Contract, Promise, and the Right of Redress

This Essay reviews Nathan Oman’s recent book, The Dignity of Commerce. The book is compelling, and it makes an important and original contribution to contract theory—a contribution that insightfully shows how markets matter. Yet, in the course of developing a market-centered justification for contract law, The Dignity of Commerce also downplays the significance of consent and promissory morality. In both cases, the book’s argument is problematic, but this Essay will address questions of promissory morality. Oman contends that promise-based accounts struggle with contract law’s bilateralism and with its private standing doctrine. Yet, promissory morality is a very good fit for these features of contract law if, instead of focusing on a promisor’s moral obligations, we focus on a promisee’s enforcement rights. When we look to the morality of enforcement, contract law and promissory morality are a close match. And, even if promissory morality cannot fully explain contract law, it can then be an important component of a successful explanation

Reputation and Credit without Collateral in Africa’s Formal Banking

The analysis of reputation as a contract enforcement instrument where legal institutions, especially commercial courts, fail to enforce commercial contracts has focused on informal credit markets. The literature centres on the argument that lenders or co-borrowers in group lending can easily monitor each borrower, given the small size of an individual lender.s market. Verifiability allows the detection of opportunistic default and hence allows its punishment. This paper argues that in Africa, even formal credit markets rely on reputation. However, the modelling strategy is not based on monitoring and verifiability, given the potential for residual information asymmetry between a bank and a borrower after screening. Instead, the paper conceptualises the relationship between a bank and a borrower as an infinitely repeated game. The bank learns the type of the borrower through repeated interaction, a process by which a borrower builds his reputation as an honest partner. A defaulting dishonest borrower forfeits his access to future loans. The main result of the model is that the higher the reputation of a borrower, the lower his equilibrium payoff that is incentive compatible with debt repayment. Conversely, in the absence of any reputation, the payoff that is incentive compatible with repayment is equal to infinity meaning that credit trade is impossible without either a credible formal contract enforcement mechanism or some level of reputation.

The Big Issue of Small Businesses: Contract Enforcement in the New Russia

The dissertation explores the problem of institution-building in nascent capitalist economies, with the emphasis on the role of culture in the genesis of new institutional forms. To help better understand the nature of the post-communist transformation in Russia, I address the questions of organizational adaptation and change in business practices resulting from the changing role of the state in the economy and society, focusing specifically on the problem of contract enforcement among small firms. The main source of data was the empirical research that I conducted in St.Petersburg, Russia, where I interviewed owners and/or managers of forty-five firms in 2001 and 2002. When firms perceive state institutions as unable to guarantee the enforcement of contracts and property rights, they rely on alternative (non-state) ways of enforcing their agreements. My research shows that these strategies can be either based on a given firm's own resources (financial or social), or come from various agencies that offer enforcement services for sale, which vary from government licensed private courts to criminals. Non-state enforcement strategies are rooted in preexisting institutions and cultural practices, and develop in response to specific kinds of state failure to provide contract enforcement. My research findings demonstrate a proliferation of non-state strategies of contract enforcement and dispute resolution, as well as the significance that state contract enforcement institutions have for economic exchange and building of market institutions. The lessons concerning the powerful structuring role of enforcement institutions which my dissertation draws from Russian experience have wider implications not only for analysis but also for policy, and contributes to the literature on the role of the state in capitalist development, and cultural neo-institutionalism. The evidence that I have collected contradicts the neo-liberal belief in the sufficiency of self-regulating markets for the smooth functioning of an economy. It supports an argument that that the capability to provide independent enforcement services for businesses is an indispensable feature of the modern state, and essential to the creation of successful modern capitalism. This is an argument of central importance not only for developing and "transition" countries, but for the long-term future of developed societies as well

Intention to create legal relations and the reform of contract law: A conservative approach in the modern global era

This paper is partially to refute the submissions by Gulati’s article recently published on Beijing Law Review which proposes abandoning the requirement of proving intention to create legal relations for the formation of an enforceable contract. After a critical analysis of the abandonists’ arguments, this paper argues that intention to create legal relations is the “marrow of contractual relationships” and the arguments for abandoning such a requirement because of the existence of consideration and/or offer and acceptance as test(s) of contractual enforceability is untenable and unconvincing. Consideration and/or offer and acceptance may be evidence of serious intention to be bound somehow but unnecessary intention to be bound legally. For a number of reasons, the doctrine of consideration is very unlikely to work any better than the intention to create legal relations test. If a test of contractual enforceability must be abandoned, that should be the doctrine of consideration rather than the intention to create legal relations. This paper compares the current positions of some common law jurisdictions, upholds the needs of stability, consistency, and the harmonisation of contract law in the modern global era, and proposes a conservative approach of contract law reform regarding the intention requirement and the related presumptions, that is, all common law jurisdictions should “go back” to the orthodox English position

Intent to Contract

There is a remarkable difference between black-letter contract laws of the United States and England. In England, the existence of a contract is supposedly conditioned on the parties\u27 intent to be legally bound, while section 21 of the Second Restatement of Contracts states that [n]either real nor apparent intention that a promise be legally binding is essential to the formation of a contract. There are also differences within U.S. law on the issue. While section 21 describes courts\u27 approach to most contracts, the parties\u27 intent to contact can be a condition of validity of preliminary agreements, domestic agreements and social arrangements, reporters’ promises of confidentiality to sources, and gratuitous promises. This Article develops an analytic framework for evaluating these rules and examines their relationship to the broader principles that animate contract law. Rules that condition contractual liability on proof of contractual intent must include rules for interpreting that intent. Those interpretive rules will include both interpretive defaults and rules for what it takes to opt-out of the default. By adjusting these default and opt-out rules, the law can achieve different balances between the duty-imposing and power-conferring functions of contract law, or among the various reasons for enforcement. This is demonstrated by an analysis of the rules for gratuitous promises, preliminary agreements, spousal agreements and reporters\u27 confidentiality promises. The results of that analysis include a new argument for the Model Written Obligations Act; a critique of Alan Schwartz and Robert Scott\u27s proposal preliminary agreements and a recommended alternative to it; and recommended changes to the rules for agreements between spouses. Attention to intent to contract requirements also indicates an overlooked aspect of how the enforcement of contracts affects extralegal norms and relationships of trust. Interpretive rules that require parties who want, or who do not want, legal liability expressly to say so are particularly likely to interfere with or erode extralegal forms trust that otherwise create value in transactions

Why the State Cannot “Abolish Marriage” A Partial Defense of Legal Marriage Based on the Structure of Intimate Duties

Does a liberal state have a legitimate interest in defining the terms of intimate relationships? Recently, several scholars have answered this question “no” and concluded that the state should abolish marriage, along with all other categories of intimate status. While politically infeasible, these proposals offer a powerful thought experiment. In this Article, I use this thought experiment to argue that the law cannot avoid relying on intimate status norms and has legitimate reasons to retain an intimate status like marriage. The argument has three parts. First, even if the law abolished licensed status categories, ordinary doctrines in tort, contract and equity would still tailor rights to the nature of intimate relationships. The law cannot avoid intimate status norms. Second, private law cannot avoid status because intimate relationships involve “imperfect duties.” Imperfect duties may be fulfilled in many ways, which gives intimates discretion to decide how, when and to what extent to act, constrained by subjective commitment to the relationship. Private law can enforce intimate duties only if it replaces the couples’ discretion with status norms and commitment with sanctions. Last, I argue that marital status offers a way to manage the tension created by imperfect intimate rights, permitting couples to retain discretion without abandoning protection. Spouses retain discretion during marriage because the law defers protection of marital rights until divorce, when it can uses equitable divorce rules to protect marital rights and ensure neither spouse benefits unfairly from the suspension of ordinary private law

A Regulatory Retreat: Energy Market Exemption from Private Anti-Manipulation Actions Under the Commodity Exchange Act

In order to facilitate greater reform in energy markets, Dodd-Frank granted the CFTC wide-ranging powers as part of the greater mandate given to the CFTC in relation to OTC-swaps and the daily derivatives trading activity in commodities futures and options markets. As a result, Dodd-Frank subjected electricity market transactions—which traditionally occur under the oversight of the Federal Energy Regulatory Commission in markets organized around independent system operators and regional transmission organizations—to the anti-manipulation prohibitions of the Commodity Exchange Act. Thus, differently from FERC’s regime, the post-Dodd-Frank statutory framework opened the way for enforcement of market discipline in electricity markets through a private right of action under Section 22 of the CEA. This development drew strong opposition from the industry, and also caused a conflict between courts and the CFTC in the interpretation of the relevant law. In October of 2016, the CFTC stepped back by issuing a final exemptive order to the participants of seven national energy markets, which constitute almost the entire U.S. wholesale electricity market. The withdrawal of the private right of action conflicts with the position previously advocated by the CFTC itself. It also raises questions about the CFTC’s use of its exemptive powers, as the removal of a statutory right through agency rulemaking may potentially be in conflict with the text and statutory purpose of the CEA as amended by Dodd-Frank. The exemption not only removes an important tool in enforcing market discipline, but also has the potential to undermine the reform efforts in the transition of U.S. energy markets to a smart grid. This Note will provide a history of the developments that have unfolded since the enactment of Dodd-Frank in relation to the availability of a private right of action under the CEA in energy markets. The Note also analyzes commonly raised arguments against the availability of a private right of action and presents the various counter-arguments

Promise, Agreement, Contract

It is natural to wonder about contract law’s relationship to the morality of promises and agreements. This Chapter distinguishes two ways to conceive of that relationship. First, parties’ agreement-based moral obligations might figure into the explanation of contract law—into an account of its functions or justifications. Contract law might serve to enforce parties’ first-order performance obligations, to enforce second-order remedial obligations, to support the culture of making and keeping agreements more generally, or at least to do no harm to that culture or to people’s ability to act morally. Second, contract can be understood as the legal analog to promise. Both contract and promise enable people to undertake new obligations to one another when they wish. Each is a type of normative power, the one legal, the other moral. The Chapter concludes by arguing that these two ways of thinking about contract law are not mutually exclusive. Contract law both imposes on parties to exchange agreements a legal obligation to perform for reasons independent of the parties’ possible contractual intent, and confers on them the power to undertake that legal obligation when they so intend because they so intend

Three Pictures of Contract: Duty, Power and Compound Rule

A fundamental divide among theories of contract law is between those that picture contract as a power and those that picture it as a duty. On the power-conferring picture, contracting is a sort of legislative act, in which persons determine what law will apply to their transaction. On the duty-imposing picture, contract law puts duties on persons entering into agreements for consideration whether they want them or not. Until now, very little attention has been paid to the problem of how to tell whether a given rule is power conferring or duty imposing -- a question that should lie at the center of contract theory. This Article argues that two characteristic features of legal powers are an expectation that actors will satisfy the rule with the purpose of achieving the legal consequences and legal rules designed to facilitate such uses. A law might exhibit these features in either of two ways, which define two types of legal powers. Many power-creating laws employ conditions of legal validity, such as legal formalities, designed to ensure the actor\u27s legal purpose. The presence of such validity conditions is strong evidence that the law\u27s sole function is to create a legal power, and I suggest reserving the term power-conferring for such laws. Other laws anticipate and enable their purposive use without conditioning an act\u27s legal consequences on the actor\u27s legal purpose. The structure of such laws suggests that they function both to create powers and to impose duties. I coin the term compound for laws that satisfy this description, and argue that the contract law we have is a compound rule. The dual function of compound rules provides empirical support for pluralist justifications of contract law. An example of such a theory can be found in Joseph Raz’s comments on the relationship between contract law and voluntary obligations