1 George Mason School of Law Contracts II Relational Contracts II This file may be downloaded only by registered students in my class, and may not be shared.
Post on 26-Mar-2015
221 Views
Preview:
Transcript
1
George Mason School of Law
Contracts IIRelational Contracts II
This file may be downloaded only by registered students in my class, and may not be shared by them
F.H. Buckley
fbuckley@gmu.edu
Next day
Scott 541-62
2
Indefinite Agreements
Why leave a term open?
3
Indefinite Agreements
Why leave a term open Didn’t occur to one
4
Indefinite Agreements
Why leave a term open Didn’t occur to one The informational problem and the
impossibility of a Complete Contingent Contract
5
Risk and Uncertainty
Frank Knight, Risk, Uncertainty and Profit
Risk as probabilistic
7
Uncertainty[
There are known knowns; there are things we know we know.
We also know there are known unknowns; that is to say we know there are some things we do not know.
But there are also unknown unknowns – the ones we don't know we don't know.
Uncertainty[
Unfortunately, there are also unknown knowns – the ones we don't know but think we know
Indefinite Agreements
Why leave a term open The informational problem and the
impossibility of a Complete Contingent Contract
Didn’t occur to one Don’t want to block progress on
negotiations
10
Preliminary Agreements
You are contemplating a joint venture with a social acquaintance, Mr. Gold. He’s a dot.com person, made his bundle, got out, now wants to get back in the game. His idea is synchronous virtual meetings. To bring this to market he needs to work on the software and create platforms to support it.
11
Preliminary Agreements
You have the business contracts and network to provide users, he has the technical expertise
12
Preliminary Agreements
Would you want to memorialize your understandings with an agreement at this point? Why might you not want to do so?
13
Preliminary Agreements
Would you want to memorialize your understandings with an agreement at this point? Why might you not want to do so?
Informational uncertainties Will the product find a market? How do we divide up the equity? Do we have enough players in our venture?
14
Preliminary Agreements
Would you want to memorialize your understandings with an agreement at this point? Why might you not want to do so?
Informational uncertainties Chilling the deal
15
Indefinite Agreements
So terms may be left blank Should a court then refuse to enforce
an agreement because of indefiniteness?
16
Indefinite Agreements
Why refuse to enforce an agreement because of indefiniteness? The court’s informational problem, as
compared to that of the parties Varney v. Ditmars: On January 1 next, “I will
give you a fair share of the profits.”
17
The difference in perspectives
18
The parties look forward, the courts look back
Indefinite Agreements
Why refuse to enforce an Varney v. Ditmars: On January 1 next, “I will give you a fair share of the profits.”
The Court ex post is better able to know what the profits are, while the parties ex ante are better able to know what a fair share is.
19
Indefinite Agreements
Open Price Terms in United Press at p. 301
Weekly payments for news stories “not exceeding $300”
What would you expect a judge to say?
20
Indefinite Agreements
What would you expect a judge to say?
21
Gimme a break!
Indefinite Agreements
Open Price Terms in United Press at p. 301
Weekly payments not to exceed $300 for news service
Price an “essential element”
22
Open Price Terms
Lee v. Seagram p. 40 What was left out?
“a price roughly equal to that of their current distributorships”
A location “acceptable to plaintiffs”
23
Open Price Terms
Lee v. Seagram p. 40 What was left out?
Court thought acceptable a price at book + 3 times net profits
24
Open Price Terms
Lee v. Seagram p. 40 Who was in the best position tocure the informational problem?
25
Indefinite Agreements and Article 2
What about D.R. Curtis (p. 36)
26
Indefinite Agreements and Article 2
Is a forward grain contract a sale of goods?
27
Indefinite Agreements and Article 2
Is a forward grain contract a sale of goods? UCC 2-105(1)
28
Indefinite Agreements and Article 2
What was left out of the contract?
29
Indefinite Agreements and Article 2
What was left out of the contract?1. The actual protein content of the grain
(which won’t be known until the grain is harvested)
30
Indefinite Agreements and Article 2
What was left out of the contract?1. The actual protein content of the grain2. Protein basis figure
(standard protein content: which is what the case is about)
(typically provided at the time of contracting)
31
Indefinite Agreements and Article 2
What was left out of the contract?1. The actual protein content of the grain2. Protein basis figure3. “Scale”: $ times divergence of (1) from (2)
and is usually fixed on delivery by the export company
32
Indefinite Agreements and Article 2
What was left out of the contract? Does the omission to specify the basis
render the contract void for uncertainty? UCC § 2-305
33
Indefinite Agreements and Article 2
What was left out of the contract? Does this incentivize the parties not to
specify terms ex ante which they might easily do so?
How does the risk play out?
34
Indefinite Agreements and Article 2
Can you think of any evidence that you want to have introduced as the Mathews lawyer?
35
Indefinite Agreements and Article 2
Suppose I told you that the average % of protein in hard red spring is 12.6%?
36
Indefinite Agreements and the UCC
Why should there be a different standard in sales law?
37
Indefinite Agreements and the UCC
Why should there be a different standard in sales law?
More standardized? Market prices? Historical accident?
38
Karl Llewellyn
Indefinite Agreements and the UCC
Cf Kleinschmidt on p. 301 What is the intent of the parties
UCC 2-204(3)
39
Indefinite Agreements and the UCC
Alter p. 302 Anything unusual about this case?
40
Indefinite Agreements and the UCC
Alter p. 302: a rush order for pumps
41
I mean, what could go wrong?
Indefinite Agreements and the UCC
Ex ante, would the purchaser have wanted a binding contract? Seller’s “belated concern with the lack of
agreement as to sale price…”
42
Indefinite Agreements
Why refuse to enforce an agreement because of indefiniteness? The parties could more easily have cured
the informational problem
43
Indefinite Agreements
Why refuse to enforce an agreement because of indefiniteness? The expression of an intent by the
parties that the agreement is not enforceable
44
Indefinite Agreements
Why refuse to enforce an agreement because of indefiniteness? The expression of an intent by the
parties that the agreement is not enforceable This might be inferred from uncertainty
45
Indefinite Agreements
Why refuse to enforce an agreement because of indefiniteness? The expression of an intent by the
parties that the agreement is not enforceable “Agreements to agree”
46
Agreements to Agree
Shepard v. Carpenter (p.300) An agreement to cut all logs in a
specified area, resell them, and pay owner 1/3 of resale price
47
Agreements to Agree
Shepard v. Carpenter (p.300) An agreement to cut all logs in a
specified area, resell them, and pay owner 1/3 of resale price
But an agreement to agree negatives an agreement
48
Agreements to Agree
Joseph Martin p. 38 Renew “at annual rentals to be agreed
on”
49
Agreements to Agree
Joseph Martin p. 38 Renew “at annual rentals to be agreed on”
Held: an “agreement to agree” Would a sale of goods case be different?
50
Agreements to Agree
The Deal in Coley v. Lang On or before [17 days later] this letter
agreement will be reduced to a definitive agreement binding upon all of the parties
Until then Coley can bid on behalf of IAS
Was what was left out that which must be left out until a final deal?
51
Brown v. Cara 304
Was the MOU a binding agreement? The Memorandum of Understanding
Cara Brown
52
100 Jay Street, Brooklyn
MOU: The parties will “work together to develop, build, market and manage” the property
Brown to front development costs of $175K
Brown v. Cara
Was the MOU a binding agreement? What was missing?
Financing and construction contracts Architectural plans Equity stakes What happened after the $175,000
53
Brown v. Cara
Was the MOU a binding agreement? What was missing?
Financing and construction contracts Equity stakes What happened after the $175,000 Obligation to erect building
A “formal agreement” to follow
54
Brown v. Cara
Was the MOU a binding agreement? What was missing?
Financing and construction contracts Equity stakes What happened after the $175,000 Obligation to erect building
Why didn’t they negotiate all terms then and there?
55
Brown v. Cara
Why did Cara back off the deal?
56
Brown v. Cara: What happened to the area?
57
Brown v. Cara: What happened to the area?
58
Dumbo in the 1980s
Brown v. Cara: What happened to the area?
59
Dumbo has emerged as one of New York City's premier arts districts, with a cluster of for-profit art galleries and such not-for-profit institutions as the St. Ann's Warehouse and the A.I.R. Gallery. Chef Jacques Torres opened a chocolate factory in Dumbo in December 2000. Other culinary businesses in the area include Grimaldi's, the Brooklyn Ice Cream Factory, the River Café, and, in the One Old Fulton Street building, Pete's Downtown Restaurant. (Wikipedia)
Dumbo today
Brown v. Cara: What happened to 100 Jay?
Rising 33 stories alongside the Manhattan Bridge, J Condo is Brooklyn’s premiere luxury residential building.
As the tallest building in Dumbo, J Condo adds an easily recognizable icon to the Brooklyn skyline with its dramatic curved, sail-like façade of floor to ceiling windows that maximizes the building’s abundant natural light and offers magnificent panoramic views of Manhattan, Brooklyn, the East River, and New York Harbor.
60
Brown v. Cara: What happened to 100 Jay?
Does this suggest why the deal didn’t happen?
61
Brown v. Cara
What is the difference between Leval’s Type I and II agreements in Tribune?
62
Brown v. Cara
Badges of Type I agreements?
63
Brown v. Cara
Badges of Type I agreements? No express denial of an agreement
64
Brown v. Cara
Badges of Type I agreements? No express denial of an agreement Partial performance evidence of
agreement
65
Brown v. Cara
Badges of Type I agreements? No express denial of an agreement Partial performance All material terms agreed to evidences
an agreement
66
Brown v. Cara
Badges of Type I agreements? No express denial of an agreement Partial performance All material terms agreed to Not an agreement of a kind usually
committed to writing
67
Brown v. Cara
Badges of a Type II agreement?
68
Brown v. Cara
Badges of a Type II agreement? An intention to be bound Too uncertain for a Type I agreement Some partial performance
69
Brown v. Cara
What duties arise under a Type II agreement?
70
Brown v. Cara
What duties arise under a Type II agreement? What does a good faith negotiation
mean?
71
Brown v. Cara
What duties arise under a Type II agreement? What does a good faith negotiation
mean? Give examples of bad faith?
What questions would you want answered on remand?
72
If it’s not a Type I agreement, is it necessarily a Type II agreement?
Arcadian Phosphate at 309
73
Arcadian Phosphate
The agreement specified: the timing and amounts of the payments the fixed assets to be purchased, and a closing date of not later than May
31, 1987.
74
Arcadian Phosphate
The agreement specified: a framework of negotiation for the purchase
of Arcadian's finished product inventory at closing at a "mutually agreeable market value," with phosphate stores to be purchased at closing at Arcadian's book value.
75
Arcadian Phosphate
[a] binding sales agreement will be completed by December 31, 1986.
76
Arcadian Phosphate
Both parties agreed to the memorandum "to cooperate fully and work judiciously in order to expedite the closing date and consummate the sale of the business.
77
Arcadian Phosphate
Why did the defendant seller back out?
78
Arcadian Phosphate
Why did the defendant seller back out? The price had risen And that’s not bad faith?
79
Arcadian Phosphate
The parties contemplated a breakdown in negotiations If negotiations for the sale failed, Arcadian
would repay any capital expenditures agreed to thereafter and made by API, and if the negotiations failed through no fault of API, Arcadian would refund API's deposit.
80
Curing the underinvestment problem
Ex ante, planners will want to reinforce long-term stability
Minimize the possibility of post-contractual opportunism
Cure the underinvestment problem
81
Curing the underinvestment problem
Schwartz-Scott on presumptive reliance damages
82
Curing the underinvestment problem
Security deposits
83
Curing the underinvestment problem
84
Hamburger U. as a risk-sharing strategy
Curing the underinvestment problem
Repeated dealings
85
86
George Mason School of Law
Contracts II
Relational Contracts III
F.H. Buckley
fbuckley@gmu.edu
top related