Post on 26-Mar-2015
transcript
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George Mason School of Law
Contracts II
Relational Contracts IV
F.H. Buckley
fbuckley@gmu.edu
Next day…
Up to and including Implied Conditions
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The Agency Cost Problem
Agency costs are the costs resulting from:1. Underperformance by agent retained by
principal
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The Agency Cost Problem
Agency costs are the costs resulting from:2. Passed-up opportunities
(underinvestment)
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The Agency Cost Problem
What kind of agent misbehavior? Observable?
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The Agency Cost Problem
What kind of agent misbehavior? Or unobservable?
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The Agency Cost Problem
What kind of agent misbehavior? The misbehavior must be unobservable
Otherwise the principal could specify the agent’s duties
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The Agency Cost Problem
What kind of agent misbehavior? The misbehavior must be unobservable So that monitoring for misbehavior can
reduce agency costs
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The Agency Cost Problem
Agency Costs as the sum of Underperformance by agents Underinvestment by principals Monitoring costs
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The Agency Cost Problem
What kind of agent misbehavior? The misbehavior must be unobservable So that monitoring for misbehavior can
reduce agency costs Coupled with termination rights
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Employees as agents:Note the two-way play
The employer has a free hand to dismiss the employee under the at-will standard
The employee can resign any time
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Note the two-way play
The employee can resign any time Might the employer be unhappy with
this?
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Note the two-way play
The employee can resign any time Might the employer be unhappy with
this? Labor shortages Firm-specific assets
Training Proprietary info)
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Note the two-way play
The employee can resign any time Can you think of some way in which the
parties might bargain around this?
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Well, there are Constitutional issues…
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Note the two-way play
The employee can resign any time Can you think of some way in which the
parties might bargain around this? Compensation schemes
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Note the two-way play
The employee can resign any time Can you think of some way in which the
parties might bargain around this? Compensation schemes Non-competes
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Non-competes: Gagliardi
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Non-competes: Gagliardi
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The trade secrets?
Non-competes: Gagliardi
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The trade secrets Beef formula Slicing machine Packaging Marketing research
Non-competes: Gagliardi
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Scope of the non-compete: a one-year ban: Controlled meat business Employment within 100 miles of West
Chester with similar business
Non-competes: Gagliardi
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Legal restrictions on non-competes Must be ancillary to an employment
contract made at hiring or on a change of status
Non-competes: Gagliardi
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Legal restrictions on non-competes?
Non-competes: Gagliardi
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Legal restrictions on non-competes Must be ancillary to an employment
contract How would you justify this restriction?
Non-competes: Gagliardi
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Was there a change in status here? Cf. Marine Contractors at 373
Non-competes: Gagliardi
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Was there a change in status here? Cf. Marine Contractors at 373 Cf. Leatherman at 373
Non-competes: Gagliardi
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Legal restrictions on non-competes Reasonably limited in time and
geographic scope Not excessive for the protection of the
employer
Non-competes: Gagliardi
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Legal restrictions on non-competes Reasonably limited in time and
geographic scope Not excessive for the protection of the
employer
How would you justify these restrictions?
Non-competes: Gagliardi
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Can you explain why employers have a free hand in termination decisions but not with non-competes?
Non-competes: Gagliardi
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Were the restrictions excessive here?
Non-competes: Gagliardi
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Were the restrictions excessive here? Caputo was the controller What about reverse engineering?
Non-competes: Gagliardi
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Relevance of the occupation Garage mechanic?
Non-competes: Gagliardi
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Relevance of the occupation Garage mechanic? Doctor?
Non-competes: Gagliardi
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Relevance of the occupation Garage mechanic? Doctor Lawyer
Non-competes: Gagliardi
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Relevance of the occupation Garage mechanic? Doctor Lawyer
Maltby at 374
Contract Modification
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As relational contracts are long term, conditions may change and prompt a modification of the agreement Should there be any restrictions on this?
Contract ModificationAustin v. Loral p. 397
Why did Loral agree to the contract modification?
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Alaska Packers
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Pyramid Harbor AK
Alaska Packers
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Will a promise to perform that which the promisor was already bound to do under a prior contract satisfy the consideration requirement?
Alaska Packers
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Will a promise to perform that which the promisor was already bound to do under a prior contract satisfy the consideration requirement? Restatement § 73 Illustration 4 Restatement § 175 Illustration 5 Restatement § 176
Alaska Packers
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Will a promise to perform that which the promisor was already bound to do under a prior contract satisfy the consideration requirement? Restatement § 89
Fair and equitable in view of circumstances not anticipated by the parties
Illustrations 1, 3, 4
Alaska Packers
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UCC § 2-209 Good faith Comment 2 UCC § 1-304. Every contract or duty within [the
Uniform Commercial Code] imposes an obligation of good faith in its performance and enforcement.
Alaska Packers
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How would you decide Alaska Packers
under these standards?
Alaska Packers
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How would you decide Alaska Packers
under these standards? The finding of fact at p. 377
Alaska Packers
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Qu. the changed circumstances under Angel v. Murray p. 380
Alaska Packers
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Qu. the changed circumstances under Angel v. Murray p. 380
Brian v. Brighenti p. 381
Alaska Packers
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How might a party protect himself against an extortionate modification?
Alaska Packers
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How might a party protect himself against an extortionate modification? No modification clauses?
Is UCC § 2-209(2) a safe harbor?
Alaska Packers
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How might a party protect himself against an extortionate modification? No modification clauses?
Restatement § 311, Comment a Can you offer a justification for this?
Alaska Packers
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No modification clauses The parties to a joint venture decide that
it’s not profitable and write a termination agreement. Problems?
Alaska Packers
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No modification clauses The parties to a joint venture decide that
it’s not profitable and write a termination agreement. Problems? El Paso Natural Gas p. 383
Alaska Packers
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No modification clauses The parties to a joint venture decide that
it’s not profitable and write a termination agreement. Problems? El Paso Natural Gas p. 383 Alexi Yashin p. 382
Alaska Packers
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No modification clauses The parties to a joint venture decide that
it’s not profitable and write a termination agreement. Problems? Is there a possibility of strategic behavior
here?
Alaska Packers
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No modification clauses The parties to a joint venture discover
that one party’s duties are much more onerous than was contemplated and write an amending agreement. Problems?
Was this Austin v. Loral?
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Underinvestment if no-modification clauses are banned?
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Unless one trusts the courts to get it right
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George Mason School of Law
Contracts II
Terms
F.H. Buckley
fbuckley@gmu.edu