Law and Economics Commons^™

Unlawful Dividends, Unjust Enrichment, And The Defence Of Change Of Position, Cecil Duncan Macrae

Research Collection Yong Pung How School Of Law

Economic analysis is applied to determining the effect of the change of position defense on the question of whether an innocent shareholder receiving an unlawful, mistaken dividend should be liable under English restitution law as the result of unjust enrichment. The analysis builds on and extends previous economics analysis of mistaken money transfers under restitution law. The conclusion of the analysis of the change of position defense is that unjust enrichment liability with the defense should not be extended to unlawful, mistaken dividends, even if the factors for unjust enrichment are present.

What Makes Asset Securitization "Inefficient"?, Kenji Yamazaki

ExpressO

Despite the damage caused by the recent Enron scandal , the asset securitization market has been vibrant and has become a popular financing alternative . A number of academics emphasize its merits and suggest that it is a more favorable way of financing, and Congress’s proposal to make sales of asset in securitization immune from characterization as secured transactions under the Bankruptcy Reform Act of 2001 (the “Reform Act”) almost materialized when the Enron scandal hit the scene. Conversely, there have been accusations that securitization is not a legitimate way of financing because, for example, it fosters fraudulent transactions.

Why …

The Deregulation Of International Trucking In The European Union: Form And Effect, Francine Lafontaine, Laura M. Valeri

Law & Economics Working Papers Archive: 2003-2009

This paper examines how the deregulation of the international road transport industry in Western Europe has affected 1- the total quantity of cross-border road transport in the region; 2- the degree to which shippers outsource rather than integrate vertically their cross-border transport needs; and 3- the extent to which different countries participate in international road freight transport in Western Europe. Not surprisingly, we find that deregulation has had a large positive effect on the amount of international road transport net of the effect of the trade ties that grew over time among European Union countries. Moreover, consistent with the fact …

From St. Ives To Cyberspace: The Modern Distortion Of The Medieval 'Law Merchant', Stephen E. Sachs

ExpressO

Modern advocates of corporate self-regulation have drawn unlikely inspiration from the Middle Ages. On the traditional view of history, medieval merchants who wandered from fair to fair were not governed by domestic laws, but by their own lex mercatoria, or "law merchant." This law, which uniformly regulated commerce across Europe, was supposedly produced by an autonomous merchant class, interpreted in private courts, and enforced through private sanctions rather than state coercion. Contemporary writers have treated global corporations as descendants of these itinerant traders, urging them to replace conflicting national laws with a law of their own creation. The standard history …

Price, Path & Pride: Third-Party Closing Opinion Practice Among U.S. Lawyers (A Preliminary Investigation), Jonathan C. Lipson

ExpressO

This article presents the first in-depth exploration of third-party closing opinions, a common but curious – and potentially troubling -- feature of U.S. business law practice. Third-party closing opinions are letters delivered at the closing of most large transactions by the attorney for one party (e.g., the borrower) to the other party (e.g., the lender) offering limited assurance that the transaction will have legal force and effect.

Hundreds, if not thousands, of legal opinions are delivered every week. Yet, lawyers often complain that they create needless risk and cost, and produce little benefit. Closing opinions thus pose a basic question: …

Patterns In A Complex System: An Empirical Study Of Valuation In Business Bankruptcy Cases, Bernard Trujillo

ExpressO

This Article applies complex systems research methods to explore the characteristics of the bankruptcy legal system, presenting the results of an empirical study of twenty years of bankruptcy court valuation doctrine in business cramdown cases. These data provide solid descriptions of how courts exercise their discretion in valuing firms and assets.

This Article accomplishes two objectives: First, using scientific methodology, this Article explains the content of bankruptcy valuation doctrine. Second, this Article uses doctrine as a variable to explore system dynamics that govern the processes of change over time.

Significant findings include (i) courts tend to “split the difference” in …

Institutions, Incentives, And Consumer Bankruptcy Reform, Todd Zywicki

George Mason University School of Law Working Papers Series

Consumer bankruptcy filing rates have soared during the past 25 years. From 225,000 filings in 1979, consumer bankruptcies topped 1.5 million during 2004. This relentless upward trend is striking in light of the generally high prosperity, low interest rates, and low unemployment during that period. This anomaly of ever-upward bankruptcy filing rates during a period of economic prosperity had spurred calls to reform the Bankruptcy Code to place new conditions on bankruptcy relief. Although bankruptcy reform has drawn broad bipartisan support on Capitol Hill, these proposals have proven controversial within the academy. Critics have argued that these reforms are unnecessary …

The False Promise Of De-Regulation In Banking, Jonathan R. Macey

ExpressO

Jonathan R. Macey

The False Promise of De-Regulation in Banking

Abstract

This Article presents new approach to the concept of "deregulation" in financial services and particularly banking. Generally regulatory policy is thought to involve more or less straightforward choices between regulation and deregulation. Those most concerned with market failure and equality of outcomes favoring regulation and those with faith in markets and concerns about efficient outcomes favoring deregulation.

This Article shows that government regulation, sometimes in heavy doses, is necessary in order for private markets to function effectively. Consequently, government has in important role to play in fostering markets. The …

The Missing Preferred Return, Victor Fleischer

ExpressO

Managers of buyout funds typically offer their investors an 8% preferred return on their investment before they take a share of any additional profits. Venture capitalists, on the other hand, rarely offer a preferred return. Instead, VCs take their cut from the first dollar of nominal profits. This disparity between venture funds and buyout funds is especially striking because the contracts that determine fund organization and compensation are otherwise very similar. The missing preferred return might suggest that agency costs pose a larger problem in venture capital than previously thought. Is the missing preferred return evidence, perhaps, that VCs are …

Strict Liability For Gatekeepers: A Reply To Professor Coffee, Frank Partnoy

University of San Diego Law and Economics Research Paper Series

This article responds to a proposal by Professor John C. Coffee, Jr. for a modified form of strict liability for gatekeepers. Professor Coffee’s proposal would convert gatekeepers into insurers, but cap their insurance obligations based on a multiple of the highest annual revenues the gatekeepers recently had received from their wrongdoing clients. My proposal, advanced in 2001, would allow gatekeepers to contract for a percentage of issuer damages, after settlement or judgment, subject to a legislatively-imposed floor. This article compares the proposals and concludes that a contractual system based on a percentage of the issuer’s liability would be preferable to …

Small Business And The False Dichotomies Of Contract Law, Larry Garvin

The Ohio State University Moritz College of Law Working Paper Series

The article explores the classic consumer- merchant dichotomy from the vantage of small businesses. Using empirical data and the psychology, economics, and management literature, it shows that small businesses, treated like large businesses throughout most of contract and commercial law, in fact behave more like consumers. Small businesses lack the financial strength of large businesses. They generally lack the information gathering ability of large businesses. Finally, they generally are more prey to cognitive errors than are large businesses. As a result, small businesses lose in two ways. When they deal with consumers, they are presumed to have the power, information, …

Good Faith In The Cisg: Interpretation Problems In Article 7, Benedict C. Sheehy

ExpressO

ABSTRACT: This article examines the dispute concerning the meaning of Good Faith in the CISG. Although there are good reasons for arguing a more limited interpretation or more limited application of Good Faith, there are also good reasons for a broader approach. Regardless of the correct interpretation, however, practitioners and academics need to have a sense of where the actual jurisprudence is going. This article reviews every published case on Article 7 since its inception and concludes that while there is little to suggest a strong pattern is developing, a guided pattern while incorrect doctrinally is preferable to the current …

Evaluating Work: Enforcing Occupational Safety And Health Standards In The United States, Canada And Sweden, Daniel B. Klaff

ExpressO

The United States’ occupational safety and health enforcement system is breaking down. Klaff argues that much of this breakdown has to do with a fundamental lack of worker participation in the United States’ safety and health system. Klaff makes his case by comparing and contrasting the history and enforcement schemes of the United States, Canada, and Sweden. After arguing for economic rights as human rights, Klaff concludes by offering a set of recommendations for the United States’ occupational safety and health system based upon his value-centered analysis.

Extraterritoriality Of The Sherman Act And Deterrence Of Private International Cartels, John M. Connor

ExpressO

This paper argues that the facts in the vitamins cartel support decisions in the 2nd and DC circuits to permit wholly foreign direct buyers of globally cartelized products standing to sue in U.S. courts. Such an interpretation of the Sherman Act is justified by conduct that is essentially linked to the management of successful international cartels, namely, the prevention of geographic arbitrage. This paper shows that the degree of injuries imposed on U.S. consumers could not have occurred were it not for coordinated price increases in countries with weak or nonexistent anticartel laws. Moreover, this paper endeavors to demonstrate that, …

Between Mandate And Market: Contract Transition In The Shadow Of The International Order, Robert B. Ahdieh

Faculty Scholarship

Boilerplate in sovereign debt contracts issued in the United States has long dictated the unanimous consent of bondholders to any debt restructuring. This requirement persisted for decades, notwithstanding wide consensus that such unanimous action provisions increased transaction costs, produced inefficient delays in debt restructuring, enhanced the moral hazards of the sovereign debt market, and otherwise encouraged collective action failures. Yet the sovereign debt markets has recently made an about-face, replacing the unanimity requirement for debt restructuring with a less demanding provision for collective, or majority, action by creditors. Completed over the course of just a few months in 2003, this …

The New Iraq: Revising Iraq's Commercial Law Is A Necessity For Foreign Direct Investment And The Reconstruction Of Iraq's Decimated Economy, Judith Richards Hope, Edward N. Griffin

Cardozo Journal of International and Comparative Law

The article examines the legal reforms implemented by the Coalition Provisional Authority (CPA) in post-conflict Iraq, particularly CPA Order No. 39, which liberalizes foreign investment. These reforms are crucial for attracting foreign direct investment (FDI) to revive Iraq's economy, which has been devastated by war, sanctions, and central planning. The article highlights the importance of creating a stable legal environment, including equal treatment for foreign and domestic investors, streamlined corporate governance, and adherence to international standards. However, it also points out gaps in protections against confiscation and the need for further reforms in areas such as business immigration and tax …

Valuation Averaging: A New Procedure For Resolving Valuation Disputes, Keith Sharfman

Rutgers Law School (Newark) Faculty Papers

In this Article, Professor Sharfman addresses the problem of "discretionary valuation": that courts resolve valuation disputes arbitrarily and unpredictably, thus harming litigants and society. As a solution, he proposes the enactment of "valuation averaging," a new procedure for resolving valuation disputes modeled on the algorithmic valuation processes often agreed to by sophisticated private firms in advance of any dispute. He argues that by replacing the discretion of judges and juries with a mechanical valuation process, valuation averaging would cause litigants to introduce more plausible and conciliatory valuations into evidence and thereby reduce the cost of valuation litigation and increase the …

Sentencing The Criminal Corproation, Poonam Puri

Osgoode Hall Law Journal

This article contributes to the debate on mandatory minimum sentences by analzing them in the context of the corporation as criminal and by employing a law and economics methodology. While the rational economic actor model maybe unrealistic when applied to individuals committing blue-collar crimes, it is a much more useful tool to describe the behaviour of criminal corporations that respond more directly to economic incentives. The article concludes that the mandatory fine for a corporation found guilty of a criminal offence should, at a minimum, equal the expected loss caused or profit gained from the wrongdoing.

Reinventing The Deal: A Sequential Approach To Analyzing Claims For Enforcement Of Modified Sales Contracts, Irma S. Russell

Faculty Works

This article explores the legal and economic complexities surrounding the enforcement of modified sales contracts under Section 2-209 of the Uniform Commercial Code (UCC). While contract modification allows parties to adapt agreements to changing circumstances, courts have struggled with the absence of a consistent standard for determining when such modifications should be enforced. The discussion critiques the ambiguity of the UCC’s “good faith” requirement and the unpredictability it creates in judicial decision-making. To address these issues, the article proposes a “sequential approach” that examines each stage of the modification process, requiring the initiating party to demonstrate reasonable grounds for seeking …

Reconciling The Old Theory And The New Evidence: Comments On Ronald Mann's 'The Role Of Letters Of Credit In Payment Transactions', Jacob I. Corré

Michigan Law Review

Ronald Mann's thorough research and rigorous analysis provide compelling evidence that the commercial letter of credit does not further the fundamental purpose traditionally associated with it. Equally persuasive are his hypotheses about the functions that letters of credit actually serve in the real world. The objective statistics are startling. An overwhelming majority of letter of credit seller-beneficiaries make at least initial presentations to issuing or correspondent banks that by the express terms of the letter of credit do not entitle the seller to payment. Without a waiver from its customer, the issuing bank is legally entitled to, and surely will …

Exploring The Battle Of The Forms In Action, Daniel Keating

Michigan Law Review

Like many commercial law professors, I have long been fascinated with the workings of the Uniform Commercial Code's section 2-207, the "battle of the forms" provision. There are two features of that section, one internal and one external, that make it such an intriguing statute to ponder. The internal source of fascination with section 2-207 is that it provides a classic model for teaching students about the intricacies of statutory construction. There is probably no other provision within U.C.C. Article 2 that provides more confusion to law students and more challenge to the instructor than does section 2-207. There is …

Bankruptcy Reorganization: Legal Dynamics Associated With Economic Discontinuity, Young Rock Noh

LLM Theses and Essays

This thesis attempts to discover the factors leading to such failures and to propose a cure. It argues that the basic structure of Chapter 11 of the Code, the debtor in possession structure, is one of the essential factors causing such a high rate of failure. The thesis further asserts that it is possible to reduce the rate of unsuccessful reorganization if the bankruptcy court exercises its power of case management more actively and expeditiously. For example, the court can screen the debtors' filing for relief before the reorganization case proceeds too far. Chapter II of this thesis examines the …

Patching A Hole In The Jobs Act: How And Why To Rewrite The Rules That Require Firms To Make Periodic Disclosures, Michael D. Guttentag

Indiana Law Journal

Provisions in the Jumpstart Our Business Startups Act of 2012 have made it much easier for firms to avoid federal periodic disclosure obligations, but these provisions were enacted based upon a virtually nonexistent legislative record and upended rules established only after careful consideration almost fifty years earlier. Determining when firms should be required to comply with federal periodic disclosure requirements is best done in the context of a broader understanding of the history and economics of periodic disclosure regulation. This Article provides such an understanding.

The history of periodic disclosure regulation in the United States is traced back to its …

Analyzing Bank Drafted Letter Of Credit Rules, The International Standby Practice (Isp98), John F. Dolan

Law Faculty Research Publications

No abstract provided.

Enforcing Contracts In Dysfunctional Legal Systems: The Close Relationship Between Public And Private Orders: A Repy To Mcmillan And Woodruff, Ariel Porat

Michigan Law Review

When the public order is dysfunctional, a private order for enforcing contracts will develop. In the absence of courts, transactors will seek ways to secure performance without recourse to legal sanctions. Social and economic sanctions imposed on the party in breach, whether by the aggrieved party or by the economic and social community in which both parties operate, replace legal sanctions. These sanctions sometimes arise within a private order functioning spontaneously, as when ongoing contractual relationships prevail between the parties, or when a close-knit economic or social community exists in which information concerning breaches of contract flows freely. In other …

The Role Of Letters Of Credit In Payment Transactions, Ronald J. Mann

Michigan Law Review

Common justifications for the use of the letter of credit fail to explain its widespread use. The classic explanation claims that the letter of credit provides an effective assurance of payment from a financially responsible third party. In that story, the seller - a Taiwanese clothing manufacturer, for example - fears that the overseas buyer - Wal-Mart - will refuse to pay once the goods have been shipped. Cross-border transactions magnify the concern, because the difficulties of litigating in a distant forum will hinder the manufacturer's efforts to force the distant buyer to pay. The manufacturer-seller solves that problem by …

Letters Of Credit As Signals: Comments On Ronald Mann's 'The Role Of Letters Of Credit In Payment Transactions', Clayton P. Gillette

Michigan Law Review

Why would buyers and sellers transact with each other through a third party that charges a significant fee for its services and that typically is authorized to make payment notwithstanding noncompliance with the very prerequisites that it has been engaged to monitor? This is the puzzle that Ronald Mann's provocative and nuanced article purports to explain. Under the traditional story about the esoteric world of letters of credit, these transactions allow distant buyers and sellers to circumvent obstacles that would otherwise frustrate long-distance transactions. The traditional story explains that these credits induce buyers to approve payment prior to receiving conforming …

Informality As A Bilateral Assurance Mechanism: Comments On Ronald Mann's 'The Role Of Letters Of Credit In Payment Transactions', Avery Wiener Katz

Michigan Law Review

Ronald Mann's study of documentary defects in the presentation of commercial letters of credit is a valuable contribution to the commercial law literature in at least three respects. First, it offers a detailed and thorough empirical survey of an important though specialized aspect of commercial practice. Mann collected and coded a data sample of 500 randomly selected letter-of-credit transactions, personally evaluating each transaction to determine whether the documentary presentation by the beneficiary of the letter of credit (i.e., the seller) complied with the letter's formal terms. Then, for each case in which he found one or more documentary defects, Mann …

Commercial Norms And The Fine Art Of The Small Con: Comments On Daniel Keating's 'Exploring The Battle Of The Forms In Action', Douglas G. Baird

Michigan Law Review

The standard battle-of-the-forms story, often rehearsed in the classroom, is one in which merchants try to take advantage of their contracting opposites. A seller wants to escape the obligations that come with implied terms and seeks to disclaim them in its acknowledgment form. Its buyers do not realize they have been had until after the goods fail. Only then do they read the seller's form and discover that they are without remedy. Conspicuously absent in Dan Keating's fine article, however, is any evidence that supports this story. Some of his merchants talk about putting favorable terms in their forms, but …

The Sound Of One Form Battling: Comments On Daniel Keating's 'Exploring The Battle Of The Forms In Action', Richard Craswell

Michigan Law Review

Daniel Keating has provided a thoughtful and useful study of the way that businesses form contracts. In particular, he has given us a good deal of data concerning the problem known as the "battle of the forms." Commercial lawyers have, of course, been wrangling over this problem for decades, so it is no small accomplishment to be able to offer a useful contribution. In Part I below, I describe more precisely just what Keating's data does and does not illuminate. Parts II and III then focus on a particular contracting practice that Keating has identified: the practice of getting both …