ContractsProf Blog

Maybe Crazy Eddie Just Didn't Understand Basic Economic Principles

The New York Times reported today on some recent scholarship entitled, On the Use of Low-Price Guarantees to Discourage Price-Cutting.  If the scholarship were by someone in the humanities, that title might not provide a very good sense of what the paper is about, but the three authors, Maria Arbatskaya (Emory), Mortin Hviid (East Anglia) and Greg Shaffer (Rochester) are all economists, so the title pretty much gives it all away.

One of the things that made the eponymous (though fictive) Eddie so crazy (and perhaps led to his bankruptcy) was his habit of vowing to meet or beat any price.  Economic theory tells us that the purpose of such "price-beating" promises is to discourage competitors from lowering their prices. If that is so, it makes sense for retailers to make such offers when their prices are high relative to those of their competitors, because doing so saves customers the "hassle costs" of going to another store but costs the retailer far less than an across-the-board cost reduction. However, price-beating guarantees make no sense if, for example, Crazy Eddie's prices are indeed insanely low. 

Arbatskaya et al. tested this hypothesis by looking at newspaper advertisements for tires.  Alas, the results indicate that retailers care not for economic theory.  Price-beating guarantees are often made by the lowest-priced seller.

[Jeremy Telman]

Will the Virtual World Yield Real Law Suits?

The BBC recently reported on a case in which a Chinese online gamer killed a friend by stabbing him in the chest with a real knife after learning that the friend had sold for real money a virtual sword that the accused had won in an online game and then loaned to the victim. 

In Virtual Worlds, Real Damages, Jason Archinaco speculates on the value of a virtual horse, Amercian Hero, "deactivated" by Virtual Sports, Inc. after setting a virtual world record for the distance of 1 1/4 miles.  Apparently, Virtual Sports thought it wasn't fair to the other virtual horses to have one really, really good one.  Virtual Sports also noted that "the owner is being compensated."

This suggests that the virtual world is already governed by real law and that disputes arising in the virtual world will be a source of employment for real lawyers, including contracts lawyers.  Woohoo!  Indeed, the Chinese stabbing could have been prevented if Chinese law recognized rights in virtual property. 

Props to my good friend, Rebecca Spang (Indiana University, Department of History).  Rebecca passed Jason Archinaco's article on to me after discovering it while working on the syllabus for her new course on the history of money. 

[Jeremy Telman]

You’re the First, Baby

Now that we’ve had a few months to think about whether a burrito is a sandwich, here comes another interesting interpretation issue, asking an even more tricky question – what is an “American baby”?  As reported here, toy store retailer Toys “R” Us ran a contest that would award a $25,000 scholarship to the first American baby born in 2007.

Yuki Lin was born at the stroke of midnight at New York Downtown Hospital,according to hospital officials. The Wayne, N.J.-based company had said the prize would go to the first American baby born in 2007.

Although promotional materials called for "all expectant New Year's mothers" to apply, Toys "R" Us spokeswoman Kathleen Waugh said eligibility rules required babies' mothers to be legal residents. Many sweepstakes have such requirements, Waugh said.

Apparently this is not the case for Yuki Lin’s parents, and the company was going to award the prize to another baby.  But, now, according to the story, Toys “R” Us has decided to err on the side of generosity and award three scholarships, including one to Yuki Lin. 

[Miriam Cherry]

Faux Wedding Ceremony Contracts

The wedding ceremony date is set.  Expensive arrangements have been made.  Guests have made their travel plans.  But, the negotiations over the pre-nuptial agreement are taking longer than expected.  What should you do?  Options include:

* Hurry up and conclude the pre-nuptial agreement negotiations before the ceremony (but the pesky lawyers keep getting in the way...)

* Reschedule the ceremony, but this may be expensive, annoying to the guests, and embarrassing

* Convert the pre-nuptial agreement into a post-nuptial agreement, but this means no pre-nup during the interim, and post-nups may not be as readily enforceable as pre-nups

* Convert the ceremony into a sham wedding ceremony, delay the actual marriage until the pre-nuptial agreement is done, and enter into a contract between the non-spouses to confirm that the wedding isn't legal until some later date.

Among the detritus from the Britney Spears/Kevin Federline divorce, we have confirmed that they chose the latter option, entering into an Agreement re September 18, 2004 Wedding Ceremony governing the participation in a "faux wedding ceremony."

I wonder about the enforceability of such agreements.  This reminds me of contract provisions that disclaim the formation of a partnership or an employment agreement.  The parties can say what they want, but courts and third parties aren't bound by this private determination; public policy may impose a partnership or employment relationship despite the contract clause.  So if a third party--such as creditors or the taxman--were to assert that the signatories were married based on the faux ceremony, I doubt the agreement would offer much protection.

As a result, I wonder about the professional responsibilities of a person drafting a contract for a faux wedding ceremony.  (Let's ignore the malpractice risks).  Here, the lawyers helped the principals perpetrate a sham to anyone who was not clued in to the fauxness of the event.  According to the MRPC, lawyers can't help their clients break the law or lie, and they may have to whistleblow on the client if they know the clients plan to lie to commit a crime or fraud.  Depending on who said what to whom, the sham may not have met any of these standards, but at the same time, there is something uncomfortable about lawyers supporting client artifices.  I'd like to think that most lawyers would choose not to use their talents to do so.

[Eric Goldman]

Limerick of the Week

Okay, I'll be honest.  I've posted all of my contracts Limericks that I think are ready for prime time.  And, at Valparaiso, Spring semester is the off-season for contracts, so I'm mostly working on developing my beer belly at this point.  So, this semester, I will be sharing works in progress in the hopes that some of you can suggest ways to improve these Limericks.  In addition, if any of you out there have a favorite case that I have not yet written about, I am willing to take requests.

Knapp, et al. start their book with a case call Burch v. Second Judicial District.  It introduces students to a number of topics to which we return later in the course, but the posture of the case is a bit odd, as its a mandamus case, which is a confusing way to being the first semester of law school.  Then again, at least it's not Pennoyer.

If you don't think to file for mandamus,
Your client may shout, "Ignoramus!"
Now after appeal,
The Burches can squeal
"We may not be rich but we're famous!"

Well, they get to squeal only if they realize that their case will be the first in a first-year contracts casebook. Ahem.

[Jeremy Telman}