Promissory Fraud Without Breach

This Article, in keeping with the theme of this Symposium, explores the possibility of promissory fraud liability where there is no breach of contract. It is well known that mere breach of contract is not sufficient to make out a claim of promissory fraud. This rule makes eminent sense, for a promisor who initially intended to perform may have later changed her mind. Here we pose the converse question: is it possible to have promissory fraud liability without a breach

The good faith principle in contract law and the precontractual duty to disclose: comparative analysis of new differences in legal cultures.

The purpose of this paper is to delineate new similarities and future differences between legal systems, using pre-contractual liability and good faith. Instead of focusing on the differences between common law and civil law, we focus our attention on the gap between Europe, England included, and United States. All over Europe, under the influence of good faith jurisprudence, duty to inform has been extremely broadened. Contemporary debate confirms that European Legal Academia overemphasizes the importance of the quest for central common principles of European private law, like Good Faith and obligation de renseignement, and ignores questions regarding cost-benefit effects of disclosure, parties informational rent seeking and general policy considerations. A stereotyped legal doctrine, concentrating on the influence of EU directives on national legal system and, in some cases, unification as a forthcoming national-positive law can create an undesirable effect in the creation of future case law.

Regulating Contract Formation: Precontractual Reliance, Sunk Costs, and Market Structure

This Article challenges the plausibility of the prospect of underinvestment in precontractual reliance (PCR). We argue that a negotiating party is motivated to invest in PCR not only through her expectation to extract the benefits that the investment yields (Added-Value Motivation), but also through the effect of the investment on her position vis-à-vis her competitors (Competition-Based Motivation). We demonstrate that under plausible assumptions, when a negotiating party operates in a relatively competitive market, the Competition-Based Motivation is frequently sufficient to induce optimal PCR, even without appropriate contractual provisions or legal intervention. We suggest several normative implications. First, legal intervention that is aimed at encouraging PCR is generally unwarranted. The forces of competition provide adequate investment incentives, and the regulation of contract formation should only facilitate their operation. We thus justify the reluctance of both positive law and commercial parties from imposing precontractual liability in cases of failed negotiations. Second, the analysis demonstrates that when one party (e.g., the supplier) operates in a competitive market of “professional” repeating players, the other party (e.g., the purchaser) is better off limiting the number of bidders (suppliers) with whom he negotiates. This result suggests that in such cases, from an efficiency perspective, a party (including a public authority) should be allowed to limit the number of suppliers with whom he conducts negotiations. By contrast, when suppliers operate in a competitive market of accidental, one-time players, the purchaser has an interest in encouraging excessive entry of suppliers into the negotiations, and legal intervention aimed at regulating the purchaser’s behavior can be justified. This result may justify, for instance, imposing a duty on employers to pay for training periods of potential employees. Third, legal intervention is justified in order to prevent manipulation of bidder’s assessment of their prospects to receive the contract. The analysis supports a rule that prohibits an auctioneer from receiving an offer that was submitted outside of the auction’s procedures, and a rule that disallows changing “the rules of the game” after the bidders already invested in PCR. Fourth, we show that when legal intervention is justified in the negotiation stage, the appropriate measure of damages that should be awarded is the plaintiff’s expectation interest. We also demonstrate that the difficulty in assessing this value when a contract is not formed can be resolved by approximating this value according to the sum of PCR for all bidders. Finally, we offer a new rationale for imposing disclosure duties (as well as other mandatory requirements to invest in PCR). We show that, in certain cases, such investment is allocated to the party who operates in a competitive market, even if it is efficient for the other party to bear this cost. Legal intervention is essential in such cases to resolve this inefficiency in the allocation of PCR. We refer in this respect to the case of Laidlaw v. Organ, and demonstrate why imposing a duty to disclose information is not expected to adversely affect a party’s incentive to invest in acquiring information

La etapa precontractual en la contratación mercantil

En el tráfico mercantil, el contrato, como acuerdo de voluntades, es esencialmente el resultado de un proceso de aproximación de posturas que tiene lugar en un determinado contexto transaccional. La extensión y la complejidad del proceso de deliberación, negociación de condiciones y formación del contrato dotan de una significativa relevancia a los tratos preliminares y al conjunto de situaciones previas conducentes a la perfección del contrato. En el Anteproyecto de Ley de Código Mercantil, se incluyen dos disposiciones (artículos 412-1 y 412-2) que, aunque escuetas, representan la primera expresión normativa en nuestro derecho positivo de los deberes propios de la fase preparatoria en la contratación mercantil