W2 - The Law of Contract Flashcards
(12 cards)
What 2 things does a contract require?
1) Consideration - exchange of something of value that must be sufficient but not adequate
2) Must move from promisee but not necessarily to the promisor
Why do we need contracts for voluntary agreements if they should be self enforcing?
Many contracts are self enforcing, but when there is sequential performance or asymmetric information there is incentive to behave strategically.
Even so, some social pressures and reputation enforces the contract eg. diamond trading in New York
What is the relationship between contracts and risk?
Contracts can be risk shifting devices
- Insurance: transfer risk to insurance company
That risk might not materialise so you regret the contract ex post (no basis to rescind), but ex ante it is Pareto optimising (no one worse off)
What should be the 2 aims of contract law?
1) Ensure contracts are welfare enhancing
- Do not reward deception or misrepresentation - must disclose if circumstances change, doesn’t matter if statement made fraudulently or negligently
2) Incentivise parties to behave efficiently
- No enforcement of illegal contracts
Conflict between autonomy and paternal state
What is frustration, what are it’s conditions and give a case law example
If unforeseen event occurs after contract was agreed that makes performance impossible, illegal or completely different to original, contract can be frustrated
Cannot be caused by one party, not designed to get out of a bad contract, and if there was a provision for the event cannot be frustrated.
Avery vs Bowden
Contract for ship to pick up cargo before Crimean War, subsequently became illegal so contract frustrated.
What is mistake? Give an example
If one or both parties made a mistake over what was being contracted, contract is void as if contract was never made, as the contract may not have been mutually beneficial.
Fang mask Gabon case, antiques dealer bought the mask and sold it for millions. Ruled no deception or mistake. Old couple did not get the money due to their negligence.
What are the 3 principles of mistake regarding how information is acquired to encourage socially valuable information but discourage investment into rent seeking knowledge (distribution/ mere foreknowledge) ?
1) Casually acquired, enforcement rule is distributional
2) Deliberately acquired but mere foreknowledge, duty to disclose information before contracting
3) Deliberately acquired and socially valuable, do duty to disclose
What is the threshold for mistake?
Very high, Devlin says the approach to mistake is too narrow
What happens if a contract is unfair or one-sided like under duress? Give a case law example
If the contract is not voluntary eg. a shop robbery there is no reason to expect it to be Pareto efficient
A contract where ice company delivered ice to brewery in summer. Company demanded higher price due to warm winter causing low supply, brewery agreed under duress as beer would have spoilt. Later refused to pay, ice company sued as won due to the genuine increase in cost. In contrast to the opportunistic ship fishers who had monopoly power.
What is the objective of damages?
Intended to compensate for the loss incurred as a result of breach, putting the victim in as close of a financial position if the contract was fulfilled. Based on loss, not gain.
What is theory of efficient breach?
A promisor should renege the contract if a 3rd party would benefit more. Must pay damages to original promisee. Now overall outcome is more efficient.
