is remain calm, work diligently, and reassure the customer that you are working in their best interest and trying to solve their issue quickly and effectively.
Watch the “How to Deal With Angry Customers” YouTube video below to learn some tips for dealing with angry customers.[16] Transcript for “How to Deal With Angry Customers” Video [PDF–New Tab]. Closed captioning is available on YouTube.
Key Takeaways
1. A Customer Service Representative (CSR) – also called an agent – is a person who works in a call or contact center and helps customers with their issues. They may do this using a variety of channels, including phone, chat, email and social media. Customer service representatives (CSRs) play an important role in influencing the customer experience.
2. A traditional call center, as the name suggests, is focused on voice calls. Even if a call center provides some multi-channel customer service, the interactions are siloed in the individual channels. This does not provide a clear view of the full customer journey.
3. A modern contact center, as the name indicates, allows customers to contact a company not just via calls, but across whatever channel they choose.
4. A contact center representative has many duties, some of which include: Answering inbound phone calls. answering emails, responding to support tickets filled out over a web form, engaging in live chats., and making outbound phone calls.
5. Contact center agents may deal with a variety of issues, some of which include: inbound sales and service, outbound sales and service, general account queries, bill payments, and complaints.
6. To provide quality service, a contact center representative should communicate thoughtful, personalized solutions, be organized and capable of thinking on your feet, be proficient with call center technology, observe recurring patterns or customer roadblocks and report them to management, solve customer issues for the customer’s long-term needs and not for your own convenience, and stay calm under pressure, especially when dealing with angry customers so as to maintain your professionalism.
End-of-Chapter Exercises
1. Jobs. Search the Internet to locate three job advertisements for a contact center representative (or agent) and compare the duties to those listed in this chapter. The job titles may differ, for example, a job advertisement posted on the Coca-Cola Company website is entitled “Customer Resolution Specialist” working in the “Customer Care Center” while the job duties are those of a contact center representative. Try searching company websites for jobs at companies you might like to work for one day. Starting out in a contact center is a great way to get hired and work your way up the proverbial ladder within your desired organization.
2. Contact Center Software. Search the Internet to locate information on contact center software. Contact center software allows companies to manage a high volume of inbound and outbound customer communications across a range of channels. Select one specific software, such as Talkdesk, LeadDesk, Bitrix24, VICIdial, Five9, Nice, or other, to further research. Take note of the features and benefits of the software as well as the price. You may also wish to look at some user reviews to see how people liked using the software. Is there a demo or free trial? Share this information with your professor or classmates. Your professor may wish to take advantage of a free trial and have you practice using some contact center technology.
3. Salesforce Service Cloud. Many companies use Customer Relationship Management (CRM) software to track interactions with customers so that contact center agents can view the issues customers may have had in the past. A very popular example of CRM software is Salesforce Service Cloud which is contact center software, built on a SaaS model, that empowers the company to manage customer service in the cloud. Salesforce provides customer relationship management service and also provides a complementary suite of enterprise applications focused on customer service, marketing automation, analytics, and application development. You can learn more about using Salesforce at the Trailhead free training website. Go ahead and sign up for free then take a quick 10 minute tutorial on using Salesforce Service Cloud.
4. Hootsuite. Search the Internet to discover the most popular social media used by companies today to interact with customers. Many companies use software tools to manage their social media accounts in one place. Hootsuite is a popular social media management dashboard. Hootsuite also offers a free trial. Research Hootsuite and take note of the features and benefits of using such software. Share this information with your professor and classmates.
5. Call Center Quiz. Take a quiz to see if you are a good candidate for a call center position.
6. Common Phrases. Review some common phrases agents use when serving customers then roleplay with a partner various customer phone calls. Some angry customer calls, some inquiries about products or services, and some billing questions or complaints. If you are not sure how to answer the customer, do some research to find some example calls to learn how to provide the best service possible. The customer can provide you with feedback on how well you represented the company and how well you resolved their problem or provided exceptional customer care.
Query \(1\)
Additional Resources
1. Best Contact Center Software
2. Gartner Ranks Five9 Highest for Agile Contact Center and North America Use Cases
3. Salesforce Trailhead – Learn new skills in Salesforce CRM software
4. Top 15 Call Center Quality Assurance Best Practices
5. 8 Most Important Qualities of a Call Center Agent
6. Monster Call Center Agent Job Description Sample
7. Social Media Customer Service
References
(Note: This reference list was produced using the auto-footnote and media citation features of Pressbooks; therefore, the in-text citations are not displayed in APA style).
Media Attributions
1. Nice. (2021). What is a customer service representative (CSR)? https://www.niceincontact.com/call-center-software-company/glossary/what-is-contact-center-customer-service-representative-csr
2. Aquino, J. (2020, February 18). Contact center vs. call center: 6 key differences and why it matters. TTEC. https://www.ttec.com/blog/contact-center-vs-call-center-6-key-differences-and-why-it-matters
3. Aquino, J. (2020, February 18). Contact center vs. call center: 6 key differences and why it matters. TTEC. https://www.ttec.com/blog/contact-center-vs-call-center-6-key-differences-and-why-it-matters
4. Nextiva. (2020, November 23). Contact center vs call center: What's the difference? [Video]. YouTube. https://youtu.be/HJtuLLY3gZk
5. Glassdoor Team. (2019, May 2). Working in a call center: Here's what you need to know. https://www.glassdoor.com/blog/working-in-a-call-center/
6. McMahon, K. (2021, January 22). What does a contact center agent do? Intrado. https://www.intrado.com/en/blog/cloud-collaboration/what-does-contact-center-agent-do
7. McMahon, K. (2021, January 22). What does a contact center agent do? Intrado. https://www.intrado.com/en/blog/cloud-collaboration/what-does-contact-center-agent-do
8. McMahon, K. (2021, January 22). What does a contact center agent do? Intrado. https://www.intrado.com/en/blog/cloud-collaboration/what-does-contact-center-agent-do
9. McMahon, K. (2021, January 22). What does a contact center agent do? Intrado. https://www.intrado.com/en/blog/cloud-collaboration/what-does-contact-center-agent-do
10. Kwestyon. (2020, July 18). Mock call sample recording with call flow guide. [Video]. YouTube. https://www.youtube.com/watch?v=seQ5RRI6H4c
11. McMahon, K. (2021, January 22). What does a contact center agent do? Intrado. https://www.intrado.com/en/blog/cloud-collaboration/what-does-contact-center-agent-do
12. McMahon, K. (2021, January 22). What does a contact center agent do? Intrado. https://www.intrado.com/en/blog/cloud-collaboration/what-does-contact-center-agent-do
13. Kwestyon. (2020, August 31). How to survive your call center training. [Video]. YouTube. https://www.youtube.com/watch?v=6FLgVBEHR14
14. Saboo, N. (2019). Working in a call center: Everything you need to know. [Blog]. Hubspot. https://blog.hubspot.com/service/working-call-center
15. Saboo, N. (2019). Working in a call center: Everything you need to know. [Blog]. Hubspot. https://blog.hubspot.com/service/working-call-center
16. Userlike. (2020, March 3). How to deal with angry customers. [Video]. YouTube. https://youtu.be/8K19oXZyAAU | textbooks/biz/Business/Introductory_Business/Customer_Centric_Strategy_(Shields)/1.05%3A_Working_in_a_Customer_Contact_Center.txt |
Chapter 6 Learning Outcomes
After reading this chapter, you should be able to do the following:
1. Describe the role and responsibilities of the contact center manager.
2. List five challenges contact center managers face.
3. List six best practices for effective contact center management.
4. Discuss three metrics contact centers use to measure the quality of customer service.
The Role of the Contact Center Manager
The contact center manager sets objectives in service quality and analyzes metrics to see if the objectives have been met. The manager provides feedback to staff and arranges training as needed to ensure reliable, efficient support for customers. Very often someone starts out as a contact center representative then progresses into a contact center manager role after they have gained experience in customer service and the technologies used in contact centers. Below is a list of key responsibilities of a Contact Center Supervisor position posted at Indeed.[1]
Key Responsibilities/Accountabilities:
• Provides leadership and guidance to the Contact Centre team
• Plans, organizes, and supervises the activities of the operational unit including daily activities and Quality Assurance
• Reviews and analyzes department reports on a daily, weekly, and monthly basis
• Plans staff scheduling and workforce resource utilization
• Manages key customer service metrics
• Responds to escalated customer concerns (call queue, e-mail, online inquiries, chat social media, etc)
• Communicates any changes to policies and procedures to Contact Centre staff
• Evaluates and recommends various technological changes to improve the customer service process
• Provides coaching, development, performance management, technical guidance, and advice
• Provides input into department goals and objectives
• Leads and/or participates in department projects and key initiatives to ensure quality and timely completion within budget
• Researches, recommends, and implements new or enhanced policies, procedures, and processes to improve operational effectiveness
• Ensures compliance with legislative, regulatory, and health and safety policies, procedures, and standards
Watch the “5 Qualities of Great Customer Service” YouTube video below for great service tips.[2] Transcript for “5 Qualities of Great Customer Service: Video [PDF–New Tab]. Closed captioning is available on YouTube.
Challenges Contact Center Managers Face
As a call center manager, you will face challenges from management, customers, your employees, and your technology.
Absenteeism
Since a call center is so dependent on people being available to answer phone calls and resolve customer issues when workers are absent it increases the workloads for other agents who may already have lots of work to deal with. This creates extra stress for the agents working and may cause them to feel overworked and underappreciated or underpaid, thereby creating low morale. Managers should develop a policy for absences. Encourage employees to give notice or make arrangements in the event of a scheduled absence. Once a policy is enacted then managers must enforce it; hold employees accountable for being at work on time and as scheduled.
Accurate Reporting and Analytics
Call centers are a repository for customer data and typically use reporting and analytics software to analyze data and create reports that benefit organizational performance. Call center managers are mostly responsible for providing reports on various aspects to other departments. Sales and marketing require reports on outbound sales performance, finance requires reports on the operational cost of the call center, and the information technology team wants reports on the operational performance of the call center. With so many separate reports and systems jumbled together, getting accurate and consistent reporting becomes a colossal problem to call center managers.[3]
Attrition
When a call center loses an employee, they lose all the time, effort, and training that went into that person. Finding and hiring quality agents is difficult and retaining them can be just as difficult. To help reduce call center turnover rates be more selective when hiring and hire candidates who have shown longevity and loyalty to past employers. Offer competitive pay and rewards, sometimes just offering a bit higher pay can make for more reliable, productive employees. Provide employees with the software tools they need to excel at their job, like multiple communication channels, call analytics, computer telephony integration (CTI), interactive voice response (IVR), call recording, and call monitoring.[4]
Top Factors That Lead to High Attrition
There are lots of things that can lead to high attrition at call centers. Here are a few of the top causes of high attrition:
• Improper training
• No upward mobility
• Low wages
• Micromanagement
• Low morale
Call Center Turnover Rates by Job Title[5]
• Entry-level – 27%
• Intermediate agents – 20%
• Senior agents – 12%
• Team leads – 11%
• Supervisors – 7%
• Managers – 6%
Bad Customer Experiences are Magnified
When customers have bad experiences with companies they often post their stories, feedback, and reviews on social media sites. This becomes a big problem for companies as they fear their company image will be damaged and this may result in retaining current customers or difficulty attracting new customers. A post on Facebook or a tweet on Twitter can be read by thousands in a matter of minutes. Call center managers should train their agents to be social-media savvy so as to respond appropriately and in a timely fashion to complaints, bad publicity, or angry customers sharing their stories in the public eye.
Collaborating Across Departments
“Like any business, call centers require the support of multiple departments. When it comes to problems outside answering phones—like shopping issues or defective products—your employees can only do so much. In those situations, it helps to recognize your employees’ limits but to also look for opportunities to improve relationships between departments. One way to accomplish this is to integrate databases across departments so every employee has a comprehensive view of your call center’s interactions with a customer.”[6]
Employee Engagement
Maintaining employee enthusiasm in a contact center is difficult because the work is stressful and monotonous, and it’s easy for employees to become demoralized, which leads to absenteeism and turnover. Managers need to empower employees to help customers. Agents need to feel they have the authority to efficiently help customers. Automation can help by assisting agents in offering excellent service, often reducing the time needed to deal with each customer. Providing incentives for excellent service and meeting performance goals will help engage employees. Delivering timely feedback by letting employees know how they are doing on a regular basis and providing coaching and training as needed is also a way to engage employees.
First Contact Resolution
Most contact centers strive to resolve customer issues on the first call (contact) as this is the most efficient approach and customers prefer not to have to call back several times or be transferred to several employees to resolve their issues. As customer issues become more complex, it gets harder to solve them during the first touchpoint and may take several follow-up calls or additional contact to resolve.
Some ways to help agents solve issues on the first contact, include:
1. Building a common knowledge base for agents to refer to when they need answers to common customer questions or specifications about specific products.
2. Engaging in root-cause analysis to identify the top reasons why customers call into the contact center and using that information to populate the knowledge base.
3. Assessing key performance indicators (KPIs) by reviewing metrics often and determining whether or not they are providing the insights needed to improve customer service.
Increasing Customer Expectations
“With digital and social channels reshaping customer expectations and increasing business competition has made it harder for call centers to meet customer expectations. And with evolving customer expectations, customer attrition tends to increase. Customers expect immediate service through the channel of their preference.”[7]
Many customers prefer to use self-service channels so it is important to make it easy and efficient for customers to serve themselves. Increasing opportunities for customers to serve themselves frees up agents to handle more complicated customer issues, and it may increase customer satisfaction as well.
Software Integration
Much of an agent’s day-to-day operations entail continuously switching between multiple software systems and databases. This is only a problem if many failed first-call resolutions are because of an inability of agents to access data. Managers should integrate systems as much as possible to increase efficiency and training time. It is also important to buy from vendors who support their software, have user-friendly interfaces (GUI), and integrate their various systems into one system.
Metrics
How does a contact center know it’s consistently delivering high-quality service? It begins with setting metrics. Metrics is a method of measuring something or the results obtained from this. The right metrics or key performance indicators (KPIs) should effectively measure a business’s specific capacities. Call center managers rely on historical and real-time data to make decisions. Traditional call center metrics include first-call resolution, speed to answer, and average handling time.[8]
Here’s a list of the most crucial metrics that inbound call centers must measure.[9]
Abandoned Call Rate (ACR)
In an inbound call center setting, the rate of abandoned calls refers to the total number of calls where a caller hangs up before an agent answers. The most common factors that lead to abandoned calls are lengthy wait times and unnecessary hold times. An inefficient IVR system may also cause callers to abandon the queue. To ensure compliance with the SLA, a 5% or lower abandoned call rate needs to be maintained. To compute for the ACR, divide the total number of abandoned calls by the total number of inbound calls.
A method of reducing the number of abandoned calls is to start off the call with ringing rather than going straight to the Interactive Voice Response (IVR) system. Pre-occupying a caller with the traditional ring can buy agents some time to wrap up current calls and handle the next call in queue. It’s also best to set expectations and be transparent with the wait time. Callers tend to wait longer when they know exactly how long they need to wait.
Offering self-help options via the website through your IVR system also reduces the volume of calls received. Aside from this, offer customers the option to leave a voicemail message to facilitate a callback. Lastly, curb abandoned calls by making sure the headcount during peak hours is enough to handle incoming calls.[10]
Average Speed of Answer (ASA)
The Average Speed of Answer (ASA) refers to the average amount of time wherein a call is required to be answered. It’s an essential part of the SLA where the service vendor promises to answer an X amount of calls within an X amount of time. Generally, a contact center’s ASA should not exceed 28 seconds.
To calculate, divide the total amount of waiting time by the total number of calls received within a certain period. For example, the waiting for 20 calls while the total waiting time is at 30 minutes. The ASA in this instance is 1.5 minutes.
The lower the ASA score, the fewer times customers spend waiting for their calls to get answered. A higher number indicates inefficiency and poor customer service. This metric affects Customer Satisfaction as today’s customers tend to lean toward immediate resolutions to be delighted. In fact, 82% of customers decide to discontinue doing business with a company that provides substandard customer service.[11]
Not only is this crucial to achieving a high Customer Satisfaction score (CSAT), a lower ASA lowers the occurrence of abandoned calls while increasing the First Call Resolution rate.
Reducing the number of abandoned calls improves a contact center’s ASA score. Also, a contact center can easily improve its ASA by having streamlined call routing in place. Getting ahold of the right person the first time also ultimately improves the customer experience.[12]
Average Handle Time (AHT)
Average handling time (AHT) is the average time spent by an agent in handling customer issues or transactions. This also includes the amount of time a customer is placed on hold within the duration of the call and the after-call work time which the agent spends doing back-office tasks. The AHT is calculated by adding the agent’s total talk time plus the total hold time plus the total after-call work time. This is then divided by the total number of calls.
Watch the “Average Handle Time: Managing Metrics” YouTube video below to learn about call center metrics.[13] Transcript for “Average Handle Time: Managing Metrics” Video [PDF–New Tab]. Closed captioning is available on YouTube.
Average Call Transfer Rate
The Average Call Transfer Rate is a metric that monitors the number of calls transferred to another department, a supervisor, or a different queue. Customers can become frustrated when repeating the same issue to different representatives so it is important to monitor this metric.
Cost Per Contact
The Cost Per Contact metric refers to the expenses related to running a contact center (i.e., operational costs, wages, benefits). To calculate the average cost per contact, the total cost associated with operating the business is divided by the total number of contacts handled. Whenever an agent picks up the phone, it costs a contact center money—salary, software, hardware, electricity, etc. This metric helps determine which channels are the most effective including phone, email, live chat, SMS, and social media.
Customer Lifetime Value (CLV)
Customer lifetime value (CLV) is one of the key statistics to track as part of a customer experience program. CLV is a measurement of how valuable a customer is to your company, not just on a purchase-by-purchase basis but across the whole relationship. CLV is often used by marketing managers to determine who the company’s best customers are and target these customers for specific promotions, services, or perks. The CLV may be used in a contact center to prioritize callers. For example, customers with higher CLV to more experienced contact center representatives or specific segment representatives to ensure the best service, while customers with lower CLV may be direct to the general representatives or less senior representatives. To measure CLV take Customer revenue per year x Duration of the relationship in years – (Total costs of acquiring the customer + total cost of serving the customer) = CLV “CLV is distinct from the Net Promoter Score (NPS) that measures customer loyalty, and CSAT that measures customer satisfaction because it is tangibly linked to revenue rather than a somewhat intangible promise of loyalty and satisfaction.” [14]
Customer Satisfaction Score (CSAT)
The goal of every inbound contact center is to keep customers happy. The customer’s happiness equates to the organization’s profitability. A great indicator of customer happiness is the Customer Satisfaction Score (CSAT). This metric is calculated by asking a question that pertains to the customer’s feedback on a particular interaction with an agent, “How pleased were you with your experience?” or “Was the agent able to handle your concern satisfactorily?”[15]
CSAT scores can be improved through personalized coaching and training as well as ensuring that the best practices are observed for all other metrics.
Customer Retention & Churn Rate
Customer Retention (CRR) and Customer Churn (CCR) rates go hand in hand. Customer retention rate refers to the percentage of existing customers or users that are still part of the organization’s pool of consumers over a certain period of time. Customer churn rate refers to the percentage of customers you have lost over a certain period of time.
To calculate the CRR, you would need the total number of active customers you have in a given period (30 days, 60 days, 360 days, etc.), and subtract the newly acquired customers during the same period. The result would be the total number of customers an organization has retained. For example, the number of customers you began with 2800 customers. During a 60-day period you acquired 300 more and ended with 2600. {(2600-300) / 2800} x 100 = 82% retention rate.[16]
The churn rate can be determined by dividing the number of customers who left by the number of customers you had started with and multiplying it by one hundred. For example, in a span of 30 days, the client has lost 150 customers while you started with 1,500. The formula would look like this: (150/1500) x 100 = 10% churn rate.[17]
These metrics determine whether an inbound contact center is capable enough to retain customers by providing excellent customer service. Generally, a 5-7% churn rate annually is a healthy average. This means an organization’s monthly churn rate should only be .5% or lower.[18]
To help increase retention rates and reduce churn, it’s important for an inbound contact center to have a Customer Retention team or department that handles complicated issues and cases that could possibly lead to customers churning.
First Contact Resolution (FCR)
The First Contact Resolution (FCR) metric shows how many customer requests were solved during the first contact. The industry standard is around 70-75%. First Contact Resolution (FCR) is an essential part of managing your company’s relationship with your customers.[19] It is a direct reflection of an agent’s and a center’s capacity to solve problems, answer questions, and provide support the very first time a customer calls. Simply put, it’s getting it right the first time and reducing customer effort.
Watch the “First Contact Resolution: Managing Metrics” YouTube video below to learn how to handle customer inquiries the first time you connect with them.[20] Transcript for “First Contact Resolution: Managing Metrics” Video [PDF–New Tab]. Closed captioning is available on YouTube.
Service Level
Service level is the percentage of calls that are answered within a given time period. To calculate the Service Level divide the total number of calls answered within the time period by the total number of calls and the total number of abandoned calls. A service-level agreement (SLA)documents the agreed-upon level of service between a vendor and a client. Numerical metrics are often assigned to determine the success or failure of the agreement, along with clear repercussions for failing to meet the service level standards. It’s most commonly used by technology and customer service providers.[21] Then multiply the result by one hundred. It’s imperative for companies to enable customers to help themselves. This is achieved by maintaining a comprehensive knowledge base (FAQs) that customers can use as the first line of support.
Workforce Optimization
Agent Productivity
To calculate agent productivity take the total time the agent is working (answering calls, doing administrative work, doing after-call work) and divide by the time the agent was scheduled to work, then multiply by 100. Formula = (Total Output / Total Input) x 100 = Labour Productivity
Using automated workforce management tools and agent scheduling software help to collect accurate data that will help a manager forecast labour needs accurately. Analyzing records will help identify busy times and slack times in customer service needs so that under-staffing and over-staffing do not become big problems costing the company money and customers. By precisely predicting the number of agents required at a given point in time, call centers can optimize scheduling to keep costs as low as possible while providing the best customer service possible. Automated workforce management tools also help track an agent’s non-productive hours and take the necessary steps to remedy the problem; thus, increasing the agent’s productivity. Managers do need to recognize that some customer issues require additional time and after-call work which would be measured in the productive time for the agent.
Work-From-Home Agents
While many companies have inbound and outbound contact centers some also have work-from-home agents.
Companies benefit from the work-from-home agent setup as it makes it easier for them to provide customer service across multiple time zones. Since the customer service team is working from various locations, businesses with remote call centers can provide coverage during off-hours without having to put employees on different shifts. This makes employee scheduling significantly easier for companies that provide 24/7 customer support.[22]
Some contact centers not only offer support online, on the phone, or through social media they also offer in-person support. Some companies outsource their contact center needs either locally or globally and pay to have trained agents answering calls from company customers, or to have trained agents calling potential customers to make sales.
Best Practices for Contact Center Managers
Strategies for effective contact center management:
1. Create an employee-friendly and customer-centric environment. “Low levels of happiness in the workplace lead to high agent attrition rates, poor performance, and decreased productivity.”[23] Companies that take care of their employees, through compensation, benefits, work perks, and friendly environments see their employees giving more commitment and effort in the workplace. At Zappos for instance, employees get free healthcare, free coffee and vending machines, and fun and colorful places to lounge and take a nap. In turn, employees give back how well the company is treating them by providing positive customer experiences.[24]
2. Set goals and create a game plan. Contact centers deal with huge contracts and losing one might be detrimental to the health of the organization. As a manager of a contact center, it is a good idea to create a list of challenges you have faced over the last year as well as a list of accomplishments over the past year. This will help you see where you need to focus your attention. Once you know what you need to focus on for improvements you can make a plan identifying what needs to be done to eliminate the causes of issues and improve processes that have contributed to the problems. To succeed at this, a contact center manager needs to be analytical while having the ability to come up with out-of-the-box solutions. Also, the different stages of planning and implementation require teamwork. Being open to employee feedback and having the ability to delegate tasks to all the right people helps with the goal-setting process.[25]
3. Hire the most suitable employees, provide a solid onboarding program, and continually coach and train.“Train your employees to work with different communication channels–webchats, email, messaging apps. It will allow them to develop new skills and make their work more diversified. Also, your customer service department will be able to deliver higher quality service, increasing customer satisfaction. A more diversified daily routine can have a positive impact on your employees’ sense of fulfillment and their productivity as a result.”[26] Practice constant coaching and monitor calls regularly. Managers can monitor calls and create scorecards for agents’ performance, provide feedback to agents, and provide coaching and mentoring or training whenever necessary. Managers can share calls to support new hires during the onboarding process by giving them some tips during the conversation, providing them with feedback right after a call, or jumping in the conversation if necessary.[27]
4. Prioritize effective agent scheduling. To make sure your scheduling method is effective and beneficial for the team, take note of each agent’s availability. Figure out shifts that have gaps and fill them. Sometimes it is not productive to provide too much overtime to agents as they become exhausted and their productivity decreases, understandably, but paying for a tired agent who is less productive than a fresh, new agent is not the best choice. Putting forecasting reports to good use also helps contact center managers gain better insight into staffing requirements, inbound traffic, and KPIs.[28]
5. Use the right technology. “Leverage your customer relationship management (CRM) with a customer telephony integration (CTI) and your employees then have access to a 360-degree view of the customer across different channels within one simple interface. Doing so shortens handle times while it improves user experience and customer experience. Both of these play an important role in contact center success. When agents have a hard time using the tools, it greatly affects the quality of the customer experience they provide. Unified contact center technology also allows agents to handle concerns and access data from different channels in real-time. The omnichannel approach has scaled throughout these years, and to only way for a contact center to adapt to this change is to adopt technology that supports it. Other features of CTI include automatic call recording and logging, call rerouting, voice recording integration, automatic dialing, and many more. If it makes your agent’s life easier, it’s guaranteed to make contact center management–and the jobs of agents –a lot easier, too.”[29]
6. Improve your self-service strategy. Use interactive voice response (IVR) and chatbots to provide customers with self-service. It will reduce your agents’ workload and make them more productive. If you already have these self-service options, you should continue to ensure your customers do not experience difficulties while interacting with them. It is also important to regularly update the FAQ page on your website because it can reduce the number of repetitive queries.[30]
Key Takeaways
1. The contact center manager sets objectives in service quality and analyzes metrics to see if the objectives have been met.
2. As a call center manager, you will face challenges from management, customers, your employees, and your technology. Some of these include absenteeism, accurate reporting and analytics, attrition, bad customer experiences being magnified, collaboration across departments, employee engagement, first-call resolution, increasing customer expectations, software integration, metrics, and workforce optimization.
3. Six strategies for effective contact center management include:
• Create an employee-friendly and customer-centric environment.
• Set goals and create a game plan.
• Hire the most suitable employees, provide a solid onboarding program, and continually coach and train.
• Prioritize effective agent scheduling.
• Use the right technology.
• Improve your self-service strategy.
4. Metrics that call centers use to measure quality customer service include, but are not limited to:
• The rate of abandoned calls refers to the total number of calls where a caller hangs up before an agent answers.
• The Average Speed of Answer (ASA) refers to the average amount of time wherein a call is required to be answered.
• Average handling time (AHT) is the average time spent by an agent in handling customer issues or transactions.
• The Average Call Transfer Rate is a metric that monitors the number of calls transferred to another department, a supervisor, or a different queue.
• Customer lifetime value (CLV) is one of the key statistics to track as part of a customer experience program. CLV is a measurement of how valuable a customer is to your company, not just on a purchase-by-purchase basis but across the whole relationship.
• The Cost Per Contact metric refers to the expenses related to running a contact center (i.e., operational costs, wages, benefits). To calculate the average cost per contact, the total cost associated with operating the business is divided by the total number of contacts handled.
• A great indicator of customer happiness is the Customer Satisfaction Score (CSAT). This metric is calculated by asking a question that pertains to the customer’s feedback on a particular interaction with an agent, “How pleased were you with your experience?” or “Was the agent able to handle your concern satisfactorily?”
• Customer retention rate refers to the percentage of existing customers or users that are still part of the organization’s pool of consumers over a certain period of time.
• Customer churn rate refers to the percentage of customers you have lost over a certain period of time.
• First Contact Resolution (FCR) metric shows how many customer requests were solved during the first contact.
• Service level is the percentage of calls that are answered within a given time period. To calculate the Service Level, divide the total number of calls answered within the threshold by the total number of calls and the total number of abandoned calls. A service-level agreement (SLA) documents the agreed-upon level of service between a vendor and a client. Numerical metrics are often assigned to determine the success or failure of the agreement, along with clear repercussions for failing to meet the service level standards. It’s most commonly used by technology and customer service providers.
End-of-Chapter Exercises
1. Jobs. Search the Internet for contact center management job advertisements. Review three of these job advertisements and remember the job title may differ from “Contact Center Manager” or “Contact Center Supervisor” but should be rather similar. Determine which skills or requirements you feel would be most difficult for you to perform. Why are these the most difficult? What can you do to improve your skills or knowledge so that these difficult things will become easier for you? Is this a job role you think you would ever do? Why or why not? Do you see linkages between working as a Contact Center Manager and working as a Bank Manager or HR Manager or CEO?
2. CLV. Search the Internet for specific ways in which a company can improve customer lifetime value (CLV). Provide three examples.
3. Calculate CLV. Calculate the CLV using the calculation provided within this chapter. Assume you have a customer who has been with your company for 5 years with a revenue of \$1000 per year. The cost to acquire this customer was \$50 and the cost to serve this customer is \$100 per year (\$500 over 5 years). Do the math. What is the CLV for this customer? Of course, customer revenues do not stay the same year after year, so changes that happen across the customer lifetime must be factored into the formula., to do this companies use a formula that goes into more detail.
4. Manage Employees. Search the Internet and find advice on how to reprimand or redirect a contact center employee when a mistake is made. Contact center representatives are continuously dealing with new challenges in customer service, sales, and technology so there are bound to be times when a representative makes a mistake. Search for two situations, first, what should you do as a contact center manager when a new employee makes a mistake, and second, what should you do when an experienced representative makes a mistake and you feel that they should have known better? Share your findings with your professor and classmates.
5. Self-Service. Next time you are shopping either online or in-store observe the ways in which the company has improved its self-service options. Make a short list and share that with your professor and classmates. Which self-service options do you find useful to use from a customer perspective and which do you not find helpful? Why?
6. Contact Center Quiz. Take the Contact Center Managers Quiz posted on YouTube. Don’t worry, you may not know all the answers, but this video will provide you with explanations for each question so you can learn more about the points you do not understand.
Query \(1\)
Additional Resources
1. 9 Call Center Metrics & KPIs you need to know for excellent customer service
2. The definitive list of 27 Call Center Metrics & KPIs
3. Should you reprimand or redirect?
4. Sample letters of reprimand
5. Contact Center Manager jobs at Indeed
6. Contact Center Manager sample job description
7. Improve Contact Center Performance – Study your best performers AHT and learn from their techniques, YouTube Video
8. 5 Qualities of Great Customer Service Managers, YouTube Video
References
(Note: This reference list was produced using the auto-footnote and media citation features of Pressbooks; therefore, the in-text citations are not displayed in APA style).
Media Attributions
1. Indeed. (2021). Supervisor, contact center. Retrieved July 21, 2021 from https://ca.indeed.com/Contact-Centre-Manager-jobs?vjk=d31d3a44c32d4e12
2. Customers That Stick. (2020, March 24). 5 qualities of great customer service. [Video]. YouTube. https://www.youtube.com/watch?v=fWaw3VosVhg
3. Indeed. (2021). Supervisor, contact center. Retrieved July 21, 2021 from https://ca.indeed.com/Contact-Centre-Manager-jobs?vjk=d31d3a44c32d4e12
4. Indeed. (2021). Supervisor, contact center. Retrieved July 21, 2021 from https://ca.indeed.com/Contact-Centre-Manager-jobs?vjk=d31d3a44c32d4e12
5. Mahoney, M. (2019, August 2). Call center attrition rates. Avoxi. https://www.avoxi.com/blog/call-center-attrition-turnover-rates/
6. Indeed. (2021). Supervisor, contact center. Retrieved July 21, 2021 from https://ca.indeed.com/Contact-Centre-Manager-jobs?vjk=d31d3a44c32d4e12
7. Indeed. (2021). Supervisor, contact center. Retrieved July 21, 2021 from https://ca.indeed.com/Contact-Centre-Manager-jobs?vjk=d31d3a44c32d4e12
8. tenfold. (n.d.). Top metrics that measure inbound call center performance. https://www.tenfold.com/call-center-metrics/inbound-call-center-metrics#:~:text=Top%20Metrics%20that%20Measure%20Inbound%20Call%20Center%20Performance,Agent%20Schedule%20Adherence%20%26%20Agent%20Attrition%20Rate.%20
9. tenfold. (n.d.). Top metrics that measure inbound call center performance. https://www.tenfold.com/call-center-metrics/inbound-call-center-metrics#:~:text=Top%20Metrics%20that%20Measure%20Inbound%20Call%20Center%20Performance,Agent%20Schedule%20Adherence%20%26%20Agent%20Attrition%20Rate.%20
10. tenfold. (n.d.). Top metrics that measure inbound call center performance. https://www.tenfold.com/call-center-metrics/inbound-call-center-metrics#:~:text=Top%20Metrics%20that%20Measure%20Inbound%20Call%20Center%20Performance,Agent%20Schedule%20Adherence%20%26%20Agent%20Attrition%20Rate.%20
11. Heuffner, E. (2020, April 17). What is customer experience? How to deliver great CX. Zendesk. https://www.zendesk.com/blog/why-companies-should-invest-in-the-customer-experience/
12. tenfold. (n.d.). Top metrics that measure inbound call center performance. https://www.tenfold.com/call-center-metrics/inbound-call-center-metrics#:~:text=Top%20Metrics%20that%20Measure%20Inbound%20Call%20Center%20Performance,Agent%20Schedule%20Adherence%20%26%20Agent%20Attrition%20Rate.%20
13. Benchmark Portal. (2020, August 12). Average handle time: Managing metrics. [Video]. YouTube. https://youtu.be/eazdelhvIxs[/
14. Qualitrics. (n.d.). What is customer lifetime value (CLV) and how do you measure it? https://www.qualtrics.com/experience-management/customer/customer-lifetime-value/
15. tenfold. (n.d.). Top metrics that measure inbound call center performance. https://www.tenfold.com/call-center-metrics/inbound-call-center-metrics#:~:text=Top%20Metrics%20that%20Measure%20Inbound%20Call%20Center%20Performance,Agent%20Schedule%20Adherence%20%26%20Agent%20Attrition%20Rate.%20
16. tenfold. (n.d.). Top metrics that measure inbound call center performance. https://www.tenfold.com/call-center-metrics/inbound-call-center-metrics#:~:text=Top%20Metrics%20that%20Measure%20Inbound%20Call%20Center%20Performance,Agent%20Schedule%20Adherence%20%26%20Agent%20Attrition%20Rate.%20
17. tenfold. (n.d.). Top metrics that measure inbound call center performance. https://www.tenfold.com/call-center-metrics/inbound-call-center-metrics#:~:text=Top%20Metrics%20that%20Measure%20Inbound%20Call%20Center%20Performance,Agent%20Schedule%20Adherence%20%26%20Agent%20Attrition%20Rate.%20
18. tenfold. (n.d.). Top metrics that measure inbound call center performance. https://www.tenfold.com/call-center-metrics/inbound-call-center-metrics#:~:text=Top%20Metrics%20that%20Measure%20Inbound%20Call%20Center%20Performance,Agent%20Schedule%20Adherence%20%26%20Agent%20Attrition%20Rate.%20
19. voiptime. (2020, October 12). How to calculate productivity in the contact center. https://voiptimecloud.com/blog/how-to-calculate-productivity-in-the-contact-center
20. Benchmark Portal. (2020, August 19). First contact resolution: Managing metrics. [Video]. YouTube. https://www.youtube.com/watch?v=HartFWX83dA
21. Rosen, M. (n.d.). What is an SLA: Definition, examples, and tips for small businesses. [Blog]. Groove. https://www.groovehq.com/blog/what-is-sla-service-level-agreement
22. Saboo, N. (n.d.). Working in a call center: Everything you need to know. Hubspot. https://blog.hubspot.com/service/working-call-center
23. tenfold. (n.d.). 8 strategies for effective contact center management. https://www.tenfold.com/call-center/...ent-strategies
24. tenfold. (n.d.). 8 strategies for effective contact center management. https://www.tenfold.com/call-center/contact-center-management-strategies
25. tenfold. (n.d.). 8 strategies for effective contact center management. https://www.tenfold.com/call-center/contact-center-management-strategies
26. voiptime. (2020, October 12). How to calculate productivity in the contact center. https://voiptimecloud.com/blog/how-to-calculate-productivity-in-the-contact-center
27. voiptime. (2020, October 12). How to calculate productivity in the contact center. https://voiptimecloud.com/blog/how-to-calculate-productivity-in-the-contact-center
28. tenfold. (n.d.). 8 strategies for effective contact center management. https://www.tenfold.com/call-center/contact-center-management-strategies
29. tenfold. (n.d.). 8 strategies for effective contact center management. https://www.tenfold.com/call-center/contact-center-management-strategies
30. voiptime. (2020, October 12). How to calculate productivity in the contact center. https://voiptimecloud.com/blog/how-to-calculate-productivity-in-the-contact-center | textbooks/biz/Business/Introductory_Business/Customer_Centric_Strategy_(Shields)/1.06%3A_Managing_a_Customer_Contact_Center.txt |
Chapter 7 Learning Outcomes
After reading this chapter, you should be able to do the following:
1. List five ways in which an organization can gather customer insights toward product innovation.
2. Discuss how a company can make products that are customer centric.
3. Discuss how a company can offer services that are customer centric.
4. Discuss how a company can develop processes that are customer centric.
Creating Products with the Customer in Mind
Products are created to address customer needs, solve customer problems, and create customer delight. In a customer centric company, product innovation is all about the customer. Therefore, to launch, manage, and enhance products successfully, product teams must constantly consider their target customers. The most effective product teams partner with their customer experience (CX) counterparts. This ensures that best practice CX strategies are implemented and that the voice of the customer (VoC) is integrated into each stage in the process.[1]
When creating products it is imperative today to conduct research into customer preferences, social trends, competitor behaviour, and sales patterns. As companies get further into new product ideation, they must consider what a high-level customer journey might look like; hypothesize their target customer market segments; and brainstorm what their customer personas might be.[2]
There are many ways in which companies can ensure they are making products that customers want and will enjoy using. Here are five ways in which companies can gather customer insights before producing products customers won’t want, like, use or buy.
1. Hold focus groups. Ask potential customers to view or use a prototype of the product and gather feedback that can be used to improve the product.
2. Conduct surveys. Ask customers if they would use the product, what they like about it, and what they might change before spending money on developing the product.
3. Gather feedback. Listen to your customers and get their feedback before making products they will not use or enjoy. Often they are a source of product ideas as they make suggestions or provide feedback about a product to employees. Have employees take notes and share trends or common questions or ideas with the team.
4. Track clicks or emails about new products from a “coming soon” information landing page.
5. Observe trends. What products are selling the most? What are customers talking about on social platforms? What are competitors selling?
Customers, for the most part, want products that work as advertised, are easy to use, are reliable, and do not malfunction. The goal of customer centric product development is to provide customers with a good user experience (or “UX”). Apple is known for making products customers enjoy using, find easy to use, and have features that delight or exceed their expectations. Making products that delight customers helps build customer loyalty and creates customer advocacy. Many Apple consumers after having purchased their first Apple product become loyal advocates of the brand and continue to shop Apple, and only Apple will do, for many years.
“LEGO has long seen the value in co-creating products with customers (both young and old). For example, LEGO Ideas is an online community where members can discover cool creations by other fans and submit their own designs for new sets. Fans can vote on submissions and give feedback. If a project gets 10,000 votes, LEGO reviews the idea and picks a winner for an official LEGO Ideas set to be created and sold worldwide. The creator gives final product approval, earns a percentage of the sales, and is recognized as the creator on all packaging and marketing. This concept celebrates loyal customers and rewards them for innovation, creativity and entrepreneurialism.”[3]
Customers today are more concerned with the environment than ever before. Companies need to be environmentally sustainable both in the products they offer and in their internal manufacturing systems. Customers want to do their part to help the environment and are more likely to support companies that act responsibly toward the world around them. Modern companies can’t truly focus on their customers while ignoring our planet’s many pressing challenges. [4]
Disney is working to reduce indirect greenhouse gas emissions through the reduction of electrical consumption. It has a zero net direct greenhouse gas emission policies within all its facilities. Disney also has a zero waste policy meaning that there is nothing that would end up in landfills. The entertainment giant also uses technology that saves water and is working on lowering the footprint of its product manufacturing and distribution. This is tied up to the company’s policy of having a net positive environmental impact that has made Disney a leader in environmental responsibility.[5]
Watch the “How to Do Market Research!” YouTube video below to learn about market research.[6] Transcript for “How to Do Market Research!” Video [PDF–New Tab]. Closed captioning is available on YouTube.
In the Spotlight: Amazon
With the vision statement as “We seek to become Earth’s most customer centric company”, Amazon truly lives up to its mission by incorporating customer centricity in each activity and decision that it takes. Founded in 1994, Amazon is among the first companies to leverage the power of the Internet. While it started as an online bookstore, Amazon then went on to become a \$430 billion worth company. Despite being such a large organization, how does Amazon manage to consistently rank among the most customer centric organizations in the world? Here are the secrets:
Keeps your ear to the ground.
Every manager at Amazon, including the CEO, spends two days every two years at the customer service desk. This ensures that he is listening to the customers and understanding their needs. As a consequence, every single employee has the customer’s perspective in mind all the time. Evidently, this practice helps the entire organization become more customer centric.
Have a customer centric leader at the helm.
Founder and Chief Executive of Amazon.com, Jeff Bezos is known to be a customer-obsessed leader. His empty chair story is a very famous story among all those who have read about the company. During the earlier board meetings, Bezos would leave a chair empty in the room, asking the executives to assume that it belonged to the most critical and crucial member of the company – the customer. He’d then encourage his employees to take all their decisions bearing the customer in mind.
Innovate with the focus on the customer.
Amazon has never left any stone unturned in the process of helping the customer derive maximum gains. From The Kindle to drone delivery, all of Amazon’s innovations are aimed at adding value to the customer. During the development of the Kindle, when one of the Finance executives asked Bezos how much they had to spend on the development of the Kindle, Bezos answered by saying “How much do we have?”
Creating Services with the Customer in Mind
An amazing customer experience is one of the biggest competitive advantages a company can have. Instead of competing on price, more than two-thirds of companies now compete mostly on the basis of customer experience. [8] With that said the customer experience is all that a customer experiences throughout the customer journey and this will include the service customers receive from employees as well as the impression the customer gest from browsing through the physical store, how user-friendly the website is, and whether or not the product works as expected. If the customer has a bad experience using the product or a bad experience interacting with the support team then the customer may perceive that they had a bad or negative experience with the company.
Companies such as Costco, Amazon, Ritz-Carlton, Starbucks, Lowe’s, UPS, Trader Joe’s, Zappos, and Harley-Davidson are known to be customer-centric in everything they do. Innovative companies are always looking for ways to better serve customers and improve their lives.
Watch the “How Tony Hsieh Grew Zappos to \$1.2 billion value in just 10 years” YouTube video below to learn about the Zappos customer service strategy.[9] Transcript for “How Tony Hsieh Grew Zappos to \$1.2 billion value in just 10 years” Video [PDF–New Tab]. Closed captioning is available on YouTube.
“Employees are the foundation of a strong customer experience, which means employee experience and culture are crucial in customer-centric companies. Successful organizations invest in empowering their employees and provide them with the right tools and culture to succeed.”[10]
“Starbucks has a fiercely loyal following, in large part because of its mobile ordering and personalized rewards program that makes it easy for customers to order exactly what they want and pick it up with a minimal wait. Starbucks has the most popular app among major restaurants. In 2020, Starbucks focused on its employees with extra hourly pandemic pay and the option to stay home with pay, even if their location was open. Starbucks also extended its mental health benefits to cover 20 therapy sessions per year for employees and their families. As a leader in environmentally-friendly dining, Starbucks also set aggressive new sustainability goals, including reducing carbon emissions by 50% by 2030.”[11]
“If you’ve ever been to IKEA, you know it’s not just a furniture store – it’s an experience. They constantly improve to create better customer experiences, including elements in their stores like cafés and children’s play centers. Recently, they’ve even added augmented reality apps for smartphones, allowing customers to virtually design a room with their furniture.”[12]
In the Spotlight: Southwest Airlines
Founded in 1967 by Herb Kelleher, Southwest Airlines has bucked the trend of loss-making airlines. Its mission statement reads “Dedication to the highest quality of customer service delivered with a sense of warmth, friendliness, individual pride, and company spirit.” It wanted to make every flight an unforgettable experience for its customers and what a wonderful job it does each time! In the process, it has also achieved a fiercely loyal customer base. Everything about the brand, from the napkins that say “I’d be happy to hold your drink” to the stock market ticker that is “LUV”, talks about the fun-loving and customer-loving brand that it is. Here are a few secrets of Southwest:
Understand that “Happy employees = Happier customers”.
The airline believes in keeping its employees first and keeping them happy. The website reads a message from its founder: “Our people are our single greatest strength and most enduring long-term competitive advantage.” It empowers its front-line employees and backs them to make quick decisions that are critical for a good customer experience. Probably, that’s Why it is not surprising then that the employees stay with the airline even though they are paid less compared to other airlines.
Anticipate customer needs.
In his book ‘High tech, High touch customer service’, Micah Solomon recalls an experience when the gate agent of Southwest Airlines booked the tickets to the next flight to his destination when the one was supposed to fly was grounded due to bad weather conditions. All this was even before Micah requested it. What a wonderful example of anticipating a customer’s need and being proactive in helping the customer. What was supposed to be an inconvenience turned out to be a moment of pleasant surprise for the customer.
Apologize genuinely.
It’s not wrong to apologize when things go wrong on your end. Sometimes just an apology goes a long way than any monetary solution. And this is the mantra that Southwest Airlines lives by.
In the Spotlight: TD Bank
Founded in 1852, Toronto Dominion Bank has been delivering WOW!(in its own words) service to its customers for more than 150 years now. FYI, you can take your dog into the branch while you do your banking transactions. The company started as Portland Savings Bank in 1852 and through a series of M&As became People’s Heritage Bank in 1983. This was later rechristened BankNorth after some other acquisitions. Meanwhile, Commerce Bank was a very customer-focussed bank and it is here that the origin of the company’s customer centric culture lies. Later, TD Financial Services of Canada acquired both BankNorth and Commerce Bank and became what is now called TD Bank – America’s most convenient bank.
Be convenient.
True to its tagline, “America’s most convenient bank”, TD Bank operates 7 days a week and often up to 8 PM to serve its customers. TD Bank believes that the convenience that they offer to its customers has become a huge differentiator and a competitive advantage for it. It is confident that if it opens a new one in any locality, it would have more than 25% of the local market share within the next 5 years. Another example of its worth: The bank on Wall Street had 1 billion USD in deposits in five years!!
Listen from across all channels.
Keeping up with the increasing number of channels of customer engagement, TD Bank has persistently listened to its customers through all the channels and has been responsive to every customer feedback. As Theresa McLaughlin, Global CMO of TD Bank’s Canadian banking said in an interview with Marketing Magazine, “Doing it repeatedly is what differentiates us from the rest.”
Say Thank you.
Earlier, TD Bank would thank its customers through ‘Customer Appreciation Days’ on which it gave every customer a free coffee and cake at the local bank. In 2014, this went up a notch higher when the bank turned its ATMs into “Automated Thanking Machines” and then, magic happened! In an era where we hardly find time to write a thank you card to our friends and relatives, TD Bank took the effort to give personalized gifts to its customers.
In the Spotlight: Ritz-Carlton
In order to justify their premium prices, Ritz makes sure that its customers receive painstakingly good and personalized service. For example, Ritz takes things to the next level in this story covered on Bloomberg:
A family who had been staying in the Ritz-Carlton in Bali had brought specialized eggs and milk for their son who had numerous food allergies. Upon arrival, they saw that the eggs had broken and the milk had soured!
The hotel’s manager and dining staff searched the town but couldn’t find the appropriate items. Luckily, the executive chef at this particular resort remembered a store in Singapore that sold them. He contacted his mother-in-law and asked that she buy the products and fly to Bali to deliver them, which she agreed to do.
The words of Ritz-Carlton’s COO Simon Cooper show the control Ritz is willing to give their employees to empower them to deliver an amazing experience: The goal is to develop such a strong emotional engagement between the hotel’s staff and their guests that a guest will not consider staying anywhere else, even if they have an option.
Ritz-Carlton gives employees incentive and control to deliver an amazing customer experience, and place their priority on customers rather than regulations.
Creating Processes with the Customer in Mind
The way in which a company gets things done can have a positive or negative impact on the customer experience. If customers must wait in long lines, can only contact the company through one channel, or have to fill out many forms before they can get service or have a problem resolved then the processes the company is using probably need to be reconsidered.
How many times, as a customer, have you become frustrated when you were asked to take a ticket and wait in line, or you were waiting on hold for an extended period of time, or you were trying to use an online system to solve your problem or get an answer to an issue only to discover the online system was not user-friendly and you could not figure out how to resolve the issue without having to use another channel to contact the company? When processes improve the customer experience and make the customer journey easy, fun, or memorable in a positive way, customers are more likely to continue their patronage with the company, increase their spending with the company, post positive online reviews, and refer others.
Watch the “Business Process Improvement” YouTube video below to learn about making process improvements.[16] Transcript for “Business Process Improvement” Video [PDF–New Tab]. Closed captioning is available on YouTube.
“Kaiser Permanente focuses on both employee and customer experience and uses innovative technology like virtual appointments that allow providers to see more patients more conveniently. It’s an example of making people’s lives easier and better, and we’ll only see more digital offerings from big brands.”[17]
“Acxiom tracks more than 4,4000 health attributes in its patients to proactively connect them with the right provider and streamline referrals and check-in.”[18]
“Best Buy, the tech store, went through a digital transformation to evolve with changing trends and streamlined its in-store and online experience to provide personalized advice, including visiting customers in their homes to find their best tech solutions.”[19]
“Amazon, the e-commerce giant (and web host with Amazon Web Services), is constantly innovating with new customer solutions, including one-day shipping, easy returns and creative physical locations that integrate for a truly omnichannel experience.”[20]
“Sephora, the beauty brand, uses technology to create a personalized experience with a comprehensive app, virtual try-on of makeup products and a strong online community for a seamless customer experience.”[21]
“TELUS customers have a choice of how they get support help, from online tutorials to detailed instructions on any possible issue.”[22]
“Zappos is an online retail company that is known for “going extreme” for its customers. Zappos’ customer philosophy may even seem risky for some – they offer free shipping for any number of back-and-forth transactions, offer a 365-days return policy if a customer is not satisfied with the product, and never outsourced customer service so as to capture the local culture and persona in their experience. Tony Hsieh, the CEO of Zappos says that this indeed costs them some money. However, the philosophy of Zappos is that most of the money they might ordinarily spend on advertising is being invested in customer service so that their customers will stay long-term with them and compensate for the lost marketing with positive word-of-mouth. Is it working for them? Astronomically!”[23]
Key Takeaways
1. Products are created to address customer needs, solve customer problems, and create customer delight. In a customer centric company, product innovation is all about the customer. Therefore, to launch, manage, and enhance products successfully, product teams must constantly consider their target customers.
2. Companies should gather customer insights before producing products customers won’t want, like, use or buy. They can do this in many ways, including holding focus groups, conducting surveys, gathering customer feedback, tracking website clicks and emails, and observing trends.
3. Companies need to be environmentally sustainable both in the products they offer and in their internal manufacturing systems. Customers want to do their part to help the environment and are more likely to support companies that act responsibly toward the world around them.
4. An amazing customer experience is one of the biggest competitive advantages a company can have. Instead of competing on price, more than two-thirds of companies now compete mostly on the basis of customer experience.
5. Provide employees with incentives and control to deliver an amazing customer experience, and place their priority on customers rather than regulations.
6. The way in which a company gets things done can have a positive or negative impact on the customer experience. Processes should enhance the customer experience (CX).
End-of-Chapter Exercises
1. Product Features. Do you have a product you love? Discuss with your classmates what it is about the product that makes you like it so much. Is it the product’s usefulness, design, durability, and features? What makes you like the product may not be the same for every customer. Consider various customer segments and determine what the product offers that might align with the needs and wants of each segment. For example, consider age groups: children, seniors, teens, or consider careers: construction worker, office employee, nurse, what is it about the product that each of the segments might enjoy? To make it even more confusing consider complex buyer personas such as an office manager who belongs to a cycling club and joins in cycling events each weekend, and also is the parent of three children. What is it about the product that this person would most like?
2. Customer Advocacy. Search the Internet for information on products produced by Apple Inc. and Harley-Davidson. What is it about the products made by these companies that customers love? How do these companies turn their loyal customers into cult-like followers? How do they build customer advocacy? Discuss with your professor and classmates.
3. Exceptional Service. Discuss with your classmates a time when you received exceptional service. Why was it exceptional? What happened that made it a positive memory for you? Would you refer this company to other potential customers? Did you return or buy additional products or services from the company? Did the company exceed your expectations? If so, how?
4. Poor Service. Discuss with your classmates a time when you received poor service. What happened that made this a negative experience? Would you refer this company? What could have happened to turn this situation around? Were there things the company could have done better to turn the situation from a negative to a positive? What expectations did you have going into the situation and how were your expectations not met? If you had lower expectations would the situation have been acceptable?
5. Efficient/Effective Process. Discuss with classmates a process you feel works well, either a process at your current place of employment, or a process you encountered as a customer. Why do you feel it worked well? What was it about the process that made it effective? What was it about the process that made it efficient? What was it about the process that made it customer centric?
6. Design a Process. Work with a partner to design a new process for a college or university. Assume there is a process for students to change courses on their timetable. What would you do to make this process customer centric? How would the process flow?
Self-Check Exercise – Products, Services, and Processes
An interactive H5P element has been excluded from this version of the text. You can view it online here:
https://ecampusontario.pressbooks.pub/customercentricstrategy/?p=31#h5p-12
Additional Resources
1. 5 Trends that will Define Customer Service in 2021
2. 10 Trends Changing Customer Expectations
3. 20 Best Companies to Work for in 2021
4. Canada’s Top 100 Employers 2021
5. 4 Self-service Trends that are Changing Customer Service 2021
References
(Note: This reference list was produced using the auto-footnote and media citation features of Pressbooks; therefore, the in-text citations are not displayed in APA style).
Media Attributions
1. Inman, V. and Slotten, L. (n.d.). Creating products with customers in mind. The Jabian Journal. https://journal.jabian.com/creating-products-with-customers-in-mind/
2. Inman, V. and Slotten, L. (n.d.). Creating products with customers in mind. The Jabian Journal. https://journal.jabian.com/creating-products-with-customers-in-mind/
3. Alida. 2016, August 5). 5 examples of brands driving customer-centric innovation. https://www.alida.com/the-alida-journal/5-examples-how-brands-are-using-co-creation
4. Inman, V. and Slotten, L. (n.d.). Creating products with customers in mind. The Jabian Journal. https://journal.jabian.com/creating-products-with-customers-in-mind/
5. erichlawson. (n.d.). 9 companies with great environmental initiatives. SmartCitiesDive. https://www.smartcitiesdive.com/ex/sustainablecitiescollective/9-companies-great-environmental-initiatives/1193165/#:~:text=1%20Ford%20Motor%20Company.%20Automotive%20companies%20are%20known,green%20supply%20chain%20management%20practices%20and%20environmental%20
6. Two Cents. (2019, August 14). How to do market research. [Video]. YouTube. https://www.youtube.com/watch?v=b-hDg7699S0
7. Jaiswal, V. (2017, September 4). World's 3 most customer-centric companies: How they do it! https://customerthink.com/worlds-3-most-customer-centric-companies-how-do-they-do-it/#:~:text=World%E2%80%99s%203%20MOST%20Customer-Centric%20Companies%3A%20How%20do%20they,the%20loss%20making%20airlines.%203%20TD%20Bank.%20
8. Morgan, B. (2019, December 20). The 10 most customer obsessed companies of 2019. Forbes. https://www.forbes.com/sites/blakemorgan/2019/12/20/the-10-most-customer-centric-companies-of-2019/?sh=48f9e03f7a58
9. IWD Agency. (2020, June 8). How Tony Hsieh grew Zappos to \$1.2 billion value in just 10 years. {Video]. YouTube. https://youtu.be/IZbAD2ANZN4
10. Inman, V. and Slotten, L. (n.d.). Creating products with customers in mind. The Jabian Journal. https://journal.jabian.com/creating-products-with-customers-in-mind/
11. Morgan, B. (2020, December 21). 25 of the most customer-centric companies from 2020. Forbes. https://www.forbes.com/sites/blakemorgan/2020/12/21/25-most-customer-centric-companies-2020/?sh=6229ea66884b
12. Cortese, C. (2019, July, 3). 20 examples of companies with the best customer service. [Blog]. BlueLeadZ. https://www.bluleadz.com/blog/companies-with-the-best-customer-service
13. Jaiswal, V. (2017, September 4). World's 3 most customer-centric companies: How they do it! https://customerthink.com/worlds-3-most-customer-centric-companies-how-do-they-do-it/#:~:text=World%E2%80%99s%203%20MOST%20Customer-Centric%20Companies%3A%20How%20do%20they,the%20loss%20making%20airlines.%203%20TD%20Bank.%20
14. Jaiswal, V. (2017, September 4). World's 3 most customer-centric companies: How they do it! https://customerthink.com/worlds-3-most-customer-centric-companies-how-do-they-do-it/#:~:text=World%E2%80%99s%203%20MOST%20Customer-Centric%20Companies%3A%20How%20do%20they,the%20loss%20making%20airlines.%203%20TD%20Bank.%20
15. Wellington, E. (n.d.). 8 companies with exceptional customer service and helpful tips. Help Scout. https://www.helpscout.com/helpu/exceptional-customer-service-companies/
16. Grow by Joe. (2019, June 10). Business process improvement. [Vidoe]. YouTube. https://youtu.be/CEAXCCuVBow
17. Morgan, B. (2019, June 30). 100 of the most customer-centric companies. Forbes. https://www.forbes.com/sites/blakemorgan/2019/06/30/100-of-the-most-customer-centric-companies/?sh=ede3cba63c3e
18. Morgan, B. (2019, June 30). 100 of the most customer-centric companies. Forbes. https://www.forbes.com/sites/blakemorgan/2019/06/30/100-of-the-most-customer-centric-companies/?sh=ede3cba63c3e
19. Morgan, B. (2019, June 30). 100 of the most customer-centric companies. Forbes. https://www.forbes.com/sites/blakemorgan/2019/06/30/100-of-the-most-customer-centric-companies/?sh=ede3cba63c3e
20. Morgan, B. (2019, June 30). 100 of the most customer-centric companies. Forbes. https://www.forbes.com/sites/blakemorgan/2019/06/30/100-of-the-most-customer-centric-companies/?sh=ede3cba63c3e
21. Morgan, B. (2019, June 30). 100 of the most customer-centric companies. Forbes. https://www.forbes.com/sites/blakemorgan/2019/06/30/100-of-the-most-customer-centric-companies/?sh=ede3cba63c3e
22. Morgan, B. (2019, June 30). 100 of the most customer-centric companies. Forbes. https://www.forbes.com/sites/blakemorgan/2019/06/30/100-of-the-most-customer-centric-companies/?sh=ede3cba63c3e
23. happyfoxblog. (n.d.). 10 best companies in customer service & what you can learn from them. [Blog]. https://blog.happyfox.com/10-best-companies-customer-service/#:~:text=10%20Best%20Companies%20in%20Customer%20Service%20%26%20What,4.%20Ritz%20Carlton.%205%205.%20Amazon.%20More%20items | textbooks/biz/Business/Introductory_Business/Customer_Centric_Strategy_(Shields)/1.07%3A_Designing_Products_Services_and_Processes_with_Customers_in_Mind.txt |
Chapter 8 Learning Outcomes
After reading this chapter, you should be able to do the following:
1. List three characteristics of a strong customer service vision.
2. State three questions you can ask employees to determine if they are engaged with the company’s customer service vision.
3. Describe three habits of a customer centric leader.
4. Describe how to empower employees to deliver excellent customer service.
5. List three sources for establishing quality standards.
6. Discuss why it is important for contact centers to use the right metrics when measuring customer service quality.
7. Describe three things a leader can do to make customer experience a company priority.
Build a Customer Centric Structure and Culture
“The uniquely cross-functional nature of effective customer-experience efforts puts a premium on smart governance. Adequately addressing the challenge requires a dedicated effort on three levels. First, a customer centric leadership structure must ultimately report to the chief executive and should be designed to stimulate cross-silo activity and collaboration. Second, leaders must commit to demonstrating behaviors and serving as role models to deliver customer-experience goals to frontline workers and refine and reinforce those goals over the long term. Finally, it is necessary to put in place the correct metrics and incentives that are critical for aligning typically siloed units into effective cross-functional teams.”[1]
Contact center leaders cited poor cross-departmental collaboration and lack of understanding and respect for the center as two of the top three challenges they’re currently dealing with (the No. 1 being agent attrition).[2]
Research conducted by customer service provider Arvato revealed that businesses tend to rate the customer experience their company delivers higher than consumers do.[3]
Despite the attention to customer experience that is widely stated in corporate missions, visions, and values, actions speak louder than vision statements. When it comes to resources and budget, CEOs tend to prioritize technology over people or process. Even when company leaders recognize that customer service could be better, they often will look to the latest technology to provide the solution without delving deeper into customers’ true wants and needs, or gathering insights from frontline staff.[4]
Leaders have a huge impact on building a customer centric culture. The leader must be customer obsessed and share those values and goals with the company employees. Does the leader walk the talk? Does the leader put customers first? Are products, services, and processes created with customer needs and wants shaping results? If the company is focused on short-term results or is investing in areas that do not improve the customer experience, employees will pick up on this and leaders will get behaviours from employees that are not customer focused. Leaders who want to deliver exceptional customer experiences need to invest in employee incentives that will steer performance toward exceptional service.
Watch “A Customer-Centric Culture Needs a Leader” YouTube video below to learn why leadership is so important to creating a customer-centric culture.[5] Transcript for “A Customer-Centric Culture Needs a Customer-Centric Leader” Video [PDF–New Tab]. Closed captioning is available on YouTube.
Make Customer Experience a Priority
Leaders in customer experience pursue a range of approaches to overcome such complexity of making the customer experience a priority. Several elements form the core of their successful efforts. They include the following:[6]
1. Set up a dedicated team for customer experience. This allows a company to maintain a continuous focus on customer experience across segments, brands, geographies, and functional areas.
2. Establish C-suite engagement. Given the cross-functional collaboration required, the CEO must make the customer experience an active priority.
3. Fit the customer-experience team into the organizational fabric. If not, customer experience transformation efforts may drown in a sea of organizational confusion.
“Disney makes use of a simple leadership framework that links the delivery of business results to customer satisfaction and measures that satisfaction via two key indicators: “propensity to return” to a Disney experience and “propensity to recommend.” Disney’s framing also stipulates that the way to satisfy customers is through engaged employees. For Disney’s business leaders, the logic is clear: their task is to develop excellent employees, who in turn help to create satisfied customers, leading to business results.”[7]
Apply Leadership Principles
To create a customer centric organization, leaders apply the following principles:
1. Model specific behaviours. Managers must walk the walk. Customer centricity is taught to agents and should be supported in the company vision, mission, and values as well as modelled by management.
2. Foster understanding and commitment among employees and managers. Making a connection between improved customer satisfaction and bottom-line financial results will help all employees understand the importance of exemplary customer service.
3. Develop capabilities and skills. Train agents in customer centric behaviours, but also train management so they are able to coach and support the team. Hire for fit.
4. Reinforce behaviours through formal mechanisms. Financial incentives can help, but nonfinancial recognition schemes are more powerful.
Watch “The 8 Habits of Customer-Centric Leaders” YouTube video to learn what customer-centric leaders do.[8] Transcript for “The 8 Habits of Customer-Centric Leaders” Video [PDF–New Tab]. Closed captioning is available on YouTube.
Create a Customer Service Vision
Companies with strong service cultures take the time to clearly define what outstanding service means to them. They do this in their mission and vision statements, in their employee training, in their advertising, and in the behaviour of their managers and leaders. They ensure their products, services, and processes are designed with consumer wants and needs in mind. Being customer centric means that every department in the company understands that the customer comes first and everything they do is to obtain, retain, and build relationships with customers.
A customer service vision is a shared definition of outstanding service that gets all employees working in the same direction. A strong customer service vision has three characteristics:[9]
1. It’s simple and easy to understand. A vision should not be too complicated or too long; it should bring clarity so all employees can understand it and act accordingly.
2. It’s focused on customers. Focusing on profit or expanding market share may be the end goal, but customer focused companies achieve those goals by focusing on their customers.
3. It reflects who the company is now, and who the company aspires to be in the future. It should be grounded in reality so the vision feels authentic to employees. It’s about what is working for the company now and what the company will build upon for the future.
Example vision statements:
Amazon – “To be Earth’s most customer-centric company, where customers can find and discover anything they might want to buy online.”[10]
Disney – “To make people happy.”[11]
IKEA – “To create a better everyday life for the many people.”[12]
Loreal – “To provide the best in cosmetics innovation to women and men around the world with respect for their diversity.”[13]
Microsoft – “To help people throughout the world realize their full potential.”[14]
Starbucks – “To inspire and nurture the human spirit – one person, one cup and one neighborhood at a time.”[15]
Zappos – “To provide the best customer service possible. Deliver ‘WOW’ through service.”[16]
Engage Employees with the Customer Service Vision
Employees need to know that organizational success is defined by the customer service vision. Engaged employees help fulfill the vision with the customers they serve. There are three questions you can ask employees to evaluate employee engagement in a customer centric organization. [17]
1. What is the customer service vision? Employees need to know it and where it is. It may be in a book, online, written on a poster, or in some other location.
2. What does the customer service vision mean? Employees should more than just memorize it, they should be able to explain it in their own words.
3. How do you personally contribute? Employees should be able to describe how their individual role contributes to fulfilling the vision.
The customer service vision should be formally announced or introduced by the CEO or a high-ranking manager. Companies must hire for the right fit; hire candidates who agree with or have personal goals aligned with the company vision. Training should then be provided to employees to help them understand how their role aligns with the company’s customer service vision. Ensure employees receive some one-to-one coaching from their immediate supervisor as needed. The goal is to verify that employees can answer all three of the above questions consistently. Finally, empower employees to enable them to provide excellent customer service and care and sure company leaders are demonstrating their belief in the vision through their everyday behaviors, discussions, and decisions they make.
Empower Employees to Deliver the Customer Service Vision
Employee empowerment means giving employees the authority, right technology, systems, and freedom to go the extra mile to make customers happy. This requires thorough training of customer service teams to enable employees to identify and act on the opportunities to enhance the quality of support. Giving employees ownership for their own work will not only boost motivation but also increase service quality, team productivity, and quick decision-making.”[18]
Empowerment doesn’t mean allowing employees to do whatever they want. It means enabling them to deliver service that’s consistent with the customer service vision. Empowered employees need resources to serve their customers, best-known procedures for serving consistently and efficiently, and the appropriate level of authority to handle unusual or unexpected situations.[19]
Empower employees in the following ways:
• Educate the frontline call center agents on branding, culture, and values so they deliver service that is consistent with these values.
• Provide agents with a 360-degree view of customers so they can make data-driven decisions.
• Equip agents with the right tools so they can resolve issues at the first point of contact.
• Cultivate innovation by encouraging autonomy and creative problem-solving.
• Make agents an integral member of the organization so they are proud to provide amazing service.[20]
Watch the “Customer Experience: Empower Employees with Decisions” YouTube video below to learn more about employee empowerment.[21] Transcript for “Customer Experience: Empower Employees with Decisions” Video [PDF–New Tab]. Closed captioning is available on YouTube.
Set SMART Goals Aligned with the Customer Service Vision
Set goals that are SMART – Specific, Measurable, Attainable, Realistic (Relevant), and Time-bound. Goals for agents should be clear and attainable. Goals for the contact center should be realistic. All goals should be time-bound and performance measured.
If agents are rewarded, for example, for the number of calls they complete each day, then employees may rush to finish a call to take another one. This may reduce customer satisfaction and may leave some customers without their problems resolved. That would be an example of setting a bad goal. If time is measured on each call and an expectation or limit is set, then some agents might transfer the call or end the call before the customer issue is resolved, leaving the customer with a poor image of the company’s customer service. Again, an example of a bad goal. Good goals rely on intrinsic or internal motivation while bad goals rely on extrinsic motivation like incentives.
“Many organizations use a number of metrics to evaluate customer service and overall performance. These metrics might include customer satisfaction, productivity, or even revenue. Goals can be an important signal to employees about what to focus on and how to prioritize their work. The danger is some goals can push employees away from the customer service vision rather than towards it.”[22]
There is a tendency in the contact centre industry to focus on the efficiency of an operation, rather than looking at the effectiveness of individual interactions. This is not the best approach, rather than focusing on average call handling time (AHT) it may be better to focus agents on first contact resolution (FCR) instead.[23]
An IVR can help streamline interactions by getting customers through to the right agent the first time they call. But if the IVR is not configured effectively it can result in an endless stream of frustrated customers connecting to your agents.[24]
If your agents are not happy or satisfied this will come across to your customers. Happy employees = happy customers. Get every day off to a great start by getting the basics right. Comfy desk chairs, clean toilet facilities, and tasty food in the cafeteria can all help to keep a smile on everyone’s faces. No agent will be giving their best if they are trying to balance on a broken chair, having just had a bag of chips for lunch![25]
Create Quality Standards
Customer service standards refer to the performance that customers can expect from the company. It encompasses various factors, like speed, accuracy, transparency, accessibility, empowerment, efficiency, and friendliness of the staff.[26]
There are many benefits to improving quality and customer service, including a positive impact on customer loyalty, revenues, profitability, word of mouth, and employee engagement to name just a few. What constitutes good, bad, and exceptional customer service must be defined by what customers expect. Quality is simply the attributes of a product or service. Standards are for the requirements, specifications, guidelines, or characteristics established for customer service. They should reflect and provide guidance on what needs to happen, and what we want to apply or replicate across all customer interactions. There are three sources for establishing quality standards:[27]
1. Customer expectations. But these are always changing so companies must continually innovate. Meeting customer expectations is a combination of people, processes, and technologies.
2. The organization’s mission, vision, and values. Quality standards should support or align with these.
3. Stakeholders such as government, suppliers, employees, shareholders, industry associations, community (and customers, but customers are in a category of their own).
“Customers frequently rank consistency as a primary driver of good customer service. To monitor the quality and consistency of your team’s replies, consider implementing quality assurance or conversation reviews. Providing ongoing feedback through reviews can ensure that your entire team is delivering excellent customer service.”[28]
Sometimes there is resistance to creating quality standards as some managers feel these standards are too rigid and unnecessary. The best way to combat resistance is to demonstrate what quality is and the costs when quality is lacking.
Use Metrics that Matter
“Enhancing your call center’s customer-centricity would be next to impossible without data. In order to make decisions that will positively impact your customers, your call center agents, managers and executives must be referencing real-time and historical data. Enhance customer-centricity by:[29]
• Utilizing call center software that provides comprehensive metrics.
• Empowering agents with real-time and historical data so they can make informed decisions that enhance the customer experience.
• Analyzing KPIs and making decisions based on these metrics.
• Creating a culture of continuous data-driven improvement.
• Ensuring that metrics are aligned to the customer lifecycle and key touchpoints (e.g., Customer Lifetime Value, Net Promoter Score, etc.).
• Connecting agent feedback and performance evaluations to metrics.
Historically, contact centers focused more on quantitative metrics such as Average Handling Time (AHT) and Calls per Hour. However, modern service centers recognize the importance of measuring customer experience and agent behavior more than quantitative metrics. Adopting a customer-centric approach to contact center management does not imply that there should be no productivity-based measures in place. Instead, it means that service centers should emphasize more on improving customer satisfaction than relying on increasing the number of calls.”[30]
Watch the “How to Reduce AHT in a Call Center” YouTube video below to learn more about reducing average handling time in a call center.[31] Transcript for “How to Reduce AHT in a Call Center” Video [PDF–New Tab]. Closed captioning is available on YouTube.
Of course, every company should measure performance in alignment with quality standards, and much of this is done through metrics and using technology. There are other ways to assess the quality of service interactions, some of which include: observation, role-play, coaching sessions, recorded interactions, customer input, and mystery shoppers who use services and provide reports.
When measuring the degree to which quality standards are being met it is important to consider the scoring system as it should directly reflect your quality standards and behaviours you want to encourage. A flawed system may, in practice, under-emphasize critical behaviors and over-emphasize non-essential skills. You’ll need to test and modify accordingly.[32]
Key Takeaways
1. A customer-centric leadership structure must ultimately report to the chief executive and should be designed to stimulate cross-silo activity and collaboration. Leaders must commit to demonstrating behaviors and serving as role models to deliver customer-experience goals to frontline workers and refine and reinforce those goals over the long term. Finally, it is necessary to put in place the correct metrics and incentives that are critical for aligning typically siloed units into effective cross-functional teams.
2. Leaders in customer experience pursue a range of approaches to overcome such complexity of making the customer experience a priority. Several elements form the core of their successful efforts. They include the following: Set up a dedicated team for customer experience, establish C-suite engagement, and fit the customer-experience team into the organizational fabric.
3. To create a customer centric organization leaders apply the following principles: Model specific behaviours, foster understanding and commitment among employees and managers, develop capabilities and skills, and reinforce behaviours through formal mechanisms.
4. Being customer centric means that every department in the company understands that the customer comes first and everything they do is to obtain, retain, and build relationships with customers.
5. A customer service vision is a shared definition of outstanding service that gets all employees working in the same direction. A strong customer service vision has three characteristics: It’s simple and easy to understand, it’s focused on customers, it reflects who the company is now, and who the company aspires to be in the future.
6. There are three questions you can ask employees to evaluate employee engagement in a customer centric organization: What is the customer service vision? What does the customer service vision mean? How do you personally contribute?
7. Employee empowerment means giving employees the authority, right technology, systems, and freedom to go the extra mile to make customers happy.
8. Customer service standards refer to the performance that customers can expect from the company. It encompasses various factors, like speed, accuracy, transparency, accessibility, empowerment, efficiency, and friendliness of the staff. There are three sources for establishing quality standards: Customer expectations, the organization’s mission, vision, and values, and stakeholders such as government, suppliers, employees, shareholders, industry associations, and the community.
9. Previously, contact centers focused more on quantitative metrics such as Average Handling Time (AHT) and Calls per Hour. However, modern service centers recognize the importance of measuring customer experience and agent behavior more than quantitative metrics.
End-of-Chapter Exercises
1. Contact Center Goals. Search the Internet for examples of good and bad goals for a customer service contact center. Take a few notes then share your findings with your classmates and professor.
2. Customer Service Standards. Review the list of 7 Commonly Used Customer Service Standards. Which standard do you feel is the most important? Why? Discuss with your classmates and professor.
3. Cross-Departmental Service. Why is it important for quality customer care/service to be a cross-functional objective? Provide an example of serving a customer where cross-departmental input may be needed. Discuss with your classmates and professor.
4. Reinforce Employee Behaviour. Search the Internet for ways to reinforce employee behaviour beyond financial incentives. Would these strategies work for every employee? Why or why not? Discuss your findings with your classmates and professor.
5. Model Behaviour. Search the Internet for ways in which managers can model customer centric behaviours. Make a list and share it with your classmates and professor.
6. Leadership Quiz. Take a leadership quiz to determine your leadership style.
7. Customer Service Quiz. Take a quiz to evaluate how well your team delivers customer service.
Query \(1\)
Additional Resources
1. 15 Steps to Becoming the Best Team Leader in the Call Center Industry, YouTube Video
2. Contact Center Trends for 2021, YouTube Video
3. How Many Agents Do You Need? YouTube Video
4. How Companies Can Achieve True Customer Centricity, YouTube Video
5. An Introduction to Customer Centricity at Google, YouTube Video
6. Customer Centric Culture Change, YouTube Video
7. Beyond the Trends: Developing a Customer-Centric Retail Mindset in B2C & B2B
8. Service Metrics for Customer Service, LinkedIn Learning
9. Leading a Customer Centric Culture, LinkedIn Learning
10. Customer Service Leadership, LinkedIn Learning
References
(Note: This reference list was produced using the auto-footnote and media citation features of Pressbooks; therefore, the in-text citations are not displayed in APA style).
Media Attributions
1. Bhattachariee, D., Müller, L., Roggenhofer, S. (2016, March 11). Leading and governing the customer centric organization. https://www.mckinsey.com/business-functions/operations/our-insights/leading-and-governing-the-customer-centric-organization#
2. Hash, S. (2018, August). Leading customer centric change. https://www.contactcenterpipeline.com/Article/leading-customer-centric-change
3. Hash, S. (2018, August). Leading customer-centric change. https://www.contactcenterpipeline.com/Article/leading-customer-centric-change
4. Hash, S. (2018, August). Leading customer centric change. https://www.contactcenterpipeline.com/Article/leading-customer-centric-change
5. Customers That Stick. (2020, January 7). A customer-centric culture needs a leader. [Video]. YouTube. https://www.youtube.com/watch?v=zwTih30Qr2
6. Bhattachariee, D., Müller, L., Roggenhofer, S. (2016, March). Leading and governing the customer-centric organization. https://www.mckinsey.com/~/media/McKinsey/Business%20Functions/Operations/Our%20Insights/Leading%20and%20governing%20the%20customer%20centric%20organization/Leading%20and%20governing%20the%20customer%20centric%20organization.pdf
7. Bhattachariee, D., Müller, L., Roggenhofer, S. (2016, March). Leading and governing the customer-centric organization. https://www.mckinsey.com/~/media/McKinsey/Business%20Functions/Operations/Our%20Insights/Leading%20and%20governing%20the%20customer%20centric%20organization/Leading%20and%20governing%20the%20customer%20centric%20organization.pdf
8. Skillsoft. (2020, April 14). The 8 habits of customer-centric leaders. [Video]. YouTube. https://www.youtube.com/watch?v=Iqo6IEgnD2E
9. Toister, J. (2018, August 29). Leading a customer-centric culture. [Video]. LinkedIn Learning. https://www.linkedin.com/learning/leading-a-customer-centric-culture-2018/guide-employees-with-a-vision?u=2167290
10. Law, T. (2021, June 10). 17 seriously inspiring mission and vision statement examples. [Blog]. Oberlo. https://www.oberlo.com/blog/inspiring-mission-vision-statement-examples/
11. Brex. (2020, August 28). 22 vision statement examples to help you write your own. [Blog]. https://www.brex.com/blog/vision-statement-examples/
12. Law, T. (2021, June 10). 17 seriously inspiring mission and vision statement examples. [Blog]. Oberlo. https://www.oberlo.com/blog/inspiring-mission-vision-statement-examples/
13. Law, T. (2021, June 10). 17 seriously inspiring mission and vision statement examples. [Blog]. Oberlo. https://www.oberlo.com/blog/inspiring-mission-vision-statement-examples/
14. Brex. (2020, August 28). 22 vision statement examples to help you write your own. [Blog]. https://www.brex.com/blog/vision-statement-examples/
15. Law, T. (2021, June 10). 17 seriously inspiring mission and vision statement examples. [Blog]. Oberlo. https://www.oberlo.com/blog/inspiring-mission-vision-statement-examples/
16. Brex. (2020, August 28). 22 vision statement examples to help you write your own. [Blog]. https://www.brex.com/blog/vision-statement-examples/
17. Toister, J. (2018, August 29). Leading a customer-centric culture. [Video]. LinkedIn Learning. https://www.linkedin.com/learning/leading-a-customer-centric-culture-2018/guide-employees-with-a-vision?u=2167290
18. Patel, S. (2021, June 23). How to empower your team to deliver great customer service success. [Blog]. Revechat. https://www.revechat.com/blog/empower-customer-service-team/
19. Toister, J. (2018, August 29). Leading a customer-centric culture. [Video]. LinkedIn Learning. https://www.linkedin.com/learning/leading-a-customer-centric-culture-2018/guide-employees-with-a-vision?u=2167290
20. Geraghty, S. (2014, July 18). 7 essentials of a customer-centric call center. [Blog]. Talkdesk. https://www.talkdesk.com/blog/7-essentials-of-a-customer-centric-call-center/
21. Emanuele, G. (2020, October 26). Customer experience: Empower employees with decisions. [Video]. YouTube. https://youtu.be/_fpVNX3oPC8
22. Toister, J. (2018, August 29). Leading a customer-centric culture. [Video]. LinkedIn Learning. https://www.linkedin.com/learning/leading-a-customer-centric-culture-2018/guide-employees-with-a-vision?u=2167290
23. CallCenter Helper. (n.d.). Top 10 smart contact center goals. https://www.callcentrehelper.com/top-10-contact-centre-goals-82427.htm
24. CallCenter Helper. (n.d.). Top 10 smart contact center goals. https://www.callcentrehelper.com/top-10-contact-centre-goals-82427.htm
25. CallCenter Helper. (n.d.). Top 10 smart contact center goals. https://www.callcentrehelper.com/top-10-contact-centre-goals-82427.htm
26. Outsource Accelerator. (2021, July 30). The 7 C's to improve customer service standards. https://www.outsourceaccelerator.com/articles/customer-service-standards/#:~:text=%20Improving%20customer%20service%20standards%20%201%20Courtesy.,to%20provide%20a%20customized%20customer%20service...%20More%20
27. Cleveland, B. (2016, December 12). Quality standards in customer service. [Video]. LinkedIn Learning. https://www.linkedin.com/learning/quality-standards-in-customer-service-2016/defining-quality-in-customer-service?contextUrn=urn%3Ali%3AlearningCollection%3A6569259166630768640&u=2167290
28. Chambers, S. (n.d.). How to set customer service goals (+7 example goals. [Blog]. Help Scout. https://www.helpscout.com/blog/customer-service-goals/
29. Geraghty, S. (2014, July 18). 7 essentials of a customer-centric call center. [Blog]. Talkdesk. https://www.talkdesk.com/blog/7-essentials-of-a-customer-centric-call-center/
30. The Reporting Engine. (2020, June) 5 traits of a customer-centric contact center. [Blog]. https://thereportingengine.com/blog/5-traits-of-a-customer-centric-contact-center/
31. CareforCustomers. (2012, July 21). How to reduce AHT in a call center. [Video]. YouTube. https://www.youtube.com/watch?v=HysPD1vpkiU
32. Cleveland, B. (2016, December 12). Quality standards in customer service. [Video]. LinkedIn Learning. https://www.linkedin.com/learning/quality-standards-in-customer-service-2016/defining-quality-in-customer-service?contextUrn=urn%3Ali%3AlearningCollection%3A6569259166630768640&u=2167290 | textbooks/biz/Business/Introductory_Business/Customer_Centric_Strategy_(Shields)/1.08%3A_Leading_a_Customer_Centric_Strategy.txt |
If you are a first-generation law student, law school itself can seem like a completely different world—a world where you have very little navigational help. At least, that’s what it felt like for me. I had never even met a lawyer and assumed that I was the only one in this boat. I also assumed that no one had as many questions as I did. First and foremost, everyone is feeling overwhelmed, so you’re not alone. And because I felt so desperately lost when I started law school, I present to you the guidebook I wish I had!
First, let’s discuss some basics on what to expect. Remember that law school is a professional school, which alone makes it different. If you were like me, you don’t know anyone who had been to professional school, so you have no idea what it means. My goal is that by the end of this chapter you will understand more about what makes law school different, and what to expect.
I. Learning A Brand New Vocabulary
First, law school uses a brand-new language. I remember getting my schedule and thinking “What is a tort?” and feeling very much that I was in over my head. For the record, a tort is a “civil wrong,” such as stuff like slip and falls or car accidents. But I didn’t know that! I thought, “Is a torte a fancy chocolate cake?” So, I created a “Law School Glossary” for you in the appendix. It is by no means exhaustive, but it is a list of commonly used law school words that you may not know. In addition, I have written a CALI Lesson on vocabulary that can supplement this chapter. See the CALI Lesson Law School Lingo: How to Navigate a Brand New Vocabulary.
I’m sure you are expecting the law to have a unique vocabulary when it comes to actually learning about the law, but law school itself even has its very own “lingo.” Even before orientation, you will hear words like “1L,” “hypos,” and “mock trial.” I’ve tried to cover all of the lingo that might come up, but some of it varies from law school to law school. For example, during my first semester at one school, someone mentioned students going on a “bar review.” Well, since “bar review” is part of my job title, I thought “I have to be involved in this.” Turns out, I did not need to be involved in this at all, as it was how the students referred to going out socially on Thursday nights.
Also, remember that like with any other new language, if you see or hear a word you don’t know or understand, look it up! Or ask. Either is acceptable. I would suggest that when looking words up, make sure you are using the legal definition. A good resource is “Black’s Law Dictionary.” If possible, buy a portable Black’s Law Dictionary and keep it with you as you read cases. Your library might also have online options available, which may be more cost effective and certainly easier to carry around. It’s important to make sure you are using a legal dictionary in lieu of a normal dictionary because often legal words have very specific definitions, whereas the same word might be used in a different way by non-lawyers. For example, my grandmother often used to say “hearsay” to refer to a rumor. If someone in the family was spreading gossip, for example, she’d call us out and say, “Oh that’s just hearsay, we don’t know that for sure.” When you take evidence, you will learn that hearsay has a very specific legal definition. Grandma was close in the way she used it, but legal definitions call for far more precision. In addition, if you search for “tort” but accidentally include an e, you’ll get a cake. While far more delicious than a civil wrong, it certainly won’t help you in your first-year classes.
You may often hear words that you think you know, but that you don’t quite understand in the law school context. For example, I’d often heard about “legal clerkships” while in law school. Now, my mother had been a secretary for years, and sometimes was called a “clerk,” so I thought “legal clerkships” were secretarial or administrative positions. While there is nothing wrong with that, I couldn’t understand why my classmates would want to be legal secretaries after graduation; that seemed odd. Little did I know that when a law student applies for a legal clerkship, they are working for a judge. And this doesn’t mean they are doing administrative work, but rather, legal research and writing. It’s actually fairly prestigious. I wish I had thought to ask someone, but I was embarrassed. With this book, I’m going to try to give you as much exposure to those kinds of terms as I can, but I cannot possibly cover everything. So please ask questions, don’t be embarrassed, and look things up.
Finally, law school often uses shorthand or abbreviations, and to the uninitiated, it may seem very odd. Some of these are also included in the glossary. For example, people will often use π to mean plaintiff, or K to mean contract. Or, things like “1L” to mean first year, or “hypo” to mean hypothetical. It can be very frustrating, especially if you feel like you haven’t been let in on the secret. I’ll be honest, after even a semester of law school, you will forget that there was a time when you had no idea what these abbreviations meant. This means that students who have been in law school for at least a year, as well as your professors, often forget that these are not words and abbreviations that everyone uses. So, when they use the abbreviations without explanation, they are not doing it to exclude you or as some kind of test; it’s mostly just a force of habit. When I train my tutors, who are second-year law students, I remind them that the incoming students will not know the shorthand they have grown accustomed to using. Despite this, I find myself still referring to things such as “hypos” instead of hypotheticals or “civ pro” instead of civil procedure during orientation. I don’t mean to, and I certainly don’t want to alienate my fellow first-generation students, but it is a habit. You will find yourself saying the same things out of habit very soon. This means that you should not feel any shame or hesitation in asking what a particular word means.
It is also helpful to remind yourself that so many others sitting with you in class are also learning this language for the first time. Even the students who are not first generation do not know it all. Sure, maybe they have at least heard the words in passing, but that doesn’t mean they know what everything means, or that they have accurate definitions.
Interactive Questions: Law School Vocabulary
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II. Read Carefully
Law School, and the practice of law, rely heavily on your ability to read carefully. This will be one of the most important skills you can master, and reading things multiple times is recommended. This is so that you don’t miss important information.
First, you will receive folders and folders of information between admission and orientation, and again during orientation. Start a filing system, electronic or otherwise. Look carefully for emails that come from the admissions office or other administrators. Often those emails contain information about programs or other events, and these things can have deadlines. It might be tempting to think that you don’t have to pay attention to emails until you actually start classes, but you may miss great school programming. When reading these emails, pay careful attention to deadlines or other directions. I also realize that the amount of information you will be given during orientation is overwhelming. That’s normal. The best thing you can do is find a good place to organize it all, and have it as a reference for the first few weeks of classes, and beyond. You can use an online calendar, paper calendar, phone reminders, or whatever has worked for you in the past. Even though law school can feel like a completely new experience, some of what has worked for you in the past will continue to work for you moving forward. And law school, even as early as being admitted, is a good time to set up organization systems, calendar systems, and reminder systems to see what will work for you and serve you throughout your career.
In addition, there is an expectation that for most of your courses you will have read the syllabus before the first class. You may even have an assignment before the first class. The potential to have an assignment before classes even started came as a shock to me; in my undergraduate experience, it was normal for the professor to use the first class to go over the syllabus and end class early. In law school, there may never be a point where the professor reviews the syllabus with you, so it is up to you to make sure that you are following the directions and assignments contained within the syllabus.
Some syllabi are more detailed than others; they may include grading policies, attendance policies, how to turn in assignments, and/or course expectations. Essentially, they are a guide to your course, and you want to read them very carefully.
See below for a glimpse into my syllabus. The heading gives you basic information—what is the class, when is it, where is the classroom, where is my office, and so on. This seems fairly straightforward, but it’s all vital information!
Now, let’s skip ahead into my syllabus—what do you learn from this next section? Answer the questions that follow.
Interactive Questions: Reading a Syllabus for Key Information
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Part of law school is to train you to read directions very carefully, or just read carefully in general. Being an attorney is all about reading paperwork carefully. That being said, law school is the time to learn, and potentially mess up. It is far better to miss a deadline or mess up instructions during law school (even though there can still be severe consequences in law school) than it is to mess up during the practice of law. I tell my students that I have very specific instructions for a reason, so I do expect that they will be followed. For example, when my students turn in an essay, they are expected to save the document as “Name Subject” before uploading. This is clear in the syllabus. This is not arbitrary. Imagine 45 students turning in documents with the title “Contracts Essay” or “Essay on Contracts.” How would I ever keep them organized? This not only benefits me, the professor, as I try to give feedback, but benefits the student since I can double-check I’m returning the correct essays to the correct students. Also, it means that when they want to talk about feedback or go over an essay, it’s easy to find. Even if that essay is older, it’s going to be organized by their name so it will be easy to find. I do explain my reasoning to students, as I firmly believe that when you teach adult learners, it helps to be transparent about why certain rules are in place. However, not every professor is transparent in their reasoning. Even if they seem arbitrary, practice reading all directions and rules carefully.
I sometimes give my first-year students a “reading and briefing” assignment, and it’s really a “following directions” assignment. At the top, it says “Read all questions before you begin” and there are about 14 questions. Question 13 says not to answer anything above Question 13, and Question 14 says “What is your name?” I admit, it’s a bit sneaky, but it does two things: it tells me who is reading carefully, and it shows the students the importance of reading carefully. Mostly because they are given about 30 minutes to complete the assignment and the first 12 questions are very difficult. So those students who do follow the instructions are done very quickly and can have a bit of a break.
I don’t do this to be cruel; I do it so they can make mistakes with me. It’s better that they screw up or fall on their face with me, rather than in legal practice. I won’t penalize them. Sure, I want them to follow directions and read carefully, but I want that so that they learn the skill for practice. If someone names their document “Contracts Essay” I usually resave it with their name and remind them in their feedback to read directions. They still get points for their essay, and nothing has happened that they are not able to bounce back from or learn from. This is the same with the following directions assignment. No one who “messes up” is penalized. It’s meant to be a learning experience, and a reminder moving forward.
It is important to note that there are times in law school when you might be penalized for failure to follow instructions. I have seen students lose points on exams for not carefully reading instructions, and at times, they end up getting an answer wrong because they didn’t read carefully. So, there can be real consequences. However, it’s still better to learn this habit in law school and suffer the consequences now, instead of while in practice.
III. Classes
You want to be prepared for class. I’m here to be completely honest with you, so for honesty’s sake, I will admit that during my undergraduate years I was not always prepared for class. Much depended on the class and topic, but I often viewed class reading as more of a suggestion. This approach is unlikely to work in law school. You want to do the class reading and be prepared to participate.
In law school, most professors use “cold calling,” meaning they will ask questions of students randomly. This means you will be expected to answer questions about the reading even if you do not volunteer.
Many law professors use something called “The Socratic Method.” “Developed by the Greek philosopher, Socrates, the Socratic Method is a dialogue between teacher and students, instigated by the continual probing questions of the teacher, in a concerted effort to explore the underlying beliefs that shape the students’ views and opinions.”1
In short, this means that students are expected to participate in class and answer questions about cases and the law. This can feel very intimidating.
However, the point of class is to learn. The expectation is that you have done the reading and briefed the cases. (In later chapters, I’ll give you tips on how to do the reading more effectively as well as answer the question, “What on earth is briefing?”) The expectation is a good faith effort, not perfection. You might get called on and get an answer wrong. That’s okay! Despite how it feels on that day in class, it’s not the end of the world. It often feels like everyone is staring at you and judging you for getting the answer wrong. First, no one is staring at you; they are likely looking down taking a deep sigh of relief that they were not called on. And they certainly aren’t judging you, because it’s a good bet they didn’t know the right answer either. You will remember being called on, and not getting the answer right, and you might remember it for years. But no one else will.
I have met with many students who are a bit worried about “not getting it all” prior to class. Specifically, they feel prepared in the sense that they have read the cases and briefed those cases, but still feel a bit unprepared when students or professors ask the “what if” questions. The students that come to me feel worried that if they aren’t “getting” the “what if” questions, they didn’t fully prepare.
First, you might be thinking, “What is a ‘what if’ question?” This is often part of the Socratic Method: a professor might go over a case that you read and then say, “Well, what if this had happened instead?” or “What if I changed this one fact?” This is designed to help you learn to think like a lawyer, and no, you aren’t going to get it right away. Also, this is part of the process of learning. The “what if” questions help you learn to analyze a problem, which is what you’ll be doing on the exam. So you are meant to follow along in class, but it’s okay if you don’t have the answers before class or even during class. It’s a learning experience. Also, I promise you will get more comfortable with this process as you go.
It is important to remember that your time in class, even when being cold-called, is about learning the material. Yes, you must read before class and do your best to understand it, but if you are completely confused about what you just read, that is normal.
IV. Time Management
Time management and punctuality are great lawyering skills. Depending on the type of law you are practicing, deadlines are either incredibly important or they are absolutely critical. In addition, it’s not unusual to work on multiple cases at one time, juggling them all simultaneously.
You will be expected to hone your time management skills during law school. Because law school is a professional graduate program, attendance in class, and showing up to class on time, are both expected. It is also expected that you will turn in assignments in a timely fashion; some might not even be accepted past the deadlines. Again, this is not dissimilar to being a practicing attorney.
However, just as when you are practicing law, life will happen, and that is okay. You are human, so you will get sick or have other emergencies. And just like you must do in practice, you have to notify the relevant people. In law school, that is usually the professor, dean of students, or academic success director. Let them know of the emergency as soon as you are able (within reason) and they will generally be able to accommodate you.
In addition, since many classes only have one to two exams, you are responsible for holding yourself accountable. No one will check in to see if you are staying caught up on the reading or whether you’re briefing. This means that time management is essential. It’s easy to get behind with no “checking in,” so setting up study time for yourself, and sticking to it, can be vitally important.
Here is a CALI Lesson on time management in law school: Time Management: Creating Your Plan.
The CALI Lesson on time management I’ve linked above has some excellent advice, but here are a few general tips to help:
• Create daily, weekly, monthly, and semester-based calendars. It might seem like a bit much, but you want to see the “big picture” of the semester, as well as what you need to accomplish in any given day or week.
• Create to-do lists that separate out the “must accomplish” today/this week/this month versus “would like to accomplish” today/this week/this month.
• Set reminders (electronic reminders on your calendar or phone can do wonders2) of important deadlines. Don’t just set the reminder to go off just before the deadline—set staggered reminders for larger projects.
• Use the Pomodoro Technique if you need help focusing. Pomodoro means “tomato” in Italian, and was developed by Francesco Cirillo in the 1980s to help him focus on his studies. The basic idea is that you pick a task, set a timer for 25 minutes (Cirillo called this the Pomodoro Technique because he used a timer that was shaped like a tomato), and focus on just that task. Then, when the timer goes off, take a 5-minute break. If the task is something that takes longer than 25 minutes, do this multiple times, giving yourself a longer 15 to 20-minute break after 4 “Pomodoros.” Many lawyers swear by the Pomodoro Technique.3
V. Grading and Exams
One of the things that makes law school so different is that grading is typically focused on one final exam at the end of the semester. Some law schools and professors are now adding in midterm exams and quizzes, but that is not always the case. If there are no quizzes or midterms, it’s hard to determine if you are grasping the material and on the right track. This can be incredibly daunting, but again, remember, it’s normal to feel that way. This means developing a strong habit of self-direction will come in handy.
Grading is also often curved during law school, especially during the first year. This means that there has to be a certain percentage of the class that receives each grade, essentially meaning your performance is judged relative to others versus in an absolute way.4 This might be a new experience, as well. It’s tempting to feel like you are competing against your classmates, and while that is partially true, you can’t let it impact you too much. Peer support is vital to your success in law school, either through study groups, discussions with your classmates, or just the support you might get from one another.
Because there isn’t always a “right” answer in law school exams—there is often only the best answer, or the best-explained answer—and because you feel like you are competing against students who grew up listening to their parents discuss legal concepts at the dinner table, the curve can be daunting and distracting. It’s still important to be collegial and kind—you will likely be practicing law with these people someday. And competing against students who have grown up with lawyer parents in a class in which the professor grades on a curve doesn’t mean you can’t, or won’t, succeed. I will also let you in on a secret: lawyer parents don’t always give great advice! The practice of law in a given jurisdiction can be very different from what a professor expects to see on an exam, so having lawyer parents can actually be counter-productive.
I can’t lie, grades are important. They can be important for securing your first internship or summer job, and they can be important for allowing you into certain student activities. But they do not define you as a person, or a future attorney. A large part of my job is to work with students who don’t do well in their first semester, and while they aren’t jumping for joy with their grades, they do go on to become successful practicing attorneys! So work hard and do your best, but know that grades are not everything.
VI. Be Engaged
Like with many things, you get out of law school what you put in. This means that if you are engaged in class discussions, you will learn more. If you attend law school activities or join student groups, you will build a better community for yourself. When things come up, such as student social activities, go! Some of you may not be super social and I get that, but you are meeting your future colleagues. Not everyone has to be your best friend, but it is good to have a network and support system that you can lean on.
Also, even though it can be daunting at first, go see your professors. They will hold office hours, which are designated times you can just drop in and chat or ask questions. You should absolutely take advantage of the office hours. Not only is it a great opportunity to get to know your professors, and for them to get to know you, but who better to explain concepts you may have missed? I will discuss office hours in greater length in Chapter 4. I also have an entire chapter devoted to extracurricular activities, so feel free to dive into that chapter and find something that interests you.
VII. Orientation
Orientation is the official start of law school. Each school sets up orientation in a different way. Some are two days, some are an entire week.
Typically, though, all orientations are part administrative and part “learning how to be a law student”; it might just be that the focus is different depending on the law school.
For the administrative part, this is typically getting your student ID and log-ins, meeting faculty and administrators, being assigned lockers (if your school uses them), and generally getting the stuff you need to exist as a student. And the bonus is that most schools provide so much free food and law school swag!
Then, there is the other part of orientation: the part that teaches you. This is the start of your classes, and you want to pay attention. Typically, there will be a mock class and maybe sessions on reading and briefing, how to use the library, and so forth. It might be tempting to not take these things seriously, as classes haven’t officially begun, but I promise it is very much worth it to pay attention to these sessions. You will also feel exhausted—even a two-day orientation can feel incredibly long like you can’t possibly hold more information in your head. That’s normal!
This is the perfect time to start getting organized or to test out your organization systems. You should take notes during orientation and organize them well so you can reference them at a later date. For example, put in the contact information of various administrators you might meet and how they can help you or what they do, and put important dates in your calendar as soon as you can. Orientation is the start of your legal career, so in many respects, treat it like a job.
VIII. Remember, It’s a Professional School
You are attending law school to be a lawyer, presumably. This is likely obvious, but what is less obvious is that day one of orientation, or even earlier at meet and greets, is day one of your professional life. Yes, you are still in school, but when you go out into practice your classmates and professors will be your colleagues. This means that how you treat your fellow classmates will be remembered.
I do not say that to scare you, but to remind you that this is now a professional environment where your reputation matters. And, we only have one professional reputation.
Look around you at orientation and in class. If you look to your left and right, you’ll see your future colleagues. These are the people who will be working with you and referring clients to you, and they might be in a position to hire you or help you find a job. Don’t be a jerk. Be civil, be kind. Be civil to everyone in law school—because it will help you, but also because it’s the right thing to do.
It can be daunting to be a first-generation law student, but always remember you are not alone. Lots of people have been where you are now. Below are two stories, both demonstrating these feelings.
“While I don’t usually identify as a first-gen student because both of my parents had advanced degrees, I am the first and only lawyer in my entire extended family. This did, unfortunately, put me back a bit when I started law school since I was just totally unfamiliar with some of the basics. I remember sitting in a course about how to do law school—one of BarBri’s summer program offerings—and being so upset that students around me already knew what a tort was and understood how elements of negligence worked. It never occurred to me that there was a difference between civil and criminal proceedings. I was really blown away by the analysis of statutory components. Others seemed to intuitively know there was a difference between “may” and “shall,” and even though I was an English teacher before coming to law school it took a while for me to really understand that.”
-Jenna S.
Despite the fact that she felt a bit overwhelmed at first, I can tell you that Jenna did graduate, pass the bar, and now helps other students feel welcome at law school! Here is another story from a fellow professor.
“When I got to law school, I thought that I knew what to expect. I had done a lot of research—on different law schools, careers, student loans, what “cold calling” was, you name it—and I felt like I had a decent sense of what I was getting myself into.
In one sense, this turned out to be true. While 1L year was challenging, there was not much about the courses, exams, or professors that surprised me, thanks to the research I had done ahead of time. At the same time, though, there was a whole other layer to law school that I did not know how to navigate, and that I had not anticipated in the first place. In short, I experienced a culture shock related to my status as a first-generation law student.
To begin with, I was taken aback with how many of my classmates had parents who worked as lawyers or judges. A parent with decades of experience in the legal field is a truly invaluable resource; they can act as a permanent, on-demand mentor. By definition, of course, first-gen lawyers and law students do not have access to this resource. Relatedly, some of my friends had done law-related internships in college, or worked in a law firm or at a court prior to law school—opportunities they noted had been easy to line up through their family connections. I was not prepared for how insular the legal world is, or for how many people have access to that world even before they begin law school. Access, of course, means knowledge: many of my classmates seemed to already know things about the law, and about the legal profession, on day one of law school. I knew essentially nothing. For at least the first year of law school, I felt like an outsider.
That changed. I began to feel more at home as a law student once I reminded myself that I was there for a reason, and it was not because I did (or did not) have a specific background. Rather, it was because I had worked very hard to get to law school in the first place, I had a genuine interest in (and passion for) the law, and I knew I wanted to be a lawyer.
While I realized that many of my classmates might be better connected than me, I resolved to not let that fact define my own professional journey, or to prevent me from forming meaningful friendships and professional relationships with lawyers with all types of backgrounds. In addition, seeking out opportunities—like internships or electives that I was enthusiastic about, for example—helped me define my law school experience on my own terms, not by how I perceived others’ relationship to the legal field. In essence, I realized, my background—my strengths, abilities, and unique life experiences—was also a massive asset, even if it differed from the more traditional (and connected) paths some of my colleagues had traveled. I still believe that each person’s background is one of their greatest strengths, provided they can recognize it as such. First-generation lawyers often bring varied, eclectic skill sets and experiences to their practice—which ultimately helps them connect with their clients. In turn, these lawyers are able to more effectively advocate for clients of all kinds.”
-Professor W.
I share both of these stories because both of these people survived and thrived in law school, and so will you!
I hope that gives you a bit of an idea of what to expect in law school. Now you can dive into the rest of the chapters to learn things in more detail, and like law school itself, you will get more out of it if you participate!
1 Both Google Calendar and Microsoft Outlook will offer reminders. There is also an app called “Friday” that helps you plan your to-do list (https://friday.app/software/online-calendar-planner) and another app called “Todoist” does the same (https://todoist.com/home?gspk=c2VtYW...e=partnerstack).
2 Both Google Calendar and Microsoft Outlook will offer reminders. There is also an app called “Friday” that helps you plan your to-do list (https://friday.app/software/online-calendar-planner) and another app called “Todoist” does the same (https://todoist.com/home?gspk=c2VtYW...e=partnerstack).
3 For more information, see this website: https://todoist.com/productivity-met...doro-technique. And here is an online Pomodoro tracker: https://pomodoro-tracker.com/.
4 The curve is the permitted range of each letter grade that can be awarded, for example, 0-3% A+, 3-7% A, etc. Curves vary between different law schools, as do the rules for when the curve is mandatory versus suggestive. For example, in most law schools, curves are mandatory for a class with above a certain number of students (so most first year courses) but not classes with under a certain number of students. | textbooks/biz/Civil_Law/A_First_Generation's_Guide_to_Law_School_(Hale)/1.01%3A_The_Basics_or_What_to_Expect_When_You_Dont_Know_What_to_Expect.txt |
I. Introduction
You might already be wondering why there are so many chapters on studying. I mean, you made it to graduate school, certainly you know how to study, right? Sure, but studying for law school is very different. We’re going to talk about why.
The biggest reason for the difference is that you are not learning facts or figures, but rather, you are learning a new skill: how to think like a lawyer. As I mentioned in Chapter 1, learning the law is a skill. For some reason, this isn’t obvious to most law students, or many practitioners. It’s viewed as a lofty intellectual pursuit, where people can have very robust intellectual conversations about various aspects of the law. And sometimes it is, I suppose. But mostly, it’s a skill. And in your first year of law school, and sometimes your second and third years, you have to remember you are learning a NEW skill and learning to master something you’ve never done before.
I present to you, by way of an example, how I learned to roll a cake:
See, I’ve been baking since I was a little girl. I started baking with my grandpa, learning to make banana bread, brownies, and cakes. I bring this up because I don’t consider myself a baking novice. I’m not an expert, but I thought I had skills. So, when my British husband declared that he really missed yule logs (which can be purchased in the US, but the store-bought kind is never the same I guess) I leaped at the challenge to master a new baking skill.
I first watched about three videos on “how to roll a cake.” I learned that you: 1) use a jelly roll pan (thinner pan, like a cookie sheet); 2) put the cake on a towel RIGHT AWAY; 3) roll it; 4) unroll it; 5) frost it; and finally 6) roll the cake again. I used my normal chocolate cake recipe and got to work. You see, I’ve baked cakes so many times before, and I really like my recipe. I’m comfortable with it, too. I was excited and whipped it up just like I always do. I baked the cake. I put it on the towel and rolled it. I set the roll aside to let it cool. I felt pretty pleased—all seemed to be going well—and I was excited to unroll and frost it. But, as I unrolled it, it came apart in pieces. Delicious pieces that I ate—I’m not a fool—but it wasn’t supposed to unroll in pieces.
The next day I decided to try again. After all, it’s what one does. I asked the internet for more advice and watched a few different videos to see if I could learn anything new. The only thing I picked up was that I may have rolled it while it was TOO hot. So I did everything the same but waited until it was warm instead of hot. Rolled it again. This time it came out in FEWER pieces, but pieces just the same. My husband and I were delighted to eat the mess, but I kept pondering what I needed to do to roll this cake.
I’m not going to lie, I was frustrated. True, I was enjoying the delicious cake, but it was still frustrating to not get the results I wanted.
So, instead of just watching videos on the actual rolling of the cake, I opted to go look at some yule log, swiss roll, or roulade (all rolled cake) recipes. I noticed something strange: the recipes were not like my recipe at all. The ingredients were vastly different. I picked a yule log cake recipe and tried again. This time it worked! The different recipe meant a different cake consistency, so a better roll!
Why does this matter? Why is this like studying the law? Well, first and foremost, I went with a preconceived notion of what I knew and what I could do. It took two attempts before looking back and thinking that I might need to change my initial recipe. But that made all the difference. Often, students come in with a preconceived notion of what they know, how to study, or even how to write. They are often shocked to find out that legal writing is vastly different from what they did prior to law school, or even what they considered “good.” The same can be said for study habits. Remember, my sheet cake recipe is delicious, and undisputedly so, but it didn’t work for what I wanted to do, which is to roll the cake. That doesn’t mean that it doesn’t make a great sheet cake, it just doesn’t work in THIS context. The same is true of your writing and studying: your prior writing skills and study skills may be great, and work for some things, but perhaps not law school. You may also have other legal experience—maybe you took a constitutional law or business law class in your undergraduate years, or worked as a paralegal. But that information might not work in THIS context. And all of that is okay! It’s more than okay—it’s why you are in law school.
But why do I bring up this analogy? Because it was frustrating. It was frustrating to fail and not bake in the “correct” way because I view myself as a good baker. It turned out my mindset was vitally important; I AM a good baker, but I had to be willing to learn a new skill, or a new recipe, in this particular context. You are likely a good student and are good at studying, but you have to be willing to learn new skills in this context. Practicing, and learning from your mistakes, is key to honing that skill.
Also, I’m not the only one that loves a good baking analogy!
“I analogize my experience as a first-generation law student to being asked to bake a very elaborate cake without a recipe or ingredients. My first several weeks of law school I looked around at my classmates and felt sure that while we were all expected to bake the same cake, they had both the recipe and the necessary ingredients to do so, while I was lacking both. For them, it would simply be a matter of execution, while for me it would mean figuring out what this “cake” even was and, assuming I could do that without any sense of what it was supposed to look like, where in the heck could I get the ingredients to make it. Of course, the truth was that I was not the only first-generation student in my law school class who felt this way, but what we know call “imposter syndrome” kept us from sharing our fear and uncertainty with each other, so we each set out to bake our cakes alone. My story is ultimately a happy one. Through a lot of hard work, support from understanding faculty and staff mentors, and my innate stubbornness, I did discover the recipe, gather my ingredients, and bake my cake. It was by no means a perfect cake. My baking process was longer and more painful than many of my classmates who came to law school with more educational experience and familial stability than I did, but I suspect that very few of them were as proud of their end product as I was.”
-Sam Panarella
II. Lawyering, and Law School, as a Skill
As I’ve noted, learning the law is a brand-new skill that takes practice. Many students who have previously done well struggle in their first semester of law school and get very frustrated. That is perfectly normal. But think back to learning any new skill—riding a bike, knitting, playing an instrument, even walking—they all took practice.
Throughout this book, I am going to address the various ways that law school is a brand-new skill, or rather, how to perfect those skills. But it is important to give yourself some grace and focus on small improvements.
Think about someone learning to play the piano for the first time. They start small, with a simple song. They master something with a few notes, maybe even starting with just one hand. They aren’t concert-ready in the first week. They are also going to make many mistakes as they learn. In fact, even professional concert pianists are going to make mistakes as they learn new pieces. The key is to learn from each mistake.
So, as you go through your first semester, learn from each mistake and give yourself the grace to make mistakes. I see too many students that think that if they aren’t “getting it” right away there is something wrong with them. I promise you that there isn’t. Learning the law is a skill that is developed over months and years, and is exactly why you are here!
So what IS that new skill you are learning? You may have heard that law school teaches you to “think like a lawyer,” but very few people can tell you what that entails, or even what “thinking like a lawyer” means. But they tell you over and over that you need to learn how to do it.
Well, to put it simply, “thinking like a lawyer” means rules-based reasoning. This essentially means that everything must start with a rule, or the law. In addition, it means that lawyers use analogical reasoning, which is any type of thinking that relies upon an analogy. Essentially, this is the skill you will need to use on all of your exams.
And you DO need to learn how to do it. But how?
First, you need to understand that an analogical argument is “an explicit representation of a form of analogical reasoning that cites accepted similarities between two systems to support the conclusion that some further similarity exists.”1 What does this mean? Well, it means that lawyers compare and contrast things.
For example, people always say “you can’t compare apples and oranges,” but in fact, you can compare apples and oranges.
Interactive Question: Comparing Apples and Oranges
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The other part of this thinking is something called the “Gestalt Switch.”
Take a look at this picture:
Most people either see a duck or a rabbit. Depending on which you saw, try to describe to someone else how they might find that animal. For example, if you know that I only saw a rabbit, and you see a duck, tell me how to see the duck:
Interactive Question: The Gestalt Switch
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When you can see both photos, and explain both photos, that is called the “Gestalt Switch” and that is what lawyers regularly do. Lawyers have to see both sides of the situation and then be able to explain both sides. In doing this, they usually start with a rule and then explain why the rule may, or may not, apply.
For example, how does one define a sandwich, and where might you go to look for a definition? Suppose someone asked you whether a hotdog was a sandwich. You might laugh and answer yes or no based solely on your gut response. However, lawyers need to first ask, “Well, what makes a sandwich a sandwich?” and base their answer on that definition. They can’t just say “I don’t think a hot dog is a sandwich because I said so”—they have to base that answer on a rule and explain their reasoning.
Maybe we find out, based on restaurant reviews, that sandwiches tend to be meat, and or cheese, with various condiments or vegetables, put between bread. Well, based on that definition, it sounds like a hotdog is very much a sandwich. But it gets trickier when we realize that there are exceptions and you can have sandwiches without meat or cheese! What then?
I realize this sounds complicated, but this is “thinking like a lawyer” distilled down. Don’t worry, it will get easier as you go, and it will become more natural as well. It just takes practice. I wrote a CALI Lesson that can help: Analysis 1: Thinking Like a Lawyer. One of the reasons I urge you to learn, and practice, thinking like a lawyer is because it’s what you will need to do on your law school final exams.
III. Grit and Growth Mindset, and Why They Are So Very Important!
The secret to success in law school is the same as learning any other skill: practice. But to practice, and to learn from that practice, takes a great deal of grit and an attitude that embraces a growth mindset.
Most experts accept that having both grit and a growth mindset is important, and are perhaps THE most important factors in success; not just in law school, but in most areas where “success” can be measured. The following is from the Law School Academic Support Blog:
Grit is defined, by the Merriam-Webster dictionary, as “firmness of mind or spirit, unyielding courage in the face of hardship.” Growth mindset is a frame of mind, a belief system we adopt to process incoming information. People with a growth mindset look at challenges and change as a motivator to increase effort and learning. Most experts agree that grit and growth mindset are the most important factors in success.2
According to Angela Duckworth, author of Grit: The Power of Passion and Perseverance, grit is the most important factor in success. That same Law School Academic Support Blog article goes on to say:
Angela Duckworth is a professor of psychology at the University of Pennsylvania, and founder and CEO of Character Lab. She started studying why certain people succeed, and others don’t. She began at West Point Military Academy, studying why some complete the “Beast Barracks”, essentially a boot camp, while others drop out. Given that to get into West Point, there was a certain similarity of background, in term of grades, extracurricular, etc. she set out to see if she could predict who would make it, and who wouldn’t. It turns out they couldn’t predict this based on grades, or background, but could base it on a grit scale that Prof. Duckworth created. The grittier the West Point cadet, the more likely they would complete the “Beast Barracks”. She later expanded on her studies and found that the grittier you were, the more likely you were to complete a graduate degree. She further expanded this to other professions, Olympians, etc, and found that generally, the more grit you had, the more like you were to succeed.3
Since you are in law school, it will benefit you to look at what grit is, and why it factors into success. The good news is that you can learn to be grittier!
Professor Duckworth devotes an entire chapter to being “distracted by talent.” Meaning we, as a society, tend to see successful people or students and think “They are so talented,” as if what they were doing was effortless. In fact, we don’t see the hard work and the long hours they put in. She uses Michael Phelps, swimmer and multiple Olympic gold medalist, as an example. People see him swim during the Olympics and think “Oh, what talent.” But what they don’t see, what they gloss over, is the time spent in the pool—the hours upon hours of practice, of setbacks, of learning from mistakes.
Similarly, as a law student, you may see classmates answer questions in class and think “Wow they’re really smart,” but you aren’t seeing the hard work they put in. Nor are you seeing the setbacks, mistakes, and wrong answers. For your own mental health, it’s important to remind yourself that what looks like talent is usually hard work.
Professor Duckworth believes that the focus on talent distracts us from effort, which is more important to success. I would argue that not only is she correct, but this tendency to focus on talent causes law students to become frustrated or lose confidence when they feel they are not a “natural.” One of the underlying secrets of law school is that no one is a “natural”! The unique demands of law school are new for everyone. If you are looking at classmates and thinking “This is so easy for them,” don’t be fooled—there is a learning curve for everyone!
The important thing is to realize that your hard work and effort are far more important than any natural ability and to focus on that during law school. Do not get discouraged when you feel that things don’t click right away, or come “naturally.” If your first law school feedback is negative, don’t assume that you aren’t talented or smart enough to be there—remember that everyone is facing the same learning curve and the same challenges. You’ve most likely heard that to become an expert, you must spend 10,000 hours in practice. This is true for the practice of law as well. Even when you graduate, and pass the bar, you are not an “expert” until you’ve been practicing for quite some time. You are not trying to be an “expert” during law school; rather, you are putting yourself on the path to expertise.
Practicing does make it easier, which in turn makes you feel more talented. Basically, to do anything well, you must overextend yourself. During law school, it might already feel like you are overextended in terms of work. But that’s not precisely what I mean. By overextending, I mean you have to do difficult things; things that don’t automatically come naturally to you. This is grit.
According to Professor Duckworth, grit is about working on something you feel so passionately about that you’re willing to stay loyal to it. It’s not just falling in love, it’s STAYING in love. So, you are probably in law school because you want to be a lawyer, and that has been a dream of yours for a while. All of you have different reasons for coming to law school, and you might have taken different paths to get here.
Since grit is about loving what you are doing, or in this case studying, and falling in love with it over and over again, think about why you went to law school and what you want to do with your degree. Law school is hard, and studying is hard, so when you are feeling that challenge and pressure, you want to remember why you wanted to go to law school, what you love about it, and what you want your career to look like. You don’t have to love every subject, and you won’t love every subject, but pick a few things about studying the law that really appeal to you.
Write a letter to yourself to save, whether it’s in a Word document or a notebook or on your phone, so that when you need to fall in love again with why you went to law school, you can.
In addition to grit, you also have to understand what Dr. Carol Dweck refers to asa“fixed mindset” and cultivate what she coinedas a “growth mindset. Someone with a fixed mindset means you think intelligence and talent are innate, unchangeable traits, whereas someone with a growth mindset believes you can develop these things with practice. Don’t worry if you tend towards a more fixed mindset. Despite the name, you can change a fixed mindset, and learn how to embrace a growth mindset.
Professor Dweck explains the negative impacts of a fixed mindset on someone’s capacity to learn:
Believing that your qualities are carved in stone creates an urgency to prove yourself over and over. If you have only a certain amount of intelligence, a certain personality, and a certain moral character, well then you’d better prove that you have a healthy dose of them. It simply wouldn’t do to look or feel deficient in these most basic characteristics.
I’ve seen so many people with this one consuming goal of proving themselves in [a learning setting], in their careers, and in their relationships. Every situation calls for a confirmation of their intelligence, personality, or character. Every situation is evaluated: Will I succeed or fail? Will I look smart or dumb? Will I be accepted or rejected? Will I feel like a winner or a loser?
But when you start viewing things as mutable, the situation gives way to the bigger picture.
This growth mindset is based on the belief that your basic qualities are things you can cultivate through your efforts. Although people may differ in every which way in their initial talents and aptitudes, interests, or temperaments, everyone can change and grow through application and experience.
This is important because it can actually change what you strive for and what you see as success. By changing the definition, significance, and impact of failure, you change the deepest meaning of effort.4
In short, if you focus on learning for learning’s sake, and not the end result like grades, you will get more out of your effort!
Your mindset can change depending on what the task or subject is. Most people don’t have a fixed mindset on everything, nor do they have a growth mindset on all things. For example, if you met me in real life, you’d know that I was tone-deaf. Being tone deaf did not stop me from being in a marching band for four years of high school. I even managed to play the saxophone AND percussion! This, for someone that “isn’t supposed to be good at music.”
In contrast, I’ve always assumed I’m just “naturally” bad at science. As a result, I’ve never really made an effort to get better at science.
Different types of mindsets might interact with grit. For example, I loved playing piano, despite how difficult it could be, but never developed any such love of math. This meant that with the piano I had more “grit,” which led to a growth mindset about learning, and then, in turn, led to success in the way of piano trophies!
Find out how “growth” or “fixed” mindset you are here.5
Reflection Exercise: Growth Mindset
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a. Succeeding Through Failure
Failure is part of the learning process. However, failure is hard, and to be honest, we don’t talk about it enough. That’s on us, as lawyers and educators. Society doesn’t allow us to be as forthcoming about failure as we should. It is impossible to have success without failure. Mistakes lead to success.
Each failure is an opportunity to learn and improve. This is not a series of mere platitudes—it is science. For example, Wayne Gretzky is nicknamed “The Great One.” His career stats prove him to be one of the best hockey players ever. So, by all accounts, we would consider him successful. He has four Stanley Cups, 61 NHL Records, a Wikipedia article for JUST his career achievements, and a freeway in Canada named after him. Let’s break those stats down: He spent 20 years in the NHL and earned 894 goals. That’s impressive. But to get to 894 goals, he had to take 5,088 shots on goal. That’s a 17.6% success rate. I would never malign The Great One, but that means he missed 4,194 of those shots. Each shot missed was a failure. But each shot missed was an opportunity for Gretzky to learn and get better. Those career stats do not include his non-NHL years—in some of his earlier seasons, he scored 0 goals. In his first season with the NHL, he scored 51 goals. But he scored 92 in his 3rd season—that’s almost double. I can promise you he was learning from each failure and from each shot on goal that didn’t make it into the net. I know he learned from his failures because he was a wise man, and he is quoted as saying “You miss 100 percent of the shots you never take.This means the man knew about growth mindset!
That’s enough of my sports analogy, and you can replace Wayne Gretzky with your favorite athlete, favorite actor (ask how many auditions they had to fail before getting their big break, or how many movies flopped), favorite politician, etc. Or, better yet, talk to your law professors or lawyers you admire and ask them how many times they failed.
The important takeaway is that to embrace a growth mindset, you have to view failure as an opportunity to learn and improve.
This may seem counterintuitive when I’m encouraging you to be resilient and grow. However, it’s important to know you CAN fail. Or rather, you can SURVIVE failure. Imagine failing at your next project, and think about what that failure means; what is the worst that can happen? What will it feel like? What next steps will you take?
Generally, it’s good to move forward with a positive mindset. However, knowing that you can come back from failure, and having a plan on how to do it, will help increase the likelihood that you will take more chances. Taking more chances increases the likelihood of success. Let’s work through an example of creating a plan.
Reflection Exercise: Succeeding Through Failure
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The best way to learn from failure, or get used to learning from failure, is to take risks. This goes along with pushing yourself out of your comfort zone. For law school, this might mean things like doing practice hypotheticals before you feel 100% “ready,” or getting feedback from professors even if you are nervous about showing off a draft of something.
As you move along in your law school career, this might mean joining things that might otherwise seem daunting, such as moot court or law review. These risks will pay off because they will allow you to learn more about lawyering, which should be your ultimate goal.
So, let’s put into practice everything we’ve been talking about. Write down something, on a sticky or in your phone, that you’ve been afraid to do but want to try. Keep that note with you until you complete it!
b. Forget Perfection
There is a saying among writers, which is “done is better than perfect.” While the law is a career where things like attention to detail are important, if you become too obsessed with perfection, you won’t complete the things you need to. For example, striving for perfection in legal writing might mean that you skip turning in drafts where you can get feedback. On exams, the idea of perfection might keep you from moving on to the next question, or paying attention to time constraints. This happens in practice as well, where lawyers get so focused on the “perfect” memo or “perfect” complaint that it interferes with productivity, or worse, their client’s best interests. Yes, having a good quality work product is important, but perfection is an impossible standard.
It is also important to note that right now, as you are a law student, you are not meant to be perfect. You are meant to be trying and learning and improving.
As I mentioned before, practice DOES make perfect er… success. That’s the entire idea behind grit. If you keep practicing, and learning from each practice, you are on your way to success. This also means not giving up. It’s tempting, especially in the early stages of learning any new skill, to throw in the towel when you get frustrated. A key element of grit is persevering when you feel that temptation to quit. Resisting the temptation to give up can be difficult. To help, think of a mantra to tell yourself in those moments. Put it on a notecard or sticky note, and put it on your computer or mirror.
Remember, if you view “failure” as a learning process, your mindset shifts. Each time you feel frustrated, or feel like you haven’t performed as well as you had hoped, remind yourself that you are still learning.
I n this chapter , we’ve been discussing how important it is to practice to improve a skill. If you’d like to “practice” and review grit and growth mindset, check out the CALI L esson Grit, Growth, and Why it Matters. Or, how to be gritty!
This is all going to be very different, and challenging. But you CAN do it. And in fact, being a first-generation student can absolutely work as an advantage:
“I’ve talked a lot about the challenges first-gen students face in law school and in the legal profession because, frankly, I’ve had to overcome almost all of them with varying degrees of embarrassment, shame, and feeling like I’ve had one hand tied behind my back sometimes. But there is one thing I don’t talk enough about and it’s this: Being a first-gen law student (and later a first-gen lawyer) gives you an enormous advantage and that’s grit. Yes, that’s a popular buzz word these days but the secret is that us first-gens have had this on lock since the moment we walked through those law school doors. We’re plucky, diverse, hard-working, and we know what it means to earn our triumphs. Figuring things out on our own just comes naturally because that’s what we’ve always done. We haven’t met a road block we can’t climb over, swerve around, or crawl under. Grittiness is to first-gens what privilege is to those whose families were able to smooth their way with prior experience, and it is a real superpower in this profession. You’ll be tested in every possible way in law school and in the legal profession and guess what? You’ll be ready. Because you always have been.”
-Ashley M. London, Assistant Professor of Law
1 Bartha, Paul. “Analogy and Analogical Reasoning.” Stanford Encyclopedia of Philosophy. Stanford University, January 25, 2019. https://plato.stanford.edu/entries/r...arity%20exists.
2 Foster, Steven, ed. “The Importance of Growth and Grit.” Law School Academic Support Blog. Oklahoma City University, February 26, 2020. https://lawprofessors.typepad.com/ac...-and-grit.html.
3 Id.
4 Dweck, Carol S. Mindset: The New Psychology of Success. New York: Ballantine Books, 2016.
5 “Assess Your Mindset to Begin Your Journey Today.” What’s My Mindset? Mindset Works. Accessed May 17, 2022. https://blog.mindsetworks.com/what-s-my-mindset. | textbooks/biz/Civil_Law/A_First_Generation's_Guide_to_Law_School_(Hale)/1.02%3A_But_I_Already_Know_How_to_Study.txt |
You have done a lot of studying in the past. After all, that’s how you got into law school! Still, nearly everyone finds that they have to step up their game for law school, since there is typically a lot more class preparation expected in law school. When you’re in your first year, be careful not to underestimate the amount of time and focus you need to study. The American Bar Association standards and rules for law schools state that for every in-class credit hour, there is a minimum of two hours of out-of-class work.1 Meaning that if your torts class is three credit hours, you should plan to spend six hours a week preparing for that class. Most first-year semesters have around 15 credit hours a week, meaning you should plan to work an additional 30 hours each week outside of class time.
That being said, remember that you are going into class to learn. This might seem obvious, but I meet with many students who suffer needless pre-class anxiety because they feel like they must know *everything* before going into class. The whole point of class is to help you learn, so of course you don’t need to know everything!
It’s important to be prepared—that is, at least have done your reading and briefed your assigned cases (more on briefing cases in the second half of this chapter). But if you did the reading, and made an effort to brief as I describe below, and you STILL don’t feel like you know what you read, that’s okay. That’s what class will be for!
I. Reading in Law School
As I mentioned in the first chapter, law school involves reading—lots of reading. I realize that if you are entering law school, you are probably good at reading. However, reading cases for class is different from other types of reading. Plan on carving out more time to read each case than you’d anticipate. This is because the most time-consuming part of studying, or preparing for class, will be the reading.
a. What Am I Reading?
In law school, most of your assigned reading during the semester will be out of a “casebook,” which is essentially your textbook. Casebooks contain excerpts from judicial opinions, which are the written statements of the court setting out its decision regarding a case and how it came to that decision. Casebook authors typically also include discussion, notes, and questions for the student.
Cases that appear in casebooks are primary sources. In the legal context, primary sources are “the actual laws and rules issued by governing bodies that tell us what we can and cannot do.”2 Constitutions, statutes, cases, and regulations are all considered primary sources. By comparison, secondary sources explain and interpret those original documents; in a secondary source, someone who is usually an expert in the area has read and condensed or translated the material for you.
This often presents a challenge for law students, since, and this largely depends on your background, up until now you have likely been reading only secondary sources. For example, a history textbook typically reads like a story; it will tell you about an event, giving you the dates, significant people, and essentially the story of what happened. However, this meant that the author went through primary documents (like journals, newspapers, and various records), and from that, tells the story that is in your book. Reading the primary sources may feel challenging at first and will likely frustrate you. I want you to know that’s normal. I still vividly remember reading my first ever case, which was an assignment for law school orientation. I have always thought of myself as a good reader and couldn’t understand why I had to read the same three pages about four times—and even then I still felt confused. It frustrated me to tears and made me question whether I was truly prepared for the rigor of law school. Sometimes the cases in a casebook are edited for clarity, but they are still a primary source and it’s up to you to figure out the story, so to speak. Don’t worry, this chapter will explain how to do that. Not only am I going to give you some tips on reading those cases, but I can promise you it gets easier and easier each time you read a case.
For more information about primary and secondary sources, see the CALI Lessons Legal Research Methodology and Introduction to Secondary Resources.
b. Appellate Opinions Explained
Most of the cases you will be reading during law school are appellate opinions. The federal judiciary, and most state judiciaries, have court systems that are organized into a three-tier system. At the state level, the lowest tiers are trial courts, where almost all cases begin. When a trial court makes a final decision, a losing party may appeal, which moves the case up to the middle tier, or the intermediate appellate court. Trial courts and appellate courts are called district courts and circuit courts, respectively, at the federal level. The role of appellate courts is to review the law and whether the judge in the trial court applied the correct law to the facts. “An appeal is not a retrial or a new trial of the case. The appeals courts do not usually consider new witnesses or new evidence. Appeals in either civil or criminal cases are usually based on arguments that there were errors in the trial’s procedure or errors in the judge’s interpretation of the law.”3 (You will learn more about this during legal research and civil procedure.) Some cases can then be appealed to the highest appellate court, which in most states is the state supreme court, and in the federal court system is the United States Supreme Court.
c. Why Do We Read Cases?
One of the defining principles of the common law system is the principle known as “stare decisis,” which is Latin for “let the decision stand.” A prior ruling or judgment is known as a precedent. The following excerpt explains how these two interrelated concepts define the common law system:
The doctrine of stare decisis means that courts look to past, similar issues to guide their decisions. The past decisions are known as precedent. Precedent is a legal principle or rule that is created by a court decision. This decision becomes an example, or authority, for judges deciding similar issues later. Stare decisis is the doctrine that obligates courts to look to precedent when making their decisions. These two principles allow American law to build case-by-case, and make our legal system a common law system.
So, stare decisis is essentially ‘the rule of precedent.’ Courts cite precedent when a court has already considered a particular legal issue and the court has already issued a ruling.
Under the doctrine of stare decisis, courts are expected to follow their own previous rulings and also the rulings from higher courts within the same court system. This means that the Texas state appellate courts will follow their own precedent, and that of the Texas Supreme Court, and also that of the United States Supreme Court. But the district courts in Texas are not obligated to follow rulings from the appellate courts of South Carolina.
All courts are obligated to follow the rulings of the United States Supreme Court, because this is the highest court in the nation, and it has the final say.4
Common law is an English tradition, and most countries that currently follow it were former English colonies. If you are practicing law in the United States, you will be practicing in the common law system.
So, in short, reading cases is one place where we get law: law comes from either a statute—a law written by the legislative branch—or a case, and often cases will explain a statute. Your job as a law student, and then a lawyer, will be to read cases to ascertain the applicable law.
d. Common Law vs. Civil Law
Common law is different from “civil law” systems that use code. Civil law systems rely only on statutes and not case law. In civil law systems, stare decisis or case precedent isn’t used. In the United States, Louisiana uses civil law. If you are attending law school in Louisiana, you will likely use both systems in your courses (and later in Louisiana practice) because while the state system uses civil law, the federal system uses common law.
e. Criminal Law vs. Civil Law
It is important to note that there are two types of law, even within our common law system. There is criminal law and there is civil law—not to be confused with Louisiana and places that rely on civil code. Civil law means that any person can bring a legal claim against another person, or in other words, “sue” that person. Areas of law such as tort law, property law, contract law, and more are “civil.” By contrast, with criminal law, the state by way of a district attorney or other state’s attorney, brings “charges” against a defendant. There are different standards and different procedures for criminal law than there are for civil law. This will be explained in greater detail in your various classes, so for now just note that there are two systems. Both criminal and civil law have trial and appellate courts, and in both instances, you are likely to be reading cases from the appellate level.
So, we read all of these appellate decisions to learn what the law is. You might be thinking, “Why doesn’t my professor just TELL me the law? That’s why I’m here.” Actually, it’s not. You are in law school to learn to be a lawyer, and lawyers need to research the law. The law continually changes and evolves. Sure, maybe you can memorize the law your first year of law school, but by the time you’ve practiced for about five years, it will have changed—so then what? We want to teach you how to find the law on your own and how to read those primary sources. My mentor and friend used to say that classes should not be called “contracts” but rather “how to be a lawyer using contract law” and so forth. She’s not wrong!
Let’s check our understanding of some of these concepts:
Interactive Questions: Cases
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If you want to learn more about common law, here is a CALI Lesson that can help: Common Law Basics: What Faculty May Assume You Know. Similarly, if you want to learn more about sources of law, check out the CALI Lesson Where Does Law Come From?
II. Critical Reading and Reading Cases
In law school, critical reading is incredibly important. Critical reading means that you are doing more than a mere “skimming” of the text. Skimming the text only allows the reader to find superficial characteristics and information. However, critical reading results in enhanced clarity and comprehension, allowing a reader to get at the deeper aspects of the reading. You may have already had experience in this area as it’s likely that if you’ve read novels for an English class you likely took notes, or annotated, the texts.
Critical reading means that you are actively engaging in the reading. When you read cases, you must apply critical reading, or active reading—not passive reading. This is critical, pun intended, for both mastering reading cases and other areas of law school as well!
Critical reading means that you:
• Survey before reading: think about what you are going to read.
• Ask questions: what questions do you have about the reading before you start?
• Read actively: highlight, ask questions, re-read passages.
• Respond to your own questions: answer the questions you had and create follow-up questions.
• Record key concepts: this will be your case briefing (which will be discussed later in this chapter).
You might need to read a case multiple times. I typically tell students to read it once through to get the “story”—the feel for the who, what, where, and when. In fact, some professors tell students to read the case once while “sitting on their hands,” meaning that they can’t take notes. Then, re-read the case and start actively engaging with the material. This also means that you can question the reading and question the judge’s decisions
Below, we will talk about how to apply these critical reading steps to cases.
a. Before You Begin Reading
First, what is the assignment? How long is the assignment? How many pages? Have you allotted enough time? How many cases? Do they all deal with the same topic, or does it vary? (Meaning, are they in the same chapter and section, or is it spread across different sections?) Do you need to read any statutes that go along with the reading? If so, pull them up and skim the statutes first. This gives you an idea of what you might be reading.
Before you even begin reading the first case assigned, think about the context of the case. This is your “survey before reading step.” Use the table of contents or syllabus to help you put the reading into context. For example, if you are reading a torts assignment, which tort are you reading about?
Ask yourself, “Is this a new section, or a subsection of material I already started?” For example, is it about battery, a new type of tort, or is it about an element of battery, such as intent?
Look at the case heading—what is the date and location of this case? Is the time period drastically different? Is this case from the Northeast, or the South? Or maybe even England? Which court is the case from? Is it state court, or federal court? An appellate court?
The professors that edit your casebooks choose certain cases for a reason. They are not random. I know this might seem obvious, but it’s easy to forget that as you read. Each case is chosen to teach you something new, so as you read, keep that in mind and ask yourself, “Why this case? Why did the casebook editor think this particular case was important?” They might even put notes or comments in between the cases—pay attention to these as they can be extremely helpful guidance!
Take a look at the casebook table of contents below. The table of contents is from Tortsand Regulation: Cases, Principles,and Institutions by John Fabian Witt, published by CALI eLangdell® Press. Then answer the questions that follow.
Interactive Question: Reading a Casebook Table of Contents
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Now take a look at the case heading below, what can you tell me about the case?
Garratt v . Dailey , 279 P.2d 1091 (Wash. 1955)
You won’t know what all of the numbers mean, but you can still pull out some information.
Interactive Questions: Case Heading – Garratt v. Dailey
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I realize that seems simple, but knowing where and when the case took place is incredibly helpful. It can also make reading a bit easier. Compare the above case with the below:
Regina v. Cunningham, 41 Crim.App. 155, 2 Q.B. 396, 2 All.Eng.Rep. 412 (1957)
What do you know about this case?
Interactive Questions: Case Heading – Regina v. Cunningham
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So, going back to the first case to summarize, you are reading a case about tort law, specifically battery, that took place in Washington state in the 1950s. We also know that the case is specifically about intent, as it relates to battery. Do this for each case you read to “set the stage.”
Now, prepare to read actively. This is your “ask questions” stage of critical reading. Think about what you already know and what questions you have left. This will be more difficult for the first few cases, but as you get further along in your reading, will become easier. Here, we know this is a torts case that involves battery. Do you think you might know something about battery? Or, are you wondering what battery is? You might have heard the term on the news, or on tv, and so you might think you know what it is already. Therefore, your question might be whether you are correct about your assumptions. If it’s the third case you are reading on battery, you already know a little about battery! In this context, you would have already read some cases on battery and know something about the tort.
b. As You Read
Now it’s time for the “read actively” stage of critical reading. As you read, think of the “Factual 411.” Look at the case as a story, at least at first. You need to think about what happened to bring the parties to court. Essentially, what went wrong and why are people upset? Make sure you understand the underlying facts first before diving deeper:
You already essentially know the where and when from the case heading.
Who is suing whom for what? (Don’t just rely onthe case heading; think about the original lawsuit as sometimes the case headings change.)
What happened?
Why are the parties upset?
Keep asking questions as you go. The questions might be about the facts of the case, or the reasoning, or something else entirely. If you can’t answer these questions, they are good to bring up in class.
Highlight or take notes as you go. A small caveat: this doesn’t mean highlighting everything, as then the point of highlighting becomes, well, pointless.
Interact with the case. I have a great colleague who tells his students to yell at and argue with the case. Fight with it if you need to. Now, you don’t need to go this far, especially if you are in the library, but you should still actively engage and not just passively read.
Now, let’s try to read the case. This is a common torts case that comes up in various casebooks. I’m going to take you through reading and briefing it, but it’s important to remember that every professor is a little bit different in how they might lecture and what questions they might ask. This means that the way you brief in one class might need to be changed a bit for a different class. However, the general principles are always the same.
Garratt v. Dailey , 279 P.2d 1091 (Wash. 1955)
Hill, J.
Brian Dailey (age five years, nine months) was visiting with Naomi Garratt, an adult and a sister of the plaintiff, Ruth Garratt, likewise an adult, in the back yard of the plaintiff’s home, on July 16, 1951. It is plaintiff’s contention that she came out into the back yard to talk with Naomi and that, as she started to sit down in a wood and canvas lawn chair, Brian deliberately pulled it out from under her. The only one of the three persons present so testifying was Naomi Garratt. (Ruth Garratt, the plaintiff, did not testify as to how or why she fell.) The trial court, unwilling to accept this testimony, adopted instead Brian Dailey’s version of what happened, and made the following findings:
III. . . . [T]hat while Naomi Garratt and Brian Dailey were in the back yard the plaintiff, Ruth Garratt, came out of her house into the back yard. Some time subsequent thereto defendant, Brian Dailey, picked up a lightly built wood and canvas lawn chair which was then and there located in the back yard of the above described premises, moved it sideways a few feet and seated himself therein, at which time he discovered the plaintiff, Ruth Garratt, about to sit down at the place where the lawn chair had formerly been, at which time he hurriedly got up from the chair and attempted to move it toward Ruth Garratt to aid her in sitting down in the chair; that due to the defendant’s small size and lack of dexterity he was unable to get the lawn chair under the plaintiff in time to prevent her from falling to the ground. That plaintiff fell to the ground and sustained a fracture of her hip, and other injuries and damages as hereinafter set forth.
IV. That the preponderance of the evidence in this case establishes that when the defendant, Brian Dailey, moved the chair in question he did not have any willful or unlawful purpose in doing so; that he did not have any intent to injure the plaintiff, or any intent to bring about any unauthorized or offensive contact with her person or any objects appurtenant thereto; that the circumstances which immediately preceded the fall of the plaintiff established that the defendant, Brian Dailey, did not have purpose, intent or design to perform a prank or to effect an assault and battery upon the person of the plaintiff. (Italics ours, for a purpose hereinafter indicated.)
It is conceded that Ruth Garratt’s fall resulted in a fractured hip and other painful and serious injuries. To obviate the necessity of a retrial in the event this court determines that she was entitled to a judgment against Brian Dailey, the amount of her damage was found to be \$11,000. Plaintiff appeals from a judgment dismissing the action and asks for the entry of a judgment in that amount or a new trial.
. . .
It is urged that Brian’s action in moving the chair constituted a battery. A definition (not all-inclusive but sufficient for our purpose) of a battery is the intentional infliction of a harmful bodily contact upon another. The rule that determines liability for battery is given in 1 Restatement, Torts, 29, § 13 [1934], as:
An act which, directly or indirectly, is the legal cause of a harmful contact with another’s person makes the actor liable to the other, if
(a) the act is done with the intention of bringing about a harmful or offensive contact or an apprehension thereof to the other or a third person, and
(b) the contact is not consented to by the other or the other’s consent thereto is procured by fraud or duress, and
(c) the contact is not otherwise privileged.
We have in this case no question of consent or privilege. We therefore proceed to an immediate consideration of intent and its place in the law of battery. In the comment on clause (a), the Restatement says:
Character of actor’s intention. In order that an act may be done with the intention of bringing about a harmful or offensive contact or an apprehension thereof to a particular person, either the other or a third person, the act must be done for the purpose of causing the contact or apprehension or with knowledge on the part of the actor that such contact or apprehension is substantially certain to be produced . . . .
We have here the conceded volitional act of Brian, i.e., the moving of a chair. Had the plaintiff proved to the satisfaction of the trial court that Brian moved the chair while she was in the act of sitting down, Brian’s action would patently have been for the purpose or with the intent of causing the plaintiff’s bodily contact with the ground, and she would be entitled to a judgment against him for the resulting damages. Vosburgv. Putney, supra.
The plaintiff based her case on that theory, and the trial court held that she failed in her proof and accepted Brian’s version of the facts rather than that given by the eyewitness who testified for the plaintiff. After the trial court determined that the plaintiff had not established her theory of a battery (i.e., that Brian had pulled the chair out from under the plaintiff while she was in the act of sitting down), it then became concerned with whether a battery was established under the facts as it found them to be.
In this connection, we quote another portion of the comment on the ‘Character of actor’s intention,’ relating to clause (a) of the rule from the Restatement heretofore set forth:
It is not enough that the act itself is intentionally done and this, even though the actor realizes or should realize that it contains a very grave risk of bringing about the contact or apprehension. Such realization may make the actor’s conduct negligent or even reckless but unless he realizes that to a substantial certainty, the contact or apprehension will result, the actor has not that intention which is necessary to make him liable under the rule stated in this section.
A battery would be established if, in addition to plaintiff’s fall, it was proved that, when Brian moved the chair, he knew with substantial certainty that the plaintiff would attempt to sit down where the chair had been. If Brian had any of the intents which the trial court found, in the italicized portions of the findings of fact quoted above, that he did not have, he would of course have had the knowledge to which we have referred. The mere absence of any intent to injure the plaintiff or to play a prank on her or to embarrass her, or to commit an assault and battery on her would not absolve him from liability if in fact he had such knowledge. . . . Without such knowledge, there would be nothing wrongful about Brian’s act in moving the chair and, there being no wrongful act, there would be no liability.
While a finding that Brian had no such knowledge can be inferred from the findings made, we believe that before the plaintiff’s action in such a case should be dismissed there should be no question but that the trial court had passed upon that issue; hence, the case should be remanded for clarification of the findings to specifically cover the question of Brian’s knowledge, because intent could be inferred therefrom. If the court finds that he had such knowledge the necessary intent will be established and the plaintiff will be entitled to recover, even though there was no purpose to injure or embarrass the plaintiff. Vosburgv. Putney, supra. If Brian did not have such knowledge, there was no wrongful act by him and the basic premise of liability on the theory of a battery was not established.
. . .
The cause is remanded for clarification, with instructions to make definite findings on the issue of whether Brian Dailey knew with substantial certainty that the plaintiff would attempt to sit down where the chair which he moved had been, and to change the judgment if the findings warrant it.
Now remember, for the first few weeks you might have to read a case a few times. In fact, many practicing attorneys still have to read cases multiple times. Reading cases is not easy reading, even as you get more practice. So prepare to read each case at least twice. Now, let’s take it bit by bit as we go through this case a second time.
Brian Dailey (age five years, nine months) was visiting with Naomi Garratt, an adult and a sister of the plaintiff, Ruth Garratt, likewise an adult, in the back yard of the plaintiff’s home, on July 16, 1951. It is plaintiff’s contention that she came out into the back yard to talk with Naomi and that, as she started to sit down in a wood and canvas lawn chair, Brian deliberately pulled it out from under her. The only one of the three persons present so testifying was Naomi Garratt. (Ruth Garratt, the plaintiff, did not testify as to how or why she fell.) The trial court, unwilling to accept this testimony, adopted instead Brian Dailey’s version of what happened, and made the following findings:
So, what do you already know? It seems that the plaintiff is Ruth, and a child pulled out a chair from under her. We still don’t have all the details, but it says the trial court adopted the findings immediately thereafter. So there you have the story, the basic idea of what happened.
It is conceded that Ruth Garratt’s fall resulted in a fractured hip and other painful and serious injuries. To obviate the necessity of a retrial in the event this court determines that she was entitled to a judgment against Brian Dailey, the amount of her damage was found to be \$11,000. Plaintiff appeals from a judgment dismissing the action and asks for the entry of a judgment in that amount or a new trial.
Now we are told “it is conceded that”—what does that mean? Well, this phrase means that it is not contested, or rather, all parties agree that the fall resulted in painful injuries. That is not up for dispute.
So now we have a full view of the story: the who, what, where, when, and why. Plaintiff has a fractured hip, and it was the result of a fall from defendant pulling out a chair.
Now we get to the next part of the case:
It is urged that Brian’s action in moving the chair constituted a battery. A definition (not all-inclusive but sufficient for our purpose) of a battery is the intentional infliction of a harmful bodily contact upon another. The rule that determines liability for battery is given in 1 Restatement, Torts, 29, § 13 [1934], as:
An act which, directly or indirectly, is the legal cause of a harmful contact with another’s person makes the actor liable to the other, if
(a) the act is done with the intention of bringing about a harmful or offensive contact or an apprehension thereof to the other or a third person, and
(b) the contact is not consented to by the other or the other’s consent thereto is procured by fraud or duress, and
(c) the contact is not otherwise privileged.
We have in this case no question of consent or privilege. We therefore proceed to an immediate consideration of intent and its place in the law of battery. In the comment on clause (a), the Restatement says:
We are seeing two important things here. First, we get a definition of battery. We know the court is using a definition of battery from the Restatements. This will likely be something important to add to your notes, and we will discuss that below. In addition, the court tells you the problem it’s trying to solve: We therefore proceed to an immediate consideration of intent and its place in the law of battery. This is the court telling you the legal issue, or legal problem, that it needs to solve.
I mentioned before that most cases you read will be appellate decisions. To recap, that means that there was a trial and the case was appealed to an appellate court, which is the current decision-maker. In this case, Plaintiff Ruth Garratt sued Brian Dailey because she alleges he committed a battery when he pulled out the chair from under her and she fractured her hip. The opinion tells you the facts that the court is using; they are not taking new witness statements or viewing evidence and have adopted a set of facts from the lower trial court. Their job, and the job of any appellate court, is to decide the law and how it was applied. In other words, they are not considering whether the facts were correct; we know that young Brian pulled out the chair, we know that the plaintiff was injured, and so forth. That is not up for debate. What is up for debate is the element of intent. In this case, the court is specifically telling you that it is going to determine the legal issue of intent, and how it applies to battery. So, in the context of this casebook and your torts class, you are reading this case to learn about an element of battery, specifically, intent. This is the “why” of your case.
The case also gives you the definition of intent:
Character of actor’s intention. In order that an act may be done with the intention of bringing about a harmful or offensive contact or an apprehension thereof to a particular person, either the other or a third person, the act must be done for the purpose of causing the contact or apprehension or with knowledge on the part of the actor that such contact or apprehension is substantially certain to be produced.
The case then goes on to discuss whether Brian, the defendant, had intent, as described above. The case ends with this:
The cause is remanded for clarification, with instructions to make definite findings on the issue of whether Brian Dailey knew with substantial certainty that the plaintiff would attempt to sit down where the chair which he moved had been, and to change the judgment if the findings warrant it.
What does that mean? Essentially, the appellate court hasn’t decided whether Brian Dailey had intent, but rather, sent the case back to the original trial court for it to make more “definite findings” on whether Brian knew that the plaintiff would attempt to sit down.
Now that you have a rough idea of what happened in the case, and why it was assigned (to expand your understanding of the intent necessary to prove a battery), we can move on to briefing.
III. Briefing
Even before you get to orientation, you might hear people talk about “briefing” or “case briefs” or something similar. It’s a large part of the law school study process.
a. What is Case Briefing?
A case brief is a short, or “brief,” summary and analysis of a case. Briefs contain information like the facts of the case, the court’s analysis, and the decision it reached. There is no one “right” way to brief, and there are many different brief “templates.” It is important to brief EVERY case that you are assigned. This takes time, but you will find that you will be far more successful, and much more likely to understand each case, if you fully brief each one.
b. Why Do We Case Brief?
First and foremost, briefing helps you prepare for class discussion as it organizes your thoughts about a case and provides a tool to reference if you are called on to discuss the case in class. It is an expectation that when you show up for class, you will have read and hopefully understood the material. When you are called on, you will want to rely on your briefs to be prepared, so think of them like organized notes. Your briefs may be different from class to class, as they should be a tool that helps you participate in that particular class’s discussion. Briefing also helps you test your understanding of the case, serves as a helpful study aid down the road, and can serve as a template for additional class notes on that topic or case.
c. Before You Begin
Think about format. Determine the format that you prefer. This might change as you learn more about briefing and what works for you. Don’t hesitate to change the format you use from time to time, or from class to class. Briefs are personal; they need to make sense to you personally, which means case briefs may vary from student to student. In fact, an individual’s briefs may vary from subject to subject as you may find that you are briefing civil procedure cases using one format and torts cases using another. Not only is this normal, but I encourage you to do so. Each class is going to feel very different—because of the professor, but also because of the way the topic is structured. This means it is very likely your briefs will be different as well. Finally, your brief doesn’t have to look like anyone else’s brief! Use the format that works for you—a Word document, table, template, handwritten, Evernote, Onenote—it’s completely up to you! After you brief a few cases and sit through a few classes, you’ll have a better idea of what you need.
d. Always Remember Why You Are Briefing
As you brief, and determine your format and style, think about why you are briefing and what you hope to accomplish. Think about how class typically goes, and what information you might need from the case to be prepared for your professor’s questioning.
While this will be a bit difficult during your first couple of classes, after a while, you will find your professor’s rhythm: how they ask questions and what they expect you to know. For example, one professor might only want a vague recitation of facts from a case, while another might want far greater detail. Adjust your briefs accordingly, and keep this in mind as you brief.
e. Sections of a Brief
First, think about your case heading. Remember, it can tell you a great deal about the case. It will tell you the year, location, and court. No matter what, this should be at the top of your brief.
Next, while there are plenty of acceptable formats, the thing that all briefs have in common are as follows:
Fact Statement
Procedural Statement
Issue Statement
Rule Statement
Holding/Judgment
Analysis
Dissent (if applicable)
If your professor suggests that you use a particular format—listen to them! They are giving you insight into what they are looking for. You might also have professors refer to these sections with slightly different terms, and that’s okay. For example, fact statement might be “fact section,” procedural statement might be “procedural process,” and so forth.
So, what do each of these sections of a brief look like?
Sections of a Brief
Fact Statement: Include relevant facts. You don’t need to recite ALL the facts, but you want to have a good idea of the “story” of the case. This is mainly meant to help your memory. What was the Who/What/When/Why? Who was suing who, and for what? Remember to keep it short; it’s easy to get bogged down by too many facts. The number of facts you want to include may change based on the class and the subject.
Procedural Statement: How did the case get to where it is now? Who appealed and why? Map out the history if you need to. What standard of review is being used? (Just as an FYI, a standard of review is the standard the appellate court uses to examine the lower court rulings. You should hopefully learn more about this in civil procedure, as well as in other classes.)
Issue Statement: This is the legal question being asked. What problem is the court trying to solve? Keep a few things in mind:
A case can have more than one issue.
Consider phrasing your issue statement as a yes or no question.
Rule Statement: What rule did the court use? This is often what you might take away from the case to apply to other fact patterns. If the court uses or cites a statute, copy and paste that verbatim. If it’s not from a statute, it’s ok to paraphrase or put it in your own words.
See if you can deconstruct the rule into parts, or elements. An element is an essential part of a claim that must be proven for the claim to succeed. If a rule is a recipe, an element is an ingredient.
Identify the standard/test used for proving this rule (if applicable).
Holding/Judgment: This is the answer to the issue statement and only has to be one sentence, though some professors may vary in what they expect. Essentially, this is answering the question “How did the court rule?” In the most basic sense, who won the case? This might include language like “remanded” or “affirmed”—what impact does the holding have on the parties?
Analysis: This is the most important part of your brief because it answers the question of WHY a certain party won the case. This can sometimes be the argument of opposing parties, or it can be articulated in the judge’s opinion. Remember to note inferences—why does a particular result follow from this set of facts?
Dissent (if applicable): Most of what you will be reading are majority opinions: the opinion of more than half the judges which establishes the ultimate decision of the court. In some cases, there may also be a dissenting opinion. This is not always the case, but it is common in United States Supreme Court cases that you will read in classes like constitutional law. A dissenting opinion is the opinion of one or more judges who disagree with the majority opinion. If there is a dissent, you do want to make note of it and think about why the judge dissented. Why didn’t they agree with their fellow judges? You may also encounter a concurring opinion, which is the opinion of one or more judges who agree with the majority’s decision but reach that conclusion based on different reasoning.
f. General Tips on Briefing
• This is called a “brief” for a reason. Try to keep your brief to one page, maybe a page and a half at the most.
• If applicable to the subject and class, you may need to include other things such as concurrence or dissent.
• Above all else, this is a tool to helpyou. Make it your own and include sections that help you. For example, it might help you to add a “Why” section to your brief to remember what this case added to your understanding of the topic.
g. After You Brief
• Think about your “takeaway.” Think about all of the cases you’ve read, and summarize them in some way (charts, outlines, etc.).
• What rules were covered? How do they relate to each other?
• Are there exceptions to the rules?
• How do the cases illustrate the rules?
• What type of facts raise these issues? Can you create your own generalizations?
• What policy issues were raised? Were there any policies that should have been raised? What are your thoughts on these policies?
• Think about what questions you may have—what questions do you have about the case that you want to ask the professor?
• What do you hope is answered or clarified in class?
• How does this case fit in with the rest of your reading?
• Most importantly, make sure you find answers to these questions. If not answered in class, meet with your professor or academic tutor as soon as possible to clear up your understanding. The law generally builds upon itself, so you want to clear up any questions quickly so you don’t fall behind.
h. Practice Briefing
We are now going to attempt to brief two cases together. First, we have a sort of fun and silly case, and then next, a slightly more typical case. Also, if you are feeling overwhelmed, it’s okay to take breaks.
Here is the fun one—read the excerpt and then answer the questions that follow.
United States ex rel. Gerald Mayo v. Satan and His Staff , 54 F.R.D. 282 (W.D.Pa. 1971)
Counsel: Gerald Mayo, pro se
WEBER, District Judge.
Plaintiff, alleging jurisdiction under 18 U.S.C. § 241, 28 U.S.C. § 1343, and 42 U.S.C. § 1983 prays for leave to file a complaint for violation of his civil rights in forma pauperis. He alleges that Satan has on numerous occasions caused plaintiff misery and unwarranted threats, against the will of plaintiff, that Satan has placed deliberate obstacles in his path and has caused plaintiff’s downfall.
Plaintiff alleges that by reason of these acts Satan has deprived him of his constitutional rights.
We feel that the application to file and proceed in forma pauperis must be denied. Even if plaintiff’s complaint reveals a prima facie recital of the infringement of the civil rights of a citizen of the United States, the Court has serious doubts that the complaint reveals a cause of action upon which relief can be granted by the court. We question whether plaintiff may obtain personal jurisdiction over the defendant in this judicial district. The complaint contains no allegation of residence in this district. While the official reports disclose no case where this defendant has appeared as defendant there is an unofficial account of a trial in New Hampshire where this defendant filed an action of mortgage foreclosure as plaintiff. The defendant in that action was represented by the preeminent advocate of that day, and raised the defense that the plaintiff was a foreign prince with no standing to sue in an American Court. This defense was overcome by overwhelming evidence to the contrary. Whether or not this would raise an estoppel in the present case we are unable to determine at this time.
If such action were to be allowed we would also face the question of whether it may be maintained as a class action. It appears to meet the requirements of Fed.R. of Civ.P. 23 that the
class is so numerous that joinder of all members is impracticable, there are questions of law and fact common to the class, and the claims of the representative party is typical of the claims of the class. We cannot now determine if the representative party will fairly protect the interests of the class.
We note that the plaintiff has failed to include with his complaint the required form of instructions for the United States Marshal for directions as to service of process.
For the foregoing reasons we must exercise our discretion to refuse the prayer of plaintiff to proceed in forma pauperis.
It is ordered that the complaint be given a miscellaneous docket number and leave to proceed in forma pauperis be denied.
Interactive Question: Case Heading – United States ex rel. Gerald Mayo v. Satan and His Staff
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Okay, now let’s take the first paragraph:
Plaintiff, alleging jurisdiction under 18 U.S.C. § 241, 28 U.S.C. § 1343, and 42 U.S.C. § 1983 prays for leave to file a complaint for violation of his civil rights in forma pauperis. He alleges that Satan has on numerous occasions caused plaintiff misery and unwarranted threats, against the will of plaintiff, that Satan has placed deliberate obstacles in his path and has caused plaintiff’s downfall.
So, despite this being what I consider a “fun” case, it starts with many numbers! What do they mean? Well, anything with “U.S.C.” in the middle stands for US Code. In time, you will start to recognize these things, but until you do, Google CAN be your friend. So, go ahead and Google what plaintiff is alleging. Also note that if you aren’t sure where to look, or if a law dictionary is not providing satisfactory answers, see a law librarian. They can often help point you in the right direction.
It turns out Plaintiff is alleging “conspiracy against rights,” which is § 241, something about civil rights, which is § 1343, and again, something about civil rights, which is § 1983. I say “something about civil rights” because you don’t have to understand the entire statute—that’s not the point. The point is that when you see a statute mentioned in a case that you’ve been assigned, look it up right away so you have some context as you read the case.
The paragraph also mentions “in forma pauperis” which, if I look it up in my Black’s Law Dictionary, is Latin for “in the form of a pauper” which allows someone to bring suit without the cost of a lawsuit.
We then find out that plaintiff is bringing a lawsuit because he thinks Satan is interfering with his life by placing obstacles in his way.
So far my brief might look like this:
Let’s take the next paragraph:
Plaintiff alleges that by reason of these acts Satan has deprived him of his constitutional rights.
We feel that the application to file and proceed in forma pauperis must be denied. Even if plaintiff’s complaint reveals a prima facie recital of the infringement of the civil rights of a citizen of the United States, the Court has serious doubts that the complaint reveals a cause of action upon which relief can be granted by the court. We question whether plaintiff may obtain personal jurisdiction over the defendant in this judicial district. The complaint contains no allegation of residence in this district. While the official reports disclose no case where this defendant has appeared as defendant there is an unofficial account of a trial in New Hampshire where this defendant filed an action of mortgage foreclosure as plaintiff. The defendant in that action was represented by the preeminent advocate of that day, and raised the defense that the plaintiff was a foreign prince with no standing to sue in an American Court. This defense was overcome by overwhelming evidence to the contrary. Whether or not this would raise an estoppel in the present case we are unable to determine at this time.
So, the judge sort of restates that plaintiff is alleging that Satan is depriving him of his constitutional rights. We also find out that the court has serious doubts that there is a cause of action. What does this mean? Well, it means that the plaintiff isn’t bringing a claim that the court recognizes, meaning, it’s likely too general. “The devil is causing me misery” isn’t something the court typically recognizes as a proper lawsuit. At this point, I might update my brief to reflect this:
I’m going to stop there for now, as the judge then goes on to talk about why he doesn’t think the court has jurisdiction over the devil. He references some fun folklore and songs about the devil, and ultimately decides that the court can’t exercise jurisdiction over the devil. This will make more sense once you take civil procedure.
I want to go back to the case you read earlier: Garratt v. Dailey, 279 P.2d 1091 (Wash. 1955). Let’s try to brief that one. Start with a template—any format you like so long as it contains the necessary components. I might use the below template, but you can make it your own.
Heading:
Fact Statement
Procedural Statement
Issue Statement
Rule Statement
Holding/Judgement
Analysis
Fact Statement
Try your hand at briefing Garratt on your own. You can use your own template or use the space provided below.
Writing Exercise: Case Briefing
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Now compare your brief with mine below.
Model Case Brief – Garratt v. Dailey
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A few notes on my brief: You might notice that I did some copying and pasting from the case—which is fine! Just make sure you have a way to note that, like I did by using quotation marks in my brief so you know where it came from. I’ve also put some of it into my own words, so I could determine how well I understood the case. Finally, I had some “questions for class” at the end, things that maybe I didn’t understand right away.
If you were a bit lost on any of the cases we’ve read, that’s normal! It does get better with practice and it gets easier the more you know. This will start to feel more natural to you, I promise. If you feel frustrated, just remind yourself that everyone is feeling the same way, and all you need is a bit more practice.
In the next chapter, we will talk about what to do DURING class. And remember, I can’t stress this enough—ask questions!
“During my first week of law school I was terrified to ask questions. Having not known a single person in the law, I felt underprepared and, quite honestly, dumb. That weekend, as I stared at my casebooks, I decided that I was not going to let the fear of ‘sounding dumb’ keep me from being a great lawyer some day. Going forward I asked for clarification on the most minute of details, even if the professor made comments like ‘You all probably understand this.’ If I did not understand something I asked professors to explain, I visited them in office hours, and emailed them. This made my law school experience fruitful, engaging, and fun. We, as first-generation lawyers, cannot let the fear and shame of being systematically excluded from the legal profession keep us from becoming great lawyers.”
-Adrian Gonzalez Cerrillo
This probably feels like a ton of information coming your way and might feel overwhelming. Have no fear! There are multiple CALI Lessons on briefing cases. Here is a general one called Case Briefing.
The CALI Lesson Finding the Rule isn’t specific to briefing, but it helps you find the rule.
The CALI Lesson Excavating Facts from Cases discusses separating relevant facts from irrelevant facts in cases.
And finally, here is a CALI Lesson on preparing for class: Preparing for Class 101: Preparing for Your First Day of Class.
1 Standard 310 (b). In 2021-2022 Standards and Rules of Procedure for Approval of Law Schools. American Bar Association Section of Legal Education and Admissions to the Bar. https://www.americanbar.org/content/...-procedure.pdf.
2 “Basics of Legal Research: Primary Sources.” LibGuides. Law Library of Louisiana. Accessed May 17, 2022. https://lasc.libguides.com/c.php?g=4...f%20government.
3“How Courts Work.” Americanbar.org. American Bar Association Division for Public Education, November 28, 2021. https://www.americanbar.org/groups/p..._work/appeals/.
4“Stare Decisis Doctrine: Definition & Example Cases.” Study.com. Working Scholars. Accessed June 7, 2022. https://study.com/academy/lesson/sta...issues%20later. | textbooks/biz/Civil_Law/A_First_Generation's_Guide_to_Law_School_(Hale)/1.03%3A_Preparing_for_Class.txt |
Now that you’ve prepared for class, let’s discuss what happens during class. If you are reading this before you’ve started law school, some of this may seem a bit daunting. That’s alright, it’s merely meant to give you a preview. You can always come back and use this as a reference as you go through your semester.
Also, note that law school exams might be very different from what you’ve experienced in the past. I mention this, and go into greater detail in the next chapter, because you want to know how you will be tested as you take notes and process information. Law school exams are hypothetical situations or stories. Meaning, that you won’t be asked to merely recite the law or recite facts from cases. Instead, you’ll be asked to apply the law you learn to new situations. With that in mind, let’s dive into class!
I. Cold Calling and the Socratic Method
During law school, many professors will use “The Socratic Method.” Developed by the Greek philosopher, Socrates, the Socratic Method is a dialogue or discussion between professor and students. This means that the professor will ask questions in an effort to explore the subject matter. The reason behind this is so that students are active participants in the discussion, not merely passive observers. The class becomes a dialogue, not a lecture, and the questions are supposed to be thought-provoking. More importantly, this will help you prepare for exams since the Socratic Method allows the professor to explore the subject matter in a new way, using hypothetical situations similar to exams.
All of this is meant to foster active and critical thinking among students. However, it can often prove intimidating, because of “cold calling.” This means that the professor doesn’t wait for a volunteer, but rather, picks someone randomly in class to answer the question. It’s been my experience that this causes a great deal of anxiety for law students, and I completely understand why. It can be incredibly stressful to be called on and put on the spot even if you do know the answer—but even more so if you don’t know the answer.
While I can’t take away the anxiety, or make it less stressful in the moment, I can tell you that no one will mind if you get the answer wrong. Everyone who has been to law school remembers when they were called on for the first time, or the time they were called on to answer a question and had no clue what was happening, or spectacularly messed something up. Every single lawyer has had that experience. However, none of us (or very few of us) remember when our classmate got something wrong. Typically, your classmates are so focused on what they are learning, and honestly, probably being confused as well, that they don’t notice your mistake.
Also, remember that class discussions in general don’t count towards your grade. They may count towards class participation, but that doesn’t mean you lose points if you get an answer wrong. So, don’t hesitate to dive in and participate—it will actually help you learn. Also, as a tip, if you volunteer you are less likely to be “cold-called,” so it’s a win for you and for the class!
Finally, don’t be afraid of talking too much in class. If you have a question, it is more likely than not that someone else in the class has that same question. The professor will make sure that other students have an opportunity to participate in class. Student questions are an integral part of class time, so don’t be afraid to speak up.
II. Taking Notes
Obviously, you want to take notes in class. However, you don’t want to just take dictation, you also want to actively listen and participate in class. By that, I mean that you shouldn’t just write down everything the professor says, or everything that happens in class. You want to be a bit more selective.
a. Handwritten vs. Typed
One big debate about note-taking is whether you should type your notes or handwrite them. Both have pros and cons. There is science that says that you retain more information by handwriting things,1 but that is largely dependent on the situation, and the person. The key thing is to do what works for you! However, I’ll give you some pros and cons of both.
Handwritten notes
Pros:
• Potential to process and remember the information better2
• Less likely to take “dictation” and instead only write about the things that are important (this also helps with processing)
Cons:
• More difficult to organize
• Sometimes harder to keep up
• Can be less neat when you go to reread
Typed Notes
Pros:
• Typically neater
• You can organize as you go
• Can typically type faster
• Can plan ahead a bit better (see below)
Cons:
• It’s tempting to take “dictation” when typing
• Might not be fully processing information
• Might be so focused on typing that you aren’t fully participating in class
Note that some professors ban laptops and audio recorders in class. If you need an accommodation to use a laptop—perhaps you have difficulty writing by hand—please be sure to ask for an accommodation. Sometimes this process is formal, but sometimes you can just ask your professor.
b. Preparing Ahead
To help you avoid just taking dictation, there are things you can do to prepare ahead of time, ensuring that you have less to write during class. This will help you pay attention and be an active participant in class.
First, merely briefing your cases is a good way to prepare your notes ahead of time. If you plan to type, you can also put case headings and facts in your notes ahead of time to save you from having to type them during the discussion. Also, just as you would do with case briefing, you can use your book table of contents to see how things fit together or to help you choose headings. In addition, you can put any statutes or other information in your notes before class.
Some professors may provide their PowerPoints before or during class. You can use these to assist in organizing your notes, or even take notes on the PowerPoints themselves. Also, if you know the professor will make the PowerPoints available, even if it’s after class, you know that you don’t have to copy what is on the PowerPoint to your notes since you can add those later. This will help you avoid taking dictation and allow you to participate in class.
c. What to Take Notes On
I keep saying don’t just take dictation, but really pay attention and actively listen. What do I mean by that? Well, you go to class to gain the information you might not get merely from the reading. Some great things to look out for are:
• Things your professor spends more time on.
• Hypos, or hypothetical examples, that your professor spends time on. Is your professor changing facts in a case? Or asking a lot of “what if this happened instead” questions? Jot that down! And pay attention to the answers. This will help you prepare for your exams since your professor is the one that writes your exams, and the exam question will likely be similar to the in-class hypos.
For more, see the CALI Lesson Note-Taking in Law School 101: The Basics.
And for a slightly more advanced lesson on note-taking: Note-Taking in Law School 101: Case-Based Content.
III. Right After Class
Even after class ends, you still aren’t quite done with class. You might feel exhausted and just want to turn your brain off for a minute, but before you do, take 5 to 10 minutes to look over your notes. Were all of your questions from the reading and briefing phase answered? If not, jot them down—or highlight them—and see if you can chat with a professor or teaching assistant right away. If another class is coming in, or your professor doesn’t stick around, that’s okay—make a note of the specific questions you still have and visit during office hours or make an appointment to chat with your professor.
Now is also the perfect time to do a quick review of your notes and fill in any gaps or clarify things. If you wait too long, you may have forgotten important pieces of information. Doing this for 5 to 10 minutes after each class will save you time in the long run, and help make sure you really understand what happened in class.
IV. Creating Your Outline
In the next chapter, I’ll discuss how you can prepare for your exams. But preparing for exams doesn’t just happen in the days or weeks leading up to the final exam. You can and should start that preparation within the first month of law school. One key way to do this is through the outlining process. The process of building an outline ensures that you stay caught up and continue to understand the material as well as serves as the ultimate study aid at exam time.
a. What is Outlining, or Synthesizing?
You will often hear law students talk about “outlining,” so let’s break down what that means and when you should do it.
First, I’d prefer that everyone switch from calling it outlining, and just call it synthesizing information, as that is what you are doing. In this guide, I use the two terms interchangeably. The point of outlining is to take the information from each class and put it together. It’s the process where you are basically seeing how it all works together. I hate the term “outlining” because most people think of the typical outline with Roman numerals. So, the first thing you should know is that outlining can take any form: from a typical Roman numeral outline, charts, flowcharts, or a mind map3, to, well, anything you want!
So, how should one synthesize? First, you need to know why you are doing it. To do this, we need to skip ahead a bit and talk about final exams. As mentioned above, for your final exam your professor will likely give you a hypothetical to answer—a story, or problem, to solve. We will discuss this in greater detail in the next chapter. But it’s essentially a story, where things go wrong, and the professor wants you to identify and solve the legal problems.
This means that the exam won’t ask you to just restate facts from cases; you have to use the cases you read and compare and contrast them to the new situation. To do that, it helps to “outline” and put it all together.
Each case you read should give you a little more insight into the rule, or law, and how to use it. Think of it as collecting puzzle pieces.
For more information, see the CALI Lesson Outlining Basics.
b. Practice Synthesizing
Outlining or synthesizing can feel strange. You are essentially piecing together available information in order to ascertain the rule. This information will primarily come from cases that you read. Throughout this process, you are also helping yourself to explain or understand the rules you’ve been learning. So, let’s dive into some synthesizing!
First, bear with me as I’m going to use a music example because I’m a huge music nerd. Imagine that you are interested in predicting who might be inducted into the next Rock and Roll Hall of Fame class.
You notice the following inductees:4
2021
2020
2019
2018
Foo Fighters
Tina Turner
Carole King
The Go-Go’s
Jay-Z
LL Cool J
Depeche Mode
The Doobie Brothers
Whitney Houston
Nine Inch Nails
The Notorious BIG
T. Rex
The Cure
Def Leppard
Janet Jackson
Stevie Knicks
Radiohead
Roxy Music
Bon Jovi
The Cars
Dire Straits
The Moody Blues
Nina Simone
Sister Rosetta Tharpe
You look at the various lists and try to decide what they have in common and whether you can predict the criteria for being inducted into the Hall of Fame. Maybe you are familiar with the musicians, maybe you aren’t. You do some research on the various musicians; you listen to their music, look at their biographies on the Hall of Fame’s website to get a feel for what they deem important, and so forth. This would be similar to reading cases.
A look at the Hall of Fame’s website gives us some insight, stating:
Leaders in the music industry joined together in 1983 to establish the Rock and Roll Hall of Fame Foundation. One of the Foundation’s many functions is to recognize the contributions of those who have had a significant impact on the evolution, development and perpetuation of rock and roll by inducting them into the Hall of Fame. Artists become eligible for induction 25 years after the release of their first record. Criteria include the influence and significance of the artists’ contributions to the development and perpetuation of rock and roll.5
This is like a statute, which you might use in classes like civil procedure or criminal law. It’s a great starting point. From this description, how would you state the “rule” for getting inducted into the Rock and Roll Hall of Fame?
Interactive Question: Rule Synthesis
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Now, this is where my example falls apart just a little, for three reasons: First, music is subjective, and there is always controversy over who is and isn’t included. Second, the Hall of Fame doesn’t release the rationale for inclusion, unlike a judge. Third, I don’t expect you to go read up on all the artists I just mentioned.
However, say you were like me and you were a bit indignant that Rage Against the Machine was not yet inducted, and you wanted to make a case for why they SHOULD be inducted. You’d compare the other artists listed above (or from prior years on the website) to Rage Against the Machine. Again, this is harder with music since it’s subjective, but the law can be frustratingly subjective as well. Essentially, what I just described above is lawyering. Except instead of arguing whether your favorite band should be included, you are arguing whether something is a battery, or whether a claim was filed appropriately—a bit less exciting if you ask me, but also more important in the long run.
Let’s try a slightly different example. What if your client is a homeowner in an area with a set of neighborhood rules? Your client wants to build a firepit, and house that firepit close to their deck. Essentially, the client has a large deck and would like to build the firepit within the deck. Like this:
The front Deck fire pit” by Quiltsalad is licensed under CC BY-NC-SA 2.0.
The applicable rule states: “Any propane, natural gas, wood flame, or gel open flame device must be at least 10 feet away from any structure.”
Your client plans to build the pit 10 feet away from the house, as their deck is quite large, but the question is: Is the fence and bench a structure? Is the deck a structure? How do you advise them?
Step one is to look at the dictionary definition of structure, or whether the neighborhood rules have defined structure. In this example, let’s assume that the neighborhood rules have not defined “structure.” So, our first step is the dictionary:
Definition of structure
noun
The dictionary definition isn’t overly useful. It’s likely too broad. We need more assistance. What is the reasoning behind the neighborhood rule? What do other people in the neighborhood have? Let’s say you do your research, and you find this:
“The neighborhood has enacted this rule to prevent the spread of fires. They are concerned that grills, or other flame devices, will pose a fire hazard if too close to a house or garage.”
So, the reasoning is a fire hazard, and the rationale even states “house or garage” instead of structure. Is the deck part of the house? Again, you’d want to look at what the neighborhood has allowed in the past. What they’ve allowed in the past is similar to reading cases.
Hopefully, you are getting the idea. Take some time to go through the CALI Lesson Introduction to Rule Synthesis. In it, the author has you compare and contrast sandwiches, so maybe eat lunch as you work through the lesson!
c. When Do You Start Outlining?
Well, the sooner the better. It’s difficult to start outlining in the first week or two, as you don’t have enough information to synthesize. However, by week three or four, I’d start outlining a little bit each week.
You want to do this for two reasons: First and foremost, it will save you time in the long run and leave you more time to do other things that will help you prepare for final exams. But more importantly, similar to reviewing notes after class, it will alert you to whether you are truly understanding information earlier rather than later.
If you are unable to figure out how to synthesize a section, meaning, you just can’t see how it all fits together, this is a great time to consult your study group (discussed below), a teaching assistant, or your professor. Leaving it to the last possible opportunity, at the end of the semester, means it’s going to be more difficult to put it all together and far more difficult to understand the pieces you are struggling with.
d. Other Outlining Notes
Finally, I want to address some other “tips” that might help you get started in your rule synthesis.
Use your syllabus or TOC !
If you are a bit unsure of where to start, or how to start organizing things, look to your syllabus or table of contents. It’s a great way to start to “see” the big picture. For example, let’s look at another casebook’s table of contents, from The Story of Contract Law: Formation by Val Ricks, published by CALI eLangdell® Press.
In this example, you can see a few things. First, similar to how you might use a TOC in your reading, you know that Hunt v. Bate is going to go under the heading of “Bargain or Exchange.” You also know that Restatement 71 is going to go under “Bargain or Exchange” as well. So you at least have a start to your outline.
You can also zoom out, so to speak, and look at the entire table of contents. Advance through the pages below to start to see how these things might work together.
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For example, you start with contract formation, and then look to “alternative theories” of recovery, and then look to limits on defenses, or bargains.
If you haven’t started classes yet, this is all going to seem very overwhelming. I suggest you just take it in as food for thought, and then come back after a few classes and read more carefully.
Personally, I used to use my professor’s syllabus as a starting point since that is the way your professor likes things organized. I would then start expanding with things that made sense to me, like charts and mind maps.
Check in often with your outline to determine its effectiveness .
I started most of my outlines with the typical Roman numeral format. And this works most of the time, and for most people. But if it doesn’t work for you, don’t hesitate to shift gears. You might feel like you’ve already “wasted time” spending a few weeks on one type of format, so you can’t possibly change now. First, that’s not wasted time, as you’ve been processing and reviewing material and that will pay off. But most importantly, if that particular format doesn’t work, you have to shift to something that works better for you.
You might also realize that different formats work for different classes. In my mind, contracts class lends itself to Roman numerals and feels very linear. However, with civil procedure, at least in my mind, I need charts and mind maps. Don’t limit yourself. The goal is to understand how to use the information you have in front of you, so don’t be afraid to experiment.
Don’t just use o ther p eople’s o utlines .
I have two very unwavering beliefs: first, that sharing information is incredibly valuable, and second, that outlines are incredibly personal.
It’s okay to collaborate on outlines and share ideas with your study group and classmates. It’s also okay to look at what upperclassmen have done and what has worked for them. Doing this might help you figure out what outlines can look like.
However, note that the process of creating an outline is the useful part. You can’t just take an outline from a classmate and use that to study. The process of putting things together is what helps you prepare for exams. The whole point of outlining is to help you see the “big picture” of what you are studying, and how things work together. That’s why the work of creating the outline is what is helpful, and just using a prepared outline from someone else is not.
V. Study Groups
As you enter law school or talk to people about law school, many will have opinions on study groups. First, what is a study group? At a very basic level, study groups are small groups of students, about three to six, who do their studying together. Each study group, since they are made up of different people, is going to be set up a bit differently. The idea is that they help each other through reading and briefing the cases, and then compare and share notes after classes. First, we’ll look at some general dos and don’ts of study groups, and then we’ll do some exercises to help you decide whether you want to join one.
a. The Dos and Don’ts of Study Groups
Do…
Compare notes. It’s perfectly acceptable to collaborate and compare notes. The legal profession itself is collaborative. You should still take your own notes, but it might be helpful to share what each of you thought about the class. Maybe someone in the study group picked up something that you did not, and vice versa—help each other fill in the gaps.
Talk through hypotheticals. Your professor might give you practice hypotheticals—see below. You can also find them in various supplements—again, see below. This is what study groups are made for! Talk through them together, and share your thoughts. You can also do this with smaller “hypos.” Often, your professor will ask “what if” during class, just changing a few facts or making up small stories. Write these down in class, and talk through them with your study group.
Don’t…
Divide and conquer. It doesn’t work. Some study groups like to split up the reading or note-taking and then share. For example, if there were four cases to be read for civil procedure, the study group might each read and brief one case and then share their brief with the other members of the group. DO NOT DO THIS. I’m all for sharing, but trust me when I say this will not help you. It might feel like a relief to divide the workload, especially in the beginning; however, you get better at reading and briefing by practice. Not to mention, if you haven’t read the case, the brief might not make sense to you which is going to hamper your ability to follow along and participate in class.
Spend too much time socializing. Hopefully, you like the people in your study group, and if so, this is a great thing. You might make some terrific lifelong friends in law school, and I hope that you do! Because of this, it often happens that “study group” turns into “let’s just talk and socialize.”
Listen, I relate. I’m a super chatty person, and it takes discipline for me not to spend entire committee meetings trying to catch up with colleagues that I legitimately enjoy spending time with. However, that’s not the purpose of the study group (or my committee meeting). Set boundaries for yourself and the group. Something that works very well is setting goals, or timelines, where you can (and should) take breaks and talk, eat together, and generally socialize.
Stay in a group that doesn’t work for you. Maybe you aren’t getting along with your group, or your study habits don’t match up. Maybe you are finding that talking through various things only serves to confuse you, not help. Don’t stick with a group or method that isn’t working. There is no harm in leaving the group, finding a new group, or just flat out deciding that you’d prefer to do this alone.
b. Should I Join a Study Group?
Take a moment now to think about how you’ve studied in the past and what has worked for you. What has been your experience working in groups and working alone? The following tool helps you collect those thoughts and rate the benefits of each approach.
Reflection Exercise: Studying in Groups Versus Alone
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Whether a study group is for you is completely a personal decision. There is nothing that says you must join a study group, and that is fine. However, the law is often collaborative and it can help to talk things out or work through hypotheticals as a group. So, my advice is, even if you don’t have an official study group, find one to two fellow students that you can meet with a couple of times throughout the semester—specifically before midterms and finals—and talk through problems, questions, etc.
Remember, there is no “right” way to do things, so if you want to join a study group, find a group of people who have similar goals and needs to you. You can always join a study group and later decide it doesn’t work for you, or join a study group late in the semester.
If you’re considering joining a study group, or are already part of one, use the following exercise to work through (a) what you need from a study group; and (b) if you’re already part of one, whether or not that study group is meeting your expectations.
Reflection Exercise: Study Group Goals
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For more information, see the CALI Lesson Study Groups: Best Practices.
VI. When to Ask For Help
Don’t wait until just before the final exam to decide that you are a bit lost. The better option is to ask for help as soon as you are feeling lost. The problem is, how do you know if you are lost?
If your professor gives you quizzes or any practice hypotheticals, how are you feeling about them? If you get feedback from your professors, is it good? Even if it’s only the first quiz, if you are scoring below the average in the class, go see your professor. Similarly, if you have a practice midterm, even if the feedback is good, go see your professor—what could you have done to do better?
What if you don’t get feedback? You can still do practice hypos—how do you feel about them? Do they make sense to you? Is your answer matching the sample one, if there is one?
You can also do CALI Lessons, in almost any subject! How are you doing on those? If the answer is not great, that’s okay, and normal! But it might be a signal to ask for help.
Asking for help is something you should do. I have so many students who either wait until it’s too late or never come for help at all. Why? They’re embarrassed. Or, they think they can figure it out on their own. Your professors, and your academic support professionals if your school has some, very much want to help you. You might also have tutors or teaching assistants that want to help you. We are all invested in your success, and I mean that sincerely. So, even if you aren’t positive you need help, seek it out.
VII. How Can a Professor Help Me? (And How to Approach a Professor For Help)
Your professors are going to be a great source of help, and most of them will want to help. Professors get excited when you succeed and typically teach because they enjoy it. So, how can a professor help you and when and how should you approach the professor?
First and foremost, professors are the best people to go to if you are struggling with the substance of the class. If you don’t understand something from class or a case you read, go to the professor.
As for timing, sometimes you can approach a professor directly after class. However, if you do this, be aware that the professor might have to rush to go elsewhere, or another class might be coming in to use the room. Be respectful of both of these things. The after-class discussions are best used for very quick questions.
For much longer questions or times when you want to have a deeper discussion, office hours are best. All professors have office hours and will post the date and time on the syllabus. This generally means that if an office hour is on Wednesday from 2:00 to 3:00, you can stop by the professor’s office at 2:15 without a prior appointment. This is encouraged! The only thing to be aware of is that other students might have the same idea, so you might have to wait.
For most professors, you can also email them and make an appointment. That way you know they will have time reserved just for you.
So, now that you have decided when to go see your professor, what types of questions might you ask?
Questions about cases: Perhaps there was something about one particular case you don’t understand. You feel like you missed the holding, or are not clear on the issue they were trying to solve. Ask your professor!
Questions about something mentioned in class: Your professor is likely to mention “hypotheticals” in class, such as “What if Sally did x, and then Bob did y?” If you don’t understand the answer, ask your professor. Similarly, your professor might take a case you are reading and say things like “What if we changed this one fact?” If you are feeling a bit confused about what it all means, ask your professor.
Questions about how it all fits together: This is valid. Chances are, your professor likes talking about the subject they are teaching and is happy to talk about the big picture or how various concepts might fit together. So ask them! I would suggest that you have thought about it before asking them. For example, you can approach the professor and say “It seems like concept A relates to concept B this way…” and the professor will either agree, or correct you. Either way, you’ve started a great discussion.
What NOT to ask: Don’t approach the professor and just say “I don’t understand torts,” or “I don’t get any of intentional torts.” It might feel like these are valid questions, and trust me, I relate. However, your professor is spending an entire semester lecturing on torts, so you have to narrow it down just a bit.
Don’t ask things like “What do I need for the exam?” or “Will this be on the exam?” The professor’s goal is to teach you how to think like a lawyer and how to learn how to do that using torts, or civil procedure, or contracts. The exam is important, but that shouldn’t be your only focus.
Finally, professors are humans. I promise. We make mistakes; we understand that you make mistakes as well. We won’t judge you for coming in with a less than perfect question, nor will we think you asked the wrong thing. My guidelines are to help you get the most out of your time with your professor, but you should not be worried about asking the “wrong” thing during office hours. Take a chance, and go ask!
VIII. A Note on Supplements
Supplements in the law school context are study aids that come from somewhere other than your professor or class materials. I have a love and hate relationship with supplements. They can serve a purpose, and often be helpful; however, even well-meaning students can often use them as a bit of a crutch, and it’s easy to get overwhelmed and think you need ALL of the supplements. Not only will this cost far too much, but you can’t possibly read them all—it will only get confusing.
There are too many products available and on the market to list or evaluate them all—from commercial products for sale to free sources online to memberships your school provides—so I’ll focus more generally on what to look for (and what to avoid) in a supplement.
a. Choosing the Right Supplements
Good supplements are those that help you work on practice questions and think through the law. Bad supplements are those that do the work for you and only provide you with black letter law or a “canned” brief or outline. Resist the urge to use these, as the work of writing a brief and outline is what is important, not to mention the fact that the canned brief or canned outline might not be suitable for your professor.
Some good supplements I recommend to students are CALI, Examples and Explanations, Glannon Guides, and anything that makes the student an active participant. The reason I recommend these is because they all contain questions and sample answers, which helps you with active learning.
b. Some Dos and Don’ts of Supplements
Do find out what your professor recommends, or talk to students that have had that professor. Some professors have preferences, and might even use those supplement questions as parts of their exam. So, if a professor has a preference, definitely use it. Conversely, if your professor says they hate supplements or don’t think they are necessary, you might want to avoid them for that class if you are able.
Do use them to practice and test your knowledge. The supplements I recommend all have different types of questions, from essays to short answers to multiple-choice questions. These are the best kind of supplements, as they literally “supplement” your in-class learning.
Do NOT rely on supplements in place of reading and briefing cases or outlining yourself. They should be supplementing your work, not taking the place of it. For example, if you rely on an outline someone else made, it might not fit your class or your learning style, and most importantly, making the outline yourself helps you process the information!
For more, see the CALI Lesson Creating Study Aids.
1 University of Tokyo. Umejima K, Ibaraki T, Yamazaki T and Sakai KL (2021) Paper Notebooks vs. Mobile Devices: Brain Activation Differences During Memory Retrieval. Front. Behav. Neurosci. 15:634158. doi: 10.3389/fnbeh.2021.634158.
2 Id.
3 “A mind map is a diagram used to visually organize information in a hierarchy, showing relationships among pieces of the whole. It is often created around a single concept, drawn as an image in the center of a blank page, to which associated representations of ideas such as images, words and parts of words are added.” (“Mind Map.” Wikipedia.” Wikimedia Foundation, May 17, 2022. https://en.Wikipedia.org/wiki/Mind_m...20are%20added.)Some students like to do this with legal concepts, sort of free drawing and connecting the various concepts in class. This is a valid form of outlining.
4 This list is not meant to be exhaustive, and merely illustrates an example.
5 Rock & Roll Hall of Fame. Accessed January 2, 2022. https://www.rockhall.com/.
6 “Structure Definition & Meaning.” Dictionary.com. Dictionary.com. Accessed June 16, 2022. https://www.dictionary.com/browse/structure. | textbooks/biz/Civil_Law/A_First_Generation's_Guide_to_Law_School_(Hale)/1.04%3A_During_and_After_Class.txt |
As mentioned in the prior chapter, law school exams will likely be different from what you are used to, but that’s okay, and that’s why I’m going to tell you all about them. As mentioned, the exams won’t ask you about facts of cases or exact rules of law. Yes, part of exam preparation is that you need to know the rules of law you have learned, but the exam doesn’t stop there.
While different professors might test in slightly different ways, the most common way that first-year classes are tested is using one to three hypotheticals, or stories. Then, it is your job to apply the rules you’ve learned to that story, or “hypo.”
Finally, while many schools are embracing midterm exams, many class grades are still based on one final exam at the end of the semester. This can be daunting, and it is why I stress practicing before that exam.
I. Before the Exam
Below I’ll go through what a typical exam looks like and how to write one. But first, let’s look at ways you can prepare—and skills you can strengthen—in advance of exam day.
a. Law School Exam Format – Practice Hypotheticals
So by now, you might be thinking, what on EARTH is a hypo? Well, it’s short for “hypothetical,” meaning a hypothetical story, or hypothetical legal pattern. In class, your professor might use these to illustrate examples or differences between areas of the law.
In addition, your midterm, and your final exam, are likely to be one to two hypotheticals. They are, essentially, practice legal problems. Your exam will set out a story or scenario, and you will be expected to identify, analyze, and “solve” (come to a conclusion about) the legal issues that arise in the story. While occasionally a hypothetical will provide the applicable law, such as a sample statute, hypotheticals are primarily fact-driven; in other words, it will be your responsibility to not only determine where there might be a legal issue involved but also to conjure up the applicable rule or law and apply it to the facts at hand in order to reach a conclusion about which way the case should be decided. For example, in a criminal law course, you might get a story about a series of interactions between three people and your assignment will be to explain if any crimes have been committed among them. If you go back to the previous chapter to my examples on synthesizing, I asked you to think about if you had a client that wanted a firepit in their deck and told you the neighborhood had an applicable rule—that is a hypothetical. On your exams, the hypos will take on topics you are learning in class.
It should be noted that the BEST way to prepare for an exam is by doing practice hypos! This means practicing writing out the answers. You can get practice hypos from old exams (preferably from the same class and professor), class discussions, or your textbook—or you can create your own.
However, legal writing—and exam writing—is different from what you are used to. As discussed in the next section, legal writing and answers to exam hypotheticals should follow the IRAC structure, which is something you need to practice before the day of the exam.
b. Using IRAC
You just learned that law school exams are typically a series of hypotheticals, and that to best prepare for the exam you should spend time practicing writing out your answers to practice hypotheticals.
Writing an answer to a law school exam is different from exams you may have written in the past. In order to successfully write a law school exam, it is necessary to have a specific paragraph structure or template. Professors refer to the structure used in writing exams—or the organization of the material—as IRAC, which stands for Issue, Rule, Analysis, and Conclusion.
Sometimes a professor might suggest CRAC, or CRE(explanation) AC, (these are common in legal writing) where one starts with a conclusion instead of an issue. However, that is usually reserved for legal writing, such as a memo, versus an exam, unless your professor specifically requests CRAC. Also, all of these formulas are essentially the same, so if one professor says “I prefer CRAC to IRAC” don’t let that throw you. Finally, I’ve had colleagues say they “don’t care about IRAC,” but then they show me how they want an answer to look, and you guessed it, it’s IRAC! This is going to feel VERY formulaic and repetitive, which is typically very different from writing you may have done for liberal arts courses. Instead, think of IRAC as a way to solve an equation or a lab report. I also sometimes think of it as a math problem—sort of like showing your work in long division.
Let’s walk through each section of IRAC:
Sections of IRAC
Issue: Identity and explicitly state the precise legal issue you are about to discuss. Think of an issue like a topic sentence; you want to let the reader, usually a professor, know what area of law you are going to discuss. Think about what question (or questions) you need to answer in order to answer the hypothetical. Bear in mind there can be multiple questions, or issues, and if so, they each get their own IRAC. The issue will not be a broad topic such as “is there a crime?” Rather, the precise legal issue should be one narrow aspect of the broader legal rule you plan to analyze, such as “was Bob’s act voluntary?” Professors vary in the degree of specificity they want in students’ issue statements, so keep this in mind.
For example, if the exam question asks “What crimes have been committed?” your umbrella issue statement might be “Was Bob guilty of homicide?”, but there might be several sub-issues as well. See below for more information on this. (Also, note that any given exam hypothetical might have multiple issues; for example, you might spot three crimes—maybe homicide, theft, and something else—and they should EACH get their own IRAC.)
Rule: Next, accurately state the specific rule you plan to apply to the issue that you stated. Again, professors have a range of preferences, and you will be encouraged to ask them what those preferences are. Some professors want exact statements of rules, but most accept accurate paraphrases of rules. Sometimes, if applicable, you may need to explain the rule, which means expanding on the definition or further explaining an aspect of the rule.
Analysis: Immediately following your statement of the rule, apply the rule to the specific relevant facts presented in the legal problem you are analyzing. The analysis is often the most difficult (and most important!) part of essay writing; see below for a more detailed explanation of how to write an analysis.
Conclusion: After your analysis, state an explicit conclusion—your specific prediction as to how a court would decide the particular issue you discussed. Your conclusion should flow directly from your analysis. Thus, if your analysis identifies arguments for both parties, or a counterargument, your conclusion should explain why you believe one set of arguments is more persuasive. Remember that there is often not a “correct” conclusion.
Common IRAC Errors
• Labeling each component of your IRAC. Some students literally write the IRAC components in their answers to lawyering problems. Like any mnemonic, IRAC should be used as a guide inside your head, not as a set of labels written in an answer to a lawyering problem.
• Making your entire answer to a lawyering problem one gigantic IRAC. For example, stating all the issues in one paragraph, stating all applicable rules in the next paragraph, etc. Each IRAC should address one precise issue, and only one precise issue. You should be sure to use a separate IRAC for each issue, or question, which needs resolving. For example, if the question is whether the defendant should be charged with larceny or embezzlement—two different crimes—you would use one IRAC for each crime, and not combine them.
• Making each IRAC or each component of your IRACs the same length. There is no rule about how long each IRAC should be. You will need to develop the legal judgment and discretion to determine how much to write to answer a specific lawyering problem. Some IRACs are short and some are much longer. Substance should trump form. In other words, the length of your IRACs should reflect the complexity of the legal issue you’re addressing in a given lawyering problem.
• Giving equal weight, length, and time to each component of IRAC. For example, some students assume each piece of IRAC should be one sentence long. This assumption is incorrect. You should make each component as long as needed to address the specific problem. The I and C will always be relatively short, with the R and the A likely being the longest. In fact, when answering lawyering problems on law school exams, the A will usually count for the majority of your grade. Therefore, usually, the analysis portion should be the most extensive portion of your IRAC.
c. Mastering the Analysis
What does it mean to put forth an analysis? This is where you apply the unique facts of your hypothetical to the applicable rule. Please note that this is not a conclusion, nor is it merely restating facts. This is likely the most difficult part of writing a law school exam, and where you are likely to earn (or lose) the most points. Often when students come to me after a midterm or final exam and aren’t happy with their grade, it’s not that they misstated the rules, missed issues, or didn’t know what they were doing—they just didn’t analyze.
Your analysis is “showing your work,” or explaining how and why you reached a certain conclusion. I like to say your analysis answers the “why.” I tell my students to think of a small child, or me, asking them “but why, but why, but WHY?” You should answer that “why” with a “because” and think of the Wizard of Oz—“because, because, because…”
To this end, I like giving my students an analysis formula. If your background is in writing, or any kind of liberal arts degree, writing in a very formulaic way is going to feel odd and stiff. It might also feel repetitive. All of that is okay—embrace the formula and life will be so much easier.
IRAC: Analysis Formula
As I mentioned above, think of the analysis like a math formula:
If a Rule = X, Y plus Z
Then your Analysis = When (FACT), this was X. Because of (FACT), Y occurred. In addition, because of (FACT FACT), Z was satisfied.
Or
When [ ], that was [ ].
Because of [ ], [ ] was met.
For example, the definition of battery is “An intentional harmful or offensive touching of another.” So, when applying this formula, you might say “When Bob punched Jim in the face, that was harmful” or “Because of the fact that Bob hit Jim on purpose, the element of intent was met.”
Essentially, you want to pair each rule element with a fact that supports or does not support that rule element. You are proving the equation, so to speak!
You might also need to “stack” your IRACs, or have sub-IRACs. Well, what does that mean? As mentioned above, your essay will have multiple issues or claims, and each issue or claim should have a separate IRAC paragraph. For example, a tort will have multiple elements, so you might want to use an IRAC for each element. See below.
Issue (In tort law, what is the tort?)
Rule (Elements 1, 2, 3)
Analysis
Sub issue 1 (Element 1)
Sub rule 1 (Explanation of Element 1)
Sub analysis 1 (Analysis of Element 1)
Sub issue 2
Sub rule 2
Sub analysis 2
Sub issue 3
Sub rule 3
Sub analysis 3
Conclusion
Here is a helpful CALI Lesson, on IRAC.
Now, let’s do a practice hypothetical:
Your client stole a motorized scooter and traveled from Illinois to Indiana. They are charged under U. S. Code, Title 18, § 408 (18 USCA § 408). That Act provides: “Sec. 2. That when used in this Act: (a) The term ‘motor vehicle’ shall include an automobile, automobile truck, automobile wagon, motor cycle, or any other self-propelled vehicle not designed for running on rails. * * * Sec. 3. That whoever shall transport or cause to be transported in interstate or foreign commerce a motor vehicle, knowing the same to have been stolen, shall be punished by a fine of not more than \$5,000, or by imprisonment of not more than five years, or both.”
You know from reading a case called McBoyle v. United States that a plane is not a motor vehicle. In fact, the court reasons “But in everyday speech ‘vehicle’ calls up the picture of a thing moving on land.” The court in McBoyle also states that if the legislature had wanted to include planes in the definition, they certainly would have. The statute McBoyle cites is from 1919.
Given this information, you need to decide whether your client’s motorized scooter is, in fact, a motor vehicle.
Now for the hard part: the analysis. Before you dive into trying to write it, think about how you are going to prove whether a motorized scooter is a motor vehicle, or isn’t. Let’s think about it this way:
Is a Motor Vehicle
Isn’t a Motor Vehicle
Automobile
Truck
Wagon
Motorcycle
Motorized Scooter
Plane
Self-propelled
Running on rails
No motor/takes human strength to power
First, I separated out what we know from the language of the statute, as well as the case. We know what is specifically designated as a motor vehicle, and what isn’t.
Next, the statute says a motor vehicle must be self-propelled, and not run on rails. So the second part of the table focuses on that. The question becomes, which side fits a motorized scooter better and why?
Try something like this:
Rule Element
Facts For
Facts Against
Resolution
Self-propelled
Not running on rails
Runs over land
Try to fill in the chart, originally created by MaryAnn Hermann1—what are you noticing, if anything? You might have seen something like the below:
Rule Element
Facts For
Facts Against
Resolution
Self-propelled
Motor scooters have an engine and can move without “manpower”
Can also move with only manpower, meaning the rider can use their feet to get it to move
Which is the predominant use?
Not running on rails
No rails on a motor scooter
Runs over land
Can’t fly
Now you can think about your analysis. You want to use words like “here” and “because” in your analysis. For example, “Because a motor scooter does not run on rails, and in fact, runs on land, we can argue in favor of it being a motor vehicle.” Or, “Even though a motor scooter has an engine, meaning it is self-propelled, it can also be operated using manpower alone, making it less of a motor vehicle.” Note that there isn’t a right answer, and that can be frustrating. A motor scooter can be self-propelled OR propelled by the operator, making it hard to come to a “correct” conclusion. This is a common occurrence in legal hypotheticals, and it can be difficult to get used to. We are not as worried about the conclusion—here, whether this is a motor vehicle or not—but rather, we are concerned with the process or the arguments that helped you reach that conclusion. For example, maybe you don’t know much about scooters, which is perfectly acceptable, and you argue that motor scooters are completely self-propelled with an engine. There is nothing wrong with that, as long as you are explaining your reasoning.
The frustrating part about writing out hypotheticals is there isn’t always a “right” answer. The important part of the writing is how you support your conclusion. Even if an explanation seems obvious, it’s worth putting it down. I’ll leave you with one last example of the importance of supporting your conclusion.
I have taught contracts in the past, and one of the first rules of contracts I teach is whether the Uniform Commercial Code, a series of statutes, or the common law applies. The Uniform Commercial Code, or UCC, applies to “goods” which are defined as “moveable, tangible, items.” The common law of contracts applies to everything else. I gave my class a hypo about a homeowner contracting with a company to install a pool. In my mind, as I was writing the hypothetical, I had a vision of an inground pool—so installation would require digging and other activities. This means the students should be using common law.
However, I had a handful of students state very confidentially, and without explanation, that the UCC applied to this fact pattern. My first thought was, “Oh, I need to go back and explain the UCC again!”
I asked the class why some of them answered with UCC. I was told by a couple of students that a pool installation involved the company moving the pool off the back of the truck and putting it in the yard. Turns out, they had a vision of an aboveground pool, which very well might be a good since it is tangible and moveable!
So, the students were not wrong in their understanding of the law, but they failed to explain their reasoning. To both myself and the students, the idea of “pool” seemed obvious and without the need for an explanation. But it turns out we both had a vision of a different pool, so the explanation was needed. In conclusion, even if something seems silly and obvious to you, err on the side of explaining!
IV. Exam Writing – The Day of the Exam
Now that you have hopefully prepared your notes, synthesized your rules, and done some practice hypos using the IRAC formula, it’s time to look at the steps involved while actually taking the exam. Like many other parts of this book, if you are reading this in August, the section below might feel premature. Read it, or skim it, so you get an idea of what exams will look like, then feel free to come back to it halfway through your semester!
a. Plan First
Before you dive into writing the actual exam answer, you need to plan! Given that on the day of the exam you will likely feel a little stressed and anxious, it’s helpful to plan ahead for how you will plan. I know, so much planning, but that is also a lawyering skill.
First, look at timing and how much each question or exam part is worth. How do you plan to divide your time so that you address all the questions? Are there other instructions specific to the exam, or a section on applicable law? READ CAREFULLY. Sometimes you can ask your professor for directions ahead of time; sometimes you can’t. Either way, start your exam by carefully reading the directions and creating a plan.
For more preparation, see the CALI Lesson Attacking Exams.
Let me give you some examples of what I mean by planning and reading carefully. See the directions below, and then try to answer the questions that follow.
Sample Instructions 1
Contracts Final Examination
Directions: This exam is for three hours and is closed book. Answer the multiple-choice questions on the Scantron answer sheet provided. Write or type your answers to the essay questions either in bluebooks or using the examination software. Remember to put your exam number on the answer sheet, this paper, and the essays. If something in a question seems missing or mistaken, please state a corrective assumption and proceed with your answer.
Applicable law: Unless otherwise indicated in a particular question, please assume that all events occur in a U.S. state following typical modern contract law and the UCC with no local amendments. The common law statute of frauds applies except to the sale of goods, which is governed by UCC Article 2. The majority (New York) version of the parol evidence rule applies. If there is an issue in an essay that raises two or more major conflicting views of the proper rule, you should indicate the different outcomes under each rule.
Interactive Questions: Reading Exam Instructions – Part 1
The original version of this chapter contained H5P content. You may want to remove or replace this element.
The original version of this chapter contained H5P content. You may want to remove or replace this element.
The original version of this chapter contained H5P content. You may want to remove or replace this element.
Let’s look at another one:
Sample I nstructions 2
Civil Procedure Final Examination
DIRECTIONS — IT IS VERY IMPORTANT THAT YOU READ THESE DIRECTIONS CAREFULLY AND UNDERSTAND THEM FULLY!
These questions are “open book.” You may use any of the course materials (including materials posted on the course website), handouts, and notes you have taken in class in preparing your answers to the following questions. You also may use any hornbooks, treatises, or commercial outlines. The only limitation is that you work independently. Under no circumstances should you speak with, or look at the materials of, a fellow classmate.
Your student identification number, as well as the name of the course and the date of the exam, should be placed at the top of the first page of your submission. DO NOT PUT YOUR NAME, OR OTHERWISE SUGGEST TO ME WHO YOU ARE, ANYWHERE IN YOUR SUBMISSION. Any adjustment to your final grade for class participation will be made after I complete the grading of your examination answers.
If you wish to cite to a case, you may use any coherent short-citation form.
GOOD LUCK AND HAVE A GREAT BREAK!
Let’s look at one final set of instructions, then answer the questions that follow.
Sample Instructions 3
Directions: You will have 90 minutes to complete this exam. I have given suggested times for each section. You are allowed one (1) page, front and back, of notes. Please complete the multiple choice on the provided scantron, and complete the written portion on Exam4.
Please provide your name on both the scantron and Exam4.
Suggested Times: Essay 1, 30 minutes. Essay 2, 60 minutes.
Interactive Questions: Reading Exam Instructions – Part 2
The original version of this chapter contained H5P content. You may want to remove or replace this element.
This might seem silly. I appreciate that you think I’m probably asking you obvious questions, that amount to basic reading comprehension. And they are! But the truth is that plenty of bright, literate, student exam takers skip right over key directions. In fact, Sample Instruction 3 comes from an exam a colleague of mine gave a few years ago. The colleague was frustrated that three students answered the multiple-choice questions on Exam4, not the scantron. This meant that their multiple-choice answers were not counted! I believe my colleague went in and hand graded, giving them partial credit, but not every professor will do that. So you want to be diligent in reading instructions and creating a plan.
b. Read and Outline
Now that you are fully aware of the instructions, time constraints, and how you will balance your time, start on the first question. Take time to first read it as a story and get a feel for the facts. Then outline. This is different from the other outlining I’ve discussed. When you outline to study, you are synthesizing the law you’ve learned so you know how it all comes together. When outlining an exam answer, you are organizing your answer so you don’t miss anything. I know, you don’t have time to outline, but you can’t NOT outline. Think about how you want to organize your essay. Are all issues created equally? What is your plan to address all issues?
A good way to outline is to organize your facts as we discussed above. For example, think back to that table:
Rule Element
Facts For
Facts Against
Resolution
Self-propelled
Motor scooters have an engine and can move without “manpower”
Can also move with only manpower, meaning the rider can use their feet to get it to move
Which is the predominant use?
Not running on rails
No rails on a motor scooter
Runs over land
Can’t fly
You might notice that there isn’t much to talk about with “runs over land.” I mean, a motorized scooter certainly doesn’t fly in the air, so this feels obvious. But “self-propelled” seems to have more to discuss! So that means you will likely want to spend more time on the issue of whether a motor scooter is self-propelled than whether it runs over land.
If there are multiple issues, you can also use this type of chart to determine which issue requires the most time.
Speaking of issues, outlining will help you issue spot. You will hear this as a buzzword all around: that you need to “spot the issues” or “issue spot.” But what does that mean? Remember that a hypothetical is essentially a story. So your job is to read the story and determine the “issues” or questions to solve. A professor may ask you a very directed question, such as “Did Defendant commit murder?”, in which case, your issue-spotting just got much easier! However, it is more than likely that the professor will end the hypothetical story with “What are the rights of the parties?” or “What crimes can Bob be charged with?”
This means that a large part of earning points on your exam is figuring out what issues, or legal problems, to solve. Everyone tackles this in a slightly different way. However, I suggest taking one of the two methods described below and making it your own.
Issue Spotting Method 1: The Checklist
In doing the outlining that I mentioned above, you can create a mini-outline or “attack outline,” which is what I just call a checklist. Essentially, it should be a one-page list of the types of law you covered. For example, in a torts class, you are going to cover various types of torts. Therefore, your checklist might look something like this:
1. Intentional Torts
a. Assault
b. Battery
c. False Imprisonment
d. Trespass
e. Trespass to Chattels
f. Conversion
2. Negligence
Note that this is an incomplete checklist, and the complete version will look different depending on your professor and class. The idea is that if I have this memorized, I can quickly go through the fact pattern to see if any of the torts show up. Part of your checklist might also be to add in “activating facts.” What I mean by that is, if you are looking for an assault, or a battery, what are you looking for?
For example, for battery, I might know that I need a person in the fact pattern to touch another person, so I’m indicating that in my checklist. I can go through the story and think, “Alright, is anyone touching someone else? If so, could that be a battery?” Similarly, trespass requires land or entering the land of another. Is that showing up in the facts? Adding these types of “activating facts” to our checklist might look like this:
1. Intentional Torts
a. Assault
b. Battery – touching of another
c. False Imprisonment
d. Trespass – someone entering land
e. Trespass to Chattels
f. Conversion
2. Negligence
Issue Spotting Method 2: The Factfinder
You can also do the reverse of the checklist: use every fact given to see if it triggers an issue. For example, pretend that this is part of an exam:
At the local bar, Bob saw Jim and thought, “Hey, Jim is looking at me funny.” So, Bob walks up to Jim, and punches him in the face.
You might not immediately know what tort is involved, but you can think “Hey, Bob punched Jim in the face, that’s gotta be something, right?” and you would indeed be correct! It IS something. Ideally, you would want to know that it is likely battery, but if that’s not coming to mind right away, it can be important to set aside the fact and mention that it’s likely a tort.
Similarly, why is the fact pattern telling you that Bob thought Jim was looking at him funny? Is that important? Could that be a factor in the analysis? It might be! Which brings us to our next step…
c. Analyze!
At this point, you’ve read the instructions as well as read through the hypotheticals presented and started organizing your answer by outlining. Now it is time for the analysis—the most important part of your essay. As a reminder, this is where you explain how and why you reached a certain conclusion. This is the part where you think like a lawyer, so to speak. This is also, as you plan your time, where you want to spend the bulk of your time. Some professors also call this “applying the facts” or “applying the rule.” It all means the same thing.
It’s also not uncommon for this to be what students struggle with the most. It’s easy for me to say “apply the facts” over and over again, but it’s trickier than it sounds.
Let’s start by organizing and making sure we use all of the facts in a hypothetical. Those of us who teach law—we aren’t creative. I mean, some of us are, and we probably like to think we’d all be fantastic novelists, but let’s face it—we aren’t. Since I’ve been teaching on Zoom, my husband will hear students laugh from time to time. I end up incredibly proud, telling him “See, they think I’m funny.” His response is always “You’re only funny for a law professor.” Ouch. I’m telling you this because when we write exams we aren’t building worlds or trying to create interesting characters or backstories. Most of us actually write exams backward; first, we think of the law we want to test, then create the facts that will support that. This means that every single fact in your hypothetical is important. When I meet with students that didn’t do well on their exams, one of the main issues I see is that they aren’t using enough facts.
To think about organizing facts, let’s use two charts from a good friend and colleague, MaryAnn Hermann. These charts are also referenced above.
So, now that you’ve spotted the issue and identified the appropriate rule, let’s break it down. Start with the rule’s elements and think of each element as something you need to prove or disprove. Every rule you are given in law school will have parts; just note that some are easier to find than others. After you’ve established the element, you want to “match” a fact with that element. Then, think about if there are multiple understandings, and if so, how you might resolve the multiple understandings.
Here is what I mean by multiple understandings. Let’s say the rule element is “unforeseeable event” and the fact that “matches” with that element is “snowstorm in late March.” Now, one understanding of that might be that it’s unforeseeable—no one expects snow in late March! However, I’m currently writing this from Michigan, where we absolutely expect snow in late March, and sometimes even April. So the multiple understandings of the fact might come from where you live or the weather you are used to. You can also look for other facts in the hypothetical to help you resolve the multiple understandings; does the hypothetical tell you anything about the climate or geography of the place?
Rule Element Fact Understanding A Understanding B Resolution
Another approach is thinking of “facts for” and “facts against” a rule element. I like to think of it as proving or disproving an element. If the element is “intent,” are there facts that prove intent, or are there facts that disprove it?
In some instances, you will only have facts for, or only have facts against. However, in some instances, you will have both, and again, you need to resolve this issue and come to a conclusion.
Rule Element Facts For Facts Against Resolution
Now, turn those charts into an analysis using the format I gave you above. Remember, it’s typically “Because FACT and FACT, rule element was met” or “When FACT, that satisfied RULE ELEMENT” or “RULE ELEMENT was met because of FACT and FACT.” The key is that you are pairing the facts with your rule in a very clear way.
Now, all of this was merely an overview, and certainly a lot to take in. There are more opportunities for practice! Here are some related CALI Lessons:
All of these will help you get on the right track. The key to all of this is to be active, not passive. No exam will ask you to recite memorized facts or merely explain a rule. Therefore, preparing for exams has to involve practice, not merely “review.”
1 Hermann, MaryAnn. “A Step-by-Step Method of Teaching Legal Reasoning.” Midwestern Academic Support and Bar Programs Conference. Chicago, 2018. | textbooks/biz/Civil_Law/A_First_Generation's_Guide_to_Law_School_(Hale)/1.05%3A_Preparing_For_and_Taking_Exams.txt |
In law school, similar to your undergraduate experience, you will have opportunities to engage in extracurricular activities. Law school extracurricular activities tend to be valuable for career planning and are often directly related to the practice of law.
I. Why Get Involved?
It’s a good idea to choose one or two activities that appeal to you, since they are all ideal ways to network, find mentors, and add interest to your resume. They also provide different types of foundational skills that you might need in your career. Essentially, extracurricular activities are a part of your professional identity development, and they can impact your developing professional reputation. I discuss specific activities below in greater depth, but for example, joining a publication will help you build research and writing skills while participating in mock trial will help you develop your litigation skills.
Finally, they are opportunities to get to know your peers, alumni, administration, and faculty outside of class, which can be beneficial for many reasons. Studies1 have shown that students who are more actively engaged in the law school community tend to have overall better mental health and excel in classes. Because of this, I encourage you to find at least one law school activity that appeals to you!
With that in mind, be thoughtful in selecting activities because it’s easy to get overwhelmed and try to do too much. That is not a great idea. Law school coursework will keep you busy, and you want to be cognizant of that. You don’t want to overextend yourself. Moreover, these extracurricular activities are often viewed as professional commitments, so you want to make sure you can really commit the time needed for any given project. It is likely best to start slow when engaging with extracurriculars to make sure you can handle both the activities and your coursework. First-year students often underestimate the time commitment of law school and take on numerous extracurricular obligations, prioritizing them over academics. This can often have a negative impact on grades, which counteracts any potential gains from the extracurricular activities. Spreading yourself too thin, and joining too many organizations, can also make it difficult to demonstrate your commitment to one activity or group, and can also make it more difficult to pursue leadership opportunities in that organization.
You will have time during your first year to find out more about the different organizations that are available at your school. Any organizations that you join during your first year will likely not be a huge time commitment; the organizations might have meetings or events you can attend, but will not likely expect a full commitment. You should also note that while your law school may list quite a few organizations, some schools boasting close to 100, not all organizations are equally as active. This is something else you can investigate during your first year. You will have more opportunities as a second-year student to join competition teams, journals, or run for executive board positions in different student organizations. These upper-level opportunities are great ways to show leadership and areas of interest to future employers, but also come with added responsibilities and are a larger time commitment.
II. Student Bar Association
Your undergraduate school may have had a Student Government Association, or SGA. This organization was likely comprised of students elected by the student body to govern them and represent them to the administration.
Similarly, law school has a Student Bar Association, or SBA. The organization is made up of students elected by the law school to be the president, vice president, secretary, and treasurer, among other positions. There is also typically an election for class representatives, so that each class year (such as 1L, 2L, and so on) have representation as well.
The SBA typically governs other student organizations on campus, acts as a representative to the administration, advocates on behalf of student concerns, and plans events. The SBA will also have a connection to the American Bar Association (ABA)—a national association—through its Law Student Division. Again, this provides many potential opportunities.
The ABA, as well as other, local bar associations such as those at the state and city levels, have opportunities for students to become members and often have discounted student rates. They can provide great local networking opportunities if students plan to stay in the area and want to meet local practicing lawyers. Some association entities, such as commissions and committees, also offer the opportunity for student representation. Involvement at this level offers law students a front-row seat to legal developments in a particular legal interest or area of law.
While I mentioned above that most organizations make you wait until your 2L year to get fully involved, your SBA will likely have one or two first-year representatives, meaning you have the opportunity to get involved in the SBA right away. In addition, the events that the SBA plans, as well as their meetings, are open to all students. Even if you don’t plan to run for SBA office, keeping track of what they are doing, or going to their meetings, is recommended.
III. Affinity Groups
Most law schools also have affinity groups, such as the First Generation Law Student Group (FGLS), Black Law Student Association (BLSA), Latinx Law Student Association (LLSA), Asian-Pacific-Alaskan Law Students (APALSA), a Women’s Law Caucus or Women’s Law Group, Jewish Law Student Association, Christian Law Student Association, Muslim Law Student Association, OUTLaw (LGBTQIA+ students), Disability Law Students, Veterans groups, and so forth.
These groups typically plan events, bring in speakers, and provide networking opportunities for their members. Some might also have formal mentoring programs in place. Some of these groups are affiliated with national organizations and plan larger-scale events with groups from other schools. Some affinity groups also attend national conventions, which can be a great way to network. Law students have the opportunity to become members of—and seek leadership roles within—affinity groups at the national level, as well.
If you are interested in affinity groups, be on the lookout to see if these groups do anything before your law school orientation. For example, the First Generation Law Student Group at my school often reaches out to first-generation students prior to orientation, and they typically host an event for those students during orientation. Other affinity groups often do the same, which can be a great way of meeting classmates and upper-level students.
Unlike competition teams or publications, affinity groups will allow you to join just as a member during your 1L year, meaning the time commitment might not be as high. Many students continue their membership during their entire law school career and often serve in executive board positions (such as president, vice-president, etc.).
If there isn’t an affinity group for you, start your own! My law school used to be for women only. When a few of us discovered this in our first year, we were ecstatic. We also found that, ironically, the Women’s Law Caucus had been defunct since the 1970s. We decided to remedy this and brought the group back to life during our 2L year. In addition, the next student and student group featured below were my inspiration behind this book!
IV. Professional Interest Groups
At many schools, there are also student groups focused on specialty interest areas, such as entertainment law, environmental law, public interest law, immigration law, disability law, education law, health law, and other areas of practice. Similar to the affinity groups, they might host speakers or plan networking events. There may also be an overlap between the professional interest groups and affinity groups. You can generally join these groups as a member during your 1L year.
Schools also typically have honors organizations, such as Phi Delta Phi and Phi Alpha Delta. Phi Delta Phi is the oldest legal organization in the United States. Phi Alpha Delta is an international professional law fraternity and the largest legal organization in the United States. Both of these organizations are good networking opportunities. Organizations of this type will usually hold information sessions or meetings where you can learn more.
V. Law Review and Law Journal
If research and writing is something you enjoy, a law review, or law journal, might be ideal.
A law review or law journal is a scholarly journal or publication. Almost every law school has at least one publication, and some have multiple. Generally, there is a flagship general journal, and many schools also have one or more subject-specific journals. The flagship journal may be called a law review or a law journal. The flagship publication tends to have a broad, or general focus, while the other publications tend to be a bit more specific. For example, there are journals that focus just on environmental law, business law, criminal justice, intellectual property, international law, and more!
Students run and edit these publications, while the articles are authored by law professors and scholars from around the country. In the legal profession, these are the publications that practicing lawyers, professors, and judges use for research. They are the scholarship of the profession.
The summer after your first year, you will have the opportunity to “write-on” to join a law review or law journal, with each school and publication having a different method of choosing the students that join. Some schools have grade requirements, while others have a writing competition—and some schools have a combination of both.
If you join, because you are responsible for editing articles, you will spend considerable time checking the sources of the submitted article, which will help you fine-tune your legal research skills. An additional responsibility will be writing your own article, or “note.” Each publication typically chooses one to two student articles to publish, but even if your article doesn’t get chosen for publication, it can be a very good learning experience and can serve as a professional writing sample. In your third year, you may be given an opportunity to join the editorial board.
Joining law review or journal is a great way to fine-tune your legal research and writing skills, as well as your editing skills. Because of this, it is often a great extracurricular activity if you want to potentially clerk for a judge or join academia. Keep in mind that joining a publication will be a significant time commitment and a considerable amount of work, but it is often worthwhile for both the experience and the impact on your resume. Most law schools will offer academic credits for being on law review or journal, which count towards graduation requirements, but this varies from school to school.
Exploration Exercise: Law School Publications
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VI. Competitions: Mock Trial, Moot Court, Dispute Resolution
Law school also gives you the opportunity to try out for competition teams. Most schools offer different kinds of competition teams to hone different skills; among them are mock trial, moot court, and dispute resolution teams. Depending on the school you attend, there may also be client counseling, negotiation, arbitration, and other “lawyer” skills competition teams. The opportunity to try out for these teams typically arises the summer after your first year. The competitions allow you to practice your advocacy (i.e., lawyering). Schools may also offer credit towards graduation for being on competition teams.
Moot Court: Moot court focuses on appellate advocacy. Remember in the chapter about reading, we discussed how many of the cases you will read will be appellate opinions? This means that they were not written as a result of a trial, but rather, the decision at trial was appealed. That means that the losing party asked the appellate court, or the court above, to review the case. In an appellate case, there are no witnesses and no new evidence is presented—everything is based on the proceedings that occurred at the trial level. Instead, both parties prepare written documents called briefs and have a set amount of time to argue their position. A good example of an appellate court is the Supreme Court of the United States.
For moot court teams, students are presented with a problem that they will argue in front of a judicial panel, usually comprised of three judges. While the students present their arguments, the judges will usually pepper them with questions. Students have to defend their position while presenting case law in support of their argument. Students who compete in moot court typically also have to write a brief in support of their argument for either the petitioner (the party asking for a lower court ruling to be changed, also referred to as the appellant) or for the respondent (the party asking for the ruling to remain, also referred to as the appellee). Being on a moot court team is an excellent opportunity to hone your legal research and writing skills, and is frequently seen as a prestigious accomplishment. In addition, arguing a case while having to think on your feet and answer questions is a great way to practice your advocacy skills. Finally, as many of the judges are local practicing attorneys and judges, this is another great way to work on networking.
Mock Trial: Mock trial is exactly what it sounds like: a pretend trial. Most will already be familiar with mock trial based on what you have seen on TV and in the movies—a lawyer presenting a case on behalf of a client and questioning witnesses in front of a judge and jury. Different schools have different systems for mock trial competitions, and some have extensive try-outs to select competitors. Some will have just a few, select teams; others will allow students to form multiple teams. Some schools will compete in regional, national, and even international competitions, while others will have internal competitions.
Typically, each competition “round” consists of four students total, with two students acting as attorneys or witnesses for each side. There also may be volunteer witnesses. Every team in the tournament is given the same “problem” or case to work on, sometimes months in advance, though it will depend on the competition. Being on a mock trial team is usually a big time commitment, with many hours of practice to prepare for competition.
These are great opportunities if you are interested in being a trial or litigation attorney, meaning you are interested in practicing the type of law that requires trials. Not only does this type of extracurricular activity help immensely with the skills you will need for trial work, but it will also be appealing to future employers and a great source of networking.
Dispute Resolution Teams: At some schools, you will also have the opportunity to take place in dispute resolution competitions. Dispute resolution is how we typically refer to things such as negotiations, mediation, or arbitration. It is essentially resolving a dispute without going to trial. However, they still involve a lawyer, and these competitions will judge your skills in that area.
If you were like me entering law school, you might be thinking “What on EARTH does mediation mean?” Mediation is when parties decide to hire a neutral party to facilitate a conversation and help resolve a dispute, rather than proceed with a trial. Arbitration is when the parties hire one to three neutral people to decide a matter, so it’s not a trial but is often binding like a trial. This means that mediation is a facilitated conversation, whereas arbitration leaves you with a final decision. Negotiation happens in various areas of law, whether it be negotiating a contract, or a settlement. These are skills that lawyers use every day, no matter the area of law you choose to practice in. This also makes them valuable skills in both traditional and nontraditional legal jobs.
Some law schools offer credit for being on one of the competition teams, but not all do. There are dispute resolution teams all over the country who compete with each other in regional, national, and international competitions. In fact, some schools have teams specifically devoted to a specific area of law, such as sports law negotiation or international commercial arbitration.
Exploration Exercise: Competition Teams
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VII. Teaching Assistants/Tutors
Most schools have opportunities for 2L and 3L students to be teaching assistants or tutors. Each school has a different method for choosing these students. If your school utilizes teaching assistants or tutors, you will notice that the tutors will show up in your first-year courses and they will frequently host review sessions to answer questions.
Tutors or teaching assistants typically work closely with your professor to help provide guidance and feedback to first-year students. These students are also fantastic mentors! In return, the teaching assistants or tutors typically receive payment or course credit for their work. Being a tutor or teaching assistant can also be included on your resume.
If this is a project you might be interested in, talk to the teaching assistants or tutors you meet during your first year. Ask them about their responsibilities and how they were selected.
VIII. Research Assistants
Law school may also provide the opportunity to be a research assistant for a professor. At any given time, most of your professors will be working on their scholarship, which means they are doing research in order to write a law review article or work on a book. They will often want to hire research assistants to help them with these projects. This can be a great opportunity to work closely with a professor that you admire, especially if you are interested in their area of research. It may also be a paid position or a position for academic credit, which is a bonus!
Typically, professors seek out 2L and 3L students from the classes they teach. Some schools might have a formalized process for this where opportunities are posted, but others have a much less formal process. If this is something you are interested in, make it known to your professors.
IX. Study Abroad
While not strictly an extracurricular activity, most law schools offer study abroad programs. These are typically offered during winter or summer break, and provide opportunities to take classes and earn credits in a unique or interesting setting. If you are interested in studying abroad, but your law school doesn’t provide a program, check with your administration (or student handbook) to see whether you can participate in another school’s program and transfer the credits.
This can be a costly endeavor, since it may involve international travel. Look into the various programs your school might offer and do not hesitate to talk to financial aid about whether loans can help to assist with the cost.
X. Presentations, Panelists, Conferences, and Symposiums
You might notice that there are constant announcements for things happening at your law school, whether it be a guest speaker, symposium, panel, or another similar event. I would recommend that you make an effort to attend some of these, especially if they line up with your interests. Law students frequently come to law school with either a firm idea of what they want to do with their law degree (and that can change), or they have no idea what they might want to do or what options are available to them. In general, extracurricular activities are a great way to explore various areas of law. Specifically, listening to guest speakers and attending events are a great way to explore what types of law and practice are out there, and what might interest you.
These events might be put on by professors or student organizations. For example, the school’s law review might hold a symposium and invite the professors that published pieces in the law review to speak about their research. Affinity groups or professional interest groups might provide relevant speakers, or hold a panel discussion on a current topic of interest. These are all great ways to learn more about the areas of law that interest you, as well as network!
Your school might also host conferences or continuing legal education (CLE) events. While these are typically geared towards practicing attorneys and professors, they might need student volunteers. Again, this is a great way to get involved, learn more about an area of law, and network. For example, my school regularly hosts a Women in Litigation Conference and an Antitrust Colloquium. While these events are geared toward practicing attorneys and professors, the faculty members that plan them use students to register participants, help the speakers, and generally volunteer at the event. In return, students get to meet people who are in their area of legal interest, and sit in on discussions they might find interesting. It can also be a great boost to your resume and is another way to get to know your professors outside of class.
XI. Conclusion
Now that I’ve gone through the various types of activities you can engage in outside of class, what might you be interested in?
Jot down a few of these groups or activities that interest you now, and make it a point to learn more about them in your first semester. At the end of the semester, come back and revisit this list to determine if your interests are the same or have grown or evolved as you have broadened your exposure to the practice of law.
Remember that law school involves more than just the classes and you get out what you put in. That means that being involved and engaged will be good for your mental health, good for your sense of community, good for networking, and good for your resume. It’s a win all around!
Now for a little mini quiz!
Interactive Questions: Extracurricular Activities
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1 LSSSE, or the Law Student Survey on Student Engagement, finds that year after year engagement benefits law students. Deo, Meera E, Jacquelyn Petzold, and Chad Christensen. Rep. LSSSE 2021 Annual Report: The COVID Crisis in Legal Education, 2021. https://lssse.indiana.edu/wp-content...al-1.24.22.pdf. | textbooks/biz/Civil_Law/A_First_Generation's_Guide_to_Law_School_(Hale)/1.06%3A_Extracurricular_Activities.txt |
I. Exams Required for Licensure
In addition to graduating from law school, in order to get your license and start practicing law, you’ll have to take two other exams—a state bar exam and the Multistate Professional Responsibility Exam (MPRE).
a. The Bar Exam
Almost every state1 requires that to be licensed to practice law, you must pass that state’s bar exam. Currently, as of 2022, the bar exam is a two-day exam consisting of essays and multiple-choice questions. However, there is a chance that the format might be changing soon. For any up-to-date information about the bar exam, deadlines, applications, and so forth, please see your jurisdiction’s website2 or visit the NCBE’s website.
Each state chooses how to license its attorneys, and most use a “bar exam” to do so. Each state gets to decide what this exam looks like, as well as how to grade it. However, for every state, the bar exam takes place in the last week of February and July. This means that if you graduate in May, you will likely take the bar exam two months later in July. If you do not pass, your next chance to take the exam will be the February of the next year. Most states have a two-day exam, and most use both multiple-choice and essay questions. In fact, many states currently use the “Uniform Bar Exam.”
“I had never thought about actually becoming a lawyer. I just knew I wanted to go to law school. My friends in law school had to tell me that if I wanted to be a lawyer, I had to take the bar exam, and I had to apply to take it. I spent my 3L spring scrambling to fill out the application and figure out how to afford a bar review course.”
-Professor C.
b. More on the UBE
The Uniform Bar Exam, or UBE, is currently the most common bar exam. Over 40 jurisdictions have adopted the UBE,3 meaning that those jurisdictions are all using the exact same test with the exact same questions. The UBE is administered on the final Tuesday and Wednesday in July and the final Tuesday and Wednesday in February. On Tuesday, the test consists of two “multistate performance tests,” where the examiners give you a task and a “file” and ask you to draft a legal document in the morning, and six essay questions in the afternoon. On Wednesday, the test consists of 100 multiple-choice questions in the morning, and 100 multiple-choice questions in the afternoon.
Each state gets to determine its passing score, as well as its grading.4 Each jurisdiction also gets to decide requirements for who gets to sit for the bar exam.
A feature of the UBE and its widespread adoption is the transference of scores; for example, if you take the bar exam in Illinois, you can transfer that score to other states without taking the bar exam again. This is great news if you aren’t sure where you want to practice right away! Of course, your score must meet the definition of “passing” in the transferee jurisdiction for it to permit you to practice there. (Remember, different jurisdictions set different passing scores.) However, “UBE jurisdictions will accept transferred scores that meet their own passing standards whether or not the score met the passing standard in the testing jurisdiction, assuming all other admission requirements of the jurisdiction are met.”5 It should also be noted that each state has a different “expiration date” on the scores they will accept, meaning this portability only lasts a few years, not forever.
Whether you are taking the bar exam in a UBE district or a non-UBE district, you are likely going to have many questions about cost, timing, how to study, when to apply, and so forth. It is likely that your school will help you answer these questions, especially as you get closer to graduation, but I will try to cover some common questions below.
Does the b ar e xam c ost m oney?
You bet it does! It varies from state to state, but on average, the cost is about \$1,000 to sit for the bar exam. Some states might also divide the fees up in various ways, and I encourage you to check your jurisdiction’s website early to plan for this fee. In addition, look for deadlines, including early deadlines. For example, in Illinois, if you submit your application in full for the July bar exam by February 15th, the cost is \$950. However, if you wait until May, the final deadline, the price goes up to \$1450. In my opinion, this is a significant increase, so you want to be aware of whether your jurisdiction has these types of deadlines.
It is also likely that your jurisdiction will have technology or laptop fees. These can add up, and you don’t want to be surprised!
What are b ar r eview c ompanies? Do I need one?
There are commercial bar review companies that help you study for the bar. If you are anything like me, you are thinking “But wait, I’m going to law school, surely I don’t need a separate company to help me prep for the exam?” This is understandable thinking. However, it has been my experience that you DO need a commercial company to help you prepare. Some students do pass without them, but that is rare.
The companies can be costly: often \$2,000 to \$3,000. This is obviously not insignificant. My advice would be to look at various payment plans that the companies offer and check to see whether your school has a plan in place with one of the companies. Some schools get discounts or can help you with payment plans. Additionally, signing up early can sometimes help you save money. The downside is that it locks you in, so to speak, earlier than you might like.
My second piece of advice is to start budgeting for the bar exam in your first year. I know it’s hard, but it’s easier to start three years in advance than worry about coming up with the money in your final semester.
My last piece of advice here is to seek out opportunities to become a student representative for a bar review company in your first year. Typically, these companies “table” at law schools, meaning they set up in your law school’s lobby or other common areas and try to sell you on their company. While being a student representative for a bar review company does require some work, including spending time at their tables and recruiting your classmates, it often means you get a bar review course for free in return. This is the path I took because I really didn’t have the \$2,000 to spend!
How long do I need to prepare for the bar exam?
I usually recommend that students spend about 10 weeks studying for the bar exam. However, this assumes that you can spend about 50 hours a week studying. If you work full time or have family obligations, this isn’t realistic. If that is the case, you need to think about studying earlier. You also know yourself and how your brain works. If you are someone that needs more breaks, does better taking weekends off, or has other obligations that summer, starting a bit earlier will give you room to do all of that. For example, I often get migraines. This means that on a migraine day, I will not get anything accomplished. So, if I were planning out my study schedule, I’d start a bit early to account for the fact that I’m likely to get at least two to three migraines in those 10 weeks and lose valuable study time. Plan ahead so you can tailor the schedule to fit your needs.
My school has a weekend JD program, and those students work full time and often have families. For those graduating in May, I start them on a study plan in January, while they are still taking classes. This just helps give them a head start. Even if you aren’t working full time, if you start studying a bit earlier, you are giving yourself more time to take breaks closer to the exam.
In your second year of law school, I’d seek out your administrator or professor that is in charge of academic support or bar preparation and see when they suggest you begin your studying. If you work full time, I’d also reach out to the bar companies and see which one has the best format for your work schedule.
What is Character and Fitness?
Each state requires you to submit a character and fitness application with your bar exam application. This is essentially a background check. They will ask you for all past addresses, employment, driving records, and more!
Keep in mind that it is always better to disclose than to not disclose. When in doubt, let them know! Each state’s application is slightly different, but they are all looking for candor in the application. Even though you are just starting out, and applications aren’t likely due until the spring of your final year, there is no harm in downloading a copy of the application now and being prepared.
I can’t emphasize enough how important it is to disclose, as the act of ignoring or misleading bar examiners is worse than the actual act you didn’t want to disclose. Many schools will also discuss your concerns with you, sometimes even before admissions, and discuss ways to handle things that you might be concerned about.
A note about d eadlines:
Each jurisdiction will have its own deadlines, and these deadlines are firm and without exceptions. Some states require you to start the application process in your second year of law school.
If you know where you want to be licensed, go to that website now and note the applicable deadlines.
c. The Multistate Professional Responsibility Exam (MPRE)
There is yet one more exam that most states6 require for licensure: the Multistate Professional Responsibility Exam (MPRE), or ethics exam. The MPRE is currently 60 multiple-choice questions that test the Model Rules of Professional Responsibility. This covers things like duties to clients, how lawyers are required to handle client money, our duty of confidentiality to clients, our duties to the profession, and so much more.
Some states require that you take this exam prior to sitting for the bar exam, though most only require that you take it before you are sworn in. It’s important to check these deadlines as early as your 2L year so you can plan accordingly.
The MPRE is offered in March, August, and November. I usually suggest that my students take the exam in the summer prior to their final year of law school, though it completely depends on your schedule.
Exploration Exercise: The Bar Exam
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II. Family Matters
If you are the first in your family to go to college, you might find it difficult to find people in your family that can help you navigate higher education. This is especially true for law school. That’s why I wrote this book, to help you with that navigation. However, something that doesn’t get discussed as much as how to read and brief cases, or how to network, is how to talk to your family about what you are going through.
For example, my mother is very kind and very supportive. She has always been my biggest cheerleader. In fact, I’ve been licensed for 15 years and she still writes “Melissa, Esq.” on things like birthday cards and packages. She’s just that excited for me. This is often the case with first-generation families.
However, once upon a time, she didn’t know what Esq.7 meant or what the bar exam was—or anything related to law school. This often meant that, although she wanted to support me, it was difficult for her to do so as she didn’t know what I was going through. She couldn’t understand why I had to study for a bar exam after studying for three years of law school, and why I couldn’t work as a lawyer as soon as I had graduated. My mother also didn’t understand why on earth I couldn’t work and study, because after all, I had done that in the past. My mother and grandmother also kept saying “You’ll do fine, you always do fine” which means their heart was in the right place, but it wasn’t at all useful.
First of all, communicate with them. Below, I’ve written a letter to any parent or family member of your choosing. Revise as you see fit and then give it to whoever you think might need to read it. Second, share with them what is happening and take advantage of opportunities for them to learn more about your situation. Most law schools have family night events or an equivalent. Invite them if they are able to go! Most of your professors and administrators are happy to meet with them. I host a family night on Zoom for my first-generation students, and I invite my mother. The idea is to allow the parents, spouses, kids, or other supporters to ask questions of both me, and my mother! We also invite other school professors and administrators so that they can chime in as well. The more your family knows, the better they can understand and support you. If they can’t get to your school for events, I fully understand. My mother was halfway across the country from my law school, so she wouldn’t have been able to attend events or orientations for family. But I often shared experiences, concerns, and even the ins and outs of my day with her, and this helped her figure out how to support me.
Finally, don’t be afraid to set boundaries. As I’ve mentioned before, tradition and a support system can be key to your well-being. You should not stop communicating with or seeing everyone you care about—you need them! However, I encourage you to let your family know that you might need to decline events or might not be able to talk as much as you used to. Before law school, I called my grandmother daily. Probably twice daily if I’m being honest. This was a habit that started as soon as I could dial a phone and continued through college, no matter what was going on in my life. Even on vacation, I’d find time to check in. So, when I started law school, I had to say “Honey (we called my grandma ‘Honey’) I am going to be very busy and won’t be able to call you every day, so don’t worry about me. I’ll still call you when I can, I promise!” Turns out, I called her more than I thought I would, close to every day, but telling her that she shouldn’t expect a daily phone call was incredibly important for setting expectations for both of us. You might also still have family events or holidays that come up, and it’s not practical to attend or participate the way you used to. I missed family Thanksgiving all through law school. My parents and grandparents were bummed, but I just couldn’t afford (nor could my parents) to travel at Thanksgiving, Christmas, AND spring break. So, I picked Christmas, and that was my yearly trip home, for the most part. It also meant missing things like birthdays and other family gatherings. It was hard at times, but setting expectations helped everyone come to an understanding. It also meant that family knew not to push when I said no. They may have the temptation to say “but you are good at time management” or “surely you don’t need to study even MORE, you are so smart”—these are things family members often say! However, if you explain that this is different from before, they are less likely to push you when you say no.
As I mentioned earlier, to help, I’ve written a little letter for you to share that you can modify to fit your needs:
Sample Letter to Your Family
Dear First-Generation Family,
Hello! I was a first-generation law student, and am now a first-generation lawyer and professor. I just want to tell you some things I wish my parents and grandparents had known as I was starting law school.
First, I know you are so proud of your family member as they enter law school. You’ve also likely seen them accomplish so much over their life. However, please understand that law school can feel like an entirely different world where everything is new. This means that your high-achieving and successful family member might stumble a bit from time to time, and that’s okay. Please refrain from saying things like “you’ll be fine” or “you always do well on exams” and other things that are similar. You mean well, and you want to be encouraging. My mother and grandmother, on a regular basis, used to say “but you’ve never ever failed anything, so you’ll be fine.” It was meant to reassure me, but instead, it put added pressure on an already stressful and anxious situation. Instead, tell them that you understand this is new and maybe even terrifying, but you know that they will do their best and that you will love them no matter what. It might seem obvious, and you might not think you need to reassure them in that way, but it will probably do wonders!
Now, the issue of work. It’s fairly common for first-generation students to work through high school and college, so it’s tempting to work through law school as well. In fact, it might be necessary. I have students that work and go to school, and they make it work. However, if I’m being completely honest with you, it makes things so much more difficult. In fact, the American Bar Association strongly advises against working during a student’s first year. Studies show that students who work often don’t do as well, especially in their first year. This is difficult if your family is like mine. I’m not going to tell your family member to not work, I’m just being honest about the reality. In addition, there are often opportunities to do unpaid internships or externships that become time-consuming, but can provide invaluable experience and networking and can often lead to jobs after law school.
Next, the bar exam. Your family member will have to take a licensing exam roughly two months after graduation. They are not a lawyer until they pass this exam, and are sworn in. Though the timeline may differ slightly, typically students graduate in May, take the exam in July, find out they passed anywhere between late September and early December, and get sworn in from the end of November until the end of December.
This means that even though they have graduated in May, it can be another six months before they are licensed and can call themselves an attorney. This also can mean six months without a job, which is scary. While some firms and organizations hire prior to this, not all do. I point this out because my mother didn’t believe me when I told her I couldn’t actually practice law upon graduation.
It should also be noted that the bar exam typically requires about 500 hours of study over 10 weeks. That’s a full-time job! It’s an incredibly intense and difficult two-day exam. Students will take a commercial prep course to study, even though they have been studying for three years. Again, something my mother couldn’t quite believe. But I promise you that in order to succeed on the bar exam, a commercial course and 500 hours of study are normal and highly recommended. In addition, both the bar exam and the commercial course can cost a considerable amount of money.
One last thing about the bar exam: it’s especially important that you don’t tell your family members things like “of course you will pass” or “it’s only a test.” So much hangs in the balance, and smart, studious, hardworking students have failed and have to take it again. This can be heartbreaking, but does not mean they won’t be a good lawyer!
Finally, be understanding if they don’t have as much time to spend with friends or family, or they have to decline family events. Law school is intense and time-consuming, and the best thing you can do for your family member is to just listen when they want to talk, and understand when they can’t.
Sincerely,
Professor Melissa Hale
Finally, when I say “family,” I’m aware that can look very different, depending on the person. So I give you these words of encouragement:
“I started my college journey 14 years after most people. Not only was I already in my thirties, I had only completed a sixth-grade education. To say I was scared of failing was an understatement of the century. I was a foster child, and with no parents to tell me how important getting my education was, I slowly slipped through the cracks and lost all sight of my dreams. Finally, I made a decision to stop letting fear control my life. I was tired of just surviving, I was set to thrive. I had to prove to my son that no matter where we came from or what challenges we had to overcome, hard work and determination ruled the day. Before I could even begin the journey, I had to get my GED so I could get financial aid. I remember the day I took all four tests and passed. I remember the joy and pride that filled my soul as I got one test score back between each exam. That same day, with tears in my eyes, I walked into Tulsa Community College, applied for admission, enrolled in classes, filed my financial aid application, and started the process to join the TRIO program. My challenges did not magically stop because I was in college. I had to find a way to be a mother, wife, employee, and full-time student. Six months in, I found myself struggling with imposter syndrome. I was alone, even when surrounded by people who were cheering me on. Add on the coursework, the lack of hours in a day to get everything done, missing my son’s baseball games for class, and the monetary cost of being a college student. It all became too much for me and I attempted to take my own life. Thankfully, by the grace of God, I survived and found a support system that was able to teach me coping skills for when life got hard again. In May 2021, three years after the attempt on my own life, I graduated from Northeastern State University with a 4.0 GPA. I had obtained an Associates in Business and a Bachelors in Psychology. The same month, I was accepted into five of the six law schools I applied to, including the University of Montana. While I still struggle with imposter syndrome and trying to find my place amongst generational college students, I know when I succeed, I am setting the precedent for other low-income, first-generation students to do it too. I am using my time at UM to advocate for First-Generation support, specifically at the graduate school level. All students should know they belong in higher education.”
-Bethany Niman
III. Finances
I’m not a financial advisor, and I don’t even play one on tv. So, my best advice will always be to consult with your financial aid advisor. Having said that, below are a few things to keep in mind.
Law School is Expensive
I am very much in favor of people going to law school, and will always encourage people to do so. However, the fact remains that tuition is expensive, and most of us have to take out loans to pay for that cost. When taking out loans, really pay attention to repayment options and how the interest will add up. Also, look for scholarships. I chose my law school because they offered me a full scholarship, which is a completely legitimate reason to choose a particular law school. Also, look at job prospects. Don’t assume you will be making a large amount of money right after graduation. Look at the average attorney salary in the area, and especially concentrate on what graduates of your law school or your planned law school do for work and how much they make. Salaries will vary greatly from geographic region to geographic region, and they also vary between areas of practice (type of firm, type of law, private versus government attorney, public interest, and so forth). Also, note that different cities have different costs of living, so don’t forget to factor that in.
Finally, working and completing a full-time program is difficult. It’s incredibly difficult. My loans are simply because of the cost of living in a major US city. Don’t overlook weekend and evening programs. I won’t lie, it’s incredibly difficult to work full time and go to law school at all, but weekend and evening programs will provide greater flexibility and allow you to work.
Hidden Costs
These costs aren’t hidden so much as things that you will be unaware of if you haven’t had much interaction in the legal community. First: books. They are typically very expensive. You can find used ones, but even they can be costly. Also, you’ll want to factor in supplements. While the school library can be a great resource for free or low-cost books and supplements, that’s not always the case. You might also want to look to see whether your law school has a book exchange program, often organized by the SBA. Finally, sometimes you can find a way to rent books, which can still be costly, but it is less than if you have to buy them outright.
As mentioned above, the bar exam is also costly. There will be a cost to register for the exam (roughly \$1,000 depending on the jurisdiction), the cost of a commercial preparation course (roughly \$3,0008), the cost of studying itself as you can’t work, or can’t work as many hours, and things like laptop fees. Again, for commercial bar prep courses, in your first year you may have the option of becoming a student representative for the company. Take that opportunity! It can mean a free course for yourself, so jump on that if you can! Sometimes firms will pay for your bar review if you are hired in your third year. This is a great opportunity, but doesn’t happen with every legal job. Also, there are often scholarships provided by the bar companies from time to time if you do public interest work.
Speaking of hidden costs, be aware of the costs of technology. You likely will need a laptop for law school as well as the bar exam. If your current laptop is older, make sure it’s compatible with things like the exam software your school will be using. You can always check with your school’s IT department. Also, some schools have programs that allow you to rent various things like laptops, internet hot spots, and so on. This isn’t always the case, but it’s worth looking into!
Finally, don’t forget about things like clothing and professional cleaning for that clothing. You will need professional clothing, specifically suits, for internships, clinics, externships, and job interviews. These can be shockingly costly and add up quickly. My advice would be to first check with your law school affinity groups and SBA. Sometimes they have programs where professors and alumni donate suits to those groups, who then distribute them to members. Sort of a law school closet, if you will. Don’t discount things like Goodwill and outlet shops, which can have great options at low costs. Finally, it sounds obvious, but look at stores like Ann Taylor, or similar, and keep an eye on clearance and sales. I say this because at least once a year Ann Taylor has a great suit sale! Your career services office can also give you advice on what is appropriate to wear to interviews, as well as to any jobs. What is appropriate professional wear changes from industry to industry, and sometimes even within the industry from city to city and from job to job. For example, I’ve been in the legal community in Boston, New York City, Washington, D.C., and Chicago. While the differences aren’t shockingly different, the norm for professional dress does vary slightly. Moreover, what I typically wear on a daily basis to teach at a law school would likely be considered too casual for court or a large firm. This is why asking career services for advice will not be seen as out of place.
Finally, for all things financial, AccessLex has a variety of good programs focused on financing law school, repaying student loans, and budgeting for law school. They also have a scholarship databank that you should look into!
1 Wisconsin allows for diploma privilege, which means that if you graduate from a WI law school, you don’t have to take a bar exam in order to be a lawyer in WI.
2 Each state has its own licensing website. The NCBE provides a directory of all state’s websites, at https://reports.ncbex.org/comp-guide/directory/.
3 For a complete list of UBE jurisdictions, go here: https://ncbex.org/exams/ube/list-ube-jurisdictions.
4 For a list of minimum scores, go to: https://ncbex.org/exams/ube/score-po...inimum-scores/
5 “UBE Score Portability.” Uniform Bar Examination. National Conference of Bar Examiners. Accessed May 18, 2022. https://www.ncbex.org/exams/ube/score-portability/.
6 Not every state requires you to take the MPRE to be licensed, and not every state requires the same score. Currently neither Wisconsin nor Puerto Rico require the MPRE. For most up-to-date information on which jurisdictions require the MPRE, please go here: https://ncbex.org/exams/mpre/.
7 Esq. is short for “Esquire.” Esquire typically means you have passed the bar exam, and are licensed to practice law. In short, it’s another way of saying “Attorney at Law.” In the United Kingdom, esquire is a title of respect given to men, and historically means “next to Knighthood,” and was often given to landed gentry. So you can imagine how my husband’s English family reacts when I use Esq. after my name!
8 The companies tend to be BarBri (https://www.barbri.com/), Themis (www.Themisbar.com), Kaplan (kaptest.com) and AccessLex Helix Bar Review (https://www.accesslex.org/helix-bar-...focus_tools:15). | textbooks/biz/Civil_Law/A_First_Generation's_Guide_to_Law_School_(Hale)/1.07%3A_Family_Matters_Finances_and_What_the_Heck_is_The_Bar.txt |
I. The Importance of Taking Care of You
It’s always important to take care of yourself, no matter what school or profession you are in. However, the sad fact is that law school and the legal profession have incredibly high rates of depression and anxiety, as well as high rates of substance use disorders.1 In addition, law students experience depression and anxiety at a higher rate than students in other graduate programs.2 I don’t say that to scare you, and I hope it’s not overly doom and gloom. I say that to make you aware of why it is so very important that you take care of your mental and physical health, including utilizing available resources, while in law school and in practice.
If you are wondering about the benefits of taking care of yourself beyond just feeling better, the fact is, it will make you a better student. Your ability to study, process, and retain information can be greatly impacted by your mental health.
For example, high levels of anxiety actually hinder your ability to retain information, which is the exact opposite of what you want. There are plenty of scholarly articles that link anxiety and memory loss. Moreover, depression can cause you to lose focus and motivation, which is obviously going to hinder your ability to study. Anxiety and stress, both common in law school, impact your nervous system, which in turn, impacts cognitive processing.3 Normal anxiety can actually help with memory, as can any strong emotion.4 However, that has its limit. According to Myra Fernandes, professor in the Department of Psychology at the University of Waterloo and co-author of a study5 on anxiety, “To some degree, there is an optimal level of anxiety that is going to benefit your memory, but we know from other research that high levels of anxiety can cause people to reach a tipping point, which impacts their memories and performance.”6
This means that now is the time to develop good habits in terms of self-care that you can use throughout law school as well as your career. Some good habits might include building in time for exercise and getting outside (even if it’s just a walk around the block), taking short breaks from apps or social media, routine check-ins with those in your support circles, prioritizing sleep, and so forth. Way easier said than done, but there are lots of resources online about how to do this, including some specifically for law students.7
On a very simple note, take time when you need it, mentally or physically. It’s very tempting during law school to push through illness. I am urging you not to. If you are sick, take the time you need to heal. Talk to your dean of students about absences and making up missed assignments. There are multiple reasons for this. First and foremost, you won’t perform your best if you are sick. That may seem obvious, but so many students try to push through colds, the flu, etc. In addition, taking one to two days off to fully rest and heal might mean you are more productive in the long run! If you continue to push through at less than 100% for too long, your health will only get worse and you may be less productive overall, need more time to recover, or worse, end up in the hospital. This applies to both physical and mental health. Being proactive is a bit easier, sometimes, when it comes to physical health; you can stay in bed if you have the flu, drink lots of fluids, get some extra rest if you have a cold, and so forth. But do not forget that the same applies to your mental health. Be proactive and take measures to ensure your mental health: seek out a therapist if that works for you, find coping techniques for anxiety, and make sure you have a good support system.
Here is an example. I started getting migraines my very first semester of law school, which was a super fun time for that to happen. I still get them over 15 years later. It took a long time for me to learn that when I feel one coming on, I need to step away from the screen, lay down, and wait it out. It was only when it was pointed out to me that I needed to practice what I preach that I started really taking my own advice. A couple of years ago, I met with a student who had struggled their first semester and had not received great grades. It turns out, they had been struggling with migraines and getting the right medications. They were also trying to push through and work through migraines. I advised the student to fully let themselves heal when a migraine episode came on. Sure enough, the next day I found myself staring at the screen for 45 minutes, trying to make sense of the words as I tried to work through a migraine. My Dean of Students, who also suffers from migraines, noticed and made me go home with a stern lecture about practicing what I tell my students. I assume this was life’s way of hammering that point home. And I’ll be honest, it’s not fair to my students when I work through my migraines, nor was it fair to my clients. I’m not at my best, and my students deserve me at my best.
In this chapter, you will find advice on how to handle the mental health challenges that come with law school.
II. Life and School Balance
The first part of taking care of yourself is having a life and school balance. Yes, I realize what law school expects of you, so this sometimes feels unrealistic. But I urge you to find a way to maintain that balance. Keep doing what makes you happy, to a certain extent.
For example, prior to starting law school, I was a dancer. It was a large part of my identity, and it took up a considerable amount of time. Dance has also been consistently my favorite thing to do since about age three. However, my thought was, “Well, I’m in a serious professional school now, no time for dance!” And while it was true that I had to cut back a bit—there was no way I had time to be in the studio for hours a day the way I had been before law school—I didn’t have to completely remove that part of my life. I did, and I regret it. I’ve since come to recognize that dancing is a large part of what makes me who I am, and it’s a large contribution to maintaining my physical and mental health. So you can cut back on things, but don’t lose them completely. The legal profession needs you to still be you. I talk to students all the time that have love of dance, theater, a musical instrument, running, basketball, knitting, painting—you name it! Keep doing those things that make you happy.
Similarly, everyone hears horror stories about law school taking up 100% of your time, to the extent that you should tell your friends and family that you’ll see them in three to four years. While I certainly don’t think you have time to socialize seven nights a week, I urge you to maintain your relationships. You need a support system while in law school, and hopefully part of that support system will be your classmates, but it’s incredibly helpful to have those non-legal types in your corner too. It’s also important to set boundaries with family and friends. Yes, socializing is important, but it’s also important to communicate to family and friends when you will be unavailable and ask them to respect that.
Keep your traditions, as well. If going to religious services, Sunday dinner with family, or date night with a partner are things that are important to you, keep doing those things. I moved across the country for law school, which meant that I was in a strange city with no friends or family. I’m happy to report that my classmates became a great support system, but you also better believe I called my grandmother every week, sometimes more. I absolutely needed to do that on a regular basis.
Finally, sometimes you just need time for you. You can absolutely take time for yourself to relax and decompress. That is going to take different forms for different people, but don’t feel guilty about the time you’re not being productive. You ARE being productive, just in a different way. Think of time for yourself as a way to recharge your batteries. You can’t get your work done if you are running on empty!
III. Peer Groups and Support
A great source of mental well-being is finding a peer group and using them for support. Family and friends that you had prior to law school can be a great resource here. If you are first gen, family members might not really get what you are going through when it comes to law school, but that’s okay. Sometimes it’s nice to have people outside of the law school sphere that you can lean on a little.
However, it’s incredibly helpful to have a support system on campus at your law school. Hopefully, this can be a group of students you meet during orientation! During the previous chapter, I talked about student groups, specifically, affinity or professional groups. Fellow members can be a great source of peer support and usually understand exactly what it is you are going through. You might also have different groups that fill different needs: a study group, a group of friends that are not law students, and an affinity group that you find comfort in.
IV. Imposter Phenomenon
“I have written 11 books but each time I think ‘Uh-oh, they’re going to find out now,’” the novelist Maya Angelou once said. “I’ve run a game on everybody, and they’re going to find me out.”8 She said this despite the fact that she had been nominated for the Pulitzer Prize and had won five Grammys for her spoken recordings, plus other awards! Not to mention, Ms. Angelou is widely regarded as an amazing writer and icon.
Imposter phenomenon, previously called imposter syndrome, was initially identified in 1978 by psychologists Pauline Rose Clance and Suzanne Imes. They described it as a feeling of “phoniness in people who believe that they are not intelligent, capable or creative despite evidence of high achievement.”9 This phenomenon involves a fear of rejection and failure, coupled with perfectionism, and “[T]hese thought patterns create a perfect storm of insecurity, anxiety, and stress.”10 It also creates a fear in an individual that they do not belong and others who do belong will soon discover they are a fraud.11
This feeling is common for so many starting law school, but it’s especially common in first-generation students. It’s also become a larger problem because of social media. You may have heard that social media has us comparing our behind-the-scenes to highlight reels. For example, I tend to post on social media when I’m proud of something or happy. I don’t post on social media when I’m sobbing in a pint of ice cream and feeling like an absolute failure. This is an important distinction to remember! Don’t compare your insides, which only you know, to the outsides of others. When we do this, we judge ourselves as lacking. While this isn’t academic in nature, I have a friend, a mom, who always laughs at the “happy family” photos posted on social media. She says she’d love to see all the failed attempts when the kids are fighting, or have a runny nose, or are making odd faces. The point is, we see that one “perfect” photo of the family smiling happily together in a field, or wherever, but you have no idea how long it took to get that photo or how many “bad” photos are out there. Moreover, people who suffer from imposter phenomenon attribute their success to luck, perfect timing, or other external factors, instead of their own abilities, work, or intelligence.12
Imposter phenomenon can also be made worse by the cognitive bias known as the Dunning-Kruger effect, which means those that you see as incredibly confident may be confident because they don’t realize how much they don’t know. In psychology, the Dunning-Kruger effect is “a cognitive bias whereby people with limited knowledge in a given intellectual or social domain greatly overestimate their own knowledge or competence in that domain relative to objective criteria or to the performance of their peers or of people in general.”13 Essentially, those TRULY unprepared or incompetent rarely worry about being unprepared because they don’t have the means to realize just how unprepared they are. This means that if you feel like you are an imposter, and worry about it, it’s likely that you are not, in fact, an imposter. I’d like to stress that this does NOT mean that if you are confident in a certain area you are not competent, or that the confidence is false. It simply means that when you learn more about an area, particularly in the law and in law school, it is perfectly normal to feel less confident about your knowledge. This is why experts tend to say things like “it depends.” But if you are confident in something, keep building on that confidence. Also, keep in mind that people around you might sound or look confident, but you don’t know what’s going on in their head, so they might not be as confident as you think they are. All of this is to say that if you were admitted to law school, you are capable and you belong. Try to remind yourself of that.
So, how do you overcome imposter phenomenon? Well, here are some ideas:
Write it down. Write down achievements, and track your successes. This way you have legitimate data about your own accomplishments to prove to your brain that you are not an imposter.
Reflection Exercise: Personal Accomplishments
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Talk about it. The more we talk about imposter phenomenon and how everyone suffers from it, the easier it is to see that it’s not real. Starbucks CEO Howard Schultz says, “Very few people, whether you’ve been in that job before or not, get into the seat and believe today that they are now qualified to be the CEO. They’re not going to tell you that, but it’s true.”14 I try to share with all of my students how I still have imposter phenomenon. I have been practicing law for 15 years, and teaching for almost as long, yet I still fear that I will be “found out” as a fraud, and not as good as people think I am. In fact, I have yet to meet a single successful lawyer who has not suffered from imposter phenomenon. It helps to know this. Even Lady Gaga has her doubts, stating “I still sometimes feel like a loser kid in high school and I just have to pick myself up and tell myself that I’m a superstar every morning so that I can get through this day and be for my fans what they need for me to be.”15 Finally, from Supreme Court Justice Sotomayor: “I have spent my years since Princeton, while at law school and in my various professional jobs, not feeling completely a part of the worlds I inhabit. I am always looking over my shoulder wondering if I measure up.”16
Learn to accept failure and let go of perfectionism. See below for an entire section, and CALI Lesson, on grit and growth mindset. Accepting failure, and learning from it, is one of the keys to success. Not to mention, there is no such thing as “perfect.” In fact, perfect is the enemy of progress. You, and everyone else, will always find a way to improve—so let go of the idea that you or your work must be perfect.
Embrace your strengths. There are things you are good at, that come easily. But it’s easy to think “everyone is good at this” or “this comes easily for everyone.” Not true—embrace your strengths!
Reflection Exercise: Personal Strengths
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Attribute your successes correctly. When you find success—getting into law school, getting a good grade, getting an internship—attribute that to you and your hard work and skill, not luck.
Stop comparisons. Don’t compare yourself to others—in class, in the profession—just focus on YOU. And if people give you a compliment, or say you are doing a good job, BELIEVE them.
V. Test Taking and General Anxiety
One of the most common issues that comes up for my students is testing anxiety, or anxiety in general. This is not uncommon. As mentioned above, it is always best to speak to a clinical professional, such as a therapist, as they are best suited to provide help. However, if that is not possible for any reason, I do have some tips below!
First and foremost, testing anxiety, or anxiety in school, tends to be about fear and identity. Grades can be a large part of identity, and it’s easy to let them define your worth. This then leads to anxiety around the exam itself. I realize it’s easy for me to say this, but I promise that grades do not define you, or your worth. I also think realizing that this is at the heart of much of testing anxiety can help “name a thing” and overcome it.
Having said that, there are some strategies to combat the anxiety.
Selfcare is not selfish. You need sleep, and you need nutrition. To use a sports metaphor, athletes need to rest in between training otherwise the muscles aren’t going to be as effective. Your brain is a muscle. You need to rest it, and let it process information.
You need to take breaks and find balance. Again, easier for me to say, I know. But please, as mentioned in the first section of this chapter, try to find some of that balance: take breaks, sleep, eat, and rest your brain. This is coming from the person whose job it is to tell you to study, so you can trust that taking those breaks is not selfish or wrong!
Also, mindfulness can be an important aspect of self-care. CALI has a lesson on this: Mindfulness Practice for Law School.
Find joy and comfort. No, really. Write down one thing that brings you joy, one thing that you find comforting, and one thing that you find relaxing. When is the last time you’ve done any of these things? Look at your calendar—are you making time for these things? Yes, I know you have overpacked plates as it is, much of that the fault of law school. However, if you can schedule even 20 minutes for something that brings you joy, comfort, or relaxation, it’s definitely worth it, and this can go a long way in reducing anxiety.
Write it down! The University of Chicago did a study17 with two groups of test-takers. In all aspects, the demographics were the same. One group was asked to take five minutes and write down every negative thought, crumple it up, and throw it away. When they did that, that group’s test scores went UP between half and a full grade. Why? Because the negative thoughts take up part of your working memory. When you put it on paper, it doesn’t have to stay in working memory. Then you have the physical effect (throwing it away) of getting rid of those negative thoughts. This frees up working memory, leading you to perform better on tests.
Don’t believe me? Check out a summary of the study or the actual study. And here is a similar but different study done in Colorado.
Celebrate successes. That’s it. Write down your successes. Celebrate them. Brag about them.
Take deep breaths during the test. Last but not least, one of my favorites: Ayurvedic Breathing, or 5-2-8 breathing. Essentially, breath in while slowly counting to 5, hold it for 2, and breath out while counting to 8, longer than you breathed in. Do this 3 times. This is a great technique to use DURING an exam, especially if you start to feel anxious or panicked.
Practice makes prepared. Not perfect, prepared! This also helps reduce anxiety. The more practice exams and hypotheticals you write (not just read and outline but write) the better prepared, and less anxious, you will be.
On that note, I will leave you with the letter that a first-generation tenured professor writes to their students!
“I suspect some of you are starting to get anxious. Although stress is actually performance-enhancing up to a point, we all know that too much stress decreases performance. So I write to offer some thoughts with the hope that they might help anyone who is struggling to manage their stress level and keep it in a more optimal range.
First, I want you to know that I was a first-generation student … at West Point (my father was medically ineligible for military service), then law school, then in two graduate degree programs after that. At EVERY stage, I wondered if I had reached too far … if I was good enough. Well, as it turns out, I was better than the little voice in my head would let me believe, but that did not stop me from struggling with “imposter syndrome” every step of the way. If you are having these types of feelings, know that you are not alone and that you can succeed. It may not be as easy as you would want it to be, but you can do it.
Remember also that we would not have admitted you if we did not think you could be successful in the study of law. You may or may not perform as well as you hope to this semester, but you have already shown us that you have the capacity to succeed. Some of my best students did not find the “sweet spot” for them until their second or third semester in law school. Others started well and then got a little complacent and struggled. For various reasons, some very successful law students do not pass the bar exam the first time, and some students who struggled in law school do.
What is the lesson? No matter how well you perform on your exams this semester, your grades will not define you as a person, as a law student, or as a future lawyer. They do not predict your future success in life or in the practice of law. They are only a measure of where you currently stand in relation to your professors’ expectations. They are a data point that will provide you with useful information about your study habits and test-taking skills. You can then use that information to improve if needed.
Of course, I do not mean to suggest that your grades do not matter at all. Some opportunities are more readily available to those who perform well. But even those opportunities are not necessarily lost forever. You can only do your best.
So please try to remember that your best effort will be good enough if you can keep a healthy mindset and set yourself up for success. Study hard but take breaks and get plenty of sleep. Try to walk or do other exercises for at least 20 minutes each day. Meditation/Mindfulness is helpful too. (If you have never done it, there are instructional videos on YouTube.) Find ways to relax…whatever works for you that isn’t illegal or potentially counterproductive (like excessive alcohol use).
Please also look out for each other. If you see someone struggling, try to be supportive. If they are having a crisis, help them find or otherwise get help. If you are struggling, call a supportive classmate, friend, or family member. If that is not available to you in the moment, call someone at the school, whether an administrator or faculty member.”
VI. Seeking Professional Support
As mentioned before, finding professional help is always a good idea if possible. If you broke your leg, you would not hesitate to go see a doctor. Well, I hope you wouldn’t hesitate. Similarly, if you are not feeling mentally healthy, please seek out professional help. Even if you are feeling relatively mentally healthy, it’s not a bad idea to seek out therapy as a continuous wellness option. It can be helpful to build a relationship with a clinical professional before you find yourself in a position where you need more intensive care.
You might be wondering how you know if it’s time to seek out professional support, or if you are just having “normal” anxiety or stress related to a graduate program. First, sometimes even those with “normal” anxiety and stress can benefit from seeking out a professional. Second, look for signs in yourself that something doesn’t feel right. Generally, people associate depression with feeling sad, or even numb. And while those feelings can be a sign of depression, there might be other signs that aren’t as obvious. The National Alliance on Mental Health has some warning signs of depression in college students.18 If you find yourself experiencing any of the below, it might be time to seek professional help:
• General negative feelings
• Disinterest in normal activities (especially ones you used to enjoy)
• Unexplainable guilt
• Irregular sleeping and eating habits
• Persistent pain
Likewise, if you notice a classmate experiencing any of the above, there may be ways you can help. The ABA’s Substance Use and Mental Health Toolkit for Law School Students and Those Who Care About Them provides guidance for law students who might be facing a student in need, including what you can do if you believe a classmate is in danger of committing suicide.
You may hear that it’s not a good idea to seek out therapy or medication because you will have to disclose it on the bar exam and it can work against you. The trend19 among the states has been to shift away from asking questions about diagnosis and treatment, and to instead focus on “conduct or behavior that impairs an applicant’s ability to practice law in a competent, ethical, and professional manner.”20 However, some states still require broad disclosure of mental health diagnoses and treatment.21 You can likely check the application questions of the jurisdiction in which you’d like to practice, and see what they ask. In each case, honest and full disclosure is important. After all, the practice of law, too, is challenging, and confronting the problem early can help prepare you for the rigor of law practice when the consequences of an unaddressed mental health issue can even be more severe. Further, according to an article published by the ABA, “Very few applicants are denied admission to the bar on mental health treatment grounds.”22 It states that “…getting treatment shows that the applicant: has control over his or her mental health issues, is self-aware enough to know when he or she needs assistance, will follow through in getting help, has a plan for getting help in the future, and has a support system.”23 It goes on to say, “All of these factors help show that an applicant is fit.”24
If you are thinking about delaying treatment or seeking professional help because of a required disclosure, talk to your dean of students or bar professional at your school and get their opinion. In addition, each state has a “Lawyer Assistance Program” or “LAP.” Lawyer Assistance Programs provide confidential services and support to judges, lawyers, and law students who are facing substance use disorders or mental health issues.25 LAPs can likely provide some guidance on navigating character and fitness issues. In addition, if you are hesitant to seek professional assistance due to cost, the LAP can be a great free alternative.
The ABA has a list of the various LAP websites by state. Go find yours, and bookmark it.
Exploration Exercise: Health and Wellbeing Resources
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Overall, just remember that it’s important that you build a support system, make a plan for self-care, and have a list of handy resources. Don’t forget that taking care of yourself is one of the best ways to succeed!
VII. Non-Standard Testing Accommodations
Non-Standard Testing Accommodations are any accommodations that differ from the standard testing environment and rules. Many law students need Non-Standard Testing Accommodations, or NTA, for law school exams or the bar exam. What counts as an NTA may vary from test to test. For example, if I am proctoring a midterm for my students, I do not prohibit drinks or small snacks. However, the bar exam does. This means that if I have a student who is diabetic, migraine prone, or has another medical condition that requires them to have more frequent food and drink, they wouldn’t need to make a request for an NTA in my exams, but would on the bar exam.
It is important that if you need an NTA, you make that request and you use it. In addition, there are accommodations that aren’t necessarily related to testing that may be relevant. Students with vision or hearing impairments, for example, might be entitled to ongoing support throughout the semester. If you’ve used any kind of accommodation in high school or undergraduate school, please continue to do so in law school. Even if you haven’t used them in the past, you can still get them for the first time in law school. There are many reasons you might need an NTA. You might have ADHD, anxiety, dyslexia, or another learning difference. Any of these might be reasons to seek accommodations. Some examples of accommodations in class, or on exams, might be:
• Not getting “cold called” in class
• Extended time on exams
• A quiet or distraction-free room during exams
• Assistance with note-taking for students who are hearing or vision impaired
• Braille or large print exam booklets or screen reading technology
• Recording of lectures or classes
• Receiving slides or handouts in larger print
• Ability to take medication (or food and drink) in the exam room
• Standing desks, wheelchair-accessible testing stations, or seating next to a restroom
This list is not exhaustive and is very dependent on why you are seeking accommodations. It is merely meant to give you examples.
If you’ve had accommodations in the past, throughout high school or your undergraduate career, please seek them as soon as possible when attending law school. Now is not the time to see if you can do it without accommodations. Each law school should have a center that handles accommodations, and if you don’t know where to find that center, ask your academic support professional or dean of students as they are usually the people that can point you in the right direction. You will potentially get this information during orientation, but if you don’t, please ask!
I frequently meet with students who have struggled in their first semester and received less than stellar grades on their final exams. One of the first things I ask is whether they have typically used accommodations in the past, and if so, if they applied for them in law school. At least half the time they say no. When I ask why, I get answers ranging from “I wanted to do it on my own” or “I didn’t know” or “I was afraid my classmates would judge me.” First, you wouldn’t take a law school exam without your eyeglasses, so why, if you have been entitled to them in the past, would you take an exam without accommodations? Second, neither your classmates nor your professors should ever know that you receive accommodations. Typically, the center that grants accommodations will know, and have your medical history, so that they may determine your needed accommodations. They will then typically send over your name and needed accommodation to the dean of students. In addition, only those who need to know of your accommodations, in order to carry them out, will be informed. If you are worried about your classmates knowing that you aren’t present in the same room for exams, the classes are typically large enough that no one notices. Moreover, every other student is worried enough about their own test that they don’t notice who is and isn’t present.
The process of awarding accommodations can take some time, so don’t wait until exam time to do this. The process can also be costly if new testing is required. If you are no longer on your parents’ insurance, or your parents don’t have insurance that covers such testing, look into whether your school has options. For example, if your school also has a medical school, they may offer lower-cost testing options.
If you aren’t sure whether you qualify for accommodations, it can’t hurt to ask. But again, start the process early as oftentimes there will be required testing and documentation. In addition, seeking accommodations on standardized tests such as the MPRE and the bar exam becomes much easier if you’ve set them up in law school. For more information, see the Americans with Disabilities Act (ADA) guidance on testing accommodations.
If you need accommodations that aren’t strictly limited to testing, please ask. Essentially, if you need something to help you be successful, don’t be afraid to ask. You are adults, and you are human. You are also learning to be professional advocates, so advocate for yourself. I once had a student who was pregnant, and unexpectedly ended up on bed rest. This obviously made it difficult for her to attend classes in person. We Zoomed her in and made it work. This was pre-pandemic too! Finally, work with your dean of students or academic support professional to get what you need—they can be amazing advocates for you.
1The Path to Lawyer Well-Being: Practical Recommendations for Positive Change. National Task Force on Lawyer Well-Being, 2017. https://lawyerwellbeing.net/the-report/
2 Jerome M. Organ, David B. Jaffe & Katherine M. Bender, Ph.D., Suffering in Silence: The Survey of Law Student Well-Being and the Reluctance of Law Students to Seek Help for Substance Use and Mental Health Concerns, 66 J. Legal Educ., Autumn 2016, at 1, 116–56.
3 “The Relationship Between Anxiety and Memory Loss.” Rivier University. Accessed January 30, 2022. https://www.rivier.edu/academics/blo...d-memory-loss/.
4 Lee, Christopher, and Myra A. Fernandes. 2018. “Emotional Encoding Context Leads to Memory Bias in Individuals with High Anxiety” Brain Sciences 8, no. 1: 6. https://doi.org/10.3390/brainsci8010006.
5 Id.
6 University of Waterloo. “Manageable levels of anxiety can help your memory.” ScienceDaily. Accessed May 17, 2022. HYPERLINK “http://www.sciencedaily.com/releases...0226085752.htm” www.sciencedaily.com/releases/2018/02/180226085752.htm.
7 See https://www.lclma.org/2020/09/29/sel...al-profession/, https://illinoislap.org/wp-content/u...mic-Boraca.pdf, and from the ABA https://www.americanbar.org/groups/young_lawyers/publications/after-the-bar/personal-life/easy-ways-to-integrate-self-care-into-your-life/.
8 “Why Feeling Like a Fraud Can Be a Good Thing.” BBC News. BBC, April 24, 2016. https://www.bbc.com/news/magazine-36082469.
9 “Imposter Phenomenon.” Oxford Reference. Oxford University Press. Accessed June 21, 2022. https://www.oxfordreference.com/view...10803095959571.
10 Loewentheil, Kara. “The Imposter Syndrome Prescription.” Above the Law, October 20, 2017. https://abovethelaw.com/career-files...20and%20stress.
11 Grenardo, David, The Phantom Menace to Professional Identity Formation and Law School Success: Imposter Syndrome (August 4, 2021). University of Daytona Law Review, Vol. 47, No. 3, 2022 Forthcoming, Available at SSRN: https://ssrn.com/abstract=3899332 or http://dx.doi.org/10.2139/ssrn.3899332
12 Grenardo, David, The Phantom Menace to Professional Identity Formation and Law School Success: Imposter Syndrome (August 4, 2021). University of Daytona Law Review, Vol. 47, No. 3, 2022 Forthcoming, Available at SSRN: https://ssrn.com/abstract=3899332 or http://dx.doi.org/10.2139/ssrn.3899332
13 “Dunning-Kruger Effect.” Encyclopædia Britannica, inc. Accessed December 7, 2021. http://www.britannica.com/.
14 “Good C.E.O.’s Are Insecure (and Know It).” The New York Times, October 9, 2010. https://www.nytimes.com/2010/10/10/b...rner.html?_r=1.
15 Yuan, Annie. “HBO Releases New Preview for Lady Gaga Documentary (Video).” The Hollywood Reporter, April 24, 2011. https://www.hollywoodreporter.com/ne...w-lady-181733/.
16 Lewis, Neil A. “On a Supreme Court Prospect’s Résumé: ‘Baseball Savior’.” The New York Times, May 15, 2009. https://www.nytimes.com/2009/05/15/u...sotomayor.html.
17 Ramirez G, Beilock SL. Writing about testing worries boosts exam performance in the classroom. Science. 2011 Jan 14;331(6014):211-3. doi: 10.1126/science.1199427. Erratum in: Science. 2014 Apr 11;344(6180):151. PMID: 21233387.
18 Abbot, Ginger. “What Are the Warning Signs of Depression in College Students?” National Alliance on Mental Health, September 13, 2021. https://www.nami.org/Blogs/NAMI-Blog...llege-Students.
19 Jaffe, David and Stearns, Janet E., Conduct Yourselves Accordingly: Amending Bar Character and Fitness Questions to Promote Lawyer Well-Being (December 11, 2019). 26 Professional Lawyer, Jan. 2020, American University, WCL Research Paper No. 2020-03, Available at SSRN: https://ssrn.com/abstract=3504290 or http://dx.doi.org/10.2139/ssrn.3504290
20 Rep. Resolution 102. Annual Meeting 2015. American Bar Association. https://www.americanbar.org/content/...annual-102.pdf.
21 Supra note 17
20 Hannon, Margaret. “Why the Character and Fitness Requirement Shouldn’t Prevent Law Students from Seeking Mental Health Treatment.” Student Lawyer Blog. American Bar Association, July 9, 2018. https://abaforlawstudents.com/2018/0...lth-treatment/.
23 Id.
24 Id.
25 “Directory of Lawyer Assistance Programs.” Americanbar.org. American Bar Association Commission on Lawyer Assistance Programs. Accessed May 18, 2022. https://www.americanbar.org/groups/l...rams_by_state/. | textbooks/biz/Civil_Law/A_First_Generation's_Guide_to_Law_School_(Hale)/1.08%3A_Health_and_Wellbeing.txt |
If you are anything like me when I entered law school, you have never met a lawyer. In fact, you may not have met anyone that is considered a “professional.” No one in my family was what one would consider a “professional”; no doctors, no accountants, and definitely no lawyers. Without these pre-existing connections, the idea of networking, and finding legal internships, can seem daunting. Have no fear, that’s why you are reading this book!
In this chapter, I try to cover as much about career planning as possible. But, as with so many other things in this book, if I have left something out, do not hesitate to ask. It is also important to note that the more lawyers you speak with, you will start to find that they might not have had a plan. Or, if they did have a plan, their career didn’t happen exactly as planned. That’s okay as well! You don’t have to have it all figured out, and in fact, you might change your mind multiple times during law school, and even after!
I. Networking – What if I Don’t Know Any Lawyers?
Networking is vitally important. Since starting law school, I’ve had 11 legal jobs, or at least, law-adjacent jobs: one was through a clinic in law school, another was due to pure luck, and one was entirely based on my resume and qualifications but was 12 years after becoming a licensed attorney—the rest were because of networking, or someone I knew. And that seems terrifying if you are entering law school and know no one. I didn’t either, but still networked my way to eight jobs!
Keep in mind that networking isn’t a dirty word. I always feel very manipulative, or dirty in some way, if I feel like I’m setting out “to network.” Networking is just forging relationships. That’s it. Think of it as building professional relationships, or professional friendships. This should make it slightly less intimidating; you aren’t asking for a job, or anything in particular, you are asking to form a relationship. That’s it.
Your first sources of networking are your professors and classmates. Don’t be afraid to visit your professors and get to know them. Remember, they have taught students who are now hiring, and they have connections. Find a few professors who you genuinely like and connect with. It helps if you like their area of interest. For example, in my second year of law school, I took copyright law and thought the professor was fantastic. It turns out he also taught sports law, and I thought “Hey I love sports, sounds like a great class.” I was incredibly interested in the subject so I made sure to chat about aspects of class outside of class. It turns out he was starting to write a sports law casebook and needed a research assistant. I jumped at the opportunity! This meant that we forged a relationship and got to know one another. He discovered my absolute love of ice hockey (because I kept trying to convince him that the casebook needed more ice hockey cases), so when a connection of his needed a legal intern, he sent me to them. And that’s how I ended up working for the Brazilian Ice Sport Federation1 as an intern, simply because my professor told them, “Hey Melissa loves hockey, and is also pretty good with sports law, you should hire her.” I’m still friends with this professor to this day, and still struggle to call him by his first name2 even though he reminds me we are now colleagues and have been for over a decade.
Your classmates are also excellent connections and will hopefully make excellent friends. I found my way into teaching because of a classmate. The classmate was a year ahead of me and we were very good friends—still are to this day. She had met a woman that owned a tutoring company through one of her friends. When I graduated from law school, the classmate suggested I reach out to this woman and see if I could tutor part-time. That led to tutoring, eventual adjunct work, and five co-authored books. The woman3 and I now both work full time in academia and are very good friends. Talk about a great connection! All because a classmate thought of me.
When people know your interests, and what types of jobs you are looking for, they are eager to help!
I realize that the real anxiety typically comes from networking events, where it feels like you are meant to network and forge connections on demand, so to speak. Keep a few things in mind: First, every attorney in those “networking” rooms has felt the anxiety you feel. Second, you don’t have to connect or network with every single person; find one or two that you really connect with. Third, if an attorney gives you their card and tells you to reach out, they mean it. Don’t hesitate!
Finally, don’t be afraid to reach out and set up meetings with attorneys. It feels intimidating, but lawyers love to talk about themselves. Look how much space I devoted to talking about myself and my career path! Ask attorneys you meet, or professors, to talk about their career path and why they like (or don’t like) what they do. Some great questions to ask are:
• Who are your clients? Not specifically, as they can’t give you names, but what type of people are your clients?
• How do you typically communicate with your clients, and how frequently?
• What does a typical day look like for you? (This can be important because it gives you insight into the daily nuances of the job, not just the high points.)
• How is your work different from a more junior attorney/senior attorney?
• Did you ever consider other types of legal jobs? If so, why did you consider those types of jobs and why did you pursue this career path instead of the other one?
• What is your favorite, or the most rewarding, aspect of your job?
• What is your least favorite part of your job?
• How did you end up here? What steps did you take to get to this type of job?
• What was your first job out of law school, and how did you transition to where you are now?
• What made you leave your first job out of law school?
You can also ask them things about what they did in law school, such as classes they took, internships they had, or groups they were involved in. The idea is to get to know them and what they do. Obviously, alter the questions above how you see fit, but those are some good starting points.
It can be daunting to reach out to an attorney you met at an event, but rest assured, if they gave you their contact information they will want you to reach out. When you do, be courteous, remind them of where they met you, and perhaps bring up a topic of conversation you discussed.
Below is a sample of an email that you can edit and send to attorneys you meet:
Sample Follow-Up Email to a Networking Contact
Dear Attorney Martin,
It was such a great pleasure to meet you at the Chicago Bar Association’s networking event last Thursday evening. You might remember me as the first-year law student who also grew up in Michigan.
I understand that you specialize in contract law, and I’d love to know more about what that entails. I realize your schedule must be a bit busy, but if you have an opportunity I’d love to meet for coffee and talk more about how you ended up practicing contract law, and what it’s like to open your own firm.
I have class most days until around noon, but can be free all afternoon or evening.
I look forward to chatting with you further.
Warm Regards,
Jennifer Smith
While it might seem like you don’t even know where to begin, try answering the below questions:
Reflection Exercise: Career Interests
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II. Career Services/Timeline
Your first step is the CSO, or your Career Services Office. They are fantastic and are sincerely invested in your success. They can offer specific advice on the field you are looking into, they can look at your resume, and they can connect you with alumnae—they are basically magic.
Each school’s CSO will typically have a unique system, mainly in the form of a website or management system. These will be very useful in obtaining information on job listings, timelines, general job-search advice, how to prepare for interviews, and help to prepare cover letters and resumes—essentially everything you need! In addition, the CSO will also post information about networking events and job fairs, mock interview opportunities, and guest speakers. This includes information on when and how to make appointments with the office. Remember, this office is magic and the people who work there should quickly become your best friends.
Also, you don’t have to seek them out, they will seek you out. They will likely introduce themselves at orientation, then in roughly October or November of your first semester, they will traditionally host a workshop or meeting. This varies from school to school, but that will be your first interaction. Listen to them as they lay out the specifics of how their office works and timelines that you should be aware of. Do not seek them out before this initial workshop, as you should be focusing on getting your bearings in class. They will tell you when it’s time to come to them!
Either after you receive your first semester grades or just before, you can start applying for summer internships. This timeline varies—both for employer deadlines and for when your school will release grades—so by this point you should definitely be in touch with the CSO to get an idea for a timeline. This is typically in mid to late January of your second semester. In the fall of your second year, you will likely start to apply for summer associate positions. These are jobs for your second summer of law school. Sometimes they can lead to permanent jobs after graduation; sometimes they don’t. During this semester, your school might also be hosting “OCI” or on-campus interviewing. This means that various firms come to campus to interview you or your classmates. Again, career services will provide you with the correct timeline and any other information and deadlines you might need to be aware of.
III. Internships, Externships, and Clinics
Throughout your law school career, you may have the opportunity to participate in internships, externships, and clinics. So, the question is what are they and why would you take the time to do them?
An internship is a position usually offered as a way to gain work experience. Internships can be available in almost any setting or field, from the government to firms to nonprofits. Sometimes they pay, but frequently they may not. It depends on the type of work.
An externship is similar, but is usually set up through your law school. Often there is a class associated with the externship, and you have someone on campus who is in charge of supervising, or at least being a liaison with your supervisor. These are not paid and are offered for course credit.
A clinic is typically offered through the law school, as a course. While some law schools work with local organizations to form clinic opportunities, some law schools have clinics at the law school. This means that during “class” you meet with real clients, and work on real legal issues, under the supervision of your professor. Many schools have requirements that you complete a certain amount of clinic or externship work.
So what is important about internships, externships, and clinics? They are a spectacular way to get practical legal experience. In these work experiences, you learn a great deal about how law is actually practiced while being supervised by attorneys who share the goal of making sure you learn.
And more importantly, they are a great way to see what type of law you are interested in, and what types of law you are not interested in. For example, I entered law school very much convinced that I wanted to work for the district attorney’s office, prosecuting crimes. I completed an internship with the local district attorney’s office while in law school and decided that I absolutely did not want to practice criminal law. The people were lovely, and it was a great experience, but it taught me that criminal law is not remotely what I thought it was. It’s important to find these things out while you have the opportunity!
Exploration Exercise: Clinics and Externships
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The tricky part, if you don’t have the resources, is often working for free. Many internships, especially summer internships, offer a stipend or salary. However, that tends to only happen at mid-size or larger firms. If you are interested in doing government work or public interest work, there is an expectation that you will work for free. However, many schools have a Public Interest Law Association that raises money to provide stipends for law students participating in public interest internships.
IV. Mentorships
One of the best things you can do for yourself is to find a mentor. I will be honest, I didn’t find my mentor until after a few years of practice, and that’s okay. My mentor has been someone that has advocated for me and opened doors for me. Every mentoring relationship is different, but the idea is to find someone that will give you unbiased and honest advice. Your mentor should motivate, inspire, and encourage you. A mentor should ideally be someone in your field; for example, my mentor is a fellow professor. This is important because while my mother will always motivate and encourage me, it’s useful to be able to call up my mentor to ask her advice on whether something is a good idea since she knows and understands the world I work in. She will also be completely honest.
So how does one find a mentor? Well, it has to come naturally. Similar to networking, you are looking to forge a relationship, so it’s not something that can be forced. You want to make sure that you are comfortable with your potential mentor and that you trust them. It might also be helpful to find someone that has a similar background to you, so they understand where you are coming from. My mentor took me under her wing because I started teaching fairly young, and so had she. It can be helpful to form a connection with someone of a similar ethnic or racial background, from the same hometown, or someone who has had similar interests to you. These similarities can often mean a more comfortable connection. However, sometimes having a mentor who is from a different background can be beneficial, and can even mean they can be a better advocate. While my mentor and I share similarities in that we both started teaching as young women, she was not a first-generation student, and has many lawyers in her family. This means that she is often a bit more confident in her knowledge as well as in her advocacy on my behalf.
As you enter law school, you will start to see various opportunities to gain a mentor. Often, second and third-year students can act as mentors. You will find these students within student groups that interest you, or might be second and third years who have been teaching assistants. Maybe your law school even has a formal mentoring or “big sibling” program. If there is a formal program, make sure you take advantage and sign up. If there isn’t, again, let the relationships form naturally.
Your second source of mentors will be your professors or administrators. Similar to networking, get to know them as people and the mentoring relationship will come naturally.
Finally, you may find good mentors at your first jobs or internships. You might also look into whether local bar associations have mentoring programs. Local bar associations often make it free for students to join or offer a discount. While this can seem a bit overwhelming, it can be an incredibly beneficial way to meet or be paired up with a mentor. If it makes you feel a bit nervous, see if there are any professors or administrators that are active in the local bar associations and ask to go with them. Or, grab some friends from class and all go together! There are local bar associations dedicated to affinity groups and specialties, and they can be a great place to start.
You might also have different mentors for different lengths of time, and at different points in your career. And don’t be afraid to have multiple mentors for different reasons!
Exploration Exercise: Networking and Membership
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V. How to Talk to a Professor
We don’t bite, I promise. Sure, there is a grumpy guss at every law school, or at every school in general, but by and large, most of us really want to talk to you and get to know you! I also keep talking about how great we are for networking and mentorship, so the question remains—how do you approach a professor?
First, we all have set or posted office hours. This means this is the time we WANT you to come to see us. We set aside that time expecting to do nothing but speak with students. So if your professor has office hours on Monday at noon, when the time comes, just walk into their office, no appointment needed. The downside is that they might be with another student, so you might have to wait. However, students don’t always take advantage of office hours as much as we’d like, so chances are high that you can just walk right in and start talking.
If you are unable to show up during office hours, or want to make sure that you are the only student scheduled for a certain block of time, reach out via email to make an appointment. Often professors will include information on how to make appointments in their syllabus. Some might want you to just email them, while others have links to calendar or appointment software.
Some professors also stick around before or after class to answer questions, or hold group office hours or review sessions. This can be a great way to ease into getting to know your professor if one-on-one seems intimidating.
Now that you know when to approach a professor, how do you do it? Well, first and foremost, be respectful. Call them “professor” unless they have specifically told you otherwise. This holds true for email communication as well as in-person communication. But also remember, as I’ve mentioned, they want to talk to you and help you, so keep that in mind.
You might also be wondering what to ask when you approach a professor. This depends on why you are approaching them. Above all else, remember that you don’t have to be perfect, and it’s okay if you are slightly confused or don’t know what to ask!
If you want to approach your professor about class, here are some question guidelines:
• While there is no perfect question, you want to avoid overly broad questions like “I don’t understand anything about torts.” Professors spend a great deal of time planning out their lectures, so while it’s understandable that you might feel a bit lost after class, you want to be specific about what it is you didn’t quite get.
• Ask about specific hypotheticals mentioned in class, and why they came out a certain way.
• Ask your professor if a certain fact changed in a case, would the outcome be different. This can help you determine if you have the right understanding of which facts are important and relevant.
• If you are lost on a specific concept, like strict liability, ask your professor if they wouldn’t mind giving you a different hypothetical or example from the one given in class. This might help it click a bit more.
If you want to approach your professor to get to know them or learn more about their areas of scholarship, here are some guidelines. (Note: A professor’s scholarship is the topic they tend to research and publish on. If the area of scholarship is of interest to you, you may consider asking your professor if they need a research assistant.)
• Be mindful of the time of year. The main job of a professor is making sure that you succeed as a student, so they might want to prioritize class-related questions at certain times of the semester. For example, a week before finals is not the time to ask them about their scholarship, as they will want to prioritize ensuring that students are well prepared for exams at that time and might be busy. Instead, seek them out at the beginning of the semester.
• Ask them why they chose a certain topic to teach or research.
• Ask them how they ended up as a professor—what was their path?
• Ask them about their first job out of law school.
VI. How to Ask for a Letter of Recommendation
One of my favorite parts of my job is writing letters of recommendation for my students. However, I realize it can be daunting for the student to ask. Even though it is one of my favorite things to do, and you should never hesitate to ask, keep a few things in mind.
Give us enough time. The only time I’ve said no to a request for a letter of recommendation is when the turnaround time was not possible. I need more than 24 hours. Be respectful of the fact that the person you are asking to write a letter likely has much on their plate, and while they will be happy to write you a letter, they need the time to do so. I would suggest giving the professor as much time as possible. A good rule is to give them at least one week, if not more. If that’s not possible, please state that in the email. For example, maybe you just saw the job opportunity. This happens, but be upfront about it and realize that the professor might not be able to accommodate the request.
Give us as much information as possible about yourself and the job or opportunity. Include a description of the job posting or position, as well as a copy of your resume and potentially your transcript. Don’t be afraid to tell the writer exactly what you want—it actually helps us! The more guidance we get from you, the better. Not only does it make our job easier in writing the letter, but it’s far more likely you will get the letter you want and need. You can even tell us what to highlight on your resume, or certain attributes you’d like us to focus on!
Seek out professors who you have a connection with. The more we know about you, the better. If you are in your first year it’s less likely you’ve really had the opportunity to forge relationships. That’s okay. When you request the letter of recommendation, talk about what you liked in the class or a time you may have chatted with or reached out to the professor. Help them to remember you.
So, how should you write an email requesting a letter? Note that I’m assuming you will be making this request via email. I always encourage my students to email me when they need things, because frankly, I’m getting older and more forgetful. Having something in my email helps me make sure the request makes it onto my to-do list. It also helps me ensure that I get the information correct, as discussed below. Even if you talk to the professor about writing one in office hours or after class, it’s best to follow up in an email.
First, in the subject line, make it clear what you are asking for: use something like “Letter of Recommendation for John Smith.” Start with a formal greeting such as “Dear Professor Hale.” Make it immediately clear what your connection to the professor is, as well as the fact that you will be asking for a letter of recommendation. If you are in steady communication with the professor, you likely don’t need to explain the connection. For example, I have a research assistant that I email at least weekly and know very well. If they emailed me saying “Dear Professor Hale, you might remember me from being your research assistant” it might seem a bit odd. Of course, I know who they are, I’m not that old and forgetful! However, in your first year, if you are in a class of 50 to 100 people and have only had a few individual connections with the professor, it can’t hurt to say “I’m in your torts class and I recently came to your office hours to chat about strict liability.”
Then, be sure to explain the job or position you are applying for. If possible, include a link for your professor. Then explain why you want the position. Finally, tell your professor what you want them to highlight about you, and include a resume and transcript. Also, include a deadline and whether you need it electronically, physically, or sent to the employer directly.
For example, see below.
Sample Letter of Recommendation Request
Subject: Letter of Recommendation: John Smith
Dear Professor Hale,
I hope you are doing well. I was in your criminal law course last semester, which I enjoyed very much. You may remember that I came to your office hours at one point to ask if you could go over that homicide hypothetical, which really helped me feel more comfortable about the final exam.
I’m writing to request a letter of recommendation. I plan to apply to be a summer internship with the Cook County District Attorney’s office. I’m very passionate about criminal law and hope to one day be a prosecutor, so this position would be ideal.
Attached you will find my resume and transcript. If you notice I received an A in your criminal law class. Your feedback on the practice midterm we did indicated that I had a good grasp of criminal law, and I was hoping that you could highlight that in the letter.
You might notice from my resume that I majored in criminal justice for my undergraduate degree, which is something I’d love for you to discuss. This shows that I’ve been passionate about criminal law for a while.
Please let me know if you are willing to write this. The letter should be submitted to [email protected] by March 1st.
If you have any questions or need further information, please do not hesitate to ask!
Warm Regards,
John Smith
VII. What The Heck is a Clerkship?
I have a confession: the one regret in my legal career is not applying for a clerkship. When I first heard the term, I thought a “clerk” was like a secretary. My mother was a secretary, and sometimes called a clerk, and I didn’t want her job! I was too embarrassed to ask why people would apply for clerkships and was definitely too embarrassed to ask what they were.
Clerkships are the opportunity to work for a judge, and not in an administrative role. Judicial clerks do extensive research for their judges and often draft the judicial opinions. This makes clerkships incredibly prestigious, and a fantastic stepping-off point to any legal career.
Clerkships often last a year, though sometimes they can last two. Although each court may differ, they typically start in August or September and end in May or June of the next year. The salary is typically not great, but the prestige makes up for the lack of salary. If you can continue to live as a student, so to speak, for another year, it’s worth it.
There are federal and state clerkships, and both are valuable experiences. Each court will have its own hiring process and timeline for clerks, so yet again, I encourage you to seek out your CSO. Typically, you want to start applying the summer before your third year of law school or the fall of your third year.
Federal Clerkships
Most federal judges use OSCAR to hire their clerks. It’s a website portal that facilitates the applications. From the OSCAR website: “OSCAR, the Online System for Clerkship Application and Review, is a web-based system for federal law clerk and appellate staff attorney recruitment. OSCAR’s extensive set of features allows users to easily manage every aspect of the hiring process. Using OSCAR, applicants can easily apply to federal clerkships.”4
Also according to OSCAR, the duties of a Federal Law Clerk are as follows:
The duties and functions of a federal judicial law clerk are determined by the employing judge. In most chambers, law clerks concentrate on legal research and writing. Typically, the broad range of duties assigned to a law clerk includes conducting legal research, preparing bench memos, drafting orders and opinions, proofreading the judge’s orders and opinions, verifying citations, communicating with counsel regarding case management and procedural requirements, and assisting the judge during courtroom proceedings. Some judges also may assign maintaining the chambers library, and other administrative duties to the law clerk. Because there is a myriad of tasks that may be assigned to a law clerk, the Online System for Clerkship Application and Review (OSCAR) permits a judge to identify any particular duties that are required in the position announcement.5
Typically, to be eligible for a federal judicial clerkship, you must be in the top third of your graduating class and have some experience with law review or law journal.
State Clerkships
Though it is often assumed that federal clerkships are the most prestigious, there are many opportunities to clerk at the state and local levels. In fact, these clerkships might give you more opportunities for relationship building, which might serve you further along in your career. Your professors and mentors will also likely have closer relationships with the local judges, so do not overlook these opportunities!
Supreme Court Clerkships
These are the most competitive clerkships. Typically, those who clerk for a Supreme Court Justice have had at least one prior judicial clerkship. You would typically apply for this program after graduation from law school. For more information on the program, you want to check the Supreme Court’s website.6
VIII. Conclusion
Hopefully, you now have a better idea of how to navigate the professional legal world and feel a bit more confident in your knowledge. I cannot stress this enough, but you do not have to have it all figured out right now. Sometimes I feel like my career was a series of happy accidents that put me where I am today, and there is nothing wrong with that. Your first job out of law school might not be your ideal, and that’s okay—it might lead you on a path you didn’t even know you wanted. Do not assume that you have to have it all together when you graduate. Talk to lawyers, and your professors, and ask about whether they had any happy accidents in their career path. You might be surprised.
“Being a First Gen who doesn’t typically like to network, it’s good to notice and appreciate those professors and deans who are intentional about being of service to their students. As an African American Woman who had no idea what she was getting into, my community assisted me with externships and were supportive in my roles in BLSA as well as SBA. Additionally, my Sports Law Negotiation Team coach is what I like to call my Law School Dad and has not stopped making sure I am doing well even after graduation. You don’t have to know everyone, but make use of those who are willingly making themselves available to you. They may need you one day as well, so make sure there are at least three real and valuable relationships made and maintained throughout your law school journey.”
-T. O’Neal
1 This is an actual organization: http://www.cbdg.org.br/. The website is in Portuguese, but there is also a Wikipedia entry! https://en.Wikipedia.org/wiki/Brazil...rts_Federation
2 His name is Professor Russ VerSteeg, and is author of “Sports Law: Cases and Materials” and he is a pole vaulting coach. The idea of networking is getting to know people as people, not “job connections.”
3 The woman is Tania N. Shah, professor at Western State College of Law and my co-author on many bar related books. She also still practices law and has more businesses than I can count. Speaking of networking, I often send my students to her if they are interested in business law, so you never know who your professors know!
4 “About Oscar.” Online System for Clerkship Application and Review. Administrative Office of the United States Courts. Accessed May 18, 2022. https://oscar.uscourts.gov/about.
5 Id. | textbooks/biz/Civil_Law/A_First_Generation's_Guide_to_Law_School_(Hale)/1.09%3A_Career_Opportunities.txt |
I hope this book helped you feel more prepared for law school. The important things to remember are:
1) You are not alone. There are more and more first-generation students entering law school every day.
2) Ask questions! It can feel daunting to ask questions especially as you might not want to “out” yourself as not knowing what you’re doing. But I promise you, there are people in the law school who want to help you, and who were likely first generation themselves.
In fact, I discovered that my constitutional law professor was from the Midwest, like myself, and also a first-generation student. I asked her so many questions and was in her office all of the time. She never minded, and was happy to help. I’m certain you will find someone similar at your school.
I also discuss growth mindset in the book, and how failure is a part of learning. In the Career Opportunities chapter, I refer to my career path as a series of “happy accidents.” This is because I had a bit of a rocky start, and too many rejection letters to count from firms that I thought would be a good fit. However, not getting the job of my dreams is exactly why I started tutoring on the side, and that lead to my career in academia, which I love. So, you see, failure actually put me on the right path.
Above all else, please remember that you do belong. You have been admitted to law school because of your merit and accomplishments; do not let imposter phenomenon, or anything else, make you feel otherwise.
Following this conclusion are two appendices. These are here so that you feel a little more comfortable coming into the school.
Appendix A is a Law School Glossary. This is the glossary I referenced in Chapter 1. Every field of education or activity, and in fact, every field of human endeavor, has its own language or jargon. Law school is no different. At first, it can seem a little frightening to hear faculty, staff, and other students throwing around words and phrases you have never heard. The Glossary in Appendix A is intended to be a little introduction to some of that language. Read over the Glossary now and keep it handy. You will hear most of these words and phrases during the first week of law school. And don’t worry—in a few weeks, you’ll be using these words like a pro.
Appendix B is a list of Where Do I Go For Help With… I would wish that every law student would enter law school, sail through with no issues, and graduate with high grades. That really doesn’t happen. Every law student needs help with something at some point during the years spent in law school. Appendix B gives a list of the most common issues that arise during the law school years, and then gives someplace you can go to seek answers or help. Read through the list right now, and then keep it handy.
I wish you the best of luck in all of your endeavors! Now, here is some advice from a former student of mine:
“The best chance you have if you want to succeed in law school is to give yourself up to loneliness, fear nothing, and work hard. There will be times you miss out on gatherings with family and friends to brief a case or to study. There will be times the work seems like it is overwhelming. Don’t give up. You are here for a reason and you have what it takes to rise to the top. All your hard work took you this far and it will take you further than you ever dream possible. Your best chapters are still being written.”
-James Anthony Barracato
And finally, remember that you can break the mold!
“I was the first person in my family to go to college, and the first lawyer in my family ever. In law school, I was intimidated by my professors and fellow classmates. There was a mold I thought they all fit that I did not fit as a formerly homeless, high school dropout that had to work through night classes to get my undergraduate degree. It took a long time to realize that part of the beauty of being a first-generation law student and lawyer was that I was not constrained by a mold or a model that frankly hasn’t served members of the legal profession well. Once I realized that breaking out of a mold that perpetuates systemic problems in the legal profession was a good thing, it was very freeing to see myself as making the difference I had always hoped to make.”
-Afton Cavanaugh | textbooks/biz/Civil_Law/A_First_Generation's_Guide_to_Law_School_(Hale)/1.10%3A_Conclusion.txt |
Learning Objectives
After reading this chapter, you should be able to do the following:
1. Distinguish different philosophies of law—schools of legal thought—and explain their relevance.
2. Identify the various aims that a functioning legal system can serve.
3. Explain how politics and law are related.
4. Identify the sources of law and which laws have priority over other laws.
5. Understand some basic differences between the US legal system and other legal systems.
Law has different meanings as well as different functions. Philosophers have considered issues of justice and law for centuries, and several different approaches, or schools of legal thought, have emerged. In this chapter, we will look at those different meanings and approaches and will consider how social and political dynamics interact with the ideas that animate the various schools of legal thought. We will also look at typical sources of “positive law” in the United States and how some of those sources have priority over others, and we will set out some basic differences between the US legal system and other legal systems.
01: Introduction to Law and Legal Systems
Law is a word that means different things at different times. Black’s Law Dictionary says that law is “a body of rules of action or conduct prescribed by controlling authority, and having binding legal force. That which must be obeyed and followed by citizens subject to sanctions or legal consequence is a law.”Black’s Law Dictionary, 6th ed., s.v. “law.”
Functions of the Law
In a nation, the law can serve to (1) keep the peace, (2) maintain the status quo, (3) preserve individual rights, (4) protect minorities against majorities, (5) promote social justice, and (6) provide for orderly social change. Some legal systems serve these purposes better than others. Although a nation ruled by an authoritarian government may keep the peace and maintain the status quo, it may also oppress minorities or political opponents (e.g., Burma, Zimbabwe, or Iraq under Saddam Hussein). Under colonialism, European nations often imposed peace in countries whose borders were somewhat arbitrarily created by those same European nations. Over several centuries prior to the twentieth century, empires were built by Spain, Portugal, Britain, Holland, France, Germany, Belgium, and Italy. With regard to the functions of the law, the empire may have kept the peace—largely with force—but it changed the status quo and seldom promoted the native peoples’ rights or social justice within the colonized nation.
In nations that were former colonies of European nations, various ethnic and tribal factions have frequently made it difficult for a single, united government to rule effectively. In Rwanda, for example, power struggles between Hutus and Tutsis resulted in genocide of the Tutsi minority. (Genocide is the deliberate and systematic killing or displacement of one group of people by another group. In 1948, the international community formally condemned the crime of genocide.) In nations of the former Soviet Union, the withdrawal of a central power created power vacuums that were exploited by ethnic leaders. When Yugoslavia broke up, the different ethnic groups—Croats, Bosnians, and Serbians—fought bitterly for home turf rather than share power. In Iraq and Afghanistan, the effective blending of different groups of families, tribes, sects, and ethnic groups into a national governing body that shares power remains to be seen.
Law and Politics
In the United States, legislators, judges, administrative agencies, governors, and presidents make law, with substantial input from corporations, lobbyists, and a diverse group of nongovernment organizations (NGOs) such as the American Petroleum Institute, the Sierra Club, and the National Rifle Association. In the fifty states, judges are often appointed by governors or elected by the people. The process of electing state judges has become more and more politicized in the past fifteen years, with growing campaign contributions from those who would seek to seat judges with similar political leanings.
In the federal system, judges are appointed by an elected official (the president) and confirmed by other elected officials (the Senate). If the president is from one party and the other party holds a majority of Senate seats, political conflicts may come up during the judges’ confirmation processes. Such a division has been fairly frequent over the past fifty years.
In most nation-states (as countries are called in international law), knowing who has power to make and enforce the laws is a matter of knowing who has political power; in many places, the people or groups that have military power can also command political power to make and enforce the laws. Revolutions are difficult and contentious, but each year there are revolts against existing political-legal authority; an aspiration for democratic rule, or greater “rights” for citizens, is a recurring theme in politics and law.
KEY TAKEAWAY
Law is the result of political action, and the political landscape is vastly different from nation to nation. Unstable or authoritarian governments often fail to serve the principal functions of law.
EXERCISES
1. Consider Burma (named Myanmar by its military rulers). What political rights do you have that the average Burmese citizen does not?
2. What is a nongovernment organization, and what does it have to do with government? Do you contribute to (or are you active in) a nongovernment organization? What kind of rights do they espouse, what kind of laws do they support, and what kind of laws do they oppose? | textbooks/biz/Civil_Law/Book%3A_Introduction_to_Contracts_Sales_and_Product_Liability/01%3A_Introduction_to_Law_and_Legal_Systems/1.01%3A_What_Is_Law.txt |
LEARNING OBJECTIVES
1. Distinguish different philosophies of law—schools of legal thought—and explain their relevance.
2. Explain why natural law relates to the rights that the founders of the US political-legal system found important.
3. Describe legal positivism and explain how it differs from natural law.
4. Differentiate critical legal studies and ecofeminist legal perspectives from both natural law and legal positivist perspectives.
There are different schools (or philosophies) concerning what law is all about. Philosophy of law is also called jurisprudence, and the two main schools are legal positivism and natural law. Although there are others (see Section 1.2.3 "Other Schools of Legal Thought"), these two are the most influential in how people think about the law.
Legal Positivism: Law as Sovereign Command
As legal philosopher John Austin concisely put it, “Law is the command of a sovereign.” Law is only law, in other words, if it comes from a recognized authority and can be enforced by that authority, or sovereign—such as a king, a president, or a dictator—who has power within a defined area or territory. Positivism is a philosophical movement that claims that science provides the only knowledge precise enough to be worthwhile. But what are we to make of the social phenomena of laws?
We could examine existing statutes—executive orders, regulations, or judicial decisions—in a fairly precise way to find out what the law says. For example, we could look at the posted speed limits on most US highways and conclude that the “correct” or “right” speed is no more than fifty-five miles per hour. Or we could look a little deeper and find out how the written law is usually applied. Doing so, we might conclude that sixty-one miles per hour is generally allowed by most state troopers, but that occasionally someone gets ticketed for doing fifty-seven miles per hour in a fifty-five miles per hour zone. Either approach is empirical, even if not rigorously scientific. The first approach, examining in a precise way what the rule itself says, is sometimes known as the “positivist” school of legal thought. The second approach—which relies on social context and the actual behavior of the principal actors who enforce the law—is akin to the “legal realist” school of thought (see Section 1.2.3 "Other Schools of Legal Thought").
Positivism has its limits and its critics. New Testament readers may recall that King Herod, fearing the birth of a Messiah, issued a decree that all male children below a certain age be killed. Because it was the command of a sovereign, the decree was carried out (or, in legal jargon, the decree was “executed”). Suppose a group seizes power in a particular place and commands that women cannot attend school and can only be treated medically by women, even if their condition is life-threatening and women doctors are few and far between. Suppose also that this command is carried out, just because it is the law and is enforced with a vengeance. People who live there will undoubtedly question the wisdom, justice, or goodness of such a law, but it is law nonetheless and is generally carried out. To avoid the law’s impact, a citizen would have to flee the country entirely. During the Taliban rule in Afghanistan, from which this example is drawn, many did flee.
The positive-law school of legal thought would recognize the lawmaker’s command as legitimate; questions about the law’s morality or immorality would not be important. In contrast, the natural-law school of legal thought would refuse to recognize the legitimacy of laws that did not conform to natural, universal, or divine law. If a lawmaker issued a command that was in violation of natural law, a citizen would be morally justified in demonstrating civil disobedience. For example, in refusing to give up her seat to a white person, Rosa Parks believed that she was refusing to obey an unjust law.
Natural Law
The natural-law school of thought emphasizes that law should be based on a universal moral order. Natural law was “discovered” by humans through the use of reason and by choosing between that which is good and that which is evil. Here is the definition of natural law according to the Cambridge Dictionary of Philosophy: “Natural law, also called the law of nature in moral and political philosophy, is an objective norm or set of objective norms governing human behavior, similar to the positive laws of a human ruler, but binding on all people alike and usually understood as involving a superhuman legislator.”Cambridge Dictionary of Philosophy, s.v. “natural law.”
Both the US Constitution and the United Nations (UN) Charter have an affinity for the natural-law outlook, as it emphasizes certain objective norms and rights of individuals and nations. The US Declaration of Independence embodies a natural-law philosophy. The following short extract should provide some sense of the deep beliefs in natural law held by those who signed the document.
The Unanimous Declaration of the Thirteen United States of America
July 4, 1776
When in the Course of human events, it becomes necessary for one people to dissolve the political bands which have connected them with another, and to assume among the powers of the earth, the separate and equal station to which the Laws of Nature and of Nature’s God entitle them, a decent respect to the opinions of mankind requires that they should declare the causes which impel them to the separation.
We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the Pursuit of Happiness. That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed.…
The natural-law school has been very influential in American legal thinking. The idea that certain rights, for example, are “unalienable” (as expressed in the Declaration of Independence and in the writings of John Locke) is consistent with this view of the law. Individuals may have “God-given” or “natural” rights that government cannot legitimately take away. Government only by consent of the governed is a natural outgrowth of this view.
Civil disobedience—in the tradition of Henry Thoreau, Mahatma Gandhi, or Martin Luther King Jr.—becomes a matter of morality over “unnatural” law. For example, in his “Letter from Birmingham Jail,” Martin Luther King Jr. claims that obeying an unjust law is not moral and that deliberately disobeying an unjust law is in fact a moral act that expresses “the highest respect for law”: “An individual who breaks a law that conscience tells him is unjust, and who willingly accepts the penalty of imprisonment in order to arouse the conscience of the community over its injustice, is in reality expressing the highest respect for law.…One who breaks an unjust law must do so openly, lovingly, and with a willingness to accept the penalty.”Martin Luther King Jr., “Letter from Birmingham Jail.”
Legal positivists, on the other hand, would say that we cannot know with real confidence what “natural” law or “universal” law is. In studying law, we can most effectively learn by just looking at what the written law says, or by examining how it has been applied. In response, natural-law thinkers would argue that if we care about justice, every law and every legal system must be held accountable to some higher standard, however hard that may be to define.
It is easier to know what the law “is” than what the law “should be.” Equal employment laws, for example, have specific statutes, rules, and decisions about racial discrimination. There are always difficult issues of interpretation and decision, which is why courts will resolve differing views. But how can we know the more fundamental “ought” or “should” of human equality? For example, how do we know that “all men are created equal” (from the Declaration of Independence)? Setting aside for the moment questions about the equality of women, or that of slaves, who were not counted as men with equal rights at the time of the declaration—can the statement be empirically proven, or is it simply a matter of a priori knowledge? (A priori means “existing in the mind prior to and independent of experience.”) Or is the statement about equality a matter of faith or belief, not really provable either scientifically or rationally? The dialogue between natural-law theorists and more empirically oriented theories of “what law is” will raise similar questions. In this book, we will focus mostly on the law as it is, but not without also raising questions about what it could or should be.
Other Schools of Legal Thought
The historical school of law believes that societies should base their legal decisions today on the examples of the past. Precedent would be more important than moral arguments.
The legal realist school flourished in the 1920s and 1930s as a reaction to the historical school. Legal realists pointed out that because life and society are constantly changing, certain laws and doctrines have to be altered or modernized in order to remain current. The social context of law was more important to legal realists than the formal application of precedent to current or future legal disputes. Rather than suppose that judges inevitably acted objectively in applying an existing rule to a set of facts, legal realists observed that judges had their own beliefs, operated in a social context, and would give legal decisions based on their beliefs and their own social context.
The legal realist view influenced the emergence of the critical legal studies (CLS) school of thought. The “Crits” believe that the social order (and the law) is dominated by those with power, wealth, and influence. Some Crits are clearly influenced by the economist Karl Marx and also by distributive justice theory (see Chapter 2 "Corporate Social Responsibility and Business Ethics"). The CLS school believes the wealthy have historically oppressed or exploited those with less wealth and have maintained social control through law. In so doing, the wealthy have perpetuated an unjust distribution of both rights and goods in society. Law is politics and is thus not neutral or value-free. The CLS movement would use the law to overturn the hierarchical structures of domination in the modern society.
Related to the CLS school, yet different, is the ecofeminist school of legal thought. This school emphasizes—and would modify—the long-standing domination of men over both women and the rest of the natural world. Ecofeminists would say that the same social mentality that leads to exploitation of women is at the root of man’s exploitation and degradation of the natural environment. They would say that male ownership of land has led to a “dominator culture,” in which man is not so much a steward of the existing environment or those “subordinate” to him but is charged with making all that he controls economically “productive.” Wives, children, land, and animals are valued as economic resources, and legal systems (until the nineteenth century) largely conferred rights only to men with land. Ecofeminists would say that even with increasing civil and political rights for women (such as the right to vote) and with some nations’ recognizing the rights of children and animals and caring for the environment, the legacy of the past for most nations still confirms the preeminence of “man” and his dominance of both nature and women.
KEY TAKEAWAY
Each of the various schools of legal thought has a particular view of what a legal system is or what it should be. The natural-law theorists emphasize the rights and duties of both government and the governed. Positive law takes as a given that law is simply the command of a sovereign, the political power that those governed will obey. Recent writings in the various legal schools of thought emphasize long-standing patterns of domination of the wealthy over others (the CLS school) and of men over women (ecofeminist legal theory).
EXERCISES
1. Vandana Shiva draws a picture of a stream in a forest. She says that in our society the stream is seen as unproductive if it is simply there, fulfilling the need for water of women’s families and communities, until engineers come along and tinker with it, perhaps damming it and using it for generating hydropower. The same is true of a forest, unless it is replaced with a monoculture plantation of a commercial species. A forest may very well be productive—protecting groundwater; creating oxygen; providing fruit, fuel, and craft materials for nearby inhabitants; and creating a habitat for animals that are also a valuable resource. She criticizes the view that if there is no monetary amount that can contribute to gross domestic product, neither the forest nor the river can be seen as a productive resource. Which school of legal thought does her criticism reflect?
2. Anatole France said, “The law, in its majesty, forbids rich and poor alike from sleeping under bridges.” Which school of legal thought is represented by this quote?
3. Adolf Eichmann was a loyal member of the National Socialist Party in the Third Reich and worked hard under Hitler’s government during World War II to round up Jewish people for incarceration—and eventual extermination—at labor camps like Auschwitz and Buchenwald. After an Israeli “extraction team” took him from Argentina to Israel, he was put on trial for “crimes against humanity.” His defense was that he was “just following orders.” Explain why Eichmann was not an adherent of the natural-law school of legal thought. | textbooks/biz/Civil_Law/Book%3A_Introduction_to_Contracts_Sales_and_Product_Liability/01%3A_Introduction_to_Law_and_Legal_Systems/1.02%3A_Schools_of_Legal_Thought.txt |
LEARNING OBJECTIVES
1. In a general way, differentiate contract law from tort law.
2. Consider the role of law in supporting ethical norms in our society.
3. Understand the differing roles of state law and federal law in the US legal system.
4. Know the difference between criminal cases and civil cases.
Most of what we discuss in this book is positive law—US positive law in particular. We will also consider the laws and legal systems of other nations. But first, it will be useful to cover some basic concepts and distinctions.
Law: The Moral Minimums in a Democratic Society
The law does not correct (or claim to correct) every wrong that occurs in society. At a minimum, it aims to curb the worst kind of wrongs, the kinds of wrongs that violate what might be called the “moral minimums” that a community demands of its members. These include not only violations of criminal law (see Chapter 6 "Criminal Law") but also torts (see Chapter 7 "Introduction to Tort Law") and broken promises (see Chapter 8 "Introduction to Contract Law"). Thus it may be wrong to refuse to return a phone call from a friend, but that wrong will not result in a viable lawsuit against you. But if a phone (or the Internet) is used to libel or slander someone, a tort has been committed, and the law may allow the defamed person to be compensated.
There is a strong association between what we generally think of as ethical behavior and what the laws require and provide. For example, contract law upholds society’s sense that promises—in general—should be kept. Promise-breaking is seen as unethical. The law provides remedies for broken promises (in breach of contract cases) but not for all broken promises; some excuses are accepted when it would be reasonable to do so. For tort law, harming others is considered unethical. If people are not restrained by law from harming one another, orderly society would be undone, leading to anarchy. Tort law provides for compensation when serious injuries or harms occur. As for property law issues, we generally believe that private ownership of property is socially useful and generally desirable, and it is generally protected (with some exceptions) by laws. You can’t throw a party at my house without my permission, but my right to do whatever I want on my own property may be limited by law; I can’t, without the public’s permission, operate an incinerator on my property and burn heavy metals, as toxic ash may be deposited throughout the neighborhood.
The Common Law: Property, Torts, and Contracts
Even before legislatures met to make rules for society, disputes happened and judges decided them. In England, judges began writing down the facts of a case and the reasons for their decision. They often resorted to deciding cases on the basis of prior written decisions. In relying on those prior decisions, the judge would reason that since a current case was pretty much like a prior case, it ought to be decided the same way. This is essentially reasoning by analogy. Thus the use of precedent in common-law cases came into being, and a doctrine of stare decisis (pronounced STAR-ay-de-SIGH-sus) became accepted in English courts. Stare decisis means, in Latin, “let the decision stand.”
Most judicial decisions that don’t apply legislative acts (known as statutes) will involve one of three areas of law—property, contract, or tort. Property law deals with the rights and duties of those who can legally own land (real property), how that ownership can be legally confirmed and protected, how property can be bought and sold, what the rights of tenants (renters) are, and what the various kinds of “estates” in land are (e.g., fee simple, life estate, future interest, easements, or rights of way). Contract law deals with what kinds of promises courts should enforce. For example, should courts enforce a contract where one of the parties was intoxicated, underage, or insane? Should courts enforce a contract where one of the parties seemed to have an unfair advantage? What kind of contracts would have to be in writing to be enforced by courts? Tort law deals with the types of cases that involve some kind of harm and or injury between the plaintiff and the defendant when no contract exists. Thus if you are libeled or a competitor lies about your product, your remedy would be in tort, not contract.
The thirteen original colonies had been using English common law for many years, and they continued to do so after independence from England. Early cases from the first states are full of references to already-decided English cases. As years went by, many precedents were established by US state courts, so that today a judicial opinion that refers to a seventeenth- or eighteenth-century English common-law case is quite rare.
Courts in one state may look to common-law decisions from the courts of other states where the reasoning in a similar case is persuasive. This will happen in “cases of first impression,” a fact pattern or situation that the courts in one state have never seen before. But if the supreme court in a particular state has already ruled on a certain kind of case, lower courts in that state will always follow the rule set forth by their highest court.
State Courts and the Domain of State Law
In the early years of our nation, federal courts were not as active or important as state courts. States had jurisdiction (the power to make and enforce laws) over the most important aspects of business life. The power of state law has historically included governing the following kinds of issues and claims:
• Contracts, including sales, commercial paper, letters of credit, and secured transactions
• Torts
• Property, including real property, bailments of personal property (such as when you check your coat at a theater or leave your clothes with a dry cleaner), trademarks, copyrights, and the estates of decedents (dead people)
• Corporations
• Partnerships
• Domestic matters, including marriage, divorce, custody, adoption, and visitation
• Securities law
• Environmental law
• Agency law, governing the relationship between principals and their agents.
• Banking
• Insurance
Over the past eighty years, however, federal law has become increasingly important in many of these areas, including banking, securities, and environmental law.
Civil versus Criminal Cases
Most of the cases we will look at in this textbook are civil cases. Criminal cases are certainly of interest to business, especially as companies may break criminal laws. A criminal case involves a governmental decision—whether state or federal—to prosecute someone (named as a defendant) for violating society’s laws. The law establishes a moral minimum and does so especially in the area of criminal laws; if you break a criminal law, you can lose your freedom (in jail) or your life (if you are convicted of a capital offense). In a civil action, you would not be sent to prison; in the worst case, you can lose property (usually money or other assets), such as when Ford Motor Company lost a personal injury case and the judge awarded \$295 million to the plaintiffs or when Pennzoil won a \$10.54 billion verdict against Texaco (see Chapter 7 "Introduction to Tort Law").
Some of the basic differences between civil law and criminal law cases are illustrated in Table 1.1 "Differences between Civil and Criminal Cases".
Table 1.1 Differences between Civil and Criminal Cases
Civil Cases Criminal Cases
Parties Plaintiff brings case; defendant must answer or lose by default Prosecutor brings case; defendant may remain silent
Proof Preponderance of evidence Beyond a reasonable doubt
Reason To settle disputes peacefully, usually between private parties To maintain order in society
To punish the most blameworthy
To deter serious wrongdoing
Remedies Money damages (legal remedy) Fines, jail, and forfeitures
Injunctions (equitable remedy)
Specific performance (equity)
Regarding plaintiffs and prosecutors, you can often tell a civil case from a criminal case by looking at the caption of a case going to trial. If the government appears first in the caption of the case (e.g., U.S. v. Lieberman, it is likely that the United States is prosecuting on behalf of the people. The same is true of cases prosecuted by state district attorneys (e.g., State v. Seidel). But this is not a foolproof formula. Governments will also bring civil actions to collect debts from or settle disputes with individuals, corporations, or other governments. Thus U.S. v. Mayer might be a collection action for unpaid taxes, or U.S. v. Canada might be a boundary dispute in the International Court of Justice. Governments can be sued, as well; people occasionally sue their state or federal government, but they can only get a trial if the government waives its sovereign immunity and allows such suits. Warner v. U.S., for example, could be a claim for a tax refund wrongfully withheld or for damage caused to the Warner residence by a sonic boom from a US Air Force jet flying overhead.
Substance versus Procedure
Many rules and regulations in law are substantive, and others are procedural. We are used to seeing laws as substantive; that is, there is some rule of conduct or behavior that is called for or some action that is proscribed (prohibited). The substantive rules tell us how to act with one another and with the government. For example, all of the following are substantive rules of law and provide a kind of command or direction to citizens:
• Drive not more than fifty-five miles per hour where that speed limit is posted.
• Do not conspire to fix prices with competitors in the US market.
• Do not falsely represent the curative effects of your over-the-counter herbal remedy.
• Do not drive your motor vehicle through an intersection while a red traffic signal faces the direction you are coming from.
• Do not discriminate against job applicants or employees on the basis of their race, sex, religion, or national origin.
• Do not discharge certain pollutants into the river without first getting a discharge permit.
In contrast, procedural laws are the rules of courts and administrative agencies. They tell us how to proceed if there is a substantive-law problem. For example, if you drive fifty-three miles per hour in a forty mile-per-hour zone on Main Street on a Saturday night and get a ticket, you have broken a substantive rule of law (the posted speed limit). Just how and what gets decided in court is a matter of procedural law. Is the police officer’s word final, or do you get your say before a judge? If so, who goes first, you or the officer? Do you have the right to be represented by legal counsel? Does the hearing or trial have to take place within a certain time period? A week? A month? How long can the state take to bring its case? What kinds of evidence will be relevant? Radar? (Does it matter what kind of training the officer has had on the radar device? Whether the radar device had been tested adequately?) The officer’s personal observation? (What kind of training has he had, how is he qualified to judge the speed of a car, and other questions arise.) What if you unwisely bragged to a friend at a party recently that you went a hundred miles an hour on Main Street five years ago at half past three on a Tuesday morning? (If the prosecutor knows of this and the “friend” is willing to testify, is it relevant to the charge of fifty-three in a forty-mile-per-hour zone?)
In the United States, all state procedural laws must be fair, since the due process clause of the Fourteenth Amendment directs that no state shall deprive any citizen of “life, liberty, or property,” without due process of law. (The \$200 fine plus court costs is designed to deprive you of property, that is, money, if you violate the speed limit.) Federal laws must also be fair, because the Fifth Amendment to the US Constitution has the exact same due process language as the Fourteenth Amendment. This suggests that some laws are more powerful or important than others, which is true. The next section looks at various types of positive law and their relative importance.
KEY TAKEAWAY
In most legal systems, like that in the United States, there is a fairly firm distinction between criminal law (for actions that are offenses against the entire society) and civil law (usually for disputes between individuals or corporations). Basic ethical norms for promise-keeping and not harming others are reflected in the civil law of contracts and torts. In the United States, both the states and the federal government have roles to play, and sometimes these roles will overlap, as in environmental standards set by both states and the federal government.
EXERCISES
1. Jenna gets a ticket for careless driving after the police come to investigate a car accident she had with you on Hanover Boulevard. Your car is badly damaged through no fault of your own. Is Jenna likely to face criminal charges, civil charges, or both?
2. Jenna’s ticket says that she has thirty days in which to respond to the charges against her. The thirty days conforms to a state law that sets this time limit. Is the thirty-day limit procedural law or substantive law? | textbooks/biz/Civil_Law/Book%3A_Introduction_to_Contracts_Sales_and_Product_Liability/01%3A_Introduction_to_Law_and_Legal_Systems/1.03%3A_Basic_Concepts_and_Categories_of_US_Positive_Law.txt |
LEARNING OBJECTIVES
1. Describe the different sources of law in the US legal system and the principal institutions that create those laws.
2. Explain in what way a statute is like a treaty, and vice versa.
3. Explain why the Constitution is “prior” and has priority over the legislative acts of a majority, whether in the US Congress or in a state legislature.
4. Describe the origins of the common-law system and what common law means.
Sources of Law
In the United States today, there are numerous sources of law. The main ones are (1) constitutions—both state and federal, (2) statutes and agency regulations, and (3) judicial decisions. In addition, chief executives (the president and the various governors) can issue executive orders that have the effect of law.
In international legal systems, sources of law include treaties (agreements between states or countries) and what is known as customary international law (usually consisting of judicial decisions from national court systems where parties from two or more nations are in a dispute).
As you might expect, these laws sometimes conflict: a state law may conflict with a federal law, or a federal law might be contrary to an international obligation. One nation’s law may provide one substantive rule, while another nation’s law may provide a different, somewhat contrary rule to apply. Not all laws, in other words, are created equal. To understand which laws have priority, it is essential to understand the relationships between the various kinds of law.
Constitutions
Constitutions are the foundation for a state or nation’s other laws, providing the country’s legislative, executive, and judicial framework. Among the nations of the world, the United States has the oldest constitution still in use. It is difficult to amend, which is why there have only been seventeen amendments following the first ten in 1789; two-thirds of the House and Senate must pass amendments, and three-fourths of the states must approve them.
The nation’s states also have constitutions. Along with providing for legislative, executive, and judicial functions, state constitutions prescribe various rights of citizens. These rights may be different from, and in addition to, rights granted by the US Constitution. Like statutes and judicial decisions, a constitution’s specific provisions can provide people with a “cause of action” on which to base a lawsuit (see Section 1.4.3 "Causes of Action, Precedent, and " on “causes of action”). For example, California’s constitution provides that the citizens of that state have a right of privacy. This has been used to assert claims against businesses that invade an employee’s right of privacy. In the case of Virginia Rulon-Miller, her employer, International Business Machines (IBM), told her to stop dating a former colleague who went to work for a competitor. When she refused, IBM terminated her, and a jury fined the company for \$300,000 in damages. As the California court noted, “While an employee sacrifices some privacy rights when he enters the workplace, the employee’s privacy expectations must be balanced against the employer’s interests.…[T]he point here is that privacy, like the other unalienable rights listed first in our Constitution…is unquestionably a fundamental interest of our society.”Rulon-Miller v. International Business Machines Corp., 162 Cal. App.3d 241, 255 (1984).
Statutes and Treaties in Congress
In Washington, DC, the federal legislature is known as Congress and has both a House of Representatives and a Senate. The House is composed of representatives elected every two years from various districts in each state. These districts are established by Congress according to population as determined every ten years by the census, a process required by the Constitution. Each state has at least one district; the most populous state (California) has fifty-two districts. In the Senate, there are two senators from each state, regardless of the state’s population. Thus Delaware has two senators and California has two senators, even though California has far more people. Effectively, less than 20 percent of the nation’s population can send fifty senators to Washington.
Many consider this to be antidemocratic. The House of Representatives, on the other hand, is directly proportioned by population, though no state can have less than one representative.
Each Congressional legislative body has committees for various purposes. In these committees, proposed bills are discussed, hearings are sometimes held, and bills are either reported out (brought to the floor for a vote) or killed in committee. If a bill is reported out, it may be passed by majority vote. Because of the procedural differences between the House and the Senate, bills that have the same language when proposed in both houses are apt to be different after approval by each body. A conference committee will then be held to try to match the two versions. If the two versions differ widely enough, reconciliation of the two differing versions into one acceptable to both chambers (House and Senate) is more difficult.
If the House and Senate can agree on identical language, the reconciled bill will be sent to the president for signature or veto. The Constitution prescribes that the president will have veto power over any legislation. But the two bodies can override a presidential veto with a two-thirds vote in each chamber.
In the case of treaties, the Constitution specifies that only the Senate must ratify them. When the Senate ratifies a treaty, it becomes part of federal law, with the same weight and effect as a statute passed by the entire Congress. The statutes of Congress are collected in codified form in the US Code. The code is available online at http://uscode.house.gov.
Delegating Legislative Powers: Rules by Administrative Agencies
Congress has found it necessary and useful to create government agencies to administer various laws (see Chapter 5 "Administrative Law"). The Constitution does not expressly provide for administrative agencies, but the US Supreme Court has upheld the delegation of power to create federal agencies.
Examples of administrative agencies would include the Occupational Safety and Health Administration (OSHA), the Environmental Protection Agency (EPA), and the Federal Trade Commission (FTC).
It is important to note that Congress does not have unlimited authority to delegate its lawmaking powers to an agency. It must delegate its authority with some guidelines for the agency and cannot altogether avoid its constitutional responsibilities (see Chapter 5 "Administrative Law").
Agencies propose rules in the Federal Register, published each working day of the year. Rules that are formally adopted are published in the Code of Federal Regulations, or CFR, available online at www.access.gpo.gov/nara/cfr/cfr-table-search.html.
State Statutes and Agencies: Other Codified Law
Statutes are passed by legislatures and provide general rules for society. States have legislatures (sometimes called assemblies), which are usually made up of both a senate and a house of representatives. Like the federal government, state legislatures will agree on the provisions of a bill, which is then sent to the governor (acting like the president for that state) for signature. Like the president, governors often have a veto power. The process of creating and amending, or changing, laws is filled with political negotiation and compromise.
On a more local level, counties and municipal corporations or townships may be authorized under a state’s constitution to create or adopt ordinances. Examples of ordinances include local building codes, zoning laws, and misdemeanors or infractions such as skateboarding or jaywalking. Most of the more unusual laws that are in the news from time to time are local ordinances. For example, in Logan County, Colorado, it is illegal to kiss a sleeping woman; in Indianapolis, Indiana, and Eureka, Nebraska, it is a crime to kiss if you have a mustache. But reportedly, some states still have odd laws here and there. Kentucky law proclaims that every person in the state must take a bath at least once a year, and failure to do so is illegal.
Judicial Decisions: The Common Law
Common law consists of decisions by courts (judicial decisions) that do not involve interpretation of statutes, regulations, treaties, or the Constitution. Courts make such interpretations, but many cases are decided where there is no statutory or other codified law or regulation to be interpreted. For example, a state court deciding what kinds of witnesses are required for a valid will in the absence of a rule (from a statute) is making common law.
United States law comes primarily from the tradition of English common law. By the time England’s American colonies revolted in 1776, English common-law traditions were well established in the colonial courts. English common law was a system that gave written judicial decisions the force of law throughout the country. Thus if an English court delivered an opinion as to what constituted the common-law crime of burglary, other courts would stick to that decision, so that a common body of law developed throughout the country. Common law is essentially shorthand for the notion that a common body of law, based on past written decisions, is desirable and necessary.
In England and in the laws of the original thirteen states, common-law decisions defined crimes such as arson, burglary, homicide, and robbery. As time went on, US state legislatures either adopted or modified common-law definitions of most crimes by putting them in the form of codes or statutes. This legislative ability—to modify or change common law into judicial law—points to an important phenomenon: the priority of statutory law over common law. As we will see in the next section, constitutional law will have priority over statutory law.
The Constitution as Preemptive Force in US Law
The US Constitution takes precedence over all statutes and judicial decisions that are inconsistent. For example, if Michigan were to decide legislatively that students cannot speak ill of professors in state-sponsored universities, that law would be void, since it is inconsistent with the state’s obligation under the First Amendment to protect free speech. Or if the Michigan courts were to allow a professor to bring a lawsuit against a student who had said something about him that was derogatory but not defamatory, the state’s judicial system would not be acting according to the First Amendment. (As we will see in Chapter 7 "Introduction to Tort Law", free speech has its limits; defamation was a cause of action at the time the First Amendment was added to the Constitution, and it has been understood that the free speech rights in the First Amendment did not negate existing common law.)
Statutes and Cases
Statutes generally have priority, or take precedence, over case law (judicial decisions). Under common-law judicial decisions, employers could hire young children for difficult work, offer any wage they wanted, and not pay overtime work at a higher rate. But various statutes changed that. For example, the federal Fair Labor Standards Act (1938) forbid the use of oppressive child labor and established a minimum pay wage and overtime pay rules.
Treaties as Statutes: The “Last in Time” Rule
A treaty or convention is considered of equal standing to a statute. Thus when Congress ratified the North American Free Trade Agreement (NAFTA), any judicial decisions or previous statutes that were inconsistent—such as quotas or limitations on imports from Mexico that were opposite to NAFTA commitments—would no longer be valid. Similarly, US treaty obligations under the General Agreement on Tariffs and Trade (GATT) and obligations made later through the World Trade Organization (WTO) would override previous federal or state statutes.
One example of treaty obligations overriding, or taking priority over, federal statutes was the tuna-dolphin dispute between the United States and Mexico. The Marine Mammal Protection Act amendments in 1988 spelled out certain protections for dolphins in the Eastern Tropical Pacific, and the United States began refusing to allow the importation of tuna that were caught using “dolphin-unfriendly” methods (such as purse seining). This was challenged at a GATT dispute panel in Switzerland, and the United States lost. The discussion continued at the WTO under its dispute resolution process. In short, US environmental statutes can be ruled contrary to US treaty obligations.
Under most treaties, the United States can withdraw, or take back, any voluntary limitation on its sovereignty; participation in treaties is entirely elective. That is, the United States may “unbind” itself whenever it chooses. But for practical purposes, some limitations on sovereignty may be good for the nation. The argument goes something like this: if free trade in general helps the United States, then it makes some sense to be part of a system that promotes free trade; and despite some temporary setbacks, the WTO decision process will (it is hoped) provide far more benefits than losses in the long run. This argument invokes utilitarian theory (that the best policy does the greatest good overall for society) and David Ricardo’s theory of comparative advantage.
Ultimately, whether the United States remains a supporter of free trade and continues to participate as a leader in the WTO will depend upon citizens electing leaders who support the process. Had Ross Perot been elected in 1992, for example, NAFTA would have been politically (and legally) dead during his term of office.
Causes of Action, Precedent, and Stare Decisis
No matter how wrong someone’s actions may seem to you, the only wrongs you can right in a court are those that can be tied to one or more causes of action. Positive law is full of cases, treaties, statutes, regulations, and constitutional provisions that can be made into a cause of action. If you have an agreement with Harold Hill that he will purchase seventy-six trombones from you and he fails to pay for them after you deliver, you will probably feel wronged, but a court will only act favorably on your complaint if you can show that his behavior gives you a cause of action based on some part of your state’s contract law. This case would give you a cause of action under the law of most states; unless Harold Hill had some legal excuse recognized by the applicable state’s contract law—such as his legal incompetence, his being less than eighteen years of age, his being drunk at the time the agreement was made, or his claim that the instruments were trumpets rather than trombones or that they were delivered too late to be of use to him—you could expect to recover some compensation for his breaching of your agreement with him.
An old saying in the law is that the law does not deal in trifles, or unimportant issues (in Latin, de minimis non curat lex). Not every wrong you may suffer in life will be a cause to bring a court action. If you are stood up for a Saturday night date and feel embarrassed or humiliated, you cannot recover anything in a court of law in the United States, as there is no cause of action (no basis in the positive law) that you can use in your complaint. If you are engaged to be married and your spouse-to-be bolts from the wedding ceremony, there are some states that do provide a legal basis on which to bring a lawsuit. “Breach of promise to marry” is recognized in several states, but most states have abolished this cause of action, either by judicial decision or by legislation. Whether a runaway bride or groom gives rise to a valid cause of action in the courts depends on whether the state courts still recognize and enforce this now-disappearing cause of action.
Your cause of action is thus based on existing laws, including decided cases. How closely your case “fits” with a prior decided case raises the question of precedent.
As noted earlier in this chapter, the English common-law tradition placed great emphasis on precedent and what is called stare decisis. A court considering one case would feel obliged to decide that case in a way similar to previously decided cases. Written decisions of the most important cases had been spread throughout England (the common “realm”), and judges hoped to establish a somewhat predictable, consistent group of decisions.
The English legislature (Parliament) was not in the practice of establishing detailed statutes on crimes, torts, contracts, or property. Thus definitions and rules were left primarily to the courts. By their nature, courts could only decide one case at a time, but in doing so they would articulate holdings, or general rules, that would apply to later cases.
Suppose that one court had to decide whether an employer could fire an employee for no reason at all. Suppose that there were no statutes that applied to the facts: there was no contract between the employer and the employee, but the employee had worked for the employer for many years, and now a younger person was replacing him. The court, with no past guidelines, would have to decide whether the employee had stated a “cause of action” against the employer. If the court decided that the case was not legally actionable, it would dismiss the action. Future courts would then treat similar cases in a similar way. In the process, the court might make a holding that employers could fire employees for any reason or for no reason. This rule could be applied in the future should similar cases come up.
But suppose that an employer fired an employee for not committing perjury (lying on the witness stand in a court proceeding); the employer wanted the employee to cover up the company's criminal or unethical act. Suppose that, as in earlier cases, there were no applicable statutes and no contract of employment. Courts relying on a holding or precedent that “employers may fire employees for any reason or no reason” might rule against an employee seeking compensation for being fired for telling the truth on the witness stand. Or it might make an exception to the general rule, such as, “Employers may generally discharge employees for any reason or for no reason without incurring legal liability; however, employers will incur legal liability for firing an employee who refuses to lie on behalf of the employer in a court proceeding.”
In each case (the general rule and its exception), the common-law tradition calls for the court to explain the reasons for its ruling. In the case of the general rule, “freedom of choice” might be the major reason. In the case of the perjury exception, the efficiency of the judicial system and the requirements of citizenship might be used as reasons. Because the court’s “reasons” will be persuasive to some and not to others, there is inevitably a degree of subjectivity to judicial opinions. That is, reasonable people will disagree as to the persuasiveness of the reasoning a court may offer for its decision.
Written judicial opinions are thus a good playing field for developing critical thinking skills by identifying the issue in a case and examining the reasons for the court’s previous decision(s), or holding. What has the court actually decided, and why? Remember that a court, especially the US Supreme Court, is not only deciding one particular case but also setting down guidelines (in its holdings) for federal and state courts that encounter similar issues. Note that court cases often raise a variety of issues or questions to be resolved, and judges (and attorneys) will differ as to what the real issue in a case is. A holding is the court’s complete answer to an issue that is critical to deciding the case and thus gives guidance to the meaning of the case as a precedent for future cases.
Beyond the decision of the court, it is in looking at the court’s reasoning that you are most likely to understand what facts have been most significant to the court and what theories (schools of legal thought) each trial or appellate judge believes in. Because judges do not always agree on first principles (i.e., they subscribe to different schools of legal thought), there are many divided opinions in appellate opinions and in each US Supreme Court term.
KEY TAKEAWAY
There are different sources of law in the US legal system. The US Constitution is foundational; US statutory and common law cannot be inconsistent with its provisions. Congress creates statutory law (with the signature of the president), and courts will interpret constitutional law and statutory law. Where there is neither constitutional law nor statutory law, the courts function in the realm of common law. The same is true of law within the fifty states, each of which also has a constitution, or foundational law.
Both the federal government and the states have created administrative agencies. An agency only has the power that the legislature gives it. Within the scope of that power, an agency will often create regulations (see Chapter 5 "Administrative Law"), which have the same force and effect as statutes. Treaties are never negotiated and concluded by states, as the federal government has exclusive authority over relations with other nation-states. A treaty, once ratified by the Senate, has the same force and effect as a statute passed by Congress and signed into law by the president.
Constitutions, statutes, regulations, treaties, and court decisions can provide a legal basis in the positive law. You may believe you have been wronged, but for you to have a right that is enforceable in court, you must have something in the positive law that you can point to that will support a cause of action against your chosen defendant.
EXERCISES
1. Give one example of where common law was overridden by the passage of a federal statute.
2. How does common law change or evolve without any action on the part of a legislature?
3. Lindsey Paradise is not selected for her sorority of choice at the University of Kansas. She has spent all her time rushing that particular sorority, which chooses some of her friends but not her. She is disappointed and angry and wants to sue the sorority. What are her prospects of recovery in the legal system? Explain. | textbooks/biz/Civil_Law/Book%3A_Introduction_to_Contracts_Sales_and_Product_Liability/01%3A_Introduction_to_Law_and_Legal_Systems/1.04%3A_Sources_of_Law_and_Their_Priority.txt |
LEARNING OBJECTIVE
1. Describe how the common-law system differs from the civil-law system.
Other legal and political systems are very different from the US system, which came from English common-law traditions and the framers of the US Constitution. Our legal and political traditions are different both in what kinds of laws we make and honor and in how disputes are resolved in court.
Comparing Common-Law Systems with Other Legal Systems
The common-law tradition is unique to England, the United States, and former colonies of the British Empire. Although there are differences among common-law systems (e.g., most nations do not permit their judiciaries to declare legislative acts unconstitutional; some nations use the jury less frequently), all of them recognize the use of precedent in judicial cases, and none of them relies on the comprehensive, legislative codes that are prevalent in civil-law systems.
Civil-Law Systems
The main alternative to the common-law legal system was developed in Europe and is based in Roman and Napoleonic law. A civil-law or code-law system is one where all the legal rules are in one or more comprehensive legislative enactments. During Napoleon’s reign, a comprehensive book of laws—a code—was developed for all of France. The code covered criminal law, criminal procedure, noncriminal law and procedure, and commercial law. The rules of the code are still used today in France and in other continental European legal systems. The code is used to resolve particular cases, usually by judges without a jury. Moreover, the judges are not required to follow the decisions of other courts in similar cases. As George Cameron of the University of Michigan has noted, “The law is in the code, not in the cases.” He goes on to note, “Where several cases all have interpreted a provision in a particular way, the French courts may feel bound to reach the same result in future cases, under the doctrine of jurisprudence constante. The major agency for growth and change, however, is the legislature, not the courts.”
Civil-law systems are used throughout Europe as well as in Central and South America. Some nations in Asia and Africa have also adopted codes based on European civil law. Germany, Holland, Spain, France, and Portugal all had colonies outside of Europe, and many of these colonies adopted the legal practices that were imposed on them by colonial rule, much like the original thirteen states of the United States, which adopted English common-law practices.
One source of possible confusion at this point is that we have already referred to US civil law in contrast to criminal law. But the European civil law covers both civil and criminal law.
There are also legal systems that differ significantly from the common-law and civil-law systems. The communist and socialist legal systems that remain (e.g., in Cuba and North Korea) operate on very different assumptions than those of either English common law or European civil law. Islamic and other religion-based systems of law bring different values and assumptions to social and commercial relations.
KEY TAKEAWAY
Legal systems vary widely in their aims and in the way they process civil and criminal cases. Common-law systems use juries, have one judge, and adhere to precedent. Civil-law systems decide cases without a jury, often use three judges, and often render shorter opinions without reference to previously decided cases.
EXERCISE
1. Use the Internet to identify some of the better-known nations with civil-law systems. Which Asian nations came to adopt all or part of civil-law traditions, and why? | textbooks/biz/Civil_Law/Book%3A_Introduction_to_Contracts_Sales_and_Product_Liability/01%3A_Introduction_to_Law_and_Legal_Systems/1.05%3A_Legal_and_Political_Systems_of_the_World.txt |
Preliminary Note to Students
Title VII of the Civil Rights Act of 1964 is a federal statute that applies to all employers whose workforce exceeds fifteen people. The text of Title VII says that
(a) it shall be an unlawful employment practice for an employer—
(1) to fail or refuse to hire or to discharge any individual, or otherwise to discriminate against any individual with respect to his compensation, terms, conditions, or privileges of employment, because of such individual’s race, color, religion, sex, or natural origin.
At common law—where judges decide cases without reference to statutory guidance—employers were generally free to hire and fire on any basis they might choose, and employees were generally free to work for an employer or quit an employer on any basis they might choose (unless the employer and the employee had a contract). This rule has been called “employment at will.” State and federal statutes that prohibit discrimination on any basis (such as the prohibitions on discrimination because of race, color, religion, sex, or national origin in Title VII) are essentially legislative exceptions to the common-law employment-at-will rule.
In the 1970s, many female employees began to claim a certain kind of sex discrimination: sexual harassment. Some women were being asked to give sexual favors in exchange for continued employment or promotion (quid pro quo sexual harassment) or found themselves in a working environment that put their chances for continued employment or promotion at risk. This form of sexual discrimination came to be called “hostile working environment” sexual harassment.
Notice that the statute itself says nothing about sexual harassment but speaks only in broad terms about discrimination “because of” sex (and four other factors). Having set the broad policy, Congress left it to employees, employers, and the courts to fashion more specific rules through the process of civil litigation.
This is a case from our federal court system, which has a trial or hearing in the federal district court, an appeal to the Sixth Circuit Court of Appeals, and a final appeal to the US Supreme Court. Teresa Harris, having lost at both the district court and the Sixth Circuit Court of Appeals, here has petitioned for a writ of certiorari (asking the court to issue an order to bring the case to the Supreme Court), a petition that is granted less than one out of every fifty times. The Supreme Court, in other words, chooses its cases carefully. Here, the court wanted to resolve a difference of opinion among the various circuit courts of appeal as to whether or not a plaintiff in a hostile-working-environment claim could recover damages without showing “severe psychological injury.”
Harris v. Forklift Systems
510 U.S. 17 (U.S. Supreme Court 1992)
JUDGES: O’CONNOR, J., delivered the opinion for a unanimous Court. SCALIA, J., and GINSBURG, J., filed concurring opinions.
JUSTICE O’CONNOR delivered the opinion of the Court.
In this case we consider the definition of a discriminatorily “abusive work environment” (also known as a “hostile work environment”) under Title VII of the Civil Rights Act of 1964, 78 Stat. 253, as amended, 42 U.S.C. § 2000e et seq. (1988 ed., Supp. III).
I
Teresa Harris worked as a manager at Forklift Systems, Inc., an equipment rental company, from April 1985 until October 1987. Charles Hardy was Forklift’s president.
The Magistrate found that, throughout Harris’ time at Forklift, Hardy often insulted her because of her gender and often made her the target of unwanted sexual innuendoes. Hardy told Harris on several occasions, in the presence of other employees, “You’re a woman, what do you know” and “We need a man as the rental manager”; at least once, he told her she was “a dumbass woman.” Again in front of others, he suggested that the two of them “go to the Holiday Inn to negotiate [Harris’s] raise.” Hardy occasionally asked Harris and other female employees to get coins from his front pants pocket. He threw objects on the ground in front of Harris and other women, and asked them to pick the objects up. He made sexual innuendoes about Harris’ and other women’s clothing.
In mid-August 1987, Harris complained to Hardy about his conduct. Hardy said he was surprised that Harris was offended, claimed he was only joking, and apologized. He also promised he would stop, and based on this assurance Harris stayed on the job. But in early September, Hardy began anew: While Harris was arranging a deal with one of Forklift’s customers, he asked her, again in front of other employees, “What did you do, promise the guy…some [sex] Saturday night?” On October 1, Harris collected her paycheck and quit.
Harris then sued Forklift, claiming that Hardy’s conduct had created an abusive work environment for her because of her gender. The United States District Court for the Middle District of Tennessee, adopting the report and recommendation of the Magistrate, found this to be “a close case,” but held that Hardy’s conduct did not create an abusive environment. The court found that some of Hardy’s comments “offended [Harris], and would offend the reasonable woman,” but that they were not “so severe as to be expected to seriously affect [Harris’s] psychological well-being. A reasonable woman manager under like circumstances would have been offended by Hardy, but his conduct would not have risen to the level of interfering with that person’s work performance.
“Neither do I believe that [Harris] was subjectively so offended that she suffered injury.…Although Hardy may at times have genuinely offended [Harris], I do not believe that he created a working environment so poisoned as to be intimidating or abusive to [Harris].”
In focusing on the employee’s psychological well-being, the District Court was following Circuit precedent. See Rabidue v. Osceola Refining Co., 805 F.2d 611, 620 (CA6 1986), cert. denied, 481 U.S. 1041, 95 L. Ed. 2d 823, 107 S. Ct. 1983 (1987). The United States Court of Appeals for the Sixth Circuit affirmed in a brief unpublished decision…reported at 976 F.2d 733 (1992).
We granted certiorari, 507 U.S. 959 (1993), to resolve a conflict among the Circuits on whether conduct, to be actionable as “abusive work environment” harassment (no quid pro quo harassment issue is present here), must “seriously affect [an employee’s] psychological well-being” or lead the plaintiff to “suffer injury.” Compare Rabidue (requiring serious effect on psychological well-being); Vance v. Southern Bell Telephone & Telegraph Co., 863 F.2d 1503, 1510 (CA11 1989) (same); and Downes v. FAA, 775 F.2d 288, 292 (CA Fed. 1985) (same), with Ellison v. Brady, 924 F.2d 872, 877–878 (CA9 1991) (rejecting such a requirement).
II
Title VII of the Civil Rights Act of 1964 makes it “an unlawful employment practice for an employer…to discriminate against any individual with respect to his compensation, terms, conditions, or privileges of employment, because of such individual’s race, color, religion, sex, or national origin.” 42 U.S.C. § 2000e-2(a)(1). As we made clear in Meritor Savings Bank, FSB v. Vinson, 477 U.S. 57 (1986), this language “is not limited to ‘economic’ or ‘tangible’ discrimination. The phrase ‘terms, conditions, or privileges of employment’ evinces a congressional intent ‘to strike at the entire spectrum of disparate treatment of men and women’ in employment,” which includes requiring people to work in a discriminatorily hostile or abusive environment. Id., at 64, quoting Los Angeles Dept. of Water and Power v. Manhart, 435 U.S. 702, 707, n.13, 55 L. Ed. 2d 657, 98 S. Ct. 1370 (1978). When the workplace is permeated with “discriminatory intimidation, ridicule, and insult,” 477 U.S. at 65, that is “sufficiently severe or pervasive to alter the conditions of the victim’s employment and create an abusive working environment,” Title VII is violated.
This standard, which we reaffirm today, takes a middle path between making actionable any conduct that is merely offensive and requiring the conduct to cause a tangible psychological injury. As we pointed out in Meritor, “mere utterance of an…epithet which engenders offensive feelings in an employee,” does not sufficiently affect the conditions of employment to implicate Title VII. Conduct that is not severe or pervasive enough to create an objectively hostile or abusive work environment—an environment that a reasonable person would find hostile or abusive—is beyond Title VII’s purview. Likewise, if the victim does not subjectively perceive the environment to be abusive, the conduct has not actually altered the conditions of the victim’s employment, and there is no Title VII violation.
But Title VII comes into play before the harassing conduct leads to a nervous breakdown. A discriminatorily abusive work environment, even one that does not seriously affect employees’ psychological well-being, can and often will detract from employees’ job performance, discourage employees from remaining on the job, or keep them from advancing in their careers. Moreover, even without regard to these tangible effects, the very fact that the discriminatory conduct was so severe or pervasive that it created a work environment abusive to employees because of their race, gender, religion, or national origin offends Title VII’s broad rule of workplace equality. The appalling conduct alleged in Meritor, and the reference in that case to environments “‘so heavily polluted with discrimination as to destroy completely the emotional and psychological stability of minority group workers,’” Id., at 66, quoting Rogers v. EEOC, 454 F.2d 234, 238 (CA5 1971), cert. denied, 406 U.S. 957,32 L. Ed. 2d 343, 92 S. Ct. 2058 (1972), merely present some especially egregious examples of harassment. They do not mark the boundary of what is actionable.
We therefore believe the District Court erred in relying on whether the conduct “seriously affected plaintiff’s psychological well-being” or led her to “suffer injury.” Such an inquiry may needlessly focus the fact finder’s attention on concrete psychological harm, an element Title VII does not require. Certainly Title VII bars conduct that would seriously affect a reasonable person’s psychological well-being, but the statute is not limited to such conduct. So long as the environment would reasonably be perceived, and is perceived, as hostile or abusive, Meritor, supra, at 67, there is no need for it also to be psychologically injurious.
This is not, and by its nature cannot be, a mathematically precise test. We need not answer today all the potential questions it raises, nor specifically address the Equal Employment Opportunity Commission’s new regulations on this subject, see 58 Fed. Reg. 51266 (1993) (proposed 29 CFR §§ 1609.1, 1609.2); see also 29 CFR § 1604.11 (1993). But we can say that whether an environment is “hostile” or “abusive” can be determined only by looking at all the circumstances. These may include the frequency of the discriminatory conduct; its severity; whether it is physically threatening or humiliating, or a mere offensive utterance; and whether it unreasonably interferes with an employee’s work performance. The effect on the employee’s psychological well-being is, of course, relevant to determining whether the plaintiff actually found the environment abusive. But while psychological harm, like any other relevant factor, may be taken into account, no single factor is required.
III
Forklift, while conceding that a requirement that the conduct seriously affect psychological well-being is unfounded, argues that the District Court nonetheless correctly applied the Meritor standard. We disagree. Though the District Court did conclude that the work environment was not “intimidating or abusive to [Harris],” it did so only after finding that the conduct was not “so severe as to be expected to seriously affect plaintiff’s psychological well-being,” and that Harris was not “subjectively so offended that she suffered injury,” ibid. The District Court’s application of these incorrect standards may well have influenced its ultimate conclusion, especially given that the court found this to be a “close case.”
We therefore reverse the judgment of the Court of Appeals, and remand the case for further proceedings consistent with this opinion.
So ordered.
Note to Students
This was only the second time that the Supreme Court had decided a sexual harassment case. Many feminist legal studies scholars feared that the court would raise the bar and make hostile-working-environment claims under Title VII more difficult to win. That did not happen. When the question to be decided is combined with the court’s decision, we get the holding of the case. Here, the question that the court poses, plus its answer, yields a holding that “An employee need not prove severe psychological injury in order to win a Title VII sexual harassment claim.” This holding will be true until such time as the court revisits a similar question and answers it differently. This does happen, but happens rarely.
CASE QUESTIONS
1. Is this a criminal case or a civil-law case? How can you tell?
2. Is the court concerned with making a procedural rule here, or is the court making a statement about the substantive law?
3. Is this a case where the court is interpreting the Constitution, a federal statute, a state statute, or the common law?
4. In Harris v. Forklift, what if the trial judge does not personally agree that women should have any rights to equal treatment in the workplace? Why shouldn’t that judge dismiss the case even before trial? Or should the judge dismiss the case after giving the female plaintiff her day in court?
5. What was the employer’s argument in this case? Do you agree or disagree with it? What if those who legislated Title VII gave no thought to the question of seriousness of injury at all? | textbooks/biz/Civil_Law/Book%3A_Introduction_to_Contracts_Sales_and_Product_Liability/01%3A_Introduction_to_Law_and_Legal_Systems/1.06%3A_A_Sample_Case.txt |
Summary
There are differing conceptions of what law is and of what law should be. Laws and legal systems differ worldwide. The legal system in the United States is founded on the US Constitution, which is itself inspired by natural-law theory and the idea that people have rights that cannot be taken by government but only protected by government. The various functions of the law are done well or poorly depending on which nation-state you look at. Some do very well in terms of keeping order, while others do a better job of allowing civil and political freedoms. Social and political movements within each nation greatly affect the nature and quality of the legal system within that nation.
This chapter has familiarized you with a few of the basic schools of legal thought, such as natural law, positive law, legal realism, and critical legal studies. It has also given you a brief background in common law, including contracts, torts, and criminal law. The differences between civil and criminal cases, substance and procedure, and the various sources of law have also been reviewed. Each source has a different level of authority, starting with constitutions, which are primary and will negate any lower-court laws that are not consistent with its principles and provisions. The basic differences between the common law and civil law (continental, or European) systems of law are also discussed.
EXERCISES
1. What is the common law? Where do the courts get the authority to interpret it and to change it?
2. After World War II ended in 1945, there was an international tribunal at Nuremberg that prosecuted various officials in Germany’s Third Reich who had committed “crimes against humanity.” Many of them claim that they were simply “following orders” of Adolf Hitler and his chief lieutenants. What law, if any, have they violated?
3. What does stare decisis mean, and why is it so basic to common-law legal tradition?
4. In the following situations, which source of law takes priority, and why?
1. The state statute conflicts with the common law of that state.
2. A federal statute conflicts with the US Constitution.
3. A common-law decision in one state conflicts with the US Constitution.
4. A federal statute conflicts with a state constitution.
SELF-TEST QUESTIONS
1. The source of law that is foundational in the US legal system is
1. the common law
2. statutory law
3. constitutional law
4. administrative law
2. “Law is the command of a sovereign” represents what school of legal thought?
1. civil law
2. constitutional law
3. natural law
4. ecofeminist law
5. positive law
3. Which of the following kinds of law are most often found in state law rather than federal law?
1. torts and contracts
2. bankruptcy
3. maritime law
4. international law
4. Where was natural law discovered?
1. in nature
2. in constitutions and statutes
3. in the exercise of human reason
4. in the Wall Street Journal
5. Wolfe is a state court judge in California. In the case of Riddick v. Clouse, which involves a contract dispute, Wolfe must follow precedent. She establishes a logical relationship between the Riddick case and a case decided by the California Supreme Court, Zhu v. Patel Enterprises, Inc. She compares the facts of Riddick to the facts in Zhu and to the extent the facts are similar, applies the same rule to reach her decision. This is
1. deductive reasoning
2. faulty reasoning
3. linear reasoning
4. reasoning by analogy
6. Moore is a state court judge in Colorado. In the case of Cassidy v. Seawell, also a contract dispute, there is no Colorado Supreme Court or court of appeals decision that sets forth a rule that could be applied. However, the California case of Zhu v. Patel Enterprises, Inc. is “very close” on the facts and sets forth a rule of law that could be applied to the Cassidy case. What process must Moore follow in considering whether to use the Zhu case as precedent?
1. Moore is free to decide the case any way he wants, but he may not look at decisions and reasons in similar cases from other states.
2. Moore must wait for the Colorado legislature and the governor to pass a law that addresses the issues raised in the Cassidy case.
3. Moore must follow the California case if that is the best precedent.
4. Moore may follow the California case if he believes that it offers the best reasoning for a similar case.
1. c
2. e
3. a
4. c
5. d
6. d | textbooks/biz/Civil_Law/Book%3A_Introduction_to_Contracts_Sales_and_Product_Liability/01%3A_Introduction_to_Law_and_Legal_Systems/1.07%3A_Summary_and_Exercises.txt |
Learning Objectives
After reading this chapter, you should be able to do the following:
1. Define ethics and explain the importance of good ethics for business people and business organizations.
2. Understand the principal philosophies of ethics, including utilitarianism, duty-based ethics, and virtue ethics.
3. Distinguish between the ethical merits of various choices by using an ethical decision model.
4. Explain the difference between shareholder and stakeholder models of ethical corporate governance.
5. Explain why it is difficult to establish and maintain an ethical corporate culture in a business organization.
A great society is a society in which [leaders] of business think greatly about their functions. -Alfred North Whitehead
Few subjects are more contentious or important as the role of business in society, particularly, whether corporations have social responsibilities that are distinct from maximizing shareholder value. While the phrase “business ethics” is not oxymoronic (i.e., a contradiction in terms), there is plenty of evidence that businesspeople and firms seek to look out primarily for themselves. However, business organizations ignore the ethical and social expectations of consumers, employees, the media, nongovernment organizations (NGOs), government officials, and socially responsible investors at their peril. Legal compliance alone no longer serves the long-term interests of many companies, who find that sustainable profitability requires thinking about people and the planet as well as profits.
This chapter has a fairly modest aim: to introduce potential businesspeople to the differences between legal compliance and ethical excellence by reviewing some of the philosophical perspectives that apply to business, businesspeople, and the role of business organizations in society.
02: Corporate Social Responsibility and Business Ethics
LEARNING OBJECTIVES
1. Explain how both individuals and institutions can be viewed as ethical or unethical.
2. Explain how law and ethics are different, and why a good reputation can be more important than legal compliance.
Most of those who write about ethics do not make a clear distinction between ethics and morality. The question of what is “right” or “morally correct” or “ethically correct” or “morally desirable” in any situation is variously phrased, but all of the words and phrases are after the same thing: what act is “better” in a moral or ethical sense than some other act? People sometimes speak of morality as something personal but view ethics as having wider social implications. Others see morality as the subject of a field of study, that field being ethics. Ethics would be morality as applied to any number of subjects, including journalistic ethics, business ethics, or the ethics of professionals such as doctors, attorneys, and accountants. We will venture a definition of ethics, but for our purposes, ethics and morality will be used as equivalent terms.
People often speak about the ethics or morality of individuals and also about the morality or ethics of corporations and nations. There are clearly differences in the kind of moral responsibility that we can fairly ascribe to corporations and nations; we tend to see individuals as having a soul, or at least a conscience, but there is no general agreement that nations or corporations have either. Still, our ordinary use of language does point to something significant: if we say that some nations are “evil” and others are “corrupt,” then we make moral judgments about the quality of actions undertaken by the governments or people of that nation. For example, if North Korea is characterized by the US president as part of an “axis of evil,” or if we conclude that WorldCom or Enron acted “unethically” in certain respects, then we are making judgments that their collective actions are morally deficient.
In talking about morality, we often use the word good; but that word can be confusing. If we say that Microsoft is a “good company,” we may be making a statement about the investment potential of Microsoft stock, or their preeminence in the market, or their ability to win lawsuits or appeals or to influence administrative agencies. Less likely, though possibly, we may be making a statement about the civic virtue and corporate social responsibility of Microsoft. In the first set of judgments, we use the word good but mean something other than ethical or moral; only in the second instance are we using the word good in its ethical or moral sense.
A word such as good can embrace ethical or moral values but also nonethical values. If I like Daniel and try to convince you what a “good guy” he is, you may ask all sorts of questions: Is he good-looking? Well-off? Fun to be with? Humorous? Athletic? Smart? I could answer all of those questions with a yes, yet you would still not know any of his moral qualities. But if I said that he was honest, caring, forthright, and diligent, volunteered in local soup kitchens, or tithed to the church, many people would see Daniel as having certain ethical or moral qualities. If I said that he keeps the Golden Rule as well as anyone I know, you could conclude that he is an ethical person. But if I said that he is “always in control” or “always at the top of his game,” you would probably not make inferences or assumptions about his character or ethics.
There are three key points here:
1. Although morals and ethics are not precisely measurable, people generally have similar reactions about what actions or conduct can rightly be called ethical or moral.
2. As humans, we need and value ethical people and want to be around them.
3. Saying that someone or some organization is law-abiding does not mean the same as saying a person or company is ethical.
Here is a cautionary note: for individuals, it is far from easy to recognize an ethical problem, have a clear and usable decision-making process to deal it, and then have the moral courage to do what’s right. All of that is even more difficult within a business organization, where corporate employees vary in their motivations, loyalties, commitments, and character. There is no universally accepted way for developing an organization where employees feel valued, respected, and free to openly disagree; where the actions of top management are crystal clear; and where all the employees feel loyal and accountable to one another.
Before talking about how ethics relates to law, we can conclude that ethics is the study of morality—“right” and “wrong”—in the context of everyday life, organizational behaviors, and even how society operates and is governed.
How Do Law and Ethics Differ?
There is a difference between legal compliance and moral excellence. Few would choose a professional service, health care or otherwise, because the provider had a record of perfect legal compliance, or always following the letter of the law. There are many professional ethics codes, primarily because people realize that law prescribes only a minimum of morality and does not provide purpose or goals that can mean excellent service to customers, clients, or patients.
Business ethicists have talked for years about the intersection of law and ethics. Simply put, what is legal is not necessarily ethical. Conversely, what is ethical is not necessarily legal. There are lots of legal maneuvers that are not all that ethical; the well-used phrase “legal loophole” suggests as much.
Here are two propositions about business and ethics. Consider whether they strike you as true or whether you would need to know more in order to make a judgment.
• Individuals and organizations have reputations. (For an individual, moral reputation is most often tied to others’ perceptions of his or her character: is the individual honest, diligent, reliable, fair, and caring? The reputation of an organization is built on the goodwill that suppliers, customers, the community, and employees feel toward it. Although an organization is not a person in the usual sense, the goodwill that people feel about the organization is based on their perception of its better qualities by a variety of stakeholders: customers or clients, suppliers, investors, employees, government officials).
• The goodwill of an organization is to a great extent based on the actions it takes and on whether the actions are favorably viewed. (This goodwill is usually specifically counted in the sale of a business as an asset that the buyer pays for. While it is difficult to place a monetary value on goodwill, a firm’s good reputation will generally call for a higher evaluation in the final accounting before the sale. Legal troubles or a reputation for having legal troubles will only lessen the price for a business and will even lessen the value of the company’s stock as bad legal news comes to the public’s attention.)
Another reason to think about ethics in connection with law is that the laws themselves are meant to express some moral view. If there are legal prohibitions against cheating the Medicare program, it is because people (legislators or their agents) have collectively decided that cheating Medicare is wrong. If there are legal prohibitions against assisting someone to commit suicide, it is because there has been a group decision that doing so is immoral. Thus the law provides some important cues as to what society regards as right or wrong.
Finally, important policy issues that face society are often resolved through law, but it is important to understand the moral perspectives that underlie public debate—as, for example, in the continuing controversies over stem-cell research, medical use of marijuana, and abortion. Some ethical perspectives focus on rights, some on social utility, some on virtue or character, and some on social justice. People consciously (or, more often, unconsciously) adopt one or more of these perspectives, and even if they completely agree on the facts with an opponent, they will not change their views. Fundamentally, the difference comes down to incompatible moral perspectives, a clash of basic values. These are hot-button issues because society is divided, not so much over facts, but over basic values. Understanding the varied moral perspectives and values in public policy debates is a clarifying benefit in following or participating in these important discussions.
Why Should an Individual or a Business Entity Be Ethical?
The usual answer is that good ethics is good business. In the long run, businesses that pay attention to ethics as well as law do better; they are viewed more favorably by customers. But this is a difficult claim to measure scientifically, because “the long run” is an indistinct period of time and because there are as yet no generally accepted criteria by which ethical excellence can be measured. In addition, life is still lived in the short run, and there are many occasions when something short of perfect conduct is a lot more profitable.
Some years ago, Royal Dutch/Shell (one of the world’s largest companies) found that it was in deep trouble with the public for its apparent carelessness with the environment and human rights. Consumers were boycotting and investors were getting frightened, so the company took a long, hard look at its ethic of short-term profit maximization. Since then, changes have been made. The CEO told one group of business ethicists that the uproar had taken them by surprise; they thought they had done everything right, but it seemed there was a “ghost in the machine.” That ghost was consumers, NGOs, and the media, all of whom objected to the company’s seeming lack of moral sensitivity.
The market does respond to unethical behavior. In Section 2.4 "Corporations and Corporate Governance", you will read about the Sears Auto Centers case. The loss of goodwill toward Sears Auto Centers was real, even though the total amount of money lost cannot be clearly accounted for. Years later, there are people who will not go near a Sears Auto Center; the customers who lost trust in the company will never return, and many of their children may avoid Sears Auto Centers as well.
The Arthur Andersen story is even more dramatic. A major accounting firm, Andersen worked closely with Enron in hiding its various losses through creative accounting measures. Suspiciously, Andersen’s Houston office also did some shredding around the clock, appearing to cover up what it was doing for Enron. A criminal case based on this shredding resulted in a conviction, later overturned by the Supreme Court. But it was too late. Even before the conviction, many clients had found other accounting firms that were not under suspicion, and the Supreme Court’s reversal came too late to save the company. Even without the conviction, Andersen would have lost significant market share.
The irony of Andersen as a poster child for overly aggressive accounting practices is that the man who founded the firm built it on integrity and straightforward practices. “Think straight, talk straight” was the company’s motto. Andersen established the company’s reputation for integrity over a hundred years ago by refusing to play numbers games for a potentially lucrative client.
Maximizing profits while being legally compliant is not a very inspiring goal for a business. People in an organization need some quality or excellence to strive for. By focusing on pushing the edge of what is legal, by looking for loopholes in the law that would help create short-term financial gain, companies have often learned that in the long term they are not actually satisfying the market, the shareholders, the suppliers, or the community generally.
KEY TAKEAWAY
Legal compliance is not the same as acting ethically. Your reputation, individually or corporately, depends on how others regard your actions. Goodwill is hard to measure or quantify, but it is real nonetheless and can best be protected by acting ethically.
EXERCISES
1. Think of a person who did something morally wrong, at least to your way of thinking. What was it? Explain to a friend of yours—or a classmate—why you think it was wrong. Does your friend agree? Why or why not? What is the basic principle that forms the basis for your judgment that it was wrong?
2. Think of a person who did something morally right, at least to your way of thinking. (This is not a matter of finding something they did well, like efficiently changing a tire, but something good.) What was it? Explain to a friend of yours—or a classmate—why you think it was right. Does your friend agree? Why or why not? What is the basic principle that forms the basis for your judgment that it was right?
3. Think of an action by a business organization (sole proprietor, partnership, or corporation) that was legal but still strikes you as wrong. What was it? Why do you think it was wrong?
4. Think of an act by an individual or a corporation that is ethical but not legal. Compare your answer with those of your classmates: were you more likely to find an example from individual action or corporate action? Do you have any thoughts as to why? | textbooks/biz/Civil_Law/Book%3A_Introduction_to_Contracts_Sales_and_Product_Liability/02%3A_Corporate_Social_Responsibility_and_Business_Ethics/2.01%3A_What_Is_Ethics.txt |
LEARNING OBJECTIVES
1. Describe the various major theories about ethics in human decision making.
2. Begin considering how the major theories about ethics apply to difficult choices in life and business.
There are several well-respected ways of looking at ethical issues. Some of them have been around for centuries. It is important to know that many who think a lot about business and ethics have deeply held beliefs about which perspective is best. Others would recommend considering ethical problems from a variety of different perspectives. Here, we take a brief look at (1) utilitarianism, (2) deontology, (3) social justice and social contract theory, and (4) virtue theory. We are leaving out some important perspectives, such as general theories of justice and “rights” and feminist thought about ethics and patriarchy.
Utilitarianism
Utilitarianism is a prominent perspective on ethics, one that is well aligned with economics and the free-market outlook that has come to dominate much current thinking about business, management, and economics. Jeremy Bentham is often considered the founder of utilitarianism, though John Stuart Mill (who wrote On Liberty and Utilitarianism) and others promoted it as a guide to what is good. Utilitarianism emphasizes not rules but results. An action (or set of actions) is generally deemed good or right if it maximizes happiness or pleasure throughout society. Originally intended as a guide for legislators charged with seeking the greatest good for society, the utilitarian outlook may also be practiced individually and by corporations.
Bentham believed that the most promising way to obtain agreement on the best policies for a society would be to look at the various policies a legislature could pass and compare the good and bad consequences of each. The right course of action from an ethical point of view would be to choose the policy that would produce the greatest amount of utility, or usefulness. In brief, the utilitarian principle holds that an action is right if and only if the sum of utilities produced by that action is greater than the sum of utilities from any other possible act.
This statement describes “act utilitarianism”—which action among various options will deliver the greatest good to society? “Rule utilitarianism” is a slightly different version; it asks, what rule or principle, if followed regularly, will create the greatest good?
Notice that the emphasis is on finding the best possible results and that the assumption is that we can measure the utilities involved. (This turns out to be more difficult that you might think.) Notice also that “the sum total of utilities” clearly implies that in doing utilitarian analysis, we cannot be satisfied if an act or set of acts provides the greatest utility to us as individuals or to a particular corporation; the test is, instead, whether it provides the greatest utility to society as a whole. Notice that the theory does not tell us what kinds of utilities may be better than others or how much better a good today is compared with a good a year from today.
Whatever its difficulties, utilitarian thinking is alive and well in US law and business. It is found in such diverse places as cost-benefit analysis in administrative and regulatory rules and calculations, environmental impact studies, the majority vote, product comparisons for consumer information, marketing studies, tax laws, and strategic planning. In management, people will often employ a form of utility reasoning by projecting costs and benefits for plan X versus plan Y. But the issue in most of these cost-benefit analyses is usually (1) put exclusively in terms of money and (2) directed to the benefit of the person or organization doing the analysis and not to the benefit of society as a whole.
An individual or a company that consistently uses the test “What’s the greatest good for me or the company?” is not following the utilitarian test of the greatest good overall. Another common failing is to see only one or two options that seem reasonable. The following are some frequent mistakes that people make in applying what they think are utilitarian principles in justifying their chosen course of action:
1. Failing to come up with lots of options that seem reasonable and then choosing the one that has the greatest benefit for the greatest number. Often, a decision maker seizes on one or two alternatives without thinking carefully about other courses of action. If the alternative does more good than harm, the decision maker assumes it’s ethically okay.
2. Assuming that the greatest good for you or your company is in fact the greatest good for all—that is, looking at situations subjectively or with your own interests primarily in mind.
3. Underestimating the costs of a certain decision to you or your company. The now-classic Ford Pinto case demonstrates how Ford Motor Company executives drastically underestimated the legal costs of not correcting a feature on their Pinto models that they knew could cause death or injury. General Motors was often taken to task by juries that came to understand that the company would not recall or repair known and dangerous defects because it seemed more profitable not to. In 2010, Toyota learned the same lesson.
4. Underestimating the cost or harm of a certain decision to someone else or some other group of people.
5. Favoring short-term benefits, even though the long-term costs are greater.
6. Assuming that all values can be reduced to money. In comparing the risks to human health or safety against, say, the risks of job or profit losses, cost-benefit analyses will often try to compare apples to oranges and put arbitrary numerical values on human health and safety.
Rules and Duty: Deontology
In contrast to the utilitarian perspective, the deontological view presented in the writings of Immanuel Kant purports that having a moral intent and following the right rules is a better path to ethical conduct than achieving the right results. A deontologist like Kant is likely to believe that ethical action arises from doing one’s duty and that duties are defined by rational thought. Duties, according to Kant, are not specific to particular kinds of human beings but are owed universally to all human beings. Kant therefore uses “universalizing“ as a form of rational thought that assumes the inherent equality of all human beings. It considers all humans as equal, not in the physical, social, or economic sense, but equal before God, whether they are male, female, Pygmy, Eskimoan, Islamic, Christian, gay, straight, healthy, sick, young, or old.
For Kantian thinkers, this basic principle of equality means that we should be able to universalize any particular law or action to determine whether it is ethical. For example, if you were to consider misrepresenting yourself on a resume for a particular job you really wanted and you were convinced that doing so would get you that job, you might be very tempted to do so. (What harm would it be? you might ask yourself. When I have the job, I can prove that I was perfect for it, and no one is hurt, while both the employer and I are clearly better off as a result!) Kantian ethicists would answer that your chosen course of action should be a universal one—a course of action that would be good for all persons at all times. There are two requirements for a rule of action to be universal: consistency and reversibility. Consider reversibility: if you make a decision as though you didn’t know what role or position you would have after the decision, you would more likely make an impartial one—you would more likely choose a course of action that would be most fair to all concerned, not just you. Again, deontology requires that we put duty first, act rationally, and give moral weight to the inherent equality of all human beings.
In considering whether to lie on your resume, reversibility requires you to actively imagine both that you were the employer in this situation and that you were another well-qualified applicant who lost the job because someone else padded his resume with false accomplishments. If the consequences of such an exercise of the imagination are not appealing to you, your action is probably not ethical.
The second requirement for an action to be universal is the search for consistency. This is more abstract. A deontologist would say that since you know you are telling a lie, you must be willing to say that lying, as a general, universal phenomenon, is acceptable. But if everyone lied, then there would be no point to lying, since no one would believe anyone. It is only because honesty works well for society as a whole and is generally practiced that lying even becomes possible! That is, lying cannot be universalized, for it depends on the preexistence of honesty.
Similar demonstrations can be made for actions such as polluting, breaking promises, and committing most crimes, including rape, murder, and theft. But these are the easy cases for Kantian thinkers. In the gray areas of life as it is lived, the consistency test is often difficult to apply. If breaking a promise would save a life, then Kantian thought becomes difficult to apply. If some amount of pollution can allow employment and the harm is minimal or distant, Kantian thinking is not all that helpful. Finally, we should note that the well-known Golden Rule, “Do unto others as you would have them do unto you,” emphasizes the easier of the two universalizing requirements: practicing reversibility (“How would I like it if someone did this to me?”).
Social Justice Theory and Social Contract Theory
Social justice theorists worry about “distributive justice”—that is, what is the fair way to distribute goods among a group of people? Marxist thought emphasizes that members of society should be given goods to according to their needs. But this redistribution would require a governing power to decide who gets what and when. Capitalist thought takes a different approach, rejecting any giving that is not voluntary. Certain economists, such as the late Milton Friedman (see the sidebar in Section 2.4 "Corporations and Corporate Governance") also reject the notion that a corporation has a duty to give to unmet needs in society, believing that the government should play that role. Even the most dedicated free-market capitalist will often admit the need for some government and some forms of welfare—Social Security, Medicare, assistance to flood-stricken areas, help for AIDs patients—along with some public goods (such as defense, education, highways, parks, and support of key industries affecting national security).
People who do not see the need for public goods (including laws, court systems, and the government goods and services just cited) often question why there needs to be a government at all. One response might be, “Without government, there would be no corporations.” Thomas Hobbes believed that people in a “state of nature” would rationally choose to have some form of government. He called this the social contract, where people give up certain rights to government in exchange for security and common benefits. In your own lives and in this course, you will see an ongoing balancing act between human desires for freedom and human desires for order; it is an ancient tension. Some commentators also see a kind of social contract between corporations and society; in exchange for perpetual duration and limited liability, the corporation has some corresponding duties toward society. Also, if a corporation is legally a “person,” as the Supreme Court reaffirmed in 2010, then some would argue that if this corporate person commits three felonies, it should be locked up for life and its corporate charter revoked!
Modern social contract theorists, such as Thomas Donaldson and Thomas Dunfee (Ties that Bind, 1999), observe that various communities, not just nations, make rules for the common good. Your college or school is a community, and there are communities within the school (fraternities, sororities, the folks behind the counter at the circulation desk, the people who work together at the university radio station, the sports teams, the faculty, the students generally, the gay and lesbian alliance) that have rules, norms, or standards that people can buy into or not. If not, they can exit from that community, just as we are free (though not without cost) to reject US citizenship and take up residence in another country.
Donaldson and Dunfee’s integrative social contracts theory stresses the importance of studying the rules of smaller communities along with the larger social contracts made in states (such as Colorado or California) and nation-states (such as the United States or Germany). Our Constitution can be seen as a fundamental social contract.
It is important to realize that a social contract can be changed by the participants in a community, just as the US Constitution can be amended. Social contract theory is thus dynamic—it allows for structural and organic changes. Ideally, the social contract struck by citizens and the government allows for certain fundamental rights such as those we enjoy in the United States, but it need not. People can give up freedom-oriented rights (such as the right of free speech or the right to be free of unreasonable searches and seizures) to secure order (freedom from fear, freedom from terrorism). For example, many citizens in Russia now miss the days when the Kremlin was all powerful; there was less crime and more equality and predictability to life in the Soviet Union, even if there was less freedom.
Thus the rights that people have—in positive law—come from whatever social contract exists in the society. This view differs from that of the deontologists and that of the natural-law thinkers such as Gandhi, Jesus, or Martin Luther King Jr., who believed that rights come from God or, in less religious terms, from some transcendent moral order.
Another important movement in ethics and society is the communitarian outlook. Communitarians emphasize that rights carry with them corresponding duties; that is, there cannot be a right without a duty. Interested students may wish to explore the work of Amitai Etzioni. Etzioni was a founder of the Communitarian Network, which is a group of individuals who have come together to bolster the moral, social, and political environment. It claims to be nonsectarian, nonpartisan, and international in scope.
The relationship between rights and duties—in both law and ethics—calls for some explanations:
1. If you have a right of free expression, the government has a duty to respect that right but can put reasonable limits on it. For example, you can legally say whatever you want about the US president, but you can’t get away with threatening the president’s life. Even if your criticisms are strong and insistent, you have the right (and our government has the duty to protect your right) to speak freely. In Singapore during the 1990s, even indirect criticisms—mere hints—of the political leadership were enough to land you in jail or at least silence you with a libel suit.
2. Rights and duties exist not only between people and their governments but also between individuals. Your right to be free from physical assault is protected by the law in most states, and when someone walks up to you and punches you in the nose, your rights—as set forth in the positive law of your state—have been violated. Thus other people have a duty to respect your rights and to not punch you in the nose.
3. Your right in legal terms is only as good as your society’s willingness to provide legal remedies through the courts and political institutions of society.
A distinction between basic rights and nonbasic rights may also be important. Basic rights may include such fundamental elements as food, water, shelter, and physical safety. Another distinction is between positive rights (the right to bear arms, the right to vote, the right of privacy) and negative rights (the right to be free from unreasonable searches and seizures, the right to be free of cruel or unusual punishments). Yet another is between economic or social rights (adequate food, work, and environment) and political or civic rights (the right to vote, the right to equal protection of the laws, the right to due process).
Aristotle and Virtue Theory
Virtue theory, or virtue ethics, has received increasing attention over the past twenty years, particularly in contrast to utilitarian and deontological approaches to ethics. Virtue theory emphasizes the value of virtuous qualities rather than formal rules or useful results. Aristotle is often recognized as the first philosopher to advocate the ethical value of certain qualities, or virtues, in a person’s character. As LaRue Hosmer has noted, Aristotle saw the goal of human existence as the active, rational search for excellence, and excellence requires the personal virtues of honesty, truthfulness, courage, temperance, generosity, and high-mindedness. This pursuit is also termed “knowledge of the good” in Greek philosophy.LaRue Tone Hosmer, Moral Leadership in Business (Chicago: Irwin Professional Publishing, 1994), 72.
Aristotle believed that all activity was aimed at some goal or perceived good and that there must be some ranking that we do among those goals or goods. Happiness may be our ultimate goal, but what does that mean, exactly? Aristotle rejected wealth, pleasure, and fame and embraced reason as the distinguishing feature of humans, as opposed to other species. And since a human is a reasoning animal, happiness must be associated with reason. Thus happiness is living according to the active (rather than passive) use of reason. The use of reason leads to excellence, and so happiness can be defined as the active, rational pursuit of personal excellence, or virtue.
Aristotle named fourteen virtues: (1) courage, particularly in battle; (2) temperance, or moderation in eating and drinking; (3) liberality, or spending money well; (4) magnificence, or living well; (5) pride, or taking pleasure in accomplishments and stature; (6) high-mindedness, or concern with the noble rather than the petty; (7) unnamed virtue, which is halfway between ambition and total lack of effort; (8) gentleness, or concern for others; (9) truthfulness; (10) wit, or pleasure in group discussions; (11) friendliness, or pleasure in personal conduct; (12) modesty, or pleasure in personal conduct; (13) righteous indignation, or getting angry at the right things and in the right amounts; and (14) justice.
From a modern perspective, some of these virtues seem old-fashioned or even odd. Magnificence, for example, is not something we commonly speak of. Three issues emerge: (1) How do we know what a virtue is these days? (2) How useful is a list of agreed-upon virtues anyway? (3) What do virtues have to do with companies, particularly large ones where various groups and individuals may have little or no contact with other parts of the organization?
As to the third question, whether corporations can “have” virtues or values is a matter of lively debate. A corporation is obviously not the same as an individual. But there seems to be growing agreement that organizations do differ in their practices and that these practices are value driven. If all a company cares about is the bottom line, other values will diminish or disappear. Quite a few books have been written in the past twenty years that emphasize the need for businesses to define their values in order to be competitive in today’s global economy.James O’Toole and Don Mayer, eds., Good Business: Exercising Effective and Ethical Leadership (London: Routledge, 2010).
As to the first two questions regarding virtues, a look at Michael Josephson’s core values may prove helpful.
Josephson’s Core Values Analysis and Decision Process
Michael Josephson, a noted American ethicist, believes that a current set of core values has been identified and that the values can be meaningfully applied to a variety of personal and corporate decisions.
To simplify, let’s say that there are ethical and nonethical qualities among people in the United States. When you ask people what kinds of qualities they admire in others or in themselves, they may say wealth, power, fitness, sense of humor, good looks, intelligence, musical ability, or some other quality. They may also value honesty, caring, fairness, courage, perseverance, diligence, trustworthiness, or integrity. The qualities on the second list have something in common—they are distinctively ethical characteristics. That is, they are commonly seen as moral or ethical qualities, unlike the qualities on the first list. You can be, like the Athenian Alcibiades, brilliant but unprincipled, or, like some political leaders today, powerful but dishonest, or wealthy but uncaring. You can, in short, have a number of admirable qualities (brilliance, power, wealth) that are not per se virtuous. Just because Harold is rich or good-looking or has a good sense of humor does not mean that he is ethical. But if Harold is honest and caring (whether he is rich or poor, humorous or humorless), people are likely to see him as ethical.
Among the virtues, are any especially important? Studies from the Josephson Institute of Ethics in Marina del Rey, California, have identified six core values in our society, values that almost everyone agrees are important to them. When asked what values people hold dear, what values they wish to be known by, and what values they wish others would exhibit in their actions, six values consistently turn up: (1) trustworthiness, (2) respect, (3) responsibility, (4) fairness, (5) caring, and (6) citizenship.
Note that these values are distinctly ethical. While many of us may value wealth, good looks, and intelligence, having wealth, good looks, and intelligence does not automatically make us virtuous in our character and habits. But being more trustworthy (by being honest and by keeping promises) does make us more virtuous, as does staying true to the other five core values.
Notice also that these six core values share something in common with other ethical values that are less universally agreed upon. Many values taught in the family or in places of worship are not generally agreed on, practiced, or admired by all. Some families and individuals believe strongly in the virtue of saving money or in abstaining from alcohol or sex prior to marriage. Others clearly do not, or at least don’t act on their beliefs. Moreover, it is possible to have and practice core ethical values even if you take on heavy debt, knock down several drinks a night, or have frequent premarital sex. Some would dispute this, saying that you can’t really lead a virtuous life if you get into debt, drink heavily, or engage in premarital sex. But the point here is that since people do disagree in these areas, the ethical traits of thrift, temperance, and sexual abstinence do not have the unanimity of approval that the six core values do.
The importance of an individual’s having these consistent qualities of character is well known. Often we remember the last bad thing a person did far more than any or all previous good acts. For example, Eliot Spitzer and Bill Clinton are more readily remembered by people for their last, worst acts than for any good they accomplished as public servants. As for a company, its good reputation also has an incalculable value that when lost takes a great deal of time and work to recover. Shell, Nike, and other companies have discovered that there is a market for morality, however difficult to measure, and that not paying attention to business ethics often comes at a serious price. In the past fifteen years, the career of ethics and compliance officer has emerged, partly as a result of criminal proceedings against companies but also because major companies have found that reputations cannot be recovered retroactively but must be pursued proactively. For individuals, Aristotle emphasized the practice of virtue to the point where virtue becomes a habit. Companies are gradually learning the same lesson.
KEY TAKEAWAY
Throughout history, people have pondered what it means “to do what is right.” Some of the main answers have come from the differing perspectives of utilitarian thought; duty-based, or deontological, thought; social contract theory; and virtue ethics.
EXERCISES
XYZ Motor Corporation begins to get customer complaints about two models of its automobiles. Customers have had near-death experiences from sudden acceleration; they would be driving along a highway at normal speed when suddenly the car would begin to accelerate, and efforts to stop the acceleration by braking fail to work. Drivers could turn off the ignition and come to a safe stop, but XYZ does not instruct buyers of its cars to do so, nor is this a common reaction among drivers who experience sudden acceleration.
Internal investigations of half a dozen accidents in US locations come to the conclusion that the accidents are not being caused by drivers who mistake the gas pedal for the brake pedal. In fact, there appears to be a possible flaw in both models, perhaps in a semiconductor chip, that makes sudden acceleration happen. Interference by floor mats and poorly designed gas pedals do not seem to be the problem.
It is voluntary to report these incidents to the National Highway Traffic and Safety Administration (NHTSA), but the company decides that it will wait awhile and see if there are more complaints. Recalling the two models so that local dealers and their mechanics could examine them is also an option, but it would be extremely costly. Company executives are aware that quarterly and annual profit-and-loss statements, on which their bonuses depend, could be decisively worse with a recall. They decide that on a cost-benefit basis, it makes more sense to wait until there are more accidents and more data. After a hundred or more accidents and nearly fifteen fatalities, the company institutes a selective recall, still not notifying NHTSA, which has its own experts and the authority to order XYZ to do a full recall of all affected models.
Experts have advised XYZ that standard failure-analysis methodology requires that the company obtain absolutely every XYZ vehicle that has experienced sudden acceleration, using microscopic analysis of all critical components of the electronic system. The company does not wish to take that advice, as it would be—as one top executive put it—“too time-consuming and expensive.”
1. Can XYZ’s approach to this problem be justified under utilitarian theory? If so, how? If not, why not?
2. What would Kant advise XYZ to do? Explain.
3. What would the “virtuous” approach be for XYZ in this situation? | textbooks/biz/Civil_Law/Book%3A_Introduction_to_Contracts_Sales_and_Product_Liability/02%3A_Corporate_Social_Responsibility_and_Business_Ethics/2.02%3A_Major_Ethical_Perspectives.txt |
LEARNING OBJECTIVE
1. Understand one model for ethical decision making: a process to arrive at the most ethical option for an individual or a business organization, using a virtue ethics approach combined with some elements of stakeholder analysis and utilitarianism.
Josephson’s Core Values Model
Once you recognize that there is a decision that involves ethical judgment, Michael Josephson would first have you ask as many questions as are necessary to get a full background on the relevant facts. Then, assuming you have all the needed information, the decision process is as follows:
1. Identify the stakeholders. That is, who are the potential gainers and losers in the various decisions that might be made here?
2. Identify several likely or reasonable decisions that could be made.
3. Consider which stakeholders gain or lose with each decision.
4. Determine which decision satisfies the greatest number of core values.
5. If there is no decision that satisfies the greatest number of core values, try to determine which decision delivers the greatest good to the various stakeholders.
It is often helpful to identify who (or what group) is the most important stakeholder, and why. In Milton Friedman’s view, it will always be the shareholders. In the view of John Mackey, the CEO of Whole Foods Market, the long-term viability and profitability of the organization may require that customers come first, or, at times, some other stakeholder group (see “Conscious Capitalism” in Section 2.4 "Corporations and Corporate Governance").
The Core Values
Here are the core values and their subcomponents as developed by the Josephson Institute of Ethics.
Trustworthiness: Be honest—tell the truth, the whole truth, and nothing but the truth; be sincere, forthright; don’t deceive, mislead, or be tricky with the truth; don’t cheat or steal, and don’t betray a trust. Demonstrate integrity—stand up for what you believe, walk the walk as well as talking the talk; be what you seem to be; show commitment and courage. Be loyal—stand by your family, friends, co-workers, community, and nation; be discreet with information that comes into your hands; don’t spread rumors or engage in harmful gossip; don’t violate your principles just to win friendship or approval; don’t ask a friend to do something that is wrong. Keep promises—keep your word, honor your commitments, and pay your debts; return what you borrow.
Respect: Judge people on their merits, not their appearance; be courteous, polite, appreciative, and accepting of differences; respect others’ right to make decisions about their own lives; don’t abuse, demean, mistreat anyone; don’t use, manipulate, exploit, or take advantage of others.
Responsibility: Be accountable—think about the consequences on yourself and others likely to be affected before you act; be reliable; perform your duties; take responsibility for the consequences of your choices; set a good example and don’t make excuses or take credit for other people’s work. Pursue excellence: Do your best, don’t quit easily, persevere, be diligent, make all you do worthy of pride. Exercise self-restraint—be disciplined, know the difference between what you have a right to do and what is right to do.
Fairness: Treat all people fairly, be open-minded; listen; consider opposing viewpoints; be consistent; use only appropriate considerations; don’t let personal feelings improperly interfere with decisions; don’t take unfair advantage of mistakes; don’t take more than your fair share.
Caring: Show you care about others through kindness, caring, sharing, compassion, and empathy; treat others the way you want to be treated; don’t be selfish, mean, cruel, or insensitive to others’ feelings.
Citizenship: Play by the rules, obey laws; do your share, respect authority, stay informed, vote, protect your neighbors, pay your taxes; be charitable, help your community; protect the environment, conserve resources.
When individuals and organizations confront ethical problems, the core values decision model offered by Josephson generally works well (1) to clarify the gains and losses of the various stakeholders, which then raises ethical awareness on the part of the decision maker and (2) to provide a fairly reliable guide as to what the most ethical decision would be. In nine out of ten cases, step 5 in the decision process is not needed.
That said, it does not follow that students (or managers) would necessarily act in accord with the results of the core values decision process. There are many psychological pressures and organizational constraints that place limits on people both individually and in organizations. These pressures and constraints tend to compromise ideal or the most ethical solutions for individuals and for organizations. For a business, one essential problem is that ethics can cost the organization money or resources, at least in the short term. Doing the most ethical thing will often appear to be something that fails to maximize profits in the short term or that may seem pointless because if you or your organization acts ethically, others will not, and society will be no better off, anyway.
KEY TAKEAWAY
Having a step-by-step process to analyze difficult moral dilemmas is useful. One such process is offered here, based on the core values of trustworthiness, caring, respect, fairness, responsibility, and citizenship.
EXERCISE
1. Consider XYZ in the exercises for Section 2.2.5 "Josephson’s Core Values Analysis and Decision Process" and use the core values decision-making model. What are XYZ’s options when they first notice that two of their models are causing sudden acceleration incidents that put their customers at risk? Who are the stakeholders? What options most clearly meet the criteria for each of the core values? | textbooks/biz/Civil_Law/Book%3A_Introduction_to_Contracts_Sales_and_Product_Liability/02%3A_Corporate_Social_Responsibility_and_Business_Ethics/2.03%3A_An_Ethical_Decision_Model.txt |
LEARNING OBJECTIVES
1. Explain the basic structure of the typical corporation and how the shareholders own the company and elect directors to run it.
2. Understand how the shareholder profit-maximization model is different from stakeholder theory.
3. Discern and describe the ethical challenges for corporate cultures.
4. Explain what conscious capitalism is and how it differs from stakeholder theory.
Legal Organization of the Corporation
Figure 2.1 Corporate Legal Structure
Figure 2.1 "Corporate Legal Structure", though somewhat oversimplified, shows the basic legal structure of a corporation under Delaware law and the laws of most other states in the United States. Shareholders elect directors, who then hire officers to manage the company. From this structure, some very basic realities follow. Because the directors of a corporation do not meet that often, it’s possible for the officers hired (top management, or the “C-suite”) to be selective of what the board knows about, and directors are not always ready and able to provide the oversight that the shareholders would like. Nor does the law require officers to be shareholders, so that officers’ motivations may not align with the best interests of the company. This is the “agency problem” often discussed in corporate governance: how to get officers and other top management to align their own interests with those of the shareholders. For example, a CEO might trade insider information to the detriment of the company’s shareholders. Even board members are susceptible to misalignment of interets; for example, board members might resist hostile takeover bids because they would likely lose their perks (short for perquisites) as directors, even though the tender offer would benefit stockholders. Among other attempted realignments, the use of stock options was an attempt to make managers more attentive to the value of company stock, but the law of unintended consequences was in full force; managers tweaked and managed earnings in the bubble of the 1990s bull market, and “managing by numbers” became an epidemic in corporations organized under US corporate law. The rights of shareholders can be bolstered by changes in state and federal law, and there have been some attempts to do that since the late 1990s. But as owners, shareholders have the ultimate power to replace nonperforming or underperforming directors, which usually results in changes at the C-suite level as well.
Shareholders and Stakeholders
There are two main views about what the corporation’s duties are. The first view—maximizing profits—is the prevailing view among business managers and in business schools. This view largely follows the idea of Milton Friedman that the duty of a manager is to maximize return on investment to the owners. In essence, managers’ legally prescribed duties are those that make their employment possible. In terms of the legal organization of the corporation, the shareholders elect directors who hire managers, who have legally prescribed duties toward both directors and shareholders. Those legally prescribed duties are a reflection of the fact that managers are managing other people’s money and have a moral duty to act as a responsible agent for the owners. In law, this is called the manager’s fiduciary duty. Directors have the same duties toward shareholders. Friedman emphasized the primacy of this duty in his writings about corporations and social responsibility.
Maximizing Profits: Milton Friedman
Economist Milton Friedman is often quoted as having said that the only moral duty a corporation has is to make the most possible money, or to maximize profits, for its stockholders. Friedman’s beliefs are noted at length (see sidebar on Friedman’s article from the New York Times), but he asserted in a now-famous 1970 article that in a free society, “there is one and only one social responsibility of business: to use its resources and engage in activities designed to increase its profits as long as it stays within the rules of the game, which is to say, engages in open and free competition without deception and fraud.” What follows is a major portion of what Friedman had to say in 1970.
“The Social Responsibility of Business Is to Increase Its Profits”
Milton Friedman, New York Times Magazine, September 13, 1970
What does it mean to say that “business” has responsibilities? Only people can have responsibilities. A corporation is an artificial person and in this sense may have artificial responsibilities, but “business” as a whole cannot be said to have responsibilities, even in this vague sense.…
Presumably, the individuals who are to be responsible are businessmen, which means individual proprietors or corporate executives.…In a free enterprise, private-property system, a corporate executive is an employee of the owners of the business. He has direct responsibility to his employers. That responsibility is to conduct the business in accordance with their desires, which generally will be to make as much money as possible while conforming to the basic rules of the society, both those embodied in law and those embodied in ethical custom.…
…[T]he manager is that agent of the individuals who own the corporation or establish the eleemosynary institution, and his primary responsibility is to them…
Of course, the corporate executive is also a person in his own right. As a person, he may have other responsibilities that he recognizes or assumes voluntarily—to his family, his conscience, his feeling of charity, his church, his clubs, his city, his country. He may feel impelled by these responsibilities to devote part of his income to causes he regards as worthy, to refuse to work for particular corporations, even to leave his job…But in these respects he is acting as a principal, not an agent; he is spending his own money or time or energy, not the money of his employers or the time or energy he has contracted to devote to their purposes. If these are “social responsibilities,” they are the social responsibilities of individuals, not of business.
What does it mean to say that the corporate executive has a “social responsibility” in his capacity as businessman? If this statement is not pure rhetoric, it must mean that he has to act in some way that is not in the interest of his employers. For example, that he is to refrain from increasing the price of the product in order to contribute to the social objective of preventing inflation, even though a price increase would be in the best interests of the corporation. Or that he is to make expenditures on reducing pollution beyond the amount that is in the best interests of the corporation or that is required by law in order to contribute to the social objective of improving the environment. Or that, at the expense of corporate profits, he is to hire “hardcore” unemployed instead of better qualified available workmen to contribute to the social objective of reducing poverty.
In each of these cases, the corporate executive would be spending someone else’s money for a general social interest. Insofar as his actions…reduce returns to stockholders, he is spending their money. Insofar as his actions raise the price to customers, he is spending the customers’ money. Insofar as his actions lower the wages of some employees, he is spending their money.
This process raises political questions on two levels: principle and consequences. On the level of political principle, the imposition of taxes and the expenditure of tax proceeds are governmental functions. We have established elaborate constitutional, parliamentary, and judicial provisions to control these functions, to assure that taxes are imposed so far as possible in accordance with the preferences and desires of the public.…
Others have challenged the notion that corporate managers have no real duties except toward the owners (shareholders). By changing two letters in shareholder, stakeholder theorists widened the range of people and institutions that a corporation should pay moral consideration to. Thus they contend that a corporation, through its management, has a set of responsibilities toward nonshareholder interests.
Stakeholder Theory
Stakeholders of a corporation include its employees, suppliers, customers, and the community. Stakeholder is a deliberate play on the word shareholder, to emphasize that corporations have obligations that extend beyond the bottom-line aim of maximizing profits. A stakeholder is anyone who most would agree is significantly affected (positively or negatively) by the decision of another moral agent.
There is one vital fact about corporations: the corporation is a creation of the law. Without law (and government), corporations would not have existence. The key concept for corporations is the legal fact of limited liability. The benefit of limited liability for shareholders of a corporation meant that larger pools of capital could be aggregated for larger enterprises; shareholders could only lose their investments should the venture fail in any way, and there would be no personal liability and thus no potential loss of personal assets other than the value of the corporate stock. Before New Jersey and Delaware competed to make incorporation as easy as possible and beneficial to the incorporators and founders, those who wanted the benefits of incorporation had to go to legislatures—usually among the states—to show a public purpose that the company would serve.
In the late 1800s, New Jersey and Delaware changed their laws to make incorporating relatively easy. These two states allowed incorporation “for any legal purpose,” rather than requiring some public purpose. Thus it is government (and its laws) that makes limited liability happen through the corporate form. That is, only through the consent of the state and armed with the charter granted by the state can a corporation’s shareholders have limited liability. This is a right granted by the state, a right granted for good and practical reasons for encouraging capital and innovation. But with this right comes a related duty, not clearly stated at law, but assumed when a charter is granted by the state: that the corporate form of doing business is legal because the government feels that it socially useful to do so.
Implicitly, then, there is a social contract between governments and corporations: as long as corporations are considered socially useful, they can exist. But do they have explicit social responsibilities? Milton Friedman’s position suggests that having gone along with legal duties, the corporation can ignore any other social obligations. But there are others (such as advocates of stakeholder theory) who would say that a corporation’s social responsibilities go beyond just staying within the law and go beyond the corporation’s shareholders to include a number of other important stakeholders, those whose lives can be affected by corporate decisions.
According to stakeholder theorists, corporations (and other business organizations) must pay attention not only to the bottom line but also to their overall effect on the community. Public perception of a company’s unfairness, uncaring, disrespect, or lack of trustworthiness often leads to long-term failure, whatever the short-term successes or profits may be. A socially responsible corporation is likely to consider the impact of its decisions on a wide range of stakeholders, not just shareholders. As Table 2.1 "The Stakes of Various Stakeholders" indicates, stakeholders have very different kinds of interests (“stakes”) in the actions of a corporation.
Table 2.1 The Stakes of Various Stakeholders
Ownership The value of the organization has a direct impact on the wealth of these stakeholders. Managers
Directors who own stock
Shareholders
Economic Dependence Stakeholders can be economically dependent without having ownership. Each of these stakeholders relies on the corporation in some way for financial well-being. Salaried managers
Creditors
Suppliers
Employees
Local communities
Social Interests These stakeholders are not directly linked to the organization but have an interest in making sure the organization acts in a socially responsible manner. Communities
Government
Media
Corporate Culture and Codes of Ethics
A corporation is a “person” capable of suing, being sued, and having rights and duties in our legal system. (It is a legal or juridical person, not a natural person, according to our Supreme Court.) Moreover, many corporations have distinct cultures and beliefs that are lived and breathed by its members. Often, the culture of a corporation is the best defense against individuals within that firm who may be tempted to break the law or commit serious ethical misdeeds.
What follows is a series of observations about corporations, ethics, and corporate culture.
Ethical Leadership Is Top-Down
People in an organization tend to watch closely what the top managers do and say. Regardless of managers’ talk about ethics, employees quickly learn what speech or actions are in fact rewarded. If the CEO is firm about acting ethically, others in the organization will take their cues from him or her. People at the top tend to set the target, the climate, the beliefs, and the expectations that fuel behavior.
Accountability Is Often Weak
Clever managers can learn to shift blame to others, take credit for others’ work, and move on before “funny numbers” or other earnings management tricks come to light.See Robert Jackall, Moral Mazes: The World of Corporate Managers (New York: Oxford University Press, 1988). Again, we see that the manager is often an agent for himself or herself and will often act more in his or her self-interest than for the corporate interest.
Killing the Messenger
Where organizations no longer function, inevitably some employees are unhappy. If they call attention to problems that are being covered up by coworkers or supervisors, they bring bad news. Managers like to hear good news and discourage bad news. Intentionally or not, those who told on others, or blew the whistle, have rocked the boat and become unpopular with those whose defalcations they report on and with the managers who don’t really want to hear the bad news. In many organizations, “killing the messenger” solves the problem. Consider James Alexander at Enron Corporation, who was deliberately shut out after bringing problems to CEO Ken Lay’s attention.John Schwartz, “An Enron Unit Chief Warned, and Was Rebuffed,” New York Times, February 20, 2002. When Sherron Watkins sent Ken Lay a letter warning him about Enron’s accounting practices, CFO Andrew Fastow tried to fire her.Warren Bennis, “A Corporate Fear of Too Much Truth,” New York Times, February 17, 2002.
Ethics Codes
Without strong leadership and a willingness to listen to bad news as well as good news, managers do not have the feedback necessary to keep the organization healthy. Ethics codes have been put in place—partly in response to federal sentencing guidelines and partly to encourage feedback loops to top management. The best ethics codes are aspirational, or having an ideal to be pursued, not legalistic or compliance driven. The Johnson & Johnson ethics code predated the Tylenol scare and the company’s oft-celebrated corporate response.University of Oklahoma Department of Defense Joint Course in Communication, Case Study: The Johnson & Johnson Tylenol Crisis, accessed April 5, 2011. The corporate response was consistent with that code, which was lived and modeled by the top of the organization.
It’s often noted that a code of ethics is only as important as top management is willing to make it. If the code is just a document that goes into a drawer or onto a shelf, it will not effectively encourage good conduct within the corporation. The same is true of any kind of training that the company undertakes, whether it be in racial sensitivity or sexual harassment. If the message is not continuously reinforced, or (worse yet) if the message is undermined by management’s actions, the real message to employees is that violations of the ethics code will not be taken seriously, or that efforts to stop racial discrimination or sexual harassment are merely token efforts, and that the important things are profits and performance. The ethics code at Enron seems to have been one of those “3-P” codes that wind up sitting on shelves—“Print, Post, and Pray.” Worse, the Enron board twice suspended the code in 1999 to allow outside partnerships to be led by a top Enron executive who stood to gain financially from them.FindLaw, Report of Investigation by the Special Investigative Committee of the Board of Directors of Enron Corp., February 1, 2002, accessed April 5, 2011, http://news.findlaw.com/wsj/docs/enron/sicreport.
Ethics Hotlines and Federal Sentencing Guidelines
The federal sentencing guidelines were enacted in 1991. The original idea behind these guidelines was for Congress to correct the lenient treatment often given to white-collar, or corporate, criminals. The guidelines require judges to consider “aggravating and mitigating” factors in determining sentences and fines. (While corporations cannot go to jail, its officers and managers certainly can, and the corporation itself can be fined. Many companies will claim that it is one bad apple that has caused the problem; the guidelines invite these companies to show that they are in fact tending their orchard well. They can show this by providing evidence that they have (1) a viable, active code of ethics; (2) a way for employees to report violations of law or the ethics code; and (3) an ethics ombudsman, or someone who oversees the code.
In short, if a company can show that it has an ongoing process to root out wrongdoing at all levels of the company, the judge is allowed to consider this as a major mitigating factor in the fines the company will pay. Most Fortune 500 companies have ethics hotlines and processes in place to find legal and ethical problems within the company.
Managing by the Numbers
If you manage by the numbers, there is a temptation to lie about those numbers, based on the need to get stock price ever higher. At Enron, “15 percent a year or better earnings growth” was the mantra. Jeffrey Pfeffer, professor of organizational behavior at Stanford University, observes how the belief that “stock price is all that matters” has been hardwired into the corporate psyche. It dictates not only how people judge the worth of their company but also how they feel about themselves and the work that they are doing. And, over time, it has clouded judgments about what is acceptable corporate behavior.Steven Pearlstein, “Debating the Enron Effect,” Washington Post, February 17, 2002.
Managing by Numbers: The Sears Auto Center Story
If winning is the most important thing in your life, then you must be prepared to do anything to win.
—Michael Josephson
Most people want to be winners or associate with winners. As humans, our desire to associate with those who have status provides plenty of incentive to glorify winners and ignore losers. But if an individual, a team, or a company does whatever it takes to win, then all other values are thrown out in the goal to win at all costs. The desire of some people within Sears & Roebuck Company’s auto repair division to win by gaining higher profits resulted in the situation portrayed here.
Sears Roebuck & Company has been a fixture in American retailing throughout the twentieth century. At one time, people in rural America could order virtually anything (including a house) from Sears. Not without some accuracy, the company billed itself as “the place where Americans shop.” But in 1992, Sears was charged by California authorities with gross and deliberate fraud in many of its auto centers.
The authorities were alerted by a 50 percent increase in consumer complaints over a three-year period. New Jersey’s division of consumer affairs also investigated Sears Auto Centers and found that all six visited by investigators had recommended unnecessary repairs. California’s department of consumer affairs found that Sears had systematically overcharged by an average of \$223 for repairs and routinely billed for work that was not done. Sears Auto Centers were the largest providers of auto repair services in the state.
The scam was a variant on the old bait-and-switch routine. Customers received coupons in the mail inviting them to take advantage of hefty discounts on brake jobs. When customers came in to redeem their coupons, sales staffers would convince them to authorize additional repairs. As a management tool, Sears had also established quotas for each of their sales representatives to meet.
Ultimately, California got Sears to settle a large number of lawsuits against it by threatening to revoke Sears’ auto repair license. Sears agreed to distribute \$50 coupons to nearly a million customers nationwide who had obtained certain services between August 1, 1990, and January 31, 1992. Sears also agreed to pay \$3.5 million to cover the costs of various government investigations and to contribute \$1.5 million annually to conduct auto mechanic training programs. It also agreed to abandon its repair service quotas. The entire settlement cost Sears \$30 million. Sears Auto Center sales also dropped about 15 to 20 percent after news of the scandal broke.
Note that in boosting sales by performing unnecessary services, Sears suffered very bad publicity. Losses were incalculable. The short-term gains were easy to measure; long-term consequences seldom are. The case illustrates a number of important lessons:
• People generally choose short-term gains over potential long-term losses.
• People often justify the harm to others as being minimal or “necessary” to achieve the desired sales quota or financial goal.
• In working as a group, we often form an “us versus them” mentality. In the Sears case, it is likely that Sears “insiders” looked at customers as “outsiders,” effectively treating them (in Kantian terms) as means rather than ends in themselves. In short, outsiders were used for the benefit of insiders.
• The long-term losses to Sears are difficult to quantify, while the short-term gains were easy to measure and (at least for a brief while) quite satisfying financially.
• Sears’ ongoing rip-offs were possible only because individual consumers lacked the relevant information about the service being offered. This lack of information is a market failure, since many consumers were demanding more of Sears Auto Center services than they would have (and at a higher price) if relevant information had been available to them earlier. Sears, like other sellers of goods and services, took advantage of a market system, which, in its ideal form, would not permit such information distortions.
• People in the organization probably thought that the actions they took were necessary.
Noting this last point, we can assume that these key people were motivated by maximizing profits and had lost sight of other goals for the organization.
The emphasis on doing whatever is necessary to win is entirely understandable, but it is not ethical. The temptation will always exist—for individuals, companies, and nations—to dominate or to win and to write the history of their actions in a way that justifies or overlooks the harm that has been done. In a way, this fits with the notion that “might makes right,” or that power is the ultimate measure of right and wrong.
Conscious Capitalism
One effort to integrate the two viewpoints of stakeholder theory and shareholder primacy is the conscious capitalism movement. Companies that practice conscious capitalism embrace the idea that profit and prosperity can and must go hand in hand with social justice and environmental stewardship. They operate with a holistic or systems view. This means that they understand that all stakeholders are connected and interdependent. They reject false trade-offs between stakeholder interests and strive for creative ways to achieve win-win-win outcomes for all.Milton Friedman, John Mackey, and T. J. Rodgers, “Rethinking the Social Responsibility of Business,” Reason.com, October 2005, http://reason.com/archives/2005/10/01/rethinking-the-social-responsi.
The “conscious business” has a purpose that goes beyond maximizing profits. It is designed to maximize profits but is focused more on its higher purpose and does not fixate solely on the bottom line. To do so, it focuses on delivering value to all its stakeholders, harmonizing as best it can the interests of consumers, partners, investors, the community, and the environment. This requires that company managers take a “servant leadership” role, serving as stewards to the company’s deeper purpose and to the company’s stakeholders.
Conscious business leaders serve as such stewards, focusing on fulfilling the company’s purpose, delivering value to its stakeholders, and facilitating a harmony of interests, rather than on personal gain and self-aggrandizement. Why is this refocusing needed? Within the standard profit-maximizing model, corporations have long had to deal with the “agency problem.” Actions by top-level managers—acting on behalf of the company—should align with the shareholders, but in a culture all about winning and money, managers sometimes act in ways that are self-aggrandizing and that do not serve the interests of shareholders. Laws exist to limit such self-aggrandizing, but the remedies are often too little and too late and often catch only the most egregious overreaching. Having a culture of servant leadership is a much better way to see that a company’s top management works to ensure a harmony of interests. | textbooks/biz/Civil_Law/Book%3A_Introduction_to_Contracts_Sales_and_Product_Liability/02%3A_Corporate_Social_Responsibility_and_Business_Ethics/2.04%3A_Corporations_and_Corporate_Governance.txt |
Summary
Doing good business requires attention to ethics as well as law. Understanding the long-standing perspectives on ethics—utilitarianism, deontology, social contract, and virtue ethics—is helpful in sorting out the ethical issues that face us as individuals and businesses. Each business needs to create or maintain a culture of ethical excellence, where there is ongoing dialogue not only about the best technical practices but also about the company’s ethical challenges and practices. A firm that has purpose and passion beyond profitability is best poised to meet the needs of diverse stakeholders and can best position itself for long-term, sustainable success for shareholders and other stakeholders as well.
EXERCISES
1. Consider again Milton Friedman’s article.
1. What does Friedman mean by “ethical custom”?
2. If the laws of the society are limiting the company’s profitability, would the company be within its rights to disobey the law?
3. What if the law is “on the books,” but the company could count on a lack of enforcement from state officials who were overworked and underpaid? Should the company limit its profits? Suppose that it could save money by discharging a pollutant into a nearby river, adversely affecting fish and, potentially, drinking water supplies for downstream municipalities. In polluting against laws that aren’t enforced, is it still acting “within the rules of the game”? What if almost all other companies in the industry were saving money by doing similar acts?
2. Consider again the Harris v. Forklift case at the end of Chapter 1 "Introduction to Law and Legal Systems". The Supreme Court ruled that Ms. Harris was entitled to be heard again by the federal district court, which means that there would be a trial on her claim that Mr. Hardy, owner of Forklift Systems, had created a “hostile working environment” for Ms. Harris. Apart from the legal aspects, did he really do anything unethical? How can you tell?
1. Which of his actions, if any, were contrary to utilitarian thinking?
2. If Kant were his second-in-command and advising him on ethical matters, would he have approved of Mr. Hardy’s behavior? Why or why not?
3. Consider the behaviors alleged by Ms. Harris and assume for a moment that they are all true. In terms of core values, which of these behaviors are not consistent with the core values Josephson points to? Be specific.
4. Assume that Forklift Systems is a large public corporation and that the CEO engages in these kinds of behaviors. Assume also that the board of directors knows about it. What action should the board take, and why?
5. Assume that the year is 1963, prior to the passage of the Civil Rights Act of 1964 and the Title VII provisions regarding equal employment opportunity that prohibit discrimination based on sex. So, Mr. Hardy’s actions are not illegal, fraudulent, or deceitful. Assume also that he heads a large public company and that there is a large amount of turnover and unhappiness among the women who work for the company. No one can sue him for being sexist or lecherous, but are his actions consistent with maximizing shareholder returns? Should the board be concerned?
Notice that this question is really a stand-in for any situation faced by a company today regarding its CEO where the actions are not illegal but are ethically questionable. What would conscious capitalism tell a CEO or a board to do where some group of its employees are regularly harassed or disadvantaged by top management?
SELF-TEST QUESTIONS
1. Milton Friedman would have been most likely to agree to which of the following statements?
1. The purpose of the corporation is to find a path to sustainable corporate profits by paying careful attention to key stakeholders.
2. The business of business is business.
3. The CEO and the board should have a single-minded focus on delivering maximum value to shareholders of the business.
4. All is fair in love, war, and business.
2. Milton Friedman meant (using the material quoted in this chapter) that companies should
1. Find a path to sustainable profits by looking at the interconnected needs and desires of all the stakeholders.
2. Always remember that the business of business is business.
3. Remind the CEO that he or she has one duty: to maximize shareholder wealth by any means possible.
4. Maximize shareholder wealth by engaging in open competition without fraud or deceit.
3. What are some key drawbacks to utilitarian thinking at the corporate level?
1. The corporation may do a cost-benefit analysis that puts the greatest good of the firm above all other considerations.
2. It is difficult to predict future consequences; decision makers in for-profit organizations will tend to overestimate the upside of certain decisions and underestimate the downside.
3. Short-term interests will be favored over long-term consequences.
4. all of the above
5. a and b only
4. Which ethical perspective would allow that under certain circumstances, it might be ethical to lie to a liar?
1. deontology
2. virtue ethics
3. utilitarianism
4. all of the above
5. Under conscious capitalism,
1. Virtue ethics is ignored.
2. Shareholders, whether they be traders or long-term investors, are always the first and last consideration for the CEO and the board.
3. Maximizing profits comes from a focus on higher purposes and harmonizing the interests of various stakeholders.
4. Kantian duties take precedence over cost-benefit analyses.
1. c
2. d
3. d
4. c
5. c | textbooks/biz/Civil_Law/Book%3A_Introduction_to_Contracts_Sales_and_Product_Liability/02%3A_Corporate_Social_Responsibility_and_Business_Ethics/2.05%3A_Summary_and_Exercises.txt |
Learning Objectives
After reading this chapter, you should be able to do the following:
1. Describe the two different court systems in the United States, and explain why some cases can be filed in either court system.
2. Explain the importance of subject matter jurisdiction and personal jurisdiction and know the difference between the two.
3. Describe the various stages of a civil action: from pleadings, to discovery, to trial, and to appeals.
4. Describe two alternatives to litigation: mediation and arbitration.
In the United States, law and government are interdependent. The Constitution establishes the basic framework of government and imposes certain limitations on the powers of government. In turn, the various branches of government are intimately involved in making, enforcing, and interpreting the law. Today, much of the law comes from Congress and the state legislatures. But it is in the courts that legislation is interpreted and prior case law is interpreted and applied.
03: Courts and the Legal Process
As we go through this chapter, consider the case of Harry and Kay Robinson. In which court should the Robinsons file their action? Can the Oklahoma court hear the case and make a judgment that will be enforceable against all of the defendants? Which law will the court use to come to a decision? Will it use New York law, Oklahoma law, federal law, or German law?
Robinson v. Audi
Harry and Kay Robinson purchased a new Audi automobile from Seaway Volkswagen, Inc. (Seaway), in Massena, New York, in 1976. The following year the Robinson family, who resided in New York, left that state for a new home in Arizona. As they passed through Oklahoma, another car struck their Audi in the rear, causing a fire that severely burned Kay Robinson and her two children. Later on, the Robinsons brought a products-liability action in the District Court for Creek County, Oklahoma, claiming that their injuries resulted from the defective design and placement of the Audi’s gas tank and fuel system. They sued numerous defendants, including the automobile’s manufacturer, Audi NSU Auto Union Aktiengesellschaft (Audi); its importer, Volkswagen of America, Inc. (Volkswagen); its regional distributor, World-Wide Volkswagen Corp. (World-Wide); and its retail dealer, Seaway.
Should the Robinsons bring their action in state court or in federal court? Over which of the defendants will the court have personal jurisdiction?
3.02: The Relationship between State and Federal Court Systems in the United States
LEARNING OBJECTIVES
1. Understand the different but complementary roles of state and federal court systems.
2. Explain why it makes sense for some courts to hear and decide only certain kinds of cases.
3. Describe the difference between a trial court and an appellate court.
Although it is sometimes said that there are two separate court systems, the reality is more complex. There are, in fact, fifty-two court systems: those of the fifty states, the local court system in the District of Columbia, and the federal court system. At the same time, these are not entirely separate; they all have several points of contact.
State and local courts must honor both federal law and the laws of the other states. First, state courts must honor federal law where state laws are in conflict with federal laws (under the supremacy clause of the Constitution; see Chapter 4 "Constitutional Law and US Commerce"). Second, claims arising under federal statutes can often be tried in the state courts, where the Constitution or Congress has not explicitly required that only federal courts can hear that kind of claim. Third, under the full faith and credit clause, each state court is obligated to respect the final judgments of courts in other states. Thus a contract dispute resolved by an Arkansas court cannot be relitigated in North Dakota when the plaintiff wants to collect on the Arkansas judgment in North Dakota. Fourth, state courts often must consider the laws of other states in deciding cases involving issues where two states have an interest, such as when drivers from two different states collide in a third state. Under these circumstances, state judges will consult their own state’s case decisions involving conflicts of laws and sometimes decide that they must apply another state’s laws to decide the case (see Table 3.1 "Sample Conflict-of-Law Principles").
As state courts are concerned with federal law, so federal courts are often concerned with state law and with what happens in state courts. Federal courts will consider state-law-based claims when a case involves claims using both state and federal law. Claims based on federal laws will permit the federal court to take jurisdiction over the whole case, including any state issues raised. In those cases, the federal court is said to exercise “pendent jurisdiction” over the state claims. Also, the Supreme Court will occasionally take appeals from a state supreme court where state law raises an important issue of federal law to be decided. For example, a convict on death row may claim that the state’s chosen method of execution using the injection of drugs is unusually painful and involves “cruel and unusual punishment,” raising an Eighth Amendment issue.
There is also a broad category of cases heard in federal courts that concern only state legal issues—namely, cases that arise between citizens of different states. The federal courts are permitted to hear these cases under their so-called diversity of citizenship jurisdiction (or diversity jurisdiction). A citizen of New Jersey may sue a citizen of New York over a contract dispute in federal court, but if both were citizens of New Jersey, the plaintiff would be limited to the state courts. The Constitution established diversity jurisdiction because it was feared that local courts would be hostile toward people from other states and that they would need separate courts. In 2009, nearly a third of all lawsuits filed in federal court were based on diversity of citizenship. In these cases, the federal courts were applying state law, rather than taking federal question jurisdiction, where federal law provided the basis for the lawsuit or where the United States was a party (as plaintiff or defendant).
Why are there so many diversity cases in federal courts? Defense lawyers believe that there is sometimes a “home-court advantage” for an in-state plaintiff who brings a lawsuit against a nonresident in his local state court. The defense attorney is entitled to ask for removal to a federal court where there is diversity. This fits with the original reason for diversity jurisdiction in the Constitution—the concern that judges in one state court would favor the in-state plaintiff rather than a nonresident defendant. Another reason there are so many diversity cases is that plaintiffs’ attorneys know that removal is common and that it will move the case along faster by filing in federal court to begin with. Some plaintiffs’ attorneys also find advantages in pursuing a lawsuit in federal court. Federal court procedures are often more efficient than state court procedures, so that federal dockets are often less crowded. This means a case will get to trial faster, and many lawyers enjoy the higher status that comes in practicing before the federal bench. In some federal districts, judgments for plaintiffs may be higher, on average, than in the local state court. In short, not only law but also legal strategy factor into the popularity of diversity cases in federal courts.
State Court Systems
The vast majority of civil lawsuits in the United States are filed in state courts. Two aspects of civil lawsuits are common to all state courts: trials and appeals. A court exercising a trial function has original jurisdiction—that is, jurisdiction to determine the facts of the case and apply the law to them. A court that hears appeals from the trial court is said to have appellate jurisdiction—it must accept the facts as determined by the trial court and limit its review to the lower court’s theory of the applicable law.
Limited Jurisdiction Courts
In most large urban states and many smaller states, there are four and sometimes five levels of courts. The lowest level is that of the limited jurisdiction courts. These are usually county or municipal courts with original jurisdiction to hear minor criminal cases (petty assaults, traffic offenses, and breach of peace, among others) and civil cases involving monetary amounts up to a fixed ceiling (no more than \$10,000 in most states and far less in many states). Most disputes that wind up in court are handled in the 18,000-plus limited jurisdiction courts, which are estimated to hear more than 80 percent of all cases.
One familiar limited jurisdiction court is the small claims court, with jurisdiction to hear civil cases involving claims for amounts ranging between \$1,000 and \$5,000 in about half the states and for considerably less in the other states (\$500 to \$1,000). The advantage of the small claims court is that its procedures are informal, it is often located in a neighborhood outside the business district, it is usually open after business hours, and it is speedy. Lawyers are not necessary to present the case and in some states are not allowed to appear in court.
General Jurisdiction Courts
All other civil and criminal cases are heard in the general trial courts, or courts of general jurisdiction. These go by a variety of names: superior, circuit, district, or common pleas court (New York calls its general trial court the supreme court). These are the courts in which people seek redress for incidents such as automobile accidents and injuries, or breaches of contract. These state courts also prosecute those accused of murder, rape, robbery, and other serious crimes. The fact finder in these general jurisdiction courts is not a judge, as in the lower courts, but a jury of citizens.
Although courts of general jurisdiction can hear all types of cases, in most states more than half involve family matters (divorce, child custody disputes, and the like). A third were commercial cases, and slightly over 10 percent were devoted to car accident cases and other torts (as discussed in Chapter 7 "Introduction to Tort Law").
Most states have specialized courts that hear only a certain type of case, such as landlord-tenant disputes or probate of wills. Decisions by judges in specialized courts are usually final, although any party dissatisfied with the outcome may be able to get a new trial in a court of general jurisdiction. Because there has been one trial already, this is known as a trial de novo. It is not an appeal, since the case essentially starts over.
Appellate Courts
The losing party in a general jurisdiction court can almost always appeal to either one or two higher courts. These intermediate appellate courts—usually called courts of appeal—have been established in forty states. They do not retry the evidence, but rather determine whether the trial was conducted in a procedurally correct manner and whether the appropriate law was applied. For example, the appellant (the losing party who appeals) might complain that the judge wrongly instructed the jury on the meaning of the law, or improperly allowed testimony of a particular witness, or misconstrued the law in question. The appellee (who won in the lower court) will ask that the appellant be denied—usually this means that the appellee wants the lower-court judgment affirmed. The appellate court has quite a few choices: it can affirm, modify, reverse, or reverse and remand the lower court (return the case to the lower court for retrial).
The last type of appeal within the state courts system is to the highest court, the state supreme court, which is composed of a single panel of between five and nine judges and is usually located in the state capital. (The intermediate appellate courts are usually composed of panels of three judges and are situated in various locations around the state.) In a few states, the highest court goes by a different name: in New York, it is known as the court of appeals. In certain cases, appellants to the highest court in a state have the right to have their appeals heard, but more often the supreme court selects the cases it wishes to hear. For most litigants, the ruling of the state supreme court is final. In a relatively small class of cases—those in which federal constitutional claims are made—appeal to the US Supreme Court to issue a writ of certiorari remains a possibility.
District Courts
The federal judicial system is uniform throughout the United States and consists of three levels. At the first level are the federal district courts, which are the trial courts in the federal system. Every state has one or more federal districts; the less populous states have one, and the more populous states (California, Texas, and New York) have four. The federal court with the heaviest commercial docket is the US District Court for the Southern District of New York (Manhattan). There are forty-four district judges and fifteen magistrates in this district. The district judges throughout the United States commonly preside over all federal trials, both criminal and civil.
Courts of Appeal
Cases from the district courts can then be appealed to the circuit courts of appeal, of which there are thirteen (Figure 3.1 "The Federal Judicial Circuits"). Each circuit oversees the work of the district courts in several states. For example, the US Court of Appeals for the Second Circuit hears appeals from district courts in New York, Connecticut, and Vermont. The US Court of Appeals for the Ninth Circuit hears appeals from district courts in California, Oregon, Nevada, Montana, Washington, Idaho, Arizona, Alaska, Hawaii, and Guam. The US Court of Appeals for the District of Columbia Circuit hears appeals from the district court in Washington, DC, as well as from numerous federal administrative agencies (see Chapter 5 "Administrative Law"). The US Court of Appeals for the Federal Circuit, also located in Washington, hears appeals in patent and customs cases. Appeals are usually heard by three-judge panels, but sometimes there will be a rehearing at the court of appeals level, in which case all judges sit to hear the case “en banc.”
There are also several specialized courts in the federal judicial system. These include the US Tax Court, the Court of Customs and Patent Appeals, and the Court of Claims.
United States Supreme Court
Overseeing all federal courts is the US Supreme Court, in Washington, DC. It consists of nine justices—the chief justice and eight associate justices. (This number is not constitutionally required; Congress can establish any number. It has been set at nine since after the Civil War.) The Supreme Court has selective control over most of its docket. By law, the cases it hears represent only a tiny fraction of the cases that are submitted. In 2008, the Supreme Court had numerous petitions (over 7,000, not including thousands of petitions from prisoners) but heard arguments in only 87 cases. The Supreme Court does not sit in panels. All the justices hear and consider each case together, unless a justice has a conflict of interest and must withdraw from hearing the case.
Figure 3.1 The Federal Judicial Circuits
Federal judges—including Supreme Court justices—are nominated by the president and must be confirmed by the Senate. Unlike state judges, who are usually elected and preside for a fixed term of years, federal judges sit for life unless they voluntarily retire or are impeached.
KEY TAKEAWAY
Trial courts and appellate courts have different functions. State trial courts sometimes hear cases with federal law issues, and federal courts sometimes hear cases with state law issues. Within both state and federal court systems, it is useful to know the different kinds of courts and what cases they can decide.
EXERCISES
1. Why all of this complexity? Why don’t state courts hear only claims based on state law, and federal courts only federal-law-based claims?
2. Why would a plaintiff in Iowa with a case against a New Jersey defendant prefer to have the case heard in Iowa?
3. James, a New Jersey resident, is sued by Jonah, an Iowa resident. After a trial in which James appears and vigorously defends himself, the Iowa state court awards Jonah \$136,750 dollars in damages for his tort claim. In trying to collect from James in New Jersey, Jonah must have the New Jersey court certify the Iowa judgment. Why, ordinarily, must the New Jersey court do so? | textbooks/biz/Civil_Law/Book%3A_Introduction_to_Contracts_Sales_and_Product_Liability/03%3A_Courts_and_the_Legal_Process/3.01%3A_Courts_and_the_Legal_Process.txt |
LEARNING OBJECTIVES
1. Explain the concept of subject matter jurisdiction and distinguish it from personal jurisdiction.
2. Understand how and where the US Constitution provides a set of instructions as to what federal courts are empowered by law to do.
3. Know which kinds of cases must be heard in federal courts only.
4. Explain diversity of citizenship jurisdiction and be able to decide whether a case is eligible for diversity jurisdiction in the federal courts.
Jurisdiction is an essential concept in understanding courts and the legal system. Jurisdiction is a combination of two Latin words: juris (law) and diction (to speak). Which court has the power “to speak the law” is the basic question of jurisdiction.
There are two questions about jurisdiction in each case that must be answered before a judge will hear a case: the question of subject matter jurisdiction and the question of personal jurisdiction. We will consider the question of subject matter jurisdiction first, because judges do; if they determine, on the basis of the initial documents in the case (the “pleadings”), that they have no power to hear and decide that kind of case, they will dismiss it.
The Federal-State Balance: Federalism
State courts have their origins in colonial era courts. After the American Revolution, state courts functioned (with some differences) much like they did in colonial times. The big difference after 1789 was that state courts coexisted with federal courts. Federalism was the system devised by the nation’s founders in which power is shared between states and the federal government. This sharing requires a division of labor between the states and the federal government. It is Article III of the US Constitution that spells out the respective spheres of authority (jurisdiction) between state and federal courts.
Take a close look at Article III of the Constitution. (You can find a printable copy of the Constitution at http://www.findlaw.com.) Article III makes clear that federal courts are courts of limited power or jurisdiction. Notice that the only kinds of cases federal courts are authorized to deal with have strong federal connections. For example, federal courts have jurisdiction when a federal law is being used by the plaintiff or prosecutor (a “federal question” case) or the case arises “in admiralty” (meaning that the problem arose not on land but on sea, beyond the territorial jurisdiction of any state, or in navigable waters within the United States). Implied in this list is the clear notion that states would continue to have their own laws, interpreted by their own courts, and that federal courts were needed only where the issues raised by the parties had a clear federal connection. The exception to this is diversity jurisdiction, discussed later.
The Constitution was constructed with the idea that state courts would continue to deal with basic kinds of claims such as tort, contract, or property claims. Since states sanction marriages and divorce, state courts would deal with “domestic” (family) issues. Since states deal with birth and death records, it stands to reason that paternity suits, probate disputes, and the like usually wind up in state courts. You wouldn’t go to the federal building or courthouse to get a marriage license, ask for a divorce, or probate a will: these matters have traditionally been dealt with by the states (and the thirteen original colonies before them). Matters that historically get raised and settled in state court under state law include not only domestic and probate matters but also law relating to corporations, partnerships, agency, contracts, property, torts, and commercial dealings generally. You cannot get married or divorced in federal court, because federal courts have no jurisdiction over matters that are historically (and are still) exclusively within the domain of state law.
In terms of subject matter jurisdiction, then, state courts will typically deal with the kinds of disputes just cited. Thus if you are Michigan resident and have an auto accident in Toledo with an Ohio resident and you each blame each other for the accident, the state courts would ordinarily resolve the matter if the dispute cannot otherwise be settled. Why state courts? Because when you blame one another and allege that it’s the other person’s fault, you have the beginnings of a tort case, with negligence as a primary element of the claim, and state courts have routinely dealt with this kind of claim, from British colonial times through Independence and to the present. (See also Chapter 7 "Introduction to Tort Law" of this text.) People have had a need to resolve this kind of dispute long before our federal courts were created, and you can tell from Article III that the founders did not specify that tort or negligence claims should be handled by the federal courts. Again, federal courts are courts of limited jurisdiction, limited to the kinds of cases specified in Article III. If the case before the federal court does not fall within one of those categories, the federal court cannot constitutionally hear the case because it does not have subject matter jurisdiction.
Always remember: a court must have subject matter jurisdiction to hear and decide a case. Without it, a court cannot address the merits of the controversy or even take the next jurisdictional step of figuring out which of the defendants can be sued in that court. The question of which defendants are appropriately before the court is a question of personal jurisdiction.
Because there are two court systems, it is important for a plaintiff to file in the right court to begin with. The right court is the one that has subject matter jurisdiction over the case—that is, the power to hear and decide the kind of case that is filed. Not only is it a waste of time to file in the wrong court system and be dismissed, but if the dismissal comes after the filing period imposed by the applicable statute of limitations, it will be too late to refile in the correct court system. Such cases will be routinely dismissed, regardless of how deserving the plaintiff might be in his quest for justice. (The plaintiff’s only remedy at that point would be to sue his lawyer for negligence for failing to mind the clock and get to the right court in time!)
Exclusive Jurisdiction in Federal Courts
With two court systems, a plaintiff (or the plaintiff’s attorney, most likely) must decide whether to file a case in the state court system or the federal court system. Federal courts have exclusive jurisdiction over certain kinds of cases. The reason for this comes directly from the Constitution. Article III of the US Constitution provides the following:
The judicial Power shall extend to all Cases, in Law and Equity, arising under this Constitution, the Laws of the United States, and Treaties made, or which shall be made, under their Authority; to all Cases affecting Ambassadors, other public Ministers and Consuls; to all Cases of admiralty and maritime Jurisdiction; to Controversies to which the United States shall be a Party; to Controversies between two or more States; between a State and Citizens of another State; between Citizens of different States; between Citizens of the same State claiming Lands under Grants of different States, and between a State, or the Citizens thereof, and foreign States, Citizens or Subjects.
By excluding diversity cases, we can assemble a list of the kinds of cases that can only be heard in federal courts. The list looks like this:
1. Suits between states. Cases in which two or more states are a party.
2. Cases involving ambassadors and other high-ranking public figures. Cases arising between foreign ambassadors and other high-ranking public officials.
3. Federal crimes. Crimes defined by or mentioned in the US Constitution or those defined or punished by federal statute. Such crimes include treason against the United States, piracy, counterfeiting, crimes against the law of nations, and crimes relating to the federal government’s authority to regulate interstate commerce. However, most crimes are state matters.
4. Bankruptcy. The statutory procedure, usually triggered by insolvency, by which a person is relieved of most debts and undergoes a judicially supervised reorganization or liquidation for the benefit of the person’s creditors.
5. Patent, copyright, and trademark cases
1. Patent. The exclusive right to make, use, or sell an invention for a specified period (usually seventeen years), granted by the federal government to the inventor if the device or process is novel, useful, and nonobvious.
2. Copyright. The body of law relating to a property right in an original work of authorship (such as a literary, musical, artistic, photographic, or film work) fixed in any tangible medium of expression, giving the holder the exclusive right to reproduce, adapt, distribute, perform, and display the work.
3. Trademark. A word, phrase, logo, or other graphic symbol used by a manufacturer or seller to distinguish its product or products from those of others.
6. Admiralty. The system of laws that has grown out of the practice of admiralty courts: courts that exercise jurisdiction over all maritime contracts, torts, injuries, and offenses.
7. Antitrust. Federal laws designed to protect trade and commerce from restraining monopolies, price fixing, and price discrimination.
8. Securities and banking regulation. The body of law protecting the public by regulating the registration, offering, and trading of securities and the regulation of banking practices.
9. Other cases specified by federal statute. Any other cases specified by a federal statute where Congress declares that federal courts will have exclusive jurisdiction.
Concurrent Jurisdiction
When a plaintiff takes a case to state court, it will be because state courts typically hear that kind of case (i.e., there is subject matter jurisdiction). If the plaintiff’s main cause of action comes from a certain state’s constitution, statutes, or court decisions, the state courts have subject matter jurisdiction over the case. If the plaintiff’s main cause of action is based on federal law (e.g., Title VII of the Civil Rights Act of 1964), the federal courts have subject matter jurisdiction over the case. But federal courts will also have subject matter jurisdiction over certain cases that have only a state-based cause of action; those cases are ones in which the plaintiff(s) and the defendant(s) are from different states and the amount in controversy is more than \$75,000. State courts can have subject matter jurisdiction over certain cases that have only a federal-based cause of action. The Supreme Court has now made clear that state courts have concurrent jurisdiction of any federal cause of action unless Congress has given exclusive jurisdiction to federal courts.
In short, a case with a federal question can be often be heard in either state or federal court, and a case that has parties with a diversity of citizenship can be heard in state courts or in federal courts where the tests of complete diversity and amount in controversy are met. (See Note 3.18 "Summary of Rules on Subject Matter Jurisdiction".)
Whether a case will be heard in a state court or moved to a federal court will depend on the parties. If a plaintiff files a case in state trial court where concurrent jurisdiction applies, a defendant may (or may not) ask that the case be removed to federal district court.
Summary of Rules on Subject Matter Jurisdiction
1. A court must always have subject matter jurisdiction, and personal jurisdiction over at least one defendant, to hear and decide a case.
2. A state court will have subject matter jurisdiction over any case that is not required to be brought in a federal court.
Some cases can only be brought in federal court, such as bankruptcy cases, cases involving federal crimes, patent cases, and Internal Revenue Service tax court claims. The list of cases for exclusive federal jurisdiction is fairly short. That means that almost any state court will have subject matter jurisdiction over almost any kind of case. If it’s a case based on state law, a state court will always have subject matter jurisdiction.
3. A federal court will have subject matter jurisdiction over any case that is either based on a federal law (statute, case, or US Constitution)
OR
A federal court will have subject matter jurisdiction over any case based on state law where the parties are (1) from different states and (2) the amount in controversy is at least \$75,000.
(1) The different states requirement means that no plaintiff can have permanent residence in a state where any defendant has permanent residence—there must be complete diversity of citizenship as between all plaintiffs and defendants.
(2) The amount in controversy requirement means that a good-faith estimate of the amount the plaintiff may recover is at least \$75,000.
NOTE: For purposes of permanent residence, a corporation is considered a resident where it is incorporated AND where it has a principal place of business.
4. In diversity cases, the following rules apply.
(1) Federal civil procedure rules apply to how the case is conducted before and during trial and any appeals, but
(2) State law will be used as the basis for a determination of legal rights and responsibilities.
(a) This “choice of law” process is interesting but complicated. Basically, each state has its own set of judicial decisions that resolve conflict of laws. For example, just because A sues B in a Texas court, the Texas court will not necessarily apply Texas law. Anna and Bobby collide and suffer serious physical injuries while driving their cars in Roswell, New Mexico. Both live in Austin, and Bobby files a lawsuit in Austin. The court there could hear it (having subject matter jurisdiction and personal jurisdiction over Bobby) but would apply New Mexico law, which governs motor vehicle laws and accidents in New Mexico. Why would the Texas judge do that?
(b) The Texas judge knows that which state’s law is chosen to apply to the case can make a decisive difference in the case, as different states have different substantive law standards. For example, in a breach of contract case, one state’s version of the Uniform Commercial Code may be different from another’s, and which one the court decides to apply is often exceedingly good for one side and dismal for the other. In Anna v. Bobby, if Texas has one kind of comparative negligence statute and New Mexico has a different kind of comparative negligence statute, who wins or loses, or how much is awarded, could well depend on which law applies. Because both were under the jurisdiction of New Mexico’s laws at the time, it makes sense to apply New Mexico law.
(3) Why do some nonresident defendants prefer to be in federal court?
(a) In the state court, the judge is elected, and the jury may be familiar with or sympathetic to the “local” plaintiff.
(b) The federal court provides a more neutral forum, with an appointed, life-tenured judge and a wider pool of potential jurors (drawn from a wider geographical area).
(4) If a defendant does not want to be in state court and there is diversity, what is to be done?
(a) Make a motion for removal to the federal court.
(b) The federal court will not want to add to its caseload, or docket, but must take the case unless there is not complete diversity of citizenship or the amount in controversy is less than \$75,000.
To better understand subject matter jurisdiction in action, let’s take an example. Wile E. Coyote wants a federal judge to hear his products-liability action against Acme, Inc., even though the action is based on state law. Mr. Coyote’s attorney wants to “make a federal case” out of it, thinking that the jurors in the federal district court’s jury pool will understand the case better and be more likely to deliver a “high value” verdict for Mr. Coyote. Mr. Coyote resides in Arizona, and Acme is incorporated in the state of Delaware and has its principal place of business in Chicago, Illinois. The federal court in Arizona can hear and decide Mr. Coyote’s case (i.e., it has subject matter jurisdiction over the case) because of diversity of citizenship. If Mr. Coyote was injured by one of Acme’s defective products while chasing a roadrunner in Arizona, the federal district court judge would hear his action—using federal procedural law—and decide the case based on the substantive law of Arizona on product liability.
But now change the facts only slightly: Acme is incorporated in Delaware but has its principal place of business in Phoenix, Arizona. Unless Mr. Coyote has a federal law he is using as a basis for his claims against Acme, his attempt to get a federal court to hear and decide the case will fail. It will fail because there is not complete diversity of citizenship between the plaintiff and the defendant.
Robinson v. Audi
Now consider Mr. and Mrs. Robinson and their products-liability claim against Seaway Volkswagen and the other three defendants. There is no federal products-liability law that could be used as a cause of action. They are most likely suing the defendants using products-liability law based on common-law negligence or common-law strict liability law, as found in state court cases. They were not yet Arizona residents at the time of the accident, and their accident does not establish them as Oklahoma residents, either. They bought the vehicle in New York from a New York–based retailer. None of the other defendants is from Oklahoma.
They file in an Oklahoma state court, but how will they (their attorney or the court) know if the state court has subject matter jurisdiction? Unless the case is required to be in a federal court (i.e., unless the federal courts have exclusive jurisdiction over this kind of case), any state court system will have subject matter jurisdiction, including Oklahoma’s state court system. But if their claim is for a significant amount of money, they cannot file in small claims court, probate court, or any court in Oklahoma that does not have statutory jurisdiction over their claim. They will need to file in a court of general jurisdiction. In short, even filing in the right court system (state versus federal), the plaintiff must be careful to find the court that has subject matter jurisdiction.
If they wish to go to federal court, can they? There is no federal question presented here (the claim is based on state common law), and the United States is not a party, so the only basis for federal court jurisdiction would be diversity jurisdiction. If enough time has elapsed since the accident and they have established themselves as Arizona residents, they could sue in federal court in Oklahoma (or elsewhere), but only if none of the defendants—the retailer, the regional Volkswagen company, Volkswagen of North America, or Audi (in Germany) are incorporated in or have a principal place of business in Arizona. The federal judge would decide the case using federal civil procedure but would have to make the appropriate choice of state law. In this case, the choice of conflicting laws would most likely be Oklahoma, where the accident happened, or New York, where the defective product was sold.
Table 3.1 Sample Conflict-of-Law Principles
Substantive Law Issue Law to be Applied
Liability for injury caused by tortious conduct State in which the injury was inflicted
Real property State where the property is located
Personal Property: inheritance Domicile of deceased (not location of property)
Contract: validity State in which contract was made
Contract: breach State in which contract was to be performed*
*Or, in many states, the state with the most significant contacts with the contractual activities
Note: Choice-of-law clauses in a contract will ordinarily be honored by judges in state and federal courts.
Legal Procedure, Including Due Process and Personal Jurisdiction
In this section, we consider how lawsuits are begun and how the court knows that it has both subject matter jurisdiction and personal jurisdiction over at least one of the named defendants.
The courts are not the only institutions that can resolve disputes. In Section 3.8 "Alternative Means of Resolving Disputes", we will discuss other dispute-resolution forums, such as arbitration and mediation. For now, let us consider how courts make decisions in civil disputes. Judicial decision making in the context of litigation (civil lawsuits) is a distinctive form of dispute resolution.
First, to get the attention of a court, the plaintiff must make a claim based on existing laws. Second, courts do not reach out for cases. Cases are brought to them, usually when an attorney files a case with the right court in the right way, following the various laws that govern all civil procedures in a state or in the federal system. (Most US states’ procedural laws are similar to the federal procedural code.)
Once at the court, the case will proceed through various motions (motions to dismiss for lack of jurisdiction, for example, or insufficient service of process), the proofs (submission of evidence), and the arguments (debate about the meaning of the evidence and the law) of contesting parties.
This is at the heart of the adversary system, in which those who oppose each other may attack the other’s case through proofs and cross-examination. Every person in the United States who wishes to take a case to court is entitled to hire a lawyer. The lawyer works for his client, not the court, and serves him as an advocate, or supporter. The client’s goal is to persuade the court of the accuracy and justness of his position. The lawyer’s duty is to shape the evidence and the argument—the line of reasoning about the evidence—to advance his client’s cause and persuade the court of its rightness. The lawyer for the opposing party will be doing the same thing, of course, for her client. The judge (or, if one is sitting, the jury) must sort out the facts and reach a decision from this cross-fire of evidence and argument.
The method of adjudication—the act of making an order or judgment—has several important features. First, it focuses the conflicting issues. Other, secondary concerns are minimized or excluded altogether. Relevance is a key concept in any trial. The judge is required to decide the questions presented at the trial, not to talk about related matters. Second, adjudication requires that the judge’s decision be reasoned, and that is why judges write opinions explaining their decisions (an opinion may be omitted when the verdict comes from a jury). Third, the judge’s decision must not only be reasoned but also be responsive to the case presented: the judge is not free to say that the case is unimportant and that he therefore will ignore it. Unlike other branches of government that are free to ignore problems pressing upon them, judges must decide cases. (For example, a legislature need not enact a law, no matter how many people petition it to do so.) Fourth, the court must respond in a certain way. The judge must pay attention to the parties’ arguments and his decision must result from their proofs and arguments. Evidence that is not presented and legal arguments that are not made cannot be the basis for what the judge decides. Also, judges are bound by standards of weighing evidence: the burden of proof in a civil case is generally a “preponderance of the evidence.”
In all cases, the plaintiff—the party making a claim and initiating the lawsuit (in a criminal case the plaintiff is the prosecution)—has the burden of proving his case. If he fails to prove it, the defendant—the party being sued or prosecuted—will win.
Criminal prosecutions carry the most rigorous burden of proof: the government must prove its case against the defendant beyond a reasonable doubt. That is, even if it seems very likely that the defendant committed the crime, as long as there remains some reasonable doubt—perhaps he was not clearly identified as the culprit, perhaps he has an alibi that could be legitimate—the jury must vote to acquit rather than convict.
By contrast, the burden of proof in ordinary civil cases—those dealing with contracts, personal injuries, and most of the cases in this book—is a preponderance of the evidence, which means that the plaintiff’s evidence must outweigh whatever evidence the defendant can muster that casts doubts on the plaintiff’s claim. This is not merely a matter of counting the number of witnesses or of the length of time that they talk: the judge in a trial without a jury (a bench trial), or the jury where one is impaneled, must apply the preponderance of evidence test by determining which side has the greater weight of credible, relevant evidence.
Adjudication and the adversary system imply certain other characteristics of courts. Judges must be impartial; those with a personal interest in a matter must refuse to hear it. The ruling of a court, after all appeals are exhausted, is final. This principle is known as res judicata (Latin for “the thing is decided”), and it means that the same parties may not take up the same dispute in another court at another time. Finally, a court must proceed according to a public set of formal procedural rules; a judge cannot make up the rules as he goes along. To these rules we now turn.
Complaint and Summons
Beginning a lawsuit is simple and is spelled out in the rules of procedure by which each court system operates. In the federal system, the plaintiff begins a lawsuit by filing a complaint—a document clearly explaining the grounds for suit—with the clerk of the court. The court’s agent (usually a sheriff, for state trial courts, or a US deputy marshal, in federal district courts) will then serve the defendant with the complaint and a summons. The summons is a court document stating the name of the plaintiff and his attorney and directing the defendant to respond to the complaint within a fixed time period.
The timing of the filing can be important. Almost every possible legal complaint is governed by a federal or state statute of limitations, which requires a lawsuit to be filed within a certain period of time. For example, in many states a lawsuit for injuries resulting from an automobile accident must be filed within two years of the accident or the plaintiff forfeits his right to proceed. As noted earlier, making a correct initial filing in a court that has subject matter jurisdiction is critical to avoiding statute of limitations problems.
Jurisdiction and Venue
The place of filing is equally important, and there are two issues regarding location. The first is subject matter jurisdiction, as already noted. A claim for breach of contract, in which the amount at stake is \$1 million, cannot be brought in a local county court with jurisdiction to hear cases involving sums of up to only \$1,000. Likewise, a claim for copyright violation cannot be brought in a state superior court, since federal courts have exclusive jurisdiction over copyright cases.
The second consideration is venue—the proper geographic location of the court. For example, every county in a state might have a superior court, but the plaintiff is not free to pick any county. Again, a statute will spell out to which court the plaintiff must go (e.g., the county in which the plaintiff resides or the county in which the defendant resides or maintains an office).
Service of Process and Personal Jurisdiction
The defendant must be “served”—that is, must receive notice that he has been sued. Service can be done by physically presenting the defendant with a copy of the summons and complaint. But sometimes the defendant is difficult to find (or deliberately avoids the marshal or other process server). The rules spell out a variety of ways by which individuals and corporations can be served. These include using US Postal Service certified mail or serving someone already designated to receive service of process. A corporation or partnership, for example, is often required by state law to designate a “registered agent” for purposes of getting public notices or receiving a summons and complaint.
One of the most troublesome problems is service on an out-of-state defendant. The personal jurisdiction of a state court over persons is clear for those defendants found within the state. If the plaintiff claims that an out-of-state defendant injured him in some way, must the plaintiff go to the defendant’s home state to serve him? Unless the defendant had some significant contact with the plaintiff’s state, the plaintiff may indeed have to. For instance, suppose a traveler from Maine stopped at a roadside diner in Montana and ordered a slice of homemade pie that was tainted and caused him to be sick. The traveler may not simply return home and mail the diner a notice that he is suing it in a Maine court. But if out-of-state defendants have some contact with the plaintiff’s state of residence, there might be grounds to bring them within the jurisdiction of the plaintiff’s state courts. In Burger King v. Rudzewicz, Section 3.9 "Cases", the federal court in Florida had to consider whether it was constitutionally permissible to exercise personal jurisdiction over a Michigan franchisee.
Again, recall that even if a court has subject matter jurisdiction, it must also have personal jurisdiction over each defendant against whom an enforceable judgment can be made. Often this is not a problem; you might be suing a person who lives in your state or regularly does business in your state. Or a nonresident may answer your complaint without objecting to the court’s “in personam” (personal) jurisdiction. But many defendants who do not reside in the state where the lawsuit is filed would rather not be put to the inconvenience of contesting a lawsuit in a distant forum. Fairness—and the due process clause of the Fourteenth Amendment—dictates that nonresidents should not be required to defend lawsuits far from their home base, especially where there is little or no contact or connection between the nonresident and the state where a lawsuit is brought.
Summary of Rules on Personal Jurisdiction
1. Once a court determines that it has subject matter jurisdiction, it must find at least one defendant over which it is “fair” (i.e., in accord with due process) to exercise personal jurisdiction.
2. If a plaintiff sues five defendants and the court has personal jurisdiction over just one, the case can be heard, but the court cannot make a judgment against the other four.
1. But if the plaintiff loses against defendant 1, he can go elsewhere (to another state or states) and sue defendants 2, 3, 4, or 5.
2. The court’s decision in the first lawsuit (against defendant 1) does not determine the liability of the nonparticipating defendants.
This involves the principle of res judicata, which means that you can’t bring the same action against the same person (or entity) twice. It’s like the civil side of double jeopardy. Res means “thing,” and judicata means “adjudicated.” Thus the “thing” has been “adjudicated” and should not be judged again. But, as to nonparticipating parties, it is not over. If you have a different case against the same defendant—one that arises out of a completely different situation—that case is not barred by res judicata.
3. Service of process is a necessary (but not sufficient) condition for getting personal jurisdiction over a particular defendant (see rule 4).
1. In order to get a judgment in a civil action, the plaintiff must serve a copy of the complaint and a summons on the defendant.
2. There are many ways to do this.
• The process server personally serves a complaint on the defendant.
• The process server leaves a copy of the summons and complaint at the residence of the defendant, in the hands of a competent person.
• The process server sends the summons and complaint by certified mail, return receipt requested.
• The process server, if all other means are not possible, notifies the defendant by publication in a newspaper having a minimum number of readers (as may be specified by law).
4. In addition to successfully serving the defendant with process, a plaintiff must convince the court that exercising personal jurisdiction over the defendant is consistent with due process and any statutes in that state that prescribe the jurisdictional reach of that state (the so-called long-arm statutes). The Supreme Court has long recognized various bases for judging whether such process is fair.
1. Consent. The defendant agrees to the court’s jurisdiction by coming to court, answering the complaint, and having the matter litigated there.
2. Domicile. The defendant is a permanent resident of that state.
3. Event. The defendant did something in that state, related to the lawsuit, that makes it fair for the state to say, “Come back and defend!”
4. Service of process within the state will effectively provide personal jurisdiction over the nonresident.
Again, let’s consider Mrs. Robinson and her children in the Audi accident. She could file a lawsuit anywhere in the country. She could file a lawsuit in Arizona after she establishes residency there. But while the Arizona court would have subject matter jurisdiction over any products-liability claim (or any claim that was not required to be heard in a federal court), the Arizona court would face an issue of “in personam jurisdiction,” or personal jurisdiction: under the due process clause of the Fourteenth Amendment, each state must extend due process to citizens of all of the other states. Because fairness is essential to due process, the court must consider whether it is fair to require an out-of-state defendant to appear and defend against a lawsuit that could result in a judgment against that defendant.
Almost every state in the United States has a statute regarding personal jurisdiction, instructing judges when it is permissible to assert personal jurisdiction over an out-of-state resident. These are called long-arm statutes. But no state can reach out beyond the limits of what is constitutionally permissible under the Fourteenth Amendment, which binds the states with its proviso to guarantee the due process rights of the citizens of every state in the union. The “minimum contacts” test in Burger King v. Rudzewicz (Section 3.9 "Cases") tries to make the fairness mandate of the due process clause more specific. So do other tests articulated in the case (such as “does not offend traditional notions of fair play and substantial justice”). These tests are posed by the Supreme Court and heeded by all lower courts in order to honor the provisions of the Fourteenth Amendment’s due process guarantees. These tests are in addition to any state long-arm statute’s instructions to courts regarding the assertion of personal jurisdiction over nonresidents.
Choice of Law and Choice of Forum Clauses
In a series of cases, the Supreme Court has made clear that it will honor contractual choices of parties in a lawsuit. Suppose the parties to a contract wind up in court arguing over the application of the contract’s terms. If the parties are from two different states, the judge may have difficulty determining which law to apply (see Table 3.1 "Sample Conflict-of-Law Principles"). But if the contract says that a particular state’s law will be applied if there is a dispute, then ordinarily the judge will apply that state’s law as a rule of decision in the case. For example, Kumar Patel (a Missouri resident) opens a brokerage account with Goldman, Sachs and Co., and the contractual agreement calls for “any disputes arising under this agreement” to be determined “according to the laws of the state of New York.” When Kumar claims in a Missouri court that his broker is “churning” his account, and, on the other hand, Goldman, Sachs claims that Kumar has failed to meet his margin call and owes \$38,568.25 (plus interest and attorney’s fees), the judge in Missouri will apply New York law based on the contract between Kumar and Goldman, Sachs.
Ordinarily, a choice-of-law clause will be accompanied by a choice-of-forum clause. In a choice-of-forum clause, the parties in the contract specify which court they will go to in the event of a dispute arising under the terms of contract. For example, Harold (a resident of Virginia) rents a car from Alamo at the Denver International Airport. He does not look at the fine print on the contract. He also waives all collision and other insurance that Alamo offers at the time of his rental. While driving back from Telluride Bluegrass Festival, he has an accident in Idaho Springs, Colorado. His rented Nissan Altima is badly damaged. On returning to Virginia, he would like to settle up with Alamo, but his insurance company and Alamo cannot come to terms. He realizes, however, that he has agreed to hear the dispute with Alamo in a specific court in San Antonio, Texas. In the absence of fraud or bad faith, any court in the United States is likely to uphold the choice-of-form clause and require Harold (or his insurance company) to litigate in San Antonio, Texas.
KEY TAKEAWAY
There are two court systems in the United States. It is important to know which system—the state court system or the federal court system—has the power to hear and decide a particular case. Once that is established, the Constitution compels an inquiry to make sure that no court extends its reach unfairly to out-of-state residents. The question of personal jurisdiction is a question of fairness and due process to nonresidents.
EXERCISES
1. The Constitution specifies that federal courts have exclusive jurisdiction over admiralty claims. Mr. and Mrs. Shute have a claim against Carnival Cruise lines for the negligence of the cruise line. Mrs. Shute sustained injuries as a result of the company’s negligence. Mr. and Mrs. Shute live in the state of Washington. Can they bring their claim in state court? Must they bring their claim in federal court?
2. Congress passed Title VII of the Civil Rights Act of 1964. In Title VII, employers are required not to discriminate against employees on the basis of race, color, sex, religion, or national origin. In passing Title VII, Congress did not require plaintiffs to file only in federal courts. That is, Congress made no statement in Title VII that federal courts had “exclusive jurisdiction” over Title VII claims. Mrs. Harris wishes to sue Forklift Systems, Inc. of Nashville, Tennessee, for sexual harassment under Title VII. She has gone through the Equal Employment Opportunity Commission process and has a right-to-sue letter, which is required before a Title VII action can be brought to court. Can she file a complaint that will be heard by a state court?
3. Mrs. Harris fails to go to the Equal Employment Opportunity Commission to get her right-to-sue letter against Forklift Systems, Inc. She therefore does not have a viable Title VII cause of action against Forklift. She does, however, have her rights under Tennessee’s equal employment statute and various court decisions from Tennessee courts regarding sexual harassment. Forklift is incorporated in Tennessee and has its principal place of business in Nashville. Mrs. Harris is also a citizen of Tennessee. Explain why, if she brings her employment discrimination and sexual harassment lawsuit in a federal court, her lawsuit will be dismissed for lack of subject matter jurisdiction.
4. Suppose Mr. and Mrs. Robinson find in the original paperwork with Seaway Volkswagen that there is a contractual agreement with a provision that says “all disputes arising between buyer and Seaway Volkswagen will be litigated, if at all, in the county courts of Westchester County, New York.” Will the Oklahoma court take personal jurisdiction over Seaway Volkswagen, or will it require the Robinsons to litigate their claim in New York? | textbooks/biz/Civil_Law/Book%3A_Introduction_to_Contracts_Sales_and_Product_Liability/03%3A_Courts_and_the_Legal_Process/3.03%3A_The_Problem_of_Jurisdiction.txt |
LEARNING OBJECTIVES
1. Explain how a lawsuit can be dismissed prior to any trial.
2. Understand the basic principles and practices of discovery before a trial.
The early phases of a civil action are characterized by many different kinds of motions and a complex process of mutual fact-finding between the parties that is known as discovery. A lawsuit will start with the pleadings (complaint and answer in every case, and in some cases a counterclaim by the defendant against the plaintiff and the plaintiff’s reply to the defendant’s counterclaim). After the pleadings, the parties may make various motions, which are requests to the judge. Motions in the early stages of a lawsuit usually aim to dismiss the lawsuit, to have it moved to another venue, or to compel the other party to act in certain ways during the discovery process.
Initial Pleadings, and Motions to Dismiss
The first papers filed in a lawsuit are called the pleadings. These include the plaintiff’s complaint and then (usually after thirty or more days) the answer or response from the defendant. The answer may be coupled with a counterclaim against the plaintiff. (In effect, the defendant becomes the plaintiff for the claims she has against the original plaintiff.) The plaintiff may reply to any counterclaim by the defendant.
State and federal rules of civil procedure require that the complaint must state the nature of the plaintiff’s claim, the jurisdiction of the court, and the nature of the relief that is being asked for (usually an award of money, but sometimes an injunction, or a declaration of legal rights). In an answer, the defendant will often deny all the allegations of the complaint or will admit to certain of its allegations and deny others.
A complaint and subsequent pleadings are usually quite general and give little detail. Cases can be decided on the pleadings alone in the following situations: (1) If the defendant fails to answer the complaint, the court can enter a default judgment, awarding the plaintiff what he seeks. (2) The defendant can move to dismiss the complaint on the grounds that the plaintiff failed to “state a claim on which relief can be granted,” or on the basis that there is no subject matter jurisdiction for the court chosen by the plaintiff, or on the basis that there is no personal jurisdiction over the defendant. The defendant is saying, in effect, that even if all the plaintiff’s allegations are true, they do not amount to a legal claim that can be heard by the court. For example, a claim that the defendant induced a woman to stop dating the plaintiff (a so-called alienation of affections cause of action) is no longer actionable in US state courts, and any court will dismiss the complaint without any further proceedings. (This type of dismissal is occasionally still called a demurrer.)
A third kind of dismissal can take place on a motion for summary judgment. If there is no triable question of fact or law, there is no reason to have a trial. For example, the plaintiff sues on a promissory note and, at deposition (an oral examination under oath), the defendant admits having made no payment on the note and offers no excuse that would be recognizable as a reason not to pay. There is no reason to have a trial, and the court should grant summary judgment.
Discovery
If there is a factual dispute, the case will usually involve some degree of discovery, where each party tries to get as much information out of the other party as the rules allow. Until the 1940s, when discovery became part of civil procedure rules, a lawsuit was frequently a game in which each party hid as much information as possible and tried to surprise the other party in court.
Beginning with a change in the Federal Rules of Civil Procedure adopted by the Supreme Court in 1938 and subsequently followed by many of the states, the parties are entitled to learn the facts of the case before trial. The basic idea is to help the parties determine what the evidence might be, who the potential witnesses are, and what specific issues are relevant. Discovery can proceed by several methods. A party may serve an interrogatory on his adversary—a written request for answers to specific questions. Or a party may depose the other party or a witness. A deposition is a live question-and-answer session at which the witness answers questions put to him by one of the parties’ lawyers. His answers are recorded verbatim and may be used at trial. Each party is also entitled to inspect books, documents, records, and other physical items in the possession of the other. This is a broad right, as it is not limited to just evidence that is admissible at trial. Discovery of physical evidence means that a plaintiff may inspect a company’s accounts, customer lists, assets, profit-and-loss statements, balance sheets, engineering and quality-control reports, sales reports, and virtually any other document.
The lawyers, not the court, run the discovery process. For example, one party simply makes a written demand, stating the time at which the deposition will take place or the type of documents it wishes to inspect and make copies of. A party unreasonably resisting discovery methods (whether depositions, written interrogatories, or requests for documents) can be challenged, however, and judges are often brought into the process to push reluctant parties to make more disclosure or to protect a party from irrelevant or unreasonable discovery requests. For example, the party receiving the discovery request can apply to the court for a protective order if it can show that the demand is for privileged material (e.g., a party’s lawyers’ records are not open for inspection) or that the demand was made to harass the opponent. In complex cases between companies, the discovery of documents can run into tens of millions of pages and can take years. Depositions can consume days or even weeks of an executive’s time.
KEY TAKEAWAY
Many cases never get to trial. They are disposed of by motions to dismiss or are settled after extensive discovery makes clear to the parties the strengths and weaknesses of the parties to the dispute.
EXERCISES
1. Mrs. Robinson (in the Volkswagen Audi case) never establishes residency in Arizona, returns to New York, and files her case in federal district court in New York, alleging diversity jurisdiction. Assume that the defendants do not want to have the case heard in federal court. What motion will they make?
2. Under contributory negligence, the negligence of any plaintiff that causes or contributes to the injuries a plaintiff complains of will be grounds for dismissal. Suppose that in discovery, Mr. Ferlito in Ferlito v. Johnson & Johnson (Section 3.9 "Cases") admits that he brought the cigarette lighter dangerously close to his costume, saying, “Yes, you could definitely say I was being careless; I had a few drinks under my belt.” Also, Mrs. Ferlito admits that she never reads product instructions from manufacturers. If the case is brought in a state where contributory negligence is the law, on what basis can Johnson & Johnson have the case dismissed before trial? | textbooks/biz/Civil_Law/Book%3A_Introduction_to_Contracts_Sales_and_Product_Liability/03%3A_Courts_and_the_Legal_Process/3.04%3A_Motions_and_Discovery.txt |
LEARNING OBJECTIVES
1. Understand how judges can push parties into pretrial settlement.
2. Explain the meaning and use of directed verdicts.
3. Distinguish a directed verdict from a judgment n.o.v. (“notwithstanding the verdict”).
After considerable discovery, one of the parties may believe that there is no triable issue of law or fact for the court to consider and may file a motion with the court for summary judgment. Unless it is very clear, the judge will deny a summary judgment motion, because that ends the case at the trial level; it is a “final order” in the case that tells the plaintiff “no” and leaves no room to bring another lawsuit against the defendant for that particular set of facts (res judicata). If the plaintiff successfully appeals a summary judgment motion, the case will come back to the trial court.
Prior to the trial, the judge may also convene the parties in an effort to investigate the possibilities of settlement. Usually, the judge will explore the strengths and weaknesses of each party’s case with the attorneys. The parties may decide that it is more prudent or efficient to settle than to risk going to trial.
Pretrial Conference
At various times during the discovery process, depending on the nature and complexity of the case, the court may hold a pretrial conference to clarify the issues and establish a timetable. The court may also hold a settlement conference to see if the parties can work out their differences and avoid trial altogether. Once discovery is complete, the case moves on to trial if it has not been settled. Most cases are settled before this stage; perhaps 85 percent of all civil cases end before trial, and more than 90 percent of criminal prosecutions end with a guilty plea.
Trial
At trial, the first order of business is to select a jury. (In a civil case of any consequence, either party can request one, based on the Sixth Amendment to the US Constitution.) The judge and sometimes the lawyers are permitted to question the jurors to be sure that they are unbiased. This questioning is known as the voir dire (pronounced vwahr-DEER). This is an important process, and a great deal of thought goes into selecting the jury, especially in high-profile cases. A jury panel can be as few as six persons, or as many as twelve, with alternates selected and sitting in court in case one of the jurors is unable to continue. In a long trial, having alternates is essential; even in shorter trials, most courts will have at least two alternate jurors.
In both criminal and civil trials, each side has opportunities to challenge potential jurors for cause. For example, in the Robinsons’ case against Audi, the attorneys representing Audi will want to know if any prospective jurors have ever owned an Audi, what their experience has been, and if they had a similar problem (or worse) with their Audi that was not resolved to their satisfaction. If so, the defense attorney could well believe that such a juror has a potential for a bias against her client. In that case, she could use a challenge for cause, explaining to the judge the basis for her challenge. The judge, at her discretion, could either accept the for-cause reason or reject it.
Even if an attorney cannot articulate a for-cause reason acceptable to the judge, he may use one of several peremptory challenges that most states (and the federal system) allow. A trial attorney with many years of experience may have a sixth sense about a potential juror and, in consultation with the client, may decide to use a peremptory challenge to avoid having that juror on the panel.
After the jury is sworn and seated, the plaintiff’s lawyer makes an opening statement, laying out the nature of the plaintiff’s claim, the facts of the case as the plaintiff sees them, and the evidence that the lawyer will present. The defendant’s lawyer may also make an opening statement or may reserve his right to do so at the end of the plaintiff’s case.
The plaintiff’s lawyer then calls witnesses and presents the physical evidence that is relevant to her proof. The direct testimony at trial is usually far from a smooth narration. The rules of evidence (that govern the kinds of testimony and documents that may be introduced at trial) and the question-and-answer format tend to make the presentation of evidence choppy and difficult to follow.
Anyone who has watched an actual televised trial or a television melodrama featuring a trial scene will appreciate the nature of the trial itself: witnesses are asked questions about a number of issues that may or may not be related, the opposing lawyer will frequently object to the question or the form in which it is asked, and the jury may be sent from the room while the lawyers argue at the bench before the judge.
After direct testimony of each witness is over, the opposing lawyer may conduct cross-examination. This is a crucial constitutional right; in criminal cases it is preserved in the Constitution’s Sixth Amendment (the right to confront one’s accusers in open court). The formal rules of direct testimony are then relaxed, and the cross-examiner may probe the witness more informally, asking questions that may not seem immediately relevant. This is when the opposing attorney may become harsh, casting doubt on a witness’s credibility, trying to trip her up and show that the answers she gave are false or not to be trusted. This use of cross-examination, along with the requirement that the witness must respond to questions that are at all relevant to the questions raised by the case, distinguishes common-law courts from those of authoritarian regimes around the world.
Following cross-examination, the plaintiff’s lawyer may then question the witness again: this is called redirect examination and is used to demonstrate that the witness’s original answers were accurate and to show that any implications otherwise, suggested by the cross-examiner, were unwarranted. The cross-examiner may then engage the witness in re-cross-examination, and so on. The process usually stops after cross-examination or redirect.
During the trial, the judge’s chief responsibility is to see that the trial is fair to both sides. One big piece of that responsibility is to rule on the admissibility of evidence. A judge may rule that a particular question is out of order—that is, not relevant or appropriate—or that a given document is irrelevant. Where the attorney is convinced that a particular witness, a particular question, or a particular document (or part thereof) is critical to her case, she may preserve an objection to the court’s ruling by saying “exception,” in which case the court stenographer will note the exception; on appeal, the attorney may cite any number of exceptions as adding up to the lack of a fair trial for her client and may request a court of appeals to order a retrial.
For the most part, courts of appeal will not reverse and remand for a new trial unless the trial court judge’s errors are “prejudicial,” or “an abuse of discretion.” In short, neither party is entitled to a perfect trial, but only to a fair trial, one in which the trial judge has made only “harmless errors” and not prejudicial ones.
At the end of the plaintiff’s case, the defendant presents his case, following the same procedure just outlined. The plaintiff is then entitled to present rebuttal witnesses, if necessary, to deny or argue with the evidence the defendant has introduced. The defendant in turn may present “surrebuttal” witnesses.
When all testimony has been introduced, either party may ask the judge for a directed verdict—a verdict decided by the judge without advice from the jury. This motion may be granted if the plaintiff has failed to introduce evidence that is legally sufficient to meet her burden of proof or if the defendant has failed to do the same on issues on which she has the burden of proof. (For example, the plaintiff alleges that the defendant owes him money and introduces a signed promissory note. The defendant cannot show that the note is invalid. The defendant must lose the case unless he can show that the debt has been paid or otherwise discharged.)
The defendant can move for a directed verdict at the close of the plaintiff’s case, but the judge will usually wait to hear the entire case until deciding whether to do so. Directed verdicts are not usually granted, since it is the jury’s job to determine the facts in dispute.
If the judge refuses to grant a directed verdict, each lawyer will then present a closing argument to the jury (or, if there is no jury, to the judge alone). The closing argument is used to tie up the loose ends, as the attorney tries to bring together various seemingly unrelated facts into a story that will make sense to the jury.
After closing arguments, the judge will instruct the jury. The purpose of jury instruction is to explain to the jurors the meaning of the law as it relates to the issues they are considering and to tell the jurors what facts they must determine if they are to give a verdict for one party or the other. Each lawyer will have prepared a set of written instructions that she hopes the judge will give to the jury. These will be tailored to advance her client’s case. Many a verdict has been overturned on appeal because a trial judge has wrongly instructed the jury. The judge will carefully determine which instructions to give and often will use a set of pattern instructions provided by the state bar association or the supreme court of the state. These pattern jury instructions are often safer because they are patterned after language that appellate courts have used previously, and appellate courts are less likely to find reversible error in the instructions.
After all instructions are given, the jury will retire to a private room and discuss the case and the answers requested by the judge for as long as it takes to reach a unanimous verdict. Some minor cases do not require a unanimous verdict. If the jury cannot reach a decision, this is called a hung jury, and the case will have to be retried. When a jury does reach a verdict, it delivers it in court with both parties and their lawyers present. The jury is then discharged, and control over the case returns to the judge. (If there is no jury, the judge will usually announce in a written opinion his findings of fact and how the law applies to those facts. Juries just announce their verdicts and do not state their reasons for reaching them.)
Posttrial Motions
The losing party is allowed to ask the judge for a new trial or for a judgment notwithstanding the verdict (often called a judgment n.o.v., from the Latin non obstante veredicto). A judge who decides that a directed verdict is appropriate will usually wait to see what the jury’s verdict is. If it is favorable to the party the judge thinks should win, she can rely on that verdict. If the verdict is for the other party, he can grant the motion for judgment n.o.v. This is a safer way to proceed because if the judge is reversed on appeal, a new trial is not necessary. The jury’s verdict always can be restored, whereas without a jury verdict (as happens when a directed verdict is granted before the case goes to the jury), the entire case must be presented to a new jury. Ferlito v. Johnson & Johnson (Section 3.9 "Cases") illustrates the judgment n.o.v. process in a case where the judge allowed the case to go to a jury that was overly sympathetic to the plaintiffs.
Rule 50(b) of the Federal Rules of Civil Procedure provides the authorization for federal judges making a judgment contrary to the judgment of the jury. Most states have a similar rule.
Rule 50(b) says,
Whenever a motion for a directed verdict made at the close of all the evidence is denied or for any reason is not granted, the court is deemed to have submitted the action to the jury subject to a later determination of the legal questions raised by the motion. Not later than 10 days after entry of judgment, a party who has moved for a directed verdict may move to have the verdict and any judgment entered thereon set aside and to have judgment entered in accordance with the party’s motion for a directed verdict.…[A] new trial may be prayed for in the alternative. If a verdict was returned the court may allow the judgment to stand or may reopen the judgment and either order a new trial or direct the entry of judgment as if the requested verdict had been directed.
KEY TAKEAWAY
The purpose of a trial judge is to ensure justice to all parties to the lawsuit. The judge presides, instructs the jury, and may limit who testifies and what they testify about what. In all of this, the judge will usually commit some errors; occasionally these will be the kinds of errors that seriously compromise a fair trial for both parties. Errors that do seriously compromise a fair trial for both parties are prejudicial, as opposed to harmless. The appeals court must decide whether any errors of the trial court judge are prejudicial or not.
If a judge directs a verdict, that ends the case for the party who hasn’t asked for one; if a judge grants judgment n.o.v., that will take away a jury verdict that one side has worked very hard to get. Thus a judge must be careful not to unduly favor one side or the other, regardless of his or her sympathies.
EXERCISES
1. What if there was not a doctrine of res judicata? What would the legal system be like?
2. Why do you think cross-examination is a “right,” as opposed to a “good thing”? What kind of judicial system would not allow cross-examination of witnesses as a matter of right? | textbooks/biz/Civil_Law/Book%3A_Introduction_to_Contracts_Sales_and_Product_Liability/03%3A_Courts_and_the_Legal_Process/3.05%3A_The_Pretrial_and_Trial_Phase.txt |
LEARNING OBJECTIVES
1. Understand the posttrial process—how appellate courts process appeals.
2. Explain how a court’s judgment is translated into relief for the winning party.
Judgment or Order
At the end of a trial, the judge will enter an order that makes findings of fact (often with the help of a jury) and conclusions of law. The judge will also make a judgment as to what relief or remedy should be given. Often it is an award of money damages to one of the parties. The losing party may ask for a new trial at this point or within a short period of time following. Once the trial judge denies any such request, the judgment—in the form of the court’s order—is final.
Appeal
If the loser’s motion for a new trial or a judgment n.o.v. is denied, the losing party may appeal but must ordinarily post a bond sufficient to ensure that there are funds to pay the amount awarded to the winning party. In an appeal, the appellant aims to show that there was some prejudicial error committed by the trial judge. There will be errors, of course, but the errors must be significant (i.e., not harmless). The basic idea is for an appellate court to ensure that a reasonably fair trial was provided to both sides. Enforcement of the court’s judgment—an award of money, an injunction—is usually stayed (postponed) until the appellate court has ruled. As noted earlier, the party making the appeal is called the appellant, and the party defending the judgment is the appellee (or in some courts, the petitioner and the respondent).
During the trial, the losing party may have objected to certain procedural decisions by the judge. In compiling a record on appeal, the appellant needs to show the appellate court some examples of mistakes made by the judge—for example, having erroneously admitted evidence, having failed to admit proper evidence that should have been admitted, or having wrongly instructed the jury. The appellate court must determine if those mistakes were serious enough to amount to prejudicial error.
Appellate and trial procedures are different. The appellate court does not hear witnesses or accept evidence. It reviews the record of the case—the transcript of the witnesses’ testimony and the documents received into evidence at trial—to try to find a legal error on a specific request of one or both of the parties. The parties’ lawyers prepare briefs (written statements containing the facts in the case), the procedural steps taken, and the argument or discussion of the meaning of the law and how it applies to the facts. After reading the briefs on appeal, the appellate court may dispose of the appeal without argument, issuing a written opinion that may be very short or many pages. Often, though, the appellate court will hear oral argument. (This can be months, or even more than a year after the briefs are filed.) Each lawyer is given a short period of time, usually no more than thirty minutes, to present his client’s case. The lawyer rarely gets a chance for an extended statement because he is usually interrupted by questions from the judges. Through this exchange between judges and lawyers, specific legal positions can be tested and their limits explored.
Depending on what it decides, the appellate court will affirm the lower court’s judgment, modify it, reverse it, or remand it to the lower court for retrial or other action directed by the higher court. The appellate court itself does not take specific action in the case; it sits only to rule on contested issues of law. The lower court must issue the final judgment in the case. As we have already seen, there is the possibility of appealing from an intermediate appellate court to the state supreme court in twenty-nine states and to the US Supreme Court from a ruling from a federal circuit court of appeal. In cases raising constitutional issues, there is also the possibility of appeal to the Supreme Court from the state courts.
Like trial judges, appellate judges must follow previous decisions, or precedent. But not every previous case is a precedent for every court. Lower courts must respect appellate court decisions, and courts in one state are not bound by decisions of courts in other states. State courts are not bound by decisions of federal courts, except on points of federal law that come from federal courts within the state or from a federal circuit in which the state court sits. A state supreme court is not bound by case law in any other state. But a supreme court in one state with a type of case it has not previously dealt with may find persuasive reasoning in decisions of other state supreme courts.
Federal district courts are bound by the decisions of the court of appeals in their circuit, but decisions by one circuit court are not precedents for courts in other circuits. Federal courts are also bound by decisions of the state supreme courts within their geographic territory in diversity jurisdiction cases. All courts are bound by decisions of the US Supreme Court, except the Supreme Court itself, which seldom reverses itself but on occasion has overturned its own precedents.
Not everything a court says in an opinion is a precedent. Strictly speaking, only the exact holding is binding on the lower courts. A holding is the theory of the law that applies to the particular circumstances presented in a case. The courts may sometimes declare what they believe to be the law with regard to points that are not central to the case being decided. These declarations are called dicta (the singular, dictum), and the lower courts do not have to give them the same weight as holdings.
Judgment and Order
When a party has no more possible appeals, it usually pays up voluntarily. If not voluntarily, then the losing party’s assets can be seized or its wages or other income garnished to satisfy the judgment. If the final judgment is an injunction, failure to follow its dictates can lead to a contempt citation, with a fine or jail time imposed.
KEY TAKEAWAY
The process of conducting a civil trial has many aspects, starting with pleadings and continuing with motions, discovery, more motions, pretrial conferences, and finally the trial itself. At all stages, the rules of civil procedure attempt to give both sides plenty of notice, opportunity to be heard, discovery of relevant information, cross-examination, and the preservation of procedural objections for purposes of appeal. All of these rules and procedures are intended to provide each side with a fair trial.
EXERCISES
1. Mrs. Robinson has a key witness on auto safety that the judge believes is not qualified as an expert. The judge examines the witness while the jury is in the jury room and disqualifies him from testifying. The jury does not get to hear this witness. Her attorney objects. She loses her case. What argument would you expect Mrs. Robinson’s attorney to make in an appeal?
2. Why don’t appellate courts need a witness box for witnesses to give testimony under oath?
3. A trial judge in Nevada is wondering whether to enforce a surrogate motherhood contract. Penelope Barr, of Reno, Nevada, has contracted with Reuben and Tina Goldberg to bear the in vitro fertilized egg of Mrs. Goldberg. After carrying the child for nine months, Penelope gives birth, but she is reluctant to give up the child, even though she was paid \$20,000 at the start of the contract and will earn an additional \$20,000 on handing over the baby to the Goldbergs. (Barr was an especially good candidate for surrogate motherhood: she had borne two perfect children and at age 28 drinks no wine, does not smoke or use drugs of any kind, practices yoga, and maintains a largely vegetarian diet with just enough meat to meet the needs of the fetus within.)
The Goldbergs have asked the judge for an order compelling Penelope to give up the baby, who was five days old when the lawsuit was filed. The baby is now a month old as the judge looks in vain for guidance from any Nevada statute, federal statute, or any prior case in Nevada that addressed the issue of surrogate motherhood. He does find several well-reasoned cases, one from New Jersey, one from Michigan, and one from Oregon. Are any of these “precedent” that he must follow? May he adopt the reasoning of any of these courts, if he should find that reasoning persuasive? | textbooks/biz/Civil_Law/Book%3A_Introduction_to_Contracts_Sales_and_Product_Liability/03%3A_Courts_and_the_Legal_Process/3.06%3A_Judgment_Appeal_and_Execution.txt |
LEARNING OBJECTIVES
1. Explain the requirements for standing to bring a lawsuit in US courts.
2. Describe the process by which a group or class of plaintiffs can be certified to file a class action case.
Almost anyone can bring a lawsuit, assuming they have the filing fee and the help of an attorney. But the court may not hear it, for a number of reasons. There may be no case or controversy, there may be no law to support the plaintiff’s claim, it may be in the wrong court, too much time might have lapsed (a statute of limitations problem), or the plaintiff may not have standing.
Case or Controversy: Standing to Sue
Article III of the US Constitution provides limits to federal judicial power. For some cases, the Supreme Court has decided that it has no power to adjudicate because there is no “case or controversy.” For example, perhaps the case has settled or the “real parties in interest” are not before the court. In such a case, a court might dismiss the case on the grounds that the plaintiff does not have “standing” to sue.
For example, suppose you see a sixteen-wheel moving van drive across your neighbor’s flower bed, destroying her beloved roses. You have enjoyed seeing her roses every summer, for years. She is forlorn and tells you that she is not going to raise roses there anymore. She also tells you that she has decided not to sue, because she has made the decision to never deal with lawyers if at all possible. Incensed, you decide to sue on her behalf. But you will not have standing to sue because your person or property was not directly injured by the moving van. Standing means that only the person whose interests are directly affected has the legal right to sue.
The standing doctrine is easy to understand in straightforward cases such as this but is often a fairly complicated matter. For example, can fifteen or more state attorneys general bring a lawsuit for a declaratory judgment that the health care legislation passed in 2010 is unconstitutional? What particular injury have they (or the states) suffered? Are they the best set of plaintiffs to raise this issue? Time—and the Supreme Court—will tell.
Class Actions
Most lawsuits concern a dispute between two people or between a person and a company or other organization. But it can happen that someone injures more than one person at the same time. A driver who runs a red light may hit another car carrying one person or many people. If several people are injured in the same accident, they each have the right to sue the driver for the damage that he caused them. Could they sue as a group? Usually not, because the damages would probably not be the same for each person, and different facts would have to be proved at the trial. Plus, the driver of the car that was struck might have been partially to blame, so the defendant’s liability toward him might be different from his liability toward the passengers.
If, however, the potential plaintiffs were all injured in the same way and their injuries were identical, a single lawsuit might be a far more efficient way of determining liability and deciding financial responsibility than many individual lawsuits.
How could such a suit be brought? All the injured parties could hire the same lawyer, and she could present a common case. But with a group numbering more than a handful of people, it could become overwhelmingly complicated. So how could, say, a million stockholders who believed they were cheated by a corporation ever get together to sue?
Because of these types of situations, there is a legal procedure that permits one person or a small group of people to serve as representatives for all others. This is the class action. The class action is provided for in the Federal Rules of Civil Procedure (Rule 23) and in the separate codes of civil procedure in the states. These rules differ among themselves and are often complex, but in general anyone can file a class action in an appropriate case, subject to approval of the court. Once the class is “certified,” or judged to be a legally adequate group with common injuries, the lawyers for the named plaintiffs become, in effect, lawyers for the entire class.
Usually a person who doesn’t want to be in the class can decide to leave. If she does, she will not be included in an eventual judgment or settlement. But a potential plaintiff who is included in the class cannot, after a final judgment is awarded, seek to relitigate the issue if she is dissatisfied with the outcome, even though she did not participate at all in the legal proceeding.
KEY TAKEAWAY
Anyone can file a lawsuit, with or without the help of an attorney, but only those lawsuits where a plaintiff has standing will be heard by the courts. Standing has become a complicated question and is used by the courts to ensure that civil cases heard are being pursued by those with tangible and particular injuries. Class actions are a way of aggregating claims that are substantially similar and arise out of the same facts and circumstances.
EXERCISE
1. Fuchs Funeral Home is carrying the body of Charles Emmenthaler to its resting place at Forest Lawn Cemetery. Charles’s wife, Chloe, and their two children, Chucky and Clarice, are following the hearse when the coffin falls on the street, opens, and the body of Charles Emmenthaler falls out. The wife and children are shocked and aggrieved and later sue in civil court for damages. Assume that this is a viable cause of action based on “negligent infliction of emotional distress” in the state of California and that Charles’s brother, sister-in-law, and multiple cousins also were in the funeral procession and saw what happened. The brother of Charles, Kingston Emmenthaler, also sees his brother’s body on the street, but his wife, their three children, and some of Charles’s other cousins do not.
Charles was actually emotionally closest to Kingston’s oldest son, Nestor, who was studying abroad at the time of the funeral and could not make it back in time. He is as emotionally distraught at his uncle’s passing as anyone else in the family and is especially grieved over the description of the incident and the grainy video shot by one of the cousins on his cell phone. Who has standing to sue Fuchs Funeral Home, and who does not? | textbooks/biz/Civil_Law/Book%3A_Introduction_to_Contracts_Sales_and_Product_Liability/03%3A_Courts_and_the_Legal_Process/3.07%3A_When_Can_Someone_Bring_a_Lawsuit.txt |
LEARNING OBJECTIVES
1. Understand the various ways that lawyers charge for services.
2. Describe the contingent fee system in the United States.
3. Know the difference between the American rule and the British rule with regard to who pays attorneys’ fees.
Legal Fees
Lawyers charge for their services in one of three different ways: flat rate, hourly rate, and contingent fee. A flat rate is used usually when the work is relatively routine and the lawyer knows in advance approximately how long it will take her to do the job. Drawing a will or doing a real estate closing are examples of legal work that is often paid a flat rate. The rate itself may be based on a percentage of the worth of the matter—say, 1 percent of a home’s selling price.
Lawyers generally charge by the hour for courtroom time and for ongoing representation in commercial matters. Virtually every sizable law firm bills its clients by hourly rates, which in large cities can range from \$300 for an associate’s time to \$500 and more for a senior partner’s time.
A contingent fee is one that is paid only if the lawyer wins—that is, it is contingent, or depends upon, the success of the case. This type of fee arrangement is used most often in personal injury cases (e.g., automobile accidents, products liability, and professional malpractice). Although used quite often, the contingent fee is controversial. Trial lawyers justify it by pointing to the high cost of preparing for such lawsuits. A typical automobile accident case can cost at least ten thousand dollars to prepare, and a complicated products-liability case can cost tens of thousands of dollars. Few people have that kind of money or would be willing to spend it on the chance that they might win a lawsuit. Corporate and professional defendants complain that the contingent fee gives lawyers a license to go big game hunting, or to file suits against those with deep pockets in the hopes of forcing them to settle.
Trial lawyers respond that the contingent fee arrangement forces them to screen cases and weed out cases that are weak, because it is not worth their time to spend the hundreds of hours necessary on such cases if their chances of winning are slim or nonexistent.
Costs
In England and in many other countries, the losing party must pay the legal expenses of the winning party, including attorneys’ fees. That is not the general rule in this country. Here, each party must pay most of its own costs, including (and especially) the fees of lawyers. (Certain relatively minor costs, such as filing fees for various documents required in court, are chargeable to the losing side, if the judge decides it.) This type of fee structure is known as the American rule (in contrast to the British rule).
There are two types of exceptions to the American rule. By statute, Congress and the state legislatures have provided that the winning party in particular classes of cases may recover its full legal costs from the loser—for example, the federal antitrust laws so provide and so does the federal Equal Access to Justice Act. The other exception applies to litigants who either initiate lawsuits in bad faith, with no expectation of winning, or who defend them in bad faith, in order to cause the plaintiff great expense. Under these circumstances, a court has the discretion to award attorneys’ fees to the winner. But this rule is not infinitely flexible, and courts do not have complete freedom to award attorneys’ fees in any amount, but only "reasonable" attorney's fees.
KEY TAKEAWAY
Litigation is expensive. Getting a lawyer can be costly, unless you get a lawyer on a contingent fee. Not all legal systems allow contingent fees. In many legal systems, the loser pays attorneys’ fees for both parties.
EXERCISES
1. Mrs. Robinson’s attorney estimates that they will recover a million dollars from Volkswagen in the Audi lawsuit. She has Mrs. Robinson sign a contract that gives her firm one-third of any recovery after the firm’s expenses are deducted. The judge does in fact award a million dollars, and the defendant pays. The firm’s expenses are \$100,000. How much does Mrs. Robinson get?
2. Harry Potter brings a lawsuit against Draco Malfoy in Chestershire, England, for slander, a form of defamation. Potter alleges that Malfoy insists on calling him a mudblood. Ron Weasley testifies, as does Neville Chamberlain. But Harry loses, because the court has no conception of wizardry and cannot make sense of the case at all. In dismissing the case, however, who (under English law) will bear the costs of the attorneys who have brought the case for Potter and defended the matter for Malfoy? | textbooks/biz/Civil_Law/Book%3A_Introduction_to_Contracts_Sales_and_Product_Liability/03%3A_Courts_and_the_Legal_Process/3.08%3A_Relations_with_Lawyers.txt |
LEARNING OBJECTIVES
1. Understand how arbitration and mediation are frequently used alternatives to litigation.
2. Describe the differences between arbitration and mediation.
3. Explain why arbitration is final and binding.
Disputes do not have to be settled in court. No law requires parties who have a legal dispute to seek judicial resolution if they can resolve their disagreement privately or through some other public forum. In fact, the threat of a lawsuit can frequently motivate parties toward private negotiation. Filing a lawsuit may convince one party that the other party is serious. Or the parties may decide that they will come to terms privately rather than wait the three or four years it can frequently take for a case to move up on the court calendar.
Arbitration
Beginning around 1980, a movement toward alternative dispute resolution began to gain force throughout the United States. Bar associations, other private groups, and the courts themselves wanted to find quicker and cheaper ways for litigants and potential litigants to settle certain types of quarrels than through the courts. As a result, neighborhood justice centers or dispute resolution centers have sprung up in communities. These are where people can come for help in settling disputes, of both civil and criminal nature, that should not consume the time and money of the parties or courts in lengthy proceedings.
These alternative forums use a variety of methods, including arbitration, mediation, and conciliation, to bring about agreement or at least closure of the dispute. These methods are not all alike, and their differences are worth noting.
Arbitration is a type of adjudication. The parties use a private decision maker, the arbitrator, and the rules of procedure are considerably more relaxed than those that apply in the courtroom. Arbitrators might be retired judges, lawyers, or anyone with the kind of specialized knowledge and training that would be useful in making a final, binding decision on the dispute. In a contractual relationship, the parties can decide even before a dispute arises to use arbitration when the time comes. Or parties can decide after a dispute arises to use arbitration instead of litigation. In a predispute arbitration agreement (often part of a larger contract), the parties can spell out the rules of procedure to be used and the method for choosing the arbitrator. For example, they may name the specific person or delegate the responsibility of choosing to some neutral person, or they may each designate a person and the two designees may jointly pick a third arbitrator.
Many arbitrations take place under the auspices of the American Arbitration Association, a private organization headquartered in New York, with regional offices in many other cities. The association uses published sets of rules for various types of arbitration (e.g., labor arbitration or commercial arbitration); parties who provide in contracts for arbitration through the association are agreeing to be bound by the association’s rules. Similarly, the National Association of Securities Dealers provides arbitration services for disputes between clients and brokerage firms. International commercial arbitration often takes place through the auspices of the International Chamber of Commerce. A multilateral agreement known as the Convention on the Recognition and Enforcement of Arbitral Awards provides that agreements to arbitrate—and arbitral awards—will be enforced across national boundaries.
Arbitration has two advantages over litigation. First, it is usually much quicker, because the arbitrator does not have a backlog of cases and because the procedures are simpler. Second, in complex cases, the quality of the decision may be higher, because the parties can select an arbitrator with specialized knowledge.
Under both federal and state law, arbitration is favored, and a decision rendered by an arbitrator is binding by law and may be enforced by the courts. The arbitrator’s decision is final and binding, with very few exceptions (such as fraud or manifest disregard of the law by the arbitrator or panel of arbitrators). Saying that arbitration is favored means that if you have agreed to arbitration, you can’t go to court if the other party wants you to arbitrate. Under the Federal Arbitration Act, the other party can go to court and get a stay against your litigation and also get an order compelling you to go to arbitration.
Mediation
Unlike adjudication, mediation gives the neutral party no power to impose a decision. The mediator is a go-between who attempts to help the parties negotiate a solution. The mediator will communicate the parties’ positions to each other, will facilitate the finding of common ground, and will suggest outcomes. But the parties have complete control: they may ignore the recommendations of the mediator entirely, settle in their own way, find another mediator, agree to binding arbitration, go to court, or forget the whole thing!
KEY TAKEAWAY
Litigation is not the only way to resolve disputes. Informal negotiation between the disputants usually comes first, but both mediation and arbitration are available. Arbitration, though, is final and binding. Once you agree to arbitrate, you will have a final, binding arbitral award that is enforceable through the courts, and courts will almost never allow you to litigate after you have agreed to arbitrate.
EXERCISES
1. When Mrs. Robinson buys her Audi from Seaway, there is a paragraph in the bill of sale, which both the dealer and Mrs. Robinson sign, that says, “In the event of any complaint by customer/buyer against Seaway regarding the vehicle purchased herein, such complaint shall not be litigated, but may only be arbitrated under the rules of the American Arbitration Association and in accordance with New York law.” Mrs. Robinson did not see the provision, doesn’t like it, and wants to bring a lawsuit in Oklahoma against Seaway. What result?
2. Hendrik Koster (Netherlands) contracts with Automark, Inc. (a US company based in Illinois) to supply Automark with a large quantity of valve cap gauges. He does, and Automark fails to pay. Koster thinks he is owed \$66,000. There is no agreement to arbitrate or mediate. Can Koster make Automark mediate or arbitrate?
3. Suppose that there is an agreement between Koster and Automark to arbitrate. It says, “The parties agree to arbitrate any dispute arising under this agreement in accordance with the laws of the Netherlands and under the auspices of the International Chamber of Commerce’s arbitration facility.” The International Chamber of Commerce has arbitration rules and will appoint an arbitrator or arbitral panel in the event the parties cannot agree on an arbitrator. The arbitration takes place in Geneva. Koster gets an arbitral award for \$66,000 plus interest. Automark does not participate in any way. Will a court in Illinois enforce the arbitral award? | textbooks/biz/Civil_Law/Book%3A_Introduction_to_Contracts_Sales_and_Product_Liability/03%3A_Courts_and_the_Legal_Process/3.09%3A_Alternative_Means_of_Resolving_Disputes.txt |
Burger King v. Rudzewicz
Burger King Corp. v. Rudzewicz
471 U.S. 462 (U.S. Supreme Court 1985)
Summary
Burger King Corp. is a Florida corporation with principal offices in Miami. It principally conducts restaurant business through franchisees. The franchisees are licensed to use Burger King’s trademarks and service marks in standardized restaurant facilities. Rudzewicz is a Michigan resident who, with a partner (MacShara) operated a Burger King franchise in Drayton Plains, Michigan. Negotiations for setting up the franchise occurred in 1978 largely between Rudzewicz, his partner, and a regional office of Burger King in Birmingham, Michigan, although some deals and concessions were made by Burger King in Florida. A preliminary agreement was signed in February of 1979. Rudzewicz and MacShara assumed operation of an existing facility in Drayton Plains and MacShara attended prescribed management courses in Miami during the four months following Feb. 1979.
Rudzewicz and MacShara bought \$165,000 worth of restaurant equipment from Burger King’s Davmor Industries division in Miami. But before the final agreements were signed, the parties began to disagree over site-development fees, building design, computation of monthly rent, and whether Rudzewicz and MacShara could assign their liabilities to a corporation they had formed. Negotiations took place between Rudzewicz, MacShara, and the Birmingham regional office; but Rudzewicz and MacShara learned that the regional office had limited decision-making power and turned directly to Miami headquarters for their concerns. The final agreement was signed by June 1979 and provided that the franchise relationship was governed by Florida law, and called for payment of all required fees and forwarding of all relevant notices to Miami headquarters.
The Drayton Plains restaurant did fairly well at first, but a recession in late 1979 caused the franchisees to fall far behind in their monthly payments to Miami. Notice of default was sent from Miami to Rudzewicz, who nevertheless continued to operate the restaurant as a Burger King franchise. Burger King sued in federal district court for the southern district of Florida. Rudzewicz contested the court’s personal jurisdiction over him, since he had never been to Florida.
The federal court looked to Florida’s long arm statute and held that it did have personal jurisdiction over the non-resident franchisees, and awarded Burger King a quarter of a million dollars in contract damages and enjoined the franchisees from further operation of the Drayton Plains facility. Franchisees appealed to the 11th Circuit Court of Appeals and won a reversal based on lack of personal jurisdiction. Burger King petitioned the Supreme Ct. for a writ of certiorari.
Justice Brennan delivered the opinion of the court.
The Due Process Clause protects an individual’s liberty interest in not being subject to the binding judgments of a forum with which he has established no meaningful “contacts, ties, or relations.” International Shoe Co. v. Washington. By requiring that individuals have “fair warning that a particular activity may subject [them] to the jurisdiction of a foreign sovereign,” the Due Process Clause “gives a degree of predictability to the legal system that allows potential defendants to structure their primary conduct with some minimum assurance as to where that conduct will and will not render them liable to suit.”…
Where a forum seeks to assert specific jurisdiction over an out-of-state defendant who has not consented to suit there, this “fair warning” requirement is satisfied if the defendant has “purposefully directed” his activities at residents of the forum, and the litigation results from alleged injuries that “arise out of or relate to” those activities, Thus “[t]he forum State does not exceed its powers under the Due Process Clause if it asserts personal jurisdiction over a corporation that delivers its products into the stream of commerce with the expectation that they will be purchased by consumers in the forum State” and those products subsequently injure forum consumers. Similarly, a publisher who distributes magazines in a distant State may fairly be held accountable in that forum for damages resulting there from an allegedly defamatory story.…
…[T]he constitutional touchstone remains whether the defendant purposefully established “minimum contacts” in the forum State.…In defining when it is that a potential defendant should “reasonably anticipate” out-of-state litigation, the Court frequently has drawn from the reasoning of Hanson v. Denckla, 357 U.S. 235, 253 (1958):
The unilateral activity of those who claim some relationship with a nonresident defendant cannot satisfy the requirement of contact with the forum State. The application of that rule will vary with the quality and nature of the defendant’s activity, but it is essential in each case that there be some act by which the defendant purposefully avails itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws.
This “purposeful availment” requirement ensures that a defendant will not be haled into a jurisdiction solely as a result of “random,” “fortuitous,” or “attenuated” contacts, or of the “unilateral activity of another party or a third person,” [Citations] Jurisdiction is proper, however, where the contacts proximately result from actions by the defendant himself that create a “substantial connection” with the forum State. [Citations] Thus where the defendant “deliberately” has engaged in significant activities within a State, or has created “continuing obligations” between himself and residents of the forum, he manifestly has availed himself of the privilege of conducting business there, and because his activities are shielded by “the benefits and protections” of the forum’s laws it is presumptively not unreasonable to require him to submit to the burdens of litigation in that forum as well.
Jurisdiction in these circumstances may not be avoided merely because the defendant did not physically enter the forum State. Although territorial presence frequently will enhance a potential defendant’s affiliation with a State and reinforce the reasonable foreseeability of suit there, it is an inescapable fact of modern commercial life that a substantial amount of business is transacted solely by mail and wire communications across state lines, thus obviating the need for physical presence within a State in which business is conducted. So long as a commercial actor’s efforts are “purposefully directed” toward residents of another State, we have consistently rejected the notion that an absence of physical contacts can defeat personal jurisdiction there.
Once it has been decided that a defendant purposefully established minimum contacts within the forum State, these contacts may be considered in light of other factors to determine whether the assertion of personal jurisdiction would comport with “fair play and substantial justice.” International Shoe Co. v. Washington, 326 U.S., at 320. Thus courts in “appropriate case[s]” may evaluate “the burden on the defendant,” “the forum State’s interest in adjudicating the dispute,” “the plaintiff’s interest in obtaining convenient and effective relief,” “the interstate judicial system’s interest in obtaining the most efficient resolution of controversies,” and the “shared interest of the several States in furthering fundamental substantive social policies.” These considerations sometimes serve to establish the reasonableness of jurisdiction upon a lesser showing of minimum contacts than would otherwise be required. [Citations] Applying these principles to the case at hand, we believe there is substantial record evidence supporting the District Court’s conclusion that the assertion of personal jurisdiction over Rudzewicz in Florida for the alleged breach of his franchise agreement did not offend due process.…
In this case, no physical ties to Florida can be attributed to Rudzewicz other than MacShara’s brief training course in Miami. Rudzewicz did not maintain offices in Florida and, for all that appears from the record, has never even visited there. Yet this franchise dispute grew directly out of “a contract which had a substantial connection with that State.” Eschewing the option of operating an independent local enterprise, Rudzewicz deliberately “reach[ed] out beyond” Michigan and negotiated with a Florida corporation for the purchase of a long-term franchise and the manifold benefits that would derive from affiliation with a nationwide organization. Upon approval, he entered into a carefully structured 20-year relationship that envisioned continuing and wide-reaching contacts with Burger King in Florida. In light of Rudzewicz’ voluntary acceptance of the long-term and exacting regulation of his business from Burger King’s Miami headquarters, the “quality and nature” of his relationship to the company in Florida can in no sense be viewed as “random,” “fortuitous,” or “attenuated.” Rudzewicz’ refusal to make the contractually required payments in Miami, and his continued use of Burger King’s trademarks and confidential business information after his termination, caused foreseeable injuries to the corporation in Florida. For these reasons it was, at the very least, presumptively reasonable for Rudzewicz to be called to account there for such injuries.
…Because Rudzewicz established a substantial and continuing relationship with Burger King’s Miami headquarters, received fair notice from the contract documents and the course of dealing that he might be subject to suit in Florida, and has failed to demonstrate how jurisdiction in that forum would otherwise be fundamentally unfair, we conclude that the District Court’s exercise of jurisdiction pursuant to Fla. Stat. 48.193(1)(g) (Supp. 1984) did not offend due process. The judgment of the Court of Appeals is accordingly reversed, and the case is remanded for further proceedings consistent with this opinion.
It is so ordered.
CASE QUESTIONS
1. Why did Burger King sue in Florida rather than in Michigan?
2. If Florida has a long-arm statute that tells Florida courts that it may exercise personal jurisdiction over someone like Rudzewicz, why is the court talking about the due process clause?
3. Why is this case in federal court rather than in a Florida state court?
4. If this case had been filed in state court in Florida, would Rudzewicz be required to come to Florida? Explain.
Ferlito v. Johnson & Johnson
Ferlito v. Johnson & Johnson Products, Inc.
771 F. Supp. 196 (U.S. District Ct., Eastern District of Michigan 1991)
Gadola, J.
Plaintiffs Susan and Frank Ferlito, husband and wife, attended a Halloween party in 1984 dressed as Mary (Mrs. Ferlito) and her little lamb (Mr. Ferlito). Mrs. Ferlito had constructed a lamb costume for her husband by gluing cotton batting manufactured by defendant Johnson & Johnson Products (“JJP”) to a suit of long underwear. She had also used defendant’s product to fashion a headpiece, complete with ears. The costume covered Mr. Ferlito from his head to his ankles, except for his face and hands, which were blackened with Halloween paint. At the party Mr. Ferlito attempted to light his cigarette by using a butane lighter. The flame passed close to his left arm, and the cotton batting on his left sleeve ignited. Plaintiffs sued defendant for injuries they suffered from burns which covered approximately one-third of Mr. Ferlito’s body.
Following a jury verdict entered for plaintiffs November 2, 1989, the Honorable Ralph M. Freeman entered a judgment for plaintiff Frank Ferlito in the amount of \$555,000 and for plaintiff Susan Ferlito in the amount of \$ 70,000. Judgment was entered November 7, 1989. Subsequently, on November 16, 1989, defendant JJP filed a timely motion for judgment notwithstanding the verdict pursuant to Fed.R.Civ.P. 50(b) or, in the alternative, for new trial. Plaintiffs filed their response to defendant’s motion December 18, 1989; and defendant filed a reply January 4, 1990. Before reaching a decision on this motion, Judge Freeman died. The case was reassigned to this court April 12, 1990.
MOTION FOR JUDGMENT NOTWITHSTANDING THE VERDICT
Defendant JJP filed two motions for a directed verdict, the first on October 27, 1989, at the close of plaintiffs’ proofs, and the second on October 30, 1989, at the close of defendant’s proofs. Judge Freeman denied both motions without prejudice. Judgment for plaintiffs was entered November 7, 1989; and defendant’s instant motion, filed November 16, 1989, was filed in a timely manner.
The standard for determining whether to grant a j.n.o.v. is identical to the standard for evaluating a motion for directed verdict:
In determining whether the evidence is sufficient, the trial court may neither weigh the evidence, pass on the credibility of witnesses nor substitute its judgment for that of the jury. Rather, the evidence must be viewed in the light most favorable to the party against whom the motion is made, drawing from that evidence all reasonable inferences in his favor. If after reviewing the evidence…the trial court is of the opinion that reasonable minds could not come to the result reached by the jury, then the motion for j.n.o.v. should be granted.
To recover in a “failure to warn” product liability action, a plaintiff must prove each of the following four elements of negligence: (1) that the defendant owed a duty to the plaintiff, (2) that the defendant violated that duty, (3) that the defendant’s breach of that duty was a proximate cause of the damages suffered by the plaintiff, and (4) that the plaintiff suffered damages.
To establish a prima facie case that a manufacturer’s breach of its duty to warn was a proximate cause of an injury sustained, a plaintiff must present evidence that the product would have been used differently had the proffered warnings been given.By “prima facie case,” the court means a case in which the plaintiff has presented all the basic elements of the cause of action alleged in the complaint. If one or more elements of proof are missing, then the plaintiff has fallen short of establishing a prima facie case, and the case should be dismissed (usually on the basis of a directed verdict). [Citations omitted] In the absence of evidence that a warning would have prevented the harm complained of by altering the plaintiff’s conduct, the failure to warn cannot be deemed a proximate cause of the plaintiff’s injury as a matter of law. [In accordance with procedure in a diversity of citizenship case, such as this one, the court cites Michigan case law as the basis for its legal interpretation.]
A manufacturer has a duty “to warn the purchasers or users of its product about dangers associated with intended use.” Conversely, a manufacturer has no duty to warn of a danger arising from an unforeseeable misuse of its product. [Citation] Thus, whether a manufacturer has a duty to warn depends on whether the use of the product and the injury sustained by it are foreseeable. Gootee v. Colt Industries Inc., 712 F.2d 1057, 1065 (6th Cir. 1983); Owens v. Allis-Chalmers Corp., 414 Mich. 413, 425, 326 N.W.2d 372 (1982). Whether a plaintiff’s use of a product is foreseeable is a legal question to be resolved by the court. Trotter, supra. Whether the resulting injury is foreseeable is a question of fact for the jury.Note the division of labor here: questions of law are for the judge, while questions of “fact” are for the jury. Here, “foreseeability” is a fact question, while the judge retains authority over questions of law. The division between questions of fact and questions of law is not an easy one, however. Thomas v. International Harvester Co., 57 Mich. App. 79, 225 N.W.2d 175 (1974).
In the instant action no reasonable jury could find that JJP’s failure to warn of the flammability of cotton batting was a proximate cause of plaintiffs’ injuries because plaintiffs failed to offer any evidence to establish that a flammability warning on JJP’s cotton batting would have dissuaded them from using the product in the manner that they did.
Plaintiffs repeatedly stated in their response brief that plaintiff Susan Ferlito testified that “she would never again use cotton batting to make a costume…However, a review of the trial transcript reveals that plaintiff Susan Ferlito never testified that she would never again use cotton batting to make a costume. More importantly, the transcript contains no statement by plaintiff Susan Ferlito that a flammability warning on defendant JJP’s product would have dissuaded her from using the cotton batting to construct the costume in the first place. At oral argument counsel for plaintiffs conceded that there was no testimony during the trial that either plaintiff Susan Ferlito or her husband, plaintiff Frank J. Ferlito, would have acted any different if there had been a flammability warning on the product’s package. The absence of such testimony is fatal to plaintiffs’ case; for without it, plaintiffs have failed to prove proximate cause, one of the essential elements of their negligence claim.
In addition, both plaintiffs testified that they knew that cotton batting burns when it is exposed to flame. Susan Ferlito testified that she knew at the time she purchased the cotton batting that it would burn if exposed to an open flame. Frank Ferlito testified that he knew at the time he appeared at the Halloween party that cotton batting would burn if exposed to an open flame. His additional testimony that he would not have intentionally put a flame to the cotton batting shows that he recognized the risk of injury of which he claims JJP should have warned. Because both plaintiffs were already aware of the danger, a warning by JJP would have been superfluous. Therefore, a reasonable jury could not have found that JJP’s failure to provide a warning was a proximate cause of plaintiffs’ injuries.
The evidence in this case clearly demonstrated that neither the use to which plaintiffs put JJP’s product nor the injuries arising from that use were foreseeable. Susan Ferlito testified that the idea for the costume was hers alone. As described on the product’s package, its intended uses are for cleansing, applying medications, and infant care. Plaintiffs’ showing that the product may be used on occasion in classrooms for decorative purposes failed to demonstrate the foreseeability of an adult male encapsulating himself from head to toe in cotton batting and then lighting up a cigarette.
ORDER
NOW, THEREFORE, IT IS HEREBY ORDERED that defendant JJP’s motion for judgment notwithstanding the verdict is GRANTED.
IT IS FURTHER ORDERED that the judgment entered November 2, 1989, is SET ASIDE.
IT IS FURTHER ORDERED that the clerk will enter a judgment in favor of the defendant JJP.
CASE QUESTIONS
1. The opinion focuses on proximate cause. As we will see in Chapter 7 "Introduction to Tort Law", a negligence case cannot be won unless the plaintiff shows that the defendant has breached a duty and that the defendant’s breach has actually and proximately caused the damage complained of. What, exactly, is the alleged breach of duty by the defendant here?
2. Explain why Judge Gadola reasoning that JJP had no duty to warn in this case. After this case, would they then have a duty to warn, knowing that someone might use their product in this way? | textbooks/biz/Civil_Law/Book%3A_Introduction_to_Contracts_Sales_and_Product_Liability/03%3A_Courts_and_the_Legal_Process/3.10%3A_Cases.txt |
Learning Objectives
After reading this chapter, you should be able to do the following:
1. Explain the historical importance and basic structure of the US Constitution.
2. Know what judicial review is and what it represents in terms of the separation of powers between the executive, legislative, and judicial branches of government.
3. Locate the source of congressional power to regulate the economy under the Constitution, and explain what limitations there are to the reach of congressional power over interstate commerce.
4. Describe the different phases of congressional power over commerce, as adjudged by the US Supreme Court over time.
5. Explain what power the states retain over commerce, and how the Supreme Court may sometimes limit that power.
6. Describe how the Supreme Court, under the supremacy clause of the Constitution, balances state and federal laws that may be wholly or partly in conflict.
7. Explain how the Bill of Rights relates to business activities in the United States.
The US Constitution is the foundation for all of US law. Business and commerce are directly affected by the words, meanings, and interpretations of the Constitution. Because it speaks in general terms, its provisions raise all kinds of issues for scholars, lawyers, judges, politicians, and commentators. For example, arguments still rage over the nature and meaning of “federalism,” the concept that there is shared governance between the states and the federal government. The US Supreme Court is the ultimate arbiter of those disputes, and as such it has a unique role in the legal system. It has assumed the power of judicial review, unique among federal systems globally, through which it can strike down federal or state statutes that it believes violate the Constitution and can even void the president’s executive orders if they are contrary to the Constitution’s language. No knowledgeable citizen or businessperson can afford to be ignorant of its basic provisions.
04: Constitutional Law and US Commerce
LEARNING OBJECTIVES
1. Describe the American values that are reflected in the US Constitution.
2. Know what federalism means, along with separation of powers.
3. Explain the process of amending the Constitution and why judicial review is particularly significant.
The Constitution as Reflecting American Values
In the US, the one document to which all public officials and military personnel pledge their unswerving allegiance is the Constitution. If you serve, you are asked to “support and defend” the Constitution “against all enemies, foreign and domestic.” The oath usually includes a statement that you swear that this oath is taken freely, honestly, and without “any purpose of evasion.” This loyalty oath may be related to a time—fifty years ago—when “un-American” activities were under investigation in Congress and the press; the fear of communism (as antithetical to American values and principles) was paramount. As you look at the Constitution and how it affects the legal environment of business, please consider what basic values it may impart to us and what makes it uniquely American and worth defending “against all enemies, foreign and domestic.”
In Article I, the Constitution places the legislature first and prescribes the ways in which representatives are elected to public office. Article I balances influence in the federal legislature between large states and small states by creating a Senate in which the smaller states (by population) as well as the larger states have two votes. In Article II, the Constitution sets forth the powers and responsibilities of the branch—the presidency—and makes it clear that the president should be the commander in chief of the armed forces. Article II also gives states rather than individuals (through the Electoral College) a clear role in the election process. Article III creates the federal judiciary, and the Bill of Rights, adopted in 1791, makes clear that individual rights must be preserved against activities of the federal government. In general, the idea of rights is particularly strong.
The Constitution itself speaks of rights in fairly general terms, and the judicial interpretation of various rights has been in flux. The “right” of a person to own another person was notably affirmed by the Supreme Court in the Dred Scott decision in 1857.In Scott v. Sanford (the Dred Scott decision), the court states that Scott should remain a slave, that as a slave he is not a citizen of the United States and thus not eligible to bring suit in a federal court, and that as a slave he is personal property and thus has never been free. The “right” of a child to freely contract for long, tedious hours of work was upheld by the court in Hammer v. Dagenhart in 1918. Both decisions were later repudiated, just as the decision that a woman has a “right” to an abortion in the first trimester of pregnancy could later be repudiated if Roe v. Wade is overturned by the Supreme Court.Roe v. Wade, 410 US 113 (1973).
General Structure of the Constitution
Look at the Constitution. Notice that there are seven articles, starting with Article I (legislative powers), Article II (executive branch), and Article III (judiciary). Notice that there is no separate article for administrative agencies. The Constitution also declares that it is “the supreme Law of the Land” (Article VI). Following Article VII are the ten amendments adopted in 1791 that are referred to as the Bill of Rights. Notice also that in 1868, a new amendment, the Fourteenth, was adopted, requiring states to provide “due process” and “equal protection of the laws” to citizens of the United States.
Federalism
The partnership created in the Constitution between the states and the federal government is called federalism. The Constitution is a document created by the states in which certain powers are delegated to the national government, and other powers are reserved to the states. This is made explicit in the Tenth Amendment.
Separation of Powers and Judicial Review
Because the Founding Fathers wanted to ensure that no single branch of the government, especially the executive branch, would be ascendant over the others, they created various checks and balances to ensure that each of the three principal branches had ways to limit or modify the power of the others. This is known as the separation of powers. Thus the president retains veto power, but the House of Representatives is entrusted with the power to initiate spending bills.
Power sharing was evident in the basic design of Congress, the federal legislative branch. The basic power imbalance was between the large states (with greater population) and the smaller ones (such as Delaware). The smaller ones feared a loss of sovereignty if they could be outvoted by the larger ones, so the federal legislature was constructed to guarantee two Senate seats for every state, no matter how small. The Senate was also given great responsibility in ratifying treaties and judicial nominations. The net effect of this today is that senators from a very small number of states can block treaties and other important legislation. The power of small states is also magnified by the Senate’s cloture rule, which currently requires sixty out of one hundred senators to vote to bring a bill to the floor for an up-or-down vote.
Because the Constitution often speaks in general terms (with broad phrases such as “due process” and “equal protection”), reasonable people have disagreed as to how those terms apply in specific cases. The United States is unique among industrialized democracies in having a Supreme Court that reserves for itself that exclusive power to interpret what the Constitution means. The famous case of Marbury v. Madison began that tradition in 1803, when the Supreme Court had marginal importance in the new republic. The decision in Bush v. Gore, decided in December of 2000, illustrates the power of the court to shape our destiny as a nation. In that case, the court overturned a ruling by the Florida Supreme Court regarding the way to proceed on a recount of the Florida vote for the presidency. The court’s ruling was purportedly based on the “equal protection of the laws” provision in the Fourteenth Amendment.
From Marbury to the present day, the Supreme Court has articulated the view that the US Constitution sets the framework for all other US laws, whether statutory or judicially created. Thus any statute (or portion thereof) or legal ruling (judicial or administrative) in conflict with the Constitution is not enforceable. And as the Bush v. Gore decision indicates, the states are not entirely free to do what they might choose; their own sovereignty is limited by their union with the other states in a federal sovereign.
If the Supreme Court makes a “bad decision” as to what the Constitution means, it is not easily overturned. Either the court must change its mind (which it seldom does) or two-thirds of Congress and three-fourths of the states must make an amendment (Article V).
Because the Supreme Court has this power of judicial review, there have been many arguments about how it should be exercised and what kind of “philosophy” a Supreme Court justice should have. President Richard Nixon often said that a Supreme Court justice should “strictly construe” the Constitution and not add to its language. Finding law in the Constitution was “judicial activism” rather than “judicial restraint.” The general philosophy behind the call for “strict constructionist” justices is that legislatures make laws in accord with the wishes of the majority, and so unelected judges should not make law according to their own views and values. Nixon had in mind the 1960s Warren court, which “found” rights in the Constitution that were not specifically mentioned—the right of privacy, for example. In later years, critics of the Rehnquist court would charge that it “found” rights that were not specifically mentioned, such as the right of states to be free from federal antidiscrimination laws. See, for example, Kimel v. Florida Board of Regents, or the Citizens United v. Federal Election Commission case (Section 4.6.5), which held that corporations are “persons” with “free speech rights” that include spending unlimited amounts of money in campaign donations and political advocacy.Kimel v. Florida Board of Regents, 528 US 62 (2000).
Because Roe v. Wade has been so controversial, this chapter includes a seminal case on “the right of privacy,” Griswold v. Connecticut, Section 4.6.1. Was the court was correct in recognizing a “right of privacy” in Griswold? This may not seem like a “business case,” but consider: the manufacture and distribution of birth control devices is a highly profitable (and legal) business in every US state. Moreover, Griswold illustrates another important and much-debated concept in US constitutional law: substantive due process (see Section 4.5.3 "Fifth Amendment"). The problem of judicial review and its proper scope is brought into sharp focus in the abortion controversy. Abortion became a lucrative service business after Roe v. Wade was decided in 1973. That has gradually changed, with state laws that have limited rather than overruled Roe v. Wade and with persistent antiabortion protests, killings of abortion doctors, and efforts to publicize the human nature of the fetuses being aborted. The key here is to understand that there is no explicit mention in the Constitution of any right of privacy. As Justice Harry Blackmun argued in his majority opinion in Roe v. Wade,
The Constitution does not explicitly mention any right of privacy. In a line of decisions, however, the Court has recognized that a right of personal privacy or a guarantee of certain areas or zones of privacy, does exist under the Constitution.…[T]hey also make it clear that the right has some extension to activities relating to marriage…procreation…contraception…family relationships…and child rearing and education.…The right of privacy…is broad enough to encompass a woman’s decision whether or not to terminate her pregnancy.
In short, justices interpreting the Constitution wield quiet yet enormous power through judicial review. In deciding that the right of privacy applied to a woman’s decision to abort in the first trimester, the Supreme Court did not act on the basis of a popular mandate or clear and unequivocal language in the Constitution, and it made illegal any state or federal legislative or executive action contrary to its interpretation. Only a constitutional amendment or the court’s repudiation of Roe v. Wade as a precedent could change that interpretation.
KEY TAKEAWAY
The Constitution gives voice to the idea that people have basic rights and that a civilian president is also the commander in chief of the armed forces. It gives instructions as to how the various branches of government must share power and also tries to balance power between the states and the federal government. It does not expressly allow for judicial review, but the Supreme Court’s ability to declare what laws are (or are not) constitutional has given the judicial branch a kind of power not seen in other industrialized democracies.
EXERCISES
1. Suppose the Supreme Court declares that Congress and the president cannot authorize the indefinite detention of terrorist suspects without a trial of some sort, whether military or civilian. Suppose also that the people of the United States favor such indefinite detention and that Congress wants to pass a law rebuking the court’s decision. What kind of law would have to be passed, by what institutions, and by what voting percentages?
2. When does a prior decision of the Supreme Court deserve overturning? Name one decision of the Supreme Court that you think is no longer “good law.” Does the court have to wait one hundred years to overturn its prior case precedents? | textbooks/biz/Civil_Law/Book%3A_Introduction_to_Contracts_Sales_and_Product_Liability/04%3A_Constitutional_Law_and_US_Commerce/4.01%3A_Basic_Aspects_of_the_US_Constitution.txt |
LEARNING OBJECTIVES
1. Name the specific clause through which Congress has the power to regulate commerce. What, specifically, does this clause say?
2. Explain how early decisions of the Supreme Court interpreted the scope of the commerce clause and how that impacted the legislative proposals and programs of Franklin Delano Roosevelt during the Great Depression.
3. Describe both the wider use of the commerce clause from World War II through the 1990s and the limitations the Supreme Court imposed in Lopez and other cases.
First, turn to Article I, Section 8. The commerce clause gives Congress the exclusive power to make laws relating to foreign trade and commerce and to commerce among the various states. Most of the federally created legal environment springs from this one clause: if Congress is not authorized in the Constitution to make certain laws, then it acts unconstitutionally and its actions may be ruled unconstitutional by the Supreme Court. Lately, the Supreme Court has not been shy about ruling acts of Congress unconstitutional.
Here are the first five parts of Article I, Section 8, which sets forth the powers of the federal legislature. The commerce clause is in boldface. It is short, but most federal legislation affecting business depends on this very clause:
Section 8
[Clause 1] The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States;
[Clause 2] To borrow Money on the credit of the United States;
[Clause 3] To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes;
[Clause 4] To establish a uniform Rule of Naturalization, and uniform Laws on the subject of Bankruptcies throughout the United States;
[Clause 5] To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures;
Early Commerce Clause Cases
For many years, the Supreme Court was very strict in applying the commerce clause: Congress could only use it to legislate aspects of the movement of goods from one state to another. Anything else was deemed local rather than national. For example, In Hammer v. Dagenhart, decided in 1918, a 1916 federal statute had barred transportation in interstate commerce of goods produced in mines or factories employing children under fourteen or employing children fourteen and above for more than eight hours a day. A complaint was filed in the US District Court for the Western District of North Carolina by a father in his own behalf and on behalf of his two minor sons, one under the age of fourteen years and the other between fourteen and sixteen years, who were employees in a cotton mill in Charlotte, North Carolina. The father’s lawsuit asked the court to enjoin (block) the enforcement of the act of Congress intended to prevent interstate commerce in the products of child labor.
The Supreme Court saw the issue as whether Congress had the power under the commerce clause to control interstate shipment of goods made by children under the age of fourteen. The court found that Congress did not. The court cited several cases that had considered what interstate commerce could be constitutionally regulated by Congress. In Hipolite Egg Co. v. United States, the Supreme Court had sustained the power of Congress to pass the Pure Food and Drug Act, which prohibited the introduction into the states by means of interstate commerce impure foods and drugs.Hipolite Egg Co. v. United States, 220 US 45 (1911). In Hoke v. United States, the Supreme Court had sustained the constitutionality of the so-called White Slave Traffic Act of 1910, whereby the transportation of a woman in interstate commerce for the purpose of prostitution was forbidden. In that case, the court said that Congress had the power to protect the channels of interstate commerce: “If the facility of interstate transportation can be taken away from the demoralization of lotteries, the debasement of obscene literature, the contagion of diseased cattle or persons, the impurity of food and drugs, the like facility can be taken away from the systematic enticement to, and the enslavement in prostitution and debauchery of women, and, more insistently, of girls.”Hoke v. United States, 227 US 308 (1913).
In each of those instances, the Supreme Court said, “[T]he use of interstate transportation was necessary to the accomplishment of harmful results.” In other words, although the power over interstate transportation was to regulate, that could only be accomplished by prohibiting the use of the facilities of interstate commerce to effect the evil intended. But in Hammer v. Dagenhart, that essential element was lacking. The law passed by Congress aimed to standardize among all the states the ages at which children could be employed in mining and manufacturing, while the goods themselves are harmless. Once the labor is done and the articles have left the factory, the “labor of their production is over, and the mere fact that they were intended for interstate commerce transportation does not make their production subject to federal control under the commerce power.”
In short, the early use of the commerce clause was limited to the movement of physical goods between states. Just because something might enter the channels of interstate commerce later on does not make it a fit subject for national regulation. The production of articles intended for interstate commerce is a matter of local regulation. The court therefore upheld the result from the district and circuit court of appeals; the application of the federal law was enjoined. Goods produced by children under the age of fourteen could be shipped anywhere in the United States without violating the federal law.
From the New Deal to the New Frontier and the Great Society:1930s–1970
During the global depression of the 1930s, the US economy saw jobless rates of a third of all workers, and President Roosevelt’s New Deal program required more active federal legislation. Included in the New Deal program was the recognition of a “right” to form labor unions without undue interference from employers. Congress created the National Labor Relations Board (NLRB) in 1935 to investigate and to enjoin employer practices that violated this right.
In NLRB v. Jones & Laughlin Steel Corporation, a union dispute with management at a large steel-producing facility near Pittsburgh, Pennsylvania, became a court case. In this case, the NLRB had charged the Jones & Laughlin Steel Corporation with discriminating against employees who were union members. The company’s position was that the law authorizing the NLRB was unconstitutional, exceeding Congress’s powers. The court held that the act was narrowly constructed so as to regulate industrial activities that had the potential to restrict interstate commerce. The earlier decisions under the commerce clause to the effect that labor relations had only an indirect effect on commerce were effectively reversed. Since the ability of employees to engage in collective bargaining (one activity protected by the act) is “an essential condition of industrial peace,” the national government was justified in penalizing corporations engaging in interstate commerce that “refuse to confer and negotiate” with their workers. This was, however, a close decision, and the switch of one justice made this ruling possible. Without this switch, the New Deal agenda would have been effectively derailed.
The Substantial Effects Doctrine: World War II to the 1990s
Subsequent to NLRB v. Jones & Laughlin Steel Corporation, Congress and the courts generally accepted that even modest impacts on interstate commerce were “reachable” by federal legislation. For example, the case of Wickard v. Filburn, from 1942, represents a fairly long reach for Congress in regulating what appear to be very local economic decisions (Section 4.6.2).
Wickard established that “substantial effects” in interstate commerce could be very local indeed! But commerce clause challenges to federal legislation continued. In the 1960s, the Civil Rights Act of 1964 was challenged on the ground that Congress lacked the power under the commerce clause to regulate what was otherwise fairly local conduct. For example, Title II of the act prohibited racial discrimination in public accommodations (such as hotels, motels, and restaurants), leading to the famous case of Katzenbach v. McClung (1964).
Ollie McClung’s barbeque place in Birmingham, Alabama, allowed “colored” people to buy takeout at the back of the restaurant but not to sit down with “white” folks inside. The US attorney sought a court order to require Ollie to serve all races and colors, but Ollie resisted on commerce clause grounds: the federal government had no business regulating a purely local establishment. Indeed, Ollie did not advertise nationally, or even regionally, and had customers only from the local area. But the court found that some 42 percent of the supplies for Ollie’s restaurant had moved in the channels of interstate commerce. This was enough to sustain federal regulation based on the commerce clause.Katzenbach v. McClung, 379 US 294 (1964).
For nearly thirty years following, it was widely assumed that Congress could almost always find some interstate commerce connection for any law it might pass. It thus came as something of a shock in 1995 when the Rehnquist court decided U.S. v. Lopez. Lopez had been convicted under a federal law that prohibited possession of firearms within 1,000 feet of a school. The law was part of a twenty-year trend (roughly 1970 to 1990) for senators and congressmen to pass laws that were tough on crime. Lopez’s lawyer admitted that Lopez had had a gun within 1,000 feet of a San Antonio school yard but challenged the law itself, arguing that Congress exceeded its authority under the commerce clause in passing this legislation. The US government’s Solicitor General argued on behalf of the Department of Justice to the Supreme Court that Congress was within its constitutional rights under the commerce clause because education of the future workforce was the foundation for a sound economy and because guns at or near school yards detracted from students’ education. The court rejected this analysis, noting that with the government’s analysis, an interstate commerce connection could be conjured from almost anything. Lopez went free because the law itself was unconstitutional, according to the court.
Congress made no attempt to pass similar legislation after the case was decided. But in passing subsequent legislation, Congress was often careful to make a record as to why it believed it was addressing a problem that related to interstate commerce. In 1994, Congress passed the Violence Against Women Act (VAWA), having held hearings to establish why violence against women on a local level would impair interstate commerce. In 1994, while enrolled at Virginia Polytechnic Institute (Virginia Tech), Christy Brzonkala alleged that Antonio Morrison and James Crawford, both students and varsity football players at Virginia Tech, had raped her. In 1995, Brzonkala filed a complaint against Morrison and Crawford under Virginia Tech’s sexual assault policy. After a hearing, Morrison was found guilty of sexual assault and sentenced to immediate suspension for two semesters. Crawford was not punished. A second hearing again found Morrison guilty. After an appeal through the university’s administrative system, Morrison’s punishment was set aside, as it was found to be “excessive.” Ultimately, Brzonkala dropped out of the university. Brzonkala then sued Morrison, Crawford, and Virginia Tech in federal district court, alleging that Morrison’s and Crawford’s attack violated 42 USC Section 13981, part of the VAWA), which provides a federal civil remedy for the victims of gender-motivated violence. Morrison and Crawford moved to dismiss Brzonkala’s suit on the ground that Section 13981’s civil remedy was unconstitutional. In dismissing the complaint, the district court found that that Congress lacked authority to enact Section 13981 under either the commerce clause or the Fourteenth Amendment, which Congress had explicitly identified as the sources of federal authority for the VAWA. Ultimately, the court of appeals affirmed, as did the Supreme Court.
The Supreme Court held that Congress lacked the authority to enact a statute under the commerce clause or the Fourteenth Amendment because the statute did not regulate an activity that substantially affected interstate commerce nor did it redress harm caused by the state. Chief Justice William H. Rehnquist wrote for the court that “under our federal system that remedy must be provided by the Commonwealth of Virginia, and not by the United States.” Dissenting, Justice Stephen G. Breyer argued that the majority opinion “illustrates the difficulty of finding a workable judicial Commerce Clause touchstone.” Justice David H. Souter, dissenting, noted that VAWA contained a “mountain of data assembled by Congress…showing the effects of violence against women on interstate commerce.”
The absence of a workable judicial commerce clause touchstone remains. In 1996, California voters passed the Compassionate Use Act, legalizing marijuana for medical use. California’s law conflicted with the federal Controlled Substances Act (CSA), which banned possession of marijuana. After the Drug Enforcement Administration (DEA) seized doctor-prescribed marijuana from a patient’s home, a group of medical marijuana users sued the DEA and US Attorney General John Ashcroft in federal district court.
The medical marijuana users argued that the CSA—which Congress passed using its constitutional power to regulate interstate commerce—exceeded Congress’s commerce clause power. The district court ruled against the group, but the Ninth Circuit Court of Appeals reversed and ruled the CSA unconstitutional because it applied to medical marijuana use solely within one state. In doing so, the Ninth Circuit relied on U.S. v. Lopez (1995) and U.S. v. Morrison (2000) to say that using medical marijuana did not “substantially affect” interstate commerce and therefore could not be regulated by Congress.
But by a 6–3 majority, the Supreme Court held that the commerce clause gave Congress authority to prohibit the local cultivation and use of marijuana, despite state law to the contrary. Justice John Paul Stevens argued that the court’s precedents established Congress’s commerce clause power to regulate purely local activities that are part of a “class of activities” with a substantial effect on interstate commerce. The majority argued that Congress could ban local marijuana use because it was part of such a class of activities: the national marijuana market. Local use affected supply and demand in the national marijuana market, making the regulation of intrastate use “essential” to regulating the drug’s national market.
Notice how similar this reasoning is to the court’s earlier reasoning in Wickard v. Filburn (Section 4.6.2). In contrast, the court’s conservative wing was adamant that federal power had been exceeded. Justice Clarence Thomas’s dissent in Gonzalez v. Raich stated that Raich’s local cultivation and consumption of marijuana was not “Commerce…among the several States.” Representing the “originalist” view that the Constitution should mostly mean what the Founders meant it to mean, he also said that in the early days of the republic, it would have been unthinkable that Congress could prohibit the local cultivation, possession, and consumption of marijuana.
KEY TAKEAWAY
The commerce clause is the basis on which the federal government regulates interstate economic activity. The phrase “interstate commerce” has been subject to differing interpretations by the Supreme Court over the past one hundred years. There are certain matters that are essentially local or intrastate, but the range of federal involvement in local matters is still considerable.
EXERCISES
1. Why would Congress have power under the Civil Rights Act of 1964 to require restaurants and hotels to not discriminate against interstate travelers on the basis of race, color, sex, religion, or national origin? Suppose the Holiday Restaurant near I-80 in Des Moines, Iowa, has a sign that says, “We reserve the right to refuse service to any Muslim or person of Middle Eastern descent.” Suppose also that the restaurant is very popular locally and that only 40 percent of its patrons are travelers on I-80. Are the owners of the Holiday Restaurant in violation of the Civil Rights Act of 1964? What would happen if the owners resisted enforcement by claiming that Title II of the act (relating to “public accommodations” such as hotels, motels, and restaurants) was unconstitutional?
2. If the Supreme Court were to go back to the days of Hammer v. Dagenhart and rule that only goods and services involving interstate movement could be subject to federal law, what kinds of federal programs might be lacking a sound basis in the commerce clause? “Obamacare”? Medicare? Homeland security? Social Security? What other powers are granted to Congress under the Constitution to legislate for the general good of society? | textbooks/biz/Civil_Law/Book%3A_Introduction_to_Contracts_Sales_and_Product_Liability/04%3A_Constitutional_Law_and_US_Commerce/4.02%3A_The_Commerce_Clause.txt |
LEARNING OBJECTIVES
1. Understand that when Congress does not exercise its powers under the commerce clause, the Supreme Court may still limit state legislation that discriminates against interstate commerce or places an undue burden on interstate commerce.
2. Distinguish between “discrimination” dormant-commerce-clause cases and “undue burden” dormant-commerce-clause cases.
Congress has the power to legislate under the commerce clause and often does legislate. For example, Congress might say that trucks moving on interstate highways must not be more than seventy feet in length. But if Congress does not exercise its powers and regulate in certain areas (such as the size and length of trucks on interstate highways), states may make their own rules. States may do so under the so-called historic police powers of states that were never yielded up to the federal government.
These police powers can be broadly exercised by states for purposes of health, education, welfare, safety, morals, and the environment. But the Supreme Court has reserved for itself the power to determine when state action is excessive, even when Congress has not used the commerce clause to regulate. This power is claimed to exist in the dormant commerce clause.
There are two ways that a state may violate the dormant commerce clause. If a state passes a law that is an “undue burden” on interstate commerce or that “discriminates” against interstate commerce, it will be struck down. Kassel v. Consolidated Freightways, in Section 4.7 "Summary and Exercises", is an example of a case where Iowa imposed an undue burden on interstate commerce by prohibiting double trailers on its highways.Kassell v. Consolidated Freightways, 450 US 662 (1981). Iowa’s prohibition was judicially declared void when the Supreme Court judged it to be an undue burden.
Discrimination cases such as Hunt v. Washington Apple Advertising Commission (Section 4.6 "Cases") pose a different standard. The court has been fairly inflexible here: if one state discriminates in its treatment of any article of commerce based on its state of origin, the court will strike down the law. For example, in Oregon Waste Systems v. Department of Environmental Quality, the state wanted to place a slightly higher charge on waste coming from out of state.Oregon Waste Systems v. Department of Environmental Quality, 511 US 93 (1994). The state’s reasoning was that in-state residents had already contributed to roads and other infrastructure and that tipping fees at waste facilities should reflect the prior contributions of in-state companies and residents. Out-of-state waste handlers who wanted to use Oregon landfills objected and won their dormant commerce clause claim that Oregon’s law discriminated “on its face” against interstate commerce. Under the Supreme Court’s rulings, anything that moves in channels of interstate commerce is “commerce,” even if someone is paying to get rid of something instead of buying something.
Thus the states are bound by Supreme Court decisions under the dormant commerce clause to do nothing that differentiates between articles of commerce that originate from within the state from those that originate elsewhere. If Michigan were to let counties decide for themselves whether to take garbage from outside of the county or not, this could also be a discrimination based on a place of origin outside the state. (Suppose, for instance, each county were to decide not to take waste from outside the county; then all Michigan counties would effectively be excluding waste from outside of Michigan, which is discriminatory.)Fort Gratiot Sanitary Landfill v. Michigan Dep’t of Natural Resources, 504 US 353 (1992).
The Supreme Court probably would uphold any solid waste requirements that did not differentiate on the basis of origin. If, for example, all waste had to be inspected for specific hazards, then the law would apply equally to in-state and out-of-state garbage. Because this is the dormant commerce clause, Congress could still act (i.e., it could use its broad commerce clause powers) to say that states are free to keep out-of-state waste from coming into their own borders. But Congress has declined to do so. What follows is a statement from one of the US senators from Michigan, Carl Levin, in 2003, regarding the significant amounts of waste that were coming into Michigan from Toronto, Canada.
Dealing with Unwelcome Waste
Senator Carl Levin, January 2003
Michigan is facing an intolerable situation with regard to the importation of waste from other states and Canada.
Canada is the largest source of waste imports to Michigan. Approximately 65 truckloads of waste come in to Michigan per day from Toronto alone, and an estimated 110–130 trucks come in from Canada each day.
This problem isn’t going to get any better. Ontario’s waste shipments are growing as the Toronto area signs new contracts for waste disposal here and closes its two remaining landfills. At the beginning of 1999, the Toronto area was generating about 2.8 million tons of waste annually, about 700,000 tons of which were shipped to Michigan. By early this year, barring unforeseen developments, the entire 2.8 million tons will be shipped to Michigan for disposal.
Why can’t Canada dispose of its trash in Canada? They say that after 20 years of searching they have not been able to find a suitable Ontario site for Toronto’s garbage. Ontario has about 345,000 square miles compared to Michigan’s 57,000 square miles. With six times the land mass, that argument is laughable.
The Michigan Department of Environmental Quality estimates that, for every five years of disposal of Canadian waste at the current usage volume, Michigan is losing a full year of landfill capacity. The environmental impacts on landfills, including groundwater contamination, noise pollution and foul odors, are exacerbated by the significant increase in the use of our landfills from sources outside of Michigan.
I have teamed up with Senator Stabenow and Congressman Dingell to introduce legislation that would strengthen our ability to stop shipments of waste from Canada.
We have protections contained in a 17 year-old international agreement between the U.S. and Canada called the Agreement Concerning the Transboundary Movement of Hazardous Waste. The U.S. and Canada entered into this agreement in 1986 to allow the shipment of hazardous waste across the U.S./Canadian border for treatment, storage or disposal. In 1992, the two countries decided to add municipal solid waste to the agreement. To protect both countries, the agreement requires notification of shipments to the importing country and it also provides that the importing country may withdraw consent for shipments. Both reasons are evidence that these shipments were intended to be limited. However, the agreement’s provisions have not been enforced by the United States.
Canada could not export waste to Michigan without the 1986 agreement, but the U.S. has not implemented the provisions that are designed to protect the people of Michigan. Although those of us that introduced this legislation believe that the Environmental Protection Agency has the authority to enforce this agreement, they have not done so. Our bill would require the EPA [Environmental Protection Agency] to enforce the agreement.
In order to protect the health and welfare of the citizens of Michigan and our environment, we must consider the impact of the importation of trash on state and local recycling efforts, landfill capacity, air emissions, road deterioration resulting from increased vehicular traffic and public health and the environment.
Our bill would require the EPA to consider these factors in determining whether to accept imports of trash from Canada. It is my strong view that such a review should lead the EPA to say “no” to the status quo of trash imports.
KEY TAKEAWAY
Where Congress does not act pursuant to its commerce clause powers, the states are free to legislate on matters of commerce under their historic police powers. However, the Supreme Court has set limits on such powers. Specifically, states may not impose undue burdens on interstate commerce and may not discriminate against articles in interstate commerce.
EXERCISES
1. Suppose that the state of New Jersey wishes to limit the amount of hazardous waste that enters into its landfills. The general assembly in New Jersey passes a law that specifically forbids any hazardous waste from entering into the state. All landfills are subject to tight regulations that will allow certain kinds of hazardous wastes originating in New Jersey to be put in New Jersey landfills but that impose significant criminal fines on landfill operators that accept out-of-state hazardous waste. The Baldessari Brothers Landfill in Linden, New Jersey, is fined for taking hazardous waste from a New York State transporter and appeals that ruling on the basis that New Jersey’s law is unconstitutional. What is the result?
2. The state of Arizona determines through its legislature that trains passing through the state cannot be longer than seventy cars. There is some evidence that in Eastern US states longer trains pose some safety hazards. There is less evidence that long trains are a problem in Western states. Several major railroads find the Arizona legislation costly and burdensome and challenge the legislation after applied-for permits for longer trains are denied. What kind of dormant commerce clause challenge is this, and what would it take for the challenge to be successful? | textbooks/biz/Civil_Law/Book%3A_Introduction_to_Contracts_Sales_and_Product_Liability/04%3A_Constitutional_Law_and_US_Commerce/4.03%3A_Dormant_Commerce_Clause.txt |
LEARNING OBJECTIVES
1. Understand the role of the supremacy clause in the balance between state and federal power.
2. Give examples of cases where state legislation is preempted by federal law and cases where state legislation is not preempted by federal law.
When Congress does use its power under the commerce clause, it can expressly state that it wishes to have exclusive regulatory authority. For example, when Congress determined in the 1950s to promote nuclear power (“atoms for peace”), it set up the Nuclear Regulatory Commission and provided a limitation of liability for nuclear power plants in case of a nuclear accident. The states were expressly told to stay out of the business of regulating nuclear power or the movement of nuclear materials. Thus Rochester, Minnesota, or Berkeley, California, could declare itself a nuclear-free zone, but the federal government would have preempted such legislation. If Michigan wished to set safety standards at Detroit Edison’s Fermi II nuclear reactor that were more stringent than the federal Nuclear Regulatory Commission’s standards, Michigan’s standards would be preempted and thus be void.
Even where Congress does not expressly preempt state action, such action may be impliedly pre-empted. States cannot constitutionally pass laws that interfere with the accomplishment of the purposes of the federal law. Suppose, for example, that Congress passes a comprehensive law that sets standards for foreign vessels to enter the navigable waters and ports of the United States. If a state creates a law that sets standards that conflict with the federal law or sets standards so burdensome that they interfere with federal law, the doctrine of preemption will (in accordance with the supremacy clause) void the state law or whatever parts of it are inconsistent with federal law.
But Congress can allow what might appear to be inconsistencies; the existence of federal statutory standards does not always mean that local and state standards cannot be more stringent. If California wants cleaner air or water than other states, it can set stricter standards—nothing in the Clean Water Act or Clean Air Act forbids the state from setting stricter pollution standards. As the auto industry well knows, California has set stricter standards for auto emissions. Since the 1980s, most automakers have made both a federal car and a California car, because federal Clean Air Act emissions restrictions do not preempt more rigorous state standards.
Large industries and companies actually prefer regulation at the national level. It is easier for a large company or industry association to lobby in Washington, DC, than to lobby in fifty different states. Accordingly, industry often asks Congress to put preemptive language into its statutes. The tobacco industry is a case in point.
The cigarette warning legislation of the 1960s (where the federal government required warning labels on cigarette packages) effectively preempted state negligence claims based on failure to warn. When the family of a lifetime smoker who had died sued in New Jersey court, one cause of action was the company’s failure to warn of the dangers of its product. The Supreme Court reversed the jury’s award based on the federal preemption of failure to warn claims under state law.Cippolone v. Liggett Group, 505 US 504 (1993).
The Supremacy Clause
Article VI
This Constitution, and the Laws of the United States which shall be made in Pursuance thereof; and all Treaties made, or which shall be made, under the Authority of the United States, shall be the supreme Law of the Land; and the Judges in every State shall be bound thereby, any Thing in the Constitution or Laws of any State to the Contrary notwithstanding.
The preemption doctrine derives from the supremacy clause of the Constitution, which states that the “Constitution and the Laws of the United States…shall be the supreme Law of the Land…any Thing in the Constitutions or Laws of any State to the Contrary notwithstanding.” This means of course, that any federal law—even a regulation of a federal agency—would control over any conflicting state law.
Preemption can be either express or implied. When Congress chooses to expressly preempt state law, the only question for courts becomes determining whether the challenged state law is one that the federal law is intended to preempt. Implied preemption presents more difficult issues. The court has to look beyond the express language of federal statutes to determine whether Congress has “occupied the field” in which the state is attempting to regulate, or whether a state law directly conflicts with federal law, or whether enforcement of the state law might frustrate federal purposes.
Federal “occupation of the field” occurs, according to the court in Pennsylvania v. Nelson (1956), when there is “no room” left for state regulation. Courts are to look to the pervasiveness of the federal scheme of regulation, the federal interest at stake, and the danger of frustration of federal goals in making the determination as to whether a challenged state law can stand.
In Silkwood v. Kerr-McGee (1984), the court, voting 5–4, found that a \$10 million punitive damages award (in a case litigated by famed attorney Gerry Spence) against a nuclear power plant was not impliedly preempted by federal law. Even though the court had recently held that state regulation of the safety aspects of a federally licensed nuclear power plant was preempted, the court drew a different conclusion with respect to Congress’s desire to displace state tort law—even though the tort actions might be premised on a violation of federal safety regulations.
Cipollone v. Liggett Group (1993) was a closely watched case concerning the extent of an express preemption provision in two cigarette labeling laws of the 1960s. The case was a wrongful death action brought against tobacco companies on behalf of Rose Cipollone, a lung cancer victim who had started smoking cigarette in the 1940s. The court considered the preemptive effect on state law of a provision that stated, “No requirement based on smoking and health shall be imposed under state law with respect to the advertising and promotion of cigarettes.” The court concluded that several types of state tort actions were preempted by the provision but allowed other types to go forward.
KEY TAKEAWAY
In cases of conflicts between state and federal law, federal law will preempt (or control) state law because of the supremacy clause. Preemption can be express or implied. In cases where preemption is implied, the court usually finds that compliance with both state and federal law is not possible or that a federal regulatory scheme is comprehensive (i.e., “occupies the field”) and should not be modified by state actions.
EXERCISES
1. For many years, the United States engaged in discussions with friendly nations as to the reciprocal use of ports and harbors. These discussions led to various multilateral agreements between the nations as to the configuration of oceangoing vessels and how they would be piloted. At the same time, concern over oil spills in Puget Sound led the state of Washington to impose fairly strict standards on oil tankers and requirements for the training of oil tanker pilots. In addition, Washington’s state law imposed many other requirements that went above and beyond agreed-upon requirements in the international agreements negotiated by the federal government. Are the Washington state requirements preempted by federal law?
2. The Federal Arbitration Act of 1925 requires that all contracts for arbitration be treated as any other contract at common law. Suppose that the state of Alabama wishes to protect its citizens from a variety of arbitration provisions that they might enter into unknowingly. Thus the legislation provides that all predispute arbitration clauses be in bold print, that they be of twelve-point font or larger, that they be clearly placed within the first two pages of any contract, and that they have a separate signature line where the customer, client, or patient acknowledges having read, understood, and signed the arbitration clause in addition to any other signatures required on the contract. The legislation does preserve the right of consumers to litigate in the event of a dispute arising with the product or service provider; that is, with this legislation, consumers will not unknowingly waive their right to a trial at common law. Is the Alabama law preempted by the Federal Arbitration Act? | textbooks/biz/Civil_Law/Book%3A_Introduction_to_Contracts_Sales_and_Product_Liability/04%3A_Constitutional_Law_and_US_Commerce/4.04%3A_Preemption-_The_Supremacy_Clause.txt |
LEARNING OBJECTIVES
1. Understand and describe which articles in the Bill of Rights apply to business activities and how they apply.
2. Explain the application of the Fourteenth Amendment—including the due process clause and the equal protection clause—to various rights enumerated in the original Bill of Rights.
We have already seen the Fourteenth Amendment’s application in Burger King v. Rudzewicz (Section 3.9 "Cases"). In that case, the court considered whether it was constitutionally correct for a court to assert personal jurisdiction over a nonresident. The states cannot constitutionally award a judgment against a nonresident if doing so would offend traditional notions of fair play and substantial justice. Even if the state’s long-arm statute would seem to allow such a judgment, other states should not give it full faith and credit (see Article V of the Constitution). In short, a state’s long-arm statute cannot confer personal jurisdiction that the state cannot constitutionally claim.
The Bill of Rights (the first ten amendments to the Constitution) was originally meant to apply to federal actions only. During the twentieth century, the court began to apply selected rights to state action as well. So, for example, federal agents were prohibited from using evidence seized in violation of the Fourth Amendment, but state agents were not, until Mapp v. Ohio (1960), when the court applied the guarantees (rights) of the Fourth Amendment to state action as well. In this and in similar cases, the Fourteenth Amendment’s due process clause was the basis for the court’s action. The due process clause commanded that states provide due process in cases affecting the life, liberty, or property of US citizens, and the court saw in this command certain “fundamental guarantees” that states would have to observe. Over the years, most of the important guarantees in the Bill of Rights came to apply to state as well as federal action. The court refers to this process as selective incorporation.
Here are some very basic principles to remember:
1. The guarantees of the Bill of Rights apply only to state and federal government action. They do not limit what a company or person in the private sector may do. For example, states may not impose censorship on the media or limit free speech in a way that offends the First Amendment, but your boss (in the private sector) may order you not to talk to the media.
2. In some cases, a private company may be regarded as participating in “state action.” For example, a private defense contractor that gets 90 percent of its business from the federal government has been held to be public for purposes of enforcing the constitutional right to free speech (the company had a rule barring its employees from speaking out in public against its corporate position). It has even been argued that public regulation of private activity is sufficient to convert the private into public activity, thus subjecting it to the requirements of due process. But the Supreme Court rejected this extreme view in 1974 when it refused to require private power companies, regulated by the state, to give customers a hearing before cutting off electricity for failure to pay the bill.Jackson v. Metropolitan Edison Co., 419 US 345 (1974).
3. States have rights, too. While “states rights” was a battle cry of Southern states before the Civil War, the question of what balance to strike between state sovereignty and federal union has never been simple. In Kimel v. Florida, for example, the Supreme Court found in the words of the Eleventh Amendment a basis for declaring that states may not have to obey certain federal statutes.
First Amendment
In part, the First Amendment states that “Congress shall make no law…abridging the freedom of speech, or of the press.” The Founding Fathers believed that democracy would work best if people (and the press) could talk or write freely, without governmental interference. But the First Amendment was also not intended to be as absolute as it sounded. Oliver Wendell Holmes’s famous dictum that the law does not permit you to shout “Fire!” in a crowded theater has seldom been answered, “But why not?” And no one in 1789 thought that defamation laws (torts for slander and libel) had been made unconstitutional. Moreover, because the apparent purpose of the First Amendment was to make sure that the nation had a continuing, vigorous debate over matters political, political speech has been given the highest level of protection over such other forms of speech as (1) “commercial speech,” (2) speech that can and should be limited by reasonable “time, place, and manner” restrictions, or (3) obscene speech.
Because of its higher level of protection, political speech can be false, malicious, mean-spirited, or even a pack of lies. A public official in the United States must be prepared to withstand all kinds of false accusations and cannot succeed in an action for defamation unless the defendant has acted with “malice” and “reckless disregard” of the truth. Public figures, such as CEOs of the largest US banks, must also be prepared to withstand accusations that are false. In any defamation action, truth is a defense, but a defamation action brought by a public figure or public official must prove that the defendant not only has his facts wrong but also lies to the public in a malicious way with reckless disregard of the truth. Celebrities such as Lindsay Lohan and Jon Stewart have the same burden to go forward with a defamation action. It is for this reason that the National Enquirer writes exclusively about public figures, public officials, and celebrities; it is possible to say many things that aren’t completely true and still have the protection of the First Amendment.
Political speech is so highly protected that the court has recognized the right of people to support political candidates through campaign contributions and thus promote the particular viewpoints and speech of those candidates. Fearing the influence of money on politics, Congress has from time to time placed limitations on corporate contributions to political campaigns. But the Supreme Court has had mixed reactions over time. Initially, the court recognized the First Amendment right of a corporation to donate money, subject to certain limits.Buckley v. Valeo, 424 US 1 (1976). In another case, Austin v. Michigan Chamber of Commerce (1990), the Michigan Campaign Finance Act prohibited corporations from using treasury money for independent expenditures to support or oppose candidates in elections for state offices. But a corporation could make such expenditures if it set up an independent fund designated solely for political purposes. The law was passed on the assumption that “the unique legal and economic characteristics of corporations necessitate some regulation of their political expenditures to avoid corruption or the appearance of corruption.”
The Michigan Chamber of Commerce wanted to support a candidate for Michigan’s House of Representatives by using general funds to sponsor a newspaper advertisement and argued that as a nonprofit organization, it was not really like a business firm. The court disagreed and upheld the Michigan law. Justice Marshall found that the chamber was akin to a business group, given its activities, linkages with community business leaders, and high percentage of members (over 75 percent) that were business corporations. Furthermore, Justice Marshall found that the statute was narrowly crafted and implemented to achieve the important goal of maintaining integrity in the political process. But as you will see in Citizens United v. Federal Election Commission (Section 4.6 "Cases"), Austin was overruled; corporations are recognized as “persons” with First Amendment political speech rights that cannot be impaired by Congress or the states without some compelling governmental interest with restrictions on those rights that are “narrowly tailored.”
Fourth Amendment
The Fourth Amendment says, “all persons shall be secure in their persons, houses, papers, and effects from unreasonable searches and seizures, and no warrants shall issue, but upon probable cause, before a magistrate and upon Oath, specifically describing the persons to be searched and places to be seized.”
The court has read the Fourth Amendment to prohibit only those government searches or seizures that are “unreasonable.” Because of this, businesses that are in an industry that is “closely regulated” can be searched more frequently and can be searched without a warrant. In one case, an auto parts dealer at a junkyard was charged with receiving stolen auto parts. Part of his defense was to claim that the search that found incriminating evidence was unconstitutional. But the court found the search reasonable, because the dealer was in a “closely regulated industry.”
In the 1980s, Dow Chemical objected to an overflight by the US Environmental Protection Agency (EPA). The EPA had rented an airplane to fly over the Midland, Michigan, Dow plant, using an aerial mapping camera to photograph various pipes, ponds, and machinery that were not covered by a roof. Because the court’s precedents allowed governmental intrusions into “open fields,” the EPA search was ruled constitutional. Because the literal language of the Fourth Amendment protected “persons, houses, papers, and effects,” anything searched by the government in “open fields” was reasonable. (The court’s opinion suggested that if Dow had really wanted privacy from governmental intrusion, it could have covered the pipes and machinery that were otherwise outside and in open fields.)
Note again that constitutional guarantees like the Fourth Amendment apply to governmental action. Your employer or any private enterprise is not bound by constitutional limits. For example, if drug testing of all employees every week is done by government agency, the employees may have a cause of action to object based on the Fourth Amendment. However, if a private employer begins the same kind of routine drug testing, employees have no constitutional arguments to make; they can simply leave that employer, or they may pursue whatever statutory or common-law remedies are available.
Fifth Amendment
The Fifth Amendment states, “No person shall be…deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation.”
The Fifth Amendment has three principal aspects: procedural due process, the takings clause, and substantive due process. In terms of procedural due process, the amendment prevents government from arbitrarily taking the life of a criminal defendant. In civil lawsuits, it is also constitutionally essential that the proceedings be fair. This is why, for example, the defendant in Burger King v. Rudzewicz had a serious constitutional argument, even though he lost.
The takings clause of the Fifth Amendment ensures that the government does not take private property without just compensation. In the international setting, governments that take private property engage in what is called expropriation. The standard under customary international law is that when governments do that, they must provide prompt, adequate, and effective compensation. This does not always happen, especially where foreign owners’ property is being expropriated. The guarantees of the Fifth Amendment (incorporated against state action by the Fourteenth Amendment) are available to property owners where state, county, or municipal government uses the power of eminent domain to take private property for public purposes. Just what is a public purpose is a matter of some debate. For example, if a city were to condemn economically viable businesses or neighborhoods to construct a baseball stadium with public money to entice a private enterprise (the baseball team) to stay, is a public purpose being served?
In Kelo v. City of New London, Mrs. Kelo and other residents fought the city of New London, in its attempt to use powers of eminent domain to create an industrial park and recreation area that would have Pfizer & Co. as a principal tenant.Kelo v. City of New London, 545 US 469 (2005). The city argued that increasing its tax base was a sufficient public purpose. In a very close decision, the Supreme Court determined that New London’s actions did not violate the takings clause. However, political reactions in various states resulted in a great deal of new state legislation that would limit the scope of public purpose in eminent domain takings and provide additional compensation to property owners in many cases.
In addition to the takings clause and aspects of procedural due process, the Fifth Amendment is also the source of what is called substantive due process. During the first third of the twentieth century, the Supreme Court often nullified state and federal laws using substantive due process. In 1905, for example, in Lochner v. New York, the Supreme Court voided a New York statute that limited the number of hours that bakers could work in a single week. New York had passed the law to protect the health of employees, but the court found that this law interfered with the basic constitutional right of private parties to freely contract with one another. Over the next thirty years, dozens of state and federal laws were struck down that aimed to improve working conditions, secure social welfare, or establish the rights of unions. However, in 1934, during the Great Depression, the court reversed itself and began upholding the kinds of laws it had struck down earlier.
Since then, the court has employed a two-tiered analysis of substantive due process claims. Under the first tier, legislation on economic matters, employment relations, and other business affairs is subject to minimal judicial scrutiny. This means that a law will be overturned only if it serves no rational government purpose. Under the second tier, legislation concerning fundamental liberties is subject to “heightened judicial scrutiny,” meaning that a law will be invalidated unless it is “narrowly tailored to serve a significant government purpose.”
The Supreme Court has identified two distinct categories of fundamental liberties. The first category includes most of the liberties expressly enumerated in the Bill of Rights. Through a process known as selective incorporation, the court has interpreted the due process clause of the Fourteenth Amendment to bar states from denying their residents the most important freedoms guaranteed in the first ten amendments to the federal Constitution. Only the Third Amendment right (against involuntary quartering of soldiers) and the Fifth Amendment right to be indicted by a grand jury have not been made applicable to the states. Because these rights are still not applicable to state governments, the Supreme Court is often said to have “selectively incorporated” the Bill of Rights into the due process clause of the Fourteenth Amendment.
The second category of fundamental liberties includes those liberties that are not expressly stated in the Bill of Rights but that can be seen as essential to the concepts of freedom and equality in a democratic society. These unstated liberties come from Supreme Court precedents, common law, moral philosophy, and deeply rooted traditions of US legal history. The Supreme Court has stressed that he word liberty cannot be defined by a definitive list of rights; rather, it must be viewed as a rational continuum of freedom through which every aspect of human behavior is protected from arbitrary impositions and random restraints. In this regard, as the Supreme Court has observed, the due process clause protects abstract liberty interests, including the right to personal autonomy, bodily integrity, self-dignity, and self-determination.
These liberty interests often are grouped to form a general right to privacy, which was first recognized in Griswold v. Connecticut (Section 4.6.1), where the Supreme Court struck down a state statute forbidding married adults from using, possessing, or distributing contraceptives on the ground that the law violated the sanctity of the marital relationship. According to Justice Douglas’s plurality opinion, this penumbra of privacy, though not expressly mentioned in the Bill of Rights, must be protected to establish a buffer zone or breathing space for those freedoms that are constitutionally enumerated.
But substantive due process has seen fairly limited use since the 1930s. During the 1990s, the Supreme Court was asked to recognize a general right to die under the doctrine of substantive due process. Although the court stopped short of establishing such a far-reaching right, certain patients may exercise a constitutional liberty to hasten their deaths under a narrow set of circumstances. In Cruzan v. Missouri Department of Health, the Supreme Court ruled that the due process clause guarantees the right of competent adults to make advanced directives for the withdrawal of life-sustaining measures should they become incapacitated by a disability that leaves them in a persistent vegetative state.Cruzan v. Missouri Department of Health, 497 US 261 (1990). Once it has been established by clear and convincing evidence that a mentally incompetent and persistently vegetative patient made such a prior directive, a spouse, parent, or other appropriate guardian may seek to terminate any form of artificial hydration or nutrition.
Fourteenth Amendment: Due Process and Equal Protection Guarantees
The Fourteenth Amendment (1868) requires that states treat citizens of other states with due process. This can be either an issue of procedural due process (as in Section 3.9 "Cases", Burger King v. Rudzewicz) or an issue of substantive due process. For substantive due process, consider what happened in an Alabama court not too long ago.BMW of North America, Inc. v. Gore, 517 U.S. 559 (1996)
The plaintiff, Dr. Ira Gore, bought a new BMW for \$40,000 from a dealer in Alabama. He later discovered that the vehicle’s exterior had been slightly damaged in transit from Europe and had therefore been repainted by the North American distributor prior to his purchase. The vehicle was, by best estimates, worth about 10 percent less than he paid for it. The distributor, BMW of North America, had routinely sold slightly damaged cars as brand new if the damage could be fixed for less than 3 percent of the cost of the car. In the trial, Dr. Gore sought \$4,000 in compensatory damages and also punitive damages. The Alabama trial jury considered that BMW was engaging in a fraudulent practice and wanted to punish the defendant for a number of frauds it estimated at somewhere around a thousand nationwide. The jury awarded not only the \$4,000 in compensatory damages but also \$4 million in punitive damages, which was later reduced to \$2 million by the Alabama Supreme Court. On appeal to the US Supreme Court, the court found that punitive damages may not be “grossly excessive.” If they are, then they violate substantive due process. Whatever damages a state awards must be limited to what is reasonably necessary to vindicate the state’s legitimate interest in punishment and deterrence.
“Equal protection of the laws” is a phrase that originates in the Fourteenth Amendment, adopted in 1868. The amendment provides that no state shall “deny to any person within its jurisdiction the equal protection of the laws.” This is the equal protection clause. It means that, generally speaking, governments must treat people equally. Unfair classifications among people or corporations will not be permitted. A well-known example of unfair classification would be race discrimination: requiring white children and black children to attend different public schools or requiring “separate but equal” public services, such as water fountains or restrooms. Yet despite the clear intent of the 1868 amendment, “separate but equal” was the law of the land until Brown v. Board of Education (1954).Plessy v. Ferguson, 163 US 537 (1896).
Governments make classifications every day, so not all classifications can be illegal under the equal protection clause. People with more income generally pay a greater percentage of their income in taxes. People with proper medical training are licensed to become doctors; people without that training cannot be licensed and commit a criminal offense if they do practice medicine. To know what classifications are permissible under the Fourteenth Amendment, we need to know what is being classified. The court has created three classifications, and the outcome of any equal protection case can usually be predicted by knowing how the court is likely to classify the case:
• Minimal scrutiny: economic and social relations. Government actions are usually upheld if there is a rational basis for them.
• Intermediate scrutiny: gender. Government classifications are sometimes upheld.
• Strict scrutiny: race, ethnicity, and fundamental rights. Classifications based on any of these are almost never upheld.
Under minimal scrutiny for economic and social regulation, laws that regulate economic or social issues are presumed valid and will be upheld if they are rationally related to legitimate goals of government. So, for example, if the city of New Orleans limits the number of street vendors to some rational number (more than one but fewer than the total number that could possibly fit on the sidewalks), the local ordinance would not be overturned as a violation of equal protection.
Under intermediate scrutiny, the city of New Orleans might limit the number of street vendors who are men. For example, suppose that the city council decreed that all street vendors must be women, thinking that would attract even more tourism. A classification like this, based on sex, will have to meet a sterner test than a classification resulting from economic or social regulation. A law like this would have to substantially relate to important government objectives. Increasingly, courts have nullified government sex classifications as societal concern with gender equality has grown. (See Shannon Faulkner’s case against The Citadel, an all-male state school.)United States v. Virginia, 518 US 515 (1996).
Suppose, however, that the city of New Orleans decided that no one of Middle Eastern heritage could drive a taxicab or be a street vendor. That kind of classification would be examined with strict scrutiny to see if there was any compelling justification for it. As noted, classifications such as this one are almost never upheld. The law would be upheld only if it were necessary to promote a compelling state interest. Very few laws that have a racial or ethnic classification meet that test.
The strict scrutiny test will be applied to classifications involving racial and ethnic criteria as well as classifications that interfere with a fundamental right. In Palmore v. Sidoti, the state refused to award custody to the mother because her new spouse was racially different from the child.Palmore v. Sidoti, 466 US 429 (1984).This practice was declared unconstitutional because the state had made a racial classification; this was presumptively invalid, and the government could not show a compelling need to enforce such a classification through its law. An example of government action interfering with a fundamental right will also receive strict scrutiny. When New York State gave an employment preference to veterans who had been state residents at the time of entering the military, the court declared that veterans who were new to the state were less likely to get jobs and that therefore the statute interfered with the right to travel, which was deemed a fundamental right.Atty. Gen. of New York v. Soto-Lopez, 476 US 898 (1986).
KEY TAKEAWAY
The Bill of Rights, through the Fourteenth Amendment, largely applies to state actions. The Bill of Rights has applied to federal actions from the start. Both the Bill of Rights and the Fourteenth Amendment apply to business in various ways, but it is important to remember that the rights conferred are rights against governmental action and not the actions of private enterprise.
EXERCISES
1. John Hanks works at ProLogis. The company decides to institute a drug-testing policy. John is a good and longtime employee but enjoys smoking marijuana on the weekends. The drug testing will involve urine samples and, semiannually, a hair sample. It is nearly certain that the drug-testing protocol that ProLogis proposes will find that Hanks is a marijuana user. The company has made it clear that it will have zero tolerance for any kind of nonprescribed controlled substances. John and several fellow employees wish to go to court to challenge the proposed testing as “an unreasonable search and seizure.” Can he possibly succeed?
2. Larry Reed, majority leader in the Senate, is attacked in his reelection campaign by a series of ads sponsored by a corporation (Global Defense, Inc.) that does not like his voting record. The corporation is upset that Reed would not write a special provision that would favor Global Defense in a defense appropriations bill. The ads run constantly on television and radio in the weeks immediately preceding election day and contain numerous falsehoods. For example, in order to keep the government running financially, Reed found it necessary to vote for a bill that included a last-minute rider that defunded a small government program for the handicapped, sponsored by someone in the opposing party that wanted to privatize all programs for the handicapped. The ad is largely paid for by Global Defense and depicts a handicapped child being helped by the existing program and large letters saying “Does Larry Reed Just Not Care?” The ad proclaims that it is sponsored by Citizens Who Care for a Better Tomorrow. Is this protected speech? Why or why not? Can Reed sue for defamation? Why or why not? | textbooks/biz/Civil_Law/Book%3A_Introduction_to_Contracts_Sales_and_Product_Liability/04%3A_Constitutional_Law_and_US_Commerce/4.05%3A_Business_and_the_Bill_of_Rights.txt |
Griswold v. Connecticut
Griswold v. Connecticut
381 U.S. 479 (U.S. Supreme Court 1965)
A nineteenth-century Connecticut law made the use, possession, or distribution of birth control devices illegal. The law also prohibited anyone from giving information about such devices. The executive director and medical director of a planned parenthood association were found guilty of giving out such information to a married couple that wished to delay having children for a few years. The directors were fined \$100 each.
They appealed throughout the Connecticut state court system, arguing that the state law violated (infringed) a basic or fundamental right of privacy of a married couple: to live together and have sex together without the restraining power of the state to tell them they may legally have intercourse but not if they use condoms or other birth control devices. At each level (trial court, court of appeals, and Connecticut Supreme Court), the Connecticut courts upheld the constitutionality of the convictions.
Plurality Opinion by Justice William O. Douglass
We do not sit as a super legislature to determine the wisdom, need, and propriety of laws that touch economic problems, business affairs, or social conditions. The [Connecticut] law, however, operates directly on intimate relation of husband and wife and their physician’s role in one aspect of that relation.
[Previous] cases suggest that specific guarantees in the Bill of Rights have penumbras, formed by emanations from those guarantees that help give them life and substance.…Various guarantees create zones of privacy. The right of association contained in the penumbra of the First Amendment is one.…The Third Amendment in its prohibition against the quartering of soldiers “in any house” in time of peace without the consent of the owner is another facet of that privacy. The Fourth Amendment explicitly affirms the “right of the people to be secure in their persons, houses, papers and effects, against unreasonable searches and seizures.” The Fifth Amendment in its Self-Incrimination Clause enables the citizen to create a zone of privacy which the government may not force him to surrender to his detriment. The Ninth Amendment provides: “The enumeration in the Constitution, of certain rights, shall not be construed to deny or disparage others retained by the people.”
The Fourth and Fifth Amendments were described…as protection against all governmental invasions “of the sanctity of a man’s home and the privacies of life.” We recently referred in Mapp v. Ohio…to the Fourth Amendment as creating a “right to privacy, no less important than any other right carefully and particularly reserved to the people.”
[The law in question here], in forbidding the use of contraceptives rather than regulating their manufacture or sale, seeks to achieve its goals by having a maximum destructive impact on [the marital] relationship. Such a law cannot stand.…Would we allow the police to search the sacred precincts of marital bedrooms for telltale signs of the use of contraceptives? The very idea is repulsive to the notions of privacy surrounding the marital relationship.
We deal with a right of privacy older than the Bill of Rights—older than our political parties, older than our school system. Marriage is a coming together for better or for worse, hopefully enduring, and intimate to the degree of being sacred. It is an association that promotes a way of life, not causes; a harmony in living, not political faiths; a bilateral loyalty, not commercial or social projects. Yet it is an association for as noble a purpose as any involved in our prior decisions.
Mr. Justice Stewart, whom Mr. Justice Black joins, dissenting.
Since 1879 Connecticut has had on its books a law which forbids the use of contraceptives by anyone. I think this is an uncommonly silly law. As a practical matter, the law is obviously unenforceable, except in the oblique context of the present case. As a philosophical matter, I believe the use of contraceptives in the relationship of marriage should be left to personal and private choice, based upon each individual’s moral, ethical, and religious beliefs. As a matter of social policy, I think professional counsel about methods of birth control should be available to all, so that each individual’s choice can be meaningfully made. But we are not asked in this case to say whether we think this law is unwise, or even asinine. We are asked to hold that it violates the United States Constitution. And that I cannot do.
In the course of its opinion the Court refers to no less than six Amendments to the Constitution: the First, the Third, the Fourth, the Fifth, the Ninth, and the Fourteenth. But the Court does not say which of these Amendments, if any, it thinks is infringed by this Connecticut law.
As to the First, Third, Fourth, and Fifth Amendments, I can find nothing in any of them to invalidate this Connecticut law, even assuming that all those Amendments are fully applicable against the States. It has not even been argued that this is a law “respecting an establishment of religion, or prohibiting the free exercise thereof.” And surely, unless the solemn process of constitutional adjudication is to descend to the level of a play on words, there is not involved here any abridgment of “the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances.” No soldier has been quartered in any house. There has been no search, and no seizure. Nobody has been compelled to be a witness against himself.
The Court also quotes the Ninth Amendment, and my Brother Goldberg’s concurring opinion relies heavily upon it. But to say that the Ninth Amendment has anything to do with this case is to turn somersaults with history. The Ninth Amendment, like its companion the Tenth, which this Court held “states but a truism that all is retained which has not been surrendered,” United States v. Darby, 312 U.S. 100, 124, was framed by James Madison and adopted by the States simply to make clear that the adoption of the Bill of Rights did not alter the plan that the Federal Government was to be a government of express and limited powers, and that all rights and powers not delegated to it were retained by the people and the individual States. Until today no member of this Court has ever suggested that the Ninth Amendment meant anything else, and the idea that a federal court could ever use the Ninth Amendment to annul a law passed by the elected representatives of the people of the State of Connecticut would have caused James Madison no little wonder.
What provision of the Constitution, then, does make this state law invalid? The Court says it is the right of privacy “created by several fundamental constitutional guarantees.” With all deference, I can find no such general right of privacy in the Bill of Rights, in any other part of the Constitution, or in any case ever before decided by this Court.
At the oral argument in this case we were told that the Connecticut law does not “conform to current community standards.” But it is not the function of this Court to decide cases on the basis of community standards. We are here to decide cases “agreeably to the Constitution and laws of the United States.” It is the essence of judicial duty to subordinate our own personal views, our own ideas of what legislation is wise and what is not. If, as I should surely hope, the law before us does not reflect the standards of the people of Connecticut, the people of Connecticut can freely exercise their true Ninth and Tenth Amendment rights to persuade their elected representatives to repeal it. That is the constitutional way to take this law off the books.
CASE QUESTIONS
1. Which opinion is the strict constructionist opinion here—Justice Douglas’s or that of Justices Stewart and Black?
2. What would have happened if the Supreme Court had allowed the Connecticut Supreme Court decision to stand and followed Justice Black’s reasoning? Is it likely that the citizens of Connecticut would have persuaded their elected representatives to repeal the law challenged here?
Wickard v. Filburn
Wickard v. Filburn
317 U.S. 111 (U.S. Supreme Court 1942)
Mr. Justice Jackson delivered the opinion of the Court.
Mr. Filburn for many years past has owned and operated a small farm in Montgomery County, Ohio, maintaining a herd of dairy cattle, selling milk, raising poultry, and selling poultry and eggs. It has been his practice to raise a small acreage of winter wheat, sown in the Fall and harvested in the following July; to sell a portion of the crop; to feed part to poultry and livestock on the farm, some of which is sold; to use some in making flour for home consumption; and to keep the rest for the following seeding.
His 1941 wheat acreage allotment was 11.1 acres and a normal yield of 20.1 bushels of wheat an acre. He sowed, however, 23 acres, and harvested from his 11.9 acres of excess acreage 239 bushels, which under the terms of the Act as amended on May 26, 1941, constituted farm marketing excess, subject to a penalty of 49 cents a bushel, or \$117.11 in all.
The general scheme of the Agricultural Adjustment Act of 1938 as related to wheat is to control the volume moving in interstate and foreign commerce in order to avoid surpluses and shortages and the consequent abnormally low or high wheat prices and obstructions to commerce. [T]he Secretary of Agriculture is directed to ascertain and proclaim each year a national acreage allotment for the next crop of wheat, which is then apportioned to the states and their counties, and is eventually broken up into allotments for individual farms.
It is urged that under the Commerce Clause of the Constitution, Article I, § 8, clause 3, Congress does not possess the power it has in this instance sought to exercise. The question would merit little consideration since our decision in United States v. Darby, 312 U.S. 100, sustaining the federal power to regulate production of goods for commerce, except for the fact that this Act extends federal regulation to production not intended in any part for commerce but wholly for consumption on the farm.
Kassel v. Consolidated Freightways Corp.
Kassel v. Consolidated Freightways Corp.
450 U.S. 662 (U.S. Supreme Court 1981)
JUSTICE POWELL announced the judgment of the Court and delivered an opinion, in which JUSTICE WHITE, JUSTICE BLACKMUN, and JUSTICE STEVENS joined.
The question is whether an Iowa statute that prohibits the use of certain large trucks within the State unconstitutionally burdens interstate commerce.
I
Appellee Consolidated Freightways Corporation of Delaware (Consolidated) is one of the largest common carriers in the country: it offers service in 48 States under a certificate of public convenience and necessity issued by the Interstate Commerce Commission. Among other routes, Consolidated carries commodities through Iowa on Interstate 80, the principal east-west route linking New York, Chicago, and the west coast, and on Interstate 35, a major north-south route.
Consolidated mainly uses two kinds of trucks. One consists of a three-axle tractor pulling a 40-foot two-axle trailer. This unit, commonly called a single, or “semi,” is 55 feet in length overall. Such trucks have long been used on the Nation’s highways. Consolidated also uses a two-axle tractor pulling a single-axle trailer which, in turn, pulls a single-axle dolly and a second single-axle trailer. This combination, known as a double, or twin, is 65 feet long overall. Many trucking companies, including Consolidated, increasingly prefer to use doubles to ship certain kinds of commodities. Doubles have larger capacities, and the trailers can be detached and routed separately if necessary. Consolidated would like to use 65-foot doubles on many of its trips through Iowa.
The State of Iowa, however, by statute, restricts the length of vehicles that may use its highways. Unlike all other States in the West and Midwest, Iowa generally prohibits the use of 65-foot doubles within its borders.
Because of Iowa’s statutory scheme, Consolidated cannot use its 65-foot doubles to move commodities through the State. Instead, the company must do one of four things: (i) use 55-foot singles; (ii) use 60-foot doubles; (iii) detach the trailers of a 65-foot double and shuttle each through the State separately; or (iv) divert 65-foot doubles around Iowa. Dissatisfied with these options, Consolidated filed this suit in the District Court averring that Iowa’s statutory scheme unconstitutionally burdens interstate commerce. Iowa defended the law as a reasonable safety measure enacted pursuant to its police power. The State asserted that 65-foot doubles are more dangerous than 55-foot singles and, in any event, that the law promotes safety and reduces road wear within the State by diverting much truck traffic to other states.
In a 14-day trial, both sides adduced evidence on safety and on the burden on interstate commerce imposed by Iowa’s law. On the question of safety, the District Court found that the “evidence clearly establishes that the twin is as safe as the semi.” 475 F.Supp. 544, 549 (SD Iowa 1979). For that reason, “there is no valid safety reason for barring twins from Iowa’s highways because of their configuration.…The evidence convincingly, if not overwhelmingly, establishes that the 65-foot twin is as safe as, if not safer than, the 60-foot twin and the 55-foot semi.…”
“Twins and semis have different characteristics. Twins are more maneuverable, are less sensitive to wind, and create less splash and spray. However, they are more likely than semis to jackknife or upset. They can be backed only for a short distance. The negative characteristics are not such that they render the twin less safe than semis overall. Semis are more stable, but are more likely to ‘rear-end’ another vehicle.”
In light of these findings, the District Court applied the standard we enunciated in Raymond Motor Transportation, Inc. v. Rice, 434 U.S. 429 (1978), and concluded that the state law impermissibly burdened interstate commerce: “[T]he balance here must be struck in favor of the federal interests. The total effect of the law as a safety measure in reducing accidents and casualties is so slight and problematical that it does not outweigh the national interest in keeping interstate commerce free from interferences that seriously impede it.”
The Court of Appeals for the Eighth Circuit affirmed. 612 F.2d 1064 (1979). It accepted the District Court’s finding that 65-foot doubles were as safe as 55-foot singles. Id. at 1069. Thus, the only apparent safety benefit to Iowa was that resulting from forcing large trucks to detour around the State, thereby reducing overall truck traffic on Iowa’s highways. The Court of Appeals noted that this was not a constitutionally permissible interest. It also commented that the several statutory exemptions identified above, such as those applicable to border cities and the shipment of livestock, suggested that the law, in effect, benefited Iowa residents at the expense of interstate traffic. Id. at 1070-1071. The combination of these exemptions weakened the presumption of validity normally accorded a state safety regulation. For these reasons, the Court of Appeals agreed with the District Court that the Iowa statute unconstitutionally burdened interstate commerce.
Iowa appealed, and we noted probable jurisdiction. 446 U.S. 950 (1980). We now affirm.
II
It is unnecessary to review in detail the evolution of the principles of Commerce Clause adjudication. The Clause is both a “prolific ‘ of national power and an equally prolific source of conflict with legislation of the state[s].” H. P. Hood & Sons, Inc. v. Du Mond, 336 U.S. 525, 336 U.S. 534 (1949). The Clause permits Congress to legislate when it perceives that the national welfare is not furthered by the independent actions of the States. It is now well established, also, that the Clause itself is “a limitation upon state power even without congressional implementation.” Hunt v. Washington Apple Advertising Comm’n, 432 U.S. 333 at 350 (1977). The Clause requires that some aspects of trade generally must remain free from interference by the States. When a State ventures excessively into the regulation of these aspects of commerce, it “trespasses upon national interests,” Great A&P Tea Co. v. Cottrell, 424 U.S. 366, 424 U.S. 373 (1976), and the courts will hold the state regulation invalid under the Clause alone.
The Commerce Clause does not, of course, invalidate all state restrictions on commerce. It has long been recognized that, “in the absence of conflicting legislation by Congress, there is a residuum of power in the state to make laws governing matters of local concern which nevertheless in some measure affect interstate commerce or even, to some extent, regulate it.” Southern Pacific Co. v. Arizona, 325 U.S. 761 (1945).
The extent of permissible state regulation is not always easy to measure. It may be said with confidence, however, that a State’s power to regulate commerce is never greater than in matters traditionally of local concern. Washington Apple Advertising Comm’n, supra at 432 U.S. 350. For example, regulations that touch upon safety—especially highway safety—are those that “the Court has been most reluctant to invalidate.” Raymond, supra at 434 U.S. 443 (and other cases cited). Indeed, “if safety justifications are not illusory, the Court will not second-guess legislative judgment about their importance in comparison with related burdens on interstate commerce.” Raymond, supra at 434 U.S. at 449. Those who would challenge such bona fide safety regulations must overcome a “strong presumption of validity.” Bibb v. Navajo Freight Lines, Inc., 359 U.S. 520 at (1959).
But the incantation of a purpose to promote the public health or safety does not insulate a state law from Commerce Clause attack. Regulations designed for that salutary purpose nevertheless may further the purpose so marginally, and interfere with commerce so substantially, as to be invalid under the Commerce Clause. In the Court’s recent unanimous decision in Raymond we declined to “accept the State’s contention that the inquiry under the Commerce Clause is ended without a weighing of the asserted safety purpose against the degree of interference with interstate commerce.” This “weighing” by a court requires—and indeed the constitutionality of the state regulation depends on—“a sensitive consideration of the weight and nature of the state regulatory concern in light of the extent of the burden imposed on the course of interstate commerce.” Id. at 434 U.S. at 441; accord, Pike v. Bruce Church, Inc., 397 U.S. 137 at 142 (1970); Bibb, supra, at 359 U.S. at 525-530.
III
Applying these general principles, we conclude that the Iowa truck length limitations unconstitutionally burden interstate commerce.
In Raymond Motor Transportation, Inc. v. Rice, the Court held that a Wisconsin statute that precluded the use of 65-foot doubles violated the Commerce Clause. This case is Raymond revisited. Here, as in Raymond, the State failed to present any persuasive evidence that 65-foot doubles are less safe than 55-foot singles. Moreover, Iowa’s law is now out of step with the laws of all other Midwestern and Western States. Iowa thus substantially burdens the interstate flow of goods by truck. In the absence of congressional action to set uniform standards, some burdens associated with state safety regulations must be tolerated. But where, as here, the State’s safety interest has been found to be illusory, and its regulations impair significantly the federal interest in efficient and safe interstate transportation, the state law cannot be harmonized with the Commerce Clause.
A
Iowa made a more serious effort to support the safety rationale of its law than did Wisconsin in Raymond, but its effort was no more persuasive. As noted above, the District Court found that the “evidence clearly establishes that the twin is as safe as the semi.” The record supports this finding. The trial focused on a comparison of the performance of the two kinds of trucks in various safety categories. The evidence showed, and the District Court found, that the 65-foot double was at least the equal of the 55-foot single in the ability to brake, turn, and maneuver. The double, because of its axle placement, produces less splash and spray in wet weather. And, because of its articulation in the middle, the double is less susceptible to dangerous “off-tracking,” and to wind.
None of these findings is seriously disputed by Iowa. Indeed, the State points to only three ways in which the 55-foot single is even arguably superior: singles take less time to be passed and to clear intersections; they may back up for longer distances; and they are somewhat less likely to jackknife.
The first two of these characteristics are of limited relevance on modern interstate highways. As the District Court found, the negligible difference in the time required to pass, and to cross intersections, is insignificant on 4-lane divided highways, because passing does not require crossing into oncoming traffic lanes, Raymond, 434 U.S. at 444, and interstates have few, if any, intersections. The concern over backing capability also is insignificant, because it seldom is necessary to back up on an interstate. In any event, no evidence suggested any difference in backing capability between the 60-foot doubles that Iowa permits and the 65-foot doubles that it bans. Similarly, although doubles tend to jackknife somewhat more than singles, 65-foot doubles actually are less likely to jackknife than 60-foot doubles.
Statistical studies supported the view that 65-foot doubles are at least as safe overall as 55-foot singles and 60-foot doubles. One such study, which the District Court credited, reviewed Consolidated’s comparative accident experience in 1978 with its own singles and doubles. Each kind of truck was driven 56 million miles on identical routes. The singles were involved in 100 accidents resulting in 27 injuries and one fatality. The 65-foot doubles were involved in 106 accidents resulting in 17 injuries and one fatality. Iowa’s expert statistician admitted that this study provided “moderately strong evidence” that singles have a higher injury rate than doubles. Another study, prepared by the Iowa Department of Transportation at the request of the state legislature, concluded that “[s]ixty-five foot twin trailer combinations have not been shown by experiences in other states to be less safe than 60-foot twin trailer combinations or conventional tractor-semitrailers.”
In sum, although Iowa introduced more evidence on the question of safety than did Wisconsin in Raymond, the record as a whole was not more favorable to the State.
B
Consolidated, meanwhile, demonstrated that Iowa’s law substantially burdens interstate commerce. Trucking companies that wish to continue to use 65-foot doubles must route them around Iowa or detach the trailers of the doubles and ship them through separately. Alternatively, trucking companies must use the smaller 55-foot singles or 65-foot doubles permitted under Iowa law. Each of these options engenders inefficiency and added expense. The record shows that Iowa’s law added about \$12.6 million each year to the costs of trucking companies.
Consolidated alone incurred about \$2 million per year in increased costs.
In addition to increasing the costs of the trucking companies (and, indirectly, of the service to consumers), Iowa’s law may aggravate, rather than, ameliorate, the problem of highway accidents. Fifty-five-foot singles carry less freight than 65-foot doubles. Either more small trucks must be used to carry the same quantity of goods through Iowa or the same number of larger trucks must drive longer distances to bypass Iowa. In either case, as the District Court noted, the restriction requires more highway miles to be driven to transport the same quantity of goods. Other things being equal, accidents are proportional to distance traveled. Thus, if 65-foot doubles are as safe as 55-foot singles, Iowa’s law tends to increase the number of accidents and to shift the incidence of them from Iowa to other States.
V
In sum, the statutory exemptions, their history, and the arguments Iowa has advanced in support of its law in this litigation all suggest that the deference traditionally accorded a State’s safety judgment is not warranted. See Raymond, supra at 434 U.S. at 444-447. The controlling factors thus are the findings of the District Court, accepted by the Court of Appeals, with respect to the relative safety of the types of trucks at issue, and the substantiality of the burden on interstate commerce.
Because Iowa has imposed this burden without any significant countervailing safety interest, its statute violates the Commerce Clause. The judgment of the Court of Appeals is affirmed.
It is so ordered.
CASE QUESTIONS
1. Under the Constitution, what gives Iowa the right to make rules regarding the size or configuration of trucks upon highways within the state?
2. Did Iowa try to exempt trucking lines based in Iowa, or was the statutory rule nondiscriminatory as to the origin of trucks that traveled on Iowa highways?
3. Are there any federal size or weight standards noted in the case? Is there any kind of truck size or weight that could be limited by Iowa law, or must Iowa simply accept federal standards or, if none, impose no standards at all?
Hunt v. Washington Apple Advertising Commission
Hunt v. Washington Apple Advertising Commission
432 U.S. 33 (U.S. Supreme Court 1977)
MR. CHIEF JUSTICE BURGER delivered the opinion of the Court.
In 1973, North Carolina enacted a statute which required, inter alia, all closed containers of apples sold, offered for sale, or shipped into the State to bear “no grade other than the applicable U.S. grade or standard.”…Washington State is the Nation’s largest producer of apples, its crops accounting for approximately 30% of all apples grown domestically and nearly half of all apples shipped in closed containers in interstate commerce. [Because] of the importance of the apple industry to the State, its legislature has undertaken to protect and enhance the reputation of Washington apples by establishing a stringent, mandatory inspection program [that] requires all apples shipped in interstate commerce to be tested under strict quality standards and graded accordingly. In all cases, the Washington State grades [are] the equivalent of, or superior to, the comparable grades and standards adopted by the [U.S. Dept. of] Agriculture (USDA).
[In] 1972, the North Carolina Board of Agriculture adopted an administrative regulation, unique in the 50 States, which in effect required all closed containers of apples shipped into or sold in the State to display either the applicable USDA grade or a notice indicating no classification. State grades were expressly prohibited. In addition to its obvious consequence—prohibiting the display of Washington State apple grades on containers of apples shipped into North Carolina—the regulation presented the Washington apple industry with a marketing problem of potentially nationwide significance. Washington apple growers annually ship in commerce approximately 40 million closed containers of apples, nearly 500,000 of which eventually find their way into North Carolina, stamped with the applicable Washington State variety and grade. [Compliance] with North Carolina’s unique regulation would have required Washington growers to obliterate the printed labels on containers shipped to North Carolina, thus giving their product a damaged appearance. Alternatively, they could have changed their marketing practices to accommodate the needs of the North Carolina market, i.e., repack apples to be shipped to North Carolina in containers bearing only the USDA grade, and/or store the estimated portion of the harvest destined for that market in such special containers. As a last resort, they could discontinue the use of the preprinted containers entirely. None of these costly and less efficient options was very attractive to the industry. Moreover, in the event a number of other States followed North Carolina’s lead, the resultant inability to display the Washington grades could force the Washington growers to abandon the State’s expensive inspection and grading system which their customers had come to know and rely on over the 60-odd years of its existence.…
Unsuccessful in its attempts to secure administrative relief [with North Carolina], the Commission instituted this action challenging the constitutionality of the statute. [The] District Court found that the North Carolina statute, while neutral on its face, actually discriminated against Washington State growers and dealers in favor of their local counterparts [and] concluded that this discrimination [was] not justified by the asserted local interest—the elimination of deception and confusion from the marketplace—arguably furthered by the [statute].
[North Carolina] maintains that [the] burdens on the interstate sale of Washington apples were far outweighed by the local benefits flowing from what they contend was a valid exercise of North Carolina’s [police powers]. Prior to the statute’s enactment,…apples from 13 different States were shipped into North Carolina for sale. Seven of those States, including [Washington], had their own grading systems which, while differing in their standards, used similar descriptive labels (e.g., fancy, extra fancy, etc.). This multiplicity of inconsistent state grades [posed] dangers of deception and confusion not only in the North Carolina market, but in the Nation as a whole. The North Carolina statute, appellants claim, was enacted to eliminate this source of deception and confusion. [Moreover], it is contended that North Carolina sought to accomplish this goal of uniformity in an evenhanded manner as evidenced by the fact that its statute applies to all apples sold in closed containers in the State without regard to their point of origin.
[As] the appellants properly point out, not every exercise of state authority imposing some burden on the free flow of commerce is invalid, [especially] when the State acts to protect its citizenry in matters pertaining to the sale of foodstuffs. By the same token, however, a finding that state legislation furthers matters of legitimate local concern, even in the health and consumer protection areas, does not end the inquiry. Rather, when such state legislation comes into conflict with the Commerce Clause’s overriding requirement of a national “common market,” we are confronted with the task of effecting an accommodation of the competing national and local interests. We turn to that task.
As the District Court correctly found, the challenged statute has the practical effect of not only burdening interstate sales of Washington apples, but also discriminating against them. This discrimination takes various forms. The first, and most obvious, is the statute’s consequence of raising the costs of doing business in the North Carolina market for Washington apple growers and dealers, while leaving those of their North Carolina counterparts unaffected. [This] disparate effect results from the fact that North Carolina apple producers, unlike their Washington competitors, were not forced to alter their marketing practices in order to comply with the statute. They were still free to market their wares under the USDA grade or none at all as they had done prior to the statute’s enactment. Obviously, the increased costs imposed by the statute would tend to shield the local apple industry from the competition of Washington apple growers and dealers who are already at a competitive disadvantage because of their great distance from the North Carolina market.
Second, the statute has the effect of stripping away from the Washington apple industry the competitive and economic advantages it has earned for itself through its expensive inspection and grading system. The record demonstrates that the Washington apple-grading system has gained nationwide acceptance in the apple trade. [The record] contains numerous affidavits [stating a] preference [for] apples graded under the Washington, as opposed to the USDA, system because of the former’s greater consistency, its emphasis on color, and its supporting mandatory inspections. Once again, the statute had no similar impact on the North Carolina apple industry and thus operated to its benefit.
Third, by prohibiting Washington growers and dealers from marketing apples under their State’s grades, the statute has a leveling effect which insidiously operates to the advantage of local apple producers. [With] free market forces at work, Washington sellers would normally enjoy a distinct market advantage vis-à-vis local producers in those categories where the Washington grade is superior. However, because of the statute’s operation, Washington apples which would otherwise qualify for and be sold under the superior Washington grades will now have to be marketed under their inferior USDA counterparts. Such “downgrading” offers the North Carolina apple industry the very sort of protection against competing out-of-state products that the Commerce Clause was designed to prohibit. At worst, it will have the effect of an embargo against those Washington apples in the superior grades as Washington dealers withhold them from the North Carolina market. At best, it will deprive Washington sellers of the market premium that such apples would otherwise command.
Despite the statute’s facial neutrality, the Commission suggests that its discriminatory impact on interstate commerce was not an unintended by-product, and there are some indications in the record to that effect. The most glaring is the response of the North Carolina Agriculture Commissioner to the Commission’s request for an exemption following the statute’s passage in which he indicated that before he could support such an exemption, he would “want to have the sentiment from our apple producers since they were mainly responsible for this legislation being passed.” [Moreover], we find it somewhat suspect that North Carolina singled out only closed containers of apples, the very means by which apples are transported in commerce, to effectuate the statute’s ostensible consumer protection purpose when apples are not generally sold at retail in their shipping containers. However, we need not ascribe an economic protection motive to the North Carolina Legislature to resolve this case; we conclude that the challenged statute cannot stand insofar as it prohibits the display of Washington State grades even if enacted for the declared purpose of protecting consumers from deception and fraud in the marketplace.
Finally, we note that any potential for confusion and deception created by the Washington grades was not of the type that led to the statute’s enactment. Since Washington grades are in all cases equal or superior to their USDA counterparts, they could only “deceive” or “confuse” a consumer to his benefit, hardly a harmful result.
In addition, it appears that nondiscriminatory alternatives to the outright ban of Washington State grades are readily available. For example, North Carolina could effectuate its goal by permitting out-of-state growers to utilize state grades only if they also marked their shipments with the applicable USDA label. In that case, the USDA grade would serve as a benchmark against which the consumer could evaluate the quality of the various state grades.…
[The court affirmed the lower court’s holding that the North Carolina statute was unconstitutional.]
CASE QUESTIONS
1. Was the North Carolina law discriminatory on its face? Was it, possibly, an undue burden on interstate commerce? Why wouldn’t it be?
2. What evidence was there of discriminatory intent behind the North Carolina law? Did that evidence even matter? Why or why not?
Citizens United v. Federal Election Commission
Citizens United v. Federal Election Commission
588 U.S. ____; 130 S.Ct. 876 (U.S. Supreme Court 2010)
Justice Kennedy delivered the opinion of the Court.
Federal law prohibits corporations and unions from using their general treasury funds to make independent expenditures for speech defined as an “electioneering communication” or for speech expressly advocating the election or defeat of a candidate. 2 U.S.C. §441b. Limits on electioneering communications were upheld in McConnell v. Federal Election Comm’n, 540 U.S. 93, 203–209 (2003). The holding of McConnell rested to a large extent on an earlier case, Austin v. Michigan Chamber of Commerce, 494 U.S. 652 (1990). Austin had held that political speech may be banned based on the speaker’s corporate identity.
In this case we are asked to reconsider Austin and, in effect, McConnell. It has been noted that “Austin was a significant departure from ancient First Amendment principles,” Federal Election Comm’n v. Wisconsin Right to Life, Inc., 551 U.S. 449, 490 (2007) (WRTL) (Scalia, J., concurring in part and concurring in judgment). We agree with that conclusion and hold that stare decisis does not compel the continued acceptance of Austin. The Government may regulate corporate political speech through disclaimer and disclosure requirements, but it may not suppress that speech altogether. We turn to the case now before us.
A
Citizens United is a nonprofit corporation. It has an annual budget of about \$12 million. Most of its funds are from donations by individuals; but, in addition, it accepts a small portion of its funds from for-profit corporations.
In January 2008, Citizens United released a film entitled Hillary: The Movie. We refer to the film as Hillary. It is a 90-minute documentary about then-Senator Hillary Clinton, who was a candidate in the Democratic Party’s 2008 Presidential primary elections. Hillary mentions Senator Clinton by name and depicts interviews with political commentators and other persons, most of them quite critical of Senator Clinton.…
In December 2007, a cable company offered, for a payment of \$1.2 million, to make Hillary available on a video-on-demand channel called “Elections ’08.”…Citizens United was prepared to pay for the video-on-demand; and to promote the film, it produced two 10-second ads and one 30-second ad for Hillary. Each ad includes a short (and, in our view, pejorative) statement about Senator Clinton, followed by the name of the movie and the movie’s Website address. Citizens United desired to promote the video-on-demand offering by running advertisements on broadcast and cable television.
B
Before the Bipartisan Campaign Reform Act of 2002 (BCRA), federal law prohibited—and still does prohibit—corporations and unions from using general treasury funds to make direct contributions to candidates or independent expenditures that expressly advocate the election or defeat of a candidate, through any form of media, in connection with certain qualified federal elections.…BCRA §203 amended §441b to prohibit any “electioneering communication” as well. An electioneering communication is defined as “any broadcast, cable, or satellite communication” that “refers to a clearly identified candidate for Federal office” and is made within 30 days of a primary or 60 days of a general election. §434(f)(3)(A). The Federal Election Commission’s (FEC) regulations further define an electioneering communication as a communication that is “publicly distributed.” 11 CFR §100.29(a)(2) (2009). “In the case of a candidate for nomination for President…publicly distributed means” that the communication “[c]an be received by 50,000 or more persons in a State where a primary election…is being held within 30 days.” 11 CFR §100.29(b)(3)(ii). Corporations and unions are barred from using their general treasury funds for express advocacy or electioneering communications. They may establish, however, a “separate segregated fund” (known as a political action committee, or PAC) for these purposes. 2 U.S.C. §441b(b)(2). The moneys received by the segregated fund are limited to donations from stockholders and employees of the corporation or, in the case of unions, members of the union. Ibid.
C
Citizens United wanted to make Hillary available through video-on-demand within 30 days of the 2008 primary elections. It feared, however, that both the film and the ads would be covered by §441b’s ban on corporate-funded independent expenditures, thus subjecting the corporation to civil and criminal penalties under §437g. In December 2007, Citizens United sought declaratory and injunctive relief against the FEC. It argued that (1) §441b is unconstitutional as applied to Hillary; and (2) BCRA’s disclaimer and disclosure requirements, BCRA §§201 and 311, are unconstitutional as applied to Hillary and to the three ads for the movie.
The District Court denied Citizens United’s motion for a preliminary injunction, and then granted the FEC’s motion for summary judgment.
The court held that §441b was facially constitutional under McConnell, and that §441b was constitutional as applied to Hillary because it was “susceptible of no other interpretation than to inform the electorate that Senator Clinton is unfit for office, that the United States would be a dangerous place in a President Hillary Clinton world, and that viewers should vote against her.” 530 F. Supp. 2d, at 279. The court also rejected Citizens United’s challenge to BCRA’s disclaimer and disclosure requirements. It noted that “the Supreme Court has written approvingly of disclosure provisions triggered by political speech even though the speech itself was constitutionally protected under the First Amendment.” Id. at 281.
II
[Omitted: the court considers whether it is possible to reject the BCRA without declaring certain provisions unconstitutional. The court concludes it cannot find a basis to reject the BCRA that does not involve constitutional issues.]
III
The First Amendment provides that “Congress shall make no law…abridging the freedom of speech.” Laws enacted to control or suppress speech may operate at different points in the speech process.…The law before us is an outright ban, backed by criminal sanctions. Section 441b makes it a felony for all corporations—including nonprofit advocacy corporations—either to expressly advocate the election or defeat of candidates or to broadcast electioneering communications within 30 days of a primary election and 60 days of a general election. Thus, the following acts would all be felonies under §441b: The Sierra Club runs an ad, within the crucial phase of 60 days before the general election, that exhorts the public to disapprove of a Congressman who favors logging in national forests; the National Rifle Association publishes a book urging the public to vote for the challenger because the incumbent U.S. Senator supports a handgun ban; and the American Civil Liberties Union creates a Web site telling the public to vote for a Presidential candidate in light of that candidate’s defense of free speech. These prohibitions are classic examples of censorship.
Section 441b is a ban on corporate speech notwithstanding the fact that a PAC created by a corporation can still speak. PACs are burdensome alternatives; they are expensive to administer and subject to extensive regulations. For example, every PAC must appoint a treasurer, forward donations to the treasurer promptly, keep detailed records of the identities of the persons making donations, preserve receipts for three years, and file an organization statement and report changes to this information within 10 days.
And that is just the beginning. PACs must file detailed monthly reports with the FEC, which are due at different times depending on the type of election that is about to occur.…
PACs have to comply with these regulations just to speak. This might explain why fewer than 2,000 of the millions of corporations in this country have PACs. PACs, furthermore, must exist before they can speak. Given the onerous restrictions, a corporation may not be able to establish a PAC in time to make its views known regarding candidates and issues in a current campaign.
Section 441b’s prohibition on corporate independent expenditures is thus a ban on speech. As a “restriction on the amount of money a person or group can spend on political communication during a campaign,” that statute “necessarily reduces the quantity of expression by restricting the number of issues discussed, the depth of their exploration, and the size of the audience reached.” Buckley v. Valeo, 424 U.S. 1 at 19 (1976).…
Speech is an essential mechanism of democracy, for it is the means to hold officials accountable to the people. See Buckley, supra, at 14–15 (“In a republic where the people are sovereign, the ability of the citizenry to make informed choices among candidates for office is essential.”) The right of citizens to inquire, to hear, to speak, and to use information to reach consensus is a precondition to enlightened self-government and a necessary means to protect it. The First Amendment “‘has its fullest and most urgent application’ to speech uttered during a campaign for political office.”
For these reasons, political speech must prevail against laws that would suppress it, whether by design or inadvertence. Laws that burden political speech are “subject to strict scrutiny,” which requires the Government to prove that the restriction “furthers a compelling interest and is narrowly tailored to achieve that interest.”
The Court has recognized that First Amendment protection extends to corporations. This protection has been extended by explicit holdings to the context of political speech. Under the rationale of these precedents, political speech does not lose First Amendment protection “simply because its source is a corporation.” Bellotti, supra, at 784. The Court has thus rejected the argument that political speech of corporations or other associations should be treated differently under the First Amendment simply because such associations are not “natural persons.”
The purpose and effect of this law is to prevent corporations, including small and nonprofit corporations, from presenting both facts and opinions to the public. This makes Austin’s antidistortion rationale all the more an aberration. “[T]he First Amendment protects the right of corporations to petition legislative and administrative bodies.” Bellotti, 435 U.S., at 792, n. 31.…
Even if §441b’s expenditure ban were constitutional, wealthy corporations could still lobby elected officials, although smaller corporations may not have the resources to do so. And wealthy individuals and unincorporated associations can spend unlimited amounts on independent expenditures. See, e.g., WRTL, 551 U.S., at 503–504 (opinion of Scalia, J.) (“In the 2004 election cycle, a mere 24 individuals contributed an astounding total of \$142 million to [26 U.S.C. §527 organizations]”). Yet certain disfavored associations of citizens—those that have taken on the corporate form—are penalized for engaging in the same political speech.
When Government seeks to use its full power, including the criminal law, to command where a person may get his or her information or what distrusted source he or she may not hear, it uses censorship to control thought. This is unlawful. The First Amendment confirms the freedom to think for ourselves.
What we have said also shows the invalidity of other arguments made by the Government. For the most part relinquishing the anti-distortion rationale, the Government falls back on the argument that corporate political speech can be banned in order to prevent corruption or its appearance.…
When Congress finds that a problem exists, we must give that finding due deference; but Congress may not choose an unconstitutional remedy. If elected officials succumb to improper influences from independent expenditures; if they surrender their best judgment; and if they put expediency before principle, then surely there is cause for concern. We must give weight to attempts by Congress to seek to dispel either the appearance or the reality of these influences. The remedies enacted by law, however, must comply with the First Amendment; and, it is our law and our tradition that more speech, not less, is the governing rule. An outright ban on corporate political speech during the critical preelection period is not a permissible remedy. Here Congress has created categorical bans on speech that are asymmetrical to preventing quid pro quo corruption.
Our precedent is to be respected unless the most convincing of reasons demonstrates that adherence to it puts us on a course that is sure error. “Beyond workability, the relevant factors in deciding whether to adhere to the principle of stare decisis include the antiquity of the precedent, the reliance interests at stake, and of course whether the decision was well reasoned.” [citing prior cases]
These considerations counsel in favor of rejecting Austin, which itself contravened this Court’s earlier precedents in Buckley and Bellotti. “This Court has not hesitated to overrule decisions offensive to the First Amendment.” WRTL, 551 U.S., at 500 (opinion of Scalia, J.). “[S]tare decisis is a principle of policy and not a mechanical formula of adherence to the latest decision.” Helvering v. Hallock, 309 U.S. 106 at 119 (1940).
Austin is undermined by experience since its announcement. Political speech is so ingrained in our culture that speakers find ways to circumvent campaign finance laws. See, e.g., McConnell, 540 U.S., at 176–177 (“Given BCRA’s tighter restrictions on the raising and spending of soft money, the incentives…to exploit [26 U.S.C. §527] organizations will only increase”). Our Nation’s speech dynamic is changing, and informative voices should not have to circumvent onerous restrictions to exercise their First Amendment rights. Speakers have become adept at presenting citizens with sound bites, talking points, and scripted messages that dominate the 24-hour news cycle. Corporations, like individuals, do not have monolithic views. On certain topics corporations may possess valuable expertise, leaving them the best equipped to point out errors or fallacies in speech of all sorts, including the speech of candidates and elected officials.
Rapid changes in technology—and the creative dynamic inherent in the concept of free expression—counsel against upholding a law that restricts political speech in certain media or by certain speakers. Today, 30-second television ads may be the most effective way to convey a political message. Soon, however, it may be that Internet sources, such as blogs and social networking Web sites, will provide citizens with significant information about political candidates and issues. Yet, §441b would seem to ban a blog post expressly advocating the election or defeat of a candidate if that blog were created with corporate funds. The First Amendment does not permit Congress to make these categorical distinctions based on the corporate identity of the speaker and the content of the political speech.
Due consideration leads to this conclusion: Austin should be and now is overruled. We return to the principle established in Buckley and Bellotti that the Government may not suppress political speech on the basis of the speaker’s corporate identity. No sufficient governmental interest justifies limits on the political speech of nonprofit or for-profit corporations.
V
When word concerning the plot of the movie Mr. Smith Goes to Washington reached the circles of Government, some officials sought, by persuasion, to discourage its distribution. See Smoodin, “Compulsory” Viewing for Every Citizen: Mr. Smith and the Rhetoric of Reception, 35 Cinema Journal 3, 19, and n. 52 (Winter 1996) (citing Mr. Smith Riles Washington, Time, Oct. 30, 1939, p. 49); Nugent, Capra’s Capitol Offense, N. Y. Times, Oct. 29, 1939, p. X5. Under Austin, though, officials could have done more than discourage its distribution—they could have banned the film. After all, it, like Hillary, was speech funded by a corporation that was critical of Members of Congress. Mr. Smith Goes to Washington may be fiction and caricature; but fiction and caricature can be a powerful force.
Modern day movies, television comedies, or skits on YouTube.com might portray public officials or public policies in unflattering ways. Yet if a covered transmission during the blackout period creates the background for candidate endorsement or opposition, a felony occurs solely because a corporation, other than an exempt media corporation, has made the “purchase, payment, distribution, loan, advance, deposit, or gift of money or anything of value” in order to engage in political speech. 2 U.S.C. §431(9)(A)(i). Speech would be suppressed in the realm where its necessity is most evident: in the public dialogue preceding a real election. Governments are often hostile to speech, but under our law and our tradition it seems stranger than fiction for our Government to make this political speech a crime. Yet this is the statute’s purpose and design.
Some members of the public might consider Hillary to be insightful and instructive; some might find it to be neither high art nor a fair discussion on how to set the Nation’s course; still others simply might suspend judgment on these points but decide to think more about issues and candidates. Those choices and assessments, however, are not for the Government to make. “The First Amendment underwrites the freedom to experiment and to create in the realm of thought and speech. Citizens must be free to use new forms, and new forums, for the expression of ideas. The civic discourse belongs to the people, and the Government may not prescribe the means used to conduct it.” McConnell, supra, at 341 (opinion of Kennedy, J.).
The judgment of the District Court is reversed with respect to the constitutionality of 2 U.S.C. §441b’s restrictions on corporate independent expenditures. The case is remanded for further proceedings consistent with this opinion.
It is so ordered.
CASE QUESTIONS
1. What does the case say about disclosure? Corporations have a right of free speech under the First Amendment and may exercise that right through unrestricted contributions of money to political parties and candidates. Can the government condition that right by requiring that the parties and candidates disclose to the public the amount and origin of the contribution? What would justify such a disclosure requirement?
2. Are a corporation’s contributions to political parties and candidates tax deductible as a business expense? Should they be?
3. How is the donation of money equivalent to speech? Is this a strict construction of the Constitution to hold that it is?
4. Based on the Court’s description of the Austin case, what purpose do you think the Austin court was trying to achieve by limiting corporate campaign contributions? Was that purpose consistent (or inconsistent) with anything in the Constitution, or is the Constitution essentially silent on this issue? | textbooks/biz/Civil_Law/Book%3A_Introduction_to_Contracts_Sales_and_Product_Liability/04%3A_Constitutional_Law_and_US_Commerce/4.06%3A_Cases.txt |
Summary
The US. Constitution sets the framework for all other laws of the United States, at both the federal and the state level. It creates a shared balance of power between states and the federal government (federalism) and shared power among the branches of government (separation of powers), establishes individual rights against governmental action (Bill of Rights), and provides for federal oversight of matters affecting interstate commerce and commerce with foreign nations. Knowing the contours of the US legal system is not possible without understanding the role of the US Constitution.
The Constitution is difficult to amend. Thus when the Supreme Court uses its power of judicial review to determine that a law is unconstitutional, it actually shapes what the Constitution means. New meanings that emerge must do so by the process of amendment or by the passage of time and new appointments to the court. Because justices serve for life, the court changes its philosophical outlook slowly.
The Bill of Rights is an especially important piece of the Constitutional framework. It provides legal causes of action for infringements of individual rights by government, state or federal. Through the due process clause of the Fifth Amendment and the Fourteenth Amendment, both procedural and (to some extent) substantive due process rights are given to individuals.
EXERCISES
1. For many years, the Supreme Court believed that “commercial speech” was entitled to less protection than other forms of speech. One defining element of commercial speech is that its dominant theme is to propose a commercial transaction. This kind of speech is protected by the First Amendment, but the government is permitted to regulate it more closely than other forms of speech. However, the government must make reasonable distinctions, must narrowly tailor the rules restricting commercial speech, and must show that government has a legitimate goal that the law furthers.
Edward Salib owned a Winchell’s Donut House in Mesa, Arizona. To attract customers, he displayed large signs in store windows. The city ordered him to remove the signs because they violated the city’s sign code, which prohibited covering more than 30 percent of a store’s windows with signs. Salib sued, claiming that the sign code violated his First Amendment rights. What was the result, and why?
2. Jennifer is a freshman at her local public high school. Her sister, Jackie, attends a nearby private high school. Neither school allows them to join its respective wrestling team; only boys can wrestle at either school. Do either of them have a winning case based on the equal protection clause of the Fourteenth Amendment?
3. The employees of the US Treasury Department that work the border crossing between the United States and Mexico learned that they will be subject to routine drug testing. The customs bureau, which is a division of the treasury department, announces this policy along with its reasoning: since customs agents must routinely search for drugs coming into the United States, it makes sense that border guards must themselves be completely drug-free. Many border guards do not use drugs, have no intention of using drugs, and object to the invasion of their privacy. What is the constitutional basis for their objection?
4. Happy Time Chevrolet employs Jim Bydalek as a salesman. Bydalek takes part in a Gay Pride March in Los Angeles, is interviewed by a local news camera crew, and reports that he is gay and proud of it. His employer is not, and he is fired. Does he have any constitutional causes of action against his employer?
5. You begin work at the Happy-Go-Lucky Corporation on Halloween. On your second day at work, you wear a political button on your coat, supporting your choice for US senator in the upcoming election. Your boss, who is of a different political persuasion, looks at the button and says, “Take that stupid button off or you’re fired.” Has your boss violated your constitutional rights?
6. David Lucas paid \$975,000 for two residential parcels on the Isle of Palms near Charleston, South Carolina. His intention was to build houses on them. Two years later, the South Carolina legislature passed a statute that prohibited building beachfront properties. The purpose was to leave the dunes system in place to mitigate the effects of hurricanes and strong storms. The South Carolina Coastal Commission created the rules and regulations with substantial input from the community and from experts and with protection of the dune system primarily in mind. People had been building on the shoreline for years, with harmful results to localities and the state treasury. When Lucas applied for permits to build two houses near the shoreline, his permits were rejected. He sued, arguing that the South Carolina legislation had effectively “taken” his property. At trial, South Carolina conceded that because of the legislation, Lucas’s property was effectively worth zero. Has there been a taking under the Fifth Amendment (as incorporated through the Fourteenth Amendment), and if so, what should the state owe to Lucas? Suppose that Lucas could have made an additional \$1 million by building a house on each of his parcels. Is he entitled to recover his original purchase price or his potential profits?
SELF-TEST QUESTIONS
1. Harvey filed a suit against the state of Colorado, claiming that a Colorado state law violates the commerce clause. The court will agree if the statute
1. places an undue burden on interstate commerce
2. promotes the public health, safety, morals, or general welfare of Colorado
3. regulates economic activities within the state’s borders
4. a and b
5. b and c
2. The state legislature in Maine enacts a law that directly conflicts with a federal law. Mapco Industries, located in Portland, Maine, cannot comply with both the state and the federal law.
1. Because of federalism, the state law will have priority, as long as Maine is using its police powers.
2. Because there’s a conflict, both laws are invalid; the state and the federal government will have to work out a compromise of some sort.
3. The federal law preempts the state law.
4. Both laws govern concurrently.
3. Hannah, who lives in Ada, is the owner of Superior Enterprises, Inc. She believes that certain actions in the state of Ohio infringe on her federal constitutional rights, especially those found in the Bill of Rights. Most of these rights apply to the states under
1. the supremacy clause
2. the protection clause
3. the due process clause of the Fourteenth Amendment
4. the Tenth Amendment
4. Minnesota enacts a statute that bans all advertising that is in “bad taste,” “vulgar,” or “indecent.” In Michigan, Aaron Calloway and his brother, Clarence “Cab” Calloway, create unique beer that they decide to call Old Fart Ale. In their marketing, the brothers have a label in which an older man in a dirty T-shirt is sitting in easy chair, looking disheveled and having a three-day growth of stubble on his chin. It appears that the man is in the process of belching. He is also holding a can of Old Fart Ale. The Minnesota liquor commission orders all Minnesota restaurants, bars, and grocery stores to remove Old Fart Ale from their shelves. The state statute and the commission’s order are likely to be held by a court to be
1. a violation of the Tenth Amendment
2. a violation of the First Amendment
3. a violation of the Calloways’ right to equal protection of the laws
4. a violation of the commerce clause, since only the federal laws can prevent an article of commerce from entering into Minnesota’s market
5. Raunch Unlimited, a Virginia partnership, sells smut whenever and wherever it can. Some of its material is “obscene” (meeting the Supreme Court’s definition under Miller v. California) and includes child pornography. North Carolina has a statute that criminalizes obscenity. What are possible results if a store in Raleigh, North Carolina, carries Raunch merchandise?
1. The partners could be arrested in North Carolina and may well be convicted.
2. The materials in Raleigh may be the basis for a criminal conviction.
3. The materials are protected under the First Amendment’s right of free speech.
4. The materials are protected under state law.
5. a and b
1. a
2. c
3. c
4. b
5. e | textbooks/biz/Civil_Law/Book%3A_Introduction_to_Contracts_Sales_and_Product_Liability/04%3A_Constitutional_Law_and_US_Commerce/4.07%3A_Summary_and_Exercises.txt |
Learning Objectives
After reading this chapter, you should be able to do the following:
1. Understand the purpose served by federal administrative agencies.
2. Know the difference between executive branch agencies and independent agencies.
3. Understand the political control of agencies by the president and Congress.
4. Describe how agencies make rules and conduct hearings.
5. Describe how courts can be used to challenge administrative rulings.
From the 1930s on, administrative agencies, law, and procedures have virtually remade our government and much of private life. Every day, business must deal with rules and decisions of state and federal administrative agencies. Informally, such rules are often called regulations, and they differ (only in their source) from laws passed by Congress and signed into law by the president. The rules created by agencies are voluminous: thousands of new regulations pour forth each year. The overarching question of whether there is too much regulation—or the wrong kind of regulation—of our economic activities is an important one but well beyond the scope of this chapter, in which we offer an overview of the purpose of administrative agencies, their structure, and their impact on business.
05: Administrative Law
LEARNING OBJECTIVES
1. Explain the reasons why we have federal administrative agencies.
2. Explain the difference between executive branch agencies and independent agencies.
3. Describe the constitutional issue that questions whether administrative agencies could have authority to make enforceable rules that affect business.
Why Have Administrative Agencies?
The US Constitution mentions only three branches of government: legislative, executive, and judicial (Articles I, II, and III). There is no mention of agencies in the Constitution, even though federal agencies are sometimes referred to as “the fourth branch of government.” The Supreme Court has recognized the legitimacy of federal administrative agencies to make rules that have the same binding effect as statutes by Congress.
Most commentators note that having agencies with rule-making power is a practical necessity: (1) Congress does not have the expertise or continuity to develop specialized knowledge in various areas (e.g., communications, the environment, aviation). (2) Because of this, it makes sense for Congress to set forth broad statutory guidance to an agency and delegate authority to the agency to propose rules that further the statutory purposes. (3) As long as Congress makes this delegating guidance sufficiently clear, it is not delegating improperly. If Congress’s guidelines are too vague or undefined, it is (in essence) giving away its constitutional power to some other group, and this it cannot do.
Why Regulate the Economy at All?
The market often does not work properly, as economists often note. Monopolies, for example, happen in the natural course of human events but are not always desirable. To fix this, well-conceived and objectively enforced competition law (what is called antitrust law in the United States) is needed.
Negative externalities must be “fixed,” as well. For example, as we see in tort law (Chapter 7 "Introduction to Tort Law"), people and business organizations often do things that impose costs (damages) on others, and the legal system will try—through the award of compensatory damages—to make fair adjustments. In terms of the ideal conditions for a free market, think of tort law as the legal system’s attempt to compensate for negative externalities: those costs imposed on people who have not voluntarily consented to bear those costs.
In terms of freedoms to enter or leave the market, the US constitutional guarantees of equal protection can prevent local, state, and federal governments from imposing discriminatory rules for commerce that would keep minorities, women, and gay people from full participation in business. For example, if the small town of Xenophobia, Colorado, passed a law that required all business owners and their employees to be Christian, heterosexual, and married, the equal protection clause (as well as numerous state and federal equal opportunity employment laws) would empower plaintiffs to go to court and have the law struck down as unconstitutional.
Knowing that information is power, we will see many laws administered by regulatory agencies that seek to level the playing field of economic competition by requiring disclosure of the most pertinent information for consumers (consumer protection laws), investors (securities laws), and citizens (e.g., the toxics release inventory laws in environmental law).
Ideal Conditions for a Free Market
1. There are many buyers and many sellers, and none of them has a substantial share of the market.
2. All buyers and sellers in the market are free to enter the market or leave it.
3. All buyers and all sellers have full and perfect knowledge of what other buyers and sellers are up to, including knowledge of prices, quantity, and quality of all goods being bought or sold.
4. The goods being sold in the market are similar enough to each other that participants do not have strong preferences as to which seller or buyer they deal with.
5. The costs and benefits of making or using the goods that are exchanged in the market are borne only by those who buy or sell those goods and not by third parties or people “external” to the market transaction. (That is, there are no “externalities.”)
6. All buyers and sellers are utility maximizers; each participant in the market tries to get as much as possible for as little as possible.
7. There are no parties, institutions, or governmental units regulating the price, quantity, or quality of any of the goods being bought and sold in the market.
In short, some forms of legislation and regulation are needed to counter a tendency toward consolidation of economic power and discriminatory attitudes toward certain individuals and groups and to insist that people and companies clean up their own messes and not hide information that would empower voluntary choices in the free market.
But there are additional reasons to regulate. For example, in economic systems, it is likely for natural monopolies to occur. These are where one firm can most efficiently supply all of the good or service. Having duplicate (or triplicate) systems for supplying electricity, for example, would be inefficient, so most states have a public utilities commission to determine both price and quality of service. This is direct regulation.
Sometimes destructive competition can result if there is no regulation. Banking and insurance are good examples of this. Without government regulation of banks (setting standards and methods), open and fierce competition would result in widespread bank failures. That would erode public confidence in banks and business generally. The current situation (circa 2011) of six major banks that are “too big to fail” is, however, an example of destructive noncompetition.
Other market imperfections can yield a demand for regulation. For example, there is a need to regulate frequencies for public broadcast on radio, television, and other wireless transmissions (for police, fire, national defense, etc.). Many economists would also list an adequate supply of public goods as something that must be created by government. On its own, for example, the market would not provide public goods such as education, a highway system, lighthouses, a military for defense.
True laissez-faire capitalism—a market free from any regulation—would not try to deal with market imperfections and would also allow people to freely choose products, services, and other arrangements that historically have been deemed socially unacceptable. These would include making enforceable contracts for the sale and purchase of persons (slavery), sexual services, “street drugs” such as heroin or crack cocaine, votes for public office, grades for this course in business law, and even marriage partnership.
Thus the free market in actual terms—and not in theory—consists of commerce legally constrained by what is economically desirable and by what is socially desirable as well. Public policy objectives in the social arena include ensuring equal opportunity in employment, protecting employees from unhealthy or unsafe work environments, preserving environmental quality and resources, and protecting consumers from unsafe products. Sometimes these objectives are met by giving individuals statutory rights that can be used in bringing a complaint (e.g., Title VII of the Civil Rights Act of 1964, for employment discrimination), and sometimes they are met by creating agencies with the right to investigate and monitor and enforce statutory law and regulations created to enforce such law (e.g., the Environmental Protection Agency, for bringing a lawsuit against a polluting company).
History of Federal Agencies
Through the commerce clause in the US Constitution, Congress has the power to regulate trade between the states and with foreign nations. The earliest federal agency therefore dealt with trucking and railroads, to literally set the rules of the road for interstate commerce. The first federal agency, the Interstate Commerce Commission (ICC), was created in 1887. Congress delegated to the ICC the power to enforce federal laws against railroad rate discrimination and other unfair pricing practices. By the early part of this century, the ICC gained the power to fix rates. From the 1970s through 1995, however, Congress passed deregulatory measures, and the ICC was formally abolished in 1995, with its powers transferred to the Surface Transportation Board.
Beginning with the Federal Trade Commission (FTC) in 1914, Congress has created numerous other agencies, many of them familiar actors in American government. Today more than eighty-five federal agencies have jurisdiction to regulate some form of private activity. Most were created since 1930, and more than a third since 1960. A similar growth has occurred at the state level. Most states now have dozens of regulatory agencies, many of them overlapping in function with the federal bodies.
Classification of Agencies
Independent agencies are different from federal executive departments and other executive agencies by their structural and functional characteristics. Most executive departments have a single director, administrator, or secretary appointed by the president of the United States. Independent agencies almost always have a commission or board consisting of five to seven members who share power over the agency. The president appoints the commissioners or board subject to Senate confirmation, but they often serve with staggered terms and often for longer terms than a usual four-year presidential term. They cannot be removed except for “good cause.” This means that most presidents will not get to appoint all the commissioners of a given independent agency. Most independent agencies have a statutory requirement of bipartisan membership on the commission, so the president cannot simply fill vacancies with members of his own political party.
In addition to the ICC and the FTC, the major independent agencies are the Federal Communications Commission (1934), Securities and Exchange Commission (1934), National Labor Relations Board (1935), and Environmental Protection Agency (1970). See Note 5.4 "Ideal Conditions for a Free Market" in the sidebar.
By contrast, members of executive branch agencies serve at the pleasure of the president and are therefore far more amenable to political control. One consequence of this distinction is that the rules that independent agencies promulgate may not be reviewed by the president or his staff—only Congress may directly overrule them—whereas the White House or officials in the various cabinet departments may oversee the work of the agencies contained within them (unless specifically denied the power by Congress).
Powers of Agencies
Agencies have a variety of powers. Many of the original statutes that created them, like the Federal Communications Act, gave them licensing power. No party can enter into the productive activity covered by the act without prior license from the agency—for example, no utility can start up a nuclear power plant unless first approved by the Nuclear Regulatory Commission. In recent years, the move toward deregulation of the economy has led to diminution of some licensing power. Many agencies also have the authority to set the rates charged by companies subject to the agency’s jurisdiction. Finally, the agencies can regulate business practices. The FTC has general jurisdiction over all business in interstate commerce to monitor and root out “unfair acts” and “deceptive practices.” The Securities and Exchange Commission (SEC) oversees the issuance of corporate securities and other investments and monitors the practices of the stock exchanges.
Unlike courts, administrative agencies are charged with the responsibility of carrying out a specific assignment or reaching a goal or set of goals. They are not to remain neutral on the various issues of the day; they must act. They have been given legislative powers because in a society growing ever more complex, Congress does not know how to legislate with the kind of detail that is necessary, nor would it have the time to approach all the sectors of society even if it tried. Precisely because they are to do what general legislative bodies cannot do, agencies are specialized bodies. Through years of experience in dealing with similar problems they accumulate a body of knowledge that they can apply to accomplish their statutory duties.
All administrative agencies have two different sorts of personnel. The heads, whether a single administrator or a collegial body of commissioners, are political appointees and serve for relatively limited terms. Below them is a more or less permanent staff—the bureaucracy. Much policy making occurs at the staff level, because these employees are in essential control of gathering facts and presenting data and argument to the commissioners, who wield the ultimate power of the agencies.
The Constitution and Agencies
Congress can establish an agency through legislation. When Congress gives powers to an agency, the legislation is known as an enabling act. The concept that Congress can delegate power to an agency is known as the delegation doctrine. Usually, the agency will have all three kinds of power: executive, legislative, and judicial. (That is, the agency can set the rules that business must comply with, can investigate and prosecute those businesses, and can hold administrative hearings for violations of those rules. They are, in effect, rule maker, prosecutor, and judge.) Because agencies have all three types of governmental powers, important constitutional questions were asked when Congress first created them. The most important question was whether Congress was giving away its legislative power. Was the separation of powers violated if agencies had power to make rules that were equivalent to legislative statutes?
In 1935, in Schechter Poultry Corp. v. United States, the Supreme Court overturned the National Industrial Recovery Act on the ground that the congressional delegation of power was too broad.Schechter Poultry Corp. v. United States, 295 US 495 (1935). Under the law, industry trade groups were granted the authority to devise a code of fair competition for the entire industry, and these codes became law if approved by the president. No administrative body was created to scrutinize the arguments for a particular code, to develop evidence, or to test one version of a code against another. Thus it was unconstitutional for the Congress to transfer all of its legislative powers to an agency. In later decisions, it was made clear that Congress could delegate some of its legislative powers, but only if the delegation of authority was not overly broad.
Still, some congressional enabling acts are very broad, such as the enabling legislation for the Occupational Safety and Health Administration (OSHA), which is given the authority to make rules to provide for safe and healthful working conditions in US workplaces. Such a broad initiative power gives OSHA considerable discretion. But, as noted in Section 5.2 "Controlling Administrative Agencies", there are both executive and judicial controls over administrative agency activities, as well as ongoing control by Congress through funding and the continuing oversight of agencies, both in hearings and through subsequent statutory amendments.
KEY TAKEAWAY
Congress creates administrative agencies through enabling acts. In these acts, Congress must delegate authority by giving the agency some direction as to what it wants the agency to do. Agencies are usually given broad powers to investigate, set standards (promulgating regulations), and enforce those standards. Most agencies are executive branch agencies, but some are independent.
EXERCISES
1. Explain why Congress needs to delegate rule-making authority to a specialized agency.
2. Explain why there is any need for interference in the market by means of laws or regulations. | textbooks/biz/Civil_Law/Book%3A_Introduction_to_Contracts_Sales_and_Product_Liability/05%3A_Administrative_Law/5.01%3A_Administrative_Agencies-_Their_Structure_and_Powers.txt |
LEARNING OBJECTIVES
1. Understand how the president controls administrative agencies.
2. Understand how Congress controls administrative agencies.
3. Understand how the courts can control administrative agencies.
During the course of the past seventy years, a substantial debate has been conducted, often in shrill terms, about the legitimacy of administrative lawmaking. One criticism is that agencies are “captured” by the industry they are directed to regulate. Another is that they overregulate, stifling individual initiative and the ability to compete. During the 1960s and 1970s, a massive outpouring of federal law created many new agencies and greatly strengthened the hands of existing ones. In the late 1970s during the Carter administration, Congress began to deregulate American society, and deregulation increased under the Reagan administration. But the accounting frauds of WorldCom, Enron, and others led to the Sarbanes-Oxley Act of 2002, and the financial meltdown of 2008 has led to reregulation of the financial sector. It remains to be seen whether the Deepwater Horizon oil blowout of 2010 will lead to more environmental regulations or a rethinking on how to make agencies more effective regulators.
Administrative agencies are the focal point of controversy because they are policy-making bodies, incorporating facets of legislative, executive, and judicial power in a hybrid form that fits uneasily at best in the framework of American government (see Figure 5.1 "Major Administrative Agencies of the United States"). They are necessarily at the center of tugging and hauling by the legislature, the executive branch, and the judiciary, each of which has different means of exercising political control over them. In early 1990, for example, the Bush administration approved a Food and Drug Administration regulation that limited disease-prevention claims by food packagers, reversing a position by the Reagan administration in 1987 permitting such claims.
Figure 5.1 Major Administrative Agencies of the United States
Legislative Control
Congress can always pass a law repealing a regulation that an agency promulgates. Because this is a time-consuming process that runs counter to the reason for creating administrative bodies, it happens rarely. Another approach to controlling agencies is to reduce or threaten to reduce their appropriations. By retaining ultimate control of the purse strings, Congress can exercise considerable informal control over regulatory policy.
Executive Control
The president (or a governor, for state agencies) can exercise considerable control over agencies that are part of his cabinet departments and that are not statutorily defined as independent. Federal agencies, moreover, are subject to the fiscal scrutiny of the Office of Management and Budget (OMB), subject to the direct control of the president. Agencies are not permitted to go directly to Congress for increases in budget; these requests must be submitted through the OMB, giving the president indirect leverage over the continuation of administrators’ programs and policies.
Judicial Review of Agency Actions
Administrative agencies are creatures of law and like everyone else must obey the law. The courts have jurisdiction to hear claims that the agencies have overstepped their legal authority or have acted in some unlawful manner.
Courts are unlikely to overturn administrative actions, believing in general that the agencies are better situated to judge their own jurisdiction and are experts in rulemaking for those matters delegated to them by Congress. Some agency activities are not reviewable, for a number of reasons. However, after a business (or some other interested party) has exhausted all administrative remedies, it may seek judicial review of a final agency decision. The reviewing court is often asked to strike down or modify agency actions on several possible bases (see Section 5.5.2 "Strategies for Obtaining Judicial Review" on “Strategies for Obtaining Judicial Review”).
KEY TAKEAWAY
Administrative agencies are given unusual powers: to legislate, investigate, and adjudicate. But these powers are limited by executive and legislative controls and by judicial review.
EXERCISES
1. Find the website of the Consumer Product Safety Commission (CPSC). Identify from that site a product that has been banned by the CPSC for sale in the United States. What reasons were given for its exclusion from the US market?
2. What has Congress told the CPSC to do in its enabling act? Is this a clear enough mandate to guide the agency? What could Congress do if the CPSC does something that may be outside of the scope of its powers? What can an affected business do? | textbooks/biz/Civil_Law/Book%3A_Introduction_to_Contracts_Sales_and_Product_Liability/05%3A_Administrative_Law/5.02%3A_Controlling_Administrative_Agencies.txt |
LEARNING OBJECTIVES
1. Understand why the Administrative Procedure Act was needed.
2. Understand how hearings are conducted under the act.
3. Understand how the act affects rulemaking by agencies.
In 1946, Congress enacted the Administrative Procedure Act (APA). This fundamental statute detailed for all federal administrative agencies how they must function when they are deciding cases or issuing regulations, the two basic tasks of administration. At the state level, the Model State Administrative Procedure Act, issued in 1946 and revised in 1961, has been adopted in twenty-eight states and the District of Columbia; three states have adopted the 1981 revision. The other states have statutes that resemble the model state act to some degree.
Trial-Type Hearings
Deciding cases is a major task of many agencies. For example, the Federal Trade Commission (FTC) is empowered to charge a company with having violated the Federal Trade Commission Act. Perhaps a seller is accused of making deceptive claims in its advertising. Proceeding in a manner similar to a court, staff counsel will prepare a case against the company, which can defend itself through its lawyers. The case is tried before an administrative law judge (ALJ), formerly known as an administrative hearing examiner. The change in nomenclature was made in 1972 to enhance the prestige of ALJs and more accurately reflect their duties. Although not appointed for life as federal judges are, the ALJ must be free of assignments inconsistent with the judicial function and is not subject to supervision by anyone in the agency who carries on an investigative or prosecutorial function.
The accused parties are entitled to receive notice of the issues to be raised, to present evidence, to argue, to cross-examine, and to appear with their lawyers. Ex parte (eks PAR-tay) communications—contacts between the ALJ and outsiders or one party when both parties are not present—are prohibited. However, the usual burden-of-proof standard followed in a civil proceeding in court does not apply: the ALJ is not bound to decide in favor of that party producing the more persuasive evidence. The rule in most administrative proceedings is “substantial evidence,” evidence that is not flimsy or weak, but is not necessarily overwhelming evidence, either. The ALJ in most cases will write an opinion. That opinion is not the decision of the agency, which can be made only by the commissioners or agency head. In effect, the ALJ’s opinion is appealed to the commission itself.
Certain types of agency actions that have a direct impact on individuals need not be filtered through a full-scale hearing. Safety and quality inspections (grading of food, inspection of airplanes) can be made on the spot by skilled inspectors. Certain licenses can be administered through tests without a hearing (a test for a driver’s license), and some decisions can be made by election of those affected (labor union elections).
Rulemaking
Trial-type hearings generally impose on particular parties liabilities based on past or present facts. Because these cases will serve as precedents, they are a partial guide to future conduct by others. But they do not directly apply to nonparties, who may argue in a subsequent case that their conduct does not fit within the holding announced in the case. Agencies can affect future conduct far more directly by announcing rules that apply to all who come within the agency’s jurisdiction.
The acts creating most of the major federal agencies expressly grant them authority to engage in rulemaking. This means, in essence, authority to legislate. The outpouring of federal regulations has been immense. The APA directs agencies about to engage in rulemaking to give notice in the Federal Register of their intent to do so. The Federal Register is published daily, Monday through Friday, in Washington, DC, and contains notice of various actions, including announcements of proposed rulemaking and regulations as adopted. The notice must specify the time, place, and nature of the rulemaking and offer a description of the proposed rule or the issues involved. Any interested person or organization is entitled to participate by submitting written “data, views or arguments.” Agencies are not legally required to air debate over proposed rules, though they often do so.
The procedure just described is known as “informal” rulemaking. A different procedure is required for “formal” rulemaking, defined as those instances in which the enabling legislation directs an agency to make rules “on the record after opportunity for an agency hearing.” When engaging in formal rulemaking, agencies must hold an adversary hearing.
Administrative regulations are not legally binding unless they are published. Agencies must publish in the Federal Register the text of final regulations, which ordinarily do not become effective until thirty days later. Every year the annual output of regulations is collected and reprinted in the Code of Federal Regulations (CFR), a multivolume paperback series containing all federal rules and regulations keyed to the fifty titles of the US Code (the compilation of all federal statutes enacted by Congress and grouped according to subject).
KEY TAKEAWAY
Agencies make rules that have the same effect as laws passed by Congress and the president. But such rules (regulations) must allow for full participation by interested parties. The Administrative Procedure Act (APA) governs both rulemaking and the agency enforcement of regulations, and it provides a process for fair hearings.
EXERCISES
1. Go to http://www.regulations.gov/search/Regs/home.html#home. Browse the site. Find a topic that interests you, and then find a proposed regulation. Notice how comments on the proposed rule are invited.
2. Why would there be a trial by an administrative agency? Describe the process. | textbooks/biz/Civil_Law/Book%3A_Introduction_to_Contracts_Sales_and_Product_Liability/05%3A_Administrative_Law/5.03%3A_The_Administrative_Procedure_Act.txt |
LEARNING OBJECTIVES
1. Describe the paperwork burden imposed by administrative agencies.
2. Explain why agencies have the power of investigation, and what limits there are to that power.
3. Explain the need for the Freedom of Information Act and how it works in the US legal system.
The Paperwork Burden
The administrative process is not frictionless. The interplay between government agency and private enterprise can burden business operations in a number of ways. Several of these are noted in this section.
Deciding whether and how to act are not decisions that government agencies reach out of the blue. They rely heavily on information garnered from business itself. Dozens of federal agencies require corporations to keep hundreds of types of records and to file numerous periodic reports. The Commission on Federal Paperwork, established during the Ford administration to consider ways of reducing the paperwork burden, estimated in its final report in 1977 that the total annual cost of federal paperwork amounted to \$50 billion and that the 10,000 largest business enterprises spent \$10 billion annually on paperwork alone. The paperwork involved in licensing a single nuclear power plant, the commission said, costs upward of \$15 million.
Not surprisingly, therefore, businesses have sought ways of avoiding requests for data. Since the 1940s, the Federal Trade Commission (FTC) has collected economic data on corporate performance from individual companies for statistical purposes. As long as each company engages in a single line of business, data are comparable. When the era of conglomerates began in the 1970s, with widely divergent types of businesses brought together under the roof of a single corporate parent, the data became useless for purposes of examining the competitive behavior of different industries. So the FTC ordered dozens of large companies to break out their economic information according to each line of business that they carried on. The companies resisted, but the US Court of Appeals for the District of Columbia Circuit, where much of the litigation over federal administrative action is decided, directed the companies to comply with the commission’s order, holding that the Federal Trade Commission Act clearly permits the agency to collect information for investigatory purposes.In re FTC Line of Business Report Litigation, 595 F.2d 685 (D.C. Cir. 1978).
In 1980, responding to cries that businesses, individuals, and state and local governments were being swamped by federal demands for paperwork, Congress enacted the Paperwork Reduction Act. It gives power to the federal Office of Management and Budget (OMB) to develop uniform policies for coordinating the gathering, storage, and transmission of all the millions of reports flowing in each year to the scores of federal departments and agencies requesting information. These reports include tax and Medicare forms, financial loan and job applications, questionnaires of all sorts, compliance reports, and tax and business records. The OMB was given the power also to determine whether new kinds of information are needed. In effect, any agency that wants to collect new information from outside must obtain the OMB’s approval.
Inspections
No one likes surprise inspections. A section of the Occupational Safety and Health Act of 1970 empowers agents of the Occupational Safety and Health Administration (OSHA) to search work areas for safety hazards and for violations of OSHA regulations. The act does not specify whether inspectors are required to obtain search warrants, required under the Fourth Amendment in criminal cases. For many years, the government insisted that surprise inspections are not unreasonable and that the time required to obtain a warrant would defeat the surprise element. The Supreme Court finally ruled squarely on the issue in 1978. In Marshall v. Barlow’s, Inc., the court held that no less than private individuals, businesses are entitled to refuse police demands to search the premises unless a court has issued a search warrant.Marshall v. Barlow’s, Inc., 436 US 307 (1978).
But where a certain type of business is closely regulated, surprise inspections are the norm, and no warrant is required. For example, businesses with liquor licenses that might sell to minors are subject to both overt and covert inspections (e.g., an undercover officer may “search” a liquor store by sending an underage patron to the store). Or a junkyard that specializes in automobiles and automobile parts may also be subject to surprise inspections, on the rationale that junkyards are highly likely to be active in the resale of stolen autos or stolen auto parts.New York v. Burger, 482 US 691 (1987).
It is also possible for inspections to take place without a search warrant and without the permission of the business. For example, the Environmental Protection Agency (EPA) wished to inspect parts of the Dow Chemical facility in Midland, Michigan, without the benefit of warrant. When they were refused, agents of the EPA obtained a fairly advanced aerial mapping camera and rented an airplane to fly over the Dow facility. Dow went to court for a restraining order against the EPA and a request to have the EPA turn over all photographs taken. But the Supreme Court ruled that the areas photographed were “open fields” and not subject to the protections of the Fourth Amendment.Dow Chemical Co. v. United States Environmental Protection Agency, 476 US 227 (1986).
Access to Business Information in Government Files
In 1966, Congress enacted the Freedom of Information Act (FOIA), opening up to the citizenry many of the files of the government. (The act was amended in 1974 and again in 1976 to overcome a tendency of many agencies to stall or refuse access to their files.) Under the FOIA, any person has a legally enforceable right of access to all government documents, with nine specific exceptions, such as classified military intelligence, medical files, and trade secrets and commercial or financial information if “obtained from a person and privileged or confidential.” Without the trade-secret and financial-information exemptions, business competitors could, merely by requesting it, obtain highly sensitive competitive information sitting in government files.
A federal agency is required under the FOIA to respond to a document request within ten days. But in practice, months or even years may pass before the government actually responds to an FOIA request. Requesters must also pay the cost of locating and copying the records. Moreover, not all documents are available for public inspection. Along with the trade-secret and financial-information exemptions, the FOIA specifically exempts the following:
• records required by executive order of the president to be kept secret in the interest of national defense or public policy
• records related solely to the internal personnel rules and practice of an agency
• records exempted from disclosure by another statute
• interagency memos or decisions reflecting the deliberative process
• personnel files and other files that if disclosed, would constitute an unwarranted invasion of personal privacy
• information compiled for law enforcement purposes
• geological information concerning wells
Note that the government may provide such information but is not required to provide such information; it retains discretion to provide information or not.
Regulated companies are often required to submit confidential information to the government. For these companies, submitting such information presents a danger under the FOIA of disclosure to competitors. To protect information from disclosure, the company is well advised to mark each document as privileged and confidential so that government officials reviewing it for a FOIA request will not automatically disclose it. Most agencies notify a company whose data they are about to disclose. But these practices are not legally required under the FOIA.
KEY TAKEAWAY
Government agencies, in order to do their jobs, collect a great deal of information from businesses. This can range from routine paperwork (often burdensome) to inspections, those with warrants and those without. Surprise inspections are allowed for closely regulated industries but are subject to Fourth Amendment requirements in general. Some information collected by agencies can be accessed using the Freedom of Information Act.
EXERCISES
1. Give two examples of a closely regulated industry. Explain why some warrantless searches would be allowed.
2. Find out why FOIA requests often take months or years to accomplish. | textbooks/biz/Civil_Law/Book%3A_Introduction_to_Contracts_Sales_and_Product_Liability/05%3A_Administrative_Law/5.04%3A_Administrative_Burdens_on_Business_Operations.txt |
LEARNING OBJECTIVES
1. Describe the “exhaustion of remedies” requirement.
2. Detail various strategies for obtaining judicial review of agency rules.
3. Explain under what circumstances it is possible to sue the government.
Neither an administrative agency’s adjudication nor its issuance of a regulation is necessarily final. Most federal agency decisions are appealable to the federal circuit courts. To get to court, the appellant must overcome numerous complex hurdles. He or she must have standing—that is, be in some sense directly affected by the decision or regulation. The case must be ripe for review; administrative remedies such as further appeal within the agency must have been exhausted.
Exhaustion of Administrative Remedies
Before you can complain to court about an agency’s action, you must first try to get the agency to reconsider its action. Generally, you must have asked for a hearing at the hearing examiner level, there must have been a decision reached that was unfavorable to you, and you must have appealed the decision to the full board. The full board must rule against you, and only then will you be heard by a court. The broadest exception to this exhaustion of administrative remedies requirement is if the agency had no authority to issue the rule or regulation in the first place, if exhaustion of remedies would be impractical or futile, or if great harm would happen should the rule or regulation continue to apply. Also, if the agency is not acting in good faith, the courts will hear an appeal without exhaustion.
Strategies for Obtaining Judicial Review
Once these obstacles are cleared, the court may look at one of a series of claims. The appellant might assert that the agency’s action was ultra vires (UL-truh VI-reez)—beyond the scope of its authority as set down in the statute. This attack is rarely successful. A somewhat more successful claim is that the agency did not abide by its own procedures or those imposed upon it by the Administrative Procedure Act.
In formal rulemaking, the appellant also might insist that the agency lacked substantial evidence for the determination that it made. If there is virtually no evidence to support the agency’s findings, the court may reverse. But findings of fact are not often overturned by the courts.
Likewise, there has long been a presumption that when an agency issues a regulation, it has the authority to do so: those opposing the regulation must bear a heavy burden in court to upset it. This is not a surprising rule, for otherwise courts, not administrators, would be the authors of regulations. Nevertheless, regulations cannot exceed the scope of the authority conferred by Congress on the agency. In an important 1981 case before the Supreme Court, the issue was whether the secretary of labor, acting through the Occupational Health and Safety Administration (OSHA), could lawfully issue a standard limiting exposure to cotton dust in the workplace without first undertaking a cost-benefit analysis. A dozen cotton textile manufacturers and the American Textile Manufacturers Institute, representing 175 companies, asserted that the cotton dust standard was unlawful because it did not rationally relate the benefits to be derived from the standard to the costs that the standard would impose. See Section 5.6 "Cases", American Textile Manufacturers Institute v. Donovan.
In summary, then, an individual or a company may (after exhaustion of administrative remedies) challenge agency action where such action is the following:
• not in accordance with the agency’s scope of authority
• not in accordance with the US Constitution or the Administrative Procedure Act
• not in accordance with the substantial evidence test
• unwarranted by the facts
• arbitrary, capricious, an abuse of discretion, or otherwise not in accord with the law
Section 706 of the Administrative Procedure Act sets out those standards. While it is difficult to show that an agency’s action is arbitrary and capricious, there are cases that have so held. For example, after the Reagan administration set aside a Carter administration rule from the National Highway Traffic and Safety Administration on passive restraints in automobiles, State Farm and other insurance companies challenged the reversal as arbitrary and capricious. Examining the record, the Supreme Court found that the agency had failed to state enough reasons for its reversal and required the agency to review the record and the rule and provide adequate reasons for its reversal. State Farm and other insurance companies thus gained a legal benefit by keeping an agency rule that placed costs on automakers for increased passenger safety and potentially reducing the number of injury claims from those it had insured.Motor Vehicle Manufacturers’ Assn. v. State Farm Mutual Ins., 463 US 29 (1983).
Suing the Government
In the modern administrative state, the range of government activity is immense, and administrative agencies frequently get in the way of business enterprise. Often, bureaucratic involvement is wholly legitimate, compelled by law; sometimes, however, agencies or government officials may overstep their bounds, in a fit of zeal or spite. What recourse does the private individual or company have?
Mainly for historical reasons, it has always been more difficult to sue the government than to sue private individuals or corporations. For one thing, the government has long had recourse to the doctrine of sovereign immunity as a shield against lawsuits. Yet in 1976, Congress amended the Administrative Procedure Act to waive any federal claim to sovereign immunity in cases of injunctive or other nonmonetary relief. Earlier, in 1946, in the Federal Tort Claims Act, Congress had waived sovereign immunity of the federal government for most tort claims for money damages, although the act contains several exceptions for specific agencies (e.g., one cannot sue for injuries resulting from fiscal operations of the Treasury Department or for injuries stemming from activities of the military in wartime). The act also contains a major exception for claims “based upon [an official’s] exercise or performance or the failure to exercise or perform a discretionary function or duty.” This exception prevents suits against parole boards for paroling dangerous criminals who then kill or maim in the course of another crime and suits against officials whose decision to ship explosive materials by public carrier leads to mass deaths and injuries following an explosion en route.Dalehite v. United States, 346 US 15 (1953).
In recent years, the Supreme Court has been stripping away the traditional immunity enjoyed by many government officials against personal suits. Some government employees—judges, prosecutors, legislators, and the president, for example—have absolute immunity against suit for official actions. But many public administrators and government employees have at best a qualified immunity. Under a provision of the Civil Rights Act of 1871 (so-called Section 1983 actions), state officials can be sued in federal court for money damages whenever “under color of any state law” they deprive anyone of his rights under the Constitution or federal law. In Bivens v. Six Unknown Federal Narcotics Agents, the Supreme Court held that federal agents may be sued for violating the plaintiff’s Fourth Amendment rights against an unlawful search of his home.Bivens v. Six Unknown Federal Narcotics Agents, 403 US 388 (1971). Subsequent cases have followed this logic to permit suits for violations of other constitutional provisions. This area of the law is in a state of flux, and it is likely to continue to evolve.
Sometimes damage is done to an individual or business because the government has given out erroneous information. For example, suppose that Charles, a bewildered, disabled navy employee, is receiving a federal disability annuity. Under the regulations, he would lose his pension if he took a job that paid him in each of two succeeding years more than 80 percent of what he earned in his old navy job. A few years later, Congress changed the law, making him ineligible if he earned more than 80 percent in anyone year. For many years, Charles earned considerably less than the ceiling amount. But then one year he got the opportunity to make some extra money. Not wishing to lose his pension, he called an employee relations specialist in the US Navy and asked how much he could earn and still keep his pension. The specialist gave him erroneous information over the telephone and then sent him an out-of-date form that said Charles could safely take on the extra work. Unfortunately, as it turned out, Charles did exceed the salary limit, and so the government cut off his pension during the time he earned too much. Charles sues to recover his lost pension. He argues that he relied to his detriment on false information supplied by the navy and that in fairness the government should be estopped from denying his claim.
Unfortunately for Charles, he will lose his case. In Office of Personnel Management v. Richmond, the Supreme Court reasoned that it would be unconstitutional to permit recovery.Office of Personnel Management v. Richmond, 110 S. Ct. 2465 (1990). The appropriations clause of Article I says that federal money can be paid out only through an appropriation made by law. The law prevented this particular payment to be made. If the court were to make an exception, it would permit executive officials in effect to make binding payments, even though unauthorized, simply by misrepresenting the facts. The harsh reality, therefore, is that mistakes of the government are generally held against the individual, not the government, unless the law specifically provides for recompense (as, for example, in the Federal Tort Claims Act just discussed).
KEY TAKEAWAY
After exhausting administrative remedies, there are numerous grounds for seeking judicial review of an agency’s order or of a final rule. While courts defer to agencies to some degree, an agency must follow its own rules, comply with the Administrative Procedure Act, act within the scope of its delegated authority, avoid acting in an arbitrary manner, and make final rules that are supported by substantial evidence.
EXERCISES
1. Why would US courts require that someone seeking judicial review of an agency order first exhaust administrative remedies?
2. On the Internet, find a case where someone has successfully sued the US government under the Federal Tort Claims Act. What kind of case was it? Did the government argue sovereign immunity? Does sovereign immunity even make sense to you? | textbooks/biz/Civil_Law/Book%3A_Introduction_to_Contracts_Sales_and_Product_Liability/05%3A_Administrative_Law/5.05%3A_The_Scope_of_Judicial_Review.txt |
Marshall v. Barlow’s, Inc.
Marshall v. Barlow’s, Inc.
436 U.S. 307 (U.S. Supreme Court 1978)
MR. JUSTICE WHITE delivered the opinion of the Court.
Section 8(a) of the Occupational Safety and Health Act of 1970 (OSHA or Act) empowers agents of the Secretary of Labor (Secretary) to search the work area of any employment facility within the Act’s jurisdiction. The purpose of the search is to inspect for safety hazards and violations of OSHA regulations. No search warrant or other process is expressly required under the Act.
On the morning of September 11, 1975, an OSHA inspector entered the customer service area of Barlow’s, Inc., an electrical and plumbing installation business located in Pocatello, Idaho. The president and general manager, Ferrol G. “Bill” Barlow, was on hand; and the OSHA inspector, after showing his credentials, informed Mr. Barlow that he wished to conduct a search of the working areas of the business. Mr. Barlow inquired whether any complaint had been received about his company. The inspector answered no, but that Barlow’s, Inc., had simply turned up in the agency’s selection process. The inspector again asked to enter the nonpublic area of the business; Mr. Barlow’s response was to inquire whether the inspector had a search warrant.
The inspector had none. Thereupon, Mr. Barlow refused the inspector admission to the employee area of his business. He said he was relying on his rights as guaranteed by the Fourth Amendment of the United States Constitution.
Three months later, the Secretary petitioned the United States District Court for the District of Idaho to issue an order compelling Mr. Barlow to admit the inspector. The requested order was issued on December 30, 1975, and was presented to Mr. Barlow on January 5, 1976. Mr. Barlow again refused admission, and he sought his own injunctive relief against the warrantless searches assertedly permitted by OSHA.…The Warrant Clause of the Fourth Amendment protects commercial buildings as well as private homes. To hold otherwise would belie the origin of that Amendment, and the American colonial experience.
An important forerunner of the first 10 Amendments to the United States Constitution, the Virginia Bill of Rights, specifically opposed “general warrants, whereby an officer or messenger may be commanded to search suspected places without evidence of a fact committed.” The general warrant was a recurring point of contention in the Colonies immediately preceding the Revolution. The particular offensiveness it engendered was acutely felt by the merchants and businessmen whose premises and products were inspected for compliance with the several parliamentary revenue measures that most irritated the colonists.…
* * *
This Court has already held that warrantless searches are generally unreasonable, and that this rule applies to commercial premises as well as homes. In Camara v. Municipal Court, we held:
[E]xcept in certain carefully defined classes of cases, a search of private property without proper consent is ‘unreasonable’ unless it has been authorized by a valid search warrant.
On the same day, we also ruled: As we explained in Camara, a search of private houses is presumptively unreasonable if conducted without a warrant. The businessman, like the occupant of a residence, has a constitutional right to go about his business free from unreasonable official entries upon his private commercial property. The businessman, too, has that right placed in jeopardy if the decision to enter and inspect for violation of regulatory laws can be made and enforced by the inspector in the field without official authority evidenced by a warrant. These same cases also held that the Fourth Amendment prohibition against unreasonable searches protects against warrantless intrusions during civil as well as criminal investigations. The reason is found in the “basic purpose of this Amendment…[which] is to safeguard the privacy and security of individuals against arbitrary invasions by governmental officials.” If the government intrudes on a person’s property, the privacy interest suffers whether the government’s motivation is to investigate violations of criminal laws or breaches of other statutory or regulatory standards.…
[A]n exception from the search warrant requirement has been recognized for “pervasively regulated business[es],” United States v. Biswell, 406 U.S. 311, 316 (1972), and for “closely regulated” industries “long subject to close supervision and inspection,” Colonnade Catering Corp. v. United States, 397 U.S. 72, 74, 77 (1970). These cases are indeed exceptions, but they represent responses to relatively unique circumstances. Certain industries have such a history of government oversight that no reasonable expectation of privacy could exist for a proprietor over the stock of such an enterprise. Liquor (Colonnade) and firearms (Biswell) are industries of this type when an entrepreneur embarks upon such a business, he has voluntarily chosen to subject himself to a full arsenal of governmental regulation.
* * *
The clear import of our cases is that the closely regulated industry of the type involved in Colonnade and Biswell is the exception. The Secretary would make it the rule. Invoking the Walsh-Healey Act of 1936, 41 U.S.C. § 35 et seq., the Secretary attempts to support a conclusion that all businesses involved in interstate commerce have long been subjected to close supervision of employee safety and health conditions. But…it is quite unconvincing to argue that the imposition of minimum wages and maximum hours on employers who contracted with the Government under the Walsh-Healey Act prepared the entirety of American interstate commerce for regulation of working conditions to the minutest detail. Nor can any but the most fictional sense of voluntary consent to later searches be found in the single fact that one conducts a business affecting interstate commerce. Under current practice and law, few businesses can be conducted without having some effect on interstate commerce.
* * *
The critical fact in this case is that entry over Mr. Barlow’s objection is being sought by a Government agent. Employees are not being prohibited from reporting OSHA violations. What they observe in their daily functions is undoubtedly beyond the employer’s reasonable expectation of privacy. The Government inspector, however, is not an employee. Without a warrant he stands in no better position than a member of the public. What is observable by the public is observable, without a warrant, by the Government inspector as well. The owner of a business has not, by the necessary utilization of employees in his operation, thrown open the areas where employees alone are permitted to the warrantless scrutiny of Government agents. That an employee is free to report, and the Government is free to use, any evidence of noncompliance with OSHA that the employee observes furnishes no justification for federal agents to enter a place of business from which the public is restricted and to conduct their own warrantless search.
* * *
[The District Court judgment is affirmed.]
CASE QUESTIONS
1. State, as briefly and clearly as possible, the argument that Barlow’s is making in this case.
2. Why would some industries or businesses be “closely regulated”? What are some of those businesses?
3. The Fourth Amendment speaks of “people” being secure in their “persons, houses, papers, and effects.” Why would the Fourth Amendment apply to a business, which is not in a “house”?
4. If the Fourth Amendment does not distinguish between closely regulated industries and those that are not, why does the court do so?
American Textile Manufacturers Institute v. Donovan
American Textile Manufacturers Institute v. Donovan
452 U.S. 490 (1981)
JUSTICE BRENNAN delivered the opinion of the Court.
Congress enacted the Occupational Safety and Health Act of 1970 (Act) “to assure so far as possible every working man and woman in the Nation safe and healthful working conditions.…“The Act authorizes the Secretary of Labor to establish, after notice and opportunity to comment, mandatory nationwide standards governing health and safety in the workplace. In 1978, the Secretary, acting through the Occupational Safety and Health Administration (OSHA), promulgated a standard limiting occupational exposure to cotton dust, an airborne particle byproduct of the preparation and manufacture of cotton products, exposure to which produces a “constellation of respiratory effects” known as “byssinosis.” This disease was one of the expressly recognized health hazards that led to passage of the Act.
Petitioners in these consolidated cases representing the interests of the cotton industry, challenged the validity of the “Cotton Dust Standard” in the Court of Appeals for the District of Columbia Circuit pursuant to § 6 (f) of the Act, 29 U.S.C. § 655 (f). They contend in this Court, as they did below, that the Act requires OSHA to demonstrate that its Standard reflects a reasonable relationship between the costs and benefits associated with the Standard. Respondents, the Secretary of Labor and two labor organizations, counter that Congress balanced the costs and benefits in the Act itself, and that the Act should therefore be construed not to require OSHA to do so. They interpret the Act as mandating that OSHA enact the most protective standard possible to eliminate a significant risk of material health impairment, subject to the constraints of economic and technological feasibility.
The Court of Appeals held that the Act did not require OSHA to compare costs and benefits.
We granted certiorari, 449 U.S. 817 (1980), to resolve this important question, which was presented but not decided in last Term’s Industrial Union Dept. v. American Petroleum Institute, 448 U.S. 607 (1980), and to decide other issues related to the Cotton Dust Standard.
* * *
Not until the early 1960’s was byssinosis recognized in the United States as a distinct occupational hazard associated with cotton mills. In 1966, the American Conference of Governmental Industrial Hygienists (ACGIH), a private organization, recommended that exposure to total cotton dust be limited to a “threshold limit value” of 1,000 micrograms per cubic meter of air (1,000 g/m3.) averaged over an 8-hour workday. See 43 Fed. Reg. 27351, col. 1 (1978). The United States Government first regulated exposure to cotton dust in 1968, when the Secretary of Labor, pursuant to the Walsh-Healey Act, 41 U.S.C. 35 (e), promulgated airborne contaminant threshold limit values, applicable to public contractors, that included the 1,000 g/m3 limit for total cotton dust. 34 Fed. Reg. 7953 (1969). Following passage of the Act in 1970, the 1,000 g/m3. standard was adopted as an “established Federal standard” under 6 (a) of the Act, 84 Stat. 1593, 29 U.S.C. 655 (a), a provision designed to guarantee immediate protection of workers for the period between enactment of the statute and promulgation of permanent standards.
That same year, the Director of the National Institute for Occupational Safety and Health (NIOSH), pursuant to the Act, 29 U.S.C. §§ 669(a)(3), 671 (d)(2), submitted to the Secretary of Labor a recommendation for a cotton dust standard with a permissible exposure limit (PEL) that “should be set at the lowest level feasible, but in no case at an environmental concentration as high as 0.2 mg lint-free cotton dust/cu m,” or 200 g/m3. of lint-free respirable dust. Several months later, OSHA published an Advance Notice of Proposed Rulemaking, 39 Fed.Reg. 44769 (1974), requesting comments from interested parties on the NIOSH recommendation and other related matters. Soon thereafter, the Textile Worker’s Union of America, joined by the North Carolina Public Interest Research Group, petitioned the Secretary, urging a more stringent PEL of 100 g/m3.
On December 28, 1976, OSHA published a proposal to replace the existing federal standard on cotton dust with a new permanent standard, pursuant to § 6(b)(5) of the Act, 29 U.S.C. § 655(b)(5). 41 Fed.Reg. 56498. The proposed standard contained a PEL of 200 g/m3 of vertical elutriated lint-free respirable cotton dust for all segments of the cotton industry. Ibid. It also suggested an implementation strategy for achieving the PEL that relied on respirators for the short term and engineering controls for the long-term. OSHA invited interested parties to submit written comments within a 90-day period.
* * *
The starting point of our analysis is the language of the statute itself. Section 6(b)(5) of the Act, 29 U.S.C. § 655(b)(5) (emphasis added), provides:
The Secretary, in promulgating standards dealing with toxic materials or harmful physical agents under this subsection, shall set the standard which most adequately assures, to the extent feasible, on the basis of the best available evidence, that no employee will suffer material impairment of health or functional capacity even if such employee has regular exposure to the hazard dealt with by such standard for the period of his working life. Although their interpretations differ, all parties agree that the phrase “to the extent feasible” contains the critical language in § 6(b)(5) for purposes of these cases.
The plain meaning of the word “feasible” supports respondents’ interpretation of the statute. According to Webster’s Third New International Dictionary of the English Language 831 (1976), “feasible” means “capable of being done, executed, or effected.” In accord, the Oxford English Dictionary 116 (1933) (“Capable of being done, accomplished or carried out”); Funk & Wagnalls New “Standard” Dictionary of the English Language 903 (1957) (“That may be done, performed or effected”). Thus, § 6(b)(5) directs the Secretary to issue the standard that “most adequately assures…that no employee will suffer material impairment of health,” limited only by the extent to which this is “capable of being done.” In effect then, as the Court of Appeals held, Congress itself defined the basic relationship between costs and benefits, by placing the “benefit” of worker health above all other considerations save those making attainment of this “benefit” unachievable. Any standard based on a balancing of costs and benefits by the Secretary that strikes a different balance than that struck by Congress would be inconsistent with the command set forth in § 6(b)(5). Thus, cost-benefit analysis by OSHA is not required by the statute because feasibility analysis is.
When Congress has intended that an agency engage in cost-benefit analysis, it has clearly indicated such intent on the face of the statute. One early example is the Flood Control Act of 1936, 33 U.S.C. § 701:
[T]he Federal Government should improve or participate in the improvement of navigable waters or their tributaries, including watersheds thereof, for flood control purposes if the benefits to whomsoever they may accrue are in excess of the estimated costs, and if the lives and social security of people are otherwise adversely affected. (emphasis added)
A more recent example is the Outer Continental Shelf Lands Act Amendments of 1978, providing that offshore drilling operations shall use the best available and safest technologies which the Secretary determines to be economically feasible, wherever failure of equipment would have a significant effect on safety, health, or the environment, except where the Secretary determines that the incremental benefits are clearly insufficient to justify the incremental costs of using such technologies.
These and other statutes demonstrate that Congress uses specific language when intending that an agency engage in cost-benefit analysis. Certainly in light of its ordinary meaning, the word “feasible” cannot be construed to articulate such congressional intent. We therefore reject the argument that Congress required cost-benefit analysis in § 6(b)(5).
CASE QUESTIONS
1. What is byssinosis? Why should byssinosis be anything that the textile companies are responsible for, ethically or legally? If it is well-known that textile workers get cotton dust in their systems and develop brown lung, don’t they nevertheless choose to work there and assume the risk of all injuries?
2. By imposing costs on the textile industry, what will be the net effect on US textile manufacturing jobs?
3. How is byssinosis a “negative externality” that is not paid for by either the manufacturer or the consumer of textile products? How should the market, to be fair and efficient, adjust for these negative externalities other than by setting a reasonable standard that shares the burden between manufacturers and their employees? Should all the burden be on the manufacturer? | textbooks/biz/Civil_Law/Book%3A_Introduction_to_Contracts_Sales_and_Product_Liability/05%3A_Administrative_Law/5.06%3A_Cases.txt |
Summary
Administrative rules and regulations constitute the largest body of laws that directly affect business. These regulations are issued by dozens of federal and state agencies that regulate virtually every aspect of modern business life, including the natural environment, corporate finance, transportation, telecommunications, energy, labor relations, and trade practices. The administrative agencies derive their power to promulgate regulations from statutes passed by Congress or state legislatures.
The agencies have a variety of powers. They can license companies to carry on certain activities or prohibit them from doing so, lay down codes of conduct, set rates that companies may charge for their services, and supervise various aspects of business.
EXERCISES
1. The Equal Employment Opportunity Commission seeks data about the racial composition of Terrific Textiles’ labor force. Terrific refuses on the grounds that inadvertent disclosure of the numbers might cause certain “elements” to picket its factories. The EEOC takes Terrific to court to get the data. What is the result?
2. In order to police the profession, the state legislature has just passed a law permitting the State Plumbers’ Association the power to hold hearings to determine whether a particular plumber has violated the plumbing code of ethics, written by the association. Sam, a plumber, objects to the convening of a hearing when he is accused by Roger, a fellow plumber, of acting unethically by soliciting business from Roger’s customers. Sam goes to court, seeking to enjoin the association’s disciplinary committee from holding the hearing. What is the result? How would you argue Sam’s case? The association’s case?
3. Assume that the new president of the United States was elected overwhelmingly by pledging in his campaign to “do away with bureaucrats who interfere in your lives.” The day he takes the oath of office he determines to carry out his pledge. Discuss which of the following courses he may lawfully follow: (a) Fire all incumbent commissioners of federal agencies in order to install new appointees. (b) Demand that all pending regulations being considered by federal agencies be submitted to the White House for review and redrafting, if necessary. (c) Interview potential nominees for agency positions to determine whether their regulatory philosophy is consistent with his.
4. Dewey owned a mine in Wisconsin. He refused to allow Department of Labor agents into the mine to conduct warrantless searches to determine whether previously found safety violations had been corrected. The Federal Mine Safety and Health Amendments Act of 1977 authorizes four warrantless inspections per year. Is the provision for warrantless inspections by this agency constitutional?Donovan v. Dewey, 452 US 594 (1981).
5. In determining the licensing requirements for nuclear reactors, the Nuclear Regulatory Commission (NRC) adopted a zero-release assumption: that the permanent storage of certain nuclear waste would have no significant environmental impact and that potential storage leakages should not be a factor discussed in the appropriate environmental impact statement (EIS) required before permitting construction of a nuclear power plant. This assumption is based on the NRC’s belief that technology would be developed to isolate the wastes from the environment, and it was clear from the record that the NRC had “digested a massive material and disclosed all substantial risks” and had considered that the zero-release assumption was uncertain. There was a remote possibility of contamination by water leakage into the storage facility. An environmental NGO sued, asserting that the NRC had violated the regulations governing the EIS by arbitrarily and capriciously ignoring the potential contamination. The court of appeals agreed, and the power plant appealed. Had the NRC acted arbitrarily and capriciously?Baltimore Gas and Electric Co. v. Natural Resources Defense Council Inc., 462 US 87 (1983).
SELF-TEST QUESTIONS
1. Most federal administrative agencies are created by
1. an executive order by the president
2. a Supreme Court decision
3. the passage of enabling legislation by Congress, signed by the president
4. a and c
2. The Federal Trade Commission, like most administrative agencies of the federal government, is part of
1. the executive branch of government
2. the legislative branch of government
3. the judicial branch of government
4. the administrative branch of government
3. In the Clean Water Act, Congress sets broad guidelines, but it is the Environmental Protection Agency that proposes rules to regulate industrial discharges. Where do proposed rules originally appear?
1. in the Congressional record
2. in the Federal Register
3. in the Code of Federal Regulations
4. in the United States code service
4. The legal basis for all administrative law, including regulations of the Federal Trade Commission, is found in
1. the Administrative Procedure Act
2. the US Constitution
3. the commerce clause
4. none of the above
5. The Federal Trade Commission, like other administrative agencies, has the power to
1. issue proposed rules
2. undertake investigations of firms that may have violated FTC regulations
3. prosecute firms that have violated FTC regulations
4. none of the above
5. all of the above
1. c
2. a
3. b
4. b
5. e | textbooks/biz/Civil_Law/Book%3A_Introduction_to_Contracts_Sales_and_Product_Liability/05%3A_Administrative_Law/5.07%3A_Summary_and_Exercises.txt |
Learning Objectives
After reading this chapter, you should be able to do the following:
1. Explain how criminal law differs from civil law.
2. Categorize the various types of crimes and define the most serious felonies.
3. Discuss and question the criminal “intent” of a corporation.
4. Explain basic criminal procedure and the rights of criminal defendants.
At times, unethical behavior by businesspeople can be extreme enough that society will respond by criminalizing certain kinds of activities. Ponzi schemes, arson, various kinds of fraud, embezzlement, racketeering, foreign corrupt practices, tax evasion, and insider trading are just a few. A corporation can face large fines, and corporate managers can face both fines and jail sentences for violating criminal laws. This chapter aims to explain how criminal law differs from civil law, to discuss various types of crimes, and to relate the basic principles of criminal procedure.
06: Criminal Law
Criminal law is the most ancient branch of the law. Many wise observers have tried to define and explain it, but the explanations often include many complex and subtle distinctions. A traditional criminal law course would include a lot of discussions on criminal intent, the nature of criminal versus civil responsibility, and the constitutional rights accorded the accused. But in this chapter, we will consider only the most basic aspects of intent, responsibility, and constitutional rights.
Unlike civil actions, where plaintiffs seek compensation or other remedies for themselves, crimes involve “the state” (the federal government, a state government, or some subunit of state government). This is because crimes involve some “harm to society” and not just harm to certain individuals. But “harm to society” is not always evident in the act itself. For example, two friends of yours at a party argue, take the argument outside, and blows are struck; one has a bloody nose and immediately goes home. The crimes of assault and battery have been committed, even though no one else knows about the fight and the friends later make up. By contrast, suppose a major corporation publicly announces that it is closing operations in your community and moving operations to Southeast Asia. There is plenty of harm to society as the plant closes down and no new jobs take the place of the company’s jobs. Although the effects on society are greater in the second example, only the first example is a crime.
Crimes are generally defined by legislatures, in statutes; the statutes describe in general terms the nature of the conduct they wish to criminalize. For government punishment to be fair, citizens must have clear notice of what is criminally prohibited. Ex post facto laws—laws created “after the fact” to punish an act that was legal at the time—are expressly prohibited by the US Constitution. Overly vague statutes can also be struck down by courts under a constitutional doctrine known as “void for vagueness.”
What is considered a crime will also vary from society to society and from time to time. For example, while cocaine use was legal in the United States at one time, it is now a controlled substance, and unauthorized use is now a crime. Medical marijuana was not legal fifty years ago when its use began to become widespread, and in some states its use or possession was a felony. Now, some states make it legal to use or possess it under some circumstances. In the United States, you can criticize and make jokes about the president of the United States without committing a crime, but in many countries it is a serious criminal act to criticize a public official.
Attitudes about appropriate punishment for crimes will also vary considerably from nation to nation. Uganda has decreed long prison sentences for homosexuals and death to repeat offenders. In Saudi Arabia, the government has proposed to deliberately paralyze a criminal defendant who criminally assaulted someone and unintentionally caused the victim’s paralysis. Limits on punishment are set in the United States through the Constitution’s prohibition on “cruel or unusual punishments.”
It is often said that ignorance of the law is no excuse. But there are far too many criminal laws for anyone to know them all. Also, because most people do not actually read statutes, the question of “criminal intent” comes up right away: if you don’t know that the legislature has made driving without a seat belt fastened a misdemeanor, you cannot have intended to harm society. You might even argue that there is no harm to anyone but yourself!
The usual answer to this is that the phrase “ignorance of the law is no excuse” means that society (through its elected representatives) gets to decide what is harmful to society, not you. Still, you may ask, “Isn’t it my choice whether to take the risk of failing to wear a seat belt? Isn’t this a victimless crime? Where is the harm to society?” A policymaker or social scientist may answer that your injuries, statistically, are generally going to be far greater if you don’t wear one and that your choice may actually impose costs on society. For example, you might not have enough insurance, so that a public hospital will have to take care of your head injuries, injuries that would likely have been avoided by your use of a seat belt.
But, as just noted, it is hard to know the meaning of some criminal laws. Teenagers hanging around the sidewalks on Main Street were sometimes arrested for “loitering.” The constitutional void-for-vagueness doctrine has led the courts to overturn statutes that are not clear. For example, “vagrancy” was long held to be a crime, but US courts began some forty years ago to overturn vagrancy and “suspicious person” statutes on the grounds that they are too vague for people to know what they are being asked not to do.
This requirement that criminal statutes not be vague does not mean that the law always defines crimes in ways that can be easily and clearly understood. Many statutes use terminology developed by the common-law courts. For example, a California statute defines murder as “the unlawful killing of a human being, with malice aforethought.” If no history backed up these words, they would be unconstitutionally vague. But there is a rich history of judicial decisions that provides meaning for much of the arcane language like “malice aforethought” strewn about in the statute books.
Because a crime is an act that the legislature has defined as socially harmful, the parties involved cannot agree among themselves to forget a particular incident, such as a barroom brawl, if the authorities decide to prosecute. This is one of the critical distinctions between criminal and civil law. An assault is both a crime and a tort. The person who was assaulted may choose to forgive his assailant and not to sue him for damages. But he cannot stop the prosecutor from bringing an indictment against the assailant. (However, because of crowded dockets, a victim that declines to press charges may cause a busy prosecutor to choose to not to bring an indictment.)
A crime consists of an act defined as criminal—an actus reus—and the requisite “criminal intent.” Someone who has a burning desire to kill a rival in business or romance and who may actually intend to murder but does not act on his desire has not committed a crime. He may have a “guilty mind”—the translation of the Latin phrase mens rea—but he is guilty of no crime. A person who is forced to commit a crime at gunpoint is not guilty of a crime, because although there was an act defined as criminal—an actus reus—there was no criminal intent.
KEY TAKEAWAY
Crimes are usually defined by statute and constitute an offense against society. In each case, there must be both an act and some mens rea (criminal intent).
EXERCISES
1. Other than deterring certain kinds of conduct, what purpose does the criminal law serve?
2. Why is ignorance of the law no excuse? Why shouldn’t it be an excuse, when criminal laws can be complicated and sometimes ambiguous? | textbooks/biz/Civil_Law/Book%3A_Introduction_to_Contracts_Sales_and_Product_Liability/06%3A_Criminal_Law/6.01%3A_The_Nature_of_Criminal_Law.txt |
LEARNING OBJECTIVES
1. Categorize various types of crimes.
2. Name and define the major felonies in criminal law.
3. Explain how white-collar crime differs from other crimes.
4. Define a variety of white-collar crimes.
Most classifications of crime turn on the seriousness of the act. In general, seriousness is defined by the nature or duration of the punishment set out in the statute. A felony is a crime punishable (usually) by imprisonment of more than one year or by death. (Crimes punishable by death are sometimes known as capital crimes; they are increasingly rare in the United States.) The major felonies include murder, rape, kidnapping, armed robbery, embezzlement, insider trading, fraud, and racketeering. All other crimes are usually known as misdemeanors, petty offenses, or infractions. Another way of viewing crimes is by the type of social harm the statute is intended to prevent or deter, such as offenses against the person, offenses against property, and white-collar crime.
Homicide
Homicide is the killing of one person by another. Not every killing is criminal. When the law permits one person to kill another—for example, a soldier killing an enemy on the battlefield during war, or a killing in self-defense—the death is considered the result of justifiable homicide. An excusable homicide, by contrast, is one in which death results from an accident in which the killer is not at fault.
All other homicides are criminal. The most severely punished form is murder, defined as homicide committed with “malice aforethought.” This is a term with a very long history. Boiled down to its essentials, it means that the defendant had the intent to kill. A killing need not be premeditated for any long period of time; the premeditation might be quite sudden, as in a bar fight that escalates in that moment when one of the fighters reaches for a knife with the intent to kill.
Sometimes a homicide can be murder even if there is no intent to kill; an intent to inflict great bodily harm can be murder if the result is the death of another person. A killing that takes place while a felony (such as armed robbery) is being committed is also murder, whether or not the killer intended any harm. This is the so-called felony murder rule. Examples are the accidental discharge of a gun that kills an innocent bystander or the asphyxiation death of a fireman from smoke resulting from a fire set by an arsonist. The felony murder rule is more significant than it sounds, because it also applies to the accomplices of one who does the killing. Thus the driver of a getaway car stationed a block away from the scene of the robbery can be convicted of murder if a gun accidentally fires during the robbery and someone is killed. Manslaughter is an act of killing that does not amount to murder. Voluntary manslaughter is an intentional killing, but one carried out in the “sudden heat of passion” as the result of some provocation. An example is a fight that gets out of hand. Involuntary manslaughter entails a lesser degree of willfulness; it usually occurs when someone has taken a reckless action that results in death (e.g., a death resulting from a traffic accident in which one driver recklessly runs a red light).
Assault and Battery
Ordinarily, we would say that a person who has struck another has “assaulted” him. Technically, that is a battery—the unlawful application of force to another person. The force need not be violent. Indeed, a man who kisses a woman is guilty of a battery if he does it against her will. The other person may consent to the force. That is one reason why surgeons require patients to sign consent forms, giving the doctor permission to operate. In the absence of such a consent, an operation is a battery. That is also why football players are not constantly being charged with battery. Those who agree to play football agree to submit to the rules of the game, which of course include the right to tackle. But the consent does not apply to all acts of physical force: a hockey player who hits an opponent over the head with his stick can be prosecuted for the crime of battery.
Criminal assault is an attempt to commit a battery or the deliberate placing of another in fear of receiving an immediate battery. If you throw a rock at a friend, but he manages to dodge it, you have committed an assault. Some states limit an assault to an attempt to commit a battery by one who has a “present ability” to do so. Pointing an unloaded gun and threatening to shoot would not be an assault, nor, of course, could it be a battery. The modem tendency, however, is to define an assault as an attempt to commit a battery by one with an apparent ability to do so.
Assault and battery may be excused. For example, a bar owner (or her agent, the bouncer) may use reasonable force to remove an unruly patron. If the use of force is excessive, the bouncer can be found guilty of assault and battery, and a civil action could arise against the bar owner as well.
Theft: Larceny, Robbery, Embezzlement, False Pretenses
The concept of theft is familiar enough. Less familiar is the way the law has treated various aspects of the act of stealing. Criminal law distinguishes among many different crimes that are popularly known as theft. Many technical words have entered the language—burglary, larceny, robbery—but are often used inaccurately. Brief definitions of the more common terms are discussed here.
The basic crime of stealing personal property is larceny. By its old common-law definition, still in use today, larceny is the wrongful “taking and carrying away of the personal property of another with intent to steal the same.”
The separate elements of this offense have given rise to all kinds of difficult cases. Take the theft of fruit, for example, with regard to the essential element of “personal property.” If a man walking through an orchard plucks a peach from a tree and eats it, he is not guilty of larceny because he has not taken away personal property (the peach is part of the land, being connected to the tree). But if he picks up a peach lying on the ground, he is guilty of larceny. Or consider the element of “taking” or “carrying away.” Sneaking into a movie theater without paying is not an act of larceny (though in most states it is a criminal act). Taking electricity by tapping into the power lines of an electric utility was something that baffled judges late in the nineteenth century because it was not clear whether electricity is a “something” that can be taken. Modern statutes have tended to make clear that electricity can be the object of larceny. Or consider the element of an “intent to steal the same.” If you borrow your friend’s BMW without his permission in order to go to the grocery store, intending to return it within a few minutes and then do return it, you have not committed larceny. But if you meet another friend at the store who convinces you to take a long joyride with the car and you return hours later, you may have committed larceny.
A particular form of larceny is robbery, which is defined as larceny from a person by means of violence or intimidation.
Larceny involves the taking of property from the possession of another. Suppose that a person legitimately comes to possess the property of another and wrongfully appropriates it—for example, an automobile mechanic entrusted with your car refuses to return it, or a bank teller who is entitled to temporary possession of cash in his drawer takes it home with him. The common law had trouble with such cases because the thief in these cases already had possession; his crime was in assuming ownership. Today, such wrongful conversion, known as embezzlement, has been made a statutory offense in all states.
Statutes against larceny and embezzlement did not cover all the gaps in the law. A conceptual problem arises in the case of one who is tricked into giving up his title to property. In larceny and embezzlement, the thief gains possession or ownership without any consent of the owner or custodian of the property. Suppose, however, that an automobile dealer agrees to take his customer’s present car as a trade-in. The customer says that he has full title to the car. In fact, the customer is still paying off an installment loan and the finance company has an interest in the old car. If the finance company repossesses the car, the customer—who got a new car at a discount because of his false representation—cannot be said to have taken the new car by larceny or embezzlement. Nevertheless, he tricked the dealer into selling, and the dealer will have lost the value of the repossessed car. Obviously, the customer is guilty of a criminal act; the statutes outlawing it refer to this trickery as the crime of false pretenses, defined as obtaining ownership of the property of another by making untrue representations of fact with intent to defraud.
A number of problems have arisen in the judicial interpretation of false-pretense statutes. One concerns whether the taking is permanent or only temporary. The case of State v. Mills (Section 6.7 "Cases") shows the subtle questions that can be presented and the dangers inherent in committing “a little fraud.”
In the Mills case, the claim was that a mortgage instrument dealing with one parcel of land was used instead for another. This is a false representation of fact. Suppose, by contrast, that a person misrepresents his state of mind: “I will pay you back tomorrow,” he says, knowing full well that he does not intend to. Can such a misrepresentation amount to false pretenses punishable as a criminal offense? In most jurisdictions it cannot. A false-pretense violation relates to a past event or existing fact, not to a statement of intention. If it were otherwise, anyone failing to pay a debt might find himself facing criminal prosecution, and business would be less prone to take risks.
The problem of proving intent is especially difficult when a person has availed himself of the services of another without paying. A common example is someone leaving a restaurant without paying for the meal. In most states, this is specifically defined in the statutes as theft of services.
Receiving Stolen Property
One who engages in receiving stolen property with knowledge that it is stolen is guilty of a felony or misdemeanor, depending on the value of the property. The receipt need not be personal; if the property is delivered to a place under the control of the receiver, then he is deemed to have received it. “Knowledge” is construed broadly: not merely actual knowledge, but (correct) belief and suspicion (strong enough not to investigate for fear that the property will turn out to have been stolen) are sufficient for conviction.
Forgery
Forgery is false writing of a document of legal significance (or apparent legal significance!) with intent to defraud. It includes the making up of a false document or the alteration of an existing one. The writing need not be done by hand but can be by any means—typing, printing, and so forth. Documents commonly the subject of forgery are negotiable instruments (checks, money orders, and the like), deeds, receipts, contracts, and bills of lading. The forged instrument must itself be false, not merely contain a falsehood. If you fake your neighbor’s signature on one of his checks made out to cash, you have committed forgery. But if you sign a check of your own that is made out to cash, knowing that there is no money in your checking account, the instrument is not forged, though the act may be criminal if done with the intent to defraud.
The mere making of a forged instrument is unlawful. So is the “uttering” (or presentation) of such an instrument, whether or not the one uttering it actually forged it. The usual example of a false signature is by no means the only way to commit forgery. If done with intent to defraud, the backdating of a document, the modification of a corporate name, or the filling in of lines left blank on a form can all constitute forgery.
Extortion
Under common law, extortion could only be committed by a government official, who corruptly collected an unlawful fee under color of office. A common example is a salaried building inspector who refuses to issue a permit unless the permittee pays him. Under modern statutes, the crime of extortion has been broadened to include the wrongful collection of money or something else of value by anyone by means of a threat (short of a threat of immediate physical violence, for such a threat would make the demand an act of robbery). This kind of extortion is usually called blackmail. The blackmail threat commonly is to expose some fact of the victim’s private life or to make a false accusation about him.
Burglary
Burglary is not a crime against property. It is defined as “the breaking and entering of the dwelling of another in the nighttime with intent to commit a felony.” The intent to steal is not an issue: a man who sneaks into a woman’s home intent on raping her has committed a burglary, even if he does not carry out the act. The student doing critical thinking will no doubt notice that the definition provides plenty of room for argument. What is “breaking”? (The courts do not require actual destruction; the mere opening of a closed door, even if unlocked, is enough.) What is entry? When does night begin? What kind of intent? Whose dwelling? Can a landlord burglarize the dwelling of his tenant? (Yes.) Can a person burglarize his own home? (No.)
Arson
Under common law, arson was the malicious burning of the dwelling of another. Burning one’s own house for purposes of collecting insurance was not an act of arson under common law. The statutes today make it a felony intentionally to set fire to any building, whether or not it is a dwelling and whether or not the purpose is to collect insurance.
Bribery
Bribery is a corrupt payment (or receipt of such a payment) for official action. The payment can be in cash or in the form of any goods, intangibles, or services that the recipient would find valuable. Under common law, only a public official could be bribed. In most states, bribery charges can result from the bribe of anyone performing a public function.
Bribing a public official in government procurement (contracting) can result in serious criminal charges. Bribing a public official in a foreign country to win a contract can result in charges under the Foreign Corrupt Practices Act.
Perjury
Perjury is the crime of giving a false oath, either orally or in writing, in a judicial or other official proceeding (lies made in proceedings other than courts are sometimes termed “false swearing”). To be perjurious, the oath must have been made corruptly—that is, with knowledge that it was false or without sincere belief that it was true. An innocent mistake is not perjury. A statement, though true, is perjury if the maker of it believes it to be false. Statements such as “I don’t remember” or “to the best of my knowledge” are not sufficient to protect a person who is lying from conviction for perjury. To support a charge of perjury, however, the false statement must be “material,” meaning that the statement is relevant to whatever the court is trying to find out.
White-Collar Crime
White-collar crime, as distinguished from “street crime,” refers generally to fraud-related acts carried out in a nonviolent way, usually connected with business. Armed bank robbery is not a white-collar crime, but embezzlement by a teller or bank officer is. Many white-collar crimes are included within the statutory definitions of embezzlement and false pretenses. Most are violations of state law. Depending on how they are carried out, many of these same crimes are also violations of federal law.
Any act of fraud in which the United States postal system is used or which involves interstate phone calls or Internet connections is a violation of federal law. Likewise, many different acts around the buying and selling of securities can run afoul of federal securities laws. Other white-collar crimes include tax fraud; price fixing; violations of food, drug, and environmental laws; corporate bribery of foreign companies; and—the newest form—computer fraud. Some of these are discussed here; others are covered in later chapters.
Mail and Wire Fraud
Federal law prohibits the use of the mails or any interstate electronic communications medium for the purpose of furthering a “scheme or artifice to defraud.” The statute is broad, and it is relatively easy for prosecutors to prove a violation. The law also bans attempts to defraud, so the prosecutor need not show that the scheme worked or that anyone suffered any losses. “Fraud” is broadly construed: anyone who uses the mails or telephone to defraud anyone else of virtually anything, not just of money, can be convicted under the law. In one case, a state governor was convicted of mail fraud when he took bribes to influence the setting of racing dates. The court’s theory was that he defrauded the citizenry of its right to his “honest and faithful services” as governor.United States v. Isaacs, 493 F.2d 1124 (7th Cir. 1974), cert. denied, 417 US 976 (1974).
Violations of the Food and Drug Act
The federal Food, Drug, and Cosmetic Act prohibits any person or corporation from sending into interstate commerce any adulterated or misbranded food, drug, cosmetics, or related device. For example, in a 2010 case, Allergen had to pay a criminal fine for marketing Botox as a headache or pain reliever, a use that had not been approved by the Food and Drug Administration. Unlike most criminal statutes, willfulness or deliberate misconduct is not an element of the act. As the United States v. Park case (Section 6.7 "Cases") shows, an executive can be held criminally liable even though he may have had no personal knowledge of the violation.
Environmental Crimes
Many federal environmental statutes have criminal provisions. These include the Federal Water Pollution Control Act (commonly called the Clean Water Act); the Rivers and Harbors Act of 1899 (the Refuse Act); the Clean Air Act; the Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA); the Toxic Substances Control Act (TSCA); and the Resource Conservation and Recovery Act (RCRA). Under the Clean Water Act, for example, wrongful discharge of pollutants into navigable waters carries a fine ranging from \$2,500 to \$25,000 per day and imprisonment for up to one year. “Responsible corporate officers” are specifically included as potential defendants in criminal prosecutions under the act. They can include officers who have responsibility over a project where subcontractors and their employees actually caused the discharge.U.S. v. Hanousek, 176 F.3d 1116 (9th Cir. 1999).
Violations of the Foreign Corrupt Practices Act
As a byproduct of Watergate, federal officials at the Securities and Exchange Commission and the Internal Revenue Service uncovered many instances of bribes paid by major corporations to officials of foreign governments to win contracts with those governments. Congress responded in 1977 with the Foreign Corrupt Practices Act, which imposed a stringent requirement that the disposition of assets be accurately and fairly accounted for in a company’s books and records. The act also made illegal the payment of bribes to foreign officials or to anyone who will transmit the money to a foreign official to assist the payor (the one offering and delivering the money) in getting business.
Violations of the Racketeering Influenced and Corrupt Organizations Act
In 1970 Congress enacted the Racketeering Influenced and Corrupt Organizations Act (RICO), aimed at ending organized crime’s infiltration into legitimate business. The act tells courts to construe its language broadly “to effectuate its remedial purpose,” and many who are not part of organized crime have been successfully prosecuted under the act. It bans a “pattern of racketeering,” defined as the commission of at least two acts within ten years of any of a variety of already-existing crimes, including mail, wire, and securities fraud. The act thus makes many types of fraud subject to severe penalties.
Computer Crime
Computer crime generally falls into four categories: (1) theft of money, financial instruments, or property; (2) misappropriation of computer time; (3) theft of programs; and (4) illegal acquisition of information. The main federal statutory framework for many computer crimes is the Computer Fraud and Abuse Act (CFAA; see Table 6.1 "Summary of Provisions of the Computer Fraud and Abuse Act"). Congress only prohibited computer fraud and abuse where there was a federal interest, as where computers of the government were involved or where the crime was interstate in nature.
Table 6.1 Summary of Provisions of the Computer Fraud and Abuse Act
Obtaining national security information Sec. (a)(1) 10 years maximum (20 years second offense)
Trespassing in a government computer Sec. (a)(3) 1 year (5)
Compromising the confidentiality of a computer Sec. (a)(2) 1 year (10)
Accessing a computer to defraud and obtain value Sec. (a)4 5 years (10)
Intentional access and reckless damage (a)(5)(A)(ii) 5 years (20)
Trafficking in passwords (a)(6) 1 year (10)
KEY TAKEAWAY
Offenses can be against persons, against property, or against public policy (as when you bribe a public official, commit perjury, use public goods such as the mails or the Internet to commit fraud, or commit other white-collar crimes).
EXERCISES
1. Which does more serious harm to society: street crimes or white-collar crimes?
2. Why are various crimes so difficult to define precisely?
3. Hungry Harold goes by the home of Juanita Martinez. Juanita has just finished baking a cherry pie and sets it in the open windowsill to cool. Harold smells the pie from the sidewalk. It is twilight; while still light, the sun has officially set. Harold reaches into the window frame and removes the pie. Technically, has Harold committed burglary? What are the issues here based on the definition of burglary?
4. What is fraud? How is it different from dishonesty? Is being dishonest a criminal offense? If so, have you been a criminal already today? | textbooks/biz/Civil_Law/Book%3A_Introduction_to_Contracts_Sales_and_Product_Liability/06%3A_Criminal_Law/6.02%3A_Types_of_Crimes.txt |
LEARNING OBJECTIVES
1. Understand how it is possible to commit a criminal act without actually doing anything that you think might be criminal.
2. Analyze and explain the importance of intention in criminal law and criminal prosecutions.
3. Explain how a corporation can be guilty of a crime, even though it is a corporation’s agents that commit the crime.
To be guilty of a crime, you must have acted. Mental desire or intent to do so is insufficient. But what constitutes an act? This question becomes important when someone begins to commit a crime, or does so in association with others, or intends to do one thing but winds up doing something else.
Attempt
It is not necessary to commit the intended crime to be found guilty of a criminal offense. An attempt to commit the crime is punishable as well, though usually not as severely. For example, Brett points a gun at Ashley, intending to shoot her dead. He pulls the trigger but his aim is off, and he misses her heart by four feet. He is guilty of an attempt to murder. Suppose, however, that earlier in the day, when he was preparing to shoot Ashley, Brett had been overheard in his apartment muttering to himself of his intention, and that a neighbor called the police. When they arrived, he was just snapping his gun into his shoulder holster.
At that point, courts in most states would not consider him guilty of an attempt because he had not passed beyond the stage of preparation. After having buttoned his jacket he might have reconsidered and put the gun away. Determining when the accused has passed beyond mere preparation and taken an actual step toward perpetrating the crime is often difficult and is usually for the jury to decide.
Impossibility
What if a defendant is accused of attempting a crime that is factually impossible? For example, suppose that men believed they were raping a drunken, unconscious woman, and were later accused of attempted rape, but defended on the grounds of factual impossibility because the woman was actually dead at the time sexual intercourse took place? Or suppose that a husband intended to poison his wife with strychnine in her coffee, but put sugar in the coffee instead? The “mens rea” or criminal intent was there, but the act itself was not criminal (rape requires a live victim, and murder by poisoning requires the use of poison). States are divided on this, but thirty-seven states have ruled out factual impossibility as a defense to the crime of attempt.
Legal impossibility is different, and is usually acknowledged as a valid defense. If the defendant completes all of his intended acts, but those acts do not fulfill all the required elements of a crime, there could be a successful “impossibility” defense. If Barney (who has poor sight), shoots at a tree stump, thinking it is his neighbor, Ralph, intending to kill him, has he committed an attempt? Many courts would hold that he has not. But the distinction between factual impossibility and legal impossibility is not always clear, and the trend seems to be to punish the intended attempt.
Conspiracy
Under both federal and state laws, it is a separate offense to work with others toward the commission of a crime. When two or more people combine to carry out an unlawful purpose, they are engaged in a conspiracy. The law of conspiracy is quite broad, especially when it is used by prosecutors in connection with white-collar crimes. Many people can be swept up in the net of conspiracy, because it is unnecessary to show that the actions they took were sufficient to constitute either the crime or an attempt. Usually, the prosecution needs to show only (1) an agreement and (2) a single overt act in furtherance of the conspiracy. Thus if three people agree to rob a bank, and if one of them goes to a store to purchase a gun to be used in the holdup, the three can be convicted of conspiracy to commit robbery. Even the purchase of an automobile to be used as the getaway car could support a conspiracy conviction.
The act of any one of the conspirators is imputed to the other members of the conspiracy. It does not matter, for instance, that only one of the bank robbers fired the gun that killed a guard. All can be convicted of murder. That is so even if one of the conspirators was stationed as a lookout several blocks away and even if he specifically told the others that his agreement to cooperate would end “just as soon as there is shooting.”
Agency and Corporations
A person can be guilty of a crime if he acts through another. Again, the usual reason for “imputing” the guilt of the actor to another is that both were engaged in a conspiracy. But imputation of guilt is not limited to a conspiracy. The agent may be innocent even though he participates. A corporate officer directs a junior employee to take a certain bag and deliver it to the officer’s home. The employee reasonably believes that the officer is entitled to the bag. Unbeknownst to the employee, the bag contains money that belongs to the company, and the officer wishes to keep it. This is not a conspiracy. The employee is not guilty of larceny, but the officer is, because the agent’s act is imputed to him.
Since intent is a necessary component of crime, an agent’s intent cannot be imputed to his principal if the principal did not share the intent. The company president tells her sales manager, “Go make sure our biggest customer renews his contract for next year”—by which she meant, “Don’t ignore our biggest customer.” Standing before the customer’s purchasing agent, the sales manager threatens to tell the purchasing agent’s boss that the purchasing agent has been cheating on his expense account, unless he signs a new contract. The sales manager could be convicted of blackmail, but the company president could not.
Can a corporation be guilty of a crime? For many types of crimes, the guilt of individual employees may be imputed to the corporation. Thus the antitrust statutes explicitly state that the corporation may be convicted and fined for violations by employees. This is so even though the shareholders are the ones who ultimately must pay the price—and who may have had nothing to do with the crime nor the power to stop it. The law of corporate criminal responsibility has been changing in recent years. The tendency is to hold the corporation liable under criminal law if the act has been directed by a responsible officer or group within the corporation (the president or board of directors).
KEY TAKEAWAY
Although proving the intent to commit a crime (the mens rea) is essential, the intent can be established by inference (circumstantially). Conspirators may not actually commit a crime, for example, but in preparing for a criminal act, they may be guilty of the crime of conspiracy. Certain corporate officers, as well, may not be directly committing criminal acts but may be held criminally responsible for acts of their agents and contractors.
EXERCISES
1. Give an example of how someone can intend to commit a crime but fail to commit one.
2. Describe a situation where there is a conspiracy to commit a crime without the crime actually taking place.
3. Create a scenario based on current events where a corporation could be found guilty of committing a crime even though the CEO, the board of directors, and the shareholders have not themselves done a criminal act. | textbooks/biz/Civil_Law/Book%3A_Introduction_to_Contracts_Sales_and_Product_Liability/06%3A_Criminal_Law/6.03%3A_The_Nature_of_a_Criminal_Act.txt |
LEARNING OBJECTIVES
1. Explain why criminal law generally requires that the defendant charged with a crime have criminal "intent."
2. Know and explain the possible excuses relating to responsibility that are legally recognized by courts, including lack of capacity.
In General
The mens rea requirement depends on the nature of the crime and all the circumstances surrounding the act. In general, though, the requirement means that the accused must in some way have intended the criminal consequences of his act. Suppose, for example, that Charlie gives Gabrielle a poison capsule to swallow. That is the act. If Gabrielle dies, is Charlie guilty of murder? The answer depends on what his state of mind was. Obviously, if he gave it to her intending to kill her, the act was murder.
What if he gave it to her knowing that the capsule was poison but believing that it would only make her mildly ill? The act is still murder, because we are all liable for the consequences of any intentional act that may cause harm to others. But suppose that Gabrielle had asked Harry for aspirin, and he handed her two pills that he reasonably believed to be aspirin (they came from the aspirin bottle and looked like aspirin) but that turned out to be poison, the act would not be murder, because he had neither intent nor a state of knowledge from which intent could be inferred.
Not every criminal law requires criminal intent as an ingredient of the crime. Many regulatory codes dealing with the public health and safety impose strict requirements. Failure to adhere to such requirements is a violation, whether or not the violator had mens rea. The United States v. Park case, Section 6.7 "Cases", a decision of the US Supreme Court, shows the different considerations involved in mens rea.
Mistake of Fact and Mistake of Law
Ordinarily, ignorance of the law is not an excuse. If you believe that it is permissible to turn right on a red light but the city ordinance prohibits it, your belief, even if reasonable, does not excuse your violation of the law. Under certain circumstances, however, ignorance of law will be excused. If a statute imposes criminal penalties for an action taken without a license, and if the government official responsible for issuing the license formally tells you that you do not need one (though in fact you do), a conviction for violating the statute cannot stand. In rare cases, a lawyer’s advice, contrary to the statute, will be held to excuse the client, but usually the client is responsible for his attorney’s mistakes. Otherwise, as it is said, the lawyer would be superior to the law.
Ignorance or mistake of fact more frequently will serve as an excuse. If you take a coat from a restaurant, believing it to be yours, you cannot be convicted of larceny if it is not. Your honest mistake of fact negates the requisite intent. In general, the rule is that a mistaken belief of fact will excuse criminal responsibility if (1) the belief is honestly held, (2) it is reasonable to hold it, and (3) the act would not have been criminal if the facts were as the accused supposed them to have been.
Entrapment
One common technique of criminal investigation is the use of an undercover agent or decoy—the policeman who poses as a buyer of drugs from a street dealer or the elaborate “sting” operations in which ostensibly stolen goods are “sold” to underworld “fences.” Sometimes these methods are the only way by which certain kinds of crime can be rooted out and convictions secured.
But a rule against entrapment limits the legal ability of the police to play the role of criminals. The police are permitted to use such techniques to detect criminal activity; they are not permitted to do so to instigate crime. The distinction is usually made between a person who intends to commit a crime and one who does not. If the police provide the former with an opportunity to commit a criminal act—the sale of drugs to an undercover agent, for example—there is no defense of entrapment. But if the police knock on the door of one not known to be a drug user and persist in a demand that he purchase drugs from them, finally overcoming his will to resist, a conviction for purchase and possession of drugs can be overturned on the ground of entrapment.
Other Excuses
A number of other circumstances can limit or excuse criminal liability. These include compulsion (a gun pointed at one’s head by a masked man who apparently is unafraid to use the weapon and who demands that you help him rob a store), honest consent of the “victim” (the quarterback who is tackled), adherence to the requirements of legitimate public authority lawfully exercised (a policeman directs a towing company to remove a car parked in a tow-away zone), the proper exercise of domestic authority (a parent may spank a child, within limits), and defense of self, others, property, and habitation. Each of these excuses is a complex subject in itself.
Lack of Capacity
A further defense to criminal prosecution is the lack of mental capacity to commit the crime. Infants and children are considered incapable of committing a crime; under common law any child under the age of seven could not be prosecuted for any act. That age of incapacity varies from state to state and is now usually defined by statutes. Likewise, insanity or mental disease or defect can be a complete defense. Intoxication can be a defense to certain crimes, but the mere fact of drunkenness is not ordinarily sufficient.
KEY TAKEAWAY
In the United States, some crimes can be committed by not following strict regulatory requirements for health, safety, or the environment. The law does provide excuses from criminal liability for mistakes of fact, entrapment, and lack of capacity.
EXERCISES
1. Describe several situations in which compulsion, consent, or other excuses take away criminal liability.
2. Your employee is drunk on the job and commits the crime of assault and battery on a customer. He claims lack of capacity as an excuse. Should the courts accept this excuse? Why or why not? | textbooks/biz/Civil_Law/Book%3A_Introduction_to_Contracts_Sales_and_Product_Liability/06%3A_Criminal_Law/6.04%3A_Responsibility.txt |
LEARNING OBJECTIVES
1. Describe the basic steps in pretrial criminal procedure that follow a government's determination to arrest someone for an alleged criminal act.
2. Describe the basic elements of trial and posttrial criminal procedure.
The procedure for criminal prosecutions is complex. Procedures will vary from state to state. A criminal case begins with an arrest if the defendant is caught in the act or fleeing from the scene; if the defendant is not caught, a warrant for the defendant’s arrest will issue. The warrant is issued by a judge or a magistrate upon receiving a complaint detailing the charge of a specific crime against the accused. It is not enough for a police officer to go before a judge and say, “I’d like you to arrest Bonnie because I think she’s just murdered Clyde.” She must supply enough information to satisfy the magistrate that there is probable cause (reasonable grounds) to believe that the accused committed the crime. The warrant will be issued to any officer or agency that has power to arrest the accused with warrant in hand.
The accused will be brought before the magistrate for a preliminary hearing. The purpose of the hearing is to determine whether there is sufficient reason to hold the accused for trial. If so, the accused can be sent to jail or be permitted to make bail. Bail is a sum of money paid to the court to secure the defendant’s attendance at trial. If he fails to appear, he forfeits the money. Constitutionally, bail can be withheld only if there is reason to believe that the accused will flee the jurisdiction.
Once the arrest is made, the case is in the hands of the prosecutor. In the fifty states, prosecution is a function of the district attorney’s office. These offices are usually organized on a county-by-county basis. In the federal system, criminal prosecution is handled by the office of the US attorney, one of whom is appointed for every federal district.
Following the preliminary hearing, the prosecutor must either file an information (a document stating the crime of which the person being held is accused) or ask the grand jury for an indictment. The grand jury consists of twenty-three people who sit to determine whether there is sufficient evidence to warrant a prosecution. It does not sit to determine guilt or innocence. The indictment is the grand jury’s formal declaration of charges on which the accused will be tried. If indicted, the accused formally becomes a defendant.
The defendant will then be arraigned, that is, brought before a judge to answer the accusation in the indictment. The defendant may plead guilty or not guilty. If he pleads not guilty, the case will be tried before a jury (sometimes referred to as a petit jury). The jury cannot convict unless it finds the defendant guilty beyond a reasonable doubt.
The defendant might have pleaded guilty to the offense or to a lesser charge (often referred to as a “lesser included offense”—simple larceny, for example, is a lesser included offense of robbery because the defendant may not have used violence but nevertheless stole from the victim). Such a plea is usually arranged through plea bargaining with the prosecution. In return for the plea, the prosecutor promises to recommend to the judge that the sentence be limited. The judge most often, but not always, goes along with the prosecutor’s recommendation.
The defendant is also permitted to file a plea of nolo contendere (no contest) in prosecutions for certain crimes. In so doing, he neither affirms nor denies his guilt. He may be sentenced as though he had pleaded guilty, although usually a nolo plea is the result of a plea bargain. Why plead nolo? In some offenses, such as violations of the antitrust laws, the statutes provide that private plaintiffs may use a conviction or a guilty plea as proof that the defendant violated the law. This enables a plaintiff to prove liability without putting on witnesses or evidence and reduces the civil trial to a hearing about the damages to plaintiff. The nolo plea permits the defendant to avoid this, so that any plaintiff will have to not only prove damages but also establish civil liability.
Following a guilty plea or a verdict of guilt, the judge will impose a sentence after presentencing reports are written by various court officials (often, probation officers). Permissible sentences are spelled out in statutes, though these frequently give the judge a range within which to work (e.g., twenty years to life). The judge may sentence the defendant to imprisonment, a fine, or both, or may decide to suspend sentence (i.e., the defendant will not have to serve the sentence as long as he stays out of trouble).
Sentencing usually comes before appeal. As in civil cases, the defendant, now convicted, has the right to take at least one appeal to higher courts, where issues of procedure and constitutional rights may be argued.
KEY TAKEAWAY
Criminal procedure in US courts is designed to provide a fair process to both criminal defendants and to society. The grand jury system, prosecutorial discretion, plea bargains, and appeals for lack of a fair trial are all part of US criminal procedure.
EXERCISES
1. Harold is charged with the crime of assault with a deadly weapon with intent to kill or inflict serious bodily injury. It is a more serious crime than simple assault. Harold’s attorney wants the prosecutor to give Harold a break, but Harold is guilty of at least simple assault and may also have had the intent to kill. What is Harold’s attorney likely to do?
2. Kumar was driving his car, smoking marijuana, and had an accident with another vehicle. The other driver was slightly injured. When the officer arrived, she detected a strong odor of marijuana in Kumar’s car and a small amount of marijuana in the glove compartment. The other driver expects to bring a civil action against Kumar for her injuries after Kumar’s criminal case. What should Kumar plead in the criminal case—careless driving or driving under the influence? | textbooks/biz/Civil_Law/Book%3A_Introduction_to_Contracts_Sales_and_Product_Liability/06%3A_Criminal_Law/6.05%3A_Procedure.txt |
LEARNING OBJECTIVES
1. Describe the most significant constitutional rights of defendants in US courts, and name the source of these rights.
2. Explain the Exclusionary rule and the reason for its existence.
Search and Seizure
The rights of those accused of a crime are spelled out in four of the ten constitutional amendments that make up the Bill of Rights (Amendments Four, Five, Six, and Eight). For the most part, these amendments have been held to apply to both the federal and the state governments. The Fourth Amendment says in part that “the right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated.” Although there are numerous and tricky exceptions to the general rule, ordinarily the police may not break into a person’s house or confiscate his papers or arrest him unless they have a warrant to do so. This means, for instance, that a policeman cannot simply stop you on a street corner and ask to see what is in your pockets (a power the police enjoy in many other countries), nor can your home be raided without probable cause to believe that you have committed a crime. What if the police do search or seize unreasonably?
The courts have devised a remedy for the use at trial of the fruits of an unlawful search or seizure. Evidence that is unconstitutionally seized is excluded from the trial. This is the so-called exclusionary rule, first made applicable in federal cases in 1914 and brought home to the states in 1961. The exclusionary rule is highly controversial, and there are numerous exceptions to it. But it remains generally true that the prosecutor may not use evidence willfully taken by the police in violation of constitutional rights generally, and most often in the violation of Fourth Amendment rights. (The fruits of a coerced confession are also excluded.)
Double Jeopardy
The Fifth Amendment prohibits the government from prosecuting a person twice for the same offense. The amendment says that no person shall be “subject for the same offence to be twice put in jeopardy of life or limb.” If a defendant is acquitted, the government may not appeal. If a defendant is convicted and his conviction is upheld on appeal, he may not thereafter be reprosecuted for the same crime.
Self-Incrimination
The Fifth Amendment is also the source of a person’s right against self-incrimination (no person “shall be compelled in any criminal case to be a witness against himself”). The debate over the limits of this right has given rise to an immense literature. In broadest outline, the right against self-incrimination means that the prosecutor may not call a defendant to the witness stand during trial and may not comment to the jury on the defendant’s failure to take the stand. Moreover, a defendant’s confession must be excluded from evidence if it was not voluntarily made (e.g., if the police beat the person into giving a confession). In Miranda v. Arizona, the Supreme Court ruled that no confession is admissible if the police have not first advised a suspect of his constitutional rights, including the right to have a lawyer present to advise him during the questioning.Miranda v. Arizona, 384 US 436 (1966). These so-called Miranda warnings have prompted scores of follow-up cases that have made this branch of jurisprudence especially complex.
Speedy Trial
The Sixth Amendment tells the government that it must try defendants speedily. How long a delay is too long depends on the circumstances in each case. In 1975, Congress enacted the Speedy Trial Act to give priority to criminal cases in federal courts. It requires all criminal prosecutions to go to trial within seventy-five days (though the law lists many permissible reasons for delay).
Cross-Examination
The Sixth Amendment also says that the defendant shall have the right to confront witnesses against him. No testimony is permitted to be shown to the jury unless the person making it is present and subject to cross-examination by the defendant’s counsel.
Assistance of Counsel
The Sixth Amendment guarantees criminal defendants the right to have the assistance of defense counsel. During the eighteenth century and before, the British courts frequently refused to permit defendants to have lawyers in the courtroom during trial. The right to counsel is much broader in this country, as the result of Supreme Court decisions that require the state to pay for a lawyer for indigent defendants in most criminal cases.
Cruel and Unusual Punishment
Punishment under the common law was frequently horrifying. Death was a common punishment for relatively minor crimes. In many places throughout the world, punishments still persist that seem cruel and unusual, such as the practice of stoning someone to death. The guillotine, famously in use during and after the French Revolution, is no longer used, nor are defendants put in stocks for public display and humiliation. In pre-Revolutionary America, an unlucky defendant who found himself convicted could face brutal torture before death.
The Eighth Amendment banned these actions with the words that “cruel and unusual punishments [shall not be] inflicted.” Virtually all such punishments either never were enacted or have been eliminated from the statute books in the United States. Nevertheless, the Eighth Amendment has become a source of controversy, first with the Supreme Court’s ruling in 1976 that the death penalty, as haphazardly applied in the various states, amounted to cruel and unusual punishment. Later Supreme Court opinions have made it easier for states to administer the death penalty. As of 2010, there were 3,300 defendants on death row in the United States. Of course, no corporation is on death row, and no corporation’s charter has ever been revoked by a US state, even though some corporations have repeatedly been indicted and convicted of criminal offenses.
Presumption of Innocence
The most important constitutional right in the US criminal justice system is the presumption of innocence. The Supreme Court has repeatedly cautioned lower courts in the United States that juries must be properly instructed that the defendant is innocent until proven guilty. This is the origin of the “beyond all reasonable doubt” standard of proof and is an instruction given to juries in each criminal case. The Fifth Amendment notes the right of “due process” in federal proceedings, and the Fourteenth Amendment requires that each state provide “due process” to defendants.
KEY TAKEAWAY
The US Constitution provides several important protections for criminal defendants, including a prohibition on the use of evidence that has been obtained by unconstitutional means. This would include evidence seized in violation of the Fourth Amendment and confessions obtained in violation of the Fifth Amendment.
EXERCISES
1. Do you think it is useful to have a presumption of innocence in criminal cases? What if there were not a presumption of innocence in criminal cases?
2. Do you think public humiliation, public execution, and unusual punishments would reduce the amount of crime? Why do you think so?
3. “Due process” is another phrase for “fairness.” Why should the public show fairness toward criminal defendants? | textbooks/biz/Civil_Law/Book%3A_Introduction_to_Contracts_Sales_and_Product_Liability/06%3A_Criminal_Law/6.06%3A_Constitutional_Rights_of_the_Accused.txt |
False Pretenses
State v. Mills
96 Ariz. 377, 396 P.2d 5 (Ariz. 1964)
LOCKWOOD, VICE CHIEF JUSTICE
Defendants appeal from a conviction on two counts of obtaining money by false pretenses in violation of AR.S. §§ 13-661.A3. and 13-663.A1. The material facts, viewed “…in the light most favorable to sustaining the conviction,” are as follows: Defendant William Mills was a builder and owned approximately 150 homes in Tucson in December, 1960. Mills conducted his business in his home. In 1960 defendant Winifred Mills, his wife, participated in the business generally by answering the telephone, typing, and receiving clients who came to the office.
In December 1960, Mills showed the complainant, Nathan Pivowar, a house at 1155 Knox Drive and another at 1210 Easy Street, and asked Pivowar if he would loan money on the Knox Drive house. Pivowar did not indicate at that time whether he would agree to such a transaction. Later in the same month Nathan Pivowar told the defendants that he and his brother, Joe Pivowar, would loan \$5,000 and \$4,000 on the two houses. Three or four days later Mrs. Mills, at Pivowar’s request, showed him these homes again.
Mills had prepared two typed mortgages for Pivowar. Pivowar objected to the wording, so in Mills’ office Mrs. Mills retyped the mortgages under Pivowar’s dictation. After the mortgages had been recorded on December 31, 1960, Pivowar gave Mills a bank check for \$5,791.87, some cash, and a second mortgage formerly obtained from Mills in the approximate sum of \$3,000. In exchange Mills gave Pivowar two personal notes in the sums of \$5,250.00 and \$4,200.00 and the two mortgages as security for the loan.
Although the due date for Mills’ personal notes passed without payment being made, the complainant did not present the notes for payment, did not demand that they be paid, and did not sue upon them. In 1962 the complainant learned that the mortgages which he had taken as security in the transaction were not first mortgages on the Knox Drive and Easy Street properties. These mortgages actually covered two vacant lots on which there were outstanding senior mortgages. On learning this, Pivowar signed a complaint charging the defendants with the crime of theft by false pretenses.
On appeal defendants contend that the trial court erred in denying their motion to dismiss the information. They urge that a permanent taking of property must be proved in order to establish the crime of theft. Since the complainant had the right to sue on the defendants’ notes, the defendants assert that complainant cannot be said to have been deprived of his property permanently. Defendants misconceive the elements of the crime of theft by false pretenses. Stated in a different form, their argument is that although the complainant has parted with his cash, a bank check, and a second mortgage, the defendants intend to repay the loan.
Defendants admit that the proposition of law which they assert is a novel one in this jurisdiction. Respectable authority in other states persuades us that their contention is without merit. A creditor has a right to determine for himself whether he wishes to be a secured or an unsecured creditor. In the former case, he has a right to know about the security. If he extends credit in reliance upon security which is falsely represented to be adequate, he has been defrauded even if the debtor intends to repay the debt. His position is now that of an unsecured creditor. At the very least, an unreasonable risk of loss has been forced upon him by reason of the deceit. This risk which he did not intend to assume has been imposed upon him by the intentional act of the debtor, and such action constitutes an intent to defraud.
* * *
The cases cited by defendants in support of their contention are distinguishable from the instant case in that they involved theft by larceny. Since the crime of larceny is designed to protect a person’s possessory interest in property whereas the crime of false pretenses protects one’s title interest, the requirement of a permanent deprivation is appropriate to the former. Accordingly, we hold that an intent to repay a loan obtained on the basis of a false representation of the security for the loan is no defense.
* * *
Affirmed in part, reversed in part, and remanded for resentencing.
CASE QUESTIONS
1. False pretenses is a crime of obtaining ownership of property of another by making untrue representations of fact with intent to defraud. What were the untrue representations of fact made by Mills?
2. Concisely state the defendant’s argument as to why Pivowar has not been deprived of any property.
3. If Pivowar had presented the notes and Mills had paid, would a crime have been committed?
White-Collar Crimes
United States v. Park
421 U.S. 658 (1975)
MR. CHIEF JUSTICE BURGER delivered the opinion of the Court.
We granted certiorari to consider whether the jury instructions in the prosecution of a corporate officer under § 301 (k) of the Federal Food, Drug, and Cosmetic Act, 52 Stat. 1042, as amended, 21 U.S.C. § 331 (k), were appropriate under United States v. Dotterweich, 320 U.S. 277 (1943). Acme Markets, Inc., is a national retail food chain with approximately 36,000 employees, 874 retail outlets, 12 general warehouses, and four special warehouses. Its headquarters, including the office of the president, respondent Park, who is chief executive officer of the corporation, are located in Philadelphia, Pennsylvania. In a five-count information filed in the United States District Court for the District of Maryland, the Government charged Acme and respondent with violations of the Federal Food, Drug, and Cosmetic Act. Each count of the information alleged that the defendants had received food that had been shipped in interstate commerce and that, while the food was being held for sale in Acme’s Baltimore warehouse following shipment in interstate commerce, they caused it to be held in a building accessible to rodents and to be exposed to contamination by rodents. These acts were alleged to have resulted in the food’s being adulterated within the meaning of 21 U.S.C. §§ 342 (a)(3) and (4), in violation of 21 U.S.C. § 331 (k).
Acme pleaded guilty to each count of the information. Respondent pleaded not guilty. The evidence at trial demonstrated that in April 1970 the Food and Drug Administration (FDA) advised respondent by letter of insanitary conditions in Acme’s Philadelphia warehouse. In 1971 the FDA found that similar conditions existed in the firm’s Baltimore warehouse. An FDA consumer safety officer testified concerning evidence of rodent infestation and other insanitary conditions discovered during a 12-day inspection of the Baltimore warehouse in November and December 1971. He also related that a second inspection of the warehouse had been conducted in March 1972. On that occasion the inspectors found that there had been improvement in the sanitary conditions, but that “there was still evidence of rodent activity in the building and in the warehouses and we found some rodent-contaminated lots of food items.”
The Government also presented testimony by the Chief of Compliance of the FDA’s Baltimore office, who informed respondent by letter of the conditions at the Baltimore warehouse after the first inspection. There was testimony by Acme’s Baltimore division vice president, who had responded to the letter on behalf of Acme and respondent and who described the steps taken to remedy the insanitary conditions discovered by both inspections. The Government’s final witness, Acme’s vice president for legal affairs and assistant secretary, identified respondent as the president and chief executive officer of the company and read a bylaw prescribing the duties of the chief executive officer. He testified that respondent functioned by delegating “normal operating duties” including sanitation, but that he retained “certain things, which are the big, broad, principles of the operation of the company and had “the responsibility of seeing that they all work together.”
At the close of the Government’s case in chief, respondent moved for a judgment of acquittal on the ground that “the evidence in chief has shown that Mr. Park is not personally concerned in this Food and Drug violation.” The trial judge denied the motion, stating that United States v. Dotterweich, 320 U.S. 277 (1943), was controlling.
Respondent was the only defense witness. He testified that, although all of Acme’s employees were in a sense under his general direction, the company had an “organizational structure for responsibilities for certain functions” according to which different phases of its operation were “assigned to individuals who, in turn, have staff and departments under them.” He identified those individuals responsible for sanitation, and related that upon receipt of the January 1972 FDA letter, he had conferred with the vice president for legal affairs, who informed him that the Baltimore division vice president “was investigating the situation immediately and would be taking corrective action and would be preparing a summary of the corrective action to reply to the letter.” Respondent stated that he did not “believe there was anything [he] could have done more constructively than what [he] found was being done.”
On cross-examination, respondent conceded that providing sanitary conditions for food offered for sale to the public was something that he was “responsible for in the entire operation of the company” and he stated that it was one of many phases of the company that he assigned to “dependable subordinates.” Respondent was asked about and, over the objections of his counsel, admitted receiving, the April 1970 letter addressed to him from the FDA regarding insanitary conditions at Acme’s Philadelphia warehouse. He acknowledged that, with the exception of the division vice president, the same individuals had responsibility for sanitation in both Baltimore and Philadelphia. Finally, in response to questions concerning the Philadelphia and Baltimore incidents, respondent admitted that the Baltimore problem indicated the system for handling sanitation “wasn’t working perfectly” and that as Acme’s chief executive officer he was “responsible for any result which occurs in our company.”
At the close of the evidence, respondent’s renewed motion for a judgment of acquittal was denied. The relevant portion of the trial judge’s instructions to the jury challenged by respondent is set out in the margin. Respondent’s counsel objected to the instructions on the ground that they failed fairly to reflect our decision in United States v. Dotterweich supra, and to define “‘responsible relationship.’” The trial judge overruled the objection. The jury found respondent guilty on all counts of the information, and he was subsequently sentenced to pay a fine of \$50 on each count. The Court of Appeals reversed the conviction and remanded for a new trial.
* * *
The question presented by the Government’s petition for certiorari in United States v. Dotterweich, and the focus of this Court’s opinion, was whether the manager of a corporation, as well as the corporation itself, may be prosecuted under the Federal Food, Drug, and Cosmetic Act of 1938 for the introduction of misbranded and adulterated articles into interstate commerce. In Dotterweich, a jury had disagreed as to the corporation, a jobber purchasing drugs from manufacturers and shipping them in interstate commerce under its own label, but had convicted Dotterweich, the corporation’s president and general manager. The Court of Appeals reversed the conviction on the ground that only the drug dealer, whether corporation or individual, was subject to the criminal provisions of the Act, and that where the dealer was a corporation, an individual connected therewith might be held personally only if he was operating the corporation as his ‘alter ego.’
In reversing the judgment of the Court of Appeals and reinstating Dotterweich’s conviction, this Court looked to the purposes of the Act and noted that they “touch phases of the lives and health of people which, in the circumstances of modern industrialism, are largely beyond self-protection. It observed that the Act is of “a now familiar type” which “dispenses with the conventional requirement for criminal conduct-awareness of some wrongdoing: In the interest of the larger good it puts the burden of acting at hazard upon a person otherwise innocent but standing in responsible relation to a public danger. Central to the Court’s conclusion that individuals other than proprietors are subject to the criminal provisions of the Act was the reality that the only way in which a corporation can act is through the individuals, who act on its behalf.
* * *
The Court recognized that, because the Act dispenses with the need to prove “consciousness of wrongdoing,” it may result in hardship even as applied to those who share “responsibility in the business process resulting in” a violation.…The rule that corporate employees who have “a responsible share in the furtherance of the transaction which the statute outlaws” are subject to the criminal provisions of the Act was not formulated in a vacuum. Cf. Morissette v. United States, 342 U.S. 246, 258 (1952). Cases under the Federal Food and Drugs Act of 1906 reflected the view both that knowledge or intent were not required to be proved in prosecutions under its criminal provisions, and that responsible corporate agents could be subjected to the liability thereby imposed.
* * *
The rationale of the interpretation given the Act in Dotterweich…has been confirmed in our subsequent cases. Thus, the Court has reaffirmed the proposition that the public interest in the purity of its food is so great as to warrant the imposition of the highest standard of care on distributors.
Thus Dotterweich and the cases which have followed reveal that in providing sanctions which reach and touch the individuals who execute the corporate mission—and this is by no means necessarily confined to a single corporate agent or employee—the Act imposes not only a positive duty to seek out and remedy violations when they occur but also, and primarily, a duty to implement measures that will insure that violations will not occur. The requirements of foresight and vigilance imposed on responsible corporate agents are beyond question demanding, and perhaps onerous, but they are no more stringent than the public has a right to expect of those who voluntarily assume positions of authority in business enterprises whose services and products affect the health and well-being of the public that supports them.
* * *
Reading the entire charge satisfies us that the jury’s attention was adequately focused on the issue of respondent’s authority with respect to the conditions that formed the basis of the alleged violations. Viewed as a whole, the charge did not permit the jury to find guilt solely on the basis of respondent’s position in the corporation; rather, it fairly advised the jury that to find guilt it must find respondent “had a responsible relation to the situation,” and “by virtue of his position…had…authority and responsibility” to deal with the situation.
The situation referred to could only be “food…held in unsanitary conditions in a warehouse with the result that it consisted, in part, of filth or…may have been contaminated with filth.”
Our conclusion that the Court of Appeals erred in its reading of the jury charge suggests as well our disagreement with that court concerning the admissibility of evidence demonstrating that respondent was advised by the FDA in 1970 of insanitary conditions in Acme’s Philadelphia warehouse. We are satisfied that the Act imposes the highest standard of care and permits conviction of responsible corporate officials who, in light of this standard of care, have the power to prevent or correct violations of its provisions.
* * *
Reversed.
CASE QUESTIONS
1. Did Park have criminal intent to put adulterated food into commerce? If not, how can Park’s conduct be criminalized?
2. To get a conviction, what does the prosecutor have to show, other than that Park was the CEO of Acme and therefore responsible for what his company did or didn’t do? | textbooks/biz/Civil_Law/Book%3A_Introduction_to_Contracts_Sales_and_Product_Liability/06%3A_Criminal_Law/6.07%3A_Cases.txt |
Summary
Criminal law is that branch of law governing offenses against society. Most criminal law requires a specific intent to commit the prohibited act (although a very few economic acts, made criminal by modern legislation, dispense with the requirement of intent). In this way, criminal law differs from much of civil law—for example, from the tort of negligence, in which carelessness, rather than intent, can result in liability.
Major crimes are known as felonies. Minor crimes are known as misdemeanors. Most people have a general notion about familiar crimes, such as murder and theft. But conventional knowledge does not suffice for understanding technical distinctions among related crimes, such as larceny, robbery, and false pretenses. These distinctions can be important because an individual can be found guilty not merely for committing one of the acts defined in the criminal law but also for attempting or conspiring to commit such an act. It is usually easier to convict someone of attempt or conspiracy than to convict for the main crime, and a person involved in a conspiracy to commit a felony may find that very little is required to put him into serious trouble.
Of major concern to the business executive is white-collar crime, which encompasses a host of offenses, including bribery, embezzlement, fraud, restraints of trade, and computer crime. Anyone accused of crime should know that they always have the right to consult with a lawyer and should always do so.
EXERCISES
1. Bill is the chief executive of a small computer manufacturing company that desperately needs funds to continue operating. One day a stranger comes to Bill to induce him to take part in a cocaine smuggling deal that would net Bill millions of dollars. Unbeknownst to Bill, the stranger is an undercover policeman. Bill tells the stranger to go away. The stranger persists, and after five months of arguing and cajoling, the stranger wears down Bill’s will to resist. Bill agrees to take delivery of the cocaine and hands over a down payment of \$10,000 to the undercover agent, who promptly arrests him for conspiracy to violate the narcotics laws. What defenses does Bill have?
2. You are the manager of a bookstore. A customer becomes irritated at having to stand in line and begins to shout at the salesclerk for refusing to wait on him. You come out of your office and ask the customer to calm down. He shouts at you. You tell him to leave. He refuses. So you and the salesclerk pick him up and shove him bodily out the door. He calls the police to have you arrested for assault. Should the police arrest you? Assuming that they do, how would you defend yourself in court?
3. Marilyn is arrested for arson against a nuclear utility, a crime under both state and federal law. She is convicted in state court and sentenced to five years in jail. Then the federal government decides to prosecute her for the same offense. Does she have a double-jeopardy defense against the federal prosecution?
4. Tectonics, a US corporation, is bidding on a project in Nigeria, and its employee wins the bid by secretly giving \$100,000 to the Nigerian public official that has the most say about which company will be awarded the contract. The contract is worth \$80 million, and Tectonics expects to make at least \$50 million on the project. Has a crime under US law been committed?
5. Suppose that the CEO of Tectonics, Ted Nelson, is not actually involved in bribery of the Nigerian public official Adetutu Adeleke. Instead, suppose that the CFO, Jamie Skillset, is very accomplished at insulating both top management and the board of directors from some of the “operational realities” within the company. Skillset knows that Whoopi Goldmine, a Nigerian employee of Tectonics, has made the deal with Adeleke and secured the contract for Tectonics. Is it possible that Nelson, as well as Skillset, can be found guilty of a crime?
6. You have graduated from college and, after working hard for ten years, have scraped enough money together to make a down payment on a forty-acre farm within driving distance to the small city where you work in Colorado. In town at lunch one day, you run into an old friend from high school, Hayley Mills, who tells you that she is saving her money to start a high-end consignment shop in town. You allow her to have a room in your house for a few months until she has enough money to go into business. Over the following weeks, however, you realize that old acquaintances from high school are stopping by almost daily for short visits. When you bring this up to Hayley, she admits that many old friends are now relying on her for marijuana. She is not a licensed caregiver in Colorado and is clearly violating the law. Out of loyalty, you tell her that she has three weeks to move out, but you do not prevent her from continuing sales while she is there. What crime have you committed?
7. The Center Art Galleries—Hawaii sells artwork, and much of it involves art by the famous surrealist painter Salvador Dali. The federal government suspected the center of selling forged Dali artwork and obtained search warrants for six locations controlled by the center. The warrants told the executing officer to seize any items that were “evidence of violations of federal criminal law.” The warrants did not describe the specific crime suspected, nor did the warrants limit the seizure of items solely to Dali artwork or suspected Dali forgeries. Are these search warrants valid?Center Art Galleries—Hawaii, Inc. v. United States, 875 F.2d 747 (9th Cir. 1989).
SELF-TEST QUESTIONS
1. Jared has made several loans to debtors who have declared bankruptcy. These are unsecured claims. Jared “doctors” the documentation to show amounts owed that are higher than the debtors actually owe. Later, Jared is charged with the federal criminal offense of filing false claims. The standard (or “burden”) of proof that the US attorney must meet in the prosecution is
1. beyond all doubt
2. beyond a reasonable doubt
3. clear and convincing evidence
4. a preponderance of the evidence
2. Jethro, a businessman who resides in Atlanta, creates a disturbance at a local steakhouse and is arrested for being drunk and disorderly. Drunk and disorderly is a misdemeanor under Georgia law. A misdemeanor is a crime punishable by imprisonment for up to
1. one year
2. two years
3. five years
4. none of the above
3. Yuan is charged with a crime. To find him guilty, the prosecutor must show
1. actus reus and mens rea
2. mens rea only
3. the performance of a prohibited act
4. none of the above
4. Kira works for Data Systems Ltd. and may be liable for larceny if she steals
1. a competitor’s trade secrets
2. company computer time
3. the use of Data Systems’ Internet for personal business
4. any of the above
5. Candace is constructing a new office building that is near its completion. She offers Paul \$500 to overlook certain things that are noncompliant with the city’s construction code. Paul accepts the money and overlooks the violations. Later, Candace is charged with the crime of bribery. This occurred when
1. Candace offered the bribe.
2. Paul accepted the bribe.
3. Paul overlooked the violations.
4. none of the above
1. b
2. a
3. a
4. d
5. a | textbooks/biz/Civil_Law/Book%3A_Introduction_to_Contracts_Sales_and_Product_Liability/06%3A_Criminal_Law/6.08%3A_Summary_and_Exercises.txt |
Learning Objectives
After reading this chapter, you should be able to do the following:
1. Know why most legal systems have tort law.
2. Identify the three kinds of torts.
3. Show how tort law relates to criminal law and contract law.
4. Understand negligent torts and defenses to claims of negligence.
5. Understand strict liability torts and the reasons for them in the US legal system.
In civil litigation, contract and tort claims are by far the most numerous. The law attempts to adjust for harms done by awarding damages to a successful plaintiff who demonstrates that the defendant was the cause of the plaintiff’s losses. Torts can be intentional torts, negligent torts, or strict liability torts. Employers must be aware that in many circumstances, their employees may create liability in tort. This chapter explains the different kind of torts, as well as available defenses to tort claims.
07: Introduction to Tort Law
LEARNING OBJECTIVES
1. Explain why a sound market system requires tort law.
2. Define a tort and give two examples.
3. Explain the moral basis of tort liability.
4. Understand the purposes of damage awards in tort.
Definition of Tort
The term tort is the French equivalent of the English word wrong. The word tort is also derived from the Latin word tortum, which means twisted or crooked or wrong, in contrast to the word rectum, which means straight (rectitude uses that Latin root). Thus conduct that is twisted or crooked and not straight is a tort. The term was introduced into the English law by the Norman jurists.
Long ago, tort was used in everyday speech; today it is left to the legal system. A judge will instruct a jury that a tort is usually defined as a wrong for which the law will provide a remedy, most often in the form of money damages. The law does not remedy all “wrongs.” The preceding definition of tort does not reveal the underlying principles that divide wrongs in the legal sphere from those in the moral sphere. Hurting someone’s feelings may be more devastating than saying something untrue about him behind his back; yet the law will not provide a remedy for saying something cruel to someone directly, while it may provide a remedy for "defaming" someone, orally or in writing, to others.
Although the word is no longer in general use, tort suits are the stuff of everyday headlines. More and more people injured by exposure to a variety of risks now seek redress (some sort of remedy through the courts). Headlines boast of multimillion-dollar jury awards against doctors who bungled operations, against newspapers that libeled subjects of stories, and against oil companies that devastate entire ecosystems. All are examples of tort suits.
The law of torts developed almost entirely in the common-law courts; that is, statutes passed by legislatures were not the source of law that plaintiffs usually relied on. Usually, plaintiffs would rely on the common law (judicial decisions). Through thousands of cases, the courts have fashioned a series of rules that govern the conduct of individuals in their noncontractual dealings with each other. Through contracts, individuals can craft their own rights and responsibilities toward each other. In the absence of contracts, tort law holds individuals legally accountable for the consequences of their actions. Those who suffer losses at the hands of others can be compensated.
Many acts (like homicide) are both criminal and tortious. But torts and crimes are different, and the difference is worth noting. A crime is an act against the people as a whole. Society punishes the murderer; it does not usually compensate the family of the victim. Tort law, on the other hand, views the death as a private wrong for which damages are owed. In a civil case, the tort victim or his family, not the state, brings the action. The judgment against a defendant in a civil tort suit is usually expressed in monetary terms, not in terms of prison times or fines, and is the legal system’s way of trying to make up for the victim’s loss.
Kinds of Torts
There are three kinds of torts: intentional torts, negligent torts, and strict liability torts. Intentional torts arise from intentional acts, whereas unintentional torts often result from carelessness (e.g., when a surgical team fails to remove a clamp from a patient’s abdomen when the operation is finished). Both intentional torts and negligent torts imply some fault on the part of the defendant. In strict liability torts, by contrast, there may be no fault at all, but tort law will sometimes require a defendant to make up for the victim’s losses even where the defendant was not careless and did not intend to do harm.
Dimensions of Tort Liability
There is a clear moral basis for recovery through the legal system where the defendant has been careless (negligent) or has intentionally caused harm. Using the concepts that we are free and autonomous beings with basic rights, we can see that when others interfere with either our freedom or our autonomy, we will usually react negatively. As the old saying goes, “Your right to swing your arm ends at the tip of my nose.” The law takes this even one step further: under intentional tort law, if you frighten someone by swinging your arms toward the tip of her nose, you may have committed the tort of assault, even if there is no actual touching (battery).
Under a capitalistic market system, rational economic rules also call for no negative externalities. That is, actions of individuals, either alone or in concert with others, should not negatively impact third parties. The law will try to compensate third parties who are harmed by your actions, even as it knows that a money judgment cannot actually mend a badly injured victim.
Figure 7.1 Dimensions of Tort Liability
Dimensions of Tort: Fault
Tort principles can be viewed along different dimensions. One is the fault dimension. Like criminal law, tort law requires a wrongful act by a defendant for the plaintiff to recover. Unlike criminal law, however, there need not be a specific intent. Since tort law focuses on injury to the plaintiff, it is less concerned than criminal law about the reasons for the defendant’s actions. An innocent act or a relatively innocent one may still provide the basis for liability. Nevertheless, tort law—except for strict liability—relies on standards of fault, or blameworthiness.
The most obvious standard is willful conduct. If the defendant (often called the tortfeasor—i.e., the one committing the tort) intentionally injures another, there is little argument about tort liability. Thus all crimes resulting in injury to a person or property (murder, assault, arson, etc.) are also torts, and the plaintiff may bring a separate lawsuit to recover damages for injuries to his person, family, or property.
Most tort suits do not rely on intentional fault. They are based, rather, on negligent conduct that in the circumstances is careless or poses unreasonable risks of causing damage. Most automobile accident and medical malpractice suits are examples of negligence suits.
The fault dimension is a continuum. At one end is the deliberate desire to do injury. The middle ground is occupied by careless conduct. At the other end is conduct that most would consider entirely blameless, in the moral sense. The defendant may have observed all possible precautions and yet still be held liable. This is called strict liability. An example is that incurred by the manufacturer of a defective product that is placed on the market despite all possible precautions, including quality-control inspection. In many states, if the product causes injury, the manufacturer will be held liable.
Dimensions of Tort: Nature of Injury
Tort liability varies by the type of injury caused. The most obvious type is physical harm to the person (assault, battery, infliction of emotional distress, negligent exposure to toxic pollutants, wrongful death) or property (trespass, nuisance, arson, interference with contract). Mental suffering can be redressed if it is a result of physical injury (e.g., shock and depression following an automobile accident). A few states now permit recovery for mental distress alone (a mother’s shock at seeing her son injured by a car while both were crossing the street). Other protected interests include a person’s reputation (injured by defamatory statements or writings), privacy (injured by those who divulge secrets of his personal life), and economic interests (misrepresentation to secure an economic advantage, certain forms of unfair competition).
Dimensions of Tort: Excuses
A third element in the law of torts is the excuse for committing an apparent wrong. The law does not condemn every act that ultimately results in injury.
One common rule of exculpation is assumption of risk. A baseball fan who sits along the third base line close to the infield assumes the risk that a line drive foul ball may fly toward him and strike him. He will not be permitted to complain in court that the batter should have been more careful or that management should have either warned him or put up a protective barrier.
Another excuse is negligence of the plaintiff. If two drivers are careless and hit each other on the highway, some states will refuse to permit either to recover from the other. Still another excuse is consent: two boxers in the ring consent to being struck with fists (but not to being bitten on the ear).
Damages
Since the purpose of tort law is to compensate the victim for harm actually done, damages are usually measured by the extent of the injury. Expressed in money terms, these include replacement of property destroyed, compensation for lost wages, reimbursement for medical expenses, and dollars that are supposed to approximate the pain that is suffered. Damages for these injuries are called compensatory damages.
In certain instances, the courts will permit an award of punitive damages. As the word punitive implies, the purpose is to punish the defendant’s actions. Because a punitive award (sometimes called exemplary damages) is at odds with the general purpose of tort law, it is allowable only in aggravated situations. The law in most states permits recovery of punitive damages only when the defendant has deliberately committed a wrong with malicious intent or has otherwise done something outrageous.
Punitive damages are rarely allowed in negligence cases for that reason. But if someone sets out intentionally and maliciously to hurt another person, punitive damages may well be appropriate. Punitive damages are intended not only to punish the wrongdoer, by exacting an additional and sometimes heavy payment (the exact amount is left to the discretion of jury and judge), but also to deter others from similar conduct. The punitive damage award has been subject to heavy criticism in recent years in cases in which it has been awarded against manufacturers. One fear is that huge damage awards on behalf of a multitude of victims could swiftly bankrupt the defendant. Unlike compensatory damages, punitive damages are taxable.
KEY TAKEAWAY
There are three kinds of torts, and in two of them (negligent torts and strict liability torts), damages are usually limited to making the victim whole through an enforceable judgment for money damages. These compensatory damages awarded by a court accomplish only approximate justice for the injuries or property damage caused by a tortfeasor. Tort laws go a step further toward deterrence, beyond compensation to the plaintiff, in occasionally awarding punitive damages against a defendant. These are almost always in cases where an intentional tort has been committed.
EXERCISES
1. Why is deterrence needed for intentional torts (where punitive damages are awarded) rather than negligent torts?
2. Why are costs imposed on others without their consent problematic for a market economy? What if the law did not try to reimpose the victim’s costs onto the tortfeasor? What would a totally nonlitigious society be like? | textbooks/biz/Civil_Law/Book%3A_Introduction_to_Contracts_Sales_and_Product_Liability/07%3A_Introduction_to_Tort_Law/7.01%3A_Purpose_of_Tort_Laws.txt |
LEARNING OBJECTIVES
1. Distinguish intentional torts from other kinds of torts.
2. Give three examples of an intentional tort—one that causes injury to a person, one that causes injury to property, and one that causes injury to a reputation.
The analysis of most intentional torts is straightforward and parallels the substantive crimes already discussed in Chapter 6 "Criminal Law". When physical injury or damage to property is caused, there is rarely debate over liability if the plaintiff deliberately undertook to produce the harm. Certain other intentional torts are worth noting for their relevance to business.
Assault and Battery
One of the most obvious intentional torts is assault and battery. Both criminal law and tort law serve to restrain individuals from using physical force on others. Assault is (1) the threat of immediate harm or offense of contact or (2) any act that would arouse reasonable apprehension of imminent harm. Battery is unauthorized and harmful or offensive physical contact with another person that causes injury.
Often an assault results in battery, but not always. In Western Union Telegraph Co. v. Hill, for example, the defendant did not touch the plaintiff’s wife, but the case presented an issue of possible assault even without an actual battery; the defendant employee attempted to kiss a customer across the countertop, couldn't quite reach her, but nonetheless created actionable fear (or, as the court put it, “apprehension”) on the part of the plaintiff's wife. It is also possible to have a battery without an assault. For example, if someone hits you on the back of the head with an iron skillet and you didn’t see it coming, there is a battery but no assault. Likewise, if Andrea passes out from drinking too much at the fraternity party and a stranger (Andre) kisses her on the lips while she is passed out, she would not be aware of any threat of offensive contact and would have no apprehension of any harm. Thus there has been no tort of assault, but she could allege the tort of battery. (The question of what damages, if any, would be an interesting argument.)
Under the doctrine of transferred intent, if Draco aims his wand at Harry but Harry ducks just in time and the impact is felt by Hermione instead, English law (and American law) would transfer Draco’s intent from the target to the actual victim of the act. Thus Hermione could sue Draco for battery for any damages she had suffered.
False Imprisonment
The tort of false imprisonment originally implied a locking up, as in a prison, but today it can occur if a person is restrained in a room or a car or even if his or her movements are restricted while walking down the street. People have a right to be free to go as they please, and anyone who without cause deprives another of personal freedom has committed a tort. Damages are allowed for time lost, discomfort and resulting ill health, mental suffering, humiliation, loss of reputation or business, and expenses such as attorneys’ fees incurred as a result of the restraint (such as a false arrest). But as the case of Lester v. Albers Super Markets, Inc. (Section 7.5 "Cases") shows, the defendant must be shown to have restrained the plaintiff in order for damages to be allowed.
Intentional Infliction of Emotional Distress
Until recently, the common-law rule was that there could be no recovery for acts, even though intentionally undertaken, that caused purely mental or emotional distress. For a case to go to the jury, the courts required that the mental distress result from some physical injury. In recent years, many courts have overthrown the older rule and now recognize the so-called new tort. In an employment context, however, it is rare to find a case where a plaintiff is able to recover. The most difficult hurdle is proving that the conduct was “extreme” or “outrageous.”
In an early California case, bill collectors came to the debtor’s home repeatedly and threatened the debtor’s pregnant wife. Among other things, they claimed that the wife would have to deliver her child in prison. The wife miscarried and had emotional and physical complications. The court found that the behavior of the collection company’s two agents was sufficiently outrageous to prove the tort of intentional infliction of emotional distress. In Roche v. Stern (New York), the famous cable television talk show host Howard Stern had tastelessly discussed the remains of Deborah Roche, a topless dancer and cable access television host.Roche v. Stern, 675 N.Y.S.2d 133 (1998). The remains had been brought to Stern’s show by a close friend of Roche, Chaunce Hayden, and a number of crude comments by Stern and Hayden about the remains were videotaped and broadcast on a national cable television station. Roche’s sister and brother sued Howard Stern and Infinity broadcasting and were able to get past the defendant’s motion to dismiss to have a jury consider their claim.
A plaintiff’s burden in these cases is to show that the mental distress is severe. Many states require that this distress must result in physical symptoms such as nausea, headaches, ulcers, or, as in the case of the pregnant wife, a miscarriage. Other states have not required physical symptoms, finding that shame, embarrassment, fear, and anger constitute severe mental distress.
Trespass and Nuisance
Trespass is intentionally going on land that belongs to someone else or putting something on someone else’s property and refusing to remove it. This part of tort law shows how strongly the law values the rights of property owners. The right to enjoy your property without interference from others is also found in common law of nuisance. There are limits to property owners’ rights, however. In Katko v. Briney, for example, the plaintiff was injured by a spring gun while trespassing on the defendant’s property.Katko v. Briney, 183 N.W.2d 657 (Iowa 1971). The defendant had set up No Trespassing signs after ten years of trespassing and housebreaking events, with the loss of some household items. Windows had been broken, and there was “messing up of the property in general.” The defendants had boarded up the windows and doors in order to stop the intrusions and finally had set up a shotgun trap in the north bedroom of the house. One defendant had cleaned and oiled his 20-gauge shotgun and taken it to the old house where it was secured to an iron bed with the barrel pointed at the bedroom door. “It was rigged with wire from the doorknob to the gun’s trigger so would fire when the door was opened.” The angle of the shotgun was adjusted to hit an intruder in the legs. The spring could not be seen from the outside, and no warning of its presence was posted.
The plaintiff, Katko, had been hunting in the area for several years and considered the property abandoned. He knew it had long been uninhabited. He and a friend had been to the house and found several old bottles and fruit jars that they took and added to their collection of antiques. When they made a second trip to the property, they entered by removing a board from a porch window. When the plaintiff opened the north bedroom door, the shotgun went off and struck him in the right leg above the ankle bone. Much of his leg was blown away. While Katko knew he had no right to break and enter the house with intent to steal bottles and fruit jars, the court held that a property owner could not protect an unoccupied boarded-up farmhouse by using a spring gun capable of inflicting death or serious injury.
In Katko, there is an intentional tort. But what if someone trespassing is injured by the negligence of the landowner? States have differing rules about trespass and negligence. In some states, a trespasser is only protected against the gross negligence of the landowner. In other states, trespassers may be owed the duty of due care on the part of the landowner. The burglar who falls into a drained swimming pool, for example, may have a case against the homeowner unless the courts or legislature of that state have made it clear that trespassers are owed the limited duty to avoid gross negligence. Or a very small child may wander off his own property and fall into a gravel pit on a nearby property and suffer death or serious injury; if the pit should (in the exercise of due care) have been filled in or some barrier erected around it, then there was negligence. But if the state law holds that the duty to trespassers is only to avoid gross negligence, the child’s family would lose, unless the state law makes an exception for very young trespassers. In general, guests, licensees, and invitees are owed a duty of due care; a trespasser may not be owed such a duty, but states have different rules on this.
Intentional Interference with Contractual Relations
Tortious interference with a contract can be established by proving four elements:
1. There was a contract between the plaintiff and a third party.
2. The defendant knew of the contract.
3. The defendant improperly induced the third party to breach the contract or made performance of the contract impossible.
4. There was injury to the plaintiff.
In a famous case of contract interference, Texaco was sued by Pennzoil for interfering with an agreement that Pennzoil had with Getty Oil. After complicated negotiations between Pennzoil and Getty, a takeover share price was struck, a memorandum of understanding was signed, and a press release announced the agreement in principle between Pennzoil and Getty. Texaco’s lawyers, however, believed that Getty oil was “still in play,” and before the lawyers for Pennzoil and Getty could complete the paperwork for their agreement, Texaco announced it was offering Getty shareholders an additional \$12.50 per share over what Pennzoil had offered.
Texaco later increased its offer to \$228 per share, and the Getty board of directors soon began dealing with Texaco instead of Pennzoil. Pennzoil decided to sue in Texas state court for tortious interference with a contract. After a long trial, the jury returned an enormous verdict against Texaco: \$7.53 billion in actual damages and \$3 billion in punitive damages. The verdict was so large that it would have bankrupted Texaco. Appeals from the verdict centered on an obscure rule of the Securities and Exchange Commission (SEC), Rule 10(b)-13, and Texaco’s argument was based on that rule and the fact that the contract had not been completed. If there was no contract, Texaco could not have legally interfered with one. After the SEC filed a brief that supported Texaco’s interpretation of the law, Texaco agreed to pay \$3 billion to Pennzoil to dismiss its claim of tortious interference with a contract.
Malicious Prosecution
Malicious prosecution is the tort of causing someone to be prosecuted for a criminal act, knowing that there was no probable cause to believe that the plaintiff committed the crime. The plaintiff must show that the defendant acted with malice or with some purpose other than bringing the guilty to justice. A mere complaint to the authorities is insufficient to establish the tort, but any official proceeding will support the claim—for example, a warrant for the plaintiff’s arrest. The criminal proceeding must terminate in the plaintiff’s favor in order for his suit to be sustained.
A majority of US courts, though by no means all, permit a suit for wrongful civil proceedings. Civil litigation is usually costly and burdensome, and one who forces another to defend himself against baseless accusations should not be permitted to saddle the one he sues with the costs of defense. However, because, as a matter of public policy, litigation is favored as the means by which legal rights can be vindicated—indeed, the Supreme Court has even ruled that individuals have a constitutional right to litigate—the plaintiff must meet a heavy burden in proving his case. The mere dismissal of the original lawsuit against the plaintiff is not sufficient proof that the suit was unwarranted. The plaintiff in a suit for wrongful civil proceedings must show that the defendant (who was the plaintiff in the original suit) filed the action for an improper purpose and had no reasonable belief that his cause was legally or factually well grounded.
Defamation
Defamation is injury to a person’s good name or reputation. In general, if the harm is done through the spoken word—one person to another, by telephone, by radio, or on television—it is called slander. If the defamatory statement is published in written form, it is called libel.
The Restatement (Second) of Torts defines a defamatory communication as one that “so tends to harm the reputation of another as to lower him in the estimation of the community or to deter third persons from associating or dealing with him.”Restatement (Second) of Torts, Section 559 (1965).
A statement is not defamatory unless it is false. Truth is an absolute defense to a charge of libel or slander. Moreover, the statement must be “published”—that is, communicated to a third person. You cannot be libeled by one who sends you a letter full of false accusations and scurrilous statements about you unless a third person opens it first (your roommate, perhaps). Any living person is capable of being defamed, but the dead are not. Corporations, partnerships, and other forms of associations can also be defamed, if the statements tend to injure their ability to do business or to garner contributions.
The statement must have reference to a particular person, but he or she need not be identified by name. A statement that “the company president is a crook” is defamatory, as is a statement that “the major network weathermen are imposters.” The company president and the network weathermen could show that the words were aimed at them. But statements about large groups will not support an action for defamation (e.g., “all doctors are butchers” is not defamatory of any particular doctor).
The law of defamation is largely built on strict liability. That a person did not intend to defame is ordinarily no excuse; a typographical error that converts a true statement into a false one in a newspaper, magazine, or corporate brochure can be sufficient to make out a case of libel. Even the exercise of due care is usually no excuse if the statement is in fact communicated. Repeating a libel is itself a libel; a libel cannot be justified by showing that you were quoting someone else. Though a plaintiff may be able to prove that a statement was defamatory, he is not necessarily entitled to an award of damages. That is because the law contains a number of privileges that excuse the defamation.
Publishing false information about another business’s product constitutes the tort of slander of quality, or trade libel. In some states, this is known as the tort of product disparagement. It may be difficult to establish damages, however. A plaintiff must prove that actual damages proximately resulted from the slander of quality and must show the extent of the economic harm as well.
Absolute Privilege
Statements made during the course of judicial proceedings are absolutely privileged, meaning that they cannot serve as the basis for a defamation suit. Accurate accounts of judicial or other proceedings are absolutely privileged; a newspaper, for example, may pass on the slanderous comments of a judge in court. “Judicial” is broadly construed to include most proceedings of administrative bodies of the government. The Constitution exempts members of Congress from suits for libel or slander for any statements made in connection with legislative business. The courts have constructed a similar privilege for many executive branch officials.
Qualified Privilege
Absolute privileges pertain to those in the public sector. A narrower privilege exists for private citizens. In general, a statement that would otherwise be actionable is held to be justified if made in a reasonable manner and for a reasonable purpose. Thus you may warn a friend to beware of dealing with a third person, and if you had reason to believe that what you said was true, you are privileged to issue the warning, even though false. Likewise, an employee may warn an employer about the conduct or character of a fellow or prospective employee, and a parent may complain to a school board about the competence or conduct of a child’s teacher. There is a line to be drawn, however, and a defendant with nothing but an idle interest in the matter (an “officious intermeddler”) must take the risk that his information is wrong.
In 1964, the Supreme Court handed down its historic decision in New York Times v. Sullivan, holding that under the First Amendment a libel judgment brought by a public official against a newspaper cannot stand unless the plaintiff has shown “actual malice,” which in turn was defined as “knowledge that [the statement] was false or with a reckless disregard of whether it was false or not.”Times v. Sullivan, 376 US 254 (1964). In subsequent cases, the court extended the constitutional doctrine further, applying it not merely to government officials but to public figures, people who voluntarily place themselves in the public eye or who involuntarily find themselves the objects of public scrutiny. Whether a private person is or is not a public figure is a difficult question that has so far eluded rigorous definition and has been answered only from case to case. A CEO of a private corporation ordinarily will be considered a private figure unless he puts himself in the public eye—for example, by starring in the company’s television commercials.
Invasion of Privacy
The right of privacy—the right “to be let alone”—did not receive judicial recognition until the twentieth century, and its legal formulation is still evolving. In fact there is no single right of privacy. Courts and commentators have discerned at least four different types of interests: (1) the right to control the appropriation of your name and picture for commercial purposes, (2) the right to be free of intrusion on your “personal space” or seclusion, (3) freedom from public disclosure of embarrassing and intimate facts of your personal life, and (4) the right not to be presented in a “false light.”
Appropriation of Name or Likeness
The earliest privacy interest recognized by the courts was appropriation of name or likeness: someone else placing your photograph on a billboard or cereal box as a model or using your name as endorsing a product or in the product name. A New York statute makes it a misdemeanor to use the name, portrait, or picture of any person for advertising purposes or for the purposes of trade (business) without first obtaining written consent. The law also permits the aggrieved person to sue and to recover damages for unauthorized profits and also to have the court enjoin (judicially block) any further unauthorized use of the plaintiff’s name, likeness, or image. This is particularly useful to celebrities.
Because the publishing and advertising industries are concentrated heavily in New York, the statute plays an important part in advertising decisions made throughout the country. Deciding what “commercial” or “trade” purposes are is not always easy. Thus a newsmagazine may use a baseball player’s picture on its cover without first obtaining written permission, but a chocolate manufacturer could not put the player’s picture on a candy wrapper without consent.
Personal Space
One form of intrusion upon a person’s solitude—trespass—has long been actionable under common law. Physical invasion of home or other property is not a new tort. But in recent years, the notion of intrusion has been broadened considerably. Now, taking photos of someone else with your cell phone in a locker room could constitute invasion of the right to privacy. Reading someone else’s mail or e-mail could also constitute an invasion of the right to privacy. Photographing someone on a city street is not tortious, but subsequent use of the photograph could be. Whether the invasion is in a public or private space, the amount of damages will depend on how the image or information is disclosed to others.
Public Disclosure of Embarassing Facts
Circulation of false statements that do injury to a person are actionable under the laws of defamation. What about true statements that might be every bit as damaging—for example, disclosure of someone’s income tax return, revealing how much he earned? The general rule is that if the facts are truly private and of no “legitimate” concern to the public, then their disclosure is a violation of the right to privacy. But a person who is in the public eye cannot claim the same protection.
False Light
A final type of privacy invasion is that which paints a false picture in a publication. Though false, it might not be libelous, since the publication need contain nothing injurious to reputation. Indeed, the publication might even glorify the plaintiff, making him seem more heroic than he actually is. Subject to the First Amendment requirement that the plaintiff must show intent or extreme recklessness, statements that put a person in a false light, like a fictionalized biography, are actionable.
KEY TAKEAWAY
There are many kinds of intentional torts. Some of them involve harm to the physical person or to his or her property, reputation or feelings, or economic interests. In each case of intentional tort, the plaintiff must show that the defendant intended harm, but the intent to harm does not need to be directed at a particular person and need not be malicious, as long as the resulting harm is a direct consequence of the defendant’s actions.
EXERCISES
1. Name two kinds of intentional torts that could result in damage to a business firm’s bottom line.
2. Name two kinds of intentional torts that are based on protection of a person’s property.
3. Why are intentional torts more likely to result in a verdict not only for compensatory damages but also for punitive damages? | textbooks/biz/Civil_Law/Book%3A_Introduction_to_Contracts_Sales_and_Product_Liability/07%3A_Introduction_to_Tort_Law/7.02%3A_Intentional_Torts.txt |
LEARNING OBJECTIVES
1. Understand how the duty of due care relates to negligence.
2. Distinguish between actual and proximate cause.
3. Explain the primary defenses to a claim of negligence.
Elements of Negligence
Physical harm need not be intentionally caused. A pedestrian knocked over by an automobile does not hurt less because the driver intended no wrong but was merely careless. The law imposes a duty of care on all of us in our everyday lives. Accidents caused by negligence are actionable.
Determining negligence is not always easy. If a driver runs a red light, we can say that he is negligent because a driver must always be careful to ascertain whether the light is red and be able to stop if it is. Suppose that the driver was carrying a badly injured person to a nearby hospital and that after slowing down at an intersection, went through a red light, blowing his horn, whereupon a driver to his right, seeing him, drove into the intersection anyway and crashed into him. Must one always stop at a red light? Is proof that the light was red always proof of negligence? Usually, but not always: negligence is an abstract concept that must always be applied to concrete and often widely varying sets of circumstances. Whether someone was or was not negligent is almost always a question of fact for a jury to decide. Rarely is it a legal question that a judge can settle.
The tort of negligence has four elements: (1) a duty of due care that the defendant had, (2) the breach of the duty of due care, (3) connection between cause and injury, and (4) actual damage or loss. Even if a plaintiff can prove each of these aspects, the defendant may be able to show that the law excuses the conduct that is the basis for the tort claim. We examine each of these factors below.
Standard of Care
Not every unintentional act that causes injury is negligent. If you brake to a stop when you see a child dart out in front of your car, and if the noise from your tires gives someone in a nearby house a heart attack, you have not acted negligently toward the person in the house. The purpose of the negligence standard is to protect others against the risk of injury that foreseeably would ensue from unreasonably dangerous conduct.
Given the infinite variety of human circumstances and conduct, no general statement of a reasonable standard of care is possible. Nevertheless, the law has tried to encapsulate it in the form of the famous standard of “the reasonable man.” This fictitious person “of ordinary prudence” is the model that juries are instructed to compare defendants with in assessing whether those defendants have acted negligently. Analysis of this mythical personage has baffled several generations of commentators. How much knowledge must he have of events in the community, of technology, of cause and effect? With what physical attributes, courage, or wisdom is this nonexistent person supposedly endowed? If the defendant is a person with specialized knowledge, like a doctor or an automobile designer, must the jury also treat the “reasonable man” as having this knowledge, even though the average person in the community will not? (Answer: in most cases, yes.)
Despite the many difficulties, the concept of the reasonable man is one on which most negligence cases ultimately turn. If a defendant has acted “unreasonably under the circumstances” and his conduct posed an unreasonable risk of injury, then he is liable for injury caused by his conduct. Perhaps in most instances, it is not difficult to divine what the reasonable man would do. The reasonable man stops for traffic lights and always drives at reasonable speeds, does not throw baseballs through windows, performs surgical operations according to the average standards of the medical profession, ensures that the floors of his grocery store are kept free of fluids that would cause a patron to slip and fall, takes proper precautions to avoid spillage of oil from his supertanker, and so on. The "reasonable man" standard imposes hindsight on the decisions and actions of people in society; the circumstances of life are such that courts may sometimes impose a standard of due care that many people might not find reasonable.
Duty of Care and Its Breach
The law does not impose on us a duty to care for every person. If the rule were otherwise, we would all, in this interdependent world, be our brothers’ keepers, constantly unsure whether any action we took might subject us to liability for its effect on someone else. The law copes with this difficulty by limiting the number of people toward whom we owe a duty to be careful.
In general, the law imposes no obligation to act in a situation to which we are strangers. We may pass the drowning child without risking a lawsuit. But if we do act, then the law requires us to act carefully. The law of negligence requires us to behave with due regard for the foreseeable consequences of our actions in order to avoid unreasonable risks of injury.
During the course of the twentieth century, the courts have constantly expanded the notion of “foreseeability,” so that today many more people are held to be within the zone of injury than was once the case. For example, it was once believed that a manufacturer or supplier owed a duty of care only to immediate purchasers, not to others who might use the product or to whom the product might be resold. This limitation was known as the rule of privity. And users who were not immediate purchasers were said not to be in privity with a supplier or manufacturer. In 1916, Judge Benjamin N. Cardozo, then on the New York Court of Appeals, penned an opinion in a celebrated case that exploded the theory of privity, though it would take half a century before the last state—Mississippi in 1966—would fall in line.
Determining a duty of care can be a vexing problem. Physicians, for example, are bound by principles of medical ethics to respect the confidences of their patients. Suppose a patient tells a psychiatrist that he intends to kill his girlfriend. Does the physician then have a higher legal duty to warn prospective victim? The California Supreme Court has said yes.Tarasoff v. Regents of University of California, 551 P.2d 334 (Calif. 1976).
Establishing a breach of the duty of due care where the defendant has violated a statute or municipal ordinance is eased considerably with the doctrine of negligence per se, a doctrine common to all US state courts. If a legislative body sets a minimum standard of care for particular kinds of acts to protect a certain set of people from harm and a violation of that standard causes harm to someone in that set, the defendant is negligent per se. If Harvey is driving sixty-five miles per hour in a fifty-five-mile-per-hour zone when he crashes into Haley’s car and the police accident report establishes that or he otherwise admits to going ten miles per hour over the speed limit, Haley does not have to prove that Harvey has breached a duty of due care. She will only have to prove that the speeding was an actual and proximate cause of the collision and will also have to prove the extent of the resulting damages to her.
Causation: Actual Cause and Proximate Cause
“For want of a nail, the kingdom was lost,” as the old saying has it. Virtually any cause of an injury can be traced to some preceding cause. The problem for the law is to know when to draw the line between causes that are immediate and causes too remote for liability reasonably to be assigned to them. In tort theory, there are two kinds of causes that a plaintiff must prove: actual cause and proximate cause. Actual cause (causation in fact) can be found if the connection between the defendant’s act and the plaintiff’s injuries passes the “but for” test: if an injury would not have occurred “but for” the defendant’s conduct, then the defendant is the cause of the injury. Still, this is not enough causation to create liability. The injuries to the plaintiff must also be foreseeable, or not “too remote,” for the defendant’s act to create liability. This is proximate cause: a cause that is not too remote or unforseeable.
Suppose that the person who was injured was not one whom a reasonable person could have expected to be harmed. Such a situation was presented in one of the most famous US tort cases, Palsgraf v. Long Island Railroad (Section 7.5 "Cases"), which was decided by Judge Benjamin Cardozo. Although Judge Cardozo persuaded four of his seven brethren to side with his position, the closeness of the case demonstrates the difficulty that unforeseeable consequences and unforeseeable plaintiffs present.
Damages
For a plaintiff to win a tort case, she must allege and prove that she was injured. The fear that she might be injured in the future is not a sufficient basis for a suit. This rule has proved troublesome in medical malpractice and industrial disease cases. A doctor’s negligent act or a company’s negligent exposure of a worker to some form of contamination might not become manifest in the body for years. In the meantime, the tort statute of limitations might have run out, barring the victim from suing at all. An increasing number of courts have eased the plaintiff’s predicament by ruling that the statute of limitations does not begin to run until the victim discovers that she has been injured or contracted a disease.
The law allows an exception to the general rule that damages must be shown when the plaintiff stands in danger of immediate injury from a hazardous activity. If you discover your neighbor experimenting with explosives in his basement, you could bring suit to enjoin him from further experimentation, even though he has not yet blown up his house—and yours.
Problems of Proof
The plaintiff in a tort suit, as in any other, has the burden of proving his allegations.
He must show that the defendant took the actions complained of as negligent, demonstrate the circumstances that make the actions negligent, and prove the occurrence and extent of injury. Factual issues are for the jury to resolve. Since it is frequently difficult to make out the requisite proof, the law allows certain presumptions and rules of evidence that ease the plaintiff’s task, on the ground that without them substantial injustice would be done. One important rule goes by the Latin phrase res ipsa loquitur, meaning “the thing speaks for itself.” The best evidence is always the most direct evidence: an eyewitness account of the acts in question. But eyewitnesses are often unavailable, and in any event they frequently cannot testify directly to the reasonableness of someone’s conduct, which inevitably can only be inferred from the circumstances.
In many cases, therefore, circumstantial evidence (evidence that is indirect) will be the only evidence or will constitute the bulk of the evidence. Circumstantial evidence can often be quite telling: though no one saw anyone leave the building, muddy footprints tracing a path along the sidewalk are fairly conclusive. Res ipsa loquitur is a rule of circumstantial evidence that permits the jury to draw an inference of negligence. A common statement of the rule is the following: “There must be reasonable evidence of negligence but where the thing is shown to be under the management of the defendant or his servants, and the accident is such as in the ordinary course of things does not happen if those who have the management use proper care, it affords reasonable evidence, in the absence of explanation by the defendants, that the accident arose from want of care.”Scott v. London & St. Katherine Docks Co., 3 H. & C. 596, 159 Eng.Rep. 665 (Q.B. 1865).
If a barrel of flour rolls out of a factory window and hits someone, or a soda bottle explodes, or an airplane crashes, courts in every state permit juries to conclude, in the absence of contrary explanations by the defendants, that there was negligence. The plaintiff is not put to the impossible task of explaining precisely how the accident occurred. A defendant can always offer evidence that he acted reasonably—for example, that the flour barrel was securely fastened and that a bolt of lightning, for which he was not responsible, broke its bands, causing it to roll out the window. But testimony by the factory employees that they secured the barrel, in the absence of any further explanation, will not usually serve to rebut the inference. That the defendant was negligent does not conclude the inquiry or automatically entitle the plaintiff to a judgment. Tort law provides the defendant with several excuses, some of which are discussed briefly in the next section.
Excuses
There are more excuses (defenses) than are listed here, but contributory negligence or comparative negligence, assumption of risk, and act of God are among the principal defenses that will completely or partially excuse the negligence of the defendant.
Contributory and Comparative Negligence
Under an old common-law rule, it was a complete defense to show that the plaintiff in a negligence suit was himself negligent. Even if the plaintiff was only mildly negligent, most of the fault being chargeable to the defendant, the court would dismiss the suit if the plaintiff’s conduct contributed to his injury. In a few states today, this rule of contributory negligence is still in effect. Although referred to as negligence, the rule encompasses a narrower form than that with which the defendant is charged, because the plaintiff’s only error in such cases is in being less careful of himself than he might have been, whereas the defendant is charged with conduct careless toward others. This rule was so manifestly unjust in many cases that most states, either by statute or judicial decision, have changed to some version of comparative negligence. Under the rule of comparative negligence, damages are apportioned according to the defendant’s degree of culpability. For example, if the plaintiff has sustained a \$100,000 injury and is 20 percent responsible, the defendant will be liable for \$80,000 in damages.
Assumption of Risk
Risk of injury pervades the modern world, and plaintiffs should not win a lawsuit simply because they took a risk and lost. The law provides, therefore, that when a person knowingly takes a risk, he or she must suffer the consequences.
The assumption of risk doctrine comes up in three ways. The plaintiff may have formally agreed with the defendant before entering a risky situation that he will relieve the defendant of liability should injury occur. (“You can borrow my car if you agree not to sue me if the brakes fail, because they’re worn and I haven’t had a chance to replace them.”) Or the plaintiff may have entered into a relationship with the defendant knowing that the defendant is not in a position to protect him from known risks (the fan who is hit by a line drive in a ballpark). Or the plaintiff may act in the face of a risky situation known in advance to have been created by the defendant’s negligence (failure to leave, while there was an opportunity to do so, such as getting into an automobile when the driver is known to be drunk).
The difficulty in many cases is to determine the dividing line between subjectivity and objectivity. If the plaintiff had no actual knowledge of the risk, he cannot be held to have assumed it. On the other hand, it is easy to claim that you did not appreciate the danger, and the courts will apply an objective standard of community knowledge (a “but you should have known” test) in many situations. When the plaintiff has no real alternative, however, assumption of risk fails as a defense (e.g., a landlord who negligently fails to light the exit to the street cannot claim that his tenants assumed the risk of using it).
At the turn of the century, courts applied assumption of risk in industrial cases to bar relief to workers injured on the job. They were said to assume the risk of dangerous conditions or equipment. This rule has been abolished by workers’ compensation statutes in most states.
Act of God
Technically, the rule that no one is responsible for an “act of God,” or force majeure as it is sometimes called, is not an excuse but a defense premised on a lack of causation. If a force of nature caused the harm, then the defendant was not negligent in the first place. A marina, obligated to look after boats moored at its dock, is not liable if a sudden and fierce storm against which no precaution was possible destroys someone’s vessel. However, if it is foreseeable that harm will flow from a negligent condition triggered by a natural event, then there is liability. For example, a work crew failed to remove residue explosive gas from an oil barge. Lightning hit the barge, exploded the gas, and injured several workmen. The plaintiff recovered damages against the company because the negligence consisted in the failure to guard against any one of a number of chance occurrences that could ignite the gas.Johnson v. Kosmos Portland Cement Co., 64 F.2d 193 (6th Cir. 1933).
Vicarious Liability
Liability for negligent acts does not always end with the one who was negligent. Under certain circumstances, the liability is imputed to others. For example, an employer is responsible for the negligence of his employees if they were acting in the scope of employment. This rule of vicarious liability is often called respondeat superior, meaning that the higher authority must respond to claims brought against one of its agents. Respondeat superior is not limited to the employment relationship but extends to a number of other agency relationships as well.
Legislatures in many states have enacted laws that make people vicariously liable for acts of certain people with whom they have a relationship, though not necessarily one of agency. It is common, for example, for the owner of an automobile to be liable for the negligence of one to whom the owner lends the car. So-called dram shop statutes place liability on bar and tavern owners and others who serve too much alcohol to one who, in an intoxicated state, later causes injury to others. In these situations, although the injurious act of the drinker stemmed from negligence, the one whom the law holds vicariously liable (the bartender) is not himself necessarily negligent—the law is holding him strictly liable, and to this concept we now turn.
KEY TAKEAWAY
The most common tort claim is based on the negligence of the defendant. In each negligence claim, the plaintiff must establish by a preponderance of the evidence that (1) the defendant had a duty of due care, (2) the defendant breached that duty, (3) that the breach of duty both actually and approximately has caused harm to the plaintiff, and (4) that the harm is measurable in money damages.
It is also possible for the negligence of one person to be imputed to another, as in the case of respondeat superior, or in the case of someone who loans his automobile to another driver who is negligent and causes injury. There are many excuses (defenses) to claims of negligence, including assumption of risk and comparative negligence. In those few jurisdictions where contributory negligence has not been modified to comparative negligence, plaintiffs whose negligence contributes to their own injuries will be barred from any recovery.
EXERCISES
1. Explain the difference between comparative negligence and contributory negligence.
2. How is actual cause different from probable cause?
3. What is an example of assumption of risk?
4. How does res ipsa loquitur help a plaintiff establish a case of negligence? | textbooks/biz/Civil_Law/Book%3A_Introduction_to_Contracts_Sales_and_Product_Liability/07%3A_Introduction_to_Tort_Law/7.03%3A_Negligence.txt |
LEARNING OBJECTIVES
1. Understand how strict liability torts differ from negligent torts.
2. Understand the historical origins of strict liability under common law.
3. Be able to apply strict liability concepts to liability for defective products.
4. Distinguish strict liability from absolute liability, and understand the major defenses to a lawsuit in products-liability cases.
Historical Basis of Strict Liability: Animals and Ultrahazardous Activities
To this point, we have considered principles of liability that in some sense depend upon the “fault” of the tortfeasor. This fault is not synonymous with moral blame.
Aside from acts intended to harm, the fault lies in a failure to live up to a standard of reasonableness or due care. But this is not the only basis for tort liability. Innocent mistakes can be a sufficient basis. As we have already seen, someone who unknowingly trespasses on another’s property is liable for the damage that he does, even if he has a reasonable belief that the land is his. And it has long been held that someone who engages in ultrahazardous (or sometimes, abnormally dangerous) activities is liable for damage that he causes, even though he has taken every possible precaution to avoid harm to someone else.
Likewise, the owner of animals that escape from their pastures or homes and damage neighboring property may be liable, even if the reason for their escape was beyond the power of the owner to stop (e.g., a fire started by lightning that burns open a barn door). In such cases, the courts invoke the principle of strict liability, or, as it is sometimes called, liability without fault. The reason for the rule is explained in Klein v. Pyrodyne Corporation (Section 7.5 "Cases").
Strict Liability for Products
Because of the importance of products liability, this text devotes an entire chapter to it (Chapter 20 "Products Liability"). Strict liability may also apply as a legal standard for products, even those that are not ultrahazardous. In some national legal systems, strict liability is not available as a cause of action to plaintiffs seeking to recover a judgment of products liability against a manufacturer, wholesaler, distributor, or retailer. (Some states limit liability to the manufacturer.) But it is available in the United States and initially was created by a California Supreme Court decision in the 1962 case of Greenman v. Yuba Power Products, Inc.
In Greenman, the plaintiff had used a home power saw and bench, the Shopsmith, designed and manufactured by the defendant. He was experienced in using power tools and was injured while using the approved lathe attachment to the Shopsmith to fashion a wooden chalice. The case was decided on the premise that Greenman had done nothing wrong in using the machine but that the machine had a defect that was “latent” (not easily discoverable by the consumer). Rather than decide the case based on warranties, or requiring that Greenman prove how the defendant had been negligent, Justice Traynor found for the plaintiff based on the overall social utility of strict liability in cases of defective products. According to his decision, the purpose of such liability is to ensure that the “cost of injuries resulting from defective products is borne by the manufacturers…rather than by the injured persons who are powerless to protect themselves.”
Today, the majority of US states recognize strict liability for defective products, although some states limit strict liability actions to damages for personal injuries rather than property damage. Injured plaintiffs have to prove the product caused the harm but do not have to prove exactly how the manufacturer was careless. Purchasers of the product, as well as injured guests, bystanders, and others with no direct relationship with the product, may sue for damages caused by the product.
The Restatement of the Law of Torts, Section 402(a), was originally issued in 1964. It is a widely accepted statement of the liabilities of sellers of goods for defective products. The Restatement specifies six requirements, all of which must be met for a plaintiff to recover using strict liability for a product that the plaintiff claims is defective:
1. The product must be in a defective condition when the defendant sells it.
2. The defendant must normally be engaged in the business of selling or otherwise distributing the product.
3. The product must be unreasonably dangerous to the user or consumer because of its defective condition.
4. The plaintiff must incur physical harm to self or to property by using or consuming the product.
5. The defective condition must be the proximate cause of the injury or damage.
6. The goods must not have been substantially changed from the time the product was sold to the time the injury was sustained.
Section 402(a) also explicitly makes clear that a defendant can be held liable even though the defendant has exercised “all possible care.” Thus in a strict liability case, the plaintiff does not need to show “fault” (or negligence).
For defendants, who can include manufacturers, distributors, processors, assemblers, packagers, bottlers, retailers, and wholesalers, there are a number of defenses that are available, including assumption of risk, product misuse and comparative negligence, commonly known dangers, and the knowledgeable-user defense. We have already seen assumption of risk and comparative negligence in terms of negligence actions; the application of these is similar in products-liability actions.
Under product misuse, a plaintiff who uses a product in an unexpected and unusual way will not recover for injuries caused by such misuse. For example, suppose that someone uses a rotary lawn mower to trim a hedge and that after twenty minutes of such use loses control because of its weight and suffers serious cuts to his abdomen after dropping it. Here, there would be a defense of product misuse, as well as contributory negligence. Consider the urban (or Internet) legend of Mervin Gratz, who supposedly put his Winnebago on autopilot to go back and make coffee in the kitchen, then recovered millions after his Winnebago turned over and he suffered serious injuries. There are multiple defenses to this alleged action; these would include the defenses of contributory negligence, comparative negligence, and product misuse. (There was never any such case, and certainly no such recovery; it is not known who started this legend, or why.)
Another defense against strict liability as a cause of action is the knowledgeable user defense. If the parents of obese teenagers bring a lawsuit against McDonald’s, claiming that its fast-food products are defective and that McDonald’s should have warned customers of the adverse health effects of eating its products, a defense based on the knowledgeable user is available. In one case, the court found that the high levels of cholesterol, fat, salt, and sugar in McDonald’s food is well known to users. The court stated, “If consumers know (or reasonably should know) the potential ill health effects of eating at McDonald’s, they cannot blame McDonald’s if they, nonetheless, choose to satiate their appetite with a surfeit of supersized McDonald’s products.”Pellman v. McDonald’s Corp., 237 F.2d 512 (S.D.N.Y. 2003).
KEY TAKEAWAY
Common-law courts have long held that certain activities are inherently dangerous and that those who cause damage to others by engaging in those activities will be held strictly liable. More recently, courts in the United States have applied strict liability to defective products. Strict liability, however, is not absolute liability, as there are many defenses available to defendants in lawsuits based on strict liability, such as comparative negligence and product abuse.
EXERCISES
1. Someone says, “Strict liability means that you’re liable for whatever you make, no matter what the consumer does with your product. It’s a crazy system.” Respond to and refute this statement.
2. What is the essential difference between strict liability torts and negligent torts? Should the US legal system even allow strict liability torts? What reasons seem persuasive to you? | textbooks/biz/Civil_Law/Book%3A_Introduction_to_Contracts_Sales_and_Product_Liability/07%3A_Introduction_to_Tort_Law/7.04%3A_Strict_Liability.txt |
Intentional Torts: False Imprisonment
Lester v. Albers Super Markets, Inc.
94 Ohio App. 313, 114 N.E.2d 529 (Ohio 1952)
Facts: The plaintiff, carrying a bag of rolls purchased at another store, entered the defendant’s grocery store to buy some canned fruit. Seeing her bus outside, she stepped out of line and put the can on the counter. The store manager intercepted her and repeatedly demanded that she submit the bag to be searched. Finally she acquiesced; he looked inside and said she could go. She testified that several people witnessed the scene, which lasted about fifteen minutes, and that she was humiliated. The jury awarded her \$800. She also testified that no one laid a hand on her or made a move to restrain her from leaving by any one of numerous exits.
* * *
MATTHEWS, JUDGE.
As we view the record, it raises the fundamental question of what is imprisonment. Before any need for a determination of illegality arises there must be proof of imprisonment. In 35 Corpus Juris Secundum (C.J.S.), False Imprisonment, § II, pages 512–13, it is said: “Submission to the mere verbal direction of another, unaccompanied by force or by threats of any character, cannot constitute a false imprisonment, and there is no false imprisonment where an employer interviewing an employee declines to terminate the interview if no force or threat of force is used and false imprisonment may not be predicated on a person’s unfounded belief that he was restrained.”
Many cases are cited in support of the text.
* * *
In Fenn v. Kroger Grocery & Baking Co., Mo. Sup., 209 S.W. 885, 887, the court said:
A case was not made out for false arrest. The plaintiff said she was intercepted as she started to leave the store; that Mr. Krause stood where she could not pass him in going out. She does not say that he made any attempt to intercept her. She says he escorted her back to the desk, that he asked her to let him see the change.
…She does not say that she went unwillingly…Evidence is wholly lacking to show that she was detained by force or threats. It was probably a disagreeable experience, a humiliating one to her, but she came out victorious and was allowed to go when she desired with the assurance of Mr. Krause that it was all right. The demurrer to the evidence on both counts was properly sustained.
The result of the cases is epitomized in 22 Am.Jur. 368, as follows:
A customer or patron who apparently has not paid for what he has received may be detained for a reasonable time to investigate the circumstances, but upon payment of the demand, he has the unqualified right to leave the premises without restraint, so far as the proprietor is concerned, and it is false imprisonment for a private individual to detain one for an unreasonable time, or under unreasonable circumstances, for the purpose of investigating a dispute over the payment of a bill alleged to be owed by the person detained for cash services.
* * *
For these reasons, the judgment is reversed and final judgment entered for the defendant-appellant.
CASE QUESTIONS
1. The court begins by saying what false imprisonment is not. What is the legal definition of false imprisonment?
2. What kinds of detention are permissible for a store to use in accosting those that may have been shoplifting?
3. Jody broke up with Jeremy and refused to talk to him. Jeremy saw Jody get into her car near the business school and parked right behind her so she could not move. He then stood next to the driver’s window for fifteen minutes, begging Jody to talk to him. She kept saying, “No, let me leave!” Has Jeremy committed the tort of false imprisonment?
Negligence: Duty of Due Care
Whitlock v. University of Denver
744 P.2d 54 (Supreme Court of Colorado1987)
On June 19, 1978, at approximately 10:00 p.m., plaintiff Oscar Whitlock suffered a paralyzing injury while attempting to complete a one-and-three-quarters front flip on a trampoline. The injury rendered him a quadriplegic. The trampoline was owned by the Beta Theta Pi fraternity (the Beta house) and was situated on the front yard of the fraternity premises, located on the University campus. At the time of his injury, Whitlock was twenty years old, attended the University of Denver, and was a member of the Beta house, where he held the office of acting house manager. The property on which the Beta house was located was leased to the local chapter house association of the Beta Theta Pi fraternity by the defendant University of Denver.
Whitlock had extensive experience jumping on trampolines. He began using trampolines in junior high school and continued to do so during his brief tenure as a cadet at the United States Military Academy at West Point, where he learned to execute the one-and-three-quarters front flip. Whitlock testified that he utilized the trampoline at West Point every other day for a period of two months. He began jumping on the trampoline owned by the Beta house in September of 1977. Whitlock recounted that in the fall and spring prior to the date of his injury, he jumped on the trampoline almost daily. He testified further that prior to the date of his injury, he had successfully executed the one-and-three-quarters front flip between seventy-five and one hundred times.
During the evening of June 18 and early morning of June 19, 1978, Whitlock attended a party at the Beta house, where he drank beer, vodka and scotch until 2:00 a.m. Whitlock then retired and did not awaken until 2:00 p.m. on June 19. He testified that he jumped on the trampoline between 2:00 p.m. and 4:00 p.m., and again at 7:00 p.m. At 10:00 p.m., the time of the injury, there again was a party in progress at the Beta house, and Whitlock was using the trampoline with only the illumination from the windows of the fraternity house, the outside light above the front door of the house, and two street lights in the area. As Whitlock attempted to perform the one-and-three-quarters front flip, he landed on the back of his head, causing his neck to break.
Whitlock brought suit against the manufacturer and seller of the trampoline, the University, the Beta Theta Pi fraternity and its local chapter, and certain individuals in their capacities as representatives of the Beta Theta Pi organizations. Whitlock reached settlements with all of the named defendants except the University, so only the negligence action against the University proceeded to trial. The jury returned a verdict in favor of Whitlock, assessing his total damages at \$ 7,300,000. The jury attributed twenty-eight percent of causal negligence to the conduct of Whitlock and seventy-two percent of causal negligence to the conduct of the University. The trial court accordingly reduced the amount of the award against the University to \$ 5,256,000.
The University moved for judgment notwithstanding the verdict, or, in the alternative, a new trial. The trial court granted the motion for judgment notwithstanding the verdict, holding that as a matter of law, no reasonable jury could have found that the University was more negligent than Whitlock, and that the jury’s monetary award was the result of sympathy, passion or prejudice.
A panel of the court of appeals reversed…by a divided vote. Whitlock v. University of Denver, 712 P.2d 1072 (Colo. App. 1985). The court of appeals held that the University owed Whitlock a duty of due care to remove the trampoline from the fraternity premises or to supervise its use.…The case was remanded to the trial court with orders to reinstate the verdict and damages as determined by the jury. The University then petitioned for certiorari review, and we granted that petition.
II.
A negligence claim must fail if based on circumstances for which the law imposes no duty of care upon the defendant for the benefit of the plaintiff. [Citations] Therefore, if Whitlock’s judgment against the University is to be upheld, it must first be determined that the University owed a duty of care to take reasonable measures to protect him against the injury that he sustained.
Whether a particular defendant owes a legal duty to a particular plaintiff is a question of law. [Citations] “The court determines, as a matter of law, the existence and scope of the duty—that is, whether the plaintiff’s interest that has been infringed by the conduct of the defendant is entitled to legal protection.” [Citations] In Smith v. City & County of Denver, 726 P.2d 1125 (Colo. 1986), we set forth several factors to be considered in determining the existence of duty in a particular case:
Whether the law should impose a duty requires consideration of many factors including, for example, the risk involved, the foreseeability and likelihood of injury as weighed against the social utility of the actor’s conduct, the magnitude of the burden of guarding against injury or harm, and the consequences of placing the burden upon the actor.
…A court’s conclusion that a duty does or does not exist is “an expression of the sum total of those considerations of policy which lead the law to say that the plaintiff is [or is not] entitled to protection.”
We believe that the fact that the University is charged with negligent failure to act rather than negligent affirmative action is a critical factor that strongly militates against imposition of a duty on the University under the facts of this case. In determining whether a defendant owes a duty to a particular plaintiff, the law has long recognized a distinction between action and a failure to act—“that is to say, between active misconduct working positive injury to others [misfeasance] and passive inaction or a failure to take steps to protect them from harm [nonfeasance].” W. Keeton, § 56, at 373. Liability for nonfeasance was slow to receive recognition in the law. “The reason for the distinction may be said to lie in the fact that by ‘misfeasance’ the defendant has created a new risk of harm to the plaintiff, while by ‘nonfeasance’ he has at least made his situation no worse, and has merely failed to benefit him by interfering in his affairs.” Id. The Restatement (Second) of Torts § 314 (1965) summarizes the law on this point as follows:
The fact that an actor realizes or should realize that action on his part is necessary for another’s aid or protection does not of itself impose upon him a duty to take such action.
Imposition of a duty in all such cases would simply not meet the test of fairness under contemporary standards.
In nonfeasance cases the existence of a duty has been recognized only during the last century in situations involving a limited group of special relationships between parties. Such special relationships are predicated on “some definite relation between the parties, of such a character that social policy justifies the imposition of a duty to act.” W. Keeton, § 56, at 374. Special relationships that have been recognized by various courts for the purpose of imposition of a duty of care include common carrier/passenger, innkeeper/guest, possessor of land/invited entrant, employer/employee, parent/child, and hospital/patient. See Restatement (Second) of Torts § 314 A (1965); 3 Harper and James, § 18.6, at 722–23. The authors of the Restatement (Second) of Torts § 314 A, comment b (1965), state that “the law appears…to be working slowly toward a recognition of the duty to aid or protect in any relation of dependence or of mutual dependence.”
III.
The present case involves the alleged negligent failure to act, rather than negligent action. The plaintiff does not complain of any affirmative action taken by the University, but asserts instead that the University owed to Whitlock the duty to assure that the fraternity’s trampoline was used only under supervised conditions comparable to those in a gymnasium class, or in the alternative to cause the trampoline to be removed from the front lawn of the Beta house.…If such a duty is to be recognized, it must be grounded on a special relationship between the University and Whitlock. According to the evidence, there are only two possible sources of a special relationship out of which such a duty could arise in this case: the status of Whitlock as a student at the University, and the lease between the University and the fraternity of which Whitlock was a member. We first consider the adequacy of the student-university relationship as a possible basis for imposing a duty on the University to control or prohibit the use of the trampoline, and then examine the provisions of the lease for that same purpose.
A.
The student-university relationship has been scrutinized in several jurisdictions, and it is generally agreed that a university is not an insurer of its students’ safety. [Citations] The relationship between a university and its students has experienced important change over the years. At one time, college administrators and faculties stood in loco parentis to their students, which created a special relationship “that imposed a duty on the college to exercise control over student conduct and, reciprocally, gave the students certain rights of protection by the college.” Bradshaw, 612 F.2d at 139. However, in modern times there has evolved a gradual reapportionment of responsibilities from the universities to the students, and a corresponding departure from the in loco parentis relationship. Id. at 139–40. Today, colleges and universities are regarded as educational institutions rather than custodial ones. Beach, 726 P.2d at 419 (contrasting colleges and universities with elementary and high schools).
…By imposing a duty on the University in this case, the University would be encouraged to exercise more control over private student recreational choices, thereby effectively taking away much of the responsibility recently recognized in students for making their own decisions with respect to private entertainment and personal safety. Such an allocation of responsibility would “produce a repressive and inhospitable environment, largely inconsistent with the objectives of a modern college education.” Beach, 726 P.2d at 419.
The evidence demonstrates that only in limited instances has the University attempted to impose regulations or restraints on the private recreational pursuits of its students, and the students have not looked to the University to assure the safety of their recreational choices. Nothing in the University’s student handbook, which contains certain regulations concerning student conduct, reflects an effort by the University to control the risk-taking decisions of its students in their private recreation.…Indeed, fraternity and sorority self-governance with minimal supervision appears to have been fostered by the University.
Aside from advising the Beta house on one occasion to put the trampoline up when not in use, there is no evidence that the University officials attempted to assert control over trampoline use by the fraternity members. We conclude from this record that the University’s very limited actions concerning safety of student recreation did not give Whitlock or the other members of campus fraternities or sororities any reason to depend upon the University for evaluation of the safety of trampoline use.…Therefore, we conclude that the student-university relationship is not a special relationship of the type giving rise to a duty of the University to take reasonable measures to protect the members of fraternities and sororities from risks of engaging in extra-curricular trampoline jumping.
The plaintiff asserts, however, that we should recognize a duty of the University to take affirmative action to protect fraternity members because of the foreseeability of the injury, the extent of the risks involved in trampoline use, the seriousness of potential injuries, and the University’s superior knowledge concerning these matters. The argument in essence is that a duty should spring from the University’s natural interest in the welfare and safety of its students, its superior knowledge of the nature and degree of risk involved in trampoline use, and its knowledge of the use of trampolines on the University campus. The evidence amply supports a conclusion that trampoline use involves risks of serious injuries and that the potential for an injury such as that experienced by Whitlock was foreseeable. It shows further that prior injuries resulting from trampoline accidents had been reported to campus security and to the student clinic, and that University administrators were aware of the number and severity of trampoline injuries nationwide.
The record, however, also establishes through Whitlock’s own testimony that he was aware of the risk of an accident and injury of the very nature that he experienced.…
We conclude that the relationship between the University and Whitlock was not one of dependence with respect to the activities at issue here, and provides no basis for the recognition of a duty of the University to take measures for protection of Whitlock against the injury that he suffered.
B.
We next examine the lease between the University and the fraternity to determine whether a special relationship between the University and Whitlock can be predicated on that document. The lease was executed in 1929, extends for a ninety-nine year term, and gives the fraternity the option to extend the term for another ninety-nine years. The premises are to be occupied and used by the fraternity “as a fraternity house, clubhouse, dormitory and boarding house, and generally for religious, educational, social and fraternal purposes.” Such occupation is to be “under control of the tenant.” (emphasis added) The annual rental at all times relevant to this case appears from the record to be one dollar. The University has the obligation to maintain the grounds and make necessary repairs to the building, and the fraternity is to bear the cost of such maintenance and repair.
We conclude that the lease, and the University’s actions pursuant to its rights under the lease, provide no basis of dependence by the fraternity members upon which a special relationship can be found to exist between the University and the fraternity members that would give rise to a duty upon the University to take affirmative action to assure that recreational equipment such as a trampoline is not used under unsafe conditions.
IV.
Considering all of the factors presented, we are persuaded that under the facts of this case the University of Denver had no duty to Whitlock to eliminate the private use of trampolines on its campus or to supervise that use. There exists no special relationship between the parties that justifies placing a duty upon the University to protect Whitlock from the well-known dangers of using a trampoline. Here, a conclusion that a special relationship existed between Whitlock and the University sufficient to warrant the imposition of liability for nonfeasance would directly contravene the competing social policy of fostering an educational environment of student autonomy and independence.
We reverse the judgment of the court of appeals and return this case to that court with directions to remand it to the trial court for dismissal of Whitlock’s complaint against the University.
CASE QUESTIONS
1. How are comparative negligence numbers calculated by the trial court? How can the jury say that the university is 72 percent negligent and that Whitlock is 28 percent negligent?
2. Why is this not an assumption of risk case?
3. Is there any evidence that Whitlock was contributorily negligent? If not, why would the court engage in comparative negligence calculations?
Negligence: Proximate Cause
Palsgraf v. Long Island R.R.
248 N.Y. 339,162 N.E. 99 (N.Y. 1928)
CARDOZO, Chief Judge
Plaintiff was standing on a platform of defendant’s railroad after buying a ticket to go to Rockaway Beach. A train stopped at the station, bound for another place. Two men ran forward to catch it. One of the men reached the platform of the car without mishap, though the train was already moving. The other man, carrying a package, jumped aboard the car, but seemed unsteady as if about to fall. A guard on the car, who had held the door open, reached forward to help him in, and another guard on the platform pushed him from behind. In this act, the package was dislodged, and fell upon the rails. It was a package of small size, about fifteen inches long, and was covered by a newspaper. In fact it contained fireworks, but there was nothing in its appearance to give notice of its contents. The fireworks when they fell exploded. The shock of· the explosion threw down some scales at the other end of the platform many feet away. The scales struck the plaintiff, causing injuries for which she sues.
The conduct of the defendant’s guard, if a wrong in its relation to the holder of the package, was not a wrong in its relation to the plaintiff, standing far away. Relatively to her it was not negligence at all. Nothing in the situation gave notice that the falling package had in it the potency of peril to persons thus removed. Negligence is not actionable unless it involves the invasion of a legally protected interest, the violation of a right. “Proof of negligence in the air, so to speak, will not do.…If no hazard was apparent to the eye of ordinary vigilance, an act innocent and harmless, at least to outward seeming, with reference to her, did not take to itself the quality of a tort because it happened to be a wrong, though apparently not one involving the risk of bodily insecurity, with reference to someone else.…The plaintiff sues in her own right for a wrong personal to her, and not as the vicarious beneficiary of a breach of duty to another.
A different conclusion will involve us, and swiftly too, in a maze of contradictions. A guard stumbles over a package which has been left upon a platform.
It seems to be a bundle of newspapers. It turns out to be a can of dynamite. To the eye of ordinary vigilance, the bundle is abandoned waste, which may be kicked or trod on with impunity. Is a passenger at the other end of the platform protected by the law against the unsuspected hazard concealed beneath the waste? If not, is the result to be any different, so far as the distant passenger is concerned, when the guard stumbles over a valise which a truckman or a porter has left upon the walk?…The orbit of the danger as disclosed to the eye of reasonable vigilance would be the orbit of the duty. One who jostles one’s neighbor in a crowd does not invade the rights of others standing at the outer fringe when the unintended contact casts a bomb upon the ground. The wrongdoer as to them is the man who carries the bomb, not the one who explodes it without suspicion of the danger. Life will have to be made over, and human nature transformed, before prevision so extravagant can be accepted as the norm of conduct, the customary standard to which behavior must conform.
The argument for the plaintiff is built upon the shifting meanings of such words as “wrong” and “wrongful” and shares their instability. For what the plaintiff must show is a “wrong” to herself; i.e., a violation of her own right, and not merely a “wrong” to someone else, nor conduct “wrongful” because unsocial, but not a “wrong” to anyone. We are told that one who drives at reckless speed through a crowded city street is guilty of a negligent act and therefore of a wrongful one, irrespective of the consequences.
Negligent the act is, and wrongful in the sense that it is unsocial, but wrongful and unsocial in relation to other travelers, only because the eye of vigilance perceives the risk of damage. If the same act were to be committed on a speedway or a race course, it would lose its wrongful quality. The risk reasonably to be perceived defines the duty to be obeyed, and risk imports relation; it is risk to another or to others within the range of apprehension. This does not mean, of course, that one who launches a destructive force is always relieved of liability, if the force, though known to be destructive, pursues an unexpected path.…Some acts, such as shooting are so imminently dangerous to anyone who may come within reach of the missile however unexpectedly, as to impose a duty of prevision not far from that of an insurer. Even today, and much oftener in earlier stages of the law, one acts sometimes at one’s peril.…These cases aside, wrong-is defined in terms of the natural or probable, at least when unintentional.…Negligence, like risk, is thus a term of relation.
Negligence in the abstract, apart from things related, is surely not a tort, if indeed it is understandable at all.…One who seeks redress at law does not make out a cause of action by showing without more that there has been damage to his person. If the harm was not willful, he must show that the act as to him had possibilities of danger so many and apparent as to entitle him to be protected against the doing of it though the harm was unintended.
* * *
The judgment of the Appellate Division and that of the Trial Term should be reversed, and the complaint dismissed, with costs in all courts.
CASE QUESTIONS
1. Is there actual cause in this case? How can you tell?
2. Why should Mrs. Palsgraf (or her insurance company) be made to pay for injuries that were caused by the negligence of the Long Island Rail Road?
3. How is this accident not foreseeable?
Klein v. Pyrodyne Corporation
Klein v. Pyrodyne Corporation
810 P.2d 917 (Supreme Court of Washington 1991)
Pyrodyne Corporation (Pyrodyne) is a licensed fireworks display company that contracted to display fireworks at the Western Washington State Fairgrounds in Puyallup, Washington, on July 4,1987. During the fireworks display, one of the mortar launchers discharged a rocket on a horizontal trajectory parallel to the earth. The rocket exploded near a crowd of onlookers, including Danny Klein. Klein’s clothing was set on fire, and he suffered facial burns and serious injury to his eyes. Klein sued Pyrodyne for strict liability to recover for his injuries. Pyrodyne asserted that the Chinese manufacturer of the fireworks was negligent in producing the rocket and therefore Pyrodyne should not be held liable. The trial court applied the doctrine of strict liability and held in favor of Klein. Pyrodyne appealed.
Section 519 of the Restatement (Second) of Torts provides that any party carrying on an “abnormally dangerous activity” is strictly liable for ensuing damages. The public display of fireworks fits this definition. The court stated: “Any time a person ignites rockets with the intention of sending them aloft to explode in the presence of large crowds of people, a high risk of serious personal injury or property damage is created. That risk arises because of the possibility that a rocket will malfunction or be misdirected.” Pyrodyne argued that its liability was cut off by the Chinese manufacturer’s negligence. The court rejected this argument, stating, “Even if negligence may properly be regarded as an intervening cause, it cannot function to relieve Pyrodyne from strict liability.”
The Washington Supreme Court held that the public display of fireworks is an abnormally dangerous activity that warrants the imposition of strict liability.
Affirmed.
CASE QUESTIONS
1. Why would certain activities be deemed ultrahazardous or abnormally dangerous so that strict liability is imposed?
2. If the activities are known to be abnormally dangerous, did Klein assume the risk?
3. Assume that the fireworks were negligently manufactured in China. Should Klein’s only remedy be against the Chinese company, as Pyrodyne argues? Why or why not? | textbooks/biz/Civil_Law/Book%3A_Introduction_to_Contracts_Sales_and_Product_Liability/07%3A_Introduction_to_Tort_Law/7.05%3A_Cases.txt |
Summary
The principles of tort law pervade modern society because they spell out the duties of care that we owe each other in our private lives. Tort law has had a significant impact on business because modern technology poses significant dangers and the modern market is so efficient at distributing goods to a wide class of consumers.
Unlike criminal law, tort law does not require the tortfeasor to have a specific intent to commit the act for which he or she will be held liable to pay damages. Negligence—that is, carelessness—is a major factor in tort liability. In some instances, especially in cases involving injuries caused by products, a no-fault standard called strict liability is applied.
What constitutes a legal injury depends very much on the circumstances. A person can assume a risk or consent to the particular action, thus relieving the person doing the injury from tort liability. To be liable, the tortfeasor must be the proximate cause of the injury, not a remote cause. On the other hand, certain people are held to answer for the torts of another—for example, an employer is usually liable for the torts of his employees, and a bartender might be liable for injuries caused by someone to whom he sold too many drinks. Two types of statutes—workers’ compensation and no-fault automobile insurance—have eliminated tort liability for certain kinds of accidents and replaced it with an immediate insurance payment plan.
Among the torts of particular importance to the business community are wrongful death and personal injury caused by products or acts of employees, misrepresentation, defamation, and interference with contractual relations.
EXERCISES
1. What is the difference in objectives between tort law and criminal law?
2. A woman fell ill in a store. An employee put the woman in an infirmary but provided no medical care for six hours, and she died. The woman’s family sued the store for wrongful death. What arguments could the store make that it was not liable? What arguments could the family make? Which seem the stronger arguments? Why?
3. The signals on a railroad crossing are defective. Although the railroad company was notified of the problem a month earlier, the railroad inspector has failed to come by and repair them. Seeing the all-clear signal, a car drives up and stalls on the tracks as a train rounds the bend. For the past two weeks the car had been stalling, and the driver kept putting off taking the car to the shop for a tune-up. As the train rounds the bend, the engineer is distracted by a conductor and does not see the car until it is too late to stop. Who is negligent? Who must bear the liability for the damage to the car and to the train?
4. Suppose in the Katko v. Briney case (Section 7.2 "Intentional Torts") that instead of setting such a device, the defendants had simply let the floor immediately inside the front door rot until it was so weak that anybody who came in and took two steps straight ahead would fall through the floor and to the cellar. Will the defendant be liable in this case? What if they invited a realtor to appraise the place and did not warn her of the floor? Does it matter whether the injured person is a trespasser or an invitee?
5. Plaintiff’s husband died in an accident, leaving her with several children and no money except a valid insurance policy by which she was entitled to \$5,000. Insurance Company refused to pay, delaying and refusing payment and meanwhile “inviting” Plaintiff to accept less than \$5,000, hinting that it had a defense. Plaintiff was reduced to accepting housing and charity from relatives. She sued the insurance company for bad-faith refusal to settle the claim and for the intentional infliction of emotional distress. The lower court dismissed the case. Should the court of appeals allow the matter to proceed to trial?
SELF-TEST QUESTIONS
1. Catarina falsely accuses Jeff of stealing from their employer. The statement is defamatory only if
1. a third party hears it
2. Nick suffers severe emotional distress as a result
3. the statement is the actual and proximate cause of his distress
4. the statement is widely circulated in the local media and on Twitter
2. Garrett files a suit against Colossal Media Corporation for defamation. Colossal has said that Garrett is a “sleazy, corrupt public official” (and provided some evidence to back the claim). To win his case, Garrett will have to show that Colossal acted with
1. malice
2. ill will
3. malice aforethought
4. actual malice
3. Big Burger begins a rumor, using social media, that the meat in Burger World is partly composed of ground-up worms. The rumor is not true, as Big Burger well knows. Its intent is to get some customers to shift loyalty from Burger World to Big Burger. Burger World’s best cause of action would be
1. trespass on the case
2. nuisance
3. product disparagement
4. intentional infliction of emotional distress
4. Wilfred Phelps, age 65, is driving his Nissan Altima down Main Street when he suffers the first seizure of his life. He loses control of his vehicle and runs into three people on the sidewalk. Which statement is true?
1. He is liable for an intentional tort.
2. He is liable for a negligent tort.
3. He is not liable for a negligent tort.
4. He is liable under strict liability, because driving a car is abnormally dangerous.
5. Jonathan carelessly bumps into Amanda, knocking her to the ground. He has committed the tort of negligence
1. only if Amanda is injured
2. only if Amanda is not injured
3. whether or not Amanda is injured
1. a
2. d
3. c
4. c
5. a | textbooks/biz/Civil_Law/Book%3A_Introduction_to_Contracts_Sales_and_Product_Liability/07%3A_Introduction_to_Tort_Law/7.06%3A_Summary_and_Exercises.txt |
Learning Objectives
After reading this chapter, you should understand the following:
1. Why and how contract law has developed
2. What a contract is
3. What topics will be discussed in the contracts chapter of this book
4. What the sources of contract law are
5. How contracts are classified (basic taxonomy)
08: Introduction to Contract Law
LEARNING OBJECTIVES
1. Explain contract law’s cultural roots: how it has evolved as capitalism has evolved.
2. Understand that contracts serve essential economic purposes.
3. Define contract.
4. Understand the basic issues in contract law.
The Role of Contracts in Modern Society
Contract is probably the most familiar legal concept in our society because it is so central to the essence of our political, economic, and social life. In common parlance, contract is used interchangeably with agreement, bargain, undertaking, or deal. Whatever the word, the concept it embodies is our notion of freedom to pursue our own lives together with others. Contract is central because it is the means by which a free society orders what would otherwise be a jostling, frenetic anarchy.
So commonplace is the concept of contract—and our freedom to make contracts with each other—that it is difficult to imagine a time when contracts were rare, when people’s everyday associations with one another were not freely determined. Yet in historical terms, it was not so long ago that contracts were rare, entered into if at all by very few: that affairs should be ordered based on mutual assent was mostly unknown. In primitive societies and in feudal Europe, relationships among people were largely fixed; traditions spelled out duties that each person owed to family, tribe, or manor. People were born into an ascribed position—a status (not unlike the caste system still existing in India)—and social mobility was limited. Sir Henry Maine, a nineteenth-century British historian, wrote that “the movement of the progressive societies has…been a movement from status to contract.”Sir Henry Maine, Ancient Law (1869), 180–82. This movement was not accidental—it developed with the emerging industrial order. From the fifteenth to the nineteenth century, England evolved into a booming mercantile economy, with flourishing trade, growing cities, an expanding monetary system, the commercialization of agriculture, and mushrooming manufacturing. With this evolution, contract law was created of necessity.
Contract law did not develop according to a conscious plan, however. It was a response to changing conditions, and the judges who created it frequently resisted, preferring the imagined quieter pastoral life of their forefathers. Not until the nineteenth century, in both the United States and England, did a full-fledged law of contracts arise together with, and help create, modern capitalism.
Modern capitalism, indeed, would not be possible without contract law. So it is that in planned economies, like those of the former Soviet Union and precapitalistic China, the contract did not determine the nature of an economic transaction. That transaction was first set forth by the state’s planning authorities; only thereafter were the predetermined provisions set down in a written contract. Modern capitalism has demanded new contract regimes in Russia and China; the latter adopted its Revised Contract Law in 1999.
Contract law may be viewed economically as well as culturally. In An Economic Analysis of Law, Judge Richard A. Posner (a former University of Chicago law professor) suggests that contract law performs three significant economic functions. First, it helps maintain incentives for individuals to exchange goods and services efficiently. Second, it reduces the costs of economic transactions because its very existence means that the parties need not go to the trouble of negotiating a variety of rules and terms already spelled out. Third, the law of contracts alerts the parties to troubles that have arisen in the past, thus making it easier to plan the transactions more intelligently and avoid potential pitfalls.Richard A. Posner, Economic Analysis of Law (New York: Aspen, 1973).
The Definition of Contract
As usual in the law, the legal definition of contract is formalistic. The Restatement (Second) of Contracts (Section 1) says, “A contract is a promise or a set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty.” Similarly, the Uniform Commercial Code says, “‘Contract’ means the total legal obligation which results from the parties’ agreement as affected by this Act and any other applicable rules of law.”Uniform Commercial Code, Section 1-201(11). As operational definitions, these two are circular; in effect, a contract is defined as an agreement that the law will hold the parties to.
Most simply, a contract is a legally enforceable promise. This implies that not every promise or agreement creates a binding contract; if every promise did, the simple definition set out in the preceding sentence would read, “A contract is a promise.” But—again—a contract is not simply a promise: it is a legally enforceable promise. The law takes into account the way in which contracts are made, by whom they are made, and for what purposes they are made. For example, in many states, a wager is unenforceable, even though both parties “shake” on the bet. We will explore these issues in the chapters to come.
Overview of the Contracts Chapter
Although contract law has many wrinkles and nuances, it consists of four principal inquiries, each of which will be taken up in subsequent chapters:
1. Did the parties create a valid contract? Four elements are necessary for a valid contract:
1. Mutual assent (i.e., offer and acceptance), Chapter 9 "The Agreement"
2. Real assent (no duress, undue influence, misrepresentation, mistake, or incapacity), Chapter 10 "Real Assent"
3. Consideration, Chapter 11 "Consideration"
4. Legality, Chapter 12 "Legality"
2. What does the contract mean, and is it in the proper form to carry out this meaning? Sometimes contracts need to be in writing (or evidenced by some writing), or they can’t be enforced. Sometimes it isn’t clear what the contract means, and a court has to figure that out. These problems are taken up in Chapter 13 "Form and Meaning".
3. Do persons other than the contracting parties have rights or duties under the contract? Can the right to receive a benefit from the contract be assigned, and can the duties be delegated so that a new person is responsible? Can persons not a party to the contract sue to enforce its terms? These questions are addressed in Chapter 14 "Third-Party Rights".
4. How do contractual duties terminate, and what remedies are available if a party has breached the contract? These issues are taken up in Chapter 15 "Discharge of Obligations" and Chapter 16 "Remedies".
Together, the answers to these four basic inquiries determine the rights and obligations of contracting parties.
KEY TAKEAWAY
Contract law developed when the strictures of feudalism dissipated, when a person’s position in society came to be determined by personal choice (by mutual agreement) and not by status (by how a person was born). Capitalism and contract law have developed together, because having choices in society means that people decide and agree to do things with and to each other, and those agreements bind the parties; the agreements must be enforceable.
EXERCISES
1. Why is contract law necessary in a society where a person’s status is not predetermined by birth?
2. Contract law serves some economic functions. What are they? | textbooks/biz/Civil_Law/Book%3A_Introduction_to_Contracts_Sales_and_Product_Liability/08%3A_Introduction_to_Contract_Law/8.01%3A_General_Perspectives_on_Contracts.txt |
LEARNING OBJECTIVES
1. Understand that contract law comes from two sources: judges (cases) and legislation.
2. Know what the Restatement of Contracts is.
3. Recognize the Convention on Contracts for the International Sale of Goods.
The most important sources of contract law are state case law and state statutes (though there are also many federal statutes governing how contracts are made by and with the federal government).
Case Law
Law made by judges is called case law. Because contract law was made up in the common-law courtroom by individual judges as they applied rules to resolve disputes before them, it grew over time to formidable proportions. By the early twentieth century, tens of thousands of contract disputes had been submitted to the courts for resolution, and the published opinions, if collected in one place, would have filled dozens of bookshelves. Clearly this mass of material was too unwieldy for efficient use. A similar problem also had developed in the other leading branches of the common law.
Disturbed by the profusion of cases and the resulting uncertainty of the law, a group of prominent American judges, lawyers, and law teachers founded the American Law Institute (ALI) in 1923 to attempt to clarify, simplify, and improve the law. One of the ALI’s first projects, and ultimately one of its most successful, was the drafting of the Restatement of the Law of Contracts, completed in 1932. A revision—the Restatement (Second) of Contracts—was undertaken in 1964 and completed in 1979. Hereafter, references to “the Restatement” pertain to the Restatement (Second) of Contracts.
The Restatements—others exist in the fields of torts, agency, conflicts of laws, judgments, property, restitution, security, and trusts—are detailed analyses of the decided cases in each field. These analyses are made with an eye to discerning the various principles that have emerged from the courts, and to the maximum extent possible, the Restatements declare the law as the courts have determined it to be. The Restatements, guided by a reporter (the director of the project) and a staff of legal scholars, go through several so-called tentative drafts—sometimes as many as fifteen or twenty—and are screened by various committees within the ALI before they are eventually published as final documents.
The Restatement (Second) of Contracts won prompt respect in the courts and has been cited in innumerable cases. The Restatements are not authoritative, in the sense that they are not actual judicial precedents; but they are nevertheless weighty interpretive texts, and judges frequently look to them for guidance. They are as close to “black letter” rules of law as exist anywhere in the American common-law legal system.
Common law, case law (the terms are synonymous), governs contracts for the sale of real estate and services. “Services” refer to acts or deeds (like plumbing, drafting documents, driving a car) as opposed to the sale of property.
Statutory Law: The Uniform Commercial Code
Common-law contract principles govern contracts for real estate and services. Because of the historical development of the English legal system, contracts for the sale of goods came to be governed by a different body of legal rules. In its modern American manifestation, that body of rules is an important statute: the Uniform Commercial Code (UCC), especially Article 2, which deals with the sale of goods.
History of the UCC
A bit of history is in order. Before the UCC was written, commercial law varied, sometimes greatly, from state to state. This first proved a nuisance and then a serious impediment to business as the American economy became nationwide during the twentieth century. Although there had been some uniform laws concerned with commercial deals—including the Uniform Sales Act, first published in 1906—few were widely adopted and none nationally. As a result, the law governing sales of goods, negotiable instruments, warehouse receipts, securities, and other matters crucial to doing business in an industrial market economy was a crazy quilt of untidy provisions that did not mesh well from state to state.
The UCC is a model law developed by the ALI and the National Conference of Commissioners on Uniform State Laws; it has been adopted in one form or another by the legislatures in all fifty states, the District of Columbia, and the American territories. It is a “national” law not enacted by Congress—it is not federal law but uniform state law.
Initial drafting of the UCC began in 1942 and was ten years in the making, involving the efforts of hundreds of practicing lawyers, law teachers, and judges. A final draft, promulgated by the ALI, was endorsed by the American Bar Association and published in 1951. Various revisions followed in different states, threatening the uniformity of the UCC. The ALI responded by creating a permanent editorial board to oversee future revisions. In one or another of its various revisions, the UCC has been adopted in whole or in part in all American jurisdictions. The UCC is now a basic law of relevance to every business and business lawyer in the United States, even though it is not entirely uniform because different states have adopted it at various stages of its evolution—an evolution that continues still.
Organization of the UCC
The UCC consists of nine major substantive articles; each deals with separate though related subjects. The articles are as follows:
• Article 1: General Provisions
• Article 2: Sales
• Article 2A: Leases
• Article 3: Commercial Paper
• Article 4: Bank Deposits and Collections
• Article 4A: Funds Transfers
• Article 5: Letters of Credit
• Article 6: Bulk Transfers
• Article 7: Warehouse Receipts, Bills of Lading, and Other Documents of Title
• Article 8: Investment Securities
• Article 9: Secured Transactions
Article 2 deals only with the sale of goods, which the UCC defines as “all things…which are movable at the time of identification to the contract for sale other than the money in which the price is to be paid.”Uniform Commercial Code, Section 2-105. The only contracts and agreements covered by Article 2 are those relating to the present or future sale of goods.
Article 2 is divided in turn into six major parts: (1) Form, Formation, and Readjustment of Contract; (2) General Obligation and Construction of Contract; (3) Title, Creditors, and Good Faith Purchasers; (4) Performance; (5) Breach, Repudiation, and Excuse; and (6) Remedies. These topics will be discussed in Chapter 17 "Introduction to Sales and Leases", Chapter 18 "Title and Risk of Loss", Chapter 19 "Performance and Remedies", Chapter 20 "Products Liability", and Chapter 21 "Bailments and the Storage, Shipment, and Leasing of Goods".
Figure 8.1 Sources of Law
The Convention on Contracts for the International Sale of Goods
A Convention on Contracts for the International Sale of Goods (CISG) was approved in 1980 at a diplomatic conference in Vienna. (A convention is a preliminary agreement that serves as the basis for a formal treaty.) The CISG has been adopted by more than forty countries, including the United States.
The CISG is significant for three reasons. First, it is a uniform law governing the sale of goods—in effect, an international Uniform Commercial Code. The major goal of the drafters was to produce a uniform law acceptable to countries with different legal, social, and economic systems. Second, although provisions in the CISG are generally consistent with the UCC, there are significant differences. For instance, under the CISG, consideration (discussed in Chapter 11 "Consideration") is not required to form a contract, and there is no Statute of Frauds (a requirement that certain contracts be evidenced by a writing). Third, the CISG represents the first attempt by the US Senate to reform the private law of business through its treaty powers, for the CISG preempts the UCC. The CISG is not mandatory: parties to an international contract for the sale of goods may choose to have their agreement governed by different law, perhaps the UCC, or perhaps, say, Japanese contract law. The CISG does not apply to contracts for the sale of (1) ships or aircraft, (2) electricity, or (3) goods bought for personal, family, or household use, nor does it apply (4) where the party furnishing the goods does so only incidentally to the labor or services part of the contract.
KEY TAKEAWAY
Judges have made contract law over several centuries by deciding cases that create, extend, or change the developing rules affecting contract formation, performance, and enforcement. The rules from the cases have been abstracted and organized in the Restatements of Contracts. To facilitate interstate commerce, contract law for many commercial transactions—especially the sale of goods—not traditionally within the purview of judges has been developed by legal scholars and presented for the states to adopt as the Uniform Commercial Code. There is an analogous Convention on Contracts for the International Sale of Goods, to which the United States is a party.
EXERCISES
1. How do judges make contract law?
2. What is the Restatement of the Law of Contracts, and why was it necessary?
3. Why was the Uniform Commercial Code developed, and by whom?
4. Who adopts the UCC as governing law?
5. What is the Convention on Contracts for the International Sale of Goods? | textbooks/biz/Civil_Law/Book%3A_Introduction_to_Contracts_Sales_and_Product_Liability/08%3A_Introduction_to_Contract_Law/8.02%3A_Sources_of_Contract_Law.txt |
LEARNING OBJECTIVES
1. Understand that contracts are classified according to the criteria of explicitness, mutuality, enforceability, and degree of completion and that some noncontract promises are nevertheless enforceable under the doctrine of promissory estoppel.
2. Keep your eyes (and ears) alert to the use of suffixes (word endings) in legal terminology that express relationships between parties.
Some contracts are written, some oral; some are explicit, some not. Because contracts can be formed, expressed, and enforced in a variety of ways, a taxonomy of contracts has developed that is useful in grouping together like legal consequences. In general, contracts are classified along four different dimensions: explicitness, mutuality, enforceability, and degree of completion. Explicitness is the degree to which the agreement is manifest to those not party to it. Mutuality takes into account whether promises are given by two parties or only one. Enforceability is the degree to which a given contract is binding. Completion considers whether the contract is yet to be performed or whether the obligations have been fully discharged by one or both parties. We will examine each of these concepts in turn.
Express Contract
An express contract is one in which the terms are spelled out directly. The parties to an express contract, whether it is written or oral, are conscious that they are making an enforceable agreement. For example, an agreement to purchase your neighbor’s car for \$5,500 and to take title next Monday is an express contract.
Implied Contract (Implied in Fact)
An implied contract is one that is inferred from the actions of the parties. When parties have not discussed terms, an implied contract exists if it is clear from the conduct of both parties that they intended there be one. A delicatessen patron who asks for a turkey sandwich to go has made a contract and is obligated to pay when the sandwich is made. By ordering the food, the patron is implicitly agreeing to the price, whether posted or not.
The distinction between express and implied contracts has received a degree of notoriety in the so-called palimony cases, in which one member of an unmarried couple seeks a division of property after a long-standing live-together relationship has broken up. When a married couple divorces, their legal marriage contract is dissolved, and financial rights and obligations are spelled out in a huge body of domestic relations statutes and judicial decisions. No such laws exist for unmarried couples. However, about one-third of the states recognize common-law marriage, under which two people are deemed to be married if they live together with the intent to be married, regardless of their failure to have obtained a license or gone through a ceremony. Although there is no actual contract of marriage (no license), their behavior implies that the parties intended to be treated as if they were married.
Quasi-Contract
A quasi-contract (implied in law) is—unlike both express and implied contracts, which embody an actual agreement of the parties—an obligation said to be “imposed by law” in order to avoid unjust enrichment of one person at the expense of another. A quasi-contract is not a contract at all; it is a fiction that the courts created to prevent injustice. Suppose, for example, that the local lumberyard mistakenly delivers a load of lumber to your house, where you are repairing your deck. It was a neighbor on the next block who ordered the lumber, but you are happy to accept the load for free; since you never talked to the lumberyard, you figure you need not pay the bill. Although it is true there is no contract, the law implies a contract for the value of the material: of course you will have to pay for what you got and took. The existence of this implied contract does not depend on the intention of the parties.
Bilateral Contract
The typical contract is one in which the parties make mutual promises. Each is both promisor and promisee; that is, each pledges to do something, and each is the recipient of such a pledge. This type of contract is called a bilateral contract.
Unilateral Contract
Mutual promises are not necessary to constitute a contract. Unilateral contracts, in which one party performs an act in exchange for the other party’s promise, are equally valid. An offer of a reward—for catching a criminal or for returning a lost cat—is an example of a unilateral contract: there is an offer on one side, and the other side accepts by taking the action requested.
Figure 8.2 Bilateral and Unilateral Contracts
Void
Not every agreement between two people is a binding contract. An agreement that is lacking one of the legal elements of a contract is said to be a void contract—that is, not a contract at all. An agreement that is illegal—for example, a promise to commit a crime in return for a money payment—is void. Neither party to a void “contract” may enforce it.
Voidable
By contrast, a voidable contract is one that may become unenforceable by one party but can be enforced by the other. For example, a minor (any person under eighteen, in most states) may “avoid” a contract with an adult; the adult may not enforce the contract against the minor if the minor refuses to carry out the bargain. But the adult has no choice if the minor wishes the contract to be performed. (A contract may be voidable by both parties if both are minors.)
Ordinarily, the parties to a voidable contract are entitled to be restored to their original condition. Suppose you agree to buy your seventeen-year-old neighbor’s car. He delivers it to you in exchange for your agreement to pay him next week. He has the legal right to terminate the deal and recover the car, in which case you will of course have no obligation to pay him. If you have already paid him, he still may legally demand a return to the status quo ante (previous state of affairs). You must return the car to him; he must return the cash to you.
A voidable contract remains a valid contract until it is voided. Thus a contract with a minor remains in force unless the minor decides he or she does not wish to be bound by it. When the minor reaches majority, he or she may “ratify” the contract—that is, agree to be bound by it—in which case the contract will no longer be voidable and will thereafter be fully enforceable.
Unenforceable
An unenforceable contract is one that some rule of law bars a court from enforcing. For example, Tom owes Pete money, but Pete has waited too long to collect it and the statute of limitations has run out. The contract for repayment is unenforceable and Pete is out of luck, unless Tom makes a new promise to pay or actually pays part of the debt. (However, if Pete is holding collateral as security for the debt, he is entitled to keep it; not all rights are extinguished because a contract is unenforceable.) A debt becomes unenforceable, too, when the debtor declares bankruptcy.
A bit more on enforceability is in order. A promise or what seems to be a promise is usually enforceable only if it is otherwise embedded in the elements necessary to make that promise a contract. Those elements are mutual assent, real assent, consideration, capacity, and legality. Sometimes, though, people say things that seem like promises, and on which another person relies. In the early twentieth century, courts began, in some circumstances, to recognize that insisting on the existence of the traditional elements of contract to determine whether a promise is enforceable could work an injustice where there has been reliance. Thus developed the equitable doctrine of promissory estoppel, which has become an important adjunct to contract law. The Restatement (Section 90) puts it this way: “A promise which the promisor should reasonably expect to induce action or forbearance on the party of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise. The remedy granted for breach may be limited as justice requires.”
To be “estopped” means to be prohibited from denying now the validity of a promise you made before.
The doctrine has an interesting background. In 1937, High Trees House Ltd. (a British corporation) leased a block of London apartments from Central London Properties. As World War II approached, vacancy rates soared because people left the city. In 1940 the parties agreed to reduce the rent rates by half, but no term was set for how long the reduction would last. By mid-1945, as the war was ending, occupancy was again full, and Central London sued for the full rental rates from June on. The English court, under Judge Alfred Thompson Denning (1899–1999), had no difficulty finding that High Trees owed the full amount once full occupancy was again achieved, but Judge Denning went on. In an aside (called a dicta—a statement “by the way”—that is, not necessary as part of the decision), he mused about what would have happened if in 1945 Central London had sued for the full-occupancy rate back to 1940. Technically, the 1940 amendment to the 1937 contract was not binding on Central London—it lacked consideration—and Central London could have reached back to demand full-rate payment. But Judge Denning said that High Trees would certainly have relied on Central London’s promise that a reduced-rate rent would be acceptable, and that would have been enough to bind it, to prevent it from acting inconsistently with the promise. He wrote, “The courts have not gone so far as to give a cause of action in damages for the breach of such a promise, but they have refused to allow the party making it to act inconsistently with it.”Central London Property Trust Ltd. v. High Trees House Ltd. (1947) KB 130.
In the years since, though, courts have gone so far as to give a cause of action in damages for various noncontract promises. Contract protects agreements; promissory estoppel protects reliance, and that’s a significant difference. The law of contracts continues to evolve.
Degree of Completion
An agreement consisting of a set of promises is called an executory contract before any promises are carried out. Most executory contracts are enforceable. If John makes an agreement to deliver wheat to Humphrey and does so, the contract is called a partially executed contract: one side has performed, the other has not. When John pays for the wheat, the contract is fully performed. A contract that has been carried out fully by both parties is called an executed contract.
Terminology: Suffixes Expressing Relationships
Although not really part of the taxonomy of contracts (i.e., the orderly classification of the subject), an aspect of contractual—indeed, legal—terminology should be highlighted here. Suffixes (the end syllables of words) in the English language are used to express relationships between parties in legal terminology. Here are examples:
• Offeror. One who makes an offer.
• Offeree. One to whom an offer is made.
• Promisor. One who makes a promise.
• Promisee. One to whom a promise is made.
• Obligor. One who makes and has an obligation.
• Obligee. One to whom an obligation is made.
• Transferor. One who makes a transfer.
• Transferee. One to whom a transfer is made.
KEY TAKEAWAY
Contracts are described and thus defined on the basis of four criteria: explicitness (express, implied, or quasi-contracts), mutuality (bilateral or unilateral), enforceability (void, voidable, unenforceable), and degree of completion (executory, partially executed, executed). Legal terminology in English often describes relationships between parties by the use of suffixes, to which the eye and ear must pay attention.
EXERCISES
1. Able writes to Baker: “I will mow your lawn for \$20.” If Baker accepts, is this an express or implied contract?
2. Able telephones Baker: “I will mow your lawn for \$20.” Is this an express or implied contract?
3. What is the difference between a void contract and a voidable one?
4. Carr staples this poster to a utility pole: “\$50 reward for the return of my dog, Argon.” Describe this in contractual terms regarding explicitness, mutuality, enforceability, and degree of completion.
5. Is a voidable contract always unenforceable?
6. Contractor bids on a highway construction job, incorporating Guardrail Company’s bid into its overall bid to the state. Contractor cannot accept Guardrail’s offer until it gets the nod from the state. Contractor gets the nod from the state, but before it can accept Guardrail’s offer, the latter revokes it. Usually a person can revoke an offer any time before it is accepted. Can Guardrail revoke its offer in this case? | textbooks/biz/Civil_Law/Book%3A_Introduction_to_Contracts_Sales_and_Product_Liability/08%3A_Introduction_to_Contract_Law/8.03%3A_Basic_Taxonomy_of_Contracts.txt |
Explicitness: Implied Contract
Roger’s Backhoe Service, Inc. v. Nichols
681 N.W.2d 647 (Iowa 2004)
Carter, J.
Defendant, Jeffrey S. Nichols, is a funeral director in Muscatine.…In early 1998 Nichols decided to build a crematorium on the tract of land on which his funeral home was located. In working with the Small Business Administration, he was required to provide drawings and specifications and obtain estimates for the project. Nichols hired an architect who prepared plans and submitted them to the City of Muscatine for approval. These plans provided that the surface water from the parking lot would drain onto the adjacent street and alley and ultimately enter city storm sewers. These plans were approved by the city.
Nichols contracted with Roger’s [Backhoe Service, Inc.] for the demolition of the foundation of a building that had been razed to provide room for the crematorium and removal of the concrete driveway and sidewalk adjacent to that foundation. Roger’s completed that work and was paid in full.
After construction began, city officials came to the jobsite and informed Roger’s that the proposed drainage of surface water onto the street and alley was unsatisfactory. The city required that an effort be made to drain the surface water into a subterranean creek, which served as part of the city’s storm sewer system. City officials indicated that this subterranean sewer system was about fourteen feet below the surface of the ground.…Roger’s conveyed the city’s mandate to Nichols when he visited the jobsite that same day.
It was Nichols’ testimony at trial that, upon receiving this information, he advised…Roger’s that he was refusing permission to engage in the exploratory excavation that the city required. Nevertheless, it appears without dispute that for the next three days Roger’s did engage in digging down to the subterranean sewer system, which was located approximately twenty feet below the surface. When the underground creek was located, city officials examined the brick walls in which it was encased and determined that it was not feasible to penetrate those walls in order to connect the surface water drainage with the underground creek. As a result of that conclusion, the city reversed its position and once again gave permission to drain the surface water onto the adjacent street and alley.
[T]he invoices at issue in this litigation relate to charges that Roger’s submitted to Nichols for the three days of excavation necessary to locate the underground sewer system and the cost for labor and materials necessary to refill the excavation with compactable materials and attain compaction by means of a tamping process.…The district court found that the charges submitted on the…invoices were fair and reasonable and that they had been performed for Nichols’ benefit and with his tacit approval.…
The court of appeals…concluded that a necessary element in establishing an implied-in-fact contract is that the services performed be beneficial to the alleged obligor. It concluded that Roger’s had failed to show that its services benefited Nichols.…
In describing the elements of an action on an implied contract, the court of appeals stated in [Citation], that the party seeking recovery must show:
(1) the services were carried out under such circumstances as to give the recipient reason to understand:
(a) they were performed for him and not some other person, and
(b) they were not rendered gratuitously, but with the expectation of compensation from the recipient; and
(2) the services were beneficial to the recipient.
In applying the italicized language in [Citation] to the present controversy, it was the conclusion of the court of appeals that Roger’s’ services conferred no benefit on Nichols. We disagree. There was substantial evidence in the record to support a finding that, unless and until an effort was made to locate the subterranean sewer system, the city refused to allow the project to proceed. Consequently, it was necessary to the successful completion of the project that the effort be made. The fact that examination of the brick wall surrounding the underground creek indicated that it was unfeasible to use that source of drainage does not alter the fact that the project was stalemated until drainage into the underground creek was fully explored and rejected. The district court properly concluded that Roger’s’ services conferred a benefit on Nichols.…
Decision of court of appeals vacated; district court judgment affirmed.
CASE QUESTIONS
1. What facts must be established by a plaintiff to show the existence of an implied contract?
2. What argument did Nichols make as to why there was no implied contract here?
3. How would the facts have to be changed to make an express contract?
Mutuality of Contract: Unilateral Contract
SouthTrust Bank v. Williams
775 So.2d 184 (Ala. 2000)
Cook, J.
SouthTrust Bank (“SouthTrust”) appeals from an order denying its motion to compel arbitration of an action against it by checking-account customers Mark Williams and Bessie Daniels. We reverse and remand.
Daniels and Williams began their relationship with SouthTrust in 1981 and 1995, respectively, by executing checking-account “signature cards.” The signature card each customer signed contained a “change-in-terms” clause. Specifically, when Daniels signed her signature card, she “agree[d] to be subject to the Rules and Regulations as may now or hereafter be adopted by the Bank.” (Emphasis added.)…[Later,] SouthTrust added paragraph 33 to the regulations:…
ARBITRATION OF DISPUTES. You and we agree that the transactions in your account involve ‘commerce’ under the Federal Arbitration Act (‘FAA’). ANY CONTROVERSY OR CLAIM BETWEEN YOU AND US…WILL BE SETTLED BY BINDING ARBITRATION UNDER THE FAA.…
This action…challenges SouthTrust’s procedures for paying overdrafts, and alleges that SouthTrust engages in a “uniform practice of paying the largest check(s) before paying multiple smaller checks…[in order] to generate increased service charges for [SouthTrust] at the expense of [its customers].”
SouthTrust filed a “motion to stay [the] lawsuit and to compel arbitration.” It based its motion on paragraph 33 of the regulations. [T]he trial court…entered an order denying SouthTrust’s motion to compel arbitration. SouthTrust appeals.…
Williams and Daniels contend that SouthTrust’s amendment to the regulations, adding paragraph 33, was ineffective because, they say, they did not expressly assent to the amendment. In other words, they object to submitting their claims to arbitration because, they say, when they opened their accounts, neither the regulations nor any other relevant document contained an arbitration provision. They argue that “mere failure to object to the addition of a material term cannot be construed as an acceptance of it.”…They contend that SouthTrust could not unilaterally insert an arbitration clause in the regulations and make it binding on depositors like them.
SouthTrust, however, referring to its change-of-terms clause insists that it “notified” Daniels and Williams of the amendment in January 1997 by enclosing in each customer’s “account statement” a complete copy of the regulations, as amended. Although it is undisputed that Daniels and Williams never affirmatively assented to these amended regulations, SouthTrust contends that their assent was evidenced by their failure to close their accounts after they received notice of the amendments.…Thus, the disposition of this case turns on the legal effect of Williams and Daniels’s continued use of the accounts after the regulations were amended.
Williams and Daniels argue that “[i]n the context of contracts between merchants [under the UCC], a written confirmation of an acceptance may modify the contract unless it adds a material term, and arbitration clauses are material terms.”…
Williams and Daniels concede—as they must—…that Article 2 governs “transactions in goods,” and, consequently, that it is not applicable to the transactions in this case. Nevertheless, they argue:
It would be astonishing if a Court were to consider the addition of an arbitration clause a material alteration to a contract between merchants, who by definition are sophisticated in the trade to which the contract applies, but not hold that the addition of an arbitration clause is a material alteration pursuant to a change-of-terms clause in a contract between one sophisticated party, a bank, and an entire class of less sophisticated parties, its depositors.…
In response, SouthTrust states that “because of the ‘at-will’ nature of the relationship, banks by necessity must contractually reserve the right to amend their deposit agreements from time to time.” In so stating, SouthTrust has precisely identified the fundamental difference between the transactions here and those transactions governed by [Article 2].
Contracts for the purchase and sale of goods are essentially bilateral and executory in nature. See [Citation] “An agreement whereby one party promises to sell and the other promises to buy a thing at a later time…is a bilateral promise of sale or contract to sell”.…“[A] unilateral contract results from an exchange of a promise for an act; a bilateral contract results from an exchange of promises.”…Thus, “in a unilateral contract, there is no bargaining process or exchange of promises by parties as in a bilateral contract.” [Citation] “[O]nly one party makes an offer (or promise) which invites performance by another, and performance constitutes both acceptance of that offer and consideration.” Because “a ‘unilateral contract’ is one in which no promisor receives promise as consideration for his promise,” only one party is bound.…The difference is not one of semantics but of substance; it determines the rights and responsibilities of the parties, including the time and the conditions under which a cause of action accrues for a breach of the contract.
This case involves at-will, commercial relationships, based upon a series of unilateral transactions. Thus, it is more analogous to cases involving insurance policies, such as [Citations]. The common thread running through those cases was the amendment by one of the parties to a business relationship of a document underlying that relationship—without the express assent of the other party—to require the arbitration of disputes arising after the amendment.…
The parties in [the cited cases], like Williams and Daniels in this case, took no action that could be considered inconsistent with an assent to the arbitration provision. In each case, they continued the business relationship after the interposition of the arbitration provision. In doing so, they implicitly assented to the addition of the arbitration provision.…
Reversed and remanded.
CASE QUESTIONS
1. Why did the plaintiffs think they should not be bound by the arbitration clause?
2. The court said this case involved a unilateral contract. What makes it that, as opposed to a bilateral contract?
3. What should the plaintiffs have done if they didn’t like the arbitration requirement?
Unilateral Contract and At-Will Employment
Woolley v. Hoffmann-La Roche, Inc.
491 A.2d 1257 (N.J. 1985)
Wilntz, C. J.
Plaintiff, Richard Woolley, was hired by defendant, Hoffmann-La Roche, Inc., in October 1969, as an Engineering Section Head in defendant’s Central Engineering Department at Nutley. There was no written employment contract between plaintiff and defendant. Plaintiff began work in mid-November 1969. Sometime in December, plaintiff received and read the personnel manual on which his claims are based.
[The company’s personnel manual had eight pages;] five of the eight pages are devoted to “termination.” In addition to setting forth the purpose and policy of the termination section, it defines “the types of termination” as “layoff,” “discharge due to performance,” “discharge, disciplinary,” “retirement” and “resignation.” As one might expect, layoff is a termination caused by lack of work, retirement a termination caused by age, resignation a termination on the initiative of the employee, and discharge due to performance and discharge, disciplinary, are both terminations for cause. There is no category set forth for discharge without cause. The termination section includes “Guidelines for discharge due to performance,” consisting of a fairly detailed procedure to be used before an employee may be fired for cause. Preceding these definitions of the five categories of termination is a section on “Policy,” the first sentence of which provides: “It is the policy of Hoffmann-La Roche to retain to the extent consistent with company requirements, the services of all employees who perform their duties efficiently and effectively.”
In 1976, plaintiff was promoted, and in January 1977 he was promoted again, this latter time to Group Leader for the Civil Engineering, the Piping Design, the Plant Layout, and the Standards and Systems Sections. In March 1978, plaintiff was directed to write a report to his supervisors about piping problems in one of defendant’s buildings in Nutley. This report was written and submitted to plaintiff’s immediate supervisor on April 5, 1978. On May 3, 1978, stating that the General Manager of defendant’s Corporate Engineering Department had lost confidence in him, plaintiff’s supervisors requested his resignation. Following this, by letter dated May 22, 1978, plaintiff was formally asked for his resignation, to be effective July 15, 1978.
Plaintiff refused to resign. Two weeks later defendant again requested plaintiff’s resignation, and told him he would be fired if he did not resign. Plaintiff again declined, and he was fired in July.
Plaintiff filed a complaint alleging breach of contract.…The gist of plaintiff’s breach of contract claim is that the express and implied promises in defendant’s employment manual created a contract under which he could not be fired at will, but rather only for cause, and then only after the procedures outlined in the manual were followed. Plaintiff contends that he was not dismissed for good cause, and that his firing was a breach of contract.
Defendant’s motion for summary judgment was granted by the trial court, which held that the employment manual was not contractually binding on defendant, thus allowing defendant to terminate plaintiff’s employment at will. The Appellate Division affirmed. We granted certification.
The employer’s contention here is that the distribution of the manual was simply an expression of the company’s “philosophy” and therefore free of any possible contractual consequences. The former employee claims it could reasonably be read as an explicit statement of company policies intended to be followed by the company in the same manner as if they were expressed in an agreement signed by both employer and employees.…
This Court has long recognized the capacity of the common law to develop and adapt to current needs.…The interests of employees, employers, and the public lead to the conclusion that the common law of New Jersey should limit the right of an employer to fire an employee at will.
In order for an offer in the form of a promise to become enforceable, it must be accepted. Acceptance will depend on what the promisor bargained for: he may have bargained for a return promise that, if given, would result in a bilateral contract, both promises becoming enforceable. Or he may have bargained for some action or nonaction that, if given or withheld, would render his promise enforceable as a unilateral contract. In most of the cases involving an employer’s personnel policy manual, the document is prepared without any negotiations and is voluntarily distributed to the workforce by the employer. It seeks no return promise from the employees. It is reasonable to interpret it as seeking continued work from the employees, who, in most cases, are free to quit since they are almost always employees at will, not simply in the sense that the employer can fire them without cause, but in the sense that they can quit without breaching any obligation. Thus analyzed, the manual is an offer that seeks the formation of a unilateral contract—the employees’ bargained-for action needed to make the offer binding being their continued work when they have no obligation to continue.
The unilateral contract analysis is perfectly adequate for that employee who was aware of the manual and who continued to work intending that continuation to be the action in exchange for the employer’s promise; it is even more helpful in support of that conclusion if, but for the employer’s policy manual, the employee would have quit. See generally M. Petit, “Modern Unilateral Contracts,” 63 Boston Univ. Law Rev. 551 (1983) (judicial use of unilateral contract analysis in employment cases is widespread).
…All that this opinion requires of an employer is that it be fair. It would be unfair to allow an employer to distribute a policy manual that makes the workforce believe that certain promises have been made and then to allow the employer to renege on those promises. What is sought here is basic honesty: if the employer, for whatever reason, does not want the manual to be capable of being construed by the court as a binding contract, there are simple ways to attain that goal. All that need be done is the inclusion in a very prominent position of an appropriate statement that there is no promise of any kind by the employer contained in the manual; that regardless of what the manual says or provides, the employer promises nothing and remains free to change wages and all other working conditions without having to consult anyone and without anyone’s agreement; and that the employer continues to have the absolute power to fire anyone with or without good cause.
Reversed and remanded for trial.
CASE QUESTIONS
1. What did Woolley do to show his acceptance of the terms of employment offered to him?
2. In part of the case not included here, the court notes that Mr. Woolley died “before oral arguments on this case.” How can there be any damages if the plaintiff has died? Who now has any case to pursue?
3. The court here is changing the law of employment in New Jersey. It is making case law, and the rule here articulated governs similar future cases in New Jersey. Why did the court make this change? Why is it relevant that the court says it would be easy for an employer to avoid this problem? | textbooks/biz/Civil_Law/Book%3A_Introduction_to_Contracts_Sales_and_Product_Liability/08%3A_Introduction_to_Contract_Law/8.04%3A_Cases.txt |
Summary
Contract law developed as the status-centered organization of feudal society faded and people began to make choices about how they might order their lives. In the capitalistic system, people make choices about how to interact with others, and—necessarily—those choices expressed as promises must be binding and enforceable.
The two fundamental sources of contract law are (1) the common law as developed in the state courts and as summarized in the Restatement (Second) of Contracts and (2) the Uniform Commercial Code for the sale of goods. In general, the UCC is more liberal than the common law in upholding the existence of a contract.
Types of contracts can be distinguished by four criteria: (1) express and implied, including quasi-contracts implied by law; (2) bilateral and unilateral; (3) enforceable and unenforceable; and (4) completed (executed) and uncompleted (executory). To understand contract law, it is necessary to master these distinctions and their nuances.
EXERCISES
1. Mr. and Mrs. Smith, an elderly couple, had no relatives. When Mrs. Smith became ill, the Smiths asked a friend, Henrietta, to help with various housekeeping chores, including cleaning and cooking. Although the Smiths never promised to pay her, Henrietta performed the chores for eighteen months. Henrietta now claims that she is entitled to the reasonable value of the services performed. Is she correct? Explain.
2. Assume instead that the Smiths asked Mrs. Smith’s sister, Caroline, who lived nearby, to help with the housekeeping. After eighteen months, Caroline claims she is entitled to the reasonable value of the services performed. Is she correct? Explain.
1. A letter from Bridge Builders Inc. to the Allied Steel Company stated, “We offer to purchase 10,000 tons of No. 4 steel pipe at today’s quoted price for delivery two months from today. Your acceptance must be received in five days.” Does Bridge Builders intend to create a bilateral or a unilateral contract? Why?
2. Roscoe’s barber persuaded him to try a new hair cream called Sansfree, which the barber applied to Roscoe’s hair and scalp. The next morning Roscoe had a very unpleasant rash along his hairline. Upon investigation he discovered that the rash was due to an improper chemical compound in Sansfree. If Roscoe filed a breach of contract action against the barber, would the case be governed by the Uniform Commercial Code or common law? Explain.
3. Rachel entered into a contract to purchase a 2004 Dodge from Hanna, who lived in the neighboring apartment. When a dispute arose over the terms of the contract, Hanna argued that, because neither she nor Rachel was a merchant, the dispute should be decided under general principles of common law. Rachel, on the other hand, argued that Hanna was legally considered to be a merchant because she sold the car for profit and that, consequently, the sale was governed by the Uniform Commercial Code. Who is correct? Explain.
4. Lee and Michelle decided to cohabit. When they set up house, Michelle gave up her career, and Lee promised to share his earnings with her on a fifty-fifty basis. Several years later they ended their relationship, and when Lee failed to turn over half of his earnings, Michelle filed suit on the basis of Lee’s promise. What kind of contract would Michelle allege that Lee had breached? Explain.
5. Harry and Wilma were divorced in 2008, and Harry was ordered in the divorce decree to pay his ex-wife \$10,000. In 2009 and 2010 Harry was hospitalized, incurring \$3,000 in bills. He and Wilma discussed the matter, and Wilma agreed to pay the bill with her own money, even though Harry still owed her \$5,000 from the divorce decree. When Harry died in late 2010, Wilma made a claim against his estate for \$8,000 (the \$3,000 in medical bills and the \$5,000 from the decree), but the estate was only willing to pay the \$5,000 from the decree, claiming she had paid the hospital bill voluntarily and had no contract for repayment. Is the estate correct? Explain.
6. Louie, an adult, entered into a contract to sell a case of scotch whiskey to Leroy, a minor. Is the contract void or voidable? Explain.
7. James Mann owned a manufacturing plant that assembled cell phones. A CPA audit determined that several phones were missing. Theft by one or more of the workers was suspected. Accordingly, under Mann’s instructions, the following sign was placed in the employees’ cafeteria:
Reward. We are missing phones. I want all employees to watch for thievery. A reward of \$500 will be paid for information given by any employee that leads to the apprehension of employee thieves.
—James Mann
Waldo, a plant employee, read the notice and immediately called Mann, stating, “I accept your offer. I promise to watch other employees and provide you with the requested information.” Has a contract been formed? Explain.
8. Almost every day Sally took a break at lunch and went to the International News Stand—a magazine store—to browse the newspapers and magazines and chat with the owner, Conrad. Often she bought a magazine. One day she went there, browsed a bit, and took a magazine off the rack. Conrad was busy with three customers. Sally waved the magazine at Conrad and left the store with it. What kind of a contract, if any, was created?
9. Joan called Devon Sand & Gravel and ordered two “boxes” (dump-truck loads) of gravel to be spread on her rural driveway by the “shoot and run” method: the tailgate is partially opened, the dump-truck bed is lifted, and the truck moves down the driveway spreading gravel as it goes. The driver mistakenly graveled the driveway of Joan’s neighbor, Watson, instead of Joan’s. Is Devon entitled to payment by Watson? Explain.
SELF-TEST QUESTIONS
1. An implied contract
1. must be in writing
2. is one in which the terms are spelled out
3. is one inferred from the actions of the parties
4. is imposed by law to avoid an unjust result
5. may be avoided by one party
2. The Convention on Contracts for the International Sale of Goods is
1. an annual meeting of international commercial purchasing agents.
2. contract law used in overseas US federal territories
3. a customary format or template for drafting contracts
4. a kind of treaty setting out international contract law, to which the United States is a party
5. the organization that develops uniform international law
3. An unenforceable contract is
1. void, not a contract at all
2. one that a court will not enforce for either side because of a rule of law
3. unenforceable by one party but enforceable by the other
4. one that has been performed by one party but not the other
5. too indefinite to be valid
4. Betty Baker found a bicycle apparently abandoned near her house. She took it home and spent \$150 repairing and painting it, after which Carl appeared and proved his ownership of it. Under what theory is Betty able to get reimbursed for her expenditures?
1. express contract
2. implied contract
3. apparent or quasi-contract
4. executory contract
5. none: she will not get reimbursed
5. Alice discusses with her neighbor Bob her plan to hire Woodsman to cut three trees on her side of their property line, mentioning that she can get a good deal because Woodsman is now between jobs. Bob says, “Oh, don’t do that. My brother is going to cut some trees on my side, and he can do yours too for free.” Alice agrees. But Bob’s brother is preoccupied and never does the job. Three weeks later Alice discovers Woodsman’s rates have risen prohibitively. Under what theory does Alice have a cause of action against Bob?
1. express contract
2. promissory estoppel
3. quasi-contract
4. implied contract
5. none: she has no cause of action against Bob
1. c
2. d
3. c
4. c
5. b | textbooks/biz/Civil_Law/Book%3A_Introduction_to_Contracts_Sales_and_Product_Liability/08%3A_Introduction_to_Contract_Law/8.05%3A_Summary_and_Exercises.txt |
Learning Objectives
After reading this chapter, you should understand the following:
• What a contract offer is, and what proposals are not offers
• How an offer is communicated
• How definite the offer needs to be
• How long an offer is good for
• How an offer is accepted, who can accept it, and when acceptance is effective
In this chapter, we begin the first of the four broad inquiries of contract law mentioned in Chapter 8 "Introduction to Contract Law": Did the parties create a valid contract? The answer is not always obvious; the range of factors that must be taken into account can be large, and their relationships subtle. Since businesspeople frequently conduct contract negotiations without the assistance of a lawyer, it is important to attend to the nuances in order to avoid legal trouble at the outset. Whether a contract has been formed depends in turn on whether
1. the parties reached an agreement (the focus of this chapter);
2. consideration was present;
3. the agreement was legal; and
4. the parties entered into the contract of their own free will, with knowledge of the facts, and with the capacity to make a contract.
Factors 2, 3, and 4 are the subjects of subsequent chapters.
09: The Agreement
LEARNING OBJECTIVES
1. Recognize that not all agreements or promises are contracts.
2. Understand that whether a contract exists is based on an objective analysis of the parties’ interaction, not on a subjective one.
The Significance of Agreement
The core of a legal contract is the agreement between the parties. This is not a necessary ingredient; in Communist nations, contracts were (or are, in the few remaining Communist countries) routinely negotiated between parties who had the terms imposed on them. But in the West, and especially in the United States, agreement is of the essence. That is not merely a matter of convenience; it is at the heart of our philosophical and psychological beliefs. As the great student of contract law Samuel Williston put it, “It was a consequence of the emphasis laid on the ego and the individual will that the formation of a contract should seem impossible unless the wills of the parties concurred. Accordingly we find at the end of the eighteenth century, and the beginning of the nineteenth century, the prevalent idea that there must be a “meeting of the minds” (a new phrase) in order to form a contract.”Samuel Williston, “Freedom of Contract,” Cornell Law Quarterly 6 (1921), 365.
Although agreements may take any form, including unspoken conduct between the parties, they are usually structured in terms of an offer and an acceptance.Uniform Commercial Code, Section 2-204(1). These two components will be the focus of our discussion. Note, however, that not every agreement, in the broadest sense of the word, need consist of an offer and an acceptance, and that it is entirely possible, therefore, for two persons to reach agreement without forming a contract. For example, people may agree that the weather is pleasant or that it would be preferable to go out for Chinese food rather than to see a foreign film; in neither case has a contract been formed. One of the major functions of the law of contracts is to sort out those agreements that are legally binding—those that are contracts—from those that are not.
The Objective Test
In interpreting agreements, courts generally apply an objective standard (outwardly, as an observer would interpret; not subjectively). The Restatement (Second) of Contracts defines agreement as a “manifestation of mutual assent by two or more persons to one another.”Uniform Commercial Code, Section 3. The Uniform Commercial Code defines agreement as “the bargain of the parties in fact as found in their language or by implication from other circumstances including course of dealing or usage of trade or course of performance.”Uniform Commercial Code, Section 1-201(3). The critical question is what the parties said or did, not what they thought they said or did, or not what impression they thought they were making.
The distinction between objective and subjective standards crops up occasionally when one person claims he spoke in jest. The vice president of a company that manufactured punchboards, used in gambling, testified to the Washington State Game Commission that he would pay \$100,000 to anyone who found a “crooked board.” Barnes, a bartender, who had purchased two boards that were crooked some time before, brought one to the company office and demanded payment. The company refused, claiming that the statement was made in jest (the audience at the commission hearing had laughed when the offer was made). The court disagreed, holding that it was reasonable to interpret the pledge of \$100,000 as a means of promoting punchboards:
[I]f the jest is not apparent and a reasonable hearer would believe that an offer was being made, then the speaker risks the formation of a contract which was not intended. It is the objective manifestations of the offeror that count and not secret, unexpressed intentions. If a party’s words or acts, judged by a reasonable standard, manifest an intention to agree in regard to the matter in question, that agreement is established, and it is immaterial what may be the real but unexpressed state of the party’s mind on the subject.Barnes v. Treece, 549 P.2d 1152 (Wash. App. 1976).
Lucy v. Zehmer (Section 9.4.1 "Objective Intention" at the end of the chapter) illustrates that a party’s real state of mind must be expressed to the other party, rather than in an aside to one’s spouse.
KEY TAKEAWAY
Fundamentally, a contract is a legally binding “meeting of the minds” between the parties. It is not the unexpressed intention in the minds of the parties that determines whether there was “a meeting.” The test is objective: how would a reasonable person interpret the interaction?
EXERCISES
1. For the purposes of determining whether a party had a contractual intention, why do courts employ an objective rather than a subjective test?
2. What is the relationship between “the emphasis laid on the ego and the individual will” in modern times (Williston) and the concept of the contractual agreement? | textbooks/biz/Civil_Law/Book%3A_Introduction_to_Contracts_Sales_and_Product_Liability/09%3A_The_Agreement/9.01%3A_The_Agreement_in_General.txt |
LEARNING OBJECTIVES
1. Know the definition of offer.
2. Recognize that some proposals are not offers.
3. Understand the three essentials of an offer: intent, communication, and definiteness.
4. Know when an offer expires and can no longer be accepted.
Offer and acceptance may seem to be straightforward concepts, as they are when two people meet face-to-face. But in a commercial society, the ways of making offers and accepting them are nearly infinite. A retail store advertises its merchandise in the newspaper. A seller makes his offer by mail or over the Internet. A telephone caller states that his offer will stand for ten days. An offer leaves open a crucial term. An auctioneer seeks bids. An offeror gives the offeree a choice. All these situations can raise tricky questions, as can corresponding situations involving acceptances.
The Definition of Offer
The Restatement defines offer as “the manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it.”Restatement (Second) of Contracts, Section 24. Two key elements are implicit in that definition: the offer must be communicated, and it must be definite. Before considering these requirements, we examine the threshold question of whether an offer was intended. Let us look at proposals that may look like, but are not, offers.
Advertisements
Most advertisements, price quotations, and invitations to bid are not construed as offers. A notice in the newspaper that a bicycle is on sale for \$800 is normally intended only as an invitation to the public to come to the store to make a purchase. Similarly, a statement that a seller can “quote” a unit price to a prospective purchaser is not, by itself, of sufficient definiteness to constitute an offer; quantity, time of delivery, and other important factors are missing from such a statement. Frequently, in order to avoid construction of a statement about price and quantity as an offer, a seller or buyer may say, “Make me an offer.” Such a statement obviously suggests that no offer has yet been made. This principle usually applies to invitations for bids (e.g., from contractors on a building project). Many forms used by sales representatives as contracts indicate that by signing, the customer is making an offer to be accepted by the home office and is not accepting an offer made by the sales representative.
Although advertisements, price quotations, and the like are generally not offers, the facts in each case are important. Under the proper circumstances, an advertised statement can be construed as an offer, as shown in the well-known Lefkowitz case (Section 9.4.2 "Advertisements as Offers" at the end of the chapter), in which the offended customer acted as his own lawyer and pursued an appeal to the Minnesota Supreme Court against a Minneapolis department store that took back its advertised offer.
Despite the common-law rule that advertisements are normally to be considered invitations rather than offers, legislation and government regulations may offer redress. For many years, retail food stores have been subject to a rule, promulgated by the Federal Trade Commission (FTC), that goods advertised as “specials” must be available and must be sold at the price advertised. It is unlawful for a retail chain not to have an advertised item in each of its stores and in sufficient quantity, unless the advertisement specifically states how much is stocked and which branch stores do not carry it. Many states have enacted consumer protection statutes that parallel the FTC rule.
Invitations to Bid
Invitations to bid are also not generally construed as offers. An auctioneer does not make offers but solicits offers from the crowd: “May I have an offer?—\$500? \$450? \$450! I have an offer for \$450. Do I hear \$475? May I have an offer?”
Communication
A contract is an agreement in which each party assents to the terms of the other party. Without mutual assent there cannot be a contract, and this implies that the assent each person gives must be with reference to that of the other. If Toni places several alternative offers on the table, only one of which can be accepted, and invites Sandy to choose, no contract is formed if Sandy says merely, “I accept your terms.” Sandy must specify which offer she is assenting to.
From this general proposition, it follows that no contract can be legally binding unless an offer is in fact communicated to the offeree. If you write an e-mail to a friend with an offer to sell your car for a certain sum and then get distracted and forget to send it, no offer has been made. If your friend coincidentally e-mails you the following day and says that she wants to buy your car and names the same sum, no contract has been made. Her e-mail to you is not an acceptance, since she did not know of your offer; it is, instead, an offer or an invitation to make an offer. Nor would there have been a contract if you had sent your communication and the two e-mails crossed in cyberspace. Both e-mails would be offers, and for a valid contract to be formed, it would still be necessary for one of you to accept the other’s offer. An offer is not effective until it is received by the offeree (and that’s also true of a revocation of the offer, and a rejection of the offer by the offeree).
The requirement that an offer be communicated does not mean that every term must be communicated. You call up your friend and offer to sell him your car. You tell him the price and start to tell him that you will throw in the snow tires but will not pay for a new inspection, and that you expect to keep the car another three weeks. Impatiently, he cuts you off and says, “Never mind about all that; I’ll accept your offer on whatever terms you want.” You and he have a contract.
These principles apply to unknown offers of reward. An offer of a reward constitutes a unilateral contract that can be made binding only by performing the task for which the reward is offered. Suppose that Bonnie posts on a tree a sign offering a reward for returning her missing dog. If you saw the sign, found the dog, and returned it, you would have fulfilled the essentials of the offer. But if you chanced upon the dog, read the tag around its neck, and returned it without ever having been aware that a reward was offered, then you have not responded to the offer, even if you acted in the hope that the owner would reward you. There is no contractual obligation.
In many states, a different result follows from an offer of a reward by a governmental entity. Commonly, local ordinances provide that a standing reward of, say, \$1,000 will be paid to anyone providing information that leads to the arrest and conviction of arsonists. To collect the reward, it is not necessary for a person who does furnish local authorities with such information to know that a reward ordinance exists. In contract terms, the standing reward is viewed as a means of setting a climate in which people will be encouraged to act in certain ways in the expectation that they will earn unknown rewards. It is also possible to view the claim to a reward as noncontractual; the right to receive it is guaranteed, instead, by the local ordinance.
Although a completed act called for by an unknown private offer does not give rise to a contract, partial performance usually does. Suppose Apex Bakery posts a notice offering a one-week bonus to all bakers who work at least six months in the kitchen. Charlene works two months before discovering the notice on the bulletin board. Her original ignorance of the offer will not defeat her claim to the bonus if she continues working, for the offer serves as an inducement to complete the performance called for.
Definiteness
The common law reasonably requires that an offer spell out the essential proposed terms with sufficient definiteness—certainty of terms that enables a court to order enforcement or measure damages in the event of a breach. As it has often been put, “The law does not make contracts for the parties; it merely enforces the duties which they have undertaken” (Simpson, 1965, p. 19). Thus a supposed promise to sell “such coal as the promisor may wish to sell” is not an enforceable term because the seller, the coal company, undertakes no duty to sell anything unless it wishes to do so. Essential terms certainly include price and the work to be done. But not every omission is fatal; for example, as long as a missing term can be fixed by referring to some external standard—such as “no later than the first frost”—the offer is sufficiently definite.
In major business transactions involving extensive negotiations, the parties often sign a preliminary “agreement in principle” before a detailed contract is drafted. These preliminary agreements may be definite enough to create contract liability even though they lack many of the terms found in a typical contract. For example, in a famous 1985 case, a Texas jury concluded that an agreement made “in principle” between the Pennzoil Company and the Getty Oil Company and not entirely finished was binding and that Texaco had unlawfully interfered with their contract. As a result, Texaco was held liable for over \$10 billion, which was settled for \$3 billion after Texaco went into bankruptcy.
Offers that state alternatives are definitive if each alternative is definite. David offers Sheila the opportunity to buy one of two automobiles at a fixed price, with delivery in two months and the choice of vehicle left to David. Sheila accepts. The contract is valid. If one of the cars is destroyed in the interval before delivery, David is obligated to deliver the other car. Sometimes, however, what appears to be an offer in the alternative may be something else. Charles makes a deal to sell his business to Bernie. As part of the bargain, Charles agrees not to compete with Bernie for the next two years, and if he does, to pay \$25,000. Whether this is an alternative contract depends on the circumstances and intentions of the parties. If it is, then Charles is free to compete as long as he pays Bernie \$25,000. On the other hand, the intention might have been to prevent Charles from competing in any event; hence a court could order payment of the \$25,000 as damages for a breach and still order Charles to refrain from competition until the expiration of the two-year period.
The UCC Approach
The Uniform Commercial Code (UCC) is generally more liberal in its approach to definiteness than is the common law—at least as the common law was interpreted in the heyday of classical contract doctrine. Section 2-204(3) states the rule: “Even though one or more terms are left open, a contract for sale does not fail for indefiniteness if the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy.”
The drafters of the UCC sought to give validity to as many contracts as possible and grounded that validity on the intention of the parties rather than on formalistic requirements. As the official comment to Section 2-204(3) notes, “If the parties intend to enter into a binding agreement, this subsection recognizes that agreement as valid in law, despite missing terms, if there is any reasonably certain basis for granting a remedy.…Commercial standards on the point of ‘indefiniteness’ are intended to be applied.” Other sections of the UCC spell out rules for filling in such open provisions as price, performance, and remedies.Chiefly, Uniform Commercial Code, Sections 2-305 through 2-310.
One of these sections, Section 2-306(1), provides that a contract term under which a buyer agrees to purchase the seller’s entire output of goods (an “outputs contract”) or a seller agrees to meet all the buyer’s requirements (a “requirements” or “needs” contract) means output or requirements that occur in good faith. A party to such a contract cannot offer or demand a quantity that is “unreasonably disproportionate” to a stated estimate or past quantities.
Duration of Offer
An offer need not be accepted on the spot. Because there are numerous ways of conveying an offer and numerous contingencies that may be part of the offer’s subject matter, the offeror might find it necessary to give the offeree considerable time to accept or reject the offer. By the same token, an offer cannot remain open forever, so that once given, it never lapses and cannot be terminated. The law recognizes seven ways by which the offer can expire (besides acceptance, of course): revocation, rejection by the offeree, counteroffer, acceptance with counteroffer, lapse of time, death or insanity of a person or destruction of an essential term, and illegality. We will examine each of these in turn.
Revocation
People are free to make contracts and, in general, to revoke them.
Revocability
The general rule, both in common law and under the UCC, is that the offeror may revoke his or her offer at any time before acceptance, even if the offer states that it will remain open for a specified period of time. Neil offers Arlene his car for \$5,000 and promises to keep the offer open for ten days. Two days later, Neil calls Arlene to revoke the offer. The offer is terminated, and Arlene’s acceptance thereafter, though within the ten days, is ineffective. But if Neil had sent his revocation (the taking back of an offer before it is accepted) by mail, and if Arlene, before she received it, had telephoned her acceptance, there would be a contract, since revocation is effective only when the offeree actually receives it. There is an exception to this rule for offers made to the public through newspaper or like advertisements. The offeror may revoke a public offering by notifying the public by the same means used to communicate the offer. If no better means of notification is reasonably available, the offer is terminated even if a particular offeree had no actual notice.
Revocation may be communicated indirectly. If Arlene had learned from a friend that Neil had sold his car to someone else during the ten-day period, she would have had sufficient notice. Any attempt to accept Neil’s offer would have been futile.
Irrevocable Offers
Not every type of offer is revocable. One type of offer that cannot be revoked is the option contract (the promisor explicitly agrees for consideration to limit his right to revoke). Arlene tells Neil that she cannot make up her mind in ten days but that she will pay him \$25 to hold the offer open for thirty days. Neil agrees. Arlene has an option to buy the car for \$5,000; if Neil should sell it to someone else during the thirty days, he will have breached the contract with Arlene. Note that the transactions involving Neil and Arlene consist of two different contracts. One is the promise of a thirty-day option for the promise of \$25. It is this contract that makes the option binding and is independent of the original offer to sell the car for \$5,000. The offer can be accepted and made part of an independent contract during the option period.
Partial performance of a unilateral contract creates an option. Although the option is not stated explicitly, it is recognized by law in the interests of justice. Otherwise, an offeror could induce the offeree to go to expense and trouble without ever being liable to fulfill his or her part of the bargain. Before the offeree begins to carry out the contract, the offeror is free to revoke the offer. But once performance begins, the law implies an option, allowing the offeree to complete performance according to the terms of the offer. If, after a reasonable time, the offeree does not fulfill the terms of the offer, then it may be revoked.
Revocability under the UCC
The UCC changes the common-law rule for offers by merchants. Under Section 2-205, a firm offer (a written and signed promise by a merchant to hold an offer to buy or sell goods for some period of time) is irrevocable. That is, an option is created, but no consideration is required. The offer must remain open for the time period stated or, if no time period is given, for a reasonable period of time, which may not exceed three months.
Irrevocability by Law
By law, certain types of offers may not be revoked (statutory irrevocability), despite the absence of language to that effect in the offer itself. One major category of such offers is that of the contractor submitting a bid to a public agency. The general rule is that once the period of bidding opens, a bidder on a public contract may not withdraw his or her bid unless the contracting authority consents. The contractor who purports to withdraw is awarded the contract based on the original bid and may be sued for damages for nonperformance.
Rejection by the Offeree
Rejection (a manifestation of refusal to agree to the terms of an offer) of the offer is effective when the offeror receives it. A subsequent change of mind by the offeree cannot revive the offer. Donna calls Chuck to reject Chuck’s offer to sell his lawn mower. Chuck is then free to sell it to someone else. If Donna changes her mind and calls Chuck back to accept after all, there still is no contract, even if Chuck has made no further effort to sell the lawn mower. Having rejected the original offer, Donna, by her second call, is not accepting but making an offer to buy. Suppose Donna had written Chuck to reject, but on changing her mind, decided to call to accept before the rejection letter arrived. In that case, the offer would have been accepted.
Counteroffer
A counteroffer, a response that varies the terms of an offer, is a rejection. Jones offers Smith a small parcel of land for \$10,000 and says the offer will remain open for one month. Smith responds ten days later, saying he will pay \$5,000. Jones’s original offer has thereby been rejected. If Jones now declines Smith’s counteroffer, may Smith bind Jones to his original offer by agreeing to pay the full \$10,000? He may not, because once an original offer is rejected, all the terms lapse. However, an inquiry by Smith as to whether Jones would consider taking less is not a counteroffer and would not terminate the offer.
Acceptance with Counteroffer
This is not really an acceptance at all but is a counteroffer: an acceptance that changes the terms of the offer is a counteroffer and terminates the offer. The common law imposes a mirror image rule: the acceptance must match the offer in all its particulars or the offer is rejected. However, if an acceptance that requests a change or an addition to the offer does not require the offeror’s assent, then the acceptance is valid. The broker at Friendly Real Estate offers you a house for \$320,000. You accept but include in your acceptance “the vacant lot next door.” Your acceptance is a counteroffer, which serves to terminate the original offer. If, instead, you had said, “It’s a deal, but I’d prefer it with the vacant lot next door,” then there is a contract because you are not demanding that the broker abide by your request. If you had said, “It’s a deal, and I’d also like the vacant lot next door,” you have a contract, because the request for the lot is a separate offer, not a counteroffer rejecting the original proposal.
The UCC and Counteroffers
The UCC is more liberal than the common law in allowing contracts to be formed despite counteroffers and in incorporating the counteroffers into the contracts. This UCC provision is necessary because the use of routine forms for contracts is very common, and if the rule were otherwise, much valuable time would be wasted by drafting clauses tailored to the precise wording of the routine printed forms. A buyer and a seller send out documents accompanying or incorporating their offers and acceptances, and the provisions in each document rarely correspond precisely. Indeed, it is often the case that one side’s form contains terms favorable to it but inconsistent with terms on the other side’s form. Section 2-207 of the UCC attempts to resolve this “battle of the forms” by providing that additional terms or conditions in an acceptance operate as such unless the acceptance is conditioned on the offeror’s consent to the new or different terms. The new terms are construed as offers but are automatically incorporated in any contract between merchants for the sale of goods unless “(a) the offer expressly limits acceptance to the terms of the offer; (b) [the terms] materially alter it; or (c) notification of objection to them has already been given or is given within a reasonable time after notice of them is received.”
An example of terms that become part of the contract without being expressly agreed to are clauses providing for interest payments on overdue bills. Examples of terms that would materially alter the contract and hence need express approval are clauses that negate the standard warranties that sellers give buyers on their merchandise.
Frequently, parties use contract provisions to prevent the automatic introduction of new terms. A typical seller’s provision is as follows:
Amendments
Any modification of this document by the Buyer, and all additional or different terms included in Buyer’s purchase order or any other document responding to this offer, are hereby objected to. BY ORDERING THE GOODS HERE FOR SHIPMENT, BUYER AGREES TO ALL THE TERMS AND CONDITIONS CONTAINED ON BOTH SIDES OF THIS DOCUMENT.
Section 2-207 of the UCC, liberalizing the mirror image rule, is pervasive, covering all sorts of contracts, from those between industrial manufacturers to those between friends.
Lapse of Time
Offers are not open-ended; they lapse after some period of time. An offer may contain its own specific time limitation—for example, “until close of business today.”
In the absence of an expressly stated time limit, the common-law rule is that the offer expires at the end of a “reasonable” time. Such a period is a factual question in each case and depends on the particular circumstances, including the nature of the service or property being contracted for, the manner in which the offer is made, and the means by which the acceptance is expected to be made. Whenever the contract involves a speculative transaction—the sale of securities or land, for instance—the time period will depend on the nature of the security and the risk involved. In general, the greater the risk to the seller, the shorter the period of time. Karen offers to sell Gary a block of oil stocks that are fluctuating rapidly hour by hour. Gary receives the offer an hour before the market closes; he accepts by fax two hours after the market has opened the next morning and after learning that the stock has jumped up significantly. The time period has lapsed if Gary was accepting a fixed price that Karen set, but it may still be open if the price is market price at time of delivery. (Under Section 41 of the Restatement, an offer made by mail is “seasonably accepted if an acceptance is mailed at any time before midnight on the day on which the offer is received.”)
For unilateral contracts, both the common law and the UCC require the offeree to notify the offeror that he has begun to perform the terms of the contract. Without notification, the offeror may, after a reasonable time, treat the offer as having lapsed.
Death or Insanity of the Offeror
The death or insanity of the offeror prior to acceptance terminates the offer; the offer is said to die with the offeror. (Notice, however, that the death of a party to a contract does not necessarily terminate the contract: the estate of a deceased person may be liable on a contract made by the person before death.)
Destruction of Subject Matter Essential to the Offer
Destruction of something essential to the contract also terminates the offer. You offer to sell your car, but the car is destroyed in an accident before your offer is accepted; the offer is terminated.
Postoffer Illegality
A statute making unlawful the object of the contract will terminate the offer if the statute takes effect after the offer was made. Thus an offer to sell a quantity of herbal weight-loss supplements will terminate if the Food and Drug Administration outlaws the sale of such supplements.
KEY TAKEAWAY
An offer is a manifestation of willingness to enter into a contract, effective when received. It must be communicated to the offeree, be made intentionally (according to an objective standard), and be definite enough to determine a remedy in case of breach. An offer terminates in one of seven ways: revocation before acceptance (except for option contracts, firm offers under the UCC, statutory irrevocability, and unilateral offers where an offeree has commenced performance); rejection; counteroffer; acceptance with counteroffer; lapse of time (as stipulated or after a reasonable time); death or insanity of the offeror before acceptance or destruction of subject matter essential to the offer; and postoffer illegality.
EXERCISES
1. Why is it said an offer is a “manifestation” of willingness to enter into a contract? How could willingness be “manifested”?
2. Which kind of standard is used to determine whether a person has made an offer—subjective or objective?
3. If Sandra posts a written notice offering “to the kitchen staff at Coldwater Bay (Alaska) transportation to Seattle at the end of the fishing season,” and if David, one of the maintenance workers, says to her, “I accept your offer of transportation to Seattle,” is there a contract?
4. What are the seven ways an offer can terminate? | textbooks/biz/Civil_Law/Book%3A_Introduction_to_Contracts_Sales_and_Product_Liability/09%3A_The_Agreement/9.02%3A_The_Offer.txt |
LEARNING OBJECTIVES
1. Define acceptance.
2. Understand who may accept an offer.
3. Know when the acceptance is effective.
4. Recognize when silence is acceptance.
General Definition of Acceptance
To result in a legally binding contract, an offer must be accepted by the offeree. Just as the law helps define and shape an offer and its duration, so the law governs the nature and manner of acceptance. The Restatement defines acceptance of an offer as “a manifestation of assent to the terms thereof made by the offeree in a manner invited or required by the offer.”Restatement (Second) of Contracts, Section 24.The assent may be either by the making of a mutual promise or by performance or partial performance. If there is doubt about whether the offer requests a return promise or a return act, the Restatement, Section 32, provides that the offeree may accept with either a promise or performance. The Uniform Commercial Code (UCC) also adopts this view; under Section 2-206(1)(a), “an offer to make a contract shall be construed as inviting acceptance in any manner and by any medium reasonable in the circumstances” unless the offer unambiguously requires a certain mode of acceptance.
Who May Accept?
The identity of the offeree is usually clear, even if the name is unknown. The person to whom a promise is made is ordinarily the person whom the offeror contemplates will make a return promise or perform the act requested. But this is not invariably so. A promise can be made to one person who is not expected to do anything in return. The consideration necessary to weld the offer and acceptance into a legal contract can be given by a third party. Under the common law, whoever is invited to furnish consideration to the offeror is the offeree, and only an offeree may accept an offer. A common example is sale to a minor. George promises to sell his automobile to Bartley, age seventeen, if Bartley’s father will promise to pay \$3,500 to George. Bartley is the promisee (the person to whom the promise is made) but not the offeree; Bartley cannot legally accept George’s offer. Only Bartley’s father, who is called on to pay for the car, can accept, by making the promise requested. And notice what might seem obvious: a promise to perform as requested in the offer is itself a binding acceptance.
When Is Acceptance Effective?
As noted previously, an offer, a revocation of the offer, and a rejection of the offer are not effective until received. The same rule does not always apply to the acceptance.
Instantaneous Communication
Of course, in many instances the moment of acceptance is not in question: in face-to-face deals or transactions negotiated by telephone, the parties extend an offer and accept it instantaneously during the course of the conversation. But problems can arise in contracts negotiated through correspondence.
Stipulations as to Acceptance
One common situation arises when the offeror stipulates the mode of acceptance (e.g., return mail, fax, or carrier pigeon). If the offeree uses the stipulated mode, then the acceptance is deemed effective when sent. Even though the offeror has no knowledge of the acceptance at that moment, the contract has been formed. Moreover, according to the Restatement, Section 60, if the offeror says that the offer can be accepted only by the specified mode, that mode must be used. (It is said that “the offeror is the master of the offer.”)
If the offeror specifies no particular mode, then acceptance is effective when transmitted, as long as the offeree uses a reasonable method of acceptance. It is implied that the offeree can use the same means used by the offeror or a means of communication customary to the industry.
The “Mailbox Rule”
The use of the postal service is customary, so acceptances are considered effective when mailed, regardless of the method used to transmit the offer. Indeed, the so-called mailbox rule has a lineage tracing back more than one hundred years to the English courts.Adams v. Lindsell, 1 Barnewall & Alderson 681 (K.B. 1818).
The mailbox rule may seem to create particular difficulties for people in business, since the acceptance is effective even though the offeror is unaware of the acceptance, and even if the letter is lost and never arrives. But the solution is the same as the rationale for the rule. In contracts negotiated through correspondence, there will always be a burden on one of the parties. If the rule were that the acceptance is not effective until received by the offeror, then the offeree would be on tenterhooks, rather than the other way around, as is the case with the present rule. As between the two, it seems fairer to place the burden on the offeror, since he or she alone has the power to fix the moment of effectiveness. All the offeror need do is specify in the offer that acceptance is not effective until received.
In all other cases—that is, when the offeror fails to specify the mode of acceptance and the offeree uses a mode that is not reasonable—acceptance is deemed effective only when received.
Acceptance “Outruns” Rejection
When the offeree sends a rejection first and then later transmits a superseding acceptance, the “effective when received” rule also applies. Suppose a seller offers a buyer two cords of firewood and says the offer will remain open for a week. On the third day, the buyer writes the seller, rejecting the offer. The following evening, the buyer rethinks his firewood needs, and on the morning of the fifth day, he sends an e-mail accepting the seller’s terms. The previously mailed letter arrives the following day. Since the letter had not yet been received, the offer had not been rejected. For there to be a valid contract, the e-mailed acceptance must arrive before the mailed rejection. If the e-mail were hung up in cyberspace, although through no fault of the buyer, so that the letter arrived first, the seller would be correct in assuming the offer was terminated—even if the e-mail arrived a minute later. In short, where “the acceptance outruns the rejection” the acceptance is effective. See Figure 9.1.
Figure 9.1
When Is Communication Effective?
Electronic Communications
Electronic communications have, of course, become increasingly common. Many contracts are negotiated by e-mail, accepted and “signed” electronically. Generally speaking, this does not change the rules. The Uniform Electronic Transactions Act (UETA) was promulgated (i.e., disseminated for states to adopt) in 1999. It is one of a number of uniform acts, like the Uniform Commercial Code. As of June 2010, forty-seven states and the US Virgin Islands had adopted the statute. The introduction to the act provides that “the purpose of the UETA is to remove barriers to electronic commerce by validating and effectuating electronic records and signatures.”The National Conference of Commissioners on Uniform State Laws, Uniform Electronic Transactions Act (1999) (Denver: National Conference of Commissioners on Uniform State Laws, 1999), accessed March 29, 2011, www.law.upenn.edu/bll/archives/ulc/fnact99/1990s/ueta99.pdf. In general, the UETA provides the following:
1. A record or signature may not be denied legal effect or enforceability solely because it is in electronic form.
2. A contract may not be denied legal effect or enforceability solely because an electronic record was used in its formation.
3. If a law requires a record to be in writing, an electronic record satisfies the law.
4. If a law requires a signature, an electronic signature satisfies the law.
The UETA, though, doesn’t address all the problems with electronic contracting. Clicking on a computer screen may constitute a valid acceptance of a contractual offer, but only if the offer is clearly communicated. In Specht v. Netscape Communications Corp., customers who had downloaded a free online computer program complained that it effectively invaded their privacy by inserting into their machines “cookies”; they wanted to sue, but the defendant said they were bound to arbitration.Specht v. Netscape Communications Corp., 306 F.3d 17 (2d Cir. 2002). They had clicked on the Download button, but hidden below it were the licensing terms, including the arbitration clause. The federal court of appeals held that there was no valid acceptance. The court said, “We agree with the district court that a reasonably prudent Internet user in circumstances such as these would not have known or learned of the existence of the license terms before responding to defendants’ invitation to download the free software, and that defendants therefore did not provide reasonable notice of the license terms. In consequence, the plaintiffs’ bare act of downloading the software did not unambiguously manifest assent to the arbitration provision contained in the license terms.”
If a faxed document is sent but for some reason not received or not noticed, the emerging law is that the mailbox rule does not apply. A court would examine the circumstances with care to determine the reason for the nonreceipt or for the offeror’s failure to notice its receipt. A person has to have fair notice that his or her offer has been accepted, and modern communication makes the old-fashioned mailbox rule—that acceptance is effective upon dispatch—problematic.See, for example, Clow Water Systems Co. v. National Labor Relations Board, 92 F.3d 441 (6th Cir. 1996).
General Rule: Silence Is Not Acceptance
Ordinarily, for there to be a contract, the offeree must make some positive manifestation of assent to the offeror’s terms. The offeror cannot usually word his offer in such a way that the offeree’s failure to respond can be construed as an acceptance.
Exceptions
The Restatement, Section 69, gives three situations, however, in which silence can operate as an acceptance. The first occurs when the offeree avails himself of services proffered by the offeror, even though he could have rejected them and had reason to know that the offeror offered them expecting compensation. The second situation occurs when the offer states that the offeree may accept without responding and the offeree, remaining silent, intends to accept. The third situation is that of previous dealings, in which only if the offeree intends not to accept is it reasonable to expect him to say so.
As an example of the first type of acceptance by silence, assume that a carpenter happens by your house and sees a collapsing porch. He spots you in the front yard and points out the deterioration. “I’m a professional carpenter,” he says, “and between jobs. I can fix that porch for you. Somebody ought to.” You say nothing. He goes to work. There is an implied contract, with the work to be done for the carpenter’s usual fee.
To illustrate the second situation, suppose that a friend has left her car in your garage. The friend sends you a letter in which she offers you the car for \$4,000 and adds, “If I don’t hear from you, I will assume that you have accepted my offer.” If you make no reply, with the intention of accepting the offer, a contract has been formed.
The third situation is illustrated by Section 9.4.3 "Silence as Acceptance", a well-known decision made by Justice Oliver Wendell Holmes Jr. when he was sitting on the Supreme Court of Massachusetts.
KEY TAKEAWAY
Without an acceptance of an offer, no contract exists, and once an acceptance is made, a contract is formed. If the offeror stipulates how the offer should be accepted, so be it. If there is no stipulation, any reasonable means of communication is good. Offers and revocations are usually effective upon receipt, while an acceptance is effective on dispatch. The advent of electronic contracting has caused some modification of the rules: courts are likely to investigate the facts surrounding the exchange of offer and acceptance more carefully than previously. But the nuances arising because of the mailbox rule and acceptance by silence still require close attention to the facts.
EXERCISES
1. Rudy puts this poster, with a photo of his dog, on utility poles around his neighborhood: “\$50 reward for the return of my lost dog.” Carlene doesn’t see the poster, but she finds the dog and, after looking at the tag on its collar, returns the dog to Rudy. As she leaves his house, her eye falls on one of the posters, but Rudy declines to pay her anything. Why is Rudy correct that Carlene has no legal right to the reward?
2. How has the UCC changed the common law’s mirror image rule, and why?
3. When is an offer generally said to be effective? A rejection of an offer? A counteroffer?
4. How have modern electronic communications affected the law of offer and acceptance?
5. When is silence considered an acceptance? | textbooks/biz/Civil_Law/Book%3A_Introduction_to_Contracts_Sales_and_Product_Liability/09%3A_The_Agreement/9.03%3A_The_Acceptance.txt |
Objective Intention
Lucy v. Zehmer
84 S.E.2d 516 (Va. 1954)
Buchanan, J.
This suit was instituted by W. O. Lucy and J. C. Lucy, complainants, against A. H. Zehmer and Ida S. Zehmer, his wife, defendants, to have specific performance of a contract by which it was alleged the Zehmers had sold to W. O. Lucy a tract of land owned by A. H. Zehmer in Dinwiddie county containing 471.6 acres, more or less, known as the Ferguson farm, for \$50,000. J. C. Lucy, the other complainant, is a brother of W. O. Lucy, to whom W. O. Lucy transferred a half interest in his alleged purchase.
The instrument sought to be enforced was written by A. H. Zehmer on December 20, 1952, in these words: “We hereby agree to sell to W. O. Lucy the Ferguson farm complete for \$50,000.00, title satisfactory to buyer,” and signed by the defendants, A. H. Zehmer and Ida S. Zehmer.
The answer of A. H. Zehmer admitted that at the time mentioned W. O. Lucy offered him \$50,000 cash for the farm, but that he, Zehmer, considered that the offer was made in jest; that so thinking, and both he and Lucy having had several drinks, he wrote out “the memorandum” quoted above and induced his wife to sign it; that he did not deliver the memorandum to Lucy, but that Lucy picked it up, read it, put it in his pocket, attempted to offer Zehmer \$5 to bind the bargain, which Zehmer refused to accept, and realizing for the first time that Lucy was serious, Zehmer assured him that he had no intention of selling the farm and that the whole matter was a joke. Lucy left the premises insisting that he had purchased the farm.…
In his testimony Zehmer claimed that he “was high as a Georgia pine,” and that the transaction “was just a bunch of two doggoned drunks bluffing to see who could talk the biggest and say the most.” That claim is inconsistent with his attempt to testify in great detail as to what was said and what was done.…
If it be assumed, contrary to what we think the evidence shows, that Zehmer was jesting about selling his farm to Lucy and that the transaction was intended by him to be a joke, nevertheless the evidence shows that Lucy did not so understand it but considered it to be a serious business transaction and the contract to be binding on the Zehmers as well as on himself. The very next day he arranged with his brother to put up half the money and take a half interest in the land. The day after that he employed an attorney to examine the title. The next night, Tuesday, he was back at Zehmer’s place and there Zehmer told him for the first time, Lucy said, that he wasn’t going to sell and he told Zehmer, “You know you sold that place fair and square.” After receiving the report from his attorney that the title was good he wrote to Zehmer that he was ready to close the deal.
Not only did Lucy actually believe, but the evidence shows he was warranted in believing, that the contract represented a serious business transaction and a good faith sale and purchase of the farm.
In the field of contracts, as generally elsewhere, “We must look to the outward expression of a person as manifesting his intention rather than to his secret and unexpressed intention. The law imputes to a person an intention corresponding to the reasonable meaning of his words and acts.”
At no time prior to the execution of the contract had Zehmer indicated to Lucy by word or act that he was not in earnest about selling the farm. They had argued about it and discussed its terms, as Zehmer admitted, for a long time. Lucy testified that if there was any jesting it was about paying \$50,000 that night. The contract and the evidence show that he was not expected to pay the money that night. Zehmer said that after the writing was signed he laid it down on the counter in front of Lucy. Lucy said Zehmer handed it to him. In any event there had been what appeared to be a good faith offer and a good faith acceptance, followed by the execution and apparent delivery of a written contract. Both said that Lucy put the writing in his pocket and then offered Zehmer \$5 to seal the bargain. Not until then, even under the defendants’ evidence, was anything said or done to indicate that the matter was a joke. Both of the Zehmers testified that when Zehmer asked his wife to sign he whispered that it was a joke so Lucy wouldn’t hear and that it was not intended that he should hear.
The mental assent of the parties is not requisite for the formation of a contract. If the words or other acts of one of the parties have but one reasonable meaning, his undisclosed intention is immaterial except when an unreasonable meaning which he attaches to his manifestations is known to the other party.
“* * * The law, therefore, judges of an agreement between two persons exclusively from those expressions of their intentions which are communicated between them. * * *.” [Citation]
An agreement or mutual assent is of course essential to a valid contract but the law imputes to a person an intention corresponding to the reasonable meaning of his words and acts. If his words and acts, judged by a reasonable standard, manifest an intention to agree, it is immaterial what may be the real but unexpressed state of his mind.
So a person cannot set up that he was merely jesting when his conduct and words would warrant a reasonable person in believing that he intended a real agreement.
Whether the writing signed by the defendants and now sought to be enforced by the complainants was the result of a serious offer by Lucy and a serious acceptance by the defendants, or was a serious offer by Lucy and an acceptance in secret jest by the defendants, in either event it constituted a binding contract of sale between the parties.…
Reversed and remanded.
CASE QUESTIONS
1. What objective evidence was there to support the defendants’ contention that they were just kidding when they agreed to sell the farm?
2. Suppose the defendants really did think the whole thing was a kind of joke. Would that make any difference?
3. As a matter of public policy, why does the law use an objective standard to determine the seriousness of intention, instead of a subjective standard?
4. It’s 85 degrees in July and 5:00 p.m., quitting time. The battery in Mary’s car is out of juice, again. Mary says, “Arrgh! I will sell this stupid car for \$50!” Jason, walking to his car nearby, whips out his checkbook and says, “It’s a deal. Leave your car here. I’ll give you a ride home and pick up your car after you give me the title.” Do the parties have a contract?
Advertisements as Offers
Lefkowitz v. Great Minneapolis Surplus Store
86 N.W.2d 689 (Minn. 1957)
Murphy, Justice.
This is an appeal from an order of the Municipal Court of Minneapolis denying the motion of the defendant for amended findings of fact, or, in the alternative, for a new trial. The order for judgment awarded the plaintiff the sum of \$138.50 as damages for breach of contract.
This case grows out of the alleged refusal of the defendant to sell to the plaintiff a certain fur piece which it had offered for sale in a newspaper advertisement. It appears from the record that on April 6, 1956, the defendant published the following advertisement in a Minneapolis newspaper:
Saturday 9 A.M. Sharp
3 Brand New Fur Coats Worth to \$100.00
First Come
First Served
\$1 Each
[The \$100 coat would be worth about \$800 in 2010 dollars.] On April 13, the defendant again published an advertisement in the same newspaper as follows:
Saturday 9 A.M.
2 Brand New Pastel Mink 3-Skin Scarfs
Selling for. \$89.50
Out they go Saturday. Each…\$1.00
1 Black Lapin Stole Beautiful, worth \$139.50…\$1.00
First Come First Served
The record supports the findings of the court that on each of the Saturdays following the publication of the above-described ads the plaintiff was the first to present himself at the appropriate counter in the defendant’s store and on each occasion demanded the coat and the stole so advertised and indicated his readiness to pay the sale price of \$1. On both occasions, the defendant refused to sell the merchandise to the plaintiff, stating on the first occasion that by a “house rule” the offer was intended for women only and sales would not be made to men, and on the second visit that plaintiff knew defendant’s house rules.
The trial court properly disallowed plaintiff’s claim for the value of the fur coats since the value of these articles was speculative and uncertain. The only evidence of value was the advertisement itself to the effect that the coats were “Worth to \$100.00,” how much less being speculative especially in view of the price for which they were offered for sale. With reference to the offer of the defendant on April 13, 1956, to sell the “1 Black Lapin Stole * * * worth \$139.50 * * *” the trial court held that the value of this article was established and granted judgment in favor of the plaintiff for that amount less the \$1 quoted purchase price.
1. The defendant contends that a newspaper advertisement offering items of merchandise for sale at a named price is a “unilateral offer” which may be withdrawn without notice. He relies upon authorities which hold that, where an advertiser publishes in a newspaper that he has a certain quantity or quality of goods which he wants to dispose of at certain prices and on certain terms, such advertisements are not offers which become contracts as soon as any person to whose notice they may come signifies his acceptance by notifying the other that he will take a certain quantity of them. Such advertisements have been construed as an invitation for an offer of sale on the terms stated, which offer, when received, may be accepted or rejected and which therefore does not become a contract of sale until accepted by the seller; and until a contract has been so made, the seller may modify or revoke such prices or terms. [Citations]
…On the facts before us we are concerned with whether the advertisement constituted an offer, and, if so, whether the plaintiff’s conduct constituted an acceptance.
There are numerous authorities which hold that a particular advertisement in a newspaper or circular letter relating to a sale of articles may be construed by the court as constituting an offer, acceptance of which would complete a contract. [Citations]
The test of whether a binding obligation may originate in advertisements addressed to the general public is “whether the facts show that some performance was promised in positive terms in return for something requested.” 1 Williston, Contracts (Rev. ed.) s 27.
The authorities above cited emphasize that, where the offer is clear, definite, and explicit, and leaves nothing open for negotiation, it constitutes an offer, acceptance of which will complete the contract.…
Whether in any individual instance a newspaper advertisement is an offer rather than an invitation to make an offer depends on the legal intention of the parties and the surrounding circumstances. [Citations] We are of the view on the facts before us that the offer by the defendant of the sale of the Lapin fur was clear, definite, and explicit, and left nothing open for negotiation. The plaintiff having successfully managed to be the first one to appear at the seller’s place of business to be served, as requested by the advertisement, and having offered the stated purchase price of the article, he was entitled to performance on the part of the defendant. We think the trial court was correct in holding that there was in the conduct of the parties a sufficient mutuality of obligation to constitute a contract of sale.
2. The defendant contends that the offer was modified by a “house rule” to the effect that only women were qualified to receive the bargains advertised. The advertisement contained no such restriction. This objection may be disposed of briefly by stating that, while an advertiser has the right at any time before acceptance to modify his offer, he does not have the right, after acceptance, to impose new or arbitrary conditions not contained in the published offer. [Citations]
Affirmed.
CASE QUESTIONS
1. If the normal rule is that display advertisements in newspapers and the like are not offers, but rather invitations to make an offer, why was this different? Why did the court hold that this was an offer?
2. What is the rationale for the rule that a display ad is usually not an offer?
3. If a newspaper display advertisement reads, “This offer is good for two weeks,” is it still only an invitation to make an offer, or is it an offer?
4. Is a listing by a private seller for the sale of a trailer on Craigslist or in the weekly classified advertisements an offer or an invitation to make an offer?
Silence as Acceptance
Hobbs v.Massasoit Whip Co.
33 N.E. 495 (Mass. 1893)
Holmes, J.
This is an action for the price of eel skins sent by the plaintiff to the defendant, and kept by the defendant some months, until they were destroyed. It must be taken that the plaintiff received no notice that the defendant declined to accept the skins. The case comes before us on exceptions to an instruction to the jury that, whether there was any prior contract or not, if skins are sent to the defendant, and it sees fit, whether it has agreed to take them or not, to lie back, and to say nothing, having reason to suppose that the man who has sent them believes that it is taking them, since it says nothing about it, then, if it fails to notify, the jury would be warranted in finding for the plaintiff.
Standing alone, and unexplained, this proposition might seem to imply that one stranger may impose a duty upon another, and make him a purchaser, in spite of himself, by sending goods to him, unless he will take the trouble, and bear the expense, of notifying the sender that he will not buy. The case was argued for the defendant on that interpretation. But, in view of the evidence, we do not understand that to have been the meaning of the judge and we do not think that the jury can have understood that to have been his meaning. The plaintiff was not a stranger to the defendant, even if there was no contract between them. He had sent eel skins in the same way four or five times before, and they had been accepted and paid for. On the defendant’s testimony, it was fair to assume that if it had admitted the eel skins to be over 22 inches in length, and fit for its business, as the plaintiff testified and the jury found that they were, it would have accepted them; that this was understood by the plaintiff; and, indeed, that there was a standing offer to him for such skins.
In such a condition of things, the plaintiff was warranted in sending the defendant skins conforming to the requirements, and even if the offer was not such that the contract was made as soon as skins corresponding to its terms were sent, sending them did impose on the defendant a duty to act about them; and silence on its part, coupled with a retention of the skins for an unreasonable time, might be found by the jury to warrant the plaintiff in assuming that they were accepted, and thus to amount to an acceptance. [Citations] The proposition stands on the general principle that conduct which imports acceptance or assent is acceptance or assent, in the view of the law, whatever may have been the actual state of mind of the party—a principle sometimes lost sight of in the cases. [Citations]
Exceptions overruled.
CASE QUESTIONS
1. What is an eel, and why would anybody make a whip out of its skin?
2. Why did the court here deny the defendant’s assertion that it never accepted the plaintiff’s offer?
3. If it reasonably seems that silence is acceptance, does it make any difference what the offeree really intended? | textbooks/biz/Civil_Law/Book%3A_Introduction_to_Contracts_Sales_and_Product_Liability/09%3A_The_Agreement/9.04%3A_Cases.txt |
Summary
Whether a legally valid contract was formed depends on a number of factors, including whether the parties reached agreement, whether consideration was present, and whether the agreement was legal. Agreement may seem like an intuitive concept, but intuition is not a sufficient guide to the existence of agreement in legal terms. The most common way of examining an agreement for legal sufficiency is by determining whether a valid offer and acceptance were made.
An offer is a manifestation of willingness to enter into a bargain such that it would be reasonable for another individual to conclude that assent to the offer would complete the bargain. Offers must be communicated and must be definite; that is, they must spell out terms to which the offeree can assent.
An important aspect of the offer is its duration. An offer can expire in any one of several ways: (1) rejection, (2) counteroffer, (3) acceptance with counteroffer, (4) lapse of time, (5) death or insanity of the offeror or destruction of an essential term, (6) illegality, and (7) revocation. No understanding of agreement is complete without a mastery of these conditions.
To constitute an agreement, an offer must be accepted.
The offeree must manifest his assent to the terms of the offer in a manner invited or required by the offer. Complications arise when an offer is accepted indirectly through correspondence. Although offers and revocations of offers are not effective until received, an acceptance is deemed accepted when sent if the offeree accepts in the manner specified by the offeror. But the nuances that arise because of the mailbox rule and acceptance by silence require close attention to the circumstances of each agreement.
EXERCISES
1. Sarah’s student apartment was unfurnished. She perused Doug’s List, an online classified ad service (for nonmerchants), and saw this advertisement: “Moving. For sale: a very nice brown leather couch, almost new, \$600.” There was an accompanying photo and contact information. Sarah e-mailed the contact, saying she wanted to buy the couch. Does Sarah have a contract with the seller? Explain.
2. Seller called Buyer on the telephone and offered to sell his used stereo. Buyer agreed to buy it without asking the price. The next day Buyer changed her mind and attempted to back out of the agreement. Do the parties have a contract? Explain.
3. On August 1, Ernie wrote to Elsie offering to sell Elsie his car for \$7,600, and he promised to hold the offer open for ten days. On August 4 Ernie changed his mind; he sent Elsie a letter revoking the offer. On August 5 Elsie e-mailed Ernie, accepting the offer. Ernie’s letter of revocation arrived on August 6. Is there a contract? Explain.
4. On August 1 Grover visited a local electronics shop to purchase a new television. He saw one he liked but wasn’t sure if he could afford the \$750. The store owner agreed to write up and sign an offer stating that it would be held open for ten days, which he did. On August 2 the owner changed his mind and sent Grover an e-mail revoking the offer, which Grover received immediately. On August 3 Grover sent a reply e-mail accepting the original offer. Is there a contract? Explain.
5. Acme Corporation sent the following letter, here set out in its entirety:
January 2, 2012
Acme Corporation
We hereby offer you 100 Acme golden widgets, size 6. This offer will be good for 10 days.
[Signed] Roberta Acme
Owner, Acme Corporation
Is this offer irrevocable for the time stated? Explain.
6. On November 26, Joe wrote to Kate offering to purchase a farm that she owned. Upon receiving the letter on November 28, Kate immediately sent Joe a letter of acceptance. However, shortly after mailing the letter, Kate had second thoughts and called Joe to advise him that she was rejecting his offer. The call was made before Joe received the letter of acceptance. Has a contract been formed? Why?
7. On a busy day just before April 15, Albert Accountant received a call from a local car dealer. The dealer said, “Hi, Mr. Accountant. Now, while you have income from doing clients’ taxes, I have an excellent offer for you. You can buy a new Buick Century automobile completely loaded for \$36,000. Al, I know you’re busy. If I don’t hear from you by the end of the day, I’ll assume you want the car.” Albert, distracted, did not respond immediately, and the dealer hung up. Then followed an exhausting day of working with anxiety-ridden tax clients. Albert forgot about the conversation. Two days later a statement arrived from the dealer, with instructions on how Albert should pick up the car at the dealership. Is there a contract? Explain.
8. Mr. and Mrs. Mitchell, the owners of a small secondhand store, attended an auction where they bought a used safe for \$50. The safe, part of the Sumstad estate, had a locked compartment inside, a fact the auctioneer mentioned. After they bought the safe, the Mitchells had a locksmith open the interior compartment; it contained \$32,000 in cash. The locksmith called the police, who impounded the safe, and a lawsuit ensued between the Mitchells and the Sumstad estate to determine the ownership of the cash. Who should get it, and why?
9. Ivan Mestrovic, an internationally renowned artist, and his wife lived for years in a house in Indiana. Ivan died in 1982. His widow remained in the house for some years; upon her death the contents of the house were willed to her children. When the Wilkens bought the house from the estate, it was very cluttered. A bank representative (the executor of the estate) said, “You can clean it yourself and keep whatever items you want, or we—as executor of Mrs. Mestrovic’s estate—will hire a rubbish removal service to dispose of it.” The Wilkens opted to clean it up themselves, and amid the mess, behind sofas and in odd closets, were six apparently valuable paintings by Mestrovic. The estate claimed them; the Wilkens claimed them. Who gets the paintings, and why?
10. David Kidd’s dog bit Mikaila Sherrod. On June 14, 2010, the Kidds offered to settle for \$32,000. On July 12 the Sherrods sued the Kidds. On July 20 the Kidds bumped their offer up to \$34,000. The suit was subject to mandatory arbitration, which proceeded on April 28, 2011. On May 5 the arbitrator awarded the Sherrods \$25,000. On May 9 the Sherrods wrote to the Kidds and purported to accept their last offer of \$34,000, made the year before. The Sherrods’ attorney moved to enforce that purported \$34,000 “settlement agreement.” The court concluded that the offer was properly accepted because it had not been withdrawn and entered judgment against the Kidds for \$34,000. The Kidds appealed. What result should obtain on appeal, and why?Sherrod ex rel. Cantone v. Kidd, 155 P.3d 976 (Wash. Ct. App., 2007).
SELF-TEST QUESTIONS
1. In interpreting agreements for the purpose of establishing whether a valid contract exists, courts generally apply
1. subjective standards
2. objective standards
3. either a subjective or an objective standard
4. none of the above
2. A valid offer must be
1. written
2. written and intended
3. communicated by letter
4. communicated and definite
3. An offer
1. must specify time, place, and manner of acceptance
2. must be accepted immediately to be valid
3. need not be accepted immediately
4. can only be accepted by the same means it was made
4. An offer generally
1. is rejected by a counteroffer
2. can be revoked if the offeror changes his or her mind
3. can lapse after a reasonable period of time
4. involves all of the above
5. An acceptance is generally considered effective
1. when a letter is received by the offeror
2. when a letter is mailed
3. when the offeree is silent
4. only when the acceptance is transmitted in writing
1. b
2. d
3. c
4. d
5. b | textbooks/biz/Civil_Law/Book%3A_Introduction_to_Contracts_Sales_and_Product_Liability/09%3A_The_Agreement/9.05%3A_Summary_and_Exercises.txt |
Learning Objectives
After reading this chapter, you should understand the following:
• Contracts require “a meeting of the minds” between competent parties, and if there is no such “meeting,” the agreement is usually voidable.
• Parties must enter the contract voluntarily, without duress or undue influence.
• Misrepresentation or fraud, when proven, vitiates a contract.
• A mistake may make a contract voidable.
• Parties to a contract must have capacity—that is, not labor under infancy, intoxication, or insanity.
We turn to the second of the four requirements for a valid contract. In addition to manifestation of assent, a party’s assent must be real; he or she must consent to the contract freely, with adequate knowledge, and must have capacity. The requirement of real assent raises the following major questions:
1. Did the parties enter into the contract of their own free will, or was one forced to agree under duress or undue influence?
2. Did the parties enter into the contract with full knowledge of the facts, or was one or both led to the agreement through fraud or mistake?
3. Did both parties have the capacity to make a contract?
10: Real Assent
LEARNING OBJECTIVES
1. Recognize that if a person makes an agreement under duress (being forced to enter a contract against his or her will), the agreement is void.
2. Understand what undue influence is and what the typical circumstances are when it arises to make a contract voidable.
Duress
When a person is forced to do something against his or her will, that person is said to have been the victim of duress—compulsion. There are two types of duress: physical duress and duress by improper threat. A contract induced by physical violence is void.
Physical Duress
If a person is forced into entering a contract on threat of physical bodily harm, he or she is the victim of physical duress. It is defined by the Restatement (Second) of Contracts in Section 174: “If conduct that appears to be a manifestation of assent by a party who does not intend to engage in that conduct is physically compelled by duress, the conduct is not effective as a manifestation of assent.”
Comment (a) to Section 174 provides in part, “This Section involves an application of that principle to those relatively rare situations in which actual physical force has been used to compel a party to appear to assent to a contract.…The essence of this type of duress is that a party is compelled by physical force to do an act that he has no intention of doing. He is, it is sometimes said, ‘a mere mechanical instrument.’ The result is that there is no contract at all, or a ‘void contract’ as distinguished from a voidable one” (emphasis added).
The Restatement is undoubtedly correct that there are “relatively rare situations in which actual physical force” is used to compel assent to a contract. Extortion is a crime.
Duress by Threat
The second kind of duress is duress by threat; it is more common than physical duress. Here the perpetrator threatens the victim, who feels there is no reasonable alternative but to assent to the contract. It renders the contract voidable. This rule contains a number of elements.
First, the threat must be improper. Second, there must be no reasonable alternative. If, for example, a supplier threatens to hold up shipment of necessary goods unless the buyer agrees to pay more than the contract price, this would not be duress if the buyer could purchase identical supplies from someone else. Third, the test for inducement is subjective. It does not matter that the person threatened is unusually timid or that a reasonable person would not have felt threatened. The question is whether the threat in fact induced assent by the victim. Such facts as the victim’s belief that the threatener had the ability to carry out the threat and the length of time between the threat and assent are relevant in determining whether the threat did prompt the assent.
There are many types of improper threats that might induce a party to enter into a contract: threats to commit a crime or a tort (e.g., bodily harm or taking of property), to instigate criminal prosecution, to instigate civil proceedings when a threat is made in bad faith, to breach a “duty of good faith and fair dealing under a contract with the recipient,” or to disclose embarrassing details about a person’s private life.
Jack buys a car from a local used-car salesman, Mr. Olson, and the next day realizes he bought a lemon. He threatens to break windows in Olson’s showroom if Olson does not buy the car back for \$2,150, the purchase price. Mr. Olson agrees. The agreement is voidable, even though the underlying deal is fair, if Olson feels he has no reasonable alternative and is frightened into agreeing. Suppose Jack knows that Olson has been tampering with his cars’ odometers, a federal offense, and threatens to have Olson prosecuted if he will not repurchase the car. Even though Olson may be guilty, this threat makes the repurchase contract voidable, because it is a misuse for personal ends of a power (to go to the police) given each of us for other purposes. If these threats failed, suppose Jack then tells Olson, “I’m going to haul you into court and sue your pants off.” If Jack means he will sue for his purchase price, this is not an improper threat, because everyone has the right to use the courts to gain what they think is rightfully theirs. But if Jack meant that he would fabricate damages done him by a (falsely) claimed odometer manipulation, that would be an improper threat. Although Olson could defend against the suit, his reputation would suffer in the meantime from his being accused of odometer tampering.
A threat to breach a contract that induces the victim to sign a new contract could be improper. Suppose that as part of the original purchase price, Olson agrees to make all necessary repairs and replace all failed parts for the first ninety days. At the end of one month, the transmission dies, and Jack demands a replacement. Olson refuses to repair the car unless Jack signs a contract agreeing to buy his next car from Olson. Whether this threat is improper depends on whether Jack has a reasonable alternative; if a replacement transmission is readily available and Jack has the funds to pay for it, he might have an alternative in suing Olson in small claims court for the cost. But if Jack needs the car immediately and he is impecunious, then the threat would be improper and the contract voidable. A threat to breach a contract is not necessarily improper, however. It depends on whether the new contract is fair and equitable because of unanticipated circumstances. If, for example, Olson discovers that he must purchase a replacement transmission at three times the anticipated cost, his threat to hold up work unless Jack agrees to pay for it might be reasonable.
Undue Influence
The Restatement of Contracts (Second) characterizes undue influence as “unfair persuasion.”Restatement (Second) of Contracts, Section 177. It is a milder form of duress than physical harm or threats. The unfairness does not lie in any misrepresentation; rather, it occurs when the victim is under the domination of the persuader or is one who, in view of the relationship between them, is warranted in believing that the persuader will act in a manner detrimental to the victim’s welfare if the victim fails to assent. It is the improper use of trust or power to deprive a person of free will and substitute instead another’s objective. Usually the fact pattern involves the victim being isolated from receiving advice except from the persuader. Falling within this rule are situations where, for example, a child takes advantage of an infirm parent, a doctor takes advantage of an ill patient, or a lawyer takes advantage of an unknowledgeable client. If there has been undue influence, the contract is voidable by the party who has been unfairly persuaded. Whether the relationship is one of domination and the persuasion is unfair is a factual question. The answer hinges on a host of variables, including “the unfairness of the resulting bargain, the unavailability of independent advice, and the susceptibility of the person persuaded.”Restatement (Second) of Contracts, Section 177(b). See Section 10.5.1 "Undue Influence", Hodge v. Shea.
KEY TAKEAWAY
A contract induced by physical duress—threat of bodily harm—is void; a contract induced by improper threats—another type of duress—is voidable. Voidable also are contracts induced by undue influence, where a weak will is overborne by a stronger one.
EXERCISES
1. What are the two types of duress?
2. What are the elements necessary to support a claim of undue influence? | textbooks/biz/Civil_Law/Book%3A_Introduction_to_Contracts_Sales_and_Product_Liability/10%3A_Real_Assent/10.01%3A_Duress_and_Undue_Influence.txt |
LEARNING OBJECTIVES
1. Understand the two types of misrepresentation: fraudulent and nonfraudulent.
2. Distinguish between fraudulent misrepresentation in the execution and fraudulent misrepresentation in the inducement.
3. Know the elements necessary to prove fraudulent and nonfraudulent misrepresentation.
4. Recognize the remedies for misrepresentation.
General Description
The two types of misrepresentation are fraudulent and nonfraudulent. Within the former are fraud in the execution and fraud in the inducement. Within the latter are negligent misrepresentation and innocent misrepresentation.
Misrepresentation is a statement of fact that is not consistent with the truth. If misrepresentation is intentional, it is fraudulent misrepresentation; if it is not intentional, it is nonfraudulent misrepresentation, which can be either negligent or innocent.
In further taxonomy, courts distinguish between fraud in the execution and fraud in the inducement. Fraud in the execution is defined by the Restatement as follows: “If a misrepresentation as to the character or essential terms of a proposed contract induces conduct that appears to be a manifestation of assent by one who neither knows nor has reasonable opportunity to know of the character or essential terms of the proposed contract, his conduct is not effective as a manifestation of assent.”Restatement (Second) of Contracts, Section 163. For example, Alphonse and Gaston decide to sign a written contract incorporating terms to which they have agreed. It is properly drawn up, and Gaston reads it and approves it. Before he can sign it, however, Alphonse shrewdly substitutes a different version to which Gaston has not agreed. Gaston signs the substitute version. There is no contract. There has been fraud in the execution.
Fraud in the inducement is more common. It involves some misrepresentation about the subject of the contract that induces assent. Alphonse tells Gaston that the car Gaston is buying from Alphonse has just been overhauled—which pleases Gaston—but it has not been. This renders the contract voidable.
Fraudulent Misrepresentation
Necessary to proving fraudulent misrepresentation (usually just “fraud,” though technically “fraud” is the crime and “fraudulent misrepresentation” is the civil wrong) is a misstatement of fact that is intentionally made and justifiably relied upon.
Misstatement of Fact
Again, generally, any statement not in accord with the facts (a fact is something amenable to testing as true) is a misrepresentation. Falsity does not depend on intent. A typist’s unnoticed error in a letter (inadvertently omitting the word “not,” for example, or transposing numbers) can amount to a misrepresentation on which the recipient may rely (it is not fraudulent misrepresentation). A half-truth can amount to a misrepresentation, as, for example, when the seller of a hotel says that the income is from both permanent and transient guests but fails to disclose that the bulk of the income is from single-night stopovers by seamen using the hotel as a brothel.Ikeda v. Curtis, 261 P.2d 684 (Wash. 1951).
Concealment
Another type of misrepresentation is concealment. It is an act that is equivalent to a statement that the facts are to the contrary and that serves to prevent the other party from learning the true statement of affairs; it is hiding the truth. A common example is painting over defects in a building—by concealing the defects, the owner is misrepresenting the condition of the property. The act of concealment need not be direct; it may consist of sidetracking the other party from gaining necessary knowledge by, for example, convincing a third person who has knowledge of the defect not to speak. Concealment is always a misrepresentation.
Nondisclosure
A more passive type of concealment is nondisclosure. Although generally the law imposes no obligation on anyone to speak out, nondisclosure of a fact can operate as a misrepresentation under certain circumstances. This occurs, for example, whenever the other party has erroneous information, or, as Reed v. King (Section 10.5.2 "Misrepresentation by Concealment") shows, where the nondisclosure amounts to a failure to act in good faith, or where the party who conceals knows or should know that the other side cannot, with reasonable diligence, discover the truth.
In a remarkable 1991 case out of New York, a New York City stockbroker bought an old house upstate (basically anyplace north of New York City) in the village of Nyack, north of New York City, and then wanted out of the deal when he discovered—the defendant seller had not told him—that it was “haunted.” The court summarized the facts: “Plaintiff, to his horror, discovered that the house he had recently contracted to purchase was widely reputed to be possessed by poltergeists [ghosts], reportedly seen by defendant seller and members of her family on numerous occasions over the last nine years. Plaintiff promptly commenced this action seeking rescission of the contract of sale. Supreme Court reluctantly dismissed the complaint, holding that plaintiff has no remedy at law in this jurisdiction.”
The high court of New York ruled he could rescind the contract because the house was “haunted as a matter of law”: the defendant had promoted it as such on village tours and in Reader’s Digest. She had concealed it, and no reasonable buyer’s inspection would have revealed the “fact.” The dissent basically hooted, saying, “The existence of a poltergeist is no more binding upon the defendants than it is upon this court.”Stambovsky v. Ackley, 169 A.D.2d 254 (N.Y. 1991).
Statement Made False by Subsequent Events
If a statement of fact is made false by later events, it must be disclosed as false. For example, in idle chatter one day, Alphonse tells Gaston that he owns thirty acres of land. In fact, Alphonse owns only twenty-seven, but he decided to exaggerate a little. He meant no harm by it, since the conversation had no import. A year later, Gaston offers to buy the “thirty acres” from Alphonse, who does not correct the impression that Gaston has. The failure to speak is a nondisclosure—presumably intentional, in this situation—that would allow Gaston to rescind a contract induced by his belief that he was purchasing thirty acres.
Statements of Opinion
An opinion, of course, is not a fact; neither is sales puffery. For example, the statements “In my opinion this apple is very tasty” and “These apples are the best in the county” are not facts; they are not expected to be taken as true. Reliance on opinion is hazardous and generally not considered justifiable.
If Jack asks what condition the car is in that he wishes to buy, Mr. Olson’s response of “Great!” is not ordinarily a misrepresentation. As the Restatement puts it: “The propensity of sellers and buyers to exaggerate the advantages to the other party of the bargains they promise is well recognized, and to some extent their assertions must be discounted.”Restatement (Second) of Contracts, Section 168(d). Vague statements of quality, such as that a product is “good,” ought to suggest nothing other than that such is the personal judgment of the opinion holder.
Despite this general rule, there are certain exceptions that justify reliance on opinions and effectively make them into facts. Merely because someone is less astute than the one with whom she is bargaining does not give rise to a claim of justifiable reliance on an unwarranted opinion. But if the person is inexperienced and susceptible or gullible to blandishments, the contract can be voided, as illustrated in Vokes v. Arthur Murray, Inc. in Section 10.5.3 "Misrepresentation by Assertions of Opinion".
Misstatement of Law
Incorrect assertions of law usually do not give rise to any relief, but sometimes they do. An assertion that “the city has repealed the sales tax” or that a court has cleared title to a parcel of land is a statement of fact; if such assertions are false, they are governed by the same rules that govern misrepresentations of fact generally. An assertion of the legal consequences of a given set of facts is generally an opinion on which the recipient relies at his or her peril, especially if both parties know or assume the same facts. Thus, if there is a lien on a house, the seller’s statement that “the courts will throw it out, you won’t be bothered by it” is an opinion. A statement that “you can build a five-unit apartment on this property” is not actionable because, at common law, people are supposed to know what the local and state laws are, and nobody should rely on a layperson’s statement about the law. However, if the statement of law is made by a lawyer or real estate broker, or some other person on whom a layperson may justifiably rely, then it may be taken as a fact and, if untrue, as the basis for a claim of misrepresentation. (Assertions about foreign laws are generally held to be statements of fact, not opinion.)
Assertions of Intention
Usually, assertions of intention are not considered facts. The law allows considerable leeway in the honesty of assertions of intention. The Restatement talks in terms of “a misrepresentation of intention…consistent with reasonable standards of fair dealing.”Restatement (Second) of Contracts, Section 171(1). The right to misstate intentions is useful chiefly in the acquisition of land; the cases permit buyers to misrepresent the purpose of the acquisition so as not to arouse the suspicion of the seller that the land is worth considerably more than his asking price. To be a misrepresentation that will permit rescission, an assertion of intention must be false at the time made; that is, the person asserting an intention must not then have intended it. That later he or she does not carry out the stated intention is not proof that there was no intention at the time asserted. Moreover, to render a contract voidable, the false assertion of intention must be harmful in some way to other interests of the recipient. Thus, in the common example, the buyer of land tells the seller that he intends to build a residence on the lot, but he actually intends to put up a factory and has lied because he knows that otherwise the seller will not part with it because her own home is on an adjacent lot. The contract is voidable by the seller. So a developer says, as regards the picturesque old barn on the property, “I’ll sure try to save it,” but after he buys the land he realizes it would be very expensive (and in the way), so he does not try to save it. No misrepresentation.
Intentionally Made Misrepresentation
The second element necessary to prove fraud is that the misrepresentation was intentionally made. A misrepresentation is intentionally made “if the maker intends his assertion to induce a party to manifest his assent and the maker (a) knows or believes that the assertion is not in accord with the facts, or (b) does not have the confidence that he states or implies in the truth of the assertion, or (c) knows that he does not have the basis that he states or implies for the assertion.”Restatement (Second) of Contracts, Section 162(1).
The question of intent often has practical consequences in terms of the remedy available to the plaintiff. If the misrepresentation is fraudulent, the plaintiff may, as an alternative to avoiding the contract, recover damages. Some of this is discussed in Section 10.2.4 "Remedies" and more fully in Chapter 16 "Remedies", where we see that some states would force the plaintiff to elect one of these two remedies, whereas other states would allow the plaintiff to pursue both remedies (although only one type of recovery would eventually be allowed). If the misrepresentation is not intentional, then the common law allowed the plaintiff only the remedy of rescission. But the Uniform Commercial Code (UCC), Section 2-721, allows both remedies in contracts for the sale of goods, whether the misrepresentation is fraudulent or not, and does not require election of remedies.
Reliance
The final element necessary to prove fraud is reliance by the victim. He or she must show that the misrepresentation induced assent—that is, he or she relied on it. The reliance need not be solely on the false assertion; the defendant cannot win the case by demonstrating that the plaintiff would have assented to the contract even without the misrepresentation. It is sufficient to avoid the contract if the plaintiff weighed the assertion as one of the important factors leading him to make the contract, and he believed it to be true. The person who asserts reliance to avoid a contract must have acted in good faith and reasonably in relying on the false assertion. Thus if the victim failed to read documents given him that truly stated the facts, he cannot later complain that he relied on a contrary statement, as, for example, when the purchaser of a car dealership was told the inventory consisted of new cars, but the supporting papers, receipt of which he acknowledged, clearly stated how many miles each car had been driven. If Mr. Olson tells Jack that the car Jack is interested in is “a recognized classic,” and if Jack doesn’t care a whit about that but buys the car because he likes its tail fins, he will have no case against Mr. Olson when he finds out the car is not a classic: it didn’t matter to him, and he didn’t rely on it.
Ordinarily, the person relying on a statement need not verify it independently. However, if verification is relatively easy, or if the statement is one that concerns matters peculiarly within the person’s purview, he or she may not be held to have justifiably relied on the other party’s false assertion. Moreover, usually the rule of reliance applies to statements about past events or existing facts, not about the occurrence of events in the future.
Nonfraudulent Misrepresentation
Nonfraudulent misrepresentation may also be grounds for some relief. There are two types: negligent misrepresentation and innocent misrepresentation.
Negligent Misrepresentation
Where representation is caused by carelessness, it is negligent misrepresentation. To prove it, a plaintiff must show a negligent misstatement of fact that is material and justifiably relied upon.
Negligent
As an element of misrepresentation, “negligent” here means the party who makes the representation was careless. A potential buyer of rural real estate asks the broker if the neighborhood is quiet. The broker assures her it is. In fact, the neighbors down the road have a whole kennel of hunting hounds that bark a lot. The broker didn’t know that; she just assumed the neighborhood was quiet. That is negligence: failure to use appropriate care.
Misstatement of Fact
Whether a thing is a fact may be subject to the same general analysis used in discussing fraudulent misrepresentation. (A person could negligently conceal a fact, or negligently give an opinion, as in legal malpractice.)
Materiality
A material misrepresentation is one that “would be likely to induce a reasonable person to manifest his assent” or that “the maker knows…would be likely to induce the recipient to do so.”Restatement (Second) of Contracts, Section 162(2). An honestly mistaken statement that the house for sale was built in 1922 rather than 1923 would not be the basis for avoiding the contract because it is not material unless the seller knew that the buyer had sentimental or other reasons for purchasing a house built in 1922.
We did not mention materiality as an element of fraud; if the misrepresentation is fraudulent, the victim can avoid the contract, no matter the significance of the misrepresentation. So although materiality is not technically required for fraudulent misrepresentation, it is usually a crucial factor in determining whether the plaintiff did rely. Obviously, the more immaterial the false assertion, the less likely it is that the victim relied on it to his detriment. This is especially the case when the defendant knows that he does not have the basis that he states for an assertion but believes that the particular point is unimportant and therefore immaterial. And of course it is usually not worth the plaintiff’s while to sue over an immaterial fraudulent misrepresentation. Consequently, for practical purposes, materiality is an important consideration in most cases. Reed v. King (Section 10.5.2 "Misrepresentation by Concealment") discusses materiality (as well as nondisclosure).
Justifiable Reliance
The issues here for negligent misrepresentation are the same as those set out for fraudulent misrepresentation.
Negligent misrepresentation implies culpability and is usually treated the same as fraudulent misrepresentation; if the representation is not fraudulent, however, it cannot be the basis for rescission unless it is also material.
Innocent Misrepresentation
The elements necessary to prove innocent misrepresentation are, reasonably enough, based on what we’ve looked at so far, as follows: an innocent misstatement of fact that is material and justifiably relied upon.
It is not necessary here to go over the elements in detail. The issues are the same as previously discussed, except now the misrepresentation is innocent. The plaintiffs purchased the defendants’ eighteen-acre parcel on the defendants’ representation that the land came with certain water rights for irrigation, which they believed was true. It was not true. The plaintiffs were entitled to rescission on the basis of innocent misrepresentation.Lesher v. Strid, 996 P.2d 988 (Or. Ct. App. 2000).
Remedies
Remedies will be taken up in Chapter 16 "Remedies", but it is worth noting the difference between remedies for fraudulent misrepresentation and remedies for nonfraudulent misrepresentation.
Fraudulent misrepresentation has traditionally given the victim the right to rescind the contract promptly (return the parties to the before-contract status) or affirm it and bring an action for damages caused by the fraud, but not both.Merritt v. Craig, 753 A.2d 2 (Md. Ct. App. 2000). The UCC (Section 2-721) has rejected the “election of remedies” doctrine; it allows cumulative damages, such that the victim can both return the goods and sue for damages. And this is the modern trend for fraudulent misrepresentation: victims may first seek damages, and if that does not make them whole, they may seek rescission.Ehrman v. Mann, 979 So.2d 1011 (Fla. Ct. App. 2008). In egregious cases of fraud where the defendant has undertaken a pattern of such deceit, the rare civil remedy of punitive damages may be awarded against the defendant.
One further note: the burden of proof for fraudulent misrepresentation is that it must be proved not just “by a preponderance of the evidence,” as in the typical civil case, but rather “by clear, cogent, and convincing evidence”; the fact finder must believe the claim of fraud is very probably true.Kirkham v. Smith, 23 P.3d 10 (Wash. Ct. App. 2001).
KEY TAKEAWAY
Misrepresentation may be of two types: fraudulent (in the execution or in the inducement) and nonfraudulent (negligent or innocent). Each type has different elements that must be proved, but in general there must be a misstatement of fact by some means that is intentionally made (for fraud), material (for nonfraudulent), and justifiably relied upon.
EXERCISES
1. Distinguish between fraudulent misrepresentation and nonfraudulent misrepresentation, between fraud in the execution and fraud in the inducement, and between negligent and innocent misrepresentation.
2. List the elements that must be shown to prove the four different types of misrepresentation noted in Exercise 1.
3. What is the difference between the traditional common-law approach to remedies for fraud and the UCC’s approach? | textbooks/biz/Civil_Law/Book%3A_Introduction_to_Contracts_Sales_and_Product_Liability/10%3A_Real_Assent/10.02%3A_Misrepresentation.txt |
LEARNING OBJECTIVES
1. Recognize under what circumstances a person may be relieved of a unilateral mistake.
2. Recognize when a mutual mistake will be grounds for relief, and the types of mutual mistakes.
In discussing fraud, we have considered the ways in which trickery by the other party makes a contract void or voidable. We now examine the ways in which the parties might “trick” themselves by making assumptions that lead them mistakenly to believe that they have agreed to something they have not. A mistake is “a belief about a fact that is not in accord with the truth.”Restatement (Second) of Contracts, Section 151.
Unilateral Mistake
Where one party makes a mistake, it is a unilateral mistake. The rule: ordinarily, a contract is not voidable because one party has made a mistake about the subject matter (e.g., the truck is not powerful enough to haul the trailer; the dress doesn’t fit).
Exceptions
If one side knows or should know that the other has made a mistake, he or she may not take advantage of it. A person who makes the mistake of not reading a written document will usually get no relief, nor will relief be afforded to one whose mistake is caused by negligence (a contractor forgets to add in the cost of insulation) unless the negligent party would suffer unconscionable hardship if the mistake were not corrected. Courts will allow the correction of drafting errors in a contract (“reformation”) in order to make the contract reflect the parties’ intention.Sikora v. Vanderploeg, 212 S.W.3d 277 (Tenn. Ct. App. 2006).
Mutual Mistake
In the case of mutual mistake—both parties are wrong about the subject of the contract—relief may be granted.
The Restatement sets out three requirements for successfully arguing mutual mistake.Restatement (Second) of Contracts, Section 152. The party seeking to avoid the contract must prove that
1. the mistake relates to a “basic assumption on which the contract was made,”
2. the mistake has a material effect on the agreed exchange of performances,
3. the party seeking relief does not bear the risk of the mistake.
Basic assumption is probably clear enough. In the famous “cow case,” the defendant sold the plaintiff a cow—Rose of Abalone—believed by both to be barren and thus of less value than a fertile cow (a promising young dairy cow in 2010 might sell for \$1,800).Sherwood v. Walker, 33 N.W. 919 (1887). Just before the plaintiff was to take Rose from the defendant’s barn, the defendant discovered she was “large with calf”; he refused to go on with the contract. The court held this was a mutual mistake of fact—“a barren cow is substantially a different creature than a breeding one”—and ruled for the defendant. That she was infertile was “a basic assumption,” but—for example—that hay would be readily available to feed her inexpensively was not, and had hay been expensive, that would not have vitiated the contract.
Material Effect on the Agreed-to Exchange of Performance
“Material effect on the agreed-to exchange of performance” means that because of the mutual mistake, there is a significant difference between the value the parties thought they were exchanging compared with what they would exchange if the contract were performed, given the standing facts. Again, in the cow case, had the seller been required to go through with the deal, he would have given up a great deal more than he anticipated, and the buyer would have received an unagreed-to windfall.
Party Seeking Relief Does Not Bear the Risk of the Mistake
Assume a weekend browser sees a painting sitting on the floor of an antique shop. The owner says, “That old thing? You can have it for \$100.” The browser takes it home, dusts it off, and hangs it on the wall. A year later a visitor, an expert in art history, recognizes the hanging as a famous lost El Greco worth \$1 million. The story is headlined; the antique dealer is chagrined and claims the contract for sale should be voided because both parties mistakenly thought they were dickering over an “old, worthless” painting. The contract is valid. The owner is said to bear the risk of mistake because he contracted with conscious awareness of his ignorance: he knew he didn’t know what the painting’s possible value might be, but he didn’t feel it worthwhile to have it appraised. He gambled it wasn’t worth much, and lost.
KEY TAKEAWAY
A mistake may be unilateral, in which case no relief will be granted unless the other side knows of the mistake and takes advantage of it. A mistake may be mutual, in which case relief may be granted if it is about a basic assumption on which the contract was made, if the mistake has a material effect on the agreed-to exchange, and if the person adversely affected did not bear the risk of the mistake.
EXERCISES
1. Why is relief usually not granted for unilateral mistakes? When is relief granted for them?
2. If there is a mutual mistake, what does the party seeking relief have to show to avoid the contract? | textbooks/biz/Civil_Law/Book%3A_Introduction_to_Contracts_Sales_and_Product_Liability/10%3A_Real_Assent/10.03%3A_Mistake.txt |
LEARNING OBJECTIVES
1. Understand that infants may avoid their contracts, with limitations.
2. Understand that insane or intoxicated people may avoid their contracts, with limitations.
3. Understand the extent to which contracts made by mentally ill persons are voidable, void, or effectively enforceable.
4. Recognize that contracts made by intoxicated persons may be voidable.
A contract is a meeting of minds. If someone lacks mental capacity to understand what he is assenting to—or that he is assenting to anything—it is unreasonable to hold him to the consequences of his act. At common law there are various classes of people who are presumed to lack the requisite capacity. These include infants (minors), the mentally ill, and the intoxicated.
The General Rule
The general rule is this: minors (or more legalistically “infants”) are in most states persons younger than seventeen years old; they can avoid their contracts, up to and within a reasonable time after reaching majority, subject to some exceptions and limitations. The rationale here is that infants do not stand on an equal footing with adults, and it is unfair to require them to abide by contracts made when they have immature judgment.
The words minor and infant are mostly synonymous, but not exactly, necessarily. In a state where the legal age to drink alcohol is twenty-one, a twenty-year-old would be a minor, but not an infant, because infancy is under eighteen. A seventeen-year-old may avoid contracts (usually), but an eighteen-year-old, while legally bound to his contracts, cannot legally drink alcohol. Strictly speaking, the better term for one who may avoid his contracts is infant, even though, of course, in normal speaking we think of an infant as a baby.
The age of majority (when a person is no longer an infant or a minor) was lowered in all states except Mississippi during the 1970s (to correspond to the Twenty-Sixth Amendment, ratified in 1971, guaranteeing the right to vote at eighteen) from twenty-one to either eighteen or nineteen. Legal rights for those under twenty-one remain ambiguous, however. Although eighteen-year-olds may assent to binding contracts, not all creditors and landlords believe it, and they may require parents to cosign. For those under twenty-one, there are also legal impediments to holding certain kinds of jobs, signing certain kinds of contracts, marrying, leaving home, and drinking alcohol. There is as yet no uniform set of rules.
The exact day on which the disability of minority vanishes also varies. The old common-law rule put it on the day before the twenty-first birthday. Many states have changed this rule so that majority commences on the day of the eighteenth birthday.
An infant’s contract is voidable, not void. An infant wishing to avoid the contract need do nothing positive to disaffirm. The defense of infancy to a lawsuit is sufficient; although the adult cannot enforce the contract, the infant can (which is why it is said to be voidable, not void).
Exceptions and Complications
There are exceptions and complications here. We call out six of them.
Necessities
First, as an exception to the general rule, infants are generally liable for the reasonable cost of necessities (for the reason that denying them the right to contract for necessities would harm them, not protect them). At common law, a necessity was defined as food, medicine, clothing, or shelter. In recent years, however, the courts have expanded the concept, so that in many states today, necessities include property and services that will enable the infant to earn a living and to provide for those dependent on him. If the contract is executory, the infant can simply disaffirm. If the contract has been executed, however, the infant must face more onerous consequences. Although he will not be required to perform under the contract, he will be liable under a theory of “quasi-contract” for the reasonable value of the necessity. In Gastonia Personnel Corp. v. Rogers, an emancipated infant, nineteen years old (before the age of minority was reduced), needed employment; he contracted with a personnel company to find him a job, for which it would charge him a fee.Gastonia Personnel Corp. v. Rogers, 172 S.E.2d 19 (N.C. 1970). The company did find him a job, and when he attempted to disaffirm his liability for payment on the grounds of infancy, the North Carolina court ruled against him, holding that the concepts of necessities “should be enlarged to include such…services as are reasonable and necessary to enable the infant to earn the money required to provide the necessities of life for himself” and his dependents.
Nonvoidable Contracts
Second, state statutes variously prohibit disaffirmation for such contracts as insurance, education or medical care, bonding agreements, stocks, or bank accounts. In addition, an infant will lose her power to avoid the contract if the rights of third parties intervene. Roberta, an infant, sells a car to Oswald; Oswald, in turn, shortly thereafter sells it to Byers, who knows nothing of Roberta. May Roberta—still an infant—recover it from Byers? No: the rights of the third party have intervened. To allow the infant seller recovery in this situation would undermine faith in commercial transactions.
Misrepresentation of Age
A third exception involves misrepresentation of age. Certainly, that the adult reasonably believed the infant was an adult is of no consequence in a contract suit. In many states, an infant may misrepresent his age and disaffirm in accordance with the general rule. But it depends. If an infant affirmatively lies about his age, the trend is to deny disaffirmation. A Michigan statute, for instance, prohibits an infant from disaffirming if he has signed a “separate instrument containing only the statement of age, date of signing and the signature.” And some states estop him from claiming to be an infant even if he less expressly falsely represented himself as an adult. Estoppel is a refusal by the courts on equitable grounds to allow a person to escape liability on an otherwise valid defense; unless the infant can return the consideration, the contract will be enforced. It is a question of fact how far a nonexpress (an implied) misrepresentation will be allowed to go before it is considered so clearly misleading as to range into the prohibited area. Some states hold the infant liable for damages for the tort of misrepresentation, but others do not. As William Prosser, the noted torts scholar, said of cases paying no attention to an infant’s lying about his age, “The effect of the decisions refusing to recognize tort liability for misrepresentation is to create a privileged class of liars who are a great trouble to the business world.”William L. Prosser, Handbook of the Law of Torts, 4th ed. (St. Paul, MN: West, 1971), 999.
Ratification
Fourth, when the infant becomes an adult, she has two choices: she may ratify the contract or disaffirm it. She may ratify explicitly; no further consideration is necessary. She may also do so by implication—for instance, by continuing to make payments or retaining goods for an unreasonable period of time. If the child has not disaffirmed the contract while still an infant, she may do so within a reasonable time after reaching majority; what is a “reasonable time” depends on the circumstances.
Duty to Return Consideration Received
Fifth, in most cases of disavowal, the infant’s only obligation is to return the goods (if he still has them) or repay the consideration (unless it has been dissipated); he does not have to account for what he wasted, consumed, or damaged during the contract. But since the age of majority has been lowered to eighteen or nineteen, when most young people have graduated from high school, some courts require, if appropriate to avoid injustice to the adult, that the infant account for what he got. (In Dodson v. Shrader, the supreme court of Tennessee held that an infant would—if the contract was fair—have to pay for the pickup truck he bought and wrecked.)Dodson v. Shrader, 824 S.W.2d 545 (Tenn. 1992).
Tort Connected with a Contract
Sixth, the general rule is that infants are liable for their torts (e.g., assault, trespass, nuisance, negligence) unless the tort suit is only an indirect method of enforcing a contract. Henry, age seventeen, holds himself out to be a competent mechanic. He is paid \$500 to overhaul Baker’s engine, but he does a careless job and the engine is seriously damaged. He offers to return the \$500 but disaffirms any further contractual liability. Can Baker sue him for his negligence, a tort? No, because such a suit would be to enforce the contract.
Mentally Ill Persons
The general rule is that a contract made by person who is mentally ill is voidable by the person when she regains her sanity, or, as appropriate, by a guardian. If, though, a guardian has been legally appointed for a person who is mentally ill, any contract made by the mentally ill person is void, but may nevertheless be ratified by the ward (the incompetent person who is under a guardianship) upon regaining sanity or by the guardian.Restatement (Second) of Contracts, Section 13.
However, if the contract was for a necessity, the other party may have a valid claim against the estate of the one who is mentally ill in order to prevent unjust enrichment. In other cases, whether a court will enforce a contract made with a person who is mentally ill depends on the circumstances. Only if the mental illness impairs the competence of the person in the particular transaction can the contract be avoided; the test is whether the person understood the nature of the business at hand. Upon avoidance, the mentally ill person must return any property in her possession. And if the contract was fair and the other party had no knowledge of the mental illness, the court has the power to order other relief.
Intoxicated Persons
If a person is so drunk that he has no awareness of his acts, and if the other person knows this, there is no contract. The intoxicated person is obligated to refund the consideration to the other party unless he dissipated it during his drunkenness. If the other person is unaware of his intoxicated state, however, an offer or acceptance of fair terms manifesting assent is binding.
If a person is only partially inebriated and has some understanding of his actions, “avoidance depends on a showing that the other party induced the drunkenness or that the consideration was inadequate or that the transaction departed from the normal pattern of similar transactions; if the particular transaction is one which a reasonably competent person might have made, it cannot be avoided even though entirely executory.”Restatement (Second) of Contracts, Section 16(b). A person who was intoxicated at the time he made the contract may nevertheless subsequently ratify it. Thus where Mervin Hyland, several times involuntarily committed for alcoholism, executed a promissory note in an alcoholic stupor but later, while sober, paid the interest on the past-due note, he was denied the defense of intoxication; the court said he had ratified his contract.First State Bank of Sinai v. Hyland, 399 N.W.2d 894 (S.D. 1987). In any event, intoxicated is a disfavored defense on public policy grounds.
KEY TAKEAWAY
Infants may generally disaffirm their contracts up to majority and within a reasonable time afterward, but the rule is subject to some exceptions and complications: necessities, contracts made nonvoidable by statute, misrepresentation of age, extent of duty to return consideration, ratification, and a tort connected with the contract are among these exceptions.
Contracts made by insane or intoxicated people are voidable when the person regains competency. A contract made by a person under guardianship is void, but the estate will be liable for necessities. A contract made while insane or intoxicated may be ratified.
EXERCISES
1. Ivar, an infant, bought a used car—not a necessity—for \$9,500. Seller took advantage of Ivar’s infancy: the car was really worth only \$5,500. Can Ivar keep the car but disclaim liability for the \$4,000 difference?
2. If Ivar bought the car and it was a necessity, could he disclaim liability for the \$4,000?
3. Alice Ace found her adult son’s Christmas stocking; Mrs. Ace herself had made it fifty years before. It was considerably deteriorated. Isabel, sixteen, handy with knitting, agreed to reknit it for \$100, which Mrs. Ace paid in advance. Isabel, regrettably, lost the stocking. She returned the \$100 to Mrs. Ace, who was very upset. May Mrs. Ace now sue Isabel for the loss of the stocking (conversion) and emotional distress?
4. Why is voluntary intoxication a disfavored defense? | textbooks/biz/Civil_Law/Book%3A_Introduction_to_Contracts_Sales_and_Product_Liability/10%3A_Real_Assent/10.04%3A_Capacity.txt |
Undue Influence
Hodge v. Shea
168 S.E.2d 82 (S.C. 1969)
Brailsford, J.
In this equitable action the circuit court decreed specific performance of a contract for the sale of land, and the defendant has appealed. The plaintiff is a physician, and the contract was prepared and executed in his medical office on August 19, 1965. The defendant had been plaintiff’s patient for a number of years. On the contract date, he was seventy-five years of age, was an inebriate of long standing, and was afflicted by grievous chronic illnesses, including arteriosclerosis, cirrhosis of the liver, neuritises, arthritis of the spine and hip and varicose veins of the legs. These afflictions and others required constant medication and frequent medical attention, and rendered him infirm of body and mind, although not to the point of incompetency to contract.
During the period immediately before and after August 19, 1965, George A. Shea, the defendant, was suffering a great deal of pain in his back and hip and was having difficulty in voiding. He was attended professionally by the plaintiff, Dr. Joseph Hodge, either at the Shea home, at the doctor’s office or in the hospital at least once each day from August 9 through August 26, 1965, except for August 17. The contract was signed during the morning of August 19. One of Dr. Hodge’s frequent house calls was made on the afternoon of that day, and Mr. Shea was admitted to the hospital on August 21, where he remained until August 25.
Mr. Shea was separated from his wife and lived alone. He was dependent upon Dr. Hodge for house calls, which were needed from time to time. His relationship with his physician, who sometimes visited him as a friend and occasionally performed non-professional services for him, was closer than ordinarily arises from that of patient and physician.…
“Where a physician regularly treats a chronically ill person over a period of two years, a confidential relationship is established, raising a presumption that financial dealings between them are fraudulent.” [Citation]
A 125 acre tract of land near Mr. Shea’s home, adjacent to land which was being developed as residential property, was one of his most valuable and readily salable assets. In 1962, the developer of this contiguous land had expressed to Mr. Shea an interest in it at \$1000.00 per acre. A firm offer of this amount was made in November, 1964, and was refused by Mr. Shea on the advice of his son-in-law that the property was worth at least \$1500.00 per acre. Negotiations between the developer and Mr. Ransdell commenced at that time and were in progress when Mr. Shea, at the instance of Dr. Hodge and without consulting Mr. Ransdell or anyone else, signed the contract of August 19, 1965. Under this contract Dr. Hodge claims the right to purchase twenty choice acres of the 125 acre tract for a consideration calculated by the circuit court to be the equivalent of \$361.72 per acre. The market value of the land on the contract date has been fixed by an unappealed finding of the master at \$1200.00 per acre.…
The consideration was expressed in the contract between Dr. Hodge and Mr. Shea as follows:
The purchase price being (Cadillac Coupe DeVille 6600) & \$4000.00 Dollars, on the following terms: Dr. Joseph Hodge to give to Mr. George Shea a new \$6600 coupe DeVille Cadillac which is to be registered in name of Mr. George A. Shea at absolutely no cost to him. In return, Mr. Shea will give to Dr. Joe Hodge his 1964 Cadillac coupe DeVille and shall transfer title of this vehicle to Dr. Hodge. Further, Dr. Joseph Hodge will pay to Mr. George A. Shea the balance of \$4000.00 for the 20 acres of land described above subject to survey, title check, less taxes on purchase of vehicle.
Dr. Hodge was fully aware of Mr. Shea’s financial troubles, the liens on his property and his son-in-law’s efforts in his behalf. He was also aware of his patient’s predilection for new Cadillacs. Although he was not obligated to do so until the property was cleared of liens, which was not accomplished until the following June, Dr. Hodge hastened to purchase a 1965 Cadillac Coupe DeVille and delivered it to Mr. Shea on the day after his discharge from the hospital on August 25, 1965. If he acted in haste in an effort to fortify what he must have realized was a dubious contract, he has so far succeeded.…
The case at hand is attended by gross inadequacy of consideration, serious impairment of the grantor’s mentality from age, intemperance and disease, and a confidential relationship between the grantee and grantor. Has the strong presumption of vitiating unfairness arising from this combination of circumstances been overcome by the evidence? We must conclude that it has not. The record is devoid of any evidence suggesting a reason, compatible with fairness, for Mr. Shea’s assent to so disadvantageous a bargain. Disadvantageous not only because of the gross disparity between consideration and value, but because of the possibility that the sale would impede the important negotiations in which Mr. Ransdell was engaged. Unless his memory failed him, Mr. Shea knew that his son-in-law expected to sell the 125 acre tract for about \$1500.00 per acre as an important step toward raising sufficient funds to satisfy the tax and judgment liens against the Shea property. These circumstances furnish strong evidence that Mr. Shea’s assent to the contract, without so much as notice to Mr. Ransdell, was not the product of a deliberate Exercise of an informed judgment.…
Finally, on this phase of the case, it would be naive not to recognize that the 1965 Cadillac was used to entice a highly susceptible old man into a hard trade. Mr. Shea was fatuously fond of new Cadillacs, but was apparently incapable of taking care of one. His own 1964 model (he had also had a 1963 model) had been badly abused. According to Dr. Hodge, it ‘smelled like a toilet. * * * had several fenders bumped, bullet holes in the top and the car was just filthy * * *. It was a rather foul car.’…Knowing the condition of Mr. Shea’s car, his financial predicament and the activities of his son-in-law in his behalf, Dr. Hodge used the new automobile as a means of influencing Mr. Shea to agree to sell. The means was calculated to becloud Mr. Shea’s judgment, and, under the circumstances, its use was unfair.…
Reversed and remanded.
CASE QUESTIONS
1. Why is it relevant that Mr. Shea was separated from his wife and lived alone?
2. Why is it relevant that it was his doctor who convinced him to sell the real estate?
3. Why did the doctor offer the old man a Cadillac as part of the deal?
4. Generally speaking, if you agree to sell your real estate for less than its real value, that’s just a unilateral mistake and the courts will grant no relief. What’s different here?
Misrepresentation by Concealment
Reed v. King
193 Cal. Rptr. 130 (Calif. Ct. App. 1983)
Blease, J.
In the sale of a house, must the seller disclose it was the site of a multiple murder? Dorris Reed purchased a house from Robert King. Neither King nor his real estate agents (the other named defendants) told Reed that a woman and her four children were murdered there ten years earlier. However, it seems “truth will come to light; murder cannot be hid long.” (Shakespeare, Merchant of Venice, Act II, Scene II.) Reed learned of the gruesome episode from a neighbor after the sale. She sues seeking rescission and damages. King and the real estate agent defendants successfully demurred to her first amended complaint for failure to state a cause of action. Reed appeals the ensuing judgment of dismissal. We will reverse the judgment.
Facts
We take all issuable facts pled in Reed’s complaint as true. King and his real estate agent knew about the murders and knew the event materially affected the market value of the house when they listed it for sale. They represented to Reed the premises were in good condition and fit for an “elderly lady” living alone. They did not disclose the fact of the murders. At some point King asked a neighbor not to inform Reed of that event. Nonetheless, after Reed moved in neighbors informed her no one was interested in purchasing the house because of the stigma. Reed paid \$76,000, but the house is only worth \$65,000 because of its past.…
Discussion
Does Reed’s pleading state a cause of action? Concealed within this question is the nettlesome problem of the duty of disclosure of blemishes on real property which are not physical defects or legal impairments to use.
Numerous cases have found non-disclosure of physical defects and legal impediments to use of real property are material. [Citation] However, to our knowledge, no prior real estate sale case has faced an issue of non-disclosure of the kind presented here. Should this variety of ill-repute be required to be disclosed? Is this a circumstance where “non-disclosure of the fact amounts to a failure to act in good faith and in accordance with reasonable standards of fair dealing [?]” (Rest.2d Contracts, § 161, subd. (b).)
The paramount argument against an affirmative conclusion is it permits the camel’s nose of unrestrained irrationality admission to the tent. If such an “irrational” consideration is permitted as a basis of rescission the stability of all conveyances will be seriously undermined. Any fact that might disquiet the enjoyment of some segment of the buying public may be seized upon by a disgruntled purchaser to void a bargain. In our view, keeping this genie in the bottle is not as difficult a task as these arguments assume. We do not view a decision allowing Reed to survive a demurrer in these unusual circumstances as endorsing the materiality of facts predicating peripheral, insubstantial, or fancied harms.
The murder of innocents is highly unusual in its potential for so disturbing buyers they may be unable to reside in a home where it has occurred. This fact may foreseeably deprive a buyer of the intended use of the purchase. Murder is not such a common occurrence that buyers should be charged with anticipating and discovering this disquieting possibility. Accordingly, the fact is not one for which a duty of inquiry and discovery can sensibly be imposed upon the buyer.
Reed alleges the fact of the murders has a quantifiable effect on the market value of the premises. We cannot say this allegation is inherently wrong and, in the pleading posture of the case, we assume it to be true. If information known or accessible only to the seller has a significant and measureable effect on market value and, as is alleged here, the seller is aware of this effect, we see no principled basis for making the duty to disclose turn upon the character of the information. Physical usefulness is not and never has been the sole criterion of valuation. Stamp collections and gold speculation would be insane activities if utilitarian considerations were the sole measure of value.
Reputation and history can have a significant effect on the value of realty. “George Washington slept here” is worth something, however physically inconsequential that consideration may be. Ill-repute or “bad will” conversely may depress the value of property. Failure to disclose such a negative fact where it will have a forseeably depressing effect on income expected to be generated by a business is tortuous. [Citation] Some cases have held that unreasonable fears of the potential buying public that a gas or oil pipeline may rupture may depress the market value of land and entitle the owner to incremental compensation in eminent domain.
Whether Reed will be able to prove her allegation the decade-old multiple murder has a significant effect on market value we cannot determine. If she is able to do so by competent evidence she is entitled to a favorable ruling on the issues of materiality and duty to disclose. Her demonstration of objective tangible harm would still the concern that permitting her to go forward will open the floodgates to rescission on subjective and idiosyncratic grounds.…
The judgment is reversed.
CASE QUESTIONS
1. Why is it relevant that the plaintiff was “an elderly lady living alone”?
2. How did Mrs. Reed find out about the gruesome fact here?
3. Why did the defendants conceal the facts?
4. What is the concern about opening “floodgates to rescission on subjective and idiosyncratic grounds”?
5. Why did George Washington sleep in so many places during the Revolutionary War?
6. Did Mrs. Reed get to rescind her contract and get out of the house as a result of this case?
Misrepresentation by Assertions of Opinion
Vokes v. Arthur Murray, Inc.
212 S.2d. 906 (Fla. 1968)
Pierce, J.
This is an appeal by Audrey E. Vokes, plaintiff below, from a final order dismissing with prejudice, for failure to state a cause of action, her fourth amended complaint, hereinafter referred to as plaintiff’s complaint.
Defendant Arthur Murray, Inc., a corporation, authorizes the operation throughout the nation of dancing schools under the name of “Arthur Murray School of Dancing” through local franchised operators, one of whom was defendant J. P. Davenport whose dancing establishment was in Clearwater.
Plaintiff Mrs. Audrey E. Vokes, a widow of 51 years and without family, had a yen to be “an accomplished dancer” with the hopes of finding “new interest in life.” So, on February 10, 1961, a dubious fate, with the assist of a motivated acquaintance, procured her to attend a “dance party” at Davenport’s “School of Dancing” where she whiled away the pleasant hours, sometimes in a private room, absorbing his accomplished sales technique, during which her grace and poise were elaborated upon and her rosy future as “an excellent dancer” was painted for her in vivid and glowing colors. As an incident to this interlude, he sold her eight 1/2-hour dance lessons to be utilized within one calendar month therefrom, for the sum of \$14.50 cash in hand paid, obviously a baited “come-on.”
Thus she embarked upon an almost endless pursuit of the terpsichorean art during which, over a period of less than sixteen months, she was sold fourteen “dance courses” totaling in the aggregate 2302 hours of dancing lessons for a total cash outlay of \$31,090.45 [about \$220,000 in 2010 dollars] all at Davenport’s dance emporium. All of these fourteen courses were evidenced by execution of a written “Enrollment Agreement-Arthur Murray’s School of Dancing” with the addendum in heavy black print, “No one will be informed that you are taking dancing lessons. Your relations with us are held in strict confidence”, setting forth the number of “dancing lessons” and the “lessons in rhythm sessions” currently sold to her from time to time, and always of course accompanied by payment of cash of the realm.
These dance lesson contracts and the monetary consideration therefore of over \$31,000 were procured from her by means and methods of Davenport and his associates which went beyond the unsavory, yet legally permissible, perimeter of “sales puffing” and intruded well into the forbidden area of undue influence, the suggestion of falsehood, the suppression of truth, and the free Exercise of rational judgment, if what plaintiff alleged in her complaint was true. From the time of her first contact with the dancing school in February, 1961, she was influenced unwittingly by a constant and continuous barrage of flattery, false praise, excessive compliments, and panegyric encomiums, to such extent that it would be not only inequitable, but unconscionable, for a Court exercising inherent chancery power to allow such contracts to stand.
She was incessantly subjected to overreaching blandishment and cajolery. She was assured she had “grace and poise”; that she was “rapidly improving and developing in her dancing skill”; that the additional lessons would “make her a beautiful dancer, capable of dancing with the most accomplished dancers”; that she was “rapidly progressing in the development of her dancing skill and gracefulness”, etc., etc. She was given “dance aptitude tests” for the ostensible purpose of “determining” the number of remaining hours of instructions needed by her from time to time.
At one point she was sold 545 additional hours of dancing lessons to be entitled to an award of the “Bronze Medal” signifying that she had reached “the Bronze Standard”, a supposed designation of dance achievement by students of Arthur Murray, Inc.…At another point, while she still had over 1,000 unused hours of instruction she was induced to buy 151 additional hours at a cost of \$2,049.00 to be eligible for a “Student Trip to Trinidad”, at her own expense as she later learned.…
Finally, sandwiched in between other lesser sales promotions, she was influenced to buy an additional 481 hours of instruction at a cost of \$6,523.81 in order to “be classified as a Gold Bar Member, the ultimate achievement of the dancing studio.”
All the foregoing sales promotions, illustrative of the entire fourteen separate contracts, were procured by defendant Davenport and Arthur Murray, Inc., by false representations to her that she was improving in her dancing ability, that she had excellent potential, that she was responding to instructions in dancing grace, and that they were developing her into a beautiful dancer, whereas in truth and in fact she did not develop in her dancing ability, she had no “dance aptitude,” and in fact had difficulty in “hearing that musical beat.” The complaint alleged that such representations to her “were in fact false and known by the defendant to be false and contrary to the plaintiff’s true ability, the truth of plaintiff’s ability being fully known to the defendants, but withheld from the plaintiff for the sole and specific intent to deceive and defraud the plaintiff and to induce her in the purchasing of additional hours of dance lessons.” It was averred that the lessons were sold to her “in total disregard to the true physical, rhythm, and mental ability of the plaintiff.” In other words, while she first exulted that she was entering the “spring of her life”, she finally was awakened to the fact there was “spring” neither in her life nor in her feet.
The complaint prayed that the Court decree the dance contracts to be null and void and to be cancelled, that an accounting be had, and judgment entered against, the defendants “for that portion of the \$31,090.45 not charged against specific hours of instruction given to the plaintiff.” The Court held the complaint not to state a cause of action and dismissed it with prejudice. We disagree and reverse.
It is true that “generally a misrepresentation, to be actionable, must be one of fact rather than of opinion.” [Citations] But this rule has significant qualifications, applicable here. It does not apply where there is a fiduciary relationship between the parties, or where there has been some artifice or trick employed by the representor, or where the parties do not in general deal at “arm’s length” as we understand the phrase, or where the representee does not have equal opportunity to become apprised of the truth or falsity of the fact represented. [Citation] As stated by Judge Allen of this Court in [Citation]:
“* * * A statement of a party having * * * superior knowledge may be regarded as a statement of fact although it would be considered as opinion if the parties were dealing on equal terms.”…
In [Citation] it was said that “* * * what is plainly injurious to good faith ought to be considered as a fraud sufficient to impeach a contract.”… [Reversed.]
CASE QUESTIONS
1. What was the motivation of the “motivated acquaintance” in this case?
2. Why is it relevant that Mrs. Vokes was a “widow of 51 years and without family”?
3. How did the defendant J. P. Davenport entice her into spending a lot of money on dance lessons?
4. What was the defendants’ defense as to why they should not be liable for misrepresentation, and why was that defense not good?
5. Would you say the court here is rather condescending to Mrs. Vokes, all things considered?
Mutual Mistake
Konic International Corporation v. Spokane Computer Services, Inc.,
708 P.2d 932 (Idaho 1985)
The magistrate found the following facts. David Young, an employee of Spokane Computer, was instructed by his employer to investigate the possibility of purchasing a surge protector, a device which protects computers from damaging surges of electrical current. Young’s investigation turned up several units priced from \$50 to \$200, none of which, however, were appropriate for his employer’s needs. Young then contacted Konic. After discussing Spokane Computer’s needs with a Konic engineer, Young was referred to one of Konic’s salesmen. Later, after deciding on a certain unit, Young inquired as to the price of the selected item. The salesman responded, “fifty-six twenty.” The salesman meant \$5,620. Young in turn thought \$56.20.
The salesman for Konic asked about Young’s authority to order the equipment and was told that Young would have to get approval from one of his superiors. Young in turn prepared a purchase order for \$56.20 and had it approved by the appropriate authority. Young telephoned the order and purchase order number to Konic who then shipped the equipment to Spokane Computer. However, because of internal processing procedures of both parties the discrepancy in prices was not discovered immediately. Spokane Computer received the surge protector and installed it in its office. The receipt and installation of the equipment occurred while the president of Spokane Computer was on vacation. Although the president’s father, who was also chairman of the board of Spokane Computer, knew of the installation, he only inquired as to what the item was and who had ordered it. The president came back from vacation the day after the surge protector had been installed and placed in operation and was told of the purchase. He immediately ordered that power to the equipment be turned off because he realized that the equipment contained parts which alone were worth more than \$56 in value. Although the president then told Young to verify the price of the surge protector, Young failed to do so. Two weeks later, when Spokane Computer was processing its purchase order and Konic’s invoice, the discrepancy between the amount on the invoice and the amount on the purchase order was discovered. The president of Spokane Computer then contacted Konic, told Konic that Young had no authority to order such equipment, that Spokane Computer did not want the equipment, and that Konic should remove it. Konic responded that Spokane Computer now owned the equipment and if the equipment was not paid for, Konic would sue for the price. Spokane Computer refused to pay and this litigation ensued.
Basically what is involved here is a failure of communication between the parties. A similar failure to communicate arose over 100 years ago in the celebrated case of Raffles v. Wichelhaus, [Citation] which has become better known as the case of the good ship “Peerless.” In Peerless, the parties agreed on a sale of cotton which was to be delivered from Bombay by the ship “Peerless.” In fact, there were two ships named “Peerless” and each party, in agreeing to the sale, was referring to a different ship. Because the sailing time of the two ships was materially different, neither party was willing to agree to shipment by the “other” Peerless. The court ruled that, because each party had a different ship in mind at the time of the contract, there was in fact no binding contract. The Peerless rule later was incorporated into section 71 of the Restatement of Contracts and has now evolved into section 20 of Restatement (Second) of Contracts (1981). Section 20 states in part:
(1) There is no manifestation of mutual assent to an exchange if the parties attach materially different meanings to their manifestations and
(a) neither knows or has reason to know the meaning attached by the other.
Comment (c) to Section 20 further explains that “even though the parties manifest mutual assent to the same words of agreement, there may be no contract because of a material difference of understanding as to the terms of the exchange.” Another authority, Williston, discussing situations where a mistake will prevent formation of a contract, agrees that “where a phrase of contract…is reasonably capable of different interpretations…there is no contract.” [Citation]
In the present case, both parties attributed different meanings to the same term, “fifty-six twenty.” Thus, there was no meeting of the minds of the parties. With a hundred fold difference in the two prices, obviously price was a material term. Because the “fifty-six twenty” designation was a material term expressed in an ambiguous form to which two meanings were obviously applied, we conclude that no contract between the parties was ever formed. Accordingly, we do not reach the issue of whether Young had authority to order the equipment.
[Affirmed.]
CASE QUESTIONS
1. Why is it reasonable to say that no contract was made in this case?
2. A discrepancy in price of one hundred times is, of course, enormous. How could such an egregious mistake have occurred by both parties? In terms of running a sensible business, how could this kind of mistake be avoided before it resulted in expensive litigation? | textbooks/biz/Civil_Law/Book%3A_Introduction_to_Contracts_Sales_and_Product_Liability/10%3A_Real_Assent/10.05%3A_Cases.txt |
Summary
No agreement is enforceable if the parties did not enter into it (1) of their own free will, (2) with adequate knowledge of the terms, and (3) with the mental capacity to appreciate the relationship.
Contracts coerced through duress will void a contract if actually induced through physical harm and will make the contract voidable if entered under the compulsion of many types of threats. The threat must be improper and leave no reasonable alternative, but the test is subjective—that is, what did the person threatened actually fear, not what a more reasonable person might have feared.
Misrepresentations may render an agreement void or voidable. Among the factors to be considered are whether the misrepresentation was deliberate and material; whether the promisee relied on the misrepresentation in good faith; whether the representation was of fact, opinion, or intention; and whether the parties had a special relationship.
Similarly, mistaken beliefs, not induced by misrepresentations, may suffice to avoid the bargain. Some mistakes on one side only make a contract voidable. More often, mutual mistakes of facts will show that there was no meeting of the minds.
Those who lack capacity are often entitled to avoid contract liability. Although it is possible to state the general rule, many exceptions exist—for example, in contracts for necessities, infants will be liable for the reasonable value of the goods purchased.
EXERCISES
1. Eulrich, an auto body mechanic who had never operated a business, entered into a Snap-On Tools franchise agreement. For \$22,000 invested from his savings and the promise of another \$22,000 from the sale of inventory, he was provided a truck full of tools. His job was to drive around his territory and sell them. The agreement allowed termination by either party; if Eulrich terminated, he was entitled to resell to Snap-On any new tools he had remaining. When he complained that his territory was not profitable, his supervisors told him to work it harder, that anybody could make money with Snap-On’s marketing system. (In fact, the evidence was the system made money for the supervisors and little for dealers; dealers quickly failed and were replaced by new recruits.) Within several months Eulrich was out of money and desperate. He tried to “check in” his truck to get money to pay his household bills and uninsured medical bills for his wife; the supervisors put him off for weeks. On the check-in day, the exhausted Eulrich’s supervisors berated him for being a bad businessman, told him no check would be forthcoming until all the returned inventory was sold, and presented him with a number of papers to sign, including a “Termination Agreement” whereby he agreed to waive any claims against Snap-On; he was not aware that was what he had signed. He sued to rescind the contract and for damages. The defendants held up the waiver as a defense. Under what theory might Eulrich recover?Eulrich v. Snap-On Tools Corp., 853 P.2d 1350 (Or. Ct. App. 1993).
2. Chauncey, a college student, worked part-time in a restaurant. After he had worked for several months, the owner of the restaurant discovered that Chauncey had stolen \$2,000 from the cash register. The owner called Chauncey’s parents and told them that if they did not sign a note for \$2,000, he would initiate criminal proceedings against Chauncey. The parents signed and delivered the note to the owner but later refused to pay. May the owner collect on the note? Why?
3. A restaurant advertised a steak dinner that included a “juicy, great-tasting steak, a fresh crisp salad, and a warm roll.” After reading the ad, Clarence visited the restaurant and ordered the steak dinner. The steak was dry, the lettuce in the salad was old and limp with brown edges, and the roll was partly frozen. May Clarence recover from the restaurant on the basis of misrepresentation? Why?
4. Bert purchased Ernie’s car. Before selling the car, Ernie had stated to Bert, “This car runs well and is reliable. Last week I drove the car all the way from Seattle to San Francisco to visit my mother and back again to Seattle.” In fact, Ernie was not telling the truth: he had driven the car to San Francisco to visit his paramour, not his mother. Upon discovery of the truth, may Bert avoid the contract? Why?
5. Randolph enrolled in a business law class and purchased a new business law textbook from the local bookstore. He dropped the class during the first week and sold the book to his friend Scott. Before making the sale, Randolph told Scott that he had purchased the book new and had owned it for one week. Unknown to either Randolph or Scott, the book was in fact a used one. Scott later discovered some underlining in the middle of the book and attempted to avoid the contract. Randolph refused to refund the purchase price, claiming that he had not intentionally deceived his friend. May Scott avoid the contract? Why?
6. Langstraat was seventeen when he purchased a motorcycle. When applying for insurance, he signed a “Notice of Rejection,” declining to purchase uninsured motorist coverage. He was involved in an accident with an uninsured motorist and sought to disaffirm his rejection of the uninsured motorist coverage on the basis of infancy. May he do so?
7. Waters was attracted to Midwest Supply by its advertisements for doing federal income taxes. The ads stated “guaranteed accurate tax preparation.” Waters inquired about amending past returns to obtain refunds. Midwest induced him to apply for and receive improper refunds. When Waters was audited, he was required to pay more taxes, and the IRS put tax liens on his wages and bank accounts. In fact, Midwest hired people with no knowledge about taxes at all; if a customer inquired about employees’ qualifications, Midwest’s manual told the employees to say, “Midwest has been preparing taxes for twenty years.” The manual also instructed office managers never to refer to any employee as a “specialist” or “tax expert,” but never to correct any news reporters or commentators if they referred to employees as such. What cause of action has Waters, and for what remedies?
8. Mutschler Grain Company (later Jamestown Farmers Elevator) agreed to sell General Mills 30,000 bushels of barley at \$1.22 per bushel. A dispute arose: Mutschler said that transportation was to be by truck but that General Mills never ordered any trucks to pick up the grain; General Mills said the grain was to be shipped by rail (railcars were in short supply). Nine months later, after Mutschler had delivered only about one-tenth the contracted amount, the price of barley was over \$3.00 per bushel. Mutschler defaulted on, and then repudiated, the contract. Fred Mutschler then received this telephone call from General Mills: “We’re General Mills, and if you don’t deliver this grain to us, why we’ll have a battery of lawyers in there tomorrow morning to visit you, and then we are going to the North Dakota Public Service (Commission); we’re going to the Minneapolis Grain Exchange and we’re going to the people in Montana and there will be no more Mutschler Grain Company. We’re going to take your license.”
Mutchsler then shipped 22,000 bushels of barley at the \$1.22 rate and sued General Mills for the difference between that price and the market price of over \$3.00. Summary judgment issued for General Mills. Upon what basis might Mutschler Grain appeal?
9. Duke decided to sell his car. The car’s muffler had a large hole in it, and as a result, the car made a loud noise. Before showing the car to potential buyers, Duke patched the hole with muffler tape to quiet it. Perry bought the car after test-driving it. He later discovered the faulty muffler and sought to avoid the contract, claiming fraud. Duke argued that he had not committed fraud because Perry had not asked about the muffler and Duke had made no representation of fact concerning it. Is Duke correct? Decide and explain.
10. At the end of the term at college, Jose, talking in the library with his friend Leanne, said, “I’ll sell you my business law notes for \$25.” Leanne agreed and paid him the money. Jose then realized he’d made a mistake in that he had offered his notes when he meant to offer his book. Leanne didn’t want the book; she had a book. She wanted the notes. Would Leanne have a cause of action against Jose if he refused to deliver the notes? Decide and explain.
SELF-TEST QUESTIONS
1. Misrepresentation that does not go to the core of a contract is
1. fraud in the execution
2. fraud in the inducement
3. undue influence
4. an example of mistake
2. In order for a misrepresentation to make a contract voidable,
1. it must have been intentional
2. the party seeking to void must have relied on the misrepresentation
3. it must always be material
4. none of the above is required
3. A mistake by one party will not invalidate a contract unless
1. the other party knew of the mistake
2. the party making the mistake did not read the contract closely
3. the parties to the contract had never done business before
4. the party is mistaken about the law
4. Upon reaching the age of majority, a person who entered into a contract to purchase goods while a minor may
1. ratify the contract and keep the goods without paying for them
2. disaffirm the contract and keep the goods without paying for them
3. avoid paying for the goods by keeping them without ratifying or disaffirming the contract
4. none of these
5. Seller does not disclose to Buyer that the foundation of a house is infested with termites. Upon purchasing the house and remodeling part of the basement, Buyer discovers the termites. Has Buyer a cause of action against Seller?
1. yes
2. no
1. a
2. d
3. a
4. e
5. b | textbooks/biz/Civil_Law/Book%3A_Introduction_to_Contracts_Sales_and_Product_Liability/10%3A_Real_Assent/10.06%3A_Summary_and_Exercises.txt |
Learning Objectives
After reading this chapter, you should understand the following:
1. What “consideration” is in contract law, what it is not, and what purposes it serves
2. How the sufficiency of consideration is determined
3. In what common situations an understanding of consideration is important
4. What promises are enforceable without consideration
11: Consideration
LEARNING OBJECTIVES
1. Understand what “consideration” is in contract law.
2. Recognize what purposes the doctrine serves.
3. Understand how the law determines whether consideration exists.
4. Know the elements of consideration.
The Purpose of Consideration
This chapter continues our inquiry into whether the parties created a valid contract. In Chapter 9 "The Agreement", we saw that the first requisite of a valid contract is an agreement: offer and acceptance. In this chapter, we assume that agreement has been reached and concentrate on one of its crucial aspects: the existence of consideration. Which of the following, if any, is a contract?
1. Betty offers to give a book to Lou. Lou accepts.
2. Betty offers Lou the book in exchange for Lou’s promise to pay twenty-five dollars. Lou accepts.
3. Betty offers to give Lou the book if Lou promises to pick it up at Betty’s house. Lou agrees.
In American law, only the second situation is a binding contract, because only that contract contains consideration, a set of mutual promises in which each party agrees to give up something to the benefit of the other. This chapter will explore the meaning and rationale of that statement.
The question of what constitutes a binding contract has been answered differently throughout history and in other cultures. For example, under Roman law, a contract without consideration was binding if certain formal requirements were met. And in the Anglo-American tradition, the presence of a seal—the wax impression affixed to a document—was once sufficient to make a contract binding without any other consideration. The seal is no longer a substitute for consideration, although in some states it creates a presumption of consideration; in forty-nine states, the Uniform Commercial Code (UCC) has abolished the seal on contracts for the sale of goods. (Louisiana has not adopted UCC Article 2.)
Whatever its original historical purposes, and however apparently arcane, the doctrine of consideration serves some still-useful purposes. It provides objective evidence for asserting that a contract exists; it distinguishes between enforceable and unenforceable bargains; and it is a check against rash, unconsidered action, against thoughtless promise making.Lon L. Fuller, “Consideration and Form,” Columbia Law Review 41 (1941): 799.
A Definition of Consideration
Consideration is said to exist when the promisor receives some benefit for his promise and the promisee gives up something in return; it is the bargained-for price you pay for what you get. That may seem simple enough. But as with much in the law, the complicating situations are never very far away. The “something” that is promised or delivered cannot be just anything, such as a feeling of pride, warmth, amusement, or friendship; it must be something known as a legal detriment—an act, forbearance, or a promise of such from the promisee. The detriment need not be an actual detriment; it may in fact be a benefit to the promisee, or at least not a loss. The detriment to one side is usually a legal benefit to the other, but the detriment to the promisee need not confer a tangible benefit on the promisor; the promisee can agree to forego something without that something being given to the promisor. Whether consideration is legally sufficient has nothing to do with whether it is morally or economically adequate to make the bargain a fair one. Moreover, legal consideration need not even be certain; it can be a promise contingent on an event that may never happen. Consideration is a legal concept, and it centers on the giving up of a legal right or benefit.
Consideration has two elements. The first, as just outlined, is whether the promisee has incurred a legal detriment—given up something, paid some “price,” though it may be, for example, the promise to do something, like paint a house. (Some courts—although a minority—take the view that a bargained-for legal benefit to the promisor is sufficient consideration.) The second element is whether the legal detriment was bargained for: did the promisor specifically intend the act, forbearance, or promise in return for his promise? Applying this two-pronged test to the three examples given at the outset of the chapter, we can easily see why only in the second is there legally sufficient consideration. In the first, Lou incurred no legal detriment; he made no pledge to act or to forbear from acting, nor did he in fact act or forbear from acting. In the third example, what might appear to be such a promise is not really so. Betty made a promise on a condition that Lou comes to her house; the intent clearly is to make a gift.
KEY TAKEAWAY
Consideration is—with some exceptions—a required element of a contract. It is the bargained-for giving up of something of legal value for something in return. It serves the purposes of making formal the intention to contract and reducing rash promise making.
EXERCISES
1. Alice promises to give her neighbor a blueberry bush; the neighbor says, “Thank you!” Subsequently, Alice changes her mind. Is she bound by her promise?
2. Why, notwithstanding its relative antiquity, does consideration still serve some useful purposes?
3. Identify the exchange of consideration in this example: A to B, “I will pay you \$800 if you paint my garage.” B to A, “Okay, I’ll paint your garage for \$800.” | textbooks/biz/Civil_Law/Book%3A_Introduction_to_Contracts_Sales_and_Product_Liability/11%3A_Consideration/11.01%3A_General_Perspectives_on_Consideration.txt |
LEARNING OBJECTIVES
1. Know in general what “legal sufficiency” means when examining consideration.
2. Recognize how the concept operates in such common situations as threat of litigation, and accord and satisfaction.
3. Understand why illusory promises are unenforceable, and how courts deal with needs, outputs, and exclusive dealings contracts.
The Concept of Legal Sufficiency
As suggested in Section 11.1 "General Perspectives on Consideration", what is required in contract is the exchange of a legal detriment and a legal benefit; if that happens, the consideration is said to have legal sufficiency.
Actual versus Legal Detriment
Suppose Phil offers George \$500 if George will quit smoking for one year. Is Phil’s promise binding? Because George is presumably benefiting by making and sticking to the agreement—surely his health will improve if he gives up smoking—how can his act be considered a legal detriment? The answer is that there is forbearance on George’s part: George is legally entitled to smoke, and by contracting not to, he suffers a loss of his legal right to do so. This is a legal detriment; consideration does not require an actual detriment.
Adequacy of Consideration
Scrooge offers to buy Caspar’s motorcycle, worth \$700, for \$10 and a shiny new fountain pen (worth \$5). Caspar agrees. Is this agreement supported by adequate consideration? Yes, because both have agreed to give up something that is theirs: Scrooge, the cash and the pen; Caspar, the motorcycle. Courts are not generally concerned with the economic adequacy of the consideration but instead with whether it is present. As Judge Richard A. Posner puts it, “To ask whether there is consideration is simply to inquire whether the situation is one of exchange and a bargain has been struck. To go further and ask whether the consideration is adequate would require the court to do what…it is less well equipped to do than the parties—decide whether the price (and other essential terms) specified in the contract are reasonable.”Richard A. Posner, Economic Analysis of Law (New York: Aspen, 1973), 46. In short, “courts do not inquire into the adequacy of consideration.”
Of course, normally, parties to contracts will not make such a one-sided deal as Scrooge and Caspar’s. But there is a common class of contracts in which nominal consideration—usually one dollar—is recited in printed forms. Usually these are option contracts, in which “in consideration of one dollar in hand paid and receipt of which is hereby acknowledged” one party agrees to hold open the right of the other to make a purchase on agreed terms. The courts will enforce these contracts if the dollar is intended “to support a short-time option proposing an exchange on fair terms.”Restatement (Second) of Contracts, Section 87(b). If, however, the option is for an unreasonably long period of time and the underlying bargain is unfair (the Restatement gives as an example a ten-year option permitting the optionee to take phosphate rock from a widow’s land at a per-ton payment of only one-fourth the prevailing rate), then the courts are unlikely to hold that the nominal consideration makes the option irrevocable.
Because the consideration on such option contracts is nominal, its recital in the written instrument is usually a mere formality, and it is frequently never paid; in effect, the recital of nominal consideration is false. Nevertheless, the courts will enforce the contract—precisely because the recital has become a formality and nobody objects to the charade. Moreover, it would be easy enough to upset an option based on nominal consideration by falsifying oral testimony that the dollar was never paid or received. In a contest between oral testimonies where the incentive to lie is strong and there is a written document clearly incorporating the parties’ agreement, the courts prefer the latter. However, as Section 11.4.1 "Consideration for an Option", Board of Control of Eastern Michigan University v. Burgess, demonstrates, the state courts are not uniform on this point, and it is a safe practice always to deliver the consideration, no matter how nominal.
Applications of the Legal Sufficiency Doctrine
This section discusses several common circumstances where the issue of whether the consideration proffered (offered up) is adequate.
Threat of Litigation: Covenant Not to Sue
Because every person has the legal right to file suit if he or she feels aggrieved, a promise to refrain from going to court is sufficient consideration to support a promise of payment or performance. In Dedeaux v. Young, Dedeaux purchased property and promised to make certain payments to Young, the broker.Dedeaux v. Young, 170 So.2d 561 (1965). But Dedeaux thereafter failed to make these payments, and Young threatened suit; had he filed papers in court, the transfer of title could have been blocked. To keep Young from suing, Dedeaux promised to pay a 5 percent commission if Young would stay out of court. Dedeaux later resisted paying on the ground that he had never made such a promise and that even if he had, it did not amount to a contract because there was no consideration from Young. The court disagreed, holding that the evidence supported Young’s contention that Dedeaux had indeed made such a promise and upholding Young’s claim for the commission because “a request to forbear to exercise a legal right has been generally accepted as sufficient consideration to support a contract.” If Young had had no grounds to sue—for example, if he had threatened to sue a stranger, or if it could be shown that Dedeaux had no obligation to him originally—then there would have been no consideration because Young would not have been giving up a legal right. A promise to forebear suing in return for settlement of a dispute is called a covenant not to sue (covenant is another word for agreement).
Accord and Satisfaction Generally
Frequently, the parties to a contract will dispute the meaning of its terms and conditions, especially the amount of money actually due. When the dispute is genuine (and not the unjustified attempt of one party to avoid paying a sum clearly due), it can be settled by the parties’ agreement on a fixed sum as the amount due. This second agreement, which substitutes for the disputed first agreement, is called an accord, and when the payment or other term is discharged, the completed second contract is known as an accord and satisfaction. A suit brought for an alleged breach of the original contract could be defended by citing the later accord and satisfaction.
An accord is a contract and must therefore be supported by consideration. Suppose Jan owes Andy \$7,000, due November 1. On November 1, Jan pays only \$3,500 in exchange for Andy’s promise to release Jan from the remainder of the debt. Has Andy (the promisor) made a binding promise? He has not, because there is no consideration for the accord. Jan has incurred no detriment; she has received something (release of the obligation to pay the remaining \$3,500), but she has given up nothing. But if Jan and Andy had agreed that Jan would pay the \$3,500 on October 25, then there would be consideration; Jan would have incurred a legal detriment by obligating herself to make a payment earlier than the original contract required her to. If Jan had paid the \$3,500 on November 11 and had given Andy something else agreed to—a pen, a keg of beer, a peppercorn—the required detriment would also be present.
Let’s take a look at some examples of the accord and satisfaction principle. The dispute that gives rise to the parties’ agreement to settle by an accord and satisfaction may come up in several typical ways: where there is an unliquidated debt; a disputed debt; an “in-full-payment check” for less than what the creditor claims is due; unforeseen difficulties that give rise to a contract modification, or a novation; or a composition among creditors. But no obligation ever arises—and no real legal dispute can arise—where a person promises a benefit if someone will do that which he has a preexisting obligation to, or where a person promises a benefit to someone not to do that which the promisee is already disallowed from doing, or where one makes an illusory promise.
Settling an Unliquidated Debt
An unliquidated debt is one that is uncertain in amount. Such debts frequently occur when people consult professionals in whose offices precise fees are rarely discussed, or where one party agrees, expressly or by implication, to pay the customary or reasonable fees of the other without fixing the exact amount. It is certain that a debt is owed, but it is not certain how much. (A liquidated debt, on the other hand, is one that is fixed in amount, certain. A debt can be liquidated by being written down in unambiguous terms—“IOU \$100”—or by being mathematically ascertainable—\$1 per pound of ice ordered and 60 pounds delivered; hence the liquidated debt is \$60.)
Here is how the matter plays out: Assume a patient goes to the hospital for a gallbladder operation. The cost of the operation has not been discussed beforehand in detail, although the cost in the metropolitan area is normally around \$8,000. After the operation, the patient and the surgeon agree on a bill of \$6,000. The patient pays the bill; a month later the surgeon sues for another \$2,000. Who wins? The patient: he has forgone his right to challenge the reasonableness of the fee by agreeing to a fixed amount payable at a certain time. The agreement liquidating the debt is an accord and is enforceable. If, however, the patient and the surgeon had agreed on an \$8,000 fee before the operation, and if the patient arbitrarily refused to pay this liquidated debt unless the surgeon agreed to cut her fee in half, then the surgeon would be entitled to recover the other half in a lawsuit, because the patient would have given no consideration—given up nothing, “suffered no detriment”—for the surgeon’s subsequent agreement to cut the fee.
Settling a Disputed Debt
A disputed debt arises where the parties did agree on (liquidated) the price or fee but subsequently get into a dispute about its fairness, and then settle. When this dispute is settled, the parties have given consideration to an agreement to accept a fixed sum as payment for the amount due. Assume that in the gallbladder case the patient agrees in advance to pay \$8,000. Eight months after the operation and as a result of nausea and vomiting spells, the patient undergoes a second operation; the surgeons discover a surgical sponge embedded in the patient’s intestine. The patient refuses to pay the full sum of the original surgeon’s bill; they settle on \$6,000, which the patient pays. This is a binding agreement because subsequent facts arose to make legitimate the patient’s quarrel over his obligation to pay the full bill. As long as the dispute is based in fact and is not trumped up, as long as the promisee is acting in good faith, then consideration is present when a disputed debt is settled.
The “In-Full-Payment” Check Situation
To discharge his liquidated debt for \$8,000 to the surgeon, the patient sends a check for \$6,000 marked “payment in full.” The surgeon cashes it. There is no dispute. May the surgeon sue for the remaining \$2,000? This may appear to be an accord: by cashing the check, the surgeon seems to be agreeing with the patient to accept the \$6,000 in full payment. But consideration is lacking. Because the surgeon is owed more than the face amount of the check, she causes the patient no legal detriment by accepting the check. If the rule were otherwise, debtors could easily tempt hard-pressed creditors to accept less than the amount owed by presenting immediate cash. The key to the enforceability of a “payment in full” legend is the character of the debt. If unliquidated, or if there is a dispute, then “payment in full” can serve as accord and satisfaction when written on a check that is accepted for payment by a creditor. But if the debt is liquidated and undisputed, there is no consideration when the check is for a lesser amount. (However, it is arguable that if the check is considered to be an agreement modifying a sales contract, no consideration is necessary under Uniform Commercial Code (UCC) Section 2-209.)
Unforeseen Difficulties
An unforeseen difficulty arising after a contract is made may be resolved by an accord and satisfaction, too. Difficulties that no one could foresee can sometimes serve as catalyst for a further promise that may appear to be without consideration but that the courts will enforce nevertheless. Suppose Peter contracts to build Jerry a house for \$390,000. While excavating, Peter unexpectedly discovers quicksand, the removal of which will cost an additional \$10,000. To ensure that Peter does not delay, Jerry promises to pay Peter \$10,000 more than originally agreed. But when the house is completed, Jerry reneges on his promise. Is Jerry liable? Logically perhaps not: Peter has incurred no legal detriment in exchange for the \$10,000; he had already contracted to build the house. But most courts would allow Peter to recover on the theory that the original contract was terminated, or modified, either by mutual agreement or by an implied condition that the original contract would be discharged if unforeseen difficulties developed. In short, the courts will enforce the parties’ own mutual recognition that the unforeseen conditions had made the old contract unfair. The parties either have modified their original contract (which requires consideration at common law) or have given up their original contract and made a new one (called a novation).
It is a question of fact whether the new circumstance is new and difficult enough to make a preexisting obligation into an unforeseen difficulty. Obviously, if Peter encounters only a small pocket of quicksand—say two gallons’ worth—he would have to deal with it as part of his already-agreed-to job. If he encounters as much quicksand as would fill an Olympic-sized swimming pool, that’s clearly unforeseen, and he should get extra to deal with it. Someplace between the two quantities of quicksand there is enough of the stuff so that Peter’s duty to remove it is outside the original agreement and new consideration would be needed in exchange for its removal.
Creditors’ Composition
A creditors’ composition may give rise to debt settlement by an accord and satisfaction. It is an agreement whereby two or more creditors of a debtor consent to the debtor’s paying them pro rata shares of the debt due in full satisfaction of their claims. A composition agreement can be critically important to a business in trouble; through it, the business might manage to stave off bankruptcy. Even though the share accepted is less than the full amount due and is payable after the due date so that consideration appears to be lacking, courts routinely enforce these agreements. The promise of each creditor to accept a lesser share than that owed in return for getting something is taken as consideration to support the promises of the others. A debtor has \$3,000 on hand. He owes \$3,000 each to A, B, and C. A, B, and C agree to accept \$1,000 each and discharge the debtor. Each creditor has given up \$2,000 but in return has at least received something, the \$1,000. Without the composition, one might have received the entire amount owed her, but the others would have received nothing.
Preexisting Duty
Not amenable to settlement by an accord and satisfaction is the situation where a party has a preexisting duty and he or she is offered a benefit to discharge it. When the only consideration offered the promisor is an act or promise to act to carry out a preexisting duty, there is no valid contract. As Denney v. Reppert (Section 11.4.2 "Consideration: Preexisting Obligation") makes clear, the promisee suffers no legal detriment in promising to undertake that which he is already obligated to do. Where a person is promised a benefit not to do that which he is already disallowed from doing, there is no consideration. David is sixteen years old; his uncle promises him \$50 if he will refrain from smoking. The promise is not enforceable: legally, David already must refrain from smoking, so he has promised to give up nothing to which he had a legal right. As noted previously, the difficulty arises where it is unclear whether a person has a preexisting obligation or whether such unforeseen difficulties have arisen as to warrant the recognition that the parties have modified the contract or entered into a novation. What if Peter insists on additional payment for him to remove one wheelbarrow full of quicksand from the excavation? Surely that’s not enough “unforeseen difficulty.” How much quicksand is enough?
Illusory Promises
Not every promise is a pledge to do something. Sometimes it is an illusory promise, where the terms of the contract really bind the promisor to give up nothing, to suffer no detriment. For example, Lydia offers to pay Juliette \$10 for mowing Lydia’s lawn. Juliette promises to mow the lawn if she feels like it. May Juliette enforce the contract? No, because Juliette has incurred no legal detriment; her promise is illusory, since by doing nothing she still falls within the literal wording of her promise. The doctrine that such bargains are unenforceable is sometimes referred to as the rule of mutuality of obligation: if one party to a contract has not made a binding obligation, neither is the other party bound. Thus if A contracts to hire B for a year at \$6,000 a month, reserving the right to dismiss B at any time (an “option to cancel” clause), and B agrees to work for a year, A has not really promised anything; A is not bound to the agreement, and neither is B.
The illusory promise presents a special problem in agreements for exclusive dealing, outputs, and needs contracts.
Exclusive Dealing Agreement
In an exclusive dealing agreement, one party (the franchisor) promises to deal solely with the other party (the franchisee)—for example, a franchisor-designer agrees to sell all of her specially designed clothes to a particular department store (the franchisee). In return, the store promises to pay a certain percentage of the sales price to the designer. On closer inspection, it may appear that the store’s promise is illusory: it pays the designer only if it manages to sell dresses, but it may sell none. The franchisor-designer may therefore attempt to back out of the deal by arguing that because the franchisee is not obligated to do anything, there was no consideration for her promise to deal exclusively with the store.
Courts, however, have upheld exclusive dealing contracts on the theory that the franchisee has an obligation to use reasonable efforts to promote and sell the product or services. This obligation may be spelled out in the contract or implied by its terms. In the classic statement of this concept, Judge Benjamin N. Cardozo, then on the New York Court of Appeals, in upholding such a contract, declared:
It is true that [the franchisee] does not promise in so many words that he will use reasonable efforts to place the defendant’s endorsements and market her designs. We think, however, that such a promise is fairly to be implied. The law has outgrown its primitive stage of formalism when the precise word was the sovereign talisman, and every slip was fatal. It takes a broader view today. A promise may be lacking, and yet the whole writing may be “instinct with an obligation,” imperfectly expressed.…His promise to pay the defendant one-half of the profits and revenues resulting from the exclusive agency and to render accounts monthly was a promise to use reasonable efforts to bring profits and revenues into existence.Otis F. Wood v. Lucy, Lady Duff-Gordon, 118 N.E. 214 (1917).
The UCC follows the same rule. In the absence of language specifically delineating the seller’s or buyer’s duties, an exclusive dealing contract under Section 2-306(2) imposes “an obligation by the seller to use best efforts to supply the goods and by the buyer to use best efforts to promote their sale.”
Outputs Contracts and Needs Contracts
A similar issue arises with outputs contracts and needs contracts. In an outputs contract, the seller—say a coal company—agrees to sell its entire yearly output of coal to an electric utility. Has it really agreed to produce and sell any coal at all? What if the coal-mine owner decides to shut down production to take a year’s vacation—is that a violation of the agreement? Yes. The law imposes upon the seller here a duty to produce and sell a reasonable amount. Similarly, if the electric utility contracted to buy all its requirements of coal from the coal company—a needs contract—could it decide to stop operation entirely and take no coal? No, it is required to take a reasonable amount.
KEY TAKEAWAY
Courts do not inquire into the adequacy of consideration, but (with some exceptions) do require the promisor to incur a legal detriment (the surrender of any legal right he or she possesses—to give up something) in order to receive the bargained-for benefit. The surrender of the right to sue is a legal detriment, and the issue arises in analyzing various kinds of dispute settlement agreements (accord and satisfaction): the obligation to pay the full amount claimed by a creditor on a liquidated debt, an unliquidated debt, and a disputed debt. Where unforeseen difficulties arise, an obligor will be entitled to additional compensation (consideration) to resolve them either because the contract is modified or because the parties have entered into a novation, but no additional consideration is owing to one who performs a preexisting obligation or forbears from performing that which he or she is under a legal duty not to perform. If a promisor gives an illusory promise, he or she gives no consideration and no contract is formed; but exclusive dealing agreements, needs contracts, and outputs contracts are not treated as illusory.
EXERCISES
1. What is meant by “legally sufficient” consideration?
2. Why do courts usually not “inquire into the adequacy of consideration”?
3. How can it be said there is consideration in the following instances: (a) settlement of an unliquidated debt? (b) settlement of a disputed debt? (c) a person agreeing to do more than originally contracted for because of unforeseen difficulties? (d) a creditor agreeing with other creditors for each of them to accept less than they are owed from the debtor?
4. Why is there no consideration where a person demands extra compensation for that which she is already obligated to do, or for forbearing to do that which she already is forbidden from doing?
5. What is the difference between a contract modification and a novation?
6. How do courts resolve the problem that a needs or outputs contract apparently imposes no detriment—no requirement to pass any consideration to the other side—on the promisor? | textbooks/biz/Civil_Law/Book%3A_Introduction_to_Contracts_Sales_and_Product_Liability/11%3A_Consideration/11.02%3A_Legal_Sufficiency.txt |
LEARNING OBJECTIVE
1. Understand the exceptions to the requirement of consideration.
For a variety of policy reasons, courts will enforce certain types of promises even though consideration may be absent. Some of these are governed by the Uniform Commercial Code (UCC); others are part of the established common law.
Past Consideration
Ordinarily, past consideration is not sufficient to support a promise. By past consideration, the courts mean an act that could have served as consideration if it had been bargained for at the time but that was not the subject of a bargain. For example, Mrs. Ace’s dog Fluffy escapes from her mistress’s condo at dusk. Robert finds Fluffy, sees Mrs. Ace, who is herself out looking for her pet, and gives Fluffy to her. She says, “Oh, thank you for finding my dear dog. Come by my place tomorrow morning and I’ll give you fifty dollars as a reward.” The next day Robert stops by Mrs. Ace’s condo, but she says, “Well, I don’t know. Fluffy soiled the carpet again last night. I think maybe a twenty-dollar reward would be plenty.” Robert cannot collect the fifty dollars. Even though Mrs. Ace might have a moral obligation to pay him and honor her promise, there was no consideration for it. Robert incurred no legal detriment; his contribution—finding the dog—was paid out before her promise, and his past consideration is invalid to support a contract. There was no bargained-for exchange.
However, a valid consideration, given in the past to support a promise, can be the basis for another, later contract under certain circumstances. These occur when a person’s duty to act for one reason or another has become no longer binding. If the person then makes a new promise based on the unfulfilled past duty, the new promise is binding without further consideration. Three types of cases follow.
Promise Revived after Statute of Limitations Has Passed
A statute of limitations is a law requiring a lawsuit to be filed within a specified period of years. For example, in many states a contract claim must be sued on within six years; if the plaintiff waits longer than that, the claim will be dismissed, regardless of its merits. When the time period set forth in the statute of limitations has lapsed, the statute is said to have “run.” If a debtor renews a promise to pay or acknowledges a debt after the running of a statute of limitations, then under the common law the promise is binding, although there is no consideration in the usual sense. In many states, this promise or acknowledgment must be in writing and signed by the debtor. Also, in many states, the courts will imply a promise or acknowledgment if the debtor makes a partial payment after the statute has run.
Voidable Duties
Some promises that might otherwise serve as consideration are voidable by the promisor, for a variety of reasons, including infancy, fraud, duress, or mistake. But a voidable contract does not automatically become void, and if the promisor has not avoided the contract but instead thereafter renews his promise, it is binding. For example, Mr. Melvin sells his bicycle to Seth, age thirteen. Seth promises to pay Mr. Melvin one hundred dollars. Seth may repudiate the contract, but he does not. When he turns eighteen, he renews his promise to pay the one hundred dollars. This promise is binding. (However, a promise made up to the time he turned eighteen would not be binding, since he would still have been a minor.)
Promissory Estoppel
We examined the meaning of this forbidding phrase in Chapter 8 "Introduction to Contract Law" (recall the English High Trees case). It represents another type of promise that the courts will enforce without consideration. Simply stated, promissory estoppel means that the courts will stop the promisor from claiming that there was no consideration. The doctrine of promissory estoppel is invoked in the interests of justice when three conditions are met: (1) the promise is one that the promisor should reasonably expect to induce the promisee to take action or forbear from taking action of a definite and substantial character; (2) the action or forbearance is taken; and (3) injustice can be avoided only by enforcing the promise. (The complete phraseology is “promissory estoppel with detrimental reliance.”)
Timko served on the board of trustees of a school. He recommended that the school purchase a building for a substantial sum of money, and to induce the trustees to vote for the purchase, he promised to help with the purchase and to pay at the end of five years the purchase price less the down payment. At the end of four years, Timko died. The school sued his estate, which defended on the ground that there was no consideration for the promise. Timko was promised or given nothing in return, and the purchase of the building was of no direct benefit to him (which would have made the promise enforceable as a unilateral contract). The court ruled that under the three-pronged promissory estoppel test, Timko’s estate was liable.Estate of Timko v. Oral Roberts Evangelistic Assn., 215 N.W.2d 750 (Mich. App. 1974).
Cases involving pledges of charitable contributions have long been troublesome to courts. Recognizing the necessity to charitable institutions of such pledges, the courts have also been mindful that a mere pledge of money to the general funds of a hospital, university, or similar institution does not usually induce substantial action but is, rather, simply a promise without consideration. When the pledge does prompt a charitable institution to act, promissory estoppel is available as a remedy. In about one-quarter of the states, another doctrine is available for cases involving simple pledges: the “mutual promises” theory, whereby the pledges of many individuals are taken as consideration for each other and are binding against each promisor. This theory was not available to the plaintiff in Timko because his was the only promise.
Moral Obligation
The Restatement allows, under some circumstances, the enforcement of past-consideration contracts. It provides as follows in Section 86, “Promise for Benefit Received”:
A promise made in recognition of a benefit previously received by the promisor from the promisee is binding to the extent necessary to prevent injustice.
A promise is not binding under Subsection (1)
if the promisee conferred the benefit as a gift or for other reasons the promisor has not been unjustly enriched; or
to the extent that its value is disproportionate to the benefit.
Promises Enforceable without Consideration by Statute
We have touched on several common-law exceptions to the consideration requirement. Some also are provided by statute.
Under the UCC
The UCC permits one party to discharge, without consideration, a claim or right arising out of an alleged breach of contract by the other party. This is accomplished by delivering to the other party a signed written waiver or renunciation.Uniform Commercial Code, Section 1-107. This provision applies to any contract governed by the UCC and is not limited to the sales provisions of Article 2.
The UCC also permits a party to discharge the other side without consideration when there is no breach, and it permits parties to modify their Article 2 contract without consideration.Uniform Commercial Code, Sections 2-209(4) and 2-209(1). The official comments to the UCC section add the following: “However, modifications made thereunder must meet the test of good faith imposed by this Act. The effective use of bad faith to escape performance on the original contract terms is barred, and the extortion of a “modification” without legitimate commercial reason is ineffective as a violation of the duty of good faith.”
Seller agrees to deliver a ton of coal within seven days. Buyer needs the coal sooner and asks Seller to deliver within four days. Seller agrees. This promise is binding even though Seller received no additional consideration beyond the purchase price for the additional duty agreed to (the duty to get the coal to Buyer sooner than originally agreed). The UCC allows a merchant’s firm offer, signed, in writing, to bind the merchant to keep the offer to buy or sell open without consideration.Uniform Commercial Code, Section 2-205. This is the UCC’s equivalent of a common-law option, which, as you recall, does require consideration.
Section 1-207 of the UCC allows a party a reservation of rights while performing a contract. This section raises a difficult question when a debtor issues an in-full-payment check in payment of a disputed debt. As noted earlier in this chapter, because under the common law the creditor’s acceptance of an in-full-payment check in payment of a disputed debt constitutes an accord and satisfaction, the creditor cannot collect an amount beyond the check. But what if the creditor, in cashing the check, reserves the right (under Section 1-207) to sue for an amount beyond what the debtor is offering? The courts are split on the issue: regarding the sale of goods governed by the UCC, some courts allow the creditor to sue for the unpaid debt notwithstanding the check being marked “paid in full,” and others do not.
Bankruptcy
Bankruptcy is, of course, federal statutory law. The rule here regarding a promise to pay after the obligation is discharged is similar to that governing statutes of limitations. Traditionally, a promise to repay debts after a bankruptcy court has discharged them makes the debtor liable once again. This traditional rule gives rise to potential abuse; after undergoing the rigors of bankruptcy, a debtor could be badgered by creditors into reaffirmation, putting him in a worse position than before, since he must wait six years before being allowed to avail himself of bankruptcy again.
The federal Bankruptcy Act includes certain procedural protections to ensure that the debtor knowingly enters into a reaffirmation of his debt. Among its provisions, the law requires the debtor to have reaffirmed the debt before the debtor is discharged in bankruptcy; he then has sixty days to rescind his reaffirmation. If the bankrupt party is an individual, the law also requires that a court hearing be held at which the consequences of his reaffirmation must be explained, and reaffirmation of certain consumer debts is subject to court approval if the debtor is not represented by an attorney.
International Contracts
Contracts governed by the Convention on Contracts for the International Sale of Goods (as mentioned in Chapter 8 "Introduction to Contract Law") do not require consideration to be binding.
KEY TAKEAWAY
There are some exceptions to the consideration requirement. At common law, past consideration doesn’t count, but no consideration is necessary in these cases: where a promise barred by the statute of limitations is revived, where a voidable duty is reaffirmed, where there has been detrimental reliance on a promise (i.e., promissory estoppel), or where a court simply finds the promisor has a moral obligation to keep the promise.
Under statutory law, the UCC has several exceptions to the consideration requirement. No consideration is needed to revive a debt discharged in bankruptcy, and none is called for under the Convention on Contracts for the International Sale of Goods.
EXERCISES
1. Melba began work for Acme Company in 1975 as a filing clerk. Thirty years later she had risen to be comptroller. At a thirty-year celebration party, her boss, Mr. Holder, said, “Melba, I hope you work here for a long time, and you can retire at any time, but if you decide to retire, on account of your years of good service, the company will pay you a monthly pension of \$2,000.” Melba continued to work for another two years, then retired. The company paid the pension for three years and then, in an economic downturn, stopped. When Melba sued, the company claimed it was not obligated to her because the pension was of past consideration. What will be the result?
2. What theories are used to enforce charitable subscriptions?
3. What are the elements necessary for the application of the doctrine of promissory estoppel?
4. Under what circumstances does the Restatement employ moral obligation as a basis for enforcing an otherwise unenforceable contract?
5. Promises unenforceable because barred by bankruptcy or by the running of the statute of limitations can be revived without further consideration. What do the two circumstances have in common?
6. Under the UCC, when is no consideration required where it would be in equivalent situations at common law? | textbooks/biz/Civil_Law/Book%3A_Introduction_to_Contracts_Sales_and_Product_Liability/11%3A_Consideration/11.03%3A_Promises_Enforceable_without_Consideration.txt |
Consideration for an Option
Board of Control of Eastern Michigan University v. Burgess
206 N.W.2d 256 (Mich. 1973)
Burns, J.
On February 15, 1966, defendant signed a document which purported to grant to plaintiff a 60-day option to purchase defendant’s home. That document, which was drafted by plaintiff’s agent, acknowledged receipt by defendant of “One and no/100 (\$1.00) Dollar and other valuable consideration.” Plaintiff concedes that neither the one dollar nor any other consideration was ever paid or even tendered to defendant. On April 14, 1966, plaintiff delivered to defendant written notice of its intention to exercise the option. On the closing date defendant rejected plaintiff’s tender of the purchase price. Thereupon, plaintiff commenced this action for specific performance.
At trial defendant claimed that the purported option was void for want of consideration, that any underlying offer by defendant had been revoked prior to acceptance by plaintiff, and that the agreed purchase price was the product of fraud and mutual mistake. The trial judge concluded that no fraud was involved, and that any mutual mistake was not material. He also held that defendant’s acknowledgment of receipt of consideration bars any subsequent contention to the contrary. Accordingly, the trial judge entered judgment for plaintiff.
Options for the purchase of land, if based on valid consideration, are contracts which may be specifically enforced. [Citations] Conversely, that which purports to be an option, but which is not based on valid consideration, is not a contract and will not be enforced. [Citations] One dollar is valid consideration for an option to purchase land, provided the dollar is paid or at least tendered. [Citations] In the instant case defendant received no consideration for the purported option of February 15, 1966.
A written acknowledgment of receipt of consideration merely creates a rebuttable presumption that consideration has, in fact, passed. Neither the parol evidence rule nor the doctrine of estoppel bars the presentation of evidence to contradict any such acknowledgment. [Citation]
It is our opinion that the document signed by defendant on February 15, 1966, is not an enforceable option, and that defendant is not barred from so asserting.
The trial court premised its holding to the contrary on Lawrence v. McCalmont…(1844). That case is significantly distinguishable from the instant case. Mr. Justice Story held that ‘(t)he guarantor acknowledged the receipt of one dollar, and is now estopped to deny it.’ However, in reliance upon the guaranty substantial credit had been extended to the guarantor’s sons. The guarantor had received everything she bargained for, save one dollar. In the instant case defendant claims that she never received any of the consideration promised her.
That which purports to be an option for the purchase of land, but which is not based on valid consideration, is a simple offer to sell the same land. [Citation] An option is a contract collateral to an offer to sell whereby the offer is made irrevocable for a specified period. [Citation] Ordinarily, an offer is revocable at the will of the offeror. Accordingly, a failure of consideration affects only the collateral contract to keep the offer open, not the underlying offer.
A simple offer may be revoked for any reason or for no reason by the offeror at any time prior to its acceptance by the offeree. [Citation] Thus, the question in this case becomes, ‘Did defendant effectively revoke her offer to sell before plaintiff accepted that offer?’…
Defendant testified that within hours of signing the purported option she telephoned plaintiff’s agent and informed him that she would not abide by the option unless the purchase price was increased. Defendant also testified that when plaintiff’s agent delivered to her on April 14, 1966, plaintiff’s notice of its intention to exercise the purported option, she told him that ‘the option was off’.
Plaintiff’s agent testified that defendant did not communicate to him any dissatisfaction until sometime in July, 1966.
If defendant is telling the truth, she effectively revoked her offer several weeks before plaintiff accepted that offer, and no contract of sale was created. If plaintiff’s agent is telling the truth, defendant’s offer was still open when plaintiff accepted that offer, and an enforceable contract was created. The trial judge thought it unnecessary to resolve this particular dispute. In light of our holding the dispute must be resolved.
An appellate court cannot assess the credibility of witnesses. We have neither seen nor heard them testify. [Citation] Accordingly, we remand this case to the trial court for additional findings of fact based on the record already before the court.…
Reversed and remanded for proceedings consistent with this opinion. Costs to defendant.
CASE QUESTIONS
1. Why did the lower court decide the option given by the defendant was valid?
2. Why did the appeals court find the option invalid?
3. The case was remanded. On retrial, how could the plaintiff (the university) still win?
4. It was not disputed that the defendant signed the purported option. Is it right that she should get out of it merely because she didn’t really get the \$1.00?
Consideration: Preexisting Obligation
Denney v. Reppert
432 S.W.2d 647 (Ky. 1968)
R. L. Myre, Sr., Special Commissioner.
The sole question presented in this case is which of several claimants is entitled to an award for information leading to the apprehension and conviction of certain bank robbers.…
On June 12th or 13th, 1963, three armed men entered the First State Bank, Eubank, Kentucky, and with a display of arms and threats robbed the bank of over \$30,000 [about \$208,000 in 2010 dollars]. Later in the day they were apprehended by State Policemen Garret Godby, Johnny Simms and Tilford Reppert, placed under arrest, and the entire loot was recovered. Later all of the prisoners were convicted and Garret Godby, Johnny Simms and Tilford Reppert appeared as witnesses at the trial.
The First State Bank of Eubank was a member of the Kentucky Bankers Association which provided and advertised a reward of \$500.00 for the arrest and conviction of each bank robber. Hence the outstanding reward for the three bank robbers was \$1,500.00 [about \$11,000 in 2010 dollars]. Many became claimants for the reward and the Kentucky State Bankers Association being unable to determine the merits of the claims for the reward asked the circuit court to determine the merits of the various claims and to adjudge who was entitled to receive the reward or share in it. All of the claimants were made defendants in the action.
At the time of the robbery the claimants Murrell Denney, Joyce Buis, Rebecca McCollum and Jewell Snyder were employees of the First State Bank of Eubank and came out of the grueling situation with great credit and glory. Each one of them deserves approbation and an accolade. They were vigilant in disclosing to the public and the peace officers the details of the crime, and in describing the culprits, and giving all the information that they possessed that would be useful in capturing the robbers. Undoubtedly, they performed a great service. It is in the evidence that the claimant Murrell Denney was conspicuous and energetic in his efforts to make known the robbery, to acquaint the officers as to the personal appearance of the criminals, and to give other pertinent facts.
The first question for determination is whether the employees of the robbed bank are eligible to receive or share in the reward. The great weight of authority answers in the negative. [Citation] states the rule thusly:
‘To the general rule that, when a reward is offered to the general public for the performance of some specified act, such reward may be claimed by any person who performs such act, is the exception of agents, employees and public officials who are acting within the scope of their employment or official duties. * * *.’…
At the time of the robbery the claimants Murrell Denney, Joyce Buis, Rebecca McCollum, and Jewell Snyder were employees of the First State Bank of Eubank. They were under duty to protect and conserve the resources and moneys of the bank, and safeguard every interest of the institution furnishing them employment. Each of these employees exhibited great courage, and cool bravery, in a time of stress and danger. The community and the county have recompensed them in commendation, admiration and high praise, and the world looks on them as heroes. But in making known the robbery and assisting in acquainting the public and the officers with details of the crime and with identification of the robbers, they performed a duty to the bank and the public, for which they cannot claim a reward.
The claims of Corbin Reynolds, Julia Reynolds, Alvie Reynolds and Gene Reynolds also must fail. According to their statements they gave valuable information to the arresting officers. However, they did not follow the procedure as set forth in the offer of reward in that they never filed a claim with the Kentucky Bankers Association. It is well established that a claimant of a reward must comply with the terms and conditions of the offer of reward. [Citation]
State Policemen Garret Godby, Johnny Simms and Tilford Reppert made the arrest of the bank robbers and captured the stolen money. All participated in the prosecution. At the time of the arrest, it was the duty of the state policemen to apprehend the criminals. Under the law they cannot claim or share in the reward and they are interposing no claim to it.
This leaves the defendant, Tilford Reppert the sole eligible claimant. The record shows that at the time of the arrest he was a deputy sheriff in Rockcastle County, but the arrest and recovery of the stolen money took place in Pulaski County. He was out of his jurisdiction, and was thus under no legal duty to make the arrest, and is thus eligible to claim and receive the reward. In [Citation] it was said:
‘It is * * * well established that a public officer with the authority of the law to make an arrest may accept an offer of reward or compensation for acts or services performed outside of his bailiwick or not within the scope of his official duties. * * *.’…
It is manifest from the record that Tilford Reppert is the only claimant qualified and eligible to receive the reward. Therefore, it is the judgment of the circuit court that he is entitled to receive payment of the \$1,500.00 reward now deposited with the Clerk of this Court.
The judgment is affirmed.
CASE QUESTIONS
1. Why did the Bankers Association put the resolution of this matter into the court’s hands?
2. Several claimants came forward for the reward; only one person got it. What was the difference between the person who got the reward and those who did not?
Consideration: Required for Contract Modification
Gross v. Diehl Specialties International, Inc.
776 S.W.2d 879 (Missouri Ct. App. 1989)
Smith, J.
Plaintiff appeals from a jury verdict and resultant judgment for defendant in a breach of employment contract case.…
Plaintiff was employed under a fifteen year employment contract originally executed in 1977 between plaintiff and defendant. Defendant, at that time called Dairy Specialties, Inc., was a company in the business of formulating ingredients to produce non-dairy products for use by customers allergic to cow’s milk. Plaintiff successfully formulated [Vitamite]…for that usage.
Thereafter, on August 24, 1977, plaintiff and defendant corporation entered into an employment contract employing plaintiff as general manager of defendant for fifteen years. Compensation was established at \$14,400 annually plus cost of living increases. In addition, when 10% of defendant’s gross profits exceeded the annual salary, plaintiff would receive an additional amount of compensation equal to the difference between his compensation and 10% of the gross profits for such year. On top of that plaintiff was to receive a royalty for the use of each of his inventions and formulae of 1% of the selling price of all of the products produced by defendant using one or more of plaintiff’s inventions or formulae during the term of the agreement. That amount was increased to 2% of the selling price following the term of the agreement. The contract further provided that during the term of the agreement the inventions and formulae would be owned equally by plaintiff and defendant and that following the term of the agreement the ownership would revert to plaintiff. During the term of the agreement defendant had exclusive rights to use of the inventions and formulae and after the term of agreement a non-exclusive right of use.
At the time of the execution of the contract, sales had risen from virtually nothing in 1976 to \$750,000 annually from sales of Vitamite and a chocolate flavored product formulated by plaintiff called Chocolite. [Dairy’s owner] was in declining health and in 1982 desired to sell his company. At that time yearly sales were \$7,500,000. [Owner] sold the company to the Diehl family enterprises for 3 million dollars.
Prior to sale Diehl insisted that a new contract between plaintiff and defendant be executed or Diehl would substantially reduce the amount to be paid for [the company]. A new contract was executed August 24, 1982. It reduced the expressed term of the contract to 10 years, which provided the same expiration date as the prior contract. It maintained the same base salary of \$14,400 effective September 1982, thereby eliminating any cost of living increases incurred since the original contract. The 10% of gross profit provision remained the same. The new contract provided that plaintiff’s inventions and formula were exclusively owned by defendant during the term of the contract and after its termination. The 1% royalty during the term of the agreement remained the same, but no royalties were provided for after the term of the agreement. No other changes were made in the agreement. Plaintiff received no compensation for executing the new contract. He was not a party to the sale of the company by [Owner] and received nothing tangible from that sale.
After the sale plaintiff was given the title and responsibilities of president of defendant with additional duties but no additional compensation. In 1983 and 1984 the business of the company declined severely and in October 1984, plaintiff’s employment with defendant was terminated by defendant. This suit followed.…
We turn now to the court’s holding that the 1982 agreement was the operative contract. Plaintiff contends this holding is erroneous because there existed no consideration for the 1982 agreement. We agree. A modification of a contract constitutes the making of a new contract and such new contract must be supported by consideration. [Citation] Where a contract has not been fully performed at the time of the new agreement, the substitution of a new provision, resulting in a modification of the obligations on both sides, for a provision in the old contract still unperformed is sufficient consideration for the new contract. While consideration may consist of either a detriment to the promisee or a benefit to the promisor, a promise to carry out an already existing contractual duty does not constitute consideration. [Citation]
Under the 1982 contract defendant assumed no detriment it did not already have. The term of the contract expired on the same date under both contracts. Defendant undertook no greater obligations than it already had. Plaintiff on the other hand received less than he had under the original contract. His base pay was reduced back to its amount in 1977 despite the provision in the 1977 contract for cost of living adjustments. He lost his equal ownership in his formulae during the term of the agreement and his exclusive ownership after the termination of the agreement. He lost all royalties after termination of the agreement and the right to use and license the formulae subject to defendant’s right to non-exclusive use upon payment of royalties. In exchange for nothing, defendant acquired exclusive ownership of the formulae during and after the agreement, eliminated royalties after the agreement terminated, turned its non-exclusive use after termination into exclusive use and control, and achieved a reduction in plaintiff’s base salary. Defendant did no more than promise to carry out an already existing contractual duty. There was no consideration for the 1982 agreement.
Defendant asserts that consideration flowed to plaintiff because the purchase of defendant by the Diehls might not have occurred without the agreement and the purchase provided plaintiff with continued employment and a financially viable employer. There is no evidence to support this contention. Plaintiff had continued employment with the same employer under the 1977 agreement. Nothing in the 1982 agreement provided for any additional financial protection to plaintiff. The essence of defendant’s position is that [the owner] received more from his sale of the company because of the new agreement than he would have without it. We have difficulty converting [the owner’s] windfall into a benefit to plaintiff.
[Remanded to determine how much plaintiff should receive.]
CASE QUESTIONS
1. Why did the court determine that Plaintiff’s postemployment benefits should revert to those in his original contract instead being limited to those in the modified contract?
2. What argument did Defendant make as to why the terms of the modified contract should be valid? | textbooks/biz/Civil_Law/Book%3A_Introduction_to_Contracts_Sales_and_Product_Liability/11%3A_Consideration/11.04%3A_Cases.txt |
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