Law Commons^™

The Strategic Structure Of Offer And Acceptance: Game Theory And The Law Of Contract Formation, Avery W. Katz

Faculty Scholarship

The purpose of this article is to promote a particular research program; namely, the use of game theory to analyze the law of contract formation. Although I will often simply speak of offer and acceptance in my discussion, I mean to refer to a broader set of issues than are commonly denoted by this doctrinal label. My program transcends the narrow issue of whether particular communications technically should be classified as offers and acceptances, and includes questions often analyzed under the rubrics of implication and interpretation. At its broadest, my argument addresses all legal rules that answer two types of …

The Case For Market Damages: Revisiting The Lost Profits Puzzle, Robert E. Scott

Faculty Scholarship

An old and cardinal rule of contract law requires that expectancy damages for breach of contract put the injured party in the position she would have occupied had the contract been performed. Courts and commentators have accepted this full performance compensation principle as the central objective of the expectancy remedy, pursuant to which they have developed many more precise formulas for various types of cases. But the simplicity of the full performance principle disguises substantial problems in its application. One of the least recognized of these problems is the tendency of courts and commentators to determine the contractual expectancy ex …

Unstable Coalitions: Corporate Governance As A Multi-Player Game, John C. Coffee Jr.

Faculty Scholarship

This is an article written in honor of Professor Donald Schwartz, a leading figure in academic corporate law for over two decades, but also a man nearly unique in his willingness to move beyond corporate law to the general study of corporate behavior. In this light, this article will not explore the latest wrinkle in the law – the most recent case, latest SEC ruling, or newest takeover defense tactic – but will instead ask if there are new ways in which we should try to talk about corporate law and corporate behavior. These were questions that Don Schwartz repeatedly …

No Exit?: Opting Out, The Contractual Theory Of The Corporation, And The Special Case Of Remedies, John C. Coffee Jr.

Faculty Scholarship

Aloof and insular as corporate law often seems, it cannot remain uninfluenced for very long by developments in the mainstream of American civil law. In that mainstream, there is today flowing a strong, swift current called "tort reform." As currents go, this one is remarkably broad and perhaps a little shallow, but on it floats a number of diverse legislative proposals – ceilings on liability, restrictions on attorneys' fees, greater reliance on alternative methods of dispute resolution, restrictions on joint and several liability and contribution, and the curtailment of punitive damages. All of these proposals flow from the same wellspring: …

Reflections On Fuller And Perdue's The Reliance Interest In Contract Damages: A Positive Economic Framework, Avery W. Katz

Faculty Scholarship

Fuller and Perdue's classic article, The Reliance Interest in Contract Damages, is regarded by many contemporary contracts scholars as the single most influential law review article in the field. For those of us who teach and think about contracts from the perspective of law and economics, the consensus would probably be close to unanimous. The article displays an approach highly congenial to an economic perspective. The connection goes beyond Fuller and Perdue's explicitly functional approach to law (which law and economics shares with other schools of thought descended from the legal realists) and beyond Fuller and Perdue's focus on …

Clarifying The Record: A Comment, Victor P. Goldberg

Faculty Scholarship

In their recent article in this journal, Boudreaux and Ekelund [1987] ha presented a distorted characterization of some of my work on the economics o regulation. The editor of this journal has graciously offered me the opportunity to respond to their criticisms and to redress some ambiguities, real or imagine in my earlier work.

Impossibility And Related Excuses, Victor P. Goldberg

Faculty Scholarship

In the first section I present an e of why reasonable businessmen would choose to excuse performance for some changed circumstances, but not others. In the remainder of the paper I will analyze specific problems that have arisen in the impossibility case law and literature. The explanation forwarded in Section 1 will play a prominent role in much of that discussion. Largely because their paper stimulated my thoughts on the problem, I will contrast my analysis of some of the specific cases to that of Posner and Rosenfield [1977]. I will not, except in passing, critique the case law, the …

Conflict And Cooperation In Long-Term Contracts, Robert E. Scott

Faculty Scholarship

This Article uses the techniques of modern decision analysis and game theory to analyze the decisionmaking strategies of parties to long-term commercial contracts. Most parties to long-term contracts initially allocate the risks of future contingencies and agree – either explicitly or implicitly – to adjust this initial risk-allocation scheme if unanticipated events occur. Once contract risks are initially distributed, however, each party's self-interest may compel them to evade their responsibility rather than adjust cooperatively as originally agreed. Visualizing the interactions between contracting parties as an iterated prisoner's dilemma, the Author attempts to clarify the dynamics of this adjustment process. Professor …

Quantity And Price Adjustment In Long-Term Contracts: A Case Study Of Petroleum Coke, Victor P. Goldberg, John R. Erickson

Faculty Scholarship

Much economic activity takes place within a framework of complex, long-term contracts. While economists have shown increased interest in these contracts, surprisingly little is known about them, or, indeed, about how to analyze the contracting activity of private economic actors. A case study of the actual contracts used in one industry could provide sorely needed data about the way in which reasonably clever businessmen and lawyers cope with problems scholars might consider intractable. In this article, we provide such an analysis of contracts concerning a particular product – petroleum coke. We focus on the problems of quantity and price adjustment. …

Public Contracts, Private Contracts, And The Transformation Of The Constitutional Order, Thomas W. Merrill

Faculty Scholarship

Modern interpretation of the Contract Clause of article 1, section 10 has created a dual standard of judicial review that bottoms upon the classification of a particular contract as public or private. However, which particular category has received greater deference has changed depending upon the precedential climate. Within his Article, Professor Merrill outlines three modern justifications for affording greater protection to public obligations “Kantian theory,” “process theory,” and “utilitarian theory.” He argues, however, that none of these theories adequately justify the dual standard of review, and concludes that a unitary analysis of the contract clause that affords no presumptions in …

The Limits Of Expanded Choice: An Analysis Of The Interactions Between Express And Implied Contract Terms, Charles J. Goetz, Robert E. Scott

Faculty Scholarship

Although trade and its defining terms lie at the very core of contract law, perceptions of the state's involvement in the exchange process remain peculiarly incomplete. Everyone understands that the state supplies the fundamental property-defining rules for pre-trade endowments. For instance, governmentally provided rules of tort, nuisance, and civil rights establish basic boundaries of what initially belongs to an individual and, hence, what he has to offer in exchange. When an exchange subsequently takes place, however, the parties themselves assume an important part of the burden of communicating what rights are being given and received. Although the state's general rules …

Price Adjustment In Long-Term Contracts, Victor P. Goldberg

Faculty Scholarship

After parties enter into a contract, changed circumstance might result in one of them being dissatisfied with the price. Anticipating this, the parties could include a price adjustment mechanism in the agreement. If the mechanism is imperfect, some dissatisfaction will remain. This dissatisfaction may result in litigation with the dissatisfied party asking the court either to excuse performance or revise the contract price. For example, large changes in fuel prices since 1973 generated considerable litigation.

In this paper, I suggest a framework for analyzing price adjustment in private contracts. Contrary to most economists and lawyers, I argue that price adjustment …

The Mitigation Principle: Toward A General Theory Of Contractual Obligation, Charles J. Goetz, Robert E. Scott

Faculty Scholarship

The duty to mitigate is a universally accepted principle of contract law requiring that each party exert reasonable efforts to minimize losses whenever intervening events impede contractual objectives. Although applications of the mitigation principle pervade the specific rules of contract, it is startling how many questions remain unanswered as to precisely what efforts the mitigation duty requires and what point in time the obligation arises. For example, under what circumstances does mitigation require an injured party to deal with the contract breacher? Why does the duty to minimize losses mature only after the breach, even if the injured party became …

Principles Of Relational Contracts, Charles J. Goetz, Robert E. Scott

Faculty Scholarship

Recent scholarship has demonstrated that a significant proportion of private contracts do not easily fit the presuppositions of classical legal analysis. One reason for this is the pivotal role played in conventional legal theory by the concept of the complete contingent contract. Parties in a bargaining situation are presumed able, at minimal cost, to allocate explicitly the risks that future contingencies may cause one or the other to regret having entered into an executory agreement. Under these conditions, the role of legal regulation can be defined quite precisely. Once the underlying rules policing the bargaining process have been specified, contract …

Enforcing Promises: An Examination Of The Basis Of Contract, Charles J. Goetz, Robert E. Scott

Faculty Scholarship

The obligation to keep promises is a commonly acknowledged moral duty. Yet not all promises – however solemnly vowed – are enforceable at law. Why are some promises legally binding and others not? Orthodox doctrinal categories provide only modest assistance in answering this persistent question. Conventional analysis, for example, has distinguished promises made in exchange for a return promise or performance from nonreciprocal promises. Indeed, common law "bargain theory" is classically simple: bargained-for promises are presumptively enforceable; nonreciprocal promises are presumptively unenforceable. But this disarmingly simple theory has never mirrored reality. Contract law has ventured far beyond such narrow limitations, …

Measuring Sellers' Damages: The Lost-Profits Puzzle, Charles J. Goetz, Robert E. Scott

Faculty Scholarship

A buyer repudiates a fixed-price contract to purchase goods, and the seller sues for damages. How should a court measure the seller's loss? The answer seems simple: The seller should be awarded damages sufficient to place it in the same economic position it would have enjoyed had the buyer performed the contract. But the seductive conceptual simplicity of the compensation principle disguises substantial practical problems in measuring seller's damages.

Contract law has traditionally minimized measurement difficulties by basing damages in most cases on the difference between the contract price and market value of the repudiated goods. The common law courts …

Liquidated Damages, Penalties And The Just Compensation Principle: Some Notes On An Enforcement Model And A Theory Of Efficient Breach, Charles J. Goetz, Robert E. Scott

Faculty Scholarship

For more than five centuries, strict judicial scrutiny has been applied to contractual provisions which specify an agreed amount of damages upon breach of a base obligation. Although the standards determining the enforceability of liquidated damage clauses have developed novel and labyrinthine permutations, their motivating principle has remained essentially immutable. For an executory agreement fixing damages in case of breach to be enforceable, it must constitute a reasonable forecast of the provable injury resulting from breach; otherwise, the clause will be unenforceable as a penalty and the non-breaching party will be limited to conventional damage measures.

The historical genesis of …

The Truth-In-Negotiations Act – An Examination Of Defective Pricing In Government Contracts, Michael J. Graetz

Faculty Scholarship

Charges of excessive profitmaking on government contracts have issued from the Senate floor and the nation's press and have provided the impetus for recent congressional investigations and proposals for remedial legislation. Profiteering by government contractors is a problem of potentially enormous dimensions since purchases by the federal government total more than seventy-seven billion dollars – over ten per cent of the gross national product. Because the greatest part of these purchases are made by the Department of Defense, congressional action aimed at minimizing excessive profits has focused upon Defense Department procurement activities under the Armed Services Procurement Act (ASPA).

Section 301 And The Primary Jurisdiction Of The Nlrb, Michael I. Sovern

Faculty Scholarship

Several labor cases recently decided by the Supreme Court have brought into issue a conflict between the NLRB's primary jurisdiction over matters subject to sections 7 and 8 of the NLRA and the doctrine that courts have jurisdiction to enforce collective agreements. Professor Sovern discusses these cases and argues that the Court properly decided that the principle of exclusive NLRB jurisdiction should yield in suits on collective agreements, but he criticizes the Court for not having articulated a satisfactory rationale in support of this result. After an analysis of the doctrine of preemption, he considers five types of labor-contract suits …