Bloor v. Falstaff Brewing Company

Bloor v. Falstaff Brewing Company

US Ct App 1979

• Best efforts to maintain high level of sales. Trustee in bankruptcy (for Ballantine) claims Falstaff breached best efforts thus triggering the liquidated damages clause. Falstaff is keeping the beer alive so that it only has to pay minimal royalties instead of damages. Falstaff claims they were losing money on the beer.
• Contract explicitly said “best efforts”so the court took this case to be highpoint. Also, Judge Friendly was considered one of the leading judges of the last generation. ? Even if you’re losing money you have to make an effort. What’s the sense behind it? You don’t have to go into bankruptcy, but you will have to incur losses. How do we understand this:
? Allocation of risk in the contract based on uncertainty in the market. This is true even in non-relational contracts such as forward contracts. I contract for oil delivery 6 months from now based on guestimate-but we know it’s unlikely to be on the mark. But the contract still serves a purpose of protecting the buyer/seller. We don’t allow Falstaff’s defense in other contracts, so we’re not going to allow it here.

• Measure of damages: tacked on to sales of similarly situated beers.

Notes: Best efforts

• UNIDROIT principles: International convention for the sale of goods. UNIDROIT is the European analogue to American Restatements, applicable if the parties drawing up the contract insert statement of applicability. US companies generally more comfortable with UNIDROIT.
• Posner’s idea of best efforts: treating all customers the same, including the non-complaining ones. Olympia Hotels Corp. v. Johnson Wax Dev. (1990).
• Lucas v. Hamm (1961): law is so complicated, one hasn’t committed malpractice by not knowing it. ? “As if a single firm”: Professors Goetz & Scott theory of joint- maximization criterion. Parties stop once marginal cost exceeds marginal benefit (marginal revenues).
? Why don’t we have situation instead where: (1) manufacturer distributes its own product. Idea behind exclusive dealing is that you take the manufacturer’s cost and distributors cost (less than the manufacturer on its own) and the total cost is less. Thus, more efficient and more competitive in the market. Taking advantage of capacities and efficiencies of two parties which are in the aggregate cheaper.
? What should NOT be counted as a cost? The $.50/barrel because it was an intra-firm exchange-the marginal costs curve (taking into account exclusive contracts) should exclude the cost therefore going out a lot further on the marginal revenues than in other arrangements.
? Why do we need a legal standard? To coach you to go beyond the point you voluntarily go to. The dispute is how much beyond must you go? Best efforts are as if was an integrated firm.

• What underlies this case: (1) Falstaff got its benefit at the beginning of the deal when it bought out one of its competitors. Now seeking to not have to pay for up-front benefit. (2) Aggregate purchase price in part based on number barrels sold, based on a minimum. Effectively trying to deny Ballantine the benefit of the bargain by keeping it alive just as long as doesn’t have to pay the liquidated damages.

Conclusion

Notes

See Also

References and Further Reading

About the Author/s and Reviewer/s

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