“Let’s Flip a Coin”: The Role of Chance in Contract Mechanisms

I had a look on EDGAR for contracts that specify that a given choice is to be made by a coin toss (or “flip”). For the most part, those that provide for such a mechanism don’t get specific. Here’s an example:

After a coin toss to determine who makes the first strike, the parties shall strike names from the list alternately until the name of one arbitrator remains.

But in the following example, it’s specified who’s to do the flipping:

At such meeting, the Parties shall begin the picking process by undertaking a coin toss conducted by a mutually-agreed Third Party.

This one provides more detail:

In the event Bancorp, Western and CBB are unable to agree on an accounting firm of national standing, CBB shall nominate, and Bancorp and Western shall jointly nominate, one nationally recognized independent accounting firm that does not regularly work for such party and is willing to accept such retention, and one of such two firms shall be selected as the arbiter by a flip of a coin, with the flip being made by a lawyer for Bancorp and Western in the presence of a lawyer for CBB, with CBB’s lawyer designating which firm will be chosen if its choice of “heads” or”tails” results.

But congratulations go to Syntex (U.S.A.) Inc. and Tularik Inc., who provided as follows in their 1997 contract:

Following such negotiation, such Additional Indication shall become a Roche Bioscience Indication or a Tularik Indication, as the case may be; provided, however, that if after such negotiations, the parties cannot agree on the assignment of an Additional Indication, the Chair of the Research Management Committee shall throw a well-balanced United States coin into the air and a representative from Roche Bioscience shall call heads or tails while such coin is in the air. Heads shall mean the side of the coin containing the phrase “In God We Trust.” Tails shall mean the side of the coin containing the phrase “E Pluribus Unum.” If the coin lands with the side of the coin that the Roche Bioscience representative designated facing up, such Additional Indication shall be designated as a Roche Bioscience Indication. If the coin lands with the side of the coin that the Roche Bioscience representative did not designate facing up, such Additional Indication shall be designated as a Tularik Indication.

I’m not entirely kidding when I say that I would have added to that provision that for a coin toss to be valid, the coin has to be allowed to fall on flat, solid ground. You wouldn’t want anyone pulling a coin-toss scam on you, or you wouldn’t want the other side to suggest that they had been so scammed. And you wouldn’t want the coin to come to rest at an angle, for example on grass.

But presumably, in most contexts just specifying a coin toss should be enough. The issues is the same as that you encounter at ever turn in contracts: at what point to you stop providing detail and instead let convention, and reason, take over?

Contracts also call for decisions to be made by casting lots. I didn’t seen any contracts that specified procedures for casting lots, and I’m not sure how I’d go about casting lots.

But I was disappointed not to see any contracts that called for rock-scissors-paper, or rolling dice. And I didn’t see any contracts that provided for anything more elaborate, for example use of a random-number generator.

I’d be happy to hear of other ways that contracts have handled matters of chance.