|
Date: Wed, 4 Jul 2007 07:38 From: Fergus Farrow Subject: A Positive Law Theory of Contract
Dear List Members SSRN Working Paper: “A Positive Law Theory of Contract” May I draw to the attention of list members my paper “A Positive Law Theory of Contract” which I have recently posted online on the Social Science Research Network website. The paper may be downloaded from here. Why a positive law theory of contract? To start with, because conventional theories of contract, with their preoccupation with the question as to the moral justification for the use of the force of the state to enforce contractual obligations, have failed to explain many of the decisions of the courts in cases involving contractual disputes. An example of such a failure is the inability of conventional theories to explain the basis of the decisions of the courts in implied terms cases, especially in those cases where neither party turned its mind to the subject matter of the implied term. A further reason to consider a positive law theory of contract is because we have already replaced, in recent decades, a natural law based theory of criminal law with a positive law theory of that body of law, and perhaps a parallel development in contract law may be opportune. What is the ground for a positive law theory? The starting ground for such a theory is the observation that property is not an inherent characteristic of the world around us, but, rather, it is an abstract legal construct. Because it happened millennia ago, we have tended to forget, in relation to the institution of a regime of property, that the institution of such a regime required the positive law action (of a remote predecessor state) to bring such a regime into existence in the first place. In carrying out that task, the predecessor state had to:
It is not at all difficult to accept that the above steps involved the predecessor state using its sovereignty to make practical, secular positive laws along those lines. The more difficult problem in the development of a positive law theory of contract is to provide an account of the basis upon which the courts have acted when they exercised their power to resolve disputes about whether, and in what manner, the parties had altered their respective property rights. Natural law theories, of course, deal with that problem on the basis that the courts have had regard to moral principles when resolving such disputes. However, in my positive law approach to this problem, I demonstrate that the decisions of the courts in such cases can be explained on the basis that the scope of the court’s exercise of their power to resolve such disputes has been constrained impliedly, if not expressly, by a body of propositions, or principles (in the logical rather than moral sense), which are logically entailed by the positive law meaning of property. This is not to say that the courts have set down expressly the principles in question, and have then applied those principles expressly when deciding cases. Indeed, there is no evidence to suggest that they have followed such a path. However, it may be observed that if, broadly, the decisions of the courts in relevant cases were not consistent with the meaning of property, and of the propositions logically entailed by the meaning of property, then the decisions of the courts in cases involving disputes about property rights would become, over time, logically incoherent. Such an outcome would, of course, have been unacceptable to commercial entities, and, in turn, to the state. Therefore, to the extent that the body of decisions in question are, on the whole logically coherent, it follows that the courts have at least had an intuitive awareness of the need to ensure that their decisions are consistent with the meaning of property, and with the propositions entailed by that meaning, and have made their decisions accordingly (in the precedent cases in particular). Thus, on this argument, the principal task of a positive law theory of contract is to identify the propositions, or principles, entailed by the meaning of property, and to test the explanatory value of those principles by applying them in the examination of the decisions of the courts in relevant cases. The positive law meaning given to private property, or rather the meaning given to the ownership of property, is straightforward enough, namely: an owner of an item of property holds an exclusive right, recognised and protected by the courts, supported by the power of the state, to the use and possession of that item of property, subject to the operation of the law of the state otherwise (including, for example, the revenue laws). In examining what is entailed by that meaning, it is noted that, in the absence of a law to the contrary, an owner’s exclusive right to the use of her property extends to her having an exclusive power to alter her property rights in whatever manner chosen by her. It may be further noted that an owner’s exclusive power to alter her property rights implies, as a matter of legal principle, the principle that: A cannot alter, unilaterally, the respective property rights of A and B. It further follows from that non-unilateral principle that if parties are to alter their respective property rights, they must let each other know what they are doing, and they must act mutually, resulting in the principle that: if parties are to alter their respective property rights in certain respects, then they must communicate, one to the other, the mutual message that they are altering their property rights in those respects. There is a corollary to the mutual messages principle, namely that: if parties communicate, one to the other, the mutual message that they are altering their respective property rights in certain respects, then they have altered their rights in those respects (subject to the law otherwise). There is a further principle, namely that because an owner has been provided by positive law with an exclusive power to alter her property rights in whatever manner she chooses, then, in the absence of any positive law authorisation to the contrary, the courts are precluded from substituting their decision, for the owner’s decision, as to how an owner should have, or may have, altered her property rights. Those principles, once they have been identified, can be applied in the examination of the decisions of the courts in cases involving disputes as to whether, and in what manner, parties have altered their respective property rights. An example of one such class of case is where a court has found that the contract made by the parties contains an implied term. However, on the basis of one of the principles implied by the meaning of property, the court itself is precluded from inserting, of its volition, such a term into the contract. It therefore follows that the parties, by their conduct, must have caused the implied term. However, the only way in which that proposition can make sense is that the parties have communicated an implied message that their contract contain the implied term. For this reason my paper contains an examination of the admittedly complex, and not at all self-evident, rules of social discourse governing the use of implied messages. However, when those rules of discourse are applied to the facts of implied terms cases, it can be shown that the parties have indeed, in such cases, communicated a mutual implied message that the subject contract is to contain an implied term. I also apply the principles entailed by the meaning of property to the decision in Smith v Hughes (1871) LR 6 QB 597 that parties are bound contractually by what they say and do, notwithstanding that one of the parties was labouring under a mistake and held a subjective intention to enter into a contract with different terms to the contract arising out of what the parties said and did. The decision in that case can be explained on the basis that if the parties were not bound by what they said and did, then the mistaken party would have succeeded in altering, unilaterally, the respective property rights of the parties, because the contract found by the court would contain a term which the other party had not agreed to, namely a term that the mistaken party was allowed to void the contract at will should he discover that he was labouring under a mistake. More generally, I argue that the principles entailed by the meaning of property set up, as it were, the rules of the game in which parties set about altering their respective property rights, in circumstances where that game was made possible by the positive laws by which the state instituted a regime of private property. On that basis, the use of force by the state in order to enforce contractual obligations is justified in terms of the need to ensure that the game operates effectively, thereby negating conventional morally-based justifications for the use of force for that purpose. The moral issue is then shifted back to the moral justification for having a regime of property in the first place, and it is also shifted to the issue as to what ameliorative positive laws should be enacted for the purpose of injecting fairness into contractual relations. The principles entailed by the meaning of property are also applied for the purpose of explaining the basis of the decisions of the courts in mistaken payment cases. Those principles are also applied in a critical examination of the doctrine of consideration, and the doctrine of promissory estoppel.
Fergus Farrow Fergus Farrow
Phone: (61 3) 9225-6526 mobile: 0412-130-585 Fax: (61 3) 9225-7884 DX 98
<<<< Previous Message ~ Index ~ Next Message >>>>>
|
»
»
»
»