Law Commons^™

The Cost Of Guilty Breach: Willful Breach In M&A Contracts, Theresa Arnold, Amanda Dixon, Madison Whalen Sherrill, Hadar Tanne, Mitu Gulati

Faculty Scholarship

The traditional framework of United States private law that every first-year student learns is that contracts and torts are different realms—contracts is the realm of strict liability and torts of fault. Contracts, we learn from the writings of Justice Holmes and Judge Posner, are best viewed as options; they give parties the option to perform or pay damages. The question we ask is whether, in the real world, that is indeed how contracting parties view things. Using a dataset made up of one thousand mergers and acquisitions (M&A) contracts and thirty in-depth interviews with M&A lawyers, we find that there …

Some Issues On The Law Of Direct Damages (Us And Uk), Victor P. Goldberg

Faculty Scholarship

When a contract is breached, both U.S. and U.K. law provide that the non-breaching party should be made whole. The Uniform Commercial Code (“UCC”) provides that “[t]he remedies provided by this Act shall be liberally administered to the end that the aggrieved party may be put in as good a position as if the other party had fully performed.” The English version, going back to Robinson v. Harman, is “that where a party sustains a loss by reason of breach of contract, he is, so far as money can do it, to be placed in the same situation, with …

The Myth Of Optimal Expectation Damages, Theresa Arnold, Amanda Dixon, Madison Sherrill, Mitu Gulati

Faculty Scholarship

A much-debated question in contract law scholarship is what the optimal measure of damages for breach should be. The casebook answer-drawing from the theory of efficient breach-is expectation damages. This standard answer, which was a major contribution of the law and economics field, has come under attack by theoreticians within that field itself. To shed an empirical perspective on the question, we look at data on the types of damages provisions parties contract/or themselves in international debt contracts. Specifically, we examine issuer call provisions, which are economically equivalent to damages for prepayment, yet not viewed as legally problematic in the …

Cleaning Up Lake River, Victor P. Goldberg

Faculty Scholarship

A casebook favorite for exploring the liquid dated damage/penalty clause distinction is Lake River Corp. v. Carborundum Co. in which Judge Posner found a minimum quantity clause to be an unenforceable penalty clause. In this paper I argue that the case was framed improperly. Had the litigators recognized that the contract afforded one party an option, the result should have been different. The contract was for the provision of a service – setting aside capacity – which was valuable to the buyer and costly for the seller to provide. The primary purpose of the minimum quantity clause was the pricing …

The Law And Economics Of Contracts, Benjamin E. Hermalin, Avery W. Katz, Richard Craswell

Faculty Scholarship

This paper, which will appear as a chapter in the forthcoming Handbook of Law and Economics (A.M. Polinsky & S. Shavell, eds.), surveys major issues arising in the economic analysis of contract law. It begins with an introductory discussion of scope and methodology, and then addresses four topic areas that correspond to the major doctrinal divisions of the law of contracts. These areas include freedom of contract (i.e., the scope of private power to create binding obligations), formation of contracts (both the procedural mechanics of exchange, and rules that govern pre-contractual behavior), contract interpretation (what consequences follow when agreements are …

Bloomer Girl Revisited Or How To Frame An Unmade Picture, Victor P. Goldberg

Faculty Scholarship

Nearly all contracts casebooks feature the saga of Shirley MacLaine's suit against Twentieth Century Fox arising from the cancellation of the proposed film Bloomer Girl. None really get the story right. To be fair, none try. The case is a vehicle for exploring the obligation of the victim of the breach of an employment contract to take alternative employment. If MacLaine refused an offer of alternative employment that was not "different and inferior," her failure to mitigate would mean that the earnings she would have received would be offset against the damages; so, asked the court, was the alternative …

Recovery For Pure Economic Loss In Tort: Another Look At Robins Dry Dock V. Flint, Victor P. Goldberg

Faculty Scholarship

In Robins Dry Dock and Repair Co. v. Flint, the Supreme Court laid down the general proposition that claims for pure economic loss are not recoverable in tort. Although courts have sometimes ignored or distinguished Robins, its holding is still a central feature of tort law. In a recent en bane decision regarding claims by those injured by a chemical spill in the Mississippi River, the Fifth Circuit engaged in an extensive debate over the continued vitality of Robins and concluded (despite five dissenters) that it remained good law.

The Robins rule is overbroad, lumping together a number of …