Tuesday, October 6, 2009

Smart people who look at everything sometimes end up with the short end of the stick.

A student makes a very interesting point in connection with the previous post that suggests that Princess Cruises simply didn't think through the deal as much as they should have:
It is very interesting reading how businesses may not always go though an in-depth analyzation of each term in a contract. You would think they would want to be fully aware of what they are agreeing to since so much is at stake.
It is true that business mess up, underestimate risk, don't pay attention to everything they should, etc. But I want to emphasize that it is more useful for purposes of learning law to think of these cases not as situations involving good guys and bad guys or smart guys and stupid guys. Instead, they almost always involve people on both sides who consider themselves good people acting in good faith for good reasons. Sometimes circumstances turn out in ways no one expected. Sometimes people take risks and they turn out poorly. Sometimes people are out to cheat others (like in Izardi), but those are the rare cases, and you ought to exhaust all other explanations before you conclude someone was bad or stupid.

Princess Cruises, for example may have been fully aware of what they were agreeing to with GE but were willing to do so anyway because they judged the $231,000 priceso good and the long delay so unlikely that it did not make business sense to ask GE to renegotiate the limitation on liability. If in fact they had asked GE to do so, no doubt GE would have asked for more money. The risk Princess Cruises took did not work out well for them, but that does not mean they were blind to the risk they were taking. And, after all, the risk they were taking included having a strong enough legal argument that they won in the trial court and GE had to take the case all the way up to the appellate court to prevail.

Decision making is always a choice among alternatives with different probabilities, different costs, and different benefits, and contract negotiation and contract drafting are just two more forms of decision making.                                                                                                                                                             

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