Contracts Commons^™

Why The Corporation Locks In Financial Capital But The Partnership Does Not, Richard Squire

Faculty Scholarship

Each partner in an at-will partnership can obtain a cash payout of his interest at any time. The corporation, by contrast, locks in shareholder capital, denying general payout rights to shareholders unless the charter states otherwise. What explains this difference? This Article argues that partner payout rights reduce the costs of two other characteristics of the partnership: the non-transferability of partner control rights, and the possibility for partnerships to be formed inadvertently. While these characteristics serve valuable functions, they can introduce a bilateral-monopoly problem and a special freezeout hazard unless each partner can force the firm to cash out his …

Modernizing Mortgage Law, Christopher K. Odinet

Faculty Scholarship

Modern mortgage law is designed for a world that no longer exists. The residential mortgage transaction of today looks nothing like it did during the formative period when the property laws governing mortgages were developed. What was once a local dealing between two individuals and largely for commercial or quasi-commercial purposes has now become a housing- centric financial transaction-turned-asset between multiple distant and often invisible parties that operate as part ofa national market. Yet, although the mortgage transaction has changed, mortgage law has not. Property law rules that once balanced the rights of mortgagors and mortgagees now completely fail to …

The Uniform Commercial Code Survey: Introduction, Jennifer S. Martin, Colin P. Marks, Wayne Barnes

Faculty Scholarship

The survey that follows highlights the most important developments of 2020 dealing with domestic and international sales of goods, personal property leases, payments, letters of credit, documents of title. investment securities, and secured transactions.

Franchisor Power As Employment Control, Andrew Elmore, Kati Griffith

Faculty Scholarship

Labor and employment laws are systematically underenforced in low-wage, franchised workplaces. Union contracts, and the benefits and protections they provide, are nonexistent. The Fight for Fifteen movement has brought attention to the low wages, systemic violations of workers’ rights, and lack of collective representation in fast-food franchises. Given that franchisees can be judgment-proof and cannot set industry standards, the deterrence, remedial, and collective bargaining goals of labor and employment laws can depend on holding the franchisor (the brand) responsible under the joint employer doctrine. In a series of cases, however, a dominant approach has emerged that essentially foreclosed the possibility …

Contract's Influence On Feminism And Vice Versa, Martha M. Ertman

Faculty Scholarship

Feminist legal theory has both embraced and rejected contract. While contract-based conceptual and doctrinal tools have improved women’s economic and social status, feminists also critique contract-based reforms for colluding with hierarchies of gender, race and class. This chapter charts influential work on both sides of the contract debate and identifies a third approach that sees contract as a mechanism for law to move away from a hierarchal regime by stopping at a contractual way station en route to a more equal system of public ordering. It concludes by identifying ways that feminist legal theorists have injected feminist insights into traditional …

Oliver Wendell Holmes's Theory Of Contract Law At The Massachusetts Supreme Judicial Court, Daniel P. O'Gorman

Faculty Scholarship

No abstract provided.

Foreword, Jennifer Taub

Faculty Scholarship

This Foreword highlights the central points of the Articles in Volume 43, Issue 1 of Western New England Law Review. The Article topics include emotional support animals, distribution rights for small beer brewers, fairness in accident insurance coverage, alternative legal education materials, and custody challenges for parents with abusive partners. Each share the identification of a perceived problem with the legal status quo and presents proposed solutions.

The Separation Of Voting And Control: The Role Of Contract In Corporate Governance, Gabriel Rauterberg

Faculty Scholarship

The default rules of corporate law make shareholders’ control rights a function of their voting power. Whether a director is elected or a merger is approved depends on how shareholders vote. Yet, in private corporations shareholders routinely alter their rights by contract. This phenomenon of shareholder agreements — contracts among the owners of a firm — has received far less attention than it deserves, mainly because detailed data about the actual contents of shareholder agreements has been lacking. Private companies disclose little, and shareholder agreements are thought to play a trivial or nonexistent role in public companies.

I show that …

Obsolescence: The Intractable Production Problem In Contract Law, Alan Schwartz, Robert E. Scott

Faculty Scholarship

Contract law has long suffered from an institutional problem: Which legal institution can best create an efficient law for commercial contracts that can overcome "obsolescence” – the persistence of rules that only solve yesterday’s contracting problems? Until the early 20th century, contract law was largely created by common law courts. The law's default rules were efficient when created and courts updated them as commerce changed. But there were few rules and the common law process is slow. In response, the 20th century saw public and private lawmaking bodies enact commercial statutes in discrete legal areas such as secured credit, commercial …

Investigating The Contract Production Process, Stephen J. Choi, Robert E. Scott, G. Mitu Gulati

Faculty Scholarship

Contract law and theory have traditionally paid little attention to the processes by which contracts are made. Instead, contracts among sophisticated parties are assumed to be full articulations of the desires of the parties; whatever the process, the outcome is the same. This article compares sovereign debt contracts from US and UK firms, with different production processes, that are trying to do the same thing under very similar legal regimes. We find that that the production process likely matters quite a bit to the final form that contracts take.

Understanding University Fee Litigation: A Few Lessons About The Perils Of Imprudence For Higher Ed Plan Sponsors, Maria O'Brien, Calvin Utter

Faculty Scholarship

Beginning in August 2016, a series of class action lawsuits were filed on behalf of participants and beneficiaries of 403(b) employee retirement plans sponsored by major American colleges and universities. These plans are regulated by the 1974 Employee Retirement Income Security Act (“ERISA”), which sets minimum standards to protect the participants and beneficiaries of voluntarily established retirement and health plans. The allegations in the several lawsuits have centered primarily around breaches of fiduciary duties by those charged with administering the plan.

These cases are all class action lawsuits brought on behalf of the participants and beneficiaries of the plans in …

The Domains Of Loyalty: Relationships Between Fiduciary Obligation And Intrinsic Motivation, Deborah A. Demott

Faculty Scholarship

Recent scholarly inquiry into fiduciary law predominantly focuses on whether the subject is a coherent field and not a piecemeal assortment of doctrinal detail. This Article looks to the future and to relationships between the formal domain of fiduciary law and other factors that shape conduct. These include intrinsic motivation, markets for professional services, and forces like the operation of reputation. The Article demonstrates that looking across domains, from the legal to the extralegal, casts in sharp relief the reasons why fiduciary law is distinctive. These stem from the specific qualities of relationships to which fiduciary law applies, as well …

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 …

Would Reasonable People Endorse A ‘Content-Neutral’ Law Of Contract?, Aditi Bagchi

Faculty Scholarship

This essay raises two challenges to Peter Benson’s compelling new account of contract law. First, I argue that Benson’s use of the concept of reasonableness goes beyond the Rawlsian account to require that we impute to others a capacity to transcend their contingent circumstances in the context of contractual choice. In fact, our choices in contract are driven by external contingencies and it is only reasonable to take those constrains on other people’s choices into account. Second, I contest Benson’s related claim that contract law should be, and largely is, content-neutral. I argue to the contrary that the justice of …

Let's Get Serious - The Clear Case For Compensating The Student Athlete - By The Numbers - A University Of Michigan Athletic Program Case Study, Neal Newman

Faculty Scholarship

Should college athletes be compensated for their play and if so, how? The first question has been a debate for some time now. But the second question—the “how”—not so much. This writing addresses both questions in depth. With the Ed O’Bannon case that was decided back in August of 2014 and the palaver the Northwestern football team raised in their efforts to unionize, it is acknowledged that the discussions on this issue may have reached its crescendo years ago. That is until now. On September 27, 2019, Gavin Newsom, the Governor of California, signed into law Senate Bill 206. Senate …

The Judicial Admissions Exception To The Statute Of Frauds: A Curiously Gradual Adoption, Wayne Barnes

Faculty Scholarship

The statute of frauds requires certain categories of contracts to be evidenced by a signed writing. The original purpose of the statute of frauds, indeed its titular purpose, is the prevention of the fraudulent assertion of a non-existent oral contract. Although a signed writing is the formal way in which to satisfy the statute of frauds, courts have long recognized various exceptions to the writing requirement which will be held to satisfy the statute absent a writing. The effect of such exceptions is that they constitute an alternative form of evidence for the presence of a contract. One such exception …

The Uniform Commercial Code Survey: Introduction, Jennifer S. Martin, Colin P. Marks, Wayne Barnes

Faculty Scholarship

The survey that follows highlights the most important developments of 2019 dealing with domestic and international sales of goods, personal property leases, payments, letters of credit, documents of title, investment securities, and secured transactions.

Revisiting A Classic Problem In Statutory Interpretation: Is A Minister A Laborer?, Lawrence Solan, Tammy Gales

Faculty Scholarship

No abstract provided.

Contractual Incapacity And The Americans With Disabilities Act, Sean M. Scott

Faculty Scholarship

The doctrine of contractual incapacity allows people with mental disabilities to avoid their contractual liability. Its underlying premise is that the law has an obligation to protect people with such disabilities both from themselves and from unscrupulous people who would take advantage of them; mental incapacity provides this protection by rendering certain contracts unenforceable. The Disability Rights Movement ("DRM"), however, has challenged such protective legal doctrines, as they rest on outmoded concepts about people with mental disabilities.

This essay argues that the mental incapacity doctrine undermines the goals of the DRM and the legislative goals of the Americans with Disabilities …

Contractual Arbitrage, Stephen J. Choi, G. Mitu Gulati, Robert E. Scott

Faculty Scholarship

Standard-form contracts are likely to be incomplete because they are not tailored to the needs of particular deals. In an attempt to reduce incompleteness, standard-form contracts often contain clauses with vague or ambiguous terms. Terms with indeterminate meaning present opportunities for strategic behavior well after a contract has been executed. This linguistic uncertainty in standard-form commercial contracts creates an opportunity for “contractual arbitrage”: parties may argue ex post that the uncertainties in expression mean something that the contracting parties did not contemplate ex ante. This chapter argues that the scope for contractual arbitrage is a direct function of the techniques …

Revising Boilerplate: A Comparison Of Private And Public Company Transactions, Stephen J. Choi, Robert E. Scott, G. Mitu Gulati

Faculty Scholarship

The textbook model of commercial contracts between sophisticated parties holds that terms are proposed, negotiated and ultimately priced by the parties. Parties reach agreement on contract provisions that best suit their transaction with the goal of maximizing the joint surplus from the contract. The reality, of course, is that the majority of the provisions in contemporary commercial contracts are boilerplate terms derived from prior transactions and even the most sophisticated contracting parties pay little attention to these standard terms, focusing instead on the price of the transaction. With standard-form or boilerplate contracts, this dynamic of replicating by rote the terms …

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 …

Picking The Low-Hanging Fruit: A Short Essay For Michael Klausner, Ronald J. Gilson

Faculty Scholarship

The articles that comprise this issue of the Journal of Corporation Law were first presented at a conference held at the Wharton School and co-sponsored by Wharton together with Columbia and Stanford Law Schools. The event was organized by my friend Peter Conti-Brown, to whom I am grateful for both the thought and the effort. Standing alone, the thought that the conference was warranted would have been extremely generous. However, anyone who has organized a conference knows that the idea for such events can be exciting, but what follows is an amount of work that had it been anticipated would …

On Trust, Law, And Expecting The Worst, Elizabeth F. Emens

Faculty Scholarship

This Review has three parts. Part I aims to convey something of the breadth and interest of Hasday’s fascinating new book, foregrounding the role of gender and beginning to touch the subject of trust. Part II delves briefly but widely into the theme of trust, which pervades the book and invites further examination. Part III presents a framework that combines affective trust and epistemic curiosity and applies this framework to illuminate and sort Hasday’s proposals for reform; to critique a recent, dramatic change in the evidentiary treatment of marital confidences; and to devise a novel approach to prenuptial agreements. Throughout, …

Innovation Versus Encrustation: Agency Costs In Contract Reproduction, Stephen J. Choi, Mitu Gulati, Robert E. Scott

Faculty Scholarship

This article studies the impact of exogenous legal change on whether and how lawyers across four different deal types revise their contracts’ governing law clauses in order to solve the problem that the legal change created. The governing law clause is present in practically every contract across a wide range of industries and, in particular, it appears in deals as disparate as private equity M&A transactions and sovereign bond issuances. Properly drafted, the clause increases the ex ante economic value of the contract to both parties by reducing uncertainty and litigation risk. We posit that different levels of agency costs …

Foreign Contracts And U.S. Copyright Termination Rights: What Law Applies? – Comment, Richard Arnold, Jane C. Ginsburg

Faculty Scholarship

The U.S. Copyright Act gives authors the right to terminate assignments of copyrights in works other than works for hire executed on or after 1 January 1978 after 35 years, and to do so notwithstanding any agreement to the contrary. Given that agreements which are subject to the laws of other countries can assign U.S. copyrights, and purport to do so in perpetuity, U.S. law’s preclusion of agreements contrary to the author’s right to exercise her termination right can give rise to a difficult choice of law issue. Two recent cases which came before courts in the U.S. and England …

Anticipating Procedural Innovation: How And When Parties Calibrate Procedure Through Contract, Henry Allen Blair

Faculty Scholarship

Despite a vast literature on contract theory, scholars are only just scratching the surface of understanding how parties design their contracts in the real world. This shortfall is particularly true of procedural customizations. Contrary to some early commentators’ estimates, in a small but significant set of circumstances, parties engage in a diverse range of procedural customization. To date, however, scholars have struggled to identify and explain the patterns of ex ante procedural contracting.

This Article argues that the first step toward understanding how transactional attorneys harness the potential of procedural autonomy is to recognize that procedural customization functions most effectively …

Covid-19 Business Interruption Insurance Losses: The Cases For And Against Coverage, Christopher French

Faculty Scholarship

The financial consequences of the government-ordered shutdowns of businesses across America to mitigate the COVID-19 health crisis are enormous. Estimates indicate that small businesses have lost $255 to $431 billion per month and more than 44 million workers have been laid off. When businesses have requested reimbursement of their business interruption losses from their insurers under business interruption policies, their insurers have denied the claims. The insurance industry also has announced that business interruption policies do not cover pandemic losses, so they intend to fight COVID-19 claims “tooth and nail.” More than 450 lawsuits throughout the country already have been …

Anticipating Venezuela's Debt Crisis: Hidden Holdouts And The Problem Of Pricing Collective Action Clauses, Robert E. Scott, Stephen J. Choi, Mitu Gulati

Faculty Scholarship

A creditor who asks for stronger enforcement rights upon its debtor’s default will rationally accept a lower interest rate reflecting the greater expected recovery the exercise of those rights provides. Over a dozen studies, however, have failed to document this basic relationship in the context of the collective action clause, a key provision in sovereign bonds. We conjecture that this failure is because enforcing the rights in question requires collective decision-making among anonymous creditors with different interests, impeding market predictions regarding future price effects. The pricing of rights that require collective enforcement thus turns on whether the market observes an …

The Economics Of Leasing, Thomas W. Merrill

Faculty Scholarship

Leasing may be the most important legal institution that has received virtually no systematic scholarly attention. Real property leasing is familiar in the context of residential tenancies. But it is also widely used in commercial contexts, including office buildings and shopping centers. Personal property leasing, which was rarely encountered before World War II, has more recently exploded on a world-wide basis, with everything from autos to farm equipment to airplanes being leased. This article seeks to develop a composite picture of the defining features of leases and why leasing is such a widespread and highly successful economic institution. The reasons …