{"id":164,"date":"2009-07-01T10:58:40","date_gmt":"2009-07-01T15:58:40","guid":{"rendered":"http:\/\/ContractsLawInAction.law.miami.edu\/?page_id=164"},"modified":"2024-02-05T12:28:38","modified_gmt":"2024-02-05T17:28:38","slug":"prior-posts-remedies-penalty-clause-merchant-of-venice","status":"publish","type":"page","link":"https:\/\/contractslawinaction.law.miami.edu\/?page_id=164","title":{"rendered":"Prior Posts &#8211; remedies- Penalty Clause &#8211; Merchant of Venice"},"content":{"rendered":"\n<p><strong>Liquidated Damages<\/strong><\/p>\n\n\n\n<p>I know that the UCC language says AND, indicating that it must be both a reasonable measure of damages AND difficult to prove the loss.&nbsp; However, the restatement indicates that difficulty in proving the loss is merely a factor to be considered by the court, along with reasonableness.&nbsp; Are we going to read any cases about whether court interpret the UCC to actually require both conditions?<\/p>\n\n\n\n<p><em>No, but you might look at Atl. Aviation Corp. v. Provident Life &amp; Acci. Ins. Co., Civil Action No. 86-533-CMW , UNITED STATES DISTRICT COURT FOR THE DISTRICT OF DELAWARE, 1989 U.S. Dist. LEXIS 10261, August 2, 1989, Decided<\/em><\/p>\n\n\n\n<p>___________<br>The Bond<br>https:\/\/www.youtube.com\/watch?v=X2ZX8fbMx-w<\/p>\n\n\n\n<p>The Quality of mercy speech:<\/p>\n\n\n\n<figure class=\"wp-block-embed is-type-video is-provider-youtube wp-block-embed-youtube wp-embed-aspect-16-9 wp-has-aspect-ratio\"><div class=\"wp-block-embed__wrapper\">\n<iframe loading=\"lazy\" title=\"&quot;The quality of mercy&quot; speech by Portia in The Merchant of Venice (Shakespeare) by Michael Radford\" width=\"450\" height=\"253\" src=\"https:\/\/www.youtube.com\/embed\/QHtCU4EfqEU?feature=oembed\" frameborder=\"0\" allow=\"accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share\" referrerpolicy=\"strict-origin-when-cross-origin\" allowfullscreen><\/iframe>\n<\/div><\/figure>\n\n\n\n<p>The judgment (final one at about minute 8)(translation is not Shakespeare\u2019s)<\/p>\n\n\n\n<p><a href=\"http:\/\/www.youtube.com\/watch?v=mcA6mAlnKsM\">http:\/\/www.youtube.com\/watch?v=mcA6mAlnKsM<\/a><\/p>\n\n\n\n<p>And for those of you who are more literal, and intersted in the current financial crisis, see this post by Nate Oman:<\/p>\n\n\n\n<h4 class=\"wp-block-heading\">March 24, 2009<\/h4>\n\n\n\n<h3 class=\"wp-block-heading\">The Bard of the Financial Crisis<\/h3>\n\n\n\n<h5 class=\"wp-block-heading\">posted by Nate Oman<\/h5>\n\n\n\n<p><img decoding=\"async\" width=\"200\" src=\"http:\/\/www.concurringopinions.com\/archives\/shakespeare.jpg\" alt=\"shakespeare.jpg\"> <\/p>\n\n\n\n<p>Over the weekend, I re-read <em>A Merchant of Venice<\/em> , and I was struck by the fact that Shakespeare manages to include in the play virtually every element of the current financial crisis. Scene one begins with a discussion of risk assessment, and Antonio\u2019s belief that he has managed to tame the vagaries of commercial fate through diversification. Asked by Salarino if he &#8220;Is sad to think upon his merchandise&#8221; (I.i.40), Antonio responds:<\/p>\n\n\n\n<blockquote class=\"wp-block-quote is-layout-flow wp-block-quote-is-layout-flow\">\n<p>Believe me, no. I thank my fortune for it<br>My ventures are not in one bottom trusted,<br>Nor to one place; nor is my whole estate<br>Upon the fortune of this present year.<br>Therefore my merchandise makes me not sad. (I.i.41-45)<\/p>\n<\/blockquote>\n\n\n\n<p>Having ignored the problem of <a href=\"http:\/\/www.nytimes.com\/2009\/02\/08\/magazine\/08wwln-safire-t.html\">fat tails<\/a> and <a href=\"http:\/\/www.amazon.com\/Black-Swan-Impact-Highly-Improbable\/dp\/1400063515\">black swans<\/a> , Antonio decides to engage in a bit of dodgy finance. He borrows in the wholesale market from Shylock under terms that appear favorable, but have a huge downside in the unlikely event of his default. Antonio, of course, is unconcerned. From his point of view he is getting cheap money by taking on what seems like an extremely remote risk. He then takes these borrowed funds and uses them to make what can only be described as a no doc, subprime loan. Bassiano wants money for a speculative venture \u2014 the wooing &#8220;In Belmont [of] a lady richly left&#8221; (I.i.161) \u2014 and Antonio agrees, in effect renting out his credit rating:<\/p>\n\n\n\n<blockquote class=\"wp-block-quote is-layout-flow wp-block-quote-is-layout-flow\">\n<p>Try what my credit in Venice can do;<br>That shall be racked even to the uttermost<br>To furnish thee to Belmont to fair Portia.<br>Go presently inquire, and so will I,<br>Where money is; and I no question make<br>To have it of my trust or for my sake. (I.i.180-185)<\/p>\n<\/blockquote>\n\n\n\n<p>Shylock, for his part, does not approve of the loose monetary policy in Venice, which he rightly blames on wild lending practices, such as Antonio\u2019s loans:<\/p>\n\n\n\n<blockquote class=\"wp-block-quote is-layout-flow wp-block-quote-is-layout-flow\">\n<p>How like a fawning publican he looks.<br>I hate him for he is a Christian;<br>But more, for what is low simplicity,<br>He lends out money gratis and brings down<br>The rate of usance here with us in Venice. (I.iii.38-42)<\/p>\n<\/blockquote>\n\n\n\n<p>Faced with such low returns on normal loans, Shylock is forced into the shadowy world of loan-to-own, in this case targeting, as he tells Antonio, &#8220;\u2026an equal pound\/ Of your fair flesh, to be cut off and taken\/ In what part of your body pleaseth me&#8221; (I.iii.147-149). As he later reveals, Shylock is engaged in a bit of arbitrage in the commodity markets and wants Antonio\u2019s flesh &#8220;To bait fish withal&#8221; (III.i.49).<\/p>\n\n\n\n<p>When all Antonio\u2019s &#8220;argossies&#8221; reportedly wreck at the same time \u2014 a wildly improbable event predicted by none of Antonio\u2019s complex statistical models and, as we have seen, completely discounted by him \u2014 his over-leveraged balance sheet sends him spinning into bankruptcy and ruin. For his part, after Lorenzo makes off Madoff-like with Shylock\u2019s daughter and his savings \u2014 &#8220;A diamond gone cost me two thousand ducats in Frankfurt!&#8221; (III.i.77-78) \u2014 he is left to lament (albeit in prose):<\/p>\n\n\n\n<blockquote class=\"wp-block-quote is-layout-flow wp-block-quote-is-layout-flow\">\n<p>Why thou loss upon loss! The thief gone<br>with so much, and so much to find the thief, and no<br>satisfaction, no revenge, nor no ill luck stirring but<br>what lights o\u2019 my shoulders, no sighs but o\u2019 my breath-<br>ing, no tears but \u2018o my shedding. (III.i.85-89)<\/p>\n<\/blockquote>\n\n\n\n<p>Of course, once his ill-fated bet on Bassiano and the power of risk management starts to unwind, Antonio\u2019s surrogates begin lobbying the government to change the rules so as to avoid unwanted contracts. To his credit, the Duke resists these entreaties, because, as Antonio acknowledges:<\/p>\n\n\n\n<blockquote class=\"wp-block-quote is-layout-flow wp-block-quote-is-layout-flow\">\n<p>The duke cannot deny the course of law;<br>For the commodity that strangers have<br>With us in Venice, if it be denied,<br>Will much impeach the justice of the state,<br>Since that the trade and profit of the city<br>Consisteth of all nations. . . . (III.iii.26-31)<\/p>\n<\/blockquote>\n\n\n\n<p>His laudable concern for the commercial reputation of Venice, however, does not prevent the Duke from using the bully pulpit in an attempt to brow-beat Shylock into renegotiating his contract with Antonio:<\/p>\n\n\n\n<blockquote class=\"wp-block-quote is-layout-flow wp-block-quote-is-layout-flow\">\n<p>Shylock, the world thinks, and I think so too,<br>That thou but leadest this fashion of they malice<br>To the last hour of act; and then \u2019tis thought<br>Thou\u2019lt show thy mercy and remorse more strange<br>That is they strange apparent cruelty\u2019<br>And where thou now exacts the penalty,<br>Which is a pound of this poor merchant\u2019s flesh,<br>Thou wilt not only loose the forfeiture,<br>But touched with human gentleness and love,<br>Forgive a moiety of the principal,<br>Glancing an eye of pity on his losses,<br>That have of late so huddled on his back,<br>Enow to press a royal merchant down<br>And pluck commiseration of his state<br>From brassy bosoms and rough hearts of flint,<br>From stubborn Turks and Tartars never trained<br>To offices of tender courtesy.<br>We all expect a gentle answer, Jew. (IV.i.16-34)<\/p>\n<\/blockquote>\n\n\n\n<p>The Duke\u2019s speech, of course, falls into the standard rhetorical tropes from the perennial battle between Main Street and Wall Street, finance and the &#8220;real economy.&#8221; Shylock is asked to forgive the principal out of &#8220;human gentleness and love&#8221; and Antonio\u2019s unfortunate losses &#8220;huddled on his back,&#8221; nevermind, of course, that it was Antonio who got himself into the problem with the first place through irrational exuberance and shoddy lending practices. Of course, beneath the velvet appeal to mercy and solidarity there is the steel fist of an unstated threat. Shylock is &#8220;Jew,&#8221; the member of a hated minority and the memory of young men following him through the streets taunting him over the loss of his daughter just a few scenes before must be fresh in his memory. The duke is willing to stand behind the &#8220;justice of the state,&#8221; but for how long in the face of an increasingly belligerent public that his sided decisively with Antonio?Of course, the story is resolved when deus ex machina Portia arrives with <a href=\"http:\/\/www.nytimes.com\/2009\/03\/18\/opinion\/18cunningham.html\">clever legal arguments<\/a> that allow Antonio to escape his obligations while giving the city a fig leaf behind which it can hide its ultimately thin commitment to contractual sanctity. (Of course, realist that I am, in the end I think that that it is Portia\u2019s rhetoric \u2014 &#8220;The quality of mercy is not strained\u2026&#8221; (IV.i.182) \u2014 rather than her legal analysis that does the real work.) The ending, however, requires the forced conversion of Shylock and what amounts to public control of his capital through a series of strong-arm negotiations rather than outright legislation.<\/p>\n\n\n\n<p>Needless to say, finance and capitalism will never be the same in Venice again. With Antonio and his friends in control, I shutter for the prospects of efficient capital allocation in the future. I think that we can expect more loans to well-connected folks like Bassanio with questionable business models.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Liquidated Damages I know that the UCC language says AND, indicating that it must be both a reasonable measure of damages AND difficult to prove the loss.&nbsp; However, the restatement indicates that difficulty in proving the loss is merely a factor to be considered by the court, along with reasonableness.&nbsp; Are we going to read [&hellip;]<\/p>\n","protected":false},"author":2,"featured_media":0,"parent":0,"menu_order":0,"comment_status":"open","ping_status":"open","template":"","meta":{"_s2mail":"yes","footnotes":""},"class_list":["post-164","page","type-page","status-publish","hentry"],"_links":{"self":[{"href":"https:\/\/contractslawinaction.law.miami.edu\/index.php?rest_route=\/wp\/v2\/pages\/164","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/contractslawinaction.law.miami.edu\/index.php?rest_route=\/wp\/v2\/pages"}],"about":[{"href":"https:\/\/contractslawinaction.law.miami.edu\/index.php?rest_route=\/wp\/v2\/types\/page"}],"author":[{"embeddable":true,"href":"https:\/\/contractslawinaction.law.miami.edu\/index.php?rest_route=\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/contractslawinaction.law.miami.edu\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=164"}],"version-history":[{"count":9,"href":"https:\/\/contractslawinaction.law.miami.edu\/index.php?rest_route=\/wp\/v2\/pages\/164\/revisions"}],"predecessor-version":[{"id":1488,"href":"https:\/\/contractslawinaction.law.miami.edu\/index.php?rest_route=\/wp\/v2\/pages\/164\/revisions\/1488"}],"wp:attachment":[{"href":"https:\/\/contractslawinaction.law.miami.edu\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=164"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}