Saturday, January 29, 2005
It's that time of year for U.S. contracts profs--when first year law students who have just got the first bad grades of their academic lives come fuming or wailing into our offices. If you gave them their highest grade, fine, but God help you if you gave them their lowest grade.
Over on the Volokh Conspiracy blog, Orin Kerr of GWU has some pretty good advice to students about the process. Some of the reader comments, though, show that the message sometimes doesn't take.
Salesman: Hello, Mr. and Mrs. Griffin. Now, I know you've been here all day, so if you'll just sign this contract without reading it, I'll take your blank check, and you won't not be not loving your time-share before you know it.
Family Guy (Fox 1999)
Ohio State is making the first of $2.5 million in deferred compensation payments it promised to former football coach Jim Tressel (left) just months after his team won the 2002 college football championship. The compensation packages is "unusual."
AugustaWestland, a British/Italian company, has landed a £3 billion contract to design and build the U.S. Navy's new helicopter, beating out the U.S. Sikorsky company.
America's Boeing gets a $7.2 billion contract to supply 60 of its new 7E7 jets to China.
The contract to manage concessions at Yellowstone Park is up for grabs, and only two companies are bidding.
The City of Pittsburgh is appealing a contract that the police officers union won in arbitration last month, saying that portions of the deal are illegal.
The city of Roslyn, Virginia, will apparently not see its water taps dry up, as the city council approves a new contract go provide water. The city suffered last year when it saw its water diverted to agricultural uses and it had to seek out new sources.
Westmoreland County (Pa.) officials have signed an "emergency" contract to provide air conditioning for seven rooms in the county courthouse where computer equipment is housed. The County was losing warranty protection for its electronic equipment because temperatures in the rooms were reaching 115 degrees.
Contracts play a big role in managing risk. But risk management is something that a lot of companies are not good at. A new article from McKinsey (free registration required) finds that about half the financial problems in American companies come from poor risk management. The abstract:
Risk is a fact of business life, but many companies fail to manage it well. McKinsey looked at 200 leading financial-services companies and found 150 cases of significant financial distress between 1997 and 2002. In about half of them, poorly handled risk played a significant role. Unless companies improve their risk management, they expose themselves to unexpected and sometimes severe financial losses. On the other hand, they might be tempted to avoid risk as much as possible to protect themselves and the price of their shares—another costly mistake, since risk ultimately creates shareholder value.
1737: Thomas Paine, who will give up a career as a corset maker to write political pamphlets, is born at Thetford, Norfolk.
1859: American clock entrepreneur Seth Thomas dies at age 73. He had founded his first clock factory at Plymouth Hollow, Connecticut, in 1812.
1861: Kansas is admitted to the Union as the 34th state.
1886: The first gasoline-powered automobile is patented by German Karl Benz.
1900: Baseball's American League is organized in Philadelphia, with eight founding teams: Baltimore Orioles (now New York Yankees); Boston Americans (now Red Sox); Chicago White Sox; Cleveland Blues (now Indians); Detroit Tigers; Milwaukee Brewers (now Baltimore Orioles); Philadelphia Athletics (now in Oakland); and Washington Senators (now Minnesota Twins).
1901: Allen Balcom Du Mont, the television millionaire, is born in Brooklyn. He will go on to invent the first practical cathode ray tube, will found (in 1939) the first company for manufacturing television receivers, and finally the old Du Mont television network, which will later become Metromedia.
1924: Carl R. Taylor of Cleveland receives a patent for "machine for forming thin, freshly baked wafers while still hot into cone shaped containers" for ice-cream.
1959: The Walt Disney Co. releases the last of its fairy tale animated films, Sleeping Beauty.
1963: The most quoted poet in law school applicants' "personal statements," Robert ("The Road Not Taken") Frost, dies at age 88.
1999: "Exotic dancer" Lili St. Cyr (born Willis Marie Van Schaack), dies at age 80. "Sex is currency," she liked to say. "What's the use of being beautiful if you can't profit from it?"
2004: Gas from decomposition causes a 50-ton beached sperm whale to explode in Tainan, Taiwan. A spattered bystander says, "The smell is really awful."
Friday, January 28, 2005
Proctor and Gamble announces the largest acquisition in his history, a purchase of the Gillette Company for $57 billion, or about 18 percent above the current market price.
Eighteen year old twins Mary-Kate and Ashley Olsen have agreed to a deal to buy out their lawyer and promoter, the biggest minority shareholder in their billion-dollar Dualstar LLC empire.
United Airlines reject a proposed contract that would require a five percent pay cut.
The Pentagon spent about $230.7 billion on its prime contracts in 2004, an increase of about 10 percent over 2003. Maryland’s Lockheed Martin was again the top recipient.
Canada’s SNC-Lavalin group gets a $750 million contract to build a water-treatment plant in Algeria.
A New York judge says that the “marriage contract” favors women, not men.
The fate of a couple of hundred greyhound racing dogs may hinge on a breach of contract action brought by Oregon dog owners against local track that wants to close.
AK Steel Corp. reports higher profits on strong demand after convincing 90 percent of its long-term buyers to pay higher steel prices this year.
Making and marketing shoes very similar to those of another company does not lead to “unjust enrichment,” according to an Israeli Supreme Court decision noted in a new bulletin by Avi Ordo of S. Horowitz & Co. (Free registration required.)
The Israeli court held, says Ordo, that unjust enrichment requires “(i) enrichment on the part of the defendant; (ii) that the enrichment of the defendant emanates from the plaintiff; and (iii) that the enrichment of the defendant is unlawful.” Since copying someone else’s product is not, absent some kind of intellectual property infringement claim, unlawful, the plaintiff was out of luck.
It’s intuitive to most of us that the law and legal institutions play a role in shaping the form of contracts. But how, and how much, has been much more talked about than studied.
Into the breach comes a new paper from the National Bureau of Economic Research. Finance professor Philip Strahan, in How Law and Institutions Shape Financial Contracts: The Case of Bank Loans takes a look that sounds very interesting:
We examine empirically how legal origin, creditor rights, property rights, legal formalism, and financial development affect the design of price and non-price terms of bank loans in almost 60 countries. Our results support the law and finance view that private contracts reflect differences in legal protection of creditors and the enforcement of contracts. Loans made to borrowers in countries where creditors can seize collateral in case of default are more likely to be secured, have longer maturity, and have lower interest rates. We also find evidence, however, that “Coasian” bargaining can partially offset weak legal or institutional arrangements. For example, lenders mitigate risks associated with weak property rights and government corruption by securing loans with collateral and shortening maturity. Our results also suggest that the choice of loan ownership structure affects loan contract terms.
814: Charles the Great of France, who welded Western Christendom into a Holy Roman Empire and laid the foundations for modern Europe, dies at age 66.
1521: The Diet of Worms convenes the session that will result in the proscription of Martin Luther, a proscription that the Emperor will never enforce.
1547: Edward VI, son of Henry VIII, becomes King of England. He is the first English king since the Conquest whose life and reign never suffer from exile, deposition, or serious civil war. Of course, he will die pretty young.
1621: Lawyer Camillo Borghese, who had been elected as Pope Paul V in 1605, dies at Rome.
1788: The first British penal colony in Australia is founded. It is popularly known as “Botany Bay” although it is actually not at Botany Bay, but at nearby Sydney Cove.
1822: Alexander Mackenzie is born at Logierait near Dunkeld, Scotland. After a career as a stonemason, building contractor, newspaper editor, and militia officer, he will become Canada’s second prime minister and (in 1875) the creator of its Supreme Court.
1855: The privately owned Panama Railway, the world’s first (and shortest) “transcontinental railway” sends the first train from the Atlantic to the Pacific.
1878: The Yale News becomes the nation’s first college newspaper.
1902: Wealthy steel entrepreneur Andrew Carnegie creates the Carnegie Institution of Washington with an initial $10 million bequest.
1912: The Belgian libertarian economist Gustave de Molinari dies at Adinkerque. He fought for free trade, free speech, free association (including voluntary trade unions), and against slavery, colonialism, mercantilism, protectionism, imperialism, socialism, and government control of education.
1916: President Wilson appoints Louis Dembitz Brandeis is to the United States Supreme Court. “Experience should teach us,” Brandeis would write, “to be most on our guard to protect liberty when the government's purposes are beneficent.”
1938: Downhill skiing in America soars as the first tow rope is introduced in the United States. Previously, the sport’s popularity had been hindered by the necessity of walking back up the mountain.
1986: The U.S. space shuttle Challenger explodes on live television, killing the seven-person crew.
1998: Ford Motor Co. announces that it is buying Swedish carmaker Volvo for about $6.5 billion.
Thursday, January 27, 2005
The latest news from the murder trial of Robert (Baretta) Blake revolves around a bizarre "custody contract" he signed with the alleged victim, Bonny Lee Blakley.
Blake apparently had attempted to pay off Blakley to gain custody of their daughter Rosie, offering $250,000. Blakley refused, and demanded marriage. The two agreed to a custody clause that provided that Blake would get custody if Blakley failed to show up for their marriage.
That provision is obviously dubious enough, but Blake then apparently tried to cause Blakley to miss the wedding by having her picked up for parole violations and drug possession. She apparently managed to make it, though.
The City of San Franciso apparently won’t see a dime of the $2 million it expected for selling an airport management contract.
Nova Scotia is mulling over the question whether to un-privatize management of a sailboat that is a symbol of the province.
A 22-year-old who left Cuba on a raft two years ago signs a contract with baseball's the Seattle Mariners.
A Medgar Evers College study says that women- and minority-owned businesses get only about 12 percent of New York City’s total contract dollars.
The New York day care workers union agrees to a tentative 5-year contract giving workers annual raises of 2.8 percent a year and a $1,000 cash bonus.
A Canadian company that lost a bid for a $400 million health care services contract is suing the winner for $100 million.
An audit says that Kansas City’s award of the construction management contract for its $250 million downtown arena was flawed, but not actually biased.
A Shreveport (La.) jury has concluded that the city did not breach its stadium construction contract with Whittaker Construction (a dispute reported here previously) but owes $764,000 for unjust enrichment.
England’s Chelsea football club signs a 10-year, £100 million sponsorship deal with Adidas—paying £24.5million to Umbro to get out of its existing deal.
A Michigan judge denies the city of Muskegon’s motion to dismiss Ted Nugent’s contract claim that arises out of a canceled concert.
Today’s award for the biggest waste of postage on a piece of law school literature sent to a Texas law professor (and it was a tough field) goes to Brooklyn Law School, for a postcard announcing its upcoming conference Albany Matters: The Impact of Legislative Gridlock. To be honest, Albany doesn't seem to matter as much out here . . . .
The UNCITRAL Working Group on Electronic Commerce is holding a teleconference next Wednesday (February 2), to discuss its proposed new Convention on the Use of Electronic Communications in International Contracts. The group is looking for input. Click on the links for details and the invitation.
It’s intuitive to most of us that the law and legal institutions play a role in shaping the form of contracts. But how, and how much, has been much more talked about than studied.
Into the breach comes a new paper from the National Bureau of Economic Research. In How Law and Institutions Shape Financial Contracts: The Case of Bank Loans, Philip Strahan takes a look that sounds interesting:
We examine empirically how legal origin, creditor rights, property rights, legal formalism, and financial development affect the design of price and non-price terms of bank loans in almost 60 countries. Our results support the law and finance view that private contracts reflect differences in legal protection of creditors and the enforcement of contracts. Loans made to borrowers in countries where creditors can seize collateral in case of default are more likely to be secured, have longer maturity, and have lower interest rates. We also find evidence, however, that "Coasian" bargaining can partially offset weak legal or institutional arrangements. For example, lenders mitigate risks associated with weak property rights and government corruption by securing loans with collateral and shortening maturity. Our results also suggest that the choice of loan ownership structure affects loan contract terms.
98: The first of the "five good emperors" of Rome, Marcus Cocceius Nerva, dies of natural causes. His is succeeded by his adopted son, Trajan.
1606: The trial of Guy Fawkes and the disenfranchised Catholics who were charged with plotting to blow up Parliament and King James I in the Gunpowder Plot begins. They are executed four days later.
1756: Wolfgang Amadeus Mozart is born at Salzburg. Contrary to popular belief, he did not die a penniless unknown, but will enjoy a well-paid court position and receive many lucrative commissions. He'll just spend too much.
1785: The Georgia General Assembly incorporates the University of Georgia as the first state-chartered institution of higher learning in the U.S. It is endowed with 40,000 acres of land.
1801: The United States Senate confirms John Marshall as Chief Justice of the U.S. Supreme Court.
1861: "America’s greatest bridge builder," Ralph Modjeski, is born at Bochnia, near Krakow, Poland. The Ben Franklin Bridge in Philadelphia is considered his masterpiece, although he also built bridges across the Mississippi, San Francisco Bay, and between the U.S. and Canada.
1870: The first college sorority, Kappa Alpha Theta, is formed at DePauw University. It is called a "fraternity for women" at first because the word "sorority" has not yet been developed.
1872: Billings Learned Hand is born in Albany, New York. Today's question: Would he have become as famous if he’d used his first name?
1880: Thomas Edison receives the patent for his newfangled incandescent lamp.
1888: One of the nation’s premier direct-marketing entities, the National Geographic Society, is founded in Washington, D.C.
1948: Home voice recording becomes practical for the first time, as Wire Recording Corp. of America introduces the first wire recorder. Price: $149.50, or about $1,100 in 2003 dollars.
1950: Charles Pfizer & Co. comes up with the first product developed by its own researchers: the antibiotic terramyacin. Pfizer's oddball belief is that useful organisms can be found in soil; his folks find this one in some Indiana dirt.
1964: E.I. du Pont de Nemours & Co. introduces one of the all-time great business flops: Corfam. The porous plastic leather substitute for shoes will be made and marketed for seven years before DuPont gives up, having lost $100 million.
1998: On the NBC Today show, First Lady Hillary Clinton says that her husband’s problems are part of a "vast right-wing conspiracy."
Wednesday, January 26, 2005
If so, ContractsProf is looking for bloggers. The only qualifications are (1) interest in stuff related to contracts, and (2) willingness to invest a couple of hours a week. Junior faculty are particularly encouraged to get involved, as are those who teach outside the U.S. Our goal is to have a web site that reflects a broad range of interests and viewpoints. For the technologically impaired—like the author of this post, who doesn't know what "WiFi" is and can’t even use PowerPoint—you should know that the software takes no more than five minutes to master and that blogging can be done from any place with access to the Internet.
So get involved! If interested, send an e-mail to Frank Snyder. The first 25 persons who respond will get a free drink at the summer Section conference in Montreal.
1340: A legal squabble that has already led to war escalates, as King Edward III of England has himself declared King of France. Under English law his mother Isabella would have been the heir of the dead King Philip V, but under the Salic law—invoked by French nobles—the French crown cannot pass through a female. It will take a hundred years of war to resolve the dispute.
1699: The end of Islamic expansion into Europe is signaled by the Treat of Karlowitz, the first in which the Ottoman Empire is forced to give back some of its European conquests, and the first in which the Christian powers (Austria, Poland, Venice, and Russia) are able to deal on terms of equality with the Turks.
1763: One of the very few lawyers’ sons to become a king, Jean Baptiste Bernadotte (left) is born at Pau, France. While serving as one of Napoleon’s top marshals, he is, although a commoner, unexpectedly elected by the Swedes and Norwegians to become the heir to their throne. Taking the name of his adopted father, he will succeed as Charles XIV.
1802: The U.S. Congress votes to establish a Capitol library; it becomes known as the Library of Congress.
1837: Michigan enters the Union as the 26th state.
1841: The United Kingdom formally occupies Hong Kong, which has been ceded to the British by China.
1886: Lawyer David Rice Atchison dies at Plattsburg, Missouri. As president pro tem of the Senate, some claim he was technically President of the United States for one day on March 4, 1849, between the administrations of James K. Polk and Zachary Taylor. He spent the day in bed, recovering from a hangover, and later said that his "presidency" was the "most honest administration this country ever had."
1905: The Callinan Diamond, the largest rough gem-quality diamond ever discovered (at 3,106 carats, or 1.4 pounds), is found at the Premier Mine near Pretoria, South Africa.
1921: Akio Morita (left) is born in Nagoya, Japan, to a family of sake brewers. At age 25, he will in 1946 co-found Tokyo Tsushin Kogyo K.K. in a bombed-out department store, with $375 in start-up capital. Its first product will be a rice boiler. It will later change its name to Sony.
1934: The Apollo Theater in Harlem opens. Its famous amateur nights will launch the careers of such stars as Ella Fitzgerald, James Brown, and Michael Jackson.
1962: The U.S. National Aeronautics and Space Administration launches the Ranger 3 moon probe. It misses the moon, though, by 22,000 miles.
1962: Charles "Lucky" Luciano, the Sicilian-born mobster who made the mob an organized "business" by dividing territories and creating cooperation among various families, dies of a heart attack in Naples, Italy.
1983: Lotus Software releases a new "spreadsheet" program called "Lotus 1-2-3" that will help make the new personal computer a must-have for financial users.
1998: President Bill Clinton goes on national television to claim, "I did not have sexual relations with that woman, Miss Lewinsky."
1998: Two former high-tech darlings turned computer dinosaurs try to see if cross-breeding will help them ensure their survival, as Compaq buys Digital Equipment Corp. Compaq itself is later subsumed into Hewlett-Packard.
Rolling Stone magazine has reversed its field and says it will, too, honor its contract to run a half-page ad (left) promoting a new Bible from Zondervan Publishing. The magazine had previously refused to accept he ad, saying it had an "unwritten policy" that it did not accept "religious" advertising.
Fiji’s government sacks its finance head one year into his five-year contract for refusing to deliver a plan detailing what the agency is supposed to do.
Iowa's secretary of state issues $4.1 million contract to revamp the state's voter registration system.
The Charles Stark Draper Lab in Cambridge, Massachusetts, wins a $62 million cost-plus-incentive-fee contract for upgrades to the Trident II missile guidance system.
A would-be real estate developer who lost his purchase option on property because a business associate failed to keep its promise to make the required option payment sees his jury verdict affirmed, but will have to face a retrial on his $10 million jury award.
In a reverse outsourcing move, Dallas's Texas Instruments wins a contract to provide processing chips to South Korea’s Samsung Electronics for four new camera phones. TI makes about half the chips used in the world's cell phones.
The pricing and payment structure of a contract is relevant to determining the agreement of the parties, says Judge Richard Posner in a new decision from the Seventh Circuit, applying Illinois law.
A software development agreement calling for a large "base" payment with much smaller fees for each subsequent "line of business" application supports the claim that the developer committed itself to delivering more than one application, even though the contract named only one. The text of the opinion is here.
The difficulties that arise when agents who negotiate contracts have different interests than the principals they represent is a staple of agency and corporate law. The issue is particularly acute where the agent has more knowledge relating to the transaction than the principal—as is often the case with professional advisers.
A new paper from the National Bureau of Economic Research, Market Distortions when Agents are Better Informed: The Value of Information in Real Estate Transactions, by Steven D. Levitt and Chad Syverson demonstrates the effect in an ingenious way. Here’s the abstract:
Agents are often better informed than the clients who hire them and may exploit this informational advantage. Real-estate agents, who know much more about the housing market than the typical homeowner, are one example. Because real estate agents receive only a small share of the incremental profit when a house sells for a higher value, there is an incentive for them to convince their clients to sell their houses too cheaply and too quickly. We test these predictions by comparing home sales in which real estate agents are hired by others to sell a home to instances in which a real estate agent sells his or her own home. In the former case, the agent has distorted incentives; in the latter case, the agent wants to pursue the first-best. Consistent with the theory, we find homes owned by real estate agents sell for about 3.7 percent more than other houses and stay on the market about 9.5 days longer, even after controlling for a wide range of housing characteristics. Situations in which the agent's informational advantage is larger lead to even greater distortions.