Law and Economics Commons^™

Contract, Promise, And The Right Of Redress, Andrew S. Gold

William & Mary Business Law Review

This Essay reviews Nathan Oman’s recent book, The Dignity of Commerce. The book is compelling, and it makes an important and original contribution to contract theory—a contribution that insightfully shows how markets matter. Yet, in the course of developing a market-centered justification for contract law, The Dignity of Commerce also downplays the significance of consent and promissory morality. In both cases, the book’s argument is problematic, but this Essay will address questions of promissory morality. Oman contends that promise-based accounts struggle with contract law’s bilateralism and with its private standing doctrine. Yet, promissory morality is a very good fit …

A Pragmatist’S View Of Promissory Law With A Focus On Consent And Reliance, Robert A. Hillman

William & Mary Business Law Review

This Article discusses Professor Nate Oman’s excellent new book, The Dignity of Commerce, which makes an impressive case for how markets can produce “desirable” outcomes for society. In addition to a comprehensive account of what he calls “virtues” of markets, such as their tendency to produce cooperation, trust, and wealth, the book is full of useful and persuasive supporting information and discussions.

Oman is not only a fan of markets, but he asserts that markets are the “center” of contract theory, and provide its normative foundation. Elaborating, Oman concludes that “contract law exists primarily to support markets” and that …

Markets And Morals: The Limits Of Doux Commerce, Mark L. Movsesian

William & Mary Business Law Review

In this Essay on Professor Oman’s beautifully written and meticulously researched book, The Dignity of Commerce, I do three things. First, I describe what I take to be the central message of the book, namely, that markets promote liberal values of tolerance, pluralism, and cooperation among rival, even hostile groups. Second, I show how Oman’s argument draws from a line of political and economic thought that dates to the Enlightenment, the so-called doux commerce thesis of thinkers like Montesquieu and Adam Smith. Finally, I discuss what I consider the most penetrating criticism of that thesis, Edmund Burke’s critique from …

The Price Of Law: The Case Of The Eurozone's Collective Action Clauses, Elena Carletti, Paolo Colla, Mitu Gulati, Steven Ongena

Faculty Scholarship

Do markets value contract protections? And does the quality of a legal system affect such valuations? To answer these questions we exploit a unique experiment whereby, after January 1, 2013, newly issued sovereign bonds of Eurozone countries under domestic law had to include Collective Action Clauses (CACs) specifying the minimum vote needed to modify payment terms. We find that CAC bonds trade at lower yields than otherwise similar no-CAC bonds; and that the quality of the legal system matters for this differential. Hence, markets appear to see CACs as providing protection against the legal risk embedded in domestic-law sovereign bonds.

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 …

Resolving Self-Driving Car Patent Conflicts: Arbitration In Waymo V. Uber And Future Autonomous Vehicle Patent Disputes, Ilya Gorelik

Cardozo Journal of Conflict Resolution

Waymo and Uber should have entered into a mutually agreed upon arbitration agreement to resolve their patent claims, and future conflicting self-driving car developers should consider doing the same. Uber was already willing to enter arbitration, and while Waymo resisted being forced into arbitration in the past, it would have the opportunity to influence the terms of the arrangement. Arbitration would benefit both Waymo and future patent holders, as well as Uber and future parties accused of patent infringement, as it would provide a cheaper alternative to litigating those claims while also keeping the procedure more confidential, providing Waymo a …

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 …

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?

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 …

Does Contract Law Need Morality?, Kimberly D. Krawiec, Wenhao Liu

Faculty Scholarship

In The Dignity of Commerce, Nathan Oman sets out an ambitious market theory of contract, which he argues is a superior normative foundation for contract law than either the moralist or economic justifications that currently dominate contract theory. In doing so, he sets out a robust defense of commerce and the market-place as contributing to human flourishing that is a refreshing and welcome contribution in an era of market alarmism. But the mar-ket theory ultimately falls short as either a normative or prescriptive theory of contract. The extent to which law, public policy, and the-ory should account for values …

The Evolution Of Entrepreneurial Finance: A New Typology, J. Brad Bernthal

Publications

There has been an explosion in new types of startup finance instruments. Whereas twenty years ago preferred stock dominated the field, startup companies and investors now use at least eight different instruments—six of which have only become widely used in the last decade. Legal scholars have yet to reflect upon the proliferation of instrument types in the aggregate. Notably missing is a way to organize instruments into a common framework that highlights their similarities and differences.

This Article makes four contributions. First, it catalogues the variety of startup investment forms. I describe novel instruments, such as revenue-based financing, which remain …

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 …

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 …

Sovereign Debt Restructuring And English Governing Law, Steven L. Schwarcz

Brooklyn Journal of Corporate, Financial & Commercial Law

The problem of sovereign indebtedness is becoming a worldwide crisis because nations, unlike individuals and corporations, lack access to bankruptcy laws to restructure unsustainable debt. Decades of international efforts to solve this problem through contracting and attempted treaty-making have failed to provide an adequate debt-restructuring framework. A significant amount of outstanding sovereign debt is governed, however, by English law. This Article argues that the U.K. Parliament has the extraordinary power to help solve the problem of unsustainable country debt by changing English law to facilitate fair and consensual debt restructuring. This Article also proposes modifications to English law that Parliament …

Do We Need A Global Commercial Code?, Michael Joachim Bonell

Dickinson Law Review (2017-Present)

The International Institute for the Unification of Private Law (UNIDROIT) first launched the idea of preparing a code of inter- national trade law. In 1970, the Secretariat of UNIDROIT submitted a note to the newly established United Nations Commission on International Trade Law (UNCITRAL) in justification of such an initiative and indicated some of the salient features of the project. What was proposed was a veritable code in the continental sense. The proposed code included two parts: part one dealing with the law of obligations generally, and part two relating to specific kinds of commercial transactions. However, the “Progressive codification …

Uniform Commercial Acts, Samuel Williston

Dickinson Law Review (2017-Present)

No abstract provided.

The Uniform Commercial Acts, J.P. Mckeehan

Dickinson Law Review (2017-Present)

The Commissioners on Uniform State Laws have had twenty- five annual conferences. The principal fruit of their labors is represented by the Negotiable Instruments Act, enacted in forty-seven jurisdictions; the Warehouse Receipts Act, enacted in thirty-one jurisdictions; the Sales Act, enacted in fourteen jurisdictions, the Bills of Lading Act enacted in thirteen jurisdictions, and the Stock Transfer Act, enacted in nine jurisdictions. They have also drafted acts relating to divorce, family desertion, probate of wills, marriage evasion, workmen’s compensation and partnership but these have not yet been enacted in more than a few states. All of the commercial acts are …

Data Collection And The Regulatory State, Hillary Green, James Cooper, Ahmed Ghappour, Felix Wu

Articles

The following remarks were given on January 27, 2017 during the Connecticut Law Review's symposium, "Privacy, Security & Power: The State of Digital Surveillance."

What Is It Like To Be A Beetle? The Timelessness Problem In Gilson’S Value Creation Thesis, Jeffrey M. Lipshaw

Suffolk University Law School Faculty Works

This is a contribution to the 2014 mini-symposium honoring the thirtieth anniversary of the publication of Ronald Gilson’s seminal article Value Creation by Business Lawyers. In it, he coined two powerful metaphors: that of lawyers as “transaction cost engineers” and as beetles studied by their entomologist brethren in the legal academy. As a former lawyer-beetle and a current academic-entomologist, I am quite sure that the transaction cost economics he used to explain value creation missed something important about the subjective and real world experience of being a lawyer-beetle. In this essay, I (a) summarize two different but significantly related critiques …

The Deformation Of Contract In The Information Society, Margaret Jane Radin

Law & Economics Working Papers

The HLA Hart Memorial Lecture delivered at Oxford on May 24, 2016. The Lecture considers how the advent and growth of the information society is posing challenges for the traditional theories of contract, and for the duties of the State with regard to contractual ordering. In particular, the Lecture considers the lack of ‘fit’ between certain prevalent uses of contract and the underlying justification for contract enforcement.

Who Needs Contracts? Generalized Exchange Within Investment Accelerators, Brad Bernthal

Marquette Law Review

This Article investigates why an expert volunteers on behalf of startups that participate in a novel type of small venture capital ("VC") fund known as a mentor-driven investment accelerator ("MDIA"). A MDIA organizes a pool of seasoned individuals - called "mentors" - to help new companies. An obvious organizational strategy would be to contract with mentors. Mentors instead voluntarily assist. Legal studies of norm-based exchanges do not explain what this Article calls the "mentorship conundrum" - i.e., the puzzling motivation of a mentor to volunteer within otherwise for-profit environments. This Article is the first to bridge the insights of generalized …

Organ Entrepreneurs, Kieran Healy, Kimberly D. Krawiec

Faculty Scholarship

The supply of human organs for transplantation might seem an unlikely place to begin thinking about entrepreneurship. After all, there is no production market for human organs and, with the surprising exception of Iran, legal rules around the world make the sale of human organs for transplantation a criminal offense. Yet entrepreneurs have been present throughout the history of organ transplantation — a history of the active exploration, innovation, and management of a potentially very controversial exchange at the seemingly clear boundaries that separate giving from selling, life from death, and right from wrong.

This article explores the role of …

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.

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 …

Variation In Boilerplate: Rational Design Or Random Mutation?, Stephen J. Choi, Mitu Gulati, Robert E. Scott

Faculty Scholarship

Standard contract doctrine presumes that sophisticated parties choose their terminology carefully because they want courts or counterparts to understand what they intended. The implication of this “Rational Design” model of rational behavior is that courts should pay careful attention to the precise phrasing of contracts. Using a study of the sovereign bond market, we examine the Rational Design model as applied to standard-form contracting. In NML v. Argentina, federal courts in New York attached importance to the precise phrasing of the boilerplate contracts at issue. The industry promptly condemned the decision for a supposedly erroneous interpretation of a variant of …

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 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 …

Apple Pay, Bitcoin, And Consumers: The Abcs Of Future Public Payments Law, Mark Edwin Burge

Faculty Scholarship

As technology rolls out ongoing and competing streams of payments innovation, exemplified by Apple Pay (mobile payments) and Bitcoin (cryptocurrency), the law governing these payments appears hopelessly behind the curve. The patchwork of state, federal, and private legal rules seems more worthy of condemnation than emulation. This Article argues, however, that the legal and market developments of the last several decades in payment systems provide compelling evidence of the most realistic and socially beneficial future for payments law. The paradigm of a comprehensive public law regulatory scheme for payment systems, exemplified by Articles 3 and 4 of the Uniform Commercial …

The Convention On The Uniform Law Of International Bills Of Exchange And International Promissory Notes: A Comparison To The Uniform Commercial Code, Harold S. White

Georgia Journal of International & Comparative Law

No abstract provided.

The Standard Investment Agreement: Text And Comments, Philippe Kahn

Georgia Journal of International & Comparative Law

No abstract provided.