EconLawTest2StudyGuide

EconLawTest2StudyGuide - The Economics of Contract Law -...

Info iconThis preview shows pages 1–4. Sign up to view the full content.

View Full Document Right Arrow Icon
The Economics of Contract Law - The law of contracts provides rules for exchanging entitlements to non-real property , i.e. it pertains to non-land commercial transactions. - Much common law in this area has been superseded by the Uniform Commercial Code which to some extent codifies traditional rules without adding much to the common law (Judge Posner). George Priest in the Harvard Law Review was the first to use economic theory to explain commercial law. Economic Functions of Contract Law (Posner) 1. Provide incentives for value -maximizing exchanges, e.g. Adam and Clair and the ‘57 Chevy. 2. Reduce complexity and transaction costs by providing a set of normal terms that parties would negotiate if there were no contract law. 3. Provide information to possible transacting parties about the various contingencies that may defeat an exchange , e.g. fraud, duress, impossibility, unconscionability. The Bargain Theory of Contracts - The bargain theory of contracts developed in the late 1800s & early 1900s in English & U.S. courts to answer the two fundamental questions. - Under the bargain theory, a promise was legally enforceable if it was given as part of a bargain; otherwise the promise was unenforceable. - The Required Elements for a Bargain: - 1. Offer - 2. Acceptance - 3. Consideration
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
1 . promisor gives a promise 2 . promisee receives a promise. The promisee induces the promisor to give the promise by providing “ consideration to the promisor in the form of money, goods, service, or another promise. If there is no consideration , the bargain theory says the promise is unenforceable . There is reciprocal inducement in each bargain--the promisee gives the promisor something to induce the promisor to give the promise and the promisor gives the promise as an inducement to the promisee. Humpty-Dumpty Law: Consideration - Under the Bargain Theory, “ consideration” is something the promisee gives the promisor to induce the promise . But the courts changed the meaning of the term “consideration” as the years passed: - The courts have come to use the term “ consideration” to mean “the thing that makes a promise enforceable.” This is a tautology --something that is true by definition and thus is meaningless. AN ECONOMIC THEORY OF CONTRACT It is desirable to replace the bargain theory with a "less dogmatic, more responsive" theory of contracts. When a change in the law makes someone better off without making anyone worse off, 'Pareto efficiency' requires changing the law. Generally, economic efficiency requires enforcing a promise if the promisor and promisee both wanted enforceability when it was made. Contract Formed Performance
Background image of page 2
Even with a time lag between the exchange of promises & performance, if it is known courts will enforce promises, it makes it more likely that parties will cooperate and value-maximizing ( Pareto efficient ) exchanges will occur.
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 4
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 13

EconLawTest2StudyGuide - The Economics of Contract Law -...

This preview shows document pages 1 - 4. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online