Overview of course

Legal decisions often turn on an evaluation of the uncertain future. How do legal decision-makers determine the present value of future results?

Traditionally, the legal system relies on the decision-maker's experience and judgment to value the future -- using techniques of legal analysis with roots in medieval scholasticism. In legal contexts involving money, however, legal decision-makers often turn to theories and methodologies of financial valuation, whose roots are more recent. That is, "literate" methods are supplanted in some settings by "numerate" methods.

The value of numeracy. Lawyers should become more "numerate." Likewise, business managers should become legally "literate." Although lawyers have been the principal social architects of Western culture over the last few centuries, perhaps this role is shifting. Who will design our future? See Bernhard Grossfeld, Lawyers and Accountants: A Semiotic Competition, 36 Wake Forest Law Review 167 (2001).

Valuation in legal contexts. This course builds on these premises by exposing law students to valuation methods, and business students to the law's use of valuation. These issues permeate the law:

• Should a bankruptcy court order a financially-troubled company to be liquidated or continued -- what is the company's salvage value compared to its ongoing value?
• Should a spouse in a divorce proceeding receive a lump-sum settlement or a payout over time -- what is the effect and the value of each? which advances the purposes of the divorce statute?
• Should a minority shareholder in a corporate appraisal receive a pro rata share of the company's assets or its earnings potential -- which is a more appropriate measure of ownership?
• Should a worker injured on the job receive disability payments based on past inflation trends or current interest rates -- which fulfills the objectives of the liability scheme?
• Should a business responsible for environmental damage be assessed clean-up costs as they arise or in one lump-sum -- which approach is best for "Mother Earth"?

As you see, almost all legal decisions that involve future payment obligations or financial rights trigger questions of valuation. Although legal valuation often (if not usually) arises in non-litigation transactional settings, much of our attention will be on litigated cases. They represent case studies of conflicting views on valuation, resolved through an institutional (judicial) response. As we will seen, sometimes the law recognizes and uses modern financial valuation theory and methods -- and sometimes not.