Cleaning up Lake River

A casebook favorite for exploring the liquidated damage-penalty clause distinction is Lake River v. Carborundum in which a minimum quantity clause was found to be a penalty clause. In this paper I argue that the case was framed improperly. The contract was for the provision of a service—setting aside capacity—which was valuable to the buyer and costly to provide for the seller. The primary purpose of the minimum quantity clause was the pricing of that service. The case raises a significant damages issue: if there is an anticipatory repudiation of a contract that is take-or-pay or has a stipulated damage clause, should the promisee's ability to mitigate be taken into account when reckoning damages

Desperately Seeking Consideration: The Unfortunate Impact of U.C.C. Section 2-306 on Contract Interpretation

In Section 2-306, the Uniform Commercial Code\u27s drafters intended to assure that two classes of agreements would be enforceable, even though they might appear on their face to be illusory. Variable quantity (output and requirements) contracts were buttressed by reading in a good faith standard (§ 2-306(1)) and exclusive dealing contracts were made enforceable by reading in a best efforts standard (§ 2-306(2)). This was a big mistake. In this paper I show how these two fixes create problems for interpreting contracts. I use two well-known cases, Feld v. Henry S. Levy & Sons, Inc. and Wood v. Lucy, to illustrate the point

Desperately Seeking Consideration: The Unfortunate Impact of U.C.C. Section 2-306 on Contract Interpretation

In Section 2-306, the Uniform Commercial Code\u27s drafters intended to assure that two classes of agreements would be enforceable, even though they might appear on their face to be illusory. Variable quantity (output and requirements) contracts were buttressed by reading in a good faith standard (§ 2-306(1)) and exclusive dealing contracts were made enforceable by reading in a best efforts standard (§ 2-306(2)). This was a big mistake. In this paper I show how these two fixes create problems for interpreting contracts. I use two well-known cases, Feld v. Henry S. Levy & Sons, Inc. and Wood v. Lucy, to illustrate the point

Fishing and Selling

Consumers are a lot like fish, out there waiting to be hooked. Like most images, this one is a caricature of reality. The choice and search effort of consumers is suppressed in order to explore the implications of selling activity by manufacturers and retailers. In particular, the fishing analogy suggests that there is a tendency toward excessive selling activity if sellers do not take into account the effects of their activity on the costs of their rivals. However, sellers, like fishermen, have an incentive to arrange their affairs to mitigate the dissipation of rents. This argument is developed in Section I. The conclusion that sellers might overspend on selling activity appears inconsistent with the observation that increased advertising frequently results in lower consumer prices; however, it is not. The apparent paradox is resolved in Section II. In Section III, some speculations on the relationship between marketing and the destruction of social capital are put forth

A Crib Sheet for Contracts Profs

Over the last two decades I have been digging into the facts on a number of contracts cases, many of them featured in casebooks. I have collected the material in two books; one appeared in 2006 and the other is hot off the presses. This brief paper provides a roadmap for professors who might want more depth on the cases than is provided in the decisions or the casebooks. A recurring theme in the two books is that parties designing their contractual relationships must deal with change. This shows up in the manner in which they price the option to terminate (including the remedy for breach) and in the excuse cases. I include tables showing the incidence of my case analyses in three of the major casebooks. For example, 19 major cases in both the Scott-Kraus and Farnsworth, et al books are covered. As a bonus I include brief analyses of two cases not discussed in my books

Rethinking \u3ci\u3eJacob and Youngs v. Kent\u3c/i\u3e

Jacob and Youngs v. Kent has long been a staple in Contracts casebooks. This paper makes three contributions. First, it demonstrates that Cardozo broke no new ground. The law involving willfulness and substantial completion in building contracts had been around for half a century. The recognition of value of completion when the cost substantially exceeded the value was also well established. Second, it examines the record and concludes that Cardozo’s decision was justified. In particular it resolves two puzzles: (a) why did both the majority and dissent ignore the condition that the architect provide a certificate of completion; and (b) why didn’t Kent counterclaim for the full cost of completion? Finally, it considers how modern contract forms produced by the American Institute of Architects deal with the problem of deviations

The Free Rider Problem, Imperfect Pricing, and the Economics of Retailing Services

In GTE Sylvania, the Supreme Court acknowledged what a group of law and economics scholars had been arguing for the previous two decades: vertical restrictions that limit intrabrand competition can have a desirable effect on interbrand competition. The Court approvingly accepted the argument that the free rider problem might justify a manufacturer\u27s use of vertical restrictions. The argument, in its simplest form, is that if a retailer provides services such as advice and demonstrations to consumers, a consumer could make use of the service and then buy the product from a no- frills retailer. If the manufacturer cannot control the free riding proclivities of other retailers, no retailer would find it in his interest to provide the consumer services. Vertical restrictions shield a retailer from free riding and make provision of the services profitable