Contracts Commons^™

The Case Against Equity In American Contract Law, Jody S. Kraus, Robert E. Scott

Faculty Scholarship

The American common law of contracts appears to direct courts to decide contract disputes by considering two opposing points of view: the ex ante perspective of the parties’ intent at the time of formation, and the ex post perspective of justice and fairness to the parties at the time of adjudication. Despite the black letter authority for both perspectives, the ex post perspective cannot withstand scrutiny. Contract doctrines taking the ex post perspective – such as the penalty, just compensation, and forfeiture doctrines – were created by equity in the early common law to police against abuses of the then …

Legal Frameworks & Foreign Investment: A Primer On Governments’ Obligations, Kaitlin Y. Cordes, Lise Johnson, Sam Szoke-Burke, Rumbidzaii Mawen

Columbia Center on Sustainable Investment Staff Publications

Legal frameworks, and how they interact, are often invisible in the day to day. Yet they are powerful forces that influence government actions and that help to shape who benefits and who loses from foreign investment. Understanding these legal frameworks, and how they interact, is critical for anyone concerned with how foreign investment can be better harnessed to support, rather than weaken, sustainable development and human rights.

This primer provides a brief overview of host government obligations under international investment law, international human rights law, domestic law, and relevant investor-state contracts. It also highlights some of the ways in which …

Three By Posner, Victor P. Goldberg

Faculty Scholarship

If Richard Posner did not invent the term “efficient breach,” he at least was its most aggressive marketer. I confess that nowadays I do not find the concept particularly useful, but that does not detract from its value. It was a catalyst, forcing scholars to consider the economic function of contract remedies. Any assessment of Judge Posner’s contracts jurisprudence must acknowledge that contribution.

In this paper, I will consider three of his opinions that appear with some regularity in contracts casebooks – Northern Indiana Public Service Company v. Carbon County Coal Company, Empire Gas v. American Bakeries, and Lake River …

Choice Theory: A Restatement, Michael A. Heller, Hanoch Dagan

Faculty Scholarship

This chapter restates choice theory, which advances a liberal approach to contract law. First, we refine the concept of autonomy for contract. Then we address range, limit, and floor, three principles that together justify contract law in a liberal society. The first concerns the state’s obligation to be proactive in facilitating the availability of a multiplicity of contract types. The second refers to the respect contract law owes to the autonomy of a party’s future self, that is, to the ability to re-write the story of one’s life. The final principle concerns relational justice, the baseline for any legitimate use …

Freedom, Choice, And Contracts, Hanoch Dagan, Michael A. Heller

Faculty Scholarship

In “The Choice Theory of Contracts,” we explain contractual freedom and celebrate the plurality of contract types. Here, we reply to critics by refining choice theory and showing how it fits and shapes what we term the “Contract Canon”.

I. Freedom. (1) Charles Fried challenges our account of Kantian autonomy, but his views, we show, largely converge with choice theory. (2) Nathan Oman argues for a commerce-enhancing account of autonomy. We counter that he arbitrarily slights noncommercial spheres central to human interaction. (3) Yitzhak Benbaji suggests that choice theory’s commitment to autonomy is overly perfectionist. Happily, in response to Benbaji, …

Divergence And Convergence At The Intersection Of Property And Contract, Giuseppe Dari-Mattiacci, Carmine Guerriero

Faculty Scholarship

In this Article, we study rules that solve the conflict between the original owner and an innocent buyer of a stolen or embezzled good. These rules balance the protection of the original owner’s property and the buyer’s reliance on contractual exchange, thereby addressing a fundamental legal and economic trade-off. Our analysis is based on a unique, hand-collected dataset on the rules in force in 126 countries. Using this data, we document and explain two conflicting trends. There is a large amount of first-order divergence: both rules that apply to stolen goods and those that apply to embezzled goods vary widely …

The Limits Of Smart Contracts, Jens Frankenreiter

Ira M. Millstein Center for Global Markets and Corporate Ownership

This essay investigates the potential of smart contracts to replace the legal system as an infrastructure for transactions. It argues that (contract) law remains relevant for most transactions even if they are entirely structured by way of smart contract. The reason for this is that the power of smart contracts to create and enforce obligations against attempts by the legal system to thwart their execution is limited. These limitations are most relevant for obligations to perform certain actions outside the blockchain, but also apply to other obligations contingent on facts outside the records stored on the blockchain.

Governing Land Investments: Do Governments Have Legal Support Gaps?, Sam Szoke-Burke, Kaitlin Y. Cordes

Columbia Center on Sustainable Investment Staff Publications

In the wave of efforts to encourage and support more “responsible” land investments, one aspect has been largely overlooked: are governments equipped with the legal and technical support needed to effectively negotiate and conclude investment contracts that lead to responsible outcomes?

CCSI researched how host governments access legal support in the planning, negotiation, and monitoring of land investments, with a view to better understanding where legal support gaps for governments exist, and how these can be addressed by governments themselves, as well as by donors, support providers and investors.

By scrutinizing “legal support gaps,” CCSI sought to identify possible weak …

Governing Land Investments: Do Governments Have Legal Support Gaps?, Sam Szoke-Burke, Kaitlin Y. Cordes

Columbia Center on Sustainable Investment Staff Publications

In the wave of efforts to encourage and support more “responsible” land investments, one aspect has been largely overlooked: are governments equipped with the legal and technical support needed to effectively negotiate and conclude investment contracts that lead to responsible outcomes?

CCSI researched how host governments access legal support in the planning, negotiation, and monitoring of land investments, with a view to better understanding where legal support gaps for governments exist, and how these can be addressed by governments themselves, as well as by donors, support providers and investors.

By scrutinizing “legal support gaps,” CCSI sought to identify possible weak …

The Macpherson-Henningsen Puzzle, Victor P. Goldberg

Faculty Scholarship

In the landmark case of MacPherson v. Buick, an automobile company was held liable for negligence notwithstanding a lack of privity with the injured driver. Four decades later, in Henningsen v. Bloomfield Motors, the court held unconscionable the standard automobile company warranty which limited its responsibility to repair and replacement, even in a case involving physical injury. This suggests a puzzle: if it were so easy for firms to contract out of liability, did MacPherson accomplish anything?

The Middleman’S Damages Revisited, Victor P. Goldberg

Faculty Scholarship

If A promises to sell to B who, in turn, promises to sell to C and either A or C breaches should B receive the gain it expected had both transactions occurred (lost profits) or the larger market/contract differential? Recent case law and commentary argues for the lost profit remedy. The argument is that there is a conflict between awarding market damages and making the nonbreacher whole. This paper argues that there is no conflict. If B were a broker, and C breached, then A would have an action against C for market damages. If B were party to the …

The Lost Volume Seller In English Law, Victor P. Goldberg

Faculty Scholarship

If a buyer breaches a contract but the market price has remained unchanged, English courts and the treatises have treated the seller as a “lost volume seller.” The seller, it is argued, could have had two sales, not one, so it lost the profit on the second sale. This paper recognizes that the buyer has an option to terminate and that the contract prices that option. The implicit option price of the lost volume remedy results in an absurd contract, setting the option price high when it should be low and vice versa. The default rule ought to be the …

Why Autonomy Must Be Contract's Ultimate Value, Hanoch Dagan, Michael A. Heller

Faculty Scholarship

In “The Choice Theory of Contracts”, we develop a liberal theory of contract law. One core task of the book was to persuade advocates of economic analysis that they must situate their enterprise within our liberal framework. Autonomy, rightly understood, is the telos of contract.

Oren Bar-Gill pushes back strongly in “Choice Theory and the Economic Analysis of Contracts”. He offers a penetrating – perhaps devastating – critique of our approach. Bar-Gill notes the substantial convergence between choice theory and a welfarist view. If he is right, then what does choice theory add?

Our task in Part I of this …

Remedies In The Ucc: Some Critical Thoughts, Victor P. Goldberg

Faculty Scholarship

I thank the conference organizers and the law review for giving me the opportunity to vent some of my frustrations with the Uniform Commercial Code (UCC). I have expressed my concerns with the Code’s overreliance on “custom and usage” elsewhere, and will not pursue that further here. Nor will I bemoan the Code’s invocation of good faith to undo the parties’ balancing of flexibility and reliance. I will confine my discussion to contract remedies. But I have to begin by noting one section I simply do not understand. Why on earth would the Code drafters in § 2–718(2)(b) have required …

Autonomy For Contract, Refined, Hanoch Dagan, Michael A. Heller

Faculty Scholarship

In The Choice Theory of Contracts, we advance a claim about the centrality of autonomy to contract. This Issue offers thoughtful and penetrating critiques. Here, we reply. Autonomy is the grounding principle of contract. In Choice Theory, we stressed the (1) proactive facilitation component of autonomy, in particular, the state’s obligation regarding contract types. Here, we highlight two additional, necessary implications of autonomy for contract: (2) regard for future selves and (3) relational justice. These three aspects of autonomy shape the range, limit, and floor, respectively, for the legitimate use of contract. They provide a principled and constrained path for …

Contractarian Theory And Unilateral Bylaw Amendments, Albert H. Choi, Geeyoung Min

Ira M. Millstein Center for Global Markets and Corporate Ownership

Corporate directors have been utilizing a potent mechanism in dealing with shareholder activism and shareholder litigation: the right to unilaterally amend corporate bylaws. Directors have exercised this right, for instance, to impose various requirements on who can nominate a director or call a special shareholder meeting, or to designate an exclusive forum where the shareholders can bring suit. Based on the theory that corporate charters and bylaws constitute a “contract” between the shareholders and the corporation, courts have blessed many of the bylaws that directors have unilaterally adopted. This Article examines the contractarian theory by drawing a parallel between amending …

Consequential Damages And Exclusion Clauses, Victor P. Goldberg

Faculty Scholarship

Contracts often include language excluding compensation for consequential damages. However, the boundary between consequential and direct damages is a blurry one. Courts have used concepts like foreseeability, natural result of the breach, and collateral business in their attempts to define the boundary. Those categories, I argue, are not particularly helpful. I consider three classes of cases: wrongful termination, delay, and breach of warranty. This paper argues that lost profits, when referring to the change in value of the contract after a wrongful termination would be direct damages; the hard case involves terminated dealers who had been paid indirectly for retailing …

Reckoning Contract Damages: Valuation Of The Contract As An Asset, Victor P. Goldberg

Faculty Scholarship

When a contract is breached the law in most jurisdictions provides some version of the aphorism that the non-breaching party should be made whole. Application of the aphorism has proven problematic, particularly for anticipatory repudiations. This paper argues for a general principle that should guide application – the contract is an asset and the problem is one of valuation of the change in value of that asset at the time of the breach. This provides a framework that will help clear up some conceptual problems in damage assessment. The focus is on direct damages, not consequential damages.

The paper begins …

At The Intersection Of Land Grievances And Legal Liability: The Need To Reconsider Contract Rights And Expectations At The Supranational Level, Kaitlin Y. Cordes, Lise Johnson, Sam Szoke-Burke

Columbia Center on Sustainable Investment Staff Publications

This Article explores how host governments’ legal obligations can affect or constrain their ability to address “land grievances,” which are defined as concerns raised by local individuals or communities in response to negative impacts of land-based investments. Obligations under international investment law, international human rights law, and investor-state contracts can be in tension or can directly conflict with one another, creating complexity for governments seeking to respond to land grievances. To explore the legal considerations that governments must navigate in this context, this Article considers several options that governments could pursue to respond to land grievances. In all of the …

Mechanisms For Consultation And Free, Prior And Informed Consent In The Negotiation Of Investment Contracts, Sam Szoke-Burke, Kaitlin Y. Cordes

Columbia Center on Sustainable Investment Staff Publications

Investor-state contracts are regularly used in low-and middle-income countries to grant concessions for land-based investments, such as agricultural or forestry projects. These contracts are rarely negotiated in the presence of, or with meaningful input from, the people who risk being adversely affected by the project. This has serious implications for requirements for meaningful consultation, and, where applicable, free, prior, and informed consent (FPIC), and is particularly important in situations in which investor-state contracts grant the investor rights to lands or resources over which the community has legitimate claims.

The paper explores how consultation and FPIC processes can be integrated into …

Articulating A Rights-Based Argument For Land Contract Disclosure, Jesse Coleman, Kaitlin Y. Cordes

Columbia Center on Sustainable Investment Staff Publications

In March 2017, CCSI presented a working paper titled "Articulating a Rights-Basted Argument for Land Contract Disclosure" at the World Bank Land & Poverty Conference. The paper explores whether and how existing state obligations under human rights law require disclosure of land contracts and more transparent contracting processes around land investments. It focuses on the extent to which guidelines for responsible land-based investment, which encourage greater transparency, reflect existing host and home state obligations. Based on a review of relevant human rights law and authoritative interpretations thereof, the paper articulates rights-based arguments for land contract disclosure, based in particular on …

A Note On Victoria Laundry, Victor P. Goldberg

Faculty Scholarship

In Victoria Laundry v Newman, Asquith LJ claimed that the headnote in Hadley v. Baxendale was “definitely misleading” noting that had it been accurate, the decision would have been decided the other way. In this note, I argue that the headnote was not misleading and, even if it were, his conclusion did not follow. His interpretation lowered the standard for finding liability for consequential damage. Given the facts, Victoria Laundry would have lost, even with his new standard. His solution was simple: alter the facts.

Contracting Out Of The Fiduciary Duty Of Loyalty: An Empirical Analysis Of Corporate Opportunity Waivers, Gabriel Rauterberg, Eric L. Talley

Faculty Scholarship

For centuries, the duty of loyalty has been the hallowed centerpiece of fiduciary obligation, widely considered one of the few “mandatory” rules of corporate law. That view, however, is no longer true. Beginning in 2000, Delaware dramatically departed from tradition by granting incorporated entities a statutory right to waive a crucial part of the duty of loyalty: the corporate opportunities doctrine. Other states have since followed Delaware’s lead, similarly permitting firms to execute “corporate opportunity waivers.” Surprisingly, more than fifteen years into this reform experiment, no study has attempted to either systematically measure the corporate response to these reforms or …

The Choice Theory Of Contracts – Preface & Introduction, Hanoch Dagan, Michael Heller

Faculty Scholarship

This concise landmark in law and jurisprudence offers the first coherent, liberal account of contract law. "The Choice Theory of Contracts" answers the field's most pressing questions: What is the “freedom” in “freedom of contract”? What core values animate contract law and how do those values interrelate? How must the state act when it shapes contract law? Hanoch Dagan and Michael Heller show exactly why and how freedom matters to contract. They start with the most appealing tenets of modern liberalism and end with their implications for contract law. This readable, engaging book gives contract scholars, teachers, and students a …

The Black Hole Problem In Commercial Boilerplate, Stephen J. Choi, G. Mitu Gulati, Robert E. Scott

Faculty Scholarship

Rote use of a standard form contract term can erode its meaning, a phenomenon made worse when the process of encrustation introduces various formulations of the term. The foregoing process, when it occurs, weakens the communicative properties of boilerplate terms, leading some terms to lose much, if not all, meaning. In theory, if a clause is completely emptied of meaning through this process it can create a contractual “black hole.” The more frequent and thus potentially more pervasive problem arises when, as the term loses meaning, random variations in language appear and persist, resulting in what we term a “grey …

Guide To Land Contracts: Forestry Projects, International Senior Lawyers Project, Kaitlin Y. Cordes, Sam Szoke-Burke

Columbia Center on Sustainable Investment Staff Publications

Agricultural investment contracts and forestry projects can be complex, with complicated provisions that are difficult to understand. To assist non-lawyers in better understanding agricultural investment contracts, such as those available on the Open Land Contracts repository, CCSI has developed a Guide to Land Contracts: Forestry Projects.

This Guide, prepared by International Senior Lawyers Project staff and volunteers in collaboration with the Columbia Center on Sustainable Investment, aims to assist the Open Land Contracts repository users in unpacking the technical provisions and language typically found in forestry contracts in order to better understand the contracts and the potential implications of …

The New Institutionalism In Contract Scholarship, Robert E. Scott

Faculty Scholarship

Relational contract scholarship is at a pivot point. On the one hand, the relationalist revival that has dominated contracts scholarship for almost half a century may be on the wane. Relational contract scholarship has evolved during this period into separate, and often dueling, intellectual traditions. One camp consists of scholars who are typically associated with the “law and economics” movement; in the other camp are scholars who more readily identify with the “law and society” tradition. While relationalists have been quarreling with each other, a younger cohort of law and economics scholars, armed with impressive technical skills, have abandoned relational …

The Lost Volume Seller, R.I.P., Victor P. Goldberg

Faculty Scholarship

If the buyer breaches a sales contract, and if the seller can be characterized as a lost volume seller, courts and commentators have argued that the seller should be made whole by compensation for its lost profits. This paper argues that framing the problem in this way leads to an absurd result. The buyer has a termination option and the remedy should be the implicit option price. The lost profit remedy sets a price on that option, a price that bears no relation to reality. Examination of the case law suggests three conclusions: (a) the remedy often sets an excessive …

Resourcecontracts.Org – A Searchable Repository For Publicly Available Mining And Petroleum Contracts, Sophie Thomashausen

Columbia Center on Sustainable Investment Staff Publications

ResourceContracts.org is an online, searchable and user-friendly repository of publicly available mining and petroleum contracts from around the world. It currently includes over 1,000 from 72 countries. In addition to PDF scans of each executed contract, the site includes: the full text of contracts in searchable format; plain language summaries of each contract’s key social, environmental, human rights, fiscal, and operational terms; and tools for searching and comparing contracts. Users can search contracts by country, natural resource, year, by type of contract, company, corporate group, or by annotation category.

A Silver Lining? Impact Of Commodity Price Fall On Good Governance In Sierra Leone, Herbert M'Cleod, Nicolas Maennling, Lisa E. Sachs

Columbia Center on Sustainable Investment Staff Publications

From 2002 to 2013, resource-rich countries in Africa enjoyed the benefits of a commodity boom, using increased revenues to embark on major infrastructure projects in roads, rail, ports, and housing. But when commodity prices fell starting in 2011 (see figure below), public sector revenues took a major hit with private sector companies scaling back operations, delaying investment decisions and suspending unprofitable operations. Especially as the number and size of investments in the sector contracted, Governments felt increased pressure to collect, manage and spend those revenues more efficiently. As a result, the fall in commodity prices and mounting economic pressure actually …