ContractsProf Blog

Requiescat in pace

One of the titans of modern American contract law, Allan Farnsworth, died today, according to a release from Columbia Law Dean David Schizer.  Details have not yet been released.

Farnsworth, the author of both a leading casebook and a leading treatise on contract law, was the Reporter for the Restatement Second of Contracts.  He joined the Columbia faculty in 1954 and taught there for fifty years.

Bad faith in Hollywood

Relations between Hollywood stars and their agents are sometimes those of mutual confidence, trust and respect.  And sometimes not.

Miguel Schor (Suffolk) passes along a story in today's New York Times (free registration required) about how actors who have suddenly landed big contracts just as suddenly discover how much more they can make by firing the agents who helped land them.

Wanna buy an ecosystem?

Biosphere 2, the $200 million project to make a miniature earth ecosystem that ended in failure in 2002, is for sale.  The Biosphere, which sits on a 3-acre site about 20 miles north of Tucson, is a 90-foot-tall structure that rests on a 500-ton stainless steel base.  It comes complete with its own rain forest, desert, savanna, marsh, and saltwater ocean.  Financed by billionaire Edward Bass, it took four years to build.  The basement that contains the pumps and other equipment covers two acres.

The Biosphere is on a 140-acre campus with some seventy buildings.  But no one seems to have the slightest idea what you could do with the thing.  One building consultant called it “a herd of white elephants.”

News in brief

Lecturers at the University of Michigan are complaining that the school is not honoring commitments it made to them in a contract last spring.

A politician who signs a formal contract promising not to raise taxes can't be liable for breach, says an Ontario court, because anyone who believes a politician is "naive."

Contract talks may resume shortly between National Hockey League clubs and the players who have been locked out since opening day.

India's Congruent Solutions has become the first company to ink a deal to provide overseas back-end support services to a U.S. retirement fund firm.

Humboldt County (Ca.)--"the southern gateway to the Pacific Northwest"--wants to become a digital media center, and has awarded a $20,000 contract to Humboldt State University to investigate the possibility.

GE awards a $5 billion "lifetime" contract for engine parts to Aviall, Inc.

Today in history--January 31

1752: Lawyer Gouverneur Morris, the man who is sometimes credited with the idea of "American" (as opposed to "New Yorker" or "Virginian" as a nationality, is born in what will later be known as the Morrisania neighborhood in the Bronx.

1849: The British Parliament repeals the Corn Laws, allowing imported grain free access into the Britain.  In response, brothers Joseph and Jonah Hadley begin plans for a new steam-powered mill at Gloucester to grind imported grain.

1851: Daniel Spangler Kaufman, a lawyer who served as the first Jewish congressional representative from Texas, dies at age 37.   He had been elected to the Congress of the Republic of Texas at only 25, in 1838, and went to Congress upon annexation.

1872: Pearl Zane Gray (later "Grey"), an Ohio dentist would would become one of the first millionaire American authors, is born in Zanesville, Ohio.

1929: The Soviet Union exiles Leon Trotsky.  Hardly any of your students are old enough to remember when the difference between a Stalinist and a Trotskyite was taken seriously.

1930: Minnesota Mining & Manufacturing Co. introduces a new product in a plaid package: its Scotch brand transparent tape.

1933: "A fiery horse with the speed of light, a cloud of dust" . . . and Silvercup Bread's The Lone Ranger makes its radio debut on WXYZ, Detroit, and the Mutual Broadcasting System.  His "faithful Indian companion Tonto" does not appear until the eleventh program.

1946: Yugoslavia, needing a new post-war constitution, decides that it can't do better than accept the highly successful Soviet model.

1961: Ham the Astrochimp becomes the first higher primate sent into outer space by the United States.

1968: The Republic of Nauru, the only country too small to have a capital, declares its independence from Australia.

1974: Film entrepreneur Samuel Goldwyn (born Schmuel Gelbfisz in Warsaw) dies in Los Angeles.  His last name took its final form after the Anglicized Samuel Goldfish entered a partnership with the Selwyn Brothers to form "Goldwyn."

1990: The first McDonalds restaurant opens in Moscow.  Russia, not Idaho.

1995: George Abbott, who was involved in nearly 200 Broadway shows and films over a career that ran from 1911 to 2002, dies at age 107.

Film clips

Jack:  Have you ever thought about MY RESPONSIBILITIES?

Wendy:  Jack, what are you talking about?

Jack:  Have ever had any SINGLE MOMENT'S THOUGHT about my responsibilities? TO MY EMPLOYERS?  Has it ever occured to you that I have agreed to look after the OVERLOOK until May the FIRST?  Does it MATTER TO YOU AT ALL that the OWNERS have put their COMPLETE CONFIDENCE and TRUST in me that I have signed an agreement, a CONTRACT, in which I have accepted that RESPONSIBILITY?

                                           The Shining (1980)

News in brief

Online gaming company Youbet.com is renewing a contract with star harness racing driver John Campbell (left), to act as the company's spokesman.

The two main Hollywood actors' unions have approved a new three-year contract, but it won't include their biggest objective, a larger slice of DVD sales.

The Iranian government is rewriting a contract to take majority ownership of a telecom venture away from the current owner, a Turkish firm.

The NBA's Seattle Sonics are trying to get star Ray Allen to take a smaller contract ($69 million v. $90 million) so they can pay more to other players.

Billionaire Oprah Winfrey is saying that she will retire when her current television contract expires in 2011.

There's a growing trend at U.S. universities is to give multi-year contracts to assistant coaches, who traditionally have had little job security.

Tinker Air Force Base is preparing to award a half-billion-dollar contract to overhaul operations at an Oklahoma City facility.

Today in history—January 30

1615: Disney heroine Pocahontas gives birth to her only child by her English husband, John Rolfe.  They name him Thomas.

1649: Charles I of England is beheaded.  He's not the only English monarch to be put to death, but the only one to be killed by Parliament.

1781: The U.S. Articles of Confederation are ratified by the 13th state, Maryland.

1820: Sailors on a British survey ship under the command of Edward Bransfield become the first Europeans to find the continent of Antarctica.

1835: Unemployed house painter Richard Lawrence fires two pistols point-blank at President Andrew Jackson, but both misfire, and Jackson proceeds to attack Lawrence with his cane.

1847: The little village of Yerba Buena changes its name to San Francisco, California.

1862: The Continental Iron Works of Brooklyn launches the U.S.S. Monitor, (left) the first ironclad warship built from scratch, less than four months after getting the order from the U.S. Navy.

1882: Franklin Delano Roosevelt (Columbia Law 1908) is born at Hyde Park, New York.

1928: Broadway impresario Harold Smith "Hal" Prince (Pajama Game, Damn Yankees, West Side Story, Fiddler on the Roof, Cabaret, Evita) is born at New York City.

1941: Richard Bruce Cheney, the only former member of the International Brotherhood of Electric Workers elected Vice President, is born at Lincoln,  Nebraska.

1958: Dallas's Love Field puts the first two-way "moving sidewalk" into operation.

1972: Pakistan withdraws from the British Commonwealth.

That time of year

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.

Film clips

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)

News in brief

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.

Bad risks

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.

Today in history--January 29

1737: Thomas Paine, who will give up a career as a corset maker to write political pamphlets, is born at Thetford, Norfolk.

1843: William McKinley is born in Niles, Ohio.  He will later attend Albany Law School, will be admitted to the bar in 1867, and will ultimately become the 25th President of the United States.

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.

1936: Baseball's Hall of Fame (founded with financial support from the Singer Co.), announces its first five inductees:  Ty Cobb, Babe Ruth, Honus Wagner (left), Christy Mathewson, and Walter Johnson.

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."

News in brief

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.

Copying products doesn't lead to unjust enrichment

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.

Law, institutions, and the shape of financial contracts

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.

Today in history—January 28

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.

It’s doubtful he talked to a lawyer about this one

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.

News in brief

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.

Matters to whom?

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 . . . .