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A
key characteristic of a "civil society" is autonomous economic
organization and transactions."(Keith, 19947) The belief that giving
individuals the freedom to maximize their own wealth results in the maximization
of society's wealth is a cornerstone of capitalist philosophy. As the noted
economist Keynes stated in his defense of capitalism during the depression of
the 1930s, the allocative efficiencies and experimental creativity achieved
through autonomous economic organization and transactions are "powerful
instruments to better the future."(Keynes, 1936) Moreover, the rule of law
is a predicate for achieving autonomous economic organization and transactions.
(Thornburgh, 1995) The rule of law has two basic principles. First is that
people should be ruled by the law and obey it, and secondly, the law should be
such that people will be able to be guided by it. (Segall, 1994) Hence, the
rule of law assures that individuals know what the law is so they can maximize
their own welfare within its confines. It also assures that individuals can
pursue this wealth-maximizing autonomy without interference from either other
individuals or the state. By assuring that the law is applied equally to all,
is binding on the state, and prevents arbitrary actions by the state, the rule
of law provides the freedom for the members of a "civil society" to
order their own economic affairs. (Michael, 1988)
strong relationship between the rule of law and Western contract law. In the
West, it is believed that the objective and predictable enforcement of
contracts is desirable because it maximizes the welfare of the parties
involved, thus promoting the welfare of society as a whole. (Farnsworth, 1990)
Individuals enter into contracts because they believe that an exchange will
make them each better off. Where contracts are enforced in an objective and
predictable manner, individuals are better able to determine which transactions
will be wealth-maximizing and are able to shift the risk of uncertain events in
economically efficient ways. On the other hand, where contractual enforcement
is subject to changing state policy wealth-maximizing transfers may be voided
by the state or never attempted due to the risk of contractual non-enforcement.
Further, the resolution of contractual disputes by a legal system that is an
impartial mediator of interests is beneficial for society because it
establishes rules to resolve future disputes and "encourages socially
desirable behavior by future bargainers."(Scott and Leslie, 1993)
center of contract theory is the role of default roles. Contracts are
necessarily incomplete and therefore a court or legislature must fill gaps.
Recent scholarship has recommended that a lawmaker charged with this task look
beyond the individual parties to a contract. This scholarship suggests that a
default role can be designed to induce an equilibrium at which parties of one
type accept the default role while parties of another type, to whom the role is
costly, opt for an alternative contract term and thus reveal their type. When
such a role works as intended, the revealed information permits efficient
contractual arrangements and enhances social welfare. Explained this way, as an
abstraction, the analysis seems simple and sound. The devil, though, is in the
details. A default rule might fail at separation for reasons that have so far
escaped scholars. The analysis of default rules thus requires amendment.
Moreover, where two parties have made a contract which one of them has broken,
the damages which the other party ought to receive in respect of such breach of
contract should be such as may fairly and reasonably be considered either
arising naturally, i.e., according to the usual course of things, from such breach
of contract itself, or such as may reasonably be supposed to have
been in the contemplation of both
parties, at the time they made the
contract, as the probable result of the
breach of it.
this venerable rule has taken on a new aspect. A party who will suffer
exceptional damages from breach need only communicate her situation in advance
and gain assent to allowance so that the damages are unmistakably "in the
contemplation of both parties" at the time of contract. The economic
question, then, is not whether a damages limitation is inherently sensible but
whether a rational rule would impose the burden of contracting for exceptional
damages on those who wish to avoid the limitation. Abundant contract
scholarship supplies an explanation of why one might answer this question with
a yes. (Bebchuk & Shavell, 1991) The idea is that the party who bears
special risks from breach should identify those risks so that the party with
whom she contracts is on notice to take the proper precautions wherever
necessary. The alternative, broad insurance for all unless such insurance is
disclaimed, would waste contracting costs for disclaimer in the ordinary case
or, absent disclaimer, would yield inefficient precautions taken to avoid
indiscernible risks. A penalty default is a rule intended to encourage opt-out
by a party with private information that she will disclose when contracting for
an alternative to the rule. A party who will suffer exceptional loss from
breach is denied damages for such loss if her contract is silent. She can avoid
the default rule by proposing that the contract include insurance against
exceptional loss. With this proposal, she identifies herself as someone at risk
of such loss and permits her counterpart to take, and charge for, efficient
precaution. Furthermore, the literature on incomplete contracts diverges from
the law-and-economics literature, though they overlap in many ways. The theory
of incomplete contracts was motivated primarily by descriptive curiosity about
the nature of private contracting, not about contract law. As a result,
contract law is usually treated in an exceptionally simple manner, as a system
that specifically enforces contractual terms when the underlying behavior can
be verified by courts. (Ayres and Gertner, 1989) This assumption enables
scholars to focus on the parties' choice of contractual form. By contrast, law
and economics generally assumes that parties choose simple contracts-contracts
with a fixed price and quantity and sometimes a liquidated damages clause, and
focuses on the effect of different legal rules on contractual behavior.
Context of English Law
contract is characterized as an agreement where an individual accede to attend
another who commence to compensate the former with wages and
between them exclusive sense of duties of the kind theoretically known as
obligations, duties which as a minimum in the first instance can be imposed only
by and against the factions to the transaction.
there will always be hindrances and imperfections in transactions. Contracts
might become incomplete due to several reasons, which in turn could be
perverted or unintentional. Several legal actions that may be undertaken in the
occurrence of an uncompleted contract include the concept of breach of contract
and misrepresentation. The former is characterized as the failure with the lack
of lawful justification to perform any promise which forms the whole or part of
a contract. This basically states that one party refuses to explicitly and
totally refuse to perform the agreement. The latter, on the other hand, is
described as an erroneous or fabricated representation that which if
acknowledged, directs the mind to an apprehension of a circumstance other and
dissimilar from that which exists. Simply speaking, the thrust of
misrepresentation is to deceive and to mislead from the inception of an
agreement.
most cases, reparation will be of such amount as to place an aggrieved party,
inasmuch as funds could comply, in the same situation as if the contract had
been completed although it is still subjected to the rule that damages are not
to be prearranged for casualties of an exceptional category. In a number of
cases, the reparations permitted by law are simply nominal. To illustrate, for
an unsuccessful payment of a liabilities at the period decided upon, nothing
further than the quantity of the debt itself could be retrieved. Conversely, in
the instance of breach of promise of marriage, reparation that may go beyond
the financial loss, are prearranged as a compensation for indignant feelings. A
contract occasionally provides that a particular figure shall be remunerated on
breach, and regulations have been positioned for deciding whether such a sum is
to be reckoned as a punishment. The verdict will turn barely to a minor degree
on the issue whether the manifestation of 'penalty' or 'liquidated damages' has
been utilized in the agreement. Destructive duties stated in a contract may as
well be obligatory through an injunction, another of the court preventing the
responsibility of an undertaking. In certain circumstances, a positive
obligation may be imposed by order for particular performance, a solution which
is approximately limited to agreements for the sale or conveyance of interests
in land, and for the turning over of other property which is so inimitable or
degree that damages would be an insufficient resolve. The court has a
prerogative in yielding an injunction and an instruction for specific
performance and in carrying out the discretion will have take into account all
the conditions of the case, and especially to the demeanor of the party
appealing for it. Nonconformity with an injunction of either kind will be
sanctioned by incarceration. (Geldart,
1995)
the other hand, the misinterpretation theory reaches this conclusion by
interpreting all promises as representations about the promisor's future
conduct. A person who promises to give a friend a ride has made a definite
statement about what will happen in the future. If she then fails to come
through with the ride, her failure makes this statement about the future a
false one, thereby violating the obligation to tell the truth (in addition to
causing harm). By contrast, a person who says that she will probably give her
friend a ride, but who reserves the right to change her mind, has made a much
weaker probabilistic statement about the future. That person's failure to
perform would not make her previous statement false, and therefore would not
violate the obligation to tell the truth, even though it might cause the same
amount of harm to her friend. According to the misinterpretation theory, this
is why a person who promises to give her friend a ride has a stronger reason to
do so than does a person who has merely said that she is likely to give her
friend a ride, without actually promising.
the obligation to tell the truth appears here in what may be an unfamiliar
guise. The obligation has some elements of strict liability, for it is no
defense to say that at the time of promising the speaker
true. In addition, the obligation to tell the truth is perhaps more usually
thought of as an obligation limiting what one is allowed to say, by obliging
people not to say anything that is false. Under this theory, though, the
obligation limits what speakers can do,
by forbidding people from doing anything that will make their prior statements
turn out to be false. Rather than requiring people to conform their statements
to reality, the misinterpretation theory of promising requires people to act in
such a way that reality will conform to their prior statements. (Fogelin, 1983)
misrepresentation made by one person to another with the purpose and effect of
inducing him to enter into a contract with the former, will entitle the latter
to avoid the contract, if it is a misrepresentation as to some material fact. A
declaration of opinion is not and does not befit a misrepresentation for the
reason that the opinion ended up to be erroneous or the purpose is not
accomplished.
the instance where a representation is not purely false, yet is recognized to
be so to the individual who renders it, or is made it heedlessly devoid of
concentration whether it is true or false, it is identified as fraud or deceit.
For the rationale of giving a right to averting of the contract, it establishes
diminutive variance whether a misrepresentation is innocuous or deceitful, save
that it will be harder to resist the inference that a fraudulent
misrepresentation was made for the purpose of inducing the contract. And when a
verdict has been achieved, especially when the transaction has been
accomplished by conveyance dissimilar outcomes will be given to an innocent and
a fraudulent misrepresentation. The former will not have the right to be set
aside while the latter will. Generally, there is no obligation compelling a
party to any intended contract to make a disclosure to the other of material
facts which might affect his judgment. (Geldart,
1995)
Pursued than Breach of Contract
analyzing the fundamental reason why litigators are prevalently pursuing for
misrepresentation as compared to breach of contract. The attributes of the two
legal actions are already discussed in the previous part of this paper. In the
context of English law, prosecuting for misrepresentation is less complex compared
to breach of contract. The two differs primarily on the calculation of damages,
the possibility of rescission and the burden of proof. These are the factors
why litigators prefer misrepresentation. In a breach of contract, damages are
paid based on the position of the plaintiff after the contract has been
performed. This is beneficial for the plaintiff considering the fact that he
will be able to acquire the profit he deserves had there been no breach in the
agreement. On the other hand, misrepresentation will only have reparation for
the invested resources of the plaintiff. In this case, when a verdict of
misrepresentation is given, the plaintiff will be able to acquire what had been
lost due to a misrepresentation. The effect will be similar to the fact that
the plaintiff had never entered into a contract. Therefore, a greater
availability of rescission is present on misrepresentation rather than that of
breach of contract. Although there is an absolute possibility that the
rescission of the contract is accessible, reparations for the plaintiff is not
taken for granted. (Geldart,
1995)
misrepresentation suits is the burden of proof. In the suit of breach of
contract, the plaintiff has the burden of proof whether a violation of the
agreed covenant among parties has transpired. On the other hand, a
misrepresentation suit provides the burden of proof to the accused party.
Consequently, if the defendant is not able to emancipate his evidential
burden and acquire the justification of reasonable belief, the claimant should
come off in its claim and salvage those losses which he can demonstrate were
instigated by the misrepresentation. Thus, it may be easier to prove a
misrepresentation claim than a breach of contract. For that reason, the
misrepresentation is asserted as a contingency plan to the contractual
accusation. (Geldart, 1995)
Farnsworth,
E. A. (1990) Contracts.
2nd Ed.
Fogelin,
Richard. (1983) Price on Promising: A Limited Defense", 21 J. HIST. PHIL.289;
Hanfling, supra note 12, at 24-25.
English Law.
Keith,
R. (1994)
Struggle For The Rule of Law. St. Martin’s Press,
Keynes,
J. (1936) The General Theory of Employment, Interest And Money. Harcourt,
Brace.
Michael,
F. (1988) Law: A Tool of Power, In Yuan-li et al., Human Rights In The People's
Republic of
Boulder, Co. Westview Press.
Scott,
R. & Leslie, D. (1993) Contract Law And Theory. Sage.
Segall,
E. (1994) Justice Scalia, Critical Legal Studies, and the Rule of Law, Geo.
Wash. L. Rev. Vol. 991.
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