Friday, November 18, 2011

On the Common Law Conditions for Contract

I consciously tried to model the conditions for "euvoluntary exchange" after the conditions for a binding, enforceable contract in common law.

Frequent reader (and ex student) Alex Konik writes:

Hi professor munger, I am not sure how much you have looked to contract law for insight on limits to euvolunatry exchange. I am going through my first contracts class here and thought that some common law elements would be interesting, if you have not seen them already. There are fraud and misrepresentation concerns which are clearly not euvoluntary or voluntary. Same with duress, pretty self-evident.

Unconscionability - this is the big fuzzy one and probably most relevant to euvoluntary exchange. The link is good, unfortunately missing a few of the comments, but the main points are there. It can be procedurally void, or the terms themselves can be so one-sided as to make the contract void. This is also relatively new in the common law and pretty uncertain compared to most doctrines. So, (1) the terms were hidden in a maze of language and he probably didnt read/understand them, or (2) he did understand them, but they are just unconscionable.

There are some other interesting ways to avoid enforcement of contracts:
duress by threat

undue influence ("unfair persuasion of a party who [...] by virtue of relation between them is justified in assuming that that person will not act in a manner inconsistent with his welfare") - so contracting with someone you have have reason to trust (177)

various public policy concerns, like if enforcement of terms would violate legislation (no contracts to kill) (178-182)
restraints on trade competition, especially non-compete agreements, unless they are "needed to protect a legitimate interest" (186-188)

I couldnt find a better free version of the restatement online. Anyway, I thought this may be of interest to you. cheers, alex

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Do you have suggestions on where we could find more examples of this phenomenon?