ContractsProf Blog

Contracts Issues in the Canadian Television Series "Slings and Arrows"

Here is a wholly inadequate trailer for the brilliant Canadian series, "Slings and Arrows."

I cannot begin to tell you how tremendous this series is. Let me put it this way. Today is December 31st. If you are sitting there thinking that you have not made the most of this year; if you are thinking "Look how low I've slunk -- it's New Years Eve and I have nothing better to do than read the Contracts Prof Blog!" -- well this is your chance to make up for it. You can turn your entire year around by simply putting "Slings and Arrows on your Netflix queue. Or, if you are not a Netflix person, you can just watch the series on YouTube. Season I, Episode I can be found here. You have been reading this blog for a reason, and this is it.

Oh, I am obliged to say that there are contract issues in Season 3 (towards the end, and they're not really that important to the plot, but they give me a hook).

[Jeremy Telman]

Business Associations Limerick of the Week: Santa Fe Industries

Santa Fe Industries owned 95% of the stock of the Kirby Lumber Corp. This put Santa Fe over the relevant threshold under Delaware law and thus permitted Santa Fe to avail itself of Delaware's short-form merger statute. Santa Fe offered $125/share to Kirby's minority shareholders. Plaintiffs were Kirby shareholders who thought $125 was a bad deal and that their shares were really worth about five times as much. The only issue before the U.S. Supreme Court was whether plaintiffs could challenge the transaction as a form of securities fraud actionable under SEC Rule 10b-5. The Supreme Court held that it was not.

The Court found that state remedies for breach of fiduciary duty, coupled with the appraisal remedy for shareholders dissatisfied with the offering price in a short-form merger, are adequate. Plaintiffs had alleged only that Santa Fe had breached its fiduciary duties as a majority shareholder by offering an absurdly low price. But Santa Fe had disclosed its methodology for fixing $125 as the share price. Dissatisfied shareholders could pursue appraisal. In short, without allegations of misrepresentations, the Court found no basis for a 10b-5 claim.

Can this case be reconciled with the Court's endorsement of the SEC's misappropriation theory in the insider trading context? The answer to that question and more will have to await a later Limerick, but this Stephen Bainbridge article suggests that the answer is no.

Santa Fe Industries v. Green

Should the federal courts intervene
When a short-form merger's obscene?
No, state law governs here;
Let the state courts declare
What the shareholders take from the scheme.

[Jeremy Telman]

Contracts Limerick of the Week: Transatlantic Financing

You may think that the one-week drought in Limericks was a product of the winter holidays, and you might be right.  Or it might be an attempt to build up the tension before the following: my last Contracts Limerick!!!  Well, it my not be my last, but it's my last for now.  I'm not going to do the whole Brett Favre thing ('though 'tis the season).  I'm just saying I've run out.  Not to worry (or rejoice), I still have enough Business Associations Limericks to last another few months.

Judge Skelly Wright (pictured) has been featured in previous Contracts Limericks.  He is known as a friend of the underdog, so when one of the parties is the United States, you might expect Skelly Wright to find for the other party.  Not so in Transatlantic Financing Corporation v. United States, a case that plumbed the depths, sounding out the limits of the impracticability doctrine.  Transatlantic might have hoped for a safe harbor in Skelly Wright's court, but its progress was impeded; in fact, blockaded by a hostile force:  common law precedent. 

In October 1956, the U.S. contracted with Transatlantic for a shipment of wheat to be carried by the SS Christos from Galveston to Iran.  The parties assumed that the ship would take the most direct route, through the Suez Canal, but by the end of October, the Canal was in a war zone and Egypt blocked it off.  The SS Christos would have to circumnavigate Africa in order to get to Iran, which entailed an additional expense of nearly $45,000.  Transatlantic asked the U.S. to modify the contract, but the U.S. refused.  The SS Christos completed its journey and then Transatlantic sought recovery based on the doctrines of impracticability and quantum meruit. 

Skelly Wright noted that since Transatlantic had already been paid under the contract, it could not rely on impracticability, which would have permitted avoidance of the contract if it applied.  However, other courts faced with similar facts had already found that the closing of the Suez Canal does not render a shipping contract commercially impracticable.  Because the contract had been completed and paid for, Skelly Wright also viewed recovery in quantum meruit as inappropriate.

Transatlantic Financing Corp. v. United States

His passage through Suez foreclosed,
Plaintiff sailed 'round the Horn and supposed
He'd find some utility
In impracticability
But Skelly Wright found he gets hosed.

An inelegant finale, but there it is.

[Jeremy Telman]

Two Takes on High-Risk Borrowing ...

... one whimsical and seasonal; the other thoughtful and timely.

This, from Sunday's Las Vegas Review-Journal:

And, from NYU's Oren Bar-Gill, The Law, Economics and Psychology of Subprime Mortgage Contracts:

Over 4 million subprime loans were originated in 2006, bringing the total value of outstanding subprime loans over a trillion dollars. A few months later the subprime crisis began, with soaring foreclosure rates and hundreds of billions, perhaps trillions, of dollars in losses to borrowers, lenders, neighborhoods and cities, not to mention broader effects on the US and world economy. In this Article, I focus on the subprime mortgage contract and its central design features. I argue that these contractual design features can be explained as a rational market response to the imperfect rationality of borrowers. Accordingly, for many subprime borrowers loan contracts were not welfare maximizing. And to the extent that the design of subprime mortgage contracts contributed to the subprime crisis, the welfare loss to borrowers, substantial in itself, is compounded by much broader social costs. Finally, I argue that a better understanding of the market failure that produced these inefficient contracts should inform the ongoing efforts to reform the regulations governing the subprime market.

[Keith A. Rowley]

Ho-Ho-Huh?

One of my former research assistants sent me this card two or three years ago.

Continue reading

Your Chance to Pre-Screen Two Coming Features

The forthcoming December 2008 issue of the New York University Law Review features not one, but two scintillating-looking articles of interest to contracts scholars and teachers.

In Efficient Breach Theory Through the Looking Glass, 83 NYU L. Rev. 1679 (2008), NYU's Barry Adler (left) offers his insights into a frequent topic of discussion at September's Fault in Contract Law symposium at the University of Chicago (the papers for which the Michigan Law Review will publish early next year).  Here's Adler's abstract:

A party in breach of contract cannot sue the victim of breach to recover what would have been the victim’s loss on the contract. The doctrinal rationale is simple: A violator should not benefit from his violation. This rationale does not, however, provide an economic justification for the rule. Indeed, efficient breach theory is founded on the proposition that a breach of contract need not be met with reproach. Yet the prospect of recovery by the party in breach—that is, the prospect of negative damages—has received scant attention in the contracts literature. Close analysis reveals potential costs to disallowance of negative damages, particularly where a party with private information about the benefits of termination also has an incentive to continue under the contract. These costs can arise both ex post, at the time of a performance-or-termination decision, and ex ante, in anticipation of that decision. Nevertheless, allowance of negative damages could impose its own costs, where background information would create an incentive to repudiate a contract before either party could gather more information, for example. Ex ante contractual provisions, such as liquidated-damages or specific-performance clauses, permit parties some latitude to balance the costs of disallowance and allowance of negative damages, albeit imperfectly. Common law limitations on the mitigation duty may be seen as a mechanism to approach this balance in the absence of an explicit contractual solution.

In Three Pictures of Contract: Duty, Power, and Compound Rule, 83 NYU L. Rev. 1726 (2008), Georgetown's Gregory Klass (right) tackles "a fundamental divide among theories of contract law between those that picture contract as a power and those that picture it as a duty."  Klass's abstract continues:

On the power conferring picture, contracting is a sort of legislative act in which persons determine what law will apply to their transaction. On the duty-imposing picture, contract law places duties on persons entering into agreements for consideration, whether they want them or not. Until now, very little attention has been paid to the problem of how to tell whether a given rule is power conferring or duty imposing—a question that should lie at the center of contract theory.

This Article argues that legal powers have two characteristic features. First, there is an expectation that actors will satisfy the rules with the purpose of achieving the associated legal consequences. Second, the legal rules are designed to facilitate such uses. A law might exhibit these features in either of two ways, which define two types of legal powers. Many laws that create legal powers employ conditions of legal validity, such as legal formalities, designed to guarantee the actor’s legal purpose.  The presence of such validity conditions is strong evidence that the law’s sole function is to create a legal power, and I suggest reserving the term “power conferring” for such laws. Other laws anticipate and enable their purposive use without conditioning an act’s legal consequences on the actor’s legal purpose. The structure of such laws suggests that they function both to create powers and to impose duties. I coin the term “compound rule” for laws that satisfy this description and argue that the contract law we have is a compound rule. The dual function of compound rules provides empirical support for pluralist justifications of contract law. An example of such a theory can be found in Joseph Raz’s comments on the relationship between contract law and voluntary obligations.

Having found the articles on-line, I look forward to reading them over the semester break and not having to wait for the print copy of the NYU Law Review to make its way to my campus mailbox.

[Keith A. Rowley]

Now in Print

Caleb J. Bartel, Professional Compensation in Bankruptcy: Using Contract Law Principles to Interpret Ambiguous Retention Orders, 9 Transactions 149 (2007).

M. H. Sam Jacobson, A Checklist for Drafting Good Contracts, 5 J. Ass'n Legal Writing Directors 79 (2008).

Deborah A. Schmedemann, Finding a Happy Medium: Teaching Contract Creation in the First Year, 5 J. Ass'n Legal Writing Directors 177 (2008).

Stephen L. Sepinuck & Tina L. Stark, The Big Deal About the Fine Print: Negotiating and Drafting Boilerplate, 61 Consumer Fin. L.Q. Rep. 848 (2007).

[Meredith R. Miller & Keith A. Rowley]

Business Associations Limerick of the Week: Basic Inc.

It is grading period, which leaves me with little time for posting.

Basic, Inc. v. Levinson does not have Limerickworthy facts, but it is too important a case to ignore, as it gives Supreme Court approval to the fraud-on-the-market theory, without which security fraud class actions would almost never make it past the certification stage.

Basic, Inc. v. Levinson

Is a plaintiff class free to rely
On word of a merger denied?
Yes, there's a presumption
For those with the gumption
To fraud on the market decry.

[Jeremy Telman]

Dick Speidel Tribute at AALS Annual Meeting

From our friend Mike Kelly at the University of San Diego:

Northwestern University School of Law and the University of San Diego School of Law are hosting a reception honoring the career of Richard Speidel, who passed away this past semester. Dick was a major figure in contracts, commercial law, and international arbitration.

The reception will be held at the AALS Annual Meeting in San Diego on Friday, January 9, from 6:30 to 8:30 p.m. in the Warner Center Room, 4th floor, south tower of the San Diego Marriott Hotel & Marina, with a short program beginning at 7:00 p.m.  We will also videotape remarks from those who knew Dick or his work and will provide a copy to Dick's family.

Update: Professors Jim White (Michigan) and Bob Summers (Cornell), Dick's long-time collaborators, and Deans Kevin Cole (San Diego) and David Van Zandt (Northwestern) are confirmed speakers.

[Keith A. Rowley]

Terri Hatcher Is a Woman of the Highest Integrity

All Headline News reports that last year, cosmetics maker Hydroderm accused Terri Hatcher (pictured) of endorsing other products while under contract to endorse its anti-aging products exclusively.  One would have to wonder about a person who would have to endorse, according to the original accusations, 22 different anti-aging products.  Fortunately, it was all just one of those bizarre misunderstandings.  Hydroderm has now apologized to Ms. Hatcher and withdrawn its lawsuit, reported on in People Magazine here, in which it sought the return of $2.4 million paid to Ms. Hatcher as an endorsement fee.

Now, Hydroderm is making up with Hatcher, praising her as a "woman of the highest integrity."  That may well be true, but she'll always be Lois Lane to me.  Ahhh, Terri, in those days, even Lex Luthor armed with Kryptonite couldn't make you age!

[Jeremy Telman]

Contracts Limerick of the Week: Clark v. West

William Clark had a great reputation as a prolific legal scholar.  In 1899, he was hired to teach law at Washington & Lee University.  According to Washington & Lee's website, he was fired within weeks and demanded to know the reason for his dismissal.  The President of the university explained that the grounds for dismissal were that Clark was "addicted to drink beyond what would be proper in a college professor." 

West publications nonetheless hired Clark to write a multi-volume treatise.  A bizarre provision in the contract provided that Clark would be entitled to $2/page in any case but $6/page if he were to abstain from drinking so long as he was working on the project.  It is undisputed that Clark was unable to do so, but he did complete the treatise and there is no indication that West was in any way dissatisfied with Clark's work. 

West duly paid Clark $2/page upon the completion of the treatise and Clark sued for full payment. New York's Court of Appeals sided with Clark, ruling that his sobriety was a condition to his entitlement to full payment but that the condition had been waived.

Clark v. West

Was Clark due six dollars a page
For his work as a bibulous sage?
Yes, be West's own volition
It waived the condition
Of temperance for the man it engaged.

[Jeremy Telman]

Contracts Panel at AALS Annual Meeting

Please plan to attend the Contracts Section's program and business meeting at the AALS Annual Meeting in sunny San Diego. The topic for this year's panel is "Immutable Rules and Contract Law."

Chosen from among those who the planning committee invited to submit a proposal and those who submitted a proposal in response to a general call for papers I posted to this web site and sent to the AALS Contracts listserv in September, this year's presenters are Kenneth Ayotte (Northwestern), Robert P. Bartlett, III (Georgia), and Tom Joo (UC-Davis), who will be speaking about the following topics:

Kenneth Ayotte & Patrick Bolton (Columbia-Business), "Optimal Property Rights in Financial Contracting"

In this paper we propose a theory of optimal property rights in a financial contracting setting.  Following recent contributions in the property law literature, we emphasize the distinction between contractual rights, that are only enforceable against the parties themselves, and property rights, that are also enforceable against third parties outside the contract. Our analysis starts with the following question: which contractual agreements should the law allow parties to enforce as property rights? Our proposed answer to this question is shaped by the overall objective of minimizing due diligence (reading) costs and investment distortions that follow from the inability of third-party lenders to costlessly observe pre-existing rights in a borrower’s property. Borrowers cannot reduce these costs without the law’s help, due to an inability to commit to protecting third-parties from redistribution. We find that the law should take a more restrictive approach to enforcing rights against third-parties when these rights are i) more costly for third-parties to discover, ii) more likely to redistribute value from third-parties, and iii) less likely to increase efficiency. We find that these qualitative principles are often reflected in observed legal rules, including the enforceability of negative covenants; fraudulent conveyance; corporate veil-piercing; and limits on assignability. In this paper we propose a theory of optimal property rights in a financial contracting setting.

Robert P. Bartlett, III & Victoria Plaut (Georgia-Psychology), "Blind Consent? A Social Psychological Investigation of Non-Readership of Click-Through Agreements"

Across two studies we aimed to measure empirically the extent of non-readership of clickthrough agreements (CTAs), identify the dominant social representations that exist about CTAs, and experimentally manipulate these representations in order to decrease automatic non-reading behavior. In our initial questionnaire study (Study 1), as predicted, the vast majority of participants reported not reading CTAs and the most prevalent social representations of CTAs contributing to non-readership included: they are too long and time-consuming, they are all the same, they give one no choice but to agree, they are not important, the companies are reputable, and they are irrelevant. Manipulating these representations on a simulated music web site (Study 2) revealed an increase in readership. The greatest effect on comprehension of CTA terms and rates of rejection came from manipulating the length representation. These results demonstrate support for the influence of social representations on CTA readership, provide evidence against the common "limited cognition" perspective on non-readership, and suggest that presenting CTAs in a shorter, more readable format can increase CTA readership and comprehension as well as shopping of CTA terms.

Tom Joo, "The Immutable Role of the Court in Contract Law"

It is routinely stated that the defining aspect of contract law is that parties control their obligations.  But in fact the most fundamental, and immutable, rule of contract law points in the opposite direction: every "contractual" arrangement of the parties is potentially subject to broad judicial review.  The law empowers courts to supply critical aspects of incomplete contracts.  This power is commonly described as the passive facilitation of the parties' intent.  But "contract law" includes the potential that a court, in some extreme cases, will abrogate party intent by rewriting or refusing to enforce agreements to which parties did agree. Moreover, even run-of-the-mill "contract law" cases often turn on questions as to which which the contracting parties' intent cannot be discerned. In such cases, the fundamental "objective theory" of contract holds that subjective agreement of the parties is not necessary, as long as a court believes parties' actions should be "objectively" interpreted to manifest consent.

Analyzing the legitimacy of this broad court power lies in recognizing the implicit policy judgments courts apply. This is made difficult by the fact that these judgments tend to be cloaked in rhetoric that invokes notions of consent.  For example, the "objective theory" consistently uses the term "consent" even while conceding that subjective agreement is unnecessary.  Recognizing courts' implicit policy judgments then demands an explanation of whether courts are qualified to make them.  Conservative market economics offers a theoretical explanation for the importance of the parties in contract -- their purportedly unique ability to value entitlements and trade them in utility-enhancing ways.  A realistic modern theory of contract must recognize that parties do not control contracts and thus requires a theoretical explanation for judicial role.

My argument also suggests that the discourse about mandatory and default rules in contract may incorrectly framed.  It assumes there are two kinds of rules: those that the parties can agree to change, and those that they may not.  Starting from the normative assumption that parties should presumably be able to change rules, and the descriptive assumption that they can change most rules, it asks for descriptive and normative explanations of exceptions.  But as a descriptive matter, true "default rules" may not exist in contract law.  That is, because courts always have the power to review any agreement, even an agreement to opt out of court review, there is no way for parties to make a self-enforcing commitment to opt out.

The program begins Friday, January 9, 2009, at 8:30 am in Marina Salon G, South Tower/Level 3, San Diego Marriott Hotel & Marina, and will be followed by a brief business meeting.  We hope to see you there.

[Keith A. Rowley]

AALS Workshop on Transactional Law

You may want to mark your calendars for next June's AALS Workshop on Transactional Law, June 10-12, in scenic Long Beach, California.  If you go, keep your eyes open for flying buses and '67 Shelby GTs.  (Both scenes are set in or entering Long Beach; and yes, the dialogue in the second one is in Español.)  The workshop is part of the AALS Mid-Year Meeting.  Program details are not yet available on the AALS web site.  However, the November AALS News provides the following description, as well as a list of topic and speakers and registration information that you can access by clicking this link.

“Transactional law” refers to the various substantive legal rules that influence or constrain planning, negotiating, and document drafting in connection with business transactions, as well as the “law of the deal” (i.e., the negotiated contracts) produced by the parties to those transactions. Traditionally, the law school curriculum has emphasized litigation over transactional law. However, many modern lawyers serve corporate clients, and a significant percentage of lawyers engage in some form of transactional practice. Hence, law schools must place greater emphasis on training law students to be transactional lawyers, and should support law faculty engaged in scholarship focused on transactional law. To this end, in 1994, the AALS held a workshop on the transactional approach to law, which sparked experimentation and innovation in teaching and scholarship related to transactional law. Since that time, there have been significant developments in transactional law. This Workshop not only will take stock of those developments, but also will enable participants to gain some in-depth perspective regarding the relative benefits and drawbacks of those developments.

Law schools have attempted to respond to the demand for increased transactional training in a variety of ways, from integrating transactional law into traditional law school courses to developing stand alone “Deals” or “Business Planning” courses. A number of law schools have developed innovative programs in transactional law.  This Workshop will enable participants to discuss specific methods of teaching transactional skills with an eye towards ferreting out best practices. Should professors interested in teaching transactional law focus on substantive law, “transactional skills,” (i.e., planning, negotiating, and drafting), economic or other theories of business transactions, or all of the above? Should transactional skills be taught in separate courses or integrated into substantive courses?  If taught in separate courses, should such courses be part of the first-year curriculum, integrated throughout the three years, or focused on the upper-level curriculum?  How do you modify or supplement the traditional case method to teach students useful transactional skills?  The Workshop also will explore the challenges and benefits that arise for those who write or would like to write transactional scholarship.  And as initial matter, the Workshop will address how best to define “transactional scholarship” in a way that accurately captures the potential breadth and depth of transactional law, and how transactional scholarship differs from traditional legal scholarship.

The Workshop also will explore best practices for writing scholarship in this area, including methodologies for researching the legal, financial and practical effects of various corporate transactions. The Workshop will feature concurrent works-in-progress sessions, enabling participants to exchange ideas and insights regarding new scholarship related to transactional law.

One important goal of the Workshop is to bring together faculty from different doctrinal areas of law, including faculty who teach in the clinical setting.  Transactional law touches many substantive areas of law, and it is closely identified with bankruptcy, business associations, contracts, commercial law, intellectual property, labor and employment law, securities regulation, and taxation.  The Workshop will provide a unique opportunity for faculty members to make connections between their primary fields and transactional law, and thus should appeal to a broad spectrum of scholars and teachers.

[Keith A. Rowley]

Now in Print

Shmuel I. Becher, Assymetric Information in Consumer Contracts: The Challenge That Is Yet To Be Met, 45 Am. Bus. L.J. 723 (2008).

Aaron-Andrew P. Bruhl, The Unconscionability Game: Strategic Judging and the Evolution of Federal Arbitration Law, 83 N.Y.U. L. Rev. 1420 (2008).

Martin F. Koehler & Guo Yujun, The Acceptance of the Unified Sales Law (CISG) in Different Legal Systems: An International Comparison of Three Surveys on the Exclusion of the CISG's Application Conducted in the United States, Germany, and China, 20 Pace Int'l L. Rev. 45 (2008).

Anna L. Linne, Burden of Proof Under Article 35 CISG, 20 Pace Int'l L. Rev. 31 (2008).

Trevor Perea, Comment, Treibacher Industrie, A.G. v. Allegheny Technologies, inc: A Perspective on the lackluster Implementation of the CISG by American Courts, 20 Pace Int'l L. Rev. 191 (2008).

Lachmi Singh & Benjamin Leisinger, A Law for International Sales of Goods: A Reply to Michael Bridge, 20 Pace Int'l L. Rev. 161 (2008).

Hiroo Sono, Japan's Accession to the CISG: The Asia Factor, 20 Pace Int'l L. Rev. 105 (2008).

[Keith A. Rowley]

Alex Kuczynski Is Not the Poster-Mom for Surrogacy

My heart sank when I saw Alex Kuczynski's article, Her Body, My Baby, in the New York Times Magazine on her experience as the beneficiary of the services of a surrogate mother. I have a child because of the wonders of advanced reproductive technologies. Fortunately, my wife and I did not have to go the surrogacy route, and I doubt that we would have. Still, I fear that people reading articles like Kuczynski's will think (justifiably based on her article) that surrogacy is now the new option for rich people who want biological children without all the inconvenience of pregnancy.

This fear was concretized through this Thomas Frank opinion piece in yesterday's Wall Street Journal. Mr. Frank seems to think that Ms. Kuczynski, a fashion writer, evangelist for cosmetic surgery and wife of a hedge-fund billionaire, is too thick to realize that "reproduction for hire" is the product of her "billionaire-centric world."

Goodness! Thomas Frank is making me defend Alex Kuczynski!! What Frank misses is that Ms. Kuczynski went through "11 failed I.V.F. cycles and four failed pregnancies, stretched out over five years." I don't think anybody who has not experienced the rollercoaster ride that is assisted reproduction can appreciate the heartache encompassed within that sentence. Even someone as privileged as Kuczynski opted for surrogacy only after trying to avoid it through five years of what must have been devastating emotional turmoil. Contrary to Mr. Frank's assertion, it is not "the market" but absolute desperation that drives people into surrogacy contracts. I can see why that is lost on Mr. Frank, but that has more to do with Alex Kuczynski than it does with surrogacy.

Mr. Frank is right, however, that surrogacy has "been the subject of much philosophical and political dispute," and his article begins to set out the parameters of that dispute. Unfortunately, he forecloses serious consideration of the issues with rhetoric about women "putting their biological functions up for sale like so many Jimmy Choos."

Please. I recognize that a surrogacy contract, like any contract is designed to be a mutually beneficial transaction, and that it is different from other mutually beneficial transactions in that it does indeed involve the use of one woman's body for the benefit of another couple. That does indeed raise significant issues, but they are not issues that will be resolved through sloganeering or by treating all people who resort to surrogacy like the moral equivalents of Alex Kuczynski. The alternative to paying women to be surrogate mothers is not paying women to be surrogate mothers or not permitting infertile couples to have their own biological children. Rather than simply bashing people who enter into surrogacy contracts, let's talk about the implications of the options.

[Jeremy Telman]

Bratz v. Barbie: The Sequel

We reported earlier that Mattel won the first round of its legal battle with Bratz doll-maker MGA. Last week, Bloomberg news reported that Barbie was not satisfied to get the Bratz dolls in a headlock. She went for the kill. Now MGA is banned from marketing or distributing the Bratz dolls. MGA has stated that the ban on Bratz would be lethal for the company. Fortunately for MGA, the ban will not go into effect until after a February 11th hearing on the parties' post-trial motions. Moreover, a few of the Bratz dolls will be exempted from the ban. My seven-year-old daughter is relieved. What would the holidays be without Bratz? Actually, my daughter got her first Bratz doll when my sister, unaware that the Bratz have long been banned in our house, bought "Yasmin" for my daughter, because Yasmin is my sister's daughter's name and she thought it was cool that my daughter should have a doll named for her cousin.

"What's a Bratz doll?" my brother-in-law asked.
"They're like Barbies," my sister answered, "but they dress like prostitutes."

Yeah, thanks a lot. Fortunately, as the conversation took place in Hebrew, my daughter is blissfully unaware of the semiotics of Bratz.

Meanwhile, both companies are hurting, according to Bloomberg. Sales are down for both the Barbie and the Bratz lines, and Mattel has incurred legal fees relating to the MGA litigation of nearly $30 million. Mattel has announced that it will need to reduce its workforce by about 1,000.

It is much harder than one would expect to find a PG-rated YouTube clip about the conflict between Barbie and the Bratz. Come on, guys! The potential for humor is almost unlimited, and it need not be crass. Anyway, here's the best I could come up with:

[Jeremy Telman]

4 Sale: 1 Br Condo nr 7 trn w EIC, River Vues & 5-yr $$$back guarantee

Does the real estate bust have you beat?  Want to buy a new condo, but don't want to worry about waiting for the next boom before you can sell without a loss?  Well, Rockrose Development Corporation has a brand new condo in Long Island City just for you.  The New York Times reports that the developer "has come up with a pitch to ease the fears of jittery buyers: a five-year money-back guarantee."  The Times reports:

At the View at EastCoast, in Long Island City, just across the East River from Manhattan, Rockrose is offering — at least to the next batch of buyers who step up to sign contracts — a promise to buy back apartments in five years at 110 percent of the sales price.

“I believe in the product, I believe in the marketplace, I believe that value will increase and I am willing to put my money where my opinions are,” said Kevin P. Singleton, a senior vice president at Rockrose.

The View at EastCoast, an 18-story glass condominium tower at 4630 Center Boulevard, is the third of seven Rockrose apartment towers planned along the river in what used to be a 22-acre industrial area of Long Island City near the well-known Pepsi-Cola sign facing Manhattan.

The first two towers were rentals, and after apartments at the View went on the market last summer, 18 out of 184 went into contract. But then in the faltering economy sales stalled, despite the Manhattan skyline views, the 30,000-square-foot terrace and pool, the high ceilings, the white oak floors, and the quick commute on the No. 7 line.

Now, with the building just about finished, an amendment approved by the state attorney general last month offers a five-year “buyback guarantee” to buyers who sign contracts before the sponsors declare the condominium plan effective (after at least 15 percent of apartments go into contract to residential buyers).

Under the guarantee, on the fifth anniversary of the closing, buyers will have 90 days to return their apartments to Rockrose for 110 percent of the purchase price. However, the buyers will have to pay all closing costs, including transfer taxes and the sponsor’s legal fees.

The amendment also introduces other concessions to buyers, including a mortgage contingency clause, and the possibility of five years of sponsor financing for purchase. In addition, buyers who sign up before the plan becomes effective are entitled to a free parking space for the next five years in a lot built by Rockrose just across the street.

Once the plan is effective, and buyers begin to move in, the sponsor could continue to offer the buyback guarantee, or rent some units and gradually sell them off as the market improves.

There is a catch: "Buyers are warned under the amendment that 'no bond or other security' has been furnished to make sure the developers honor the pledge." 

Seems like Rockrose is betting pretty confidently that, 5 years out, the NYC real estate market will show at least a 10% gain on current prices.  This seems likely based on the history of real estate prices in Manhattan in particular, and could be a good strategy to counteract the collective anxiety that is now permeating all markets.  At the same time, and this is possibly informed only by the current collective anxiety, I am wondering whether this real estate bust seems different than others - given that its precursor was a housing bubble hoisted by real estate loans themselves.  Given Rockrose's experience in real estate development, the vote of confidence does counteract some of the anxiety. But the promise also seems like a 110% guarantee of a lawsuit in 5 years.

[Meredith R. Miller]

Now in Print

Oren Bar-Gill & Elizabeth Warren, Making Credit Safer, 157 U. Pa. L. Rev. 1 (2008).

Nancy S. Kim, The Software Licensing Dilemma, 2008 BYU L. Rev. 1103.

Timothy J. Maun, Comment, iHack, Therefore iBrick: Cellular Contract Law, the Apple iPhone, and Apple's Extraordinary Remedy for Breach, 2008 Wis. L. Rev. 747.

Guanghua Yu & Hao Zhang, Adaptive Efficiency and Financial Development in China: The Role of Contracts and Contractual Enforcement, 11 J. Int'l Econ. L. 459 (2008).

[Keith A. Rowley]

Business Associations Limerick of the Week: Escott v. BarChris

Ordinarily, I would not include a case like Escott v. BarChris in my Business Associations course. First off, it's long. Second, there's not much law in it, or at least not much law for which I like to hold my Business Associations students responsible. If I were teaching Securities Law, that would be another matter. On the other hand, it is a case about bowling alleys and, as I mentioned before here, it is thus indispensable to the course's bowling theme. It also contributes to the course's great sports cases, memorialized here, here and here.

The case involves the question of who can be liable for material misstatements in a registration statement. The short answer is, everybody who signed it, even if they did not read what they signed. A good lesson for students to learn before they attend their first board meeting.

Escott v. BarChris Construction

BarChris failed to disclose
The extent of its financial woes.
Read what you sign
Or the court will incline
To deliver you unto your foes.

[Jeremy Telman]

Ebenezer Scrooge on Contract Formation

I consulted several print and on-line versions of Dickens's A Christmas Carol and did not find the following dialogue, nor does it appear in all of the film versions of the tale.  So, I'll attribute it to the Roger O. Hirson's screenplay for the 1984 Hallmark Hall of Fame version of A Christmas Carol, starring the late, great George C. Scott.

Ebenezer Scrooge, delayed on his way to the mercantile exchange by his nephew, Fred Holywell's, unwelcome visit to Scrooge & Marley, arrives shortly before the exchange is to close, whereupon he encounters Messrs. Tipton, Pemberton, and Forbush (none of whom appear in Dickens's text), with whom Scrooge has been negotiating the sale of a quantity of corn.  What follows illustrates the then-prevailing common law rule that an offer made in a face-to-face conversation expires at the end of the conversation unless the offeror indicates otherwise.

Tipton: Ah, Ebenezer. We were afraid you wouldn't come.

Pemberton: It's almost closing, sir.

Scrooge: Well, I'm here, aren't I?

Forbush: I said you'd be here.  [To Tipton and Pemberton] Didn't I say Ebenezer Scrooge would be here?  [To Scrooge] I knew you'd change your mind.

Scrooge: You're right, I have changed my mind.

Tipton: Oh, good.  Then you'll take our bid?

Scrooge: The price has gone up.

Pemberton: Gone up? But that's not possible!

Scrooge: If you want my corn, gentlemen, you must meet my quote ... plus five percent for the delay.

Forbush: That's outrageous, Scrooge. You'll be left with a warehouse stuffed with corn!

Scrooge: Well, that's my affair, isn't it?

Tipton: But if we pay your price, our bread will be dearer. The poor will suffer.

Scrooge: Buy the corn someplace else. Good day, sir.

Pemberton: Scrooge, a moment. We'll take your corn ... at the price you quoted yesterday.

Scrooge: Too late. If you wait until tomorrow, it'll cost you another five percent.

Forbush: Damn it, Scrooge, it's not fair!

Scrooge: No, but it's business. I'll give you a moment to make up your minds.

[The three bidders confer.]

Tipton: All right, Scrooge, done and done!

Scrooge: Very good, gentlemen. Now, make sure that the draft for the entire amount of this transaction is deposited with my clerk. I don't ship until I have the cash in hand.

[Keith A. Rowley]