Should all contracts be enforceable?

[Khun Jean]

Is there something wrong with my contribution to this discussion? I am trying to respond with reason to your suggestion that there can be no free market without enforceable contracts.



I move out and spread far and wide your reputation for going back on your word. I take advantage of the numerous reputation-rating services that would crop up in a free market and let them know in detail just what you did. Next time you try to rent your house or enter any business transaction, you either must lower your price to lure a new partner or you may not be able to do business at all because you screwed up your reputation. This is why you would be very foolish indeed to act that way.

On the other hand, if you think that using the courts to enforce contracts is a nifty and efficient system, you must never have tried to do it. In your scenario, the owner of the house would tell you to leave and you would refuse. So he would turn off the lights and the water. Then he would change the locks. You would pay a lawyer to go to court to enforce the lease but in the meantime he sells the house. You get a judgement against him and he tells you to ram it. You got screwed anyway. The only difference is that in this scenario you wasted some money on a lawyer.

My goodness, is this all theoretical stuff, because it sure never will happen in real life.
If the case an enforceable contract is made, the house owner can not remove the tenant if he wants to, the conditions for that would be in the contract, like not paying the rent or not taking care of the house or anything else mentioned. The tenant will be secure that he will not be evicted just like that. If a home owner switches of the lights or water enforcement of the contact becomes very important. The tenant probably started to build their lives around their 'shelter', maybe kids going to a school nearby, have a job etc. Why would protecting both the owner and the tenant according to the contract they both agreed upon not be desirable?
In business, would a business invest money when they can be be evicted whenever the realestate owner wishes. How about when business lease land, build a store and when everything starts to make a profit, the owner comes in and says, leave now? Sorry but all business, lease and rental will stop when enforcements of contracts is not available.
You have to keep in mind that not all people are trustworthy, and in my house rental example i even stated that the owner 'needed to sell the house or double the rent'. So even very trustworthy and honarable people can get in situation out of their control. Why would protecting your part of the contract not be desirable, even necessary to keep things honest. Because not everybody is your friend, family or neighbor you can trust. Most business takes place between total strangers.

 

[Khun Jean]

..

 

[pcosmar]

My goodness, is this all theoretical stuff, because it sure never will happen in real life.

I am not saying all contracts are bad. Only that they are very often unnecessary.
The OP posed the question, "Should ALL contracts be enforceable?" and then gave examples of illegal or immoral contracts.

If I shake hands on an agreement, (Such price for such repair) it is a contract in a sense. I will honor it. But it is not likely enforceable by law.
On the other hand. I have been sued in court when there was no contract and I had no obligation to pay. And I lost.
I have still not paid one dime and have no intention of doing so. Ever.
Are all contracts enforceable? NO.

 

[fisharmor]

My goodness, is this all theoretical stuff, because it sure never will happen in real life.

I think you might want to re-read the post right before this one before making blanket statements.
It already does happen in real life.

 

[dannno]

My goodness, is this all theoretical stuff, because it sure never will happen in real life.

What are you talking about?! This stuff happens every single day!! Have you ever gone somewhere and paid for something, didn't like it and stopped going there? Have you ever gone somewhere an paid for something, liked it and went back later or recommended it to a friend? Ever looked at a review online? All of these things would be much more available and in demand if the government didn't give people moral hazard to assume that everything is OK because they have magic departments that keep everybody safe and clean.

The point is that if you run a crappy business, you can only survive if the supply is being artificially stunted by government and you are lucky enough to be apart of the monopoly or oligopoly. Otherwise if the free market is allowed to thrive, then there is nothing stopping a competitor from coming in and running a tighter ship and taking away your tenants, customers, employees, etc..

On the other hand, I agree that in some cases where you don't know the person you are dealing with, a contract can be a handy alternative to protect yourself. As far as what should be enforced, I covered that in an earlier post.

 

[Acala]

My goodness, is this all theoretical stuff, because it sure never will happen in real life.
If the case an enforceable contract is made, the house owner can not remove the tenant if he wants to, the conditions for that would be in the contract, like not paying the rent or not taking care of the house or anything else mentioned. The tenant will be secure that he will not be evicted just like that. If a home owner switches of the lights or water enforcement of the contact becomes very important. The tenant probably started to build their lives around their 'shelter', maybe kids going to a school nearby, have a job etc. Why would protecting both the owner and the tenant according to the contract they both agreed upon not be desirable?
In business, would a business invest money when they can be be evicted whenever the realestate owner wishes. How about when business lease land, build a store and when everything starts to make a profit, the owner comes in and says, leave now? Sorry but all business, lease and rental will stop when enforcements of contracts is not available.
You have to keep in mind that not all people are trustworthy, and in my house rental example i even stated that the owner 'needed to sell the house or double the rent'. So even very trustworthy and honarable people can get in situation out of their control. Why would protecting your part of the contract not be desirable, even necessary to keep things honest. Because not everybody is your friend, family or neighbor you can trust. Most business takes place between total strangers.

Your view of the way "enforceable" contracts work in the real world is theoretical and bears little resemblance to the reality. Contracts don't magically enforce themselves. They are ignored routinely and the cost of getting a court to intervene is prohibitive and usually unsatisfying. Furthermore, in cases like you describe where one party's financial condition forces him into a breach of the contract, what do you think a court is going to be able to do about that? Courts can't make people pay when they have no money. In fact, they don't even try.

I clerked for a Federal judge for a year. He was a very smart fellow. And one of the things he always used to tell the parties in the cases in front of him was this: "There is always a price to be paid for doing business with the wrong people. And litigation will never save you from paying that price." Truer words were never spoken.

 

[Khun Jean]

You all just give examples about small little things that when gone wrong have no real consequences. Stop comparing 'contracts' with a sale. A sale has 'ceveat empor'.
Contracts are important for the bigger 'deals'. Without contracts they will never make a 'deal' otherwise.
If a company spends 20.000.000US$ to build a mall on leased land do you really think that will happen when contracts are not enforceable.
Do you really believe they will start saying, this landowner is really a bad guy, you know spread the news that man is really bad, whoo hoo listen to what he done to me, and leave it at that?
Truth is, that mall will never be build, the land will never be leased out, the shops in that mall will never exist, the people who would have jobs would still be without work. The 'Free market' would come to a complete abrupt stop when contracts are not enforceable. You will end up like a third world country, i have been to a few so i know the difference, and trade trinkets on the market, leaving the bullies with the bulk of business.

 

[pcosmar]

You all just give examples about small little things that when gone wrong have no real consequences. Stop comparing 'contracts' with a sale. A sale has 'ceveat empor'.
Contracts are important for the bigger 'deals'. Without contracts they will never make a 'deal' otherwise.
If a company spends 20.000.000US$ to build a mall on leased land do you really think that will happen when contracts are not enforceable.
Do you really believe they will start saying, this landowner is really a bad guy, you know spread the news that man is really bad, whoo hoo listen to what he done to me, and leave it at that?
Truth is, that mall will never be build, the land will never be leased out, the shops in that mall will never exist, the people who would have jobs would still be without work. The 'Free market' would come to a complete abrupt stop when contracts are not enforceable. You will end up like a third world country, i have been to a few so i know the difference, and trade trinkets on the market, leaving the bullies with the bulk of business.

If a company is going to spend 20 million to build,, why not just spend the few thousand an acre to BUY the land?

 

[Khun Jean]

That is just a nonsense answer. A few thousand an acre is probably not the right location. How about a few million per acre.
I feel like i am in kindergarten. Nobody here old enough to have some business experience?

I think it is time for some 'mises'.
http://mises.org/resources.aspx?Id=73a08308-9978-4cb7-a7de-26a2b5a5524d

Make sure you understand the difference between a 'promise' and a 'condition'.

 

[pcosmar]

That is just a nonsense answer. A few thousand an acre is probably not the right location. How about a few million per acre.
I feel like i am in kindergarten. Nobody here old enough to have some business experience?

Perhaps, depending on location.
I would not build on land I do not own. and would not bet a business on the whim of a land owner.
Contracts can always be broken. and that would leave your $20 million investment on someone elses land.

Oh, and you can keep age out of it. I'm 54 and own a 20 acre small farm.

 

[Khun Jean]

You own a farm, but from your responses it is clear you have no idea about how business elsewhere is done.
Land in prime locations are most of the time not for sale, only lease contracts are available. If the location is that important to a business, a contract is vital, for both parties. Again they would have to write down 'conditions' in the contract, not 'promises'. When a contract is broken, the 'conditions' have to be enforced. Otherwise there is no value in a contract and no business will take place. Without enforceable contracts no 'free market', but a 'the strongest wins' market.

Already read some 'mises'? Because if you support Ron Paul, you should at least know how contracts are enforced in a libertarian society.

 

[WilliamC]

For a great old SciFy short story on a society where everything gets done by verbal agreement and mutual exchanges of obligations, and what happens to newcomers who develop a reputation for reneging, read 'And Then There Were None' by Eric Russell, published way 'fore I was born in 1951.

free here http://www.abelard.org/e-f-russell.php

Kind of dated in language but a great conceptual read.

 

[sratiug]

You live in dreamworld.
No need to discuss this further.

If you have no rebuttal to my obviously irrefutable logic, the correct thing to say is, "oh, I see your point... you are so right! And I'm so glad you have pointed out the evil involved in contract law and enforcement before I wasted any more time attempting to earn an unconstitutional title of nobility in order to participate in immoral actions." I'm assuming of course that you are studying law. Is that true? Are you studying to earn a law degree?

 

[dean.engelhardt]

Specifically, should a contract be enforced if it contains illegal activity? For example, should a contract with a hitman be enforced? Should a contract to buy/sell drugs be enforced?

I asked this question to my contracts professor and she was only able to tell me that it is not in the public interest. Not satisfied with this answer I now come here.

I know a major part of libertarian ideology is the enforcement of property rights and contracts so I am very interested to hear the thoughts of this forum. I am also curious as to how different schools of thought address this question. Thanks!

How does one become a contracts professor and not know the correct answer to this question? The four pillars/corners of a contract are 1) legal intent 2) capacity 3) agreement and 4) consideration. Contracts involving illegal activity cannot be enforced in a court of law.

I am not saying that a hitman or a drug dealer won't enforce it themselves, it won't stand up in a court of law.

 

[dannno]

Land in prime locations are most of the time not for sale, only lease contracts are available.

Nonsense, everything is for sale. They just don't put up for sale signs because leasing is an investment for them.

If you offer enough, they will sell it to you.

 

[dean.engelhardt]

Specifically, should a contract be enforced if it contains illegal activity? For example, should a contract with a hitman be enforced? Should a contract to buy/sell drugs be enforced?

I asked this question to my contracts professor and she was only able to tell me that it is not in the public interest. Not satisfied with this answer I now come here.

I know a major part of libertarian ideology is the enforcement of property rights and contracts so I am very interested to hear the thoughts of this forum. I am also curious as to how different schools of thought address this question. Thanks!

A google search of illegal contract will give you much better information than your professor:

The following are six elements that are to help to determine whether or not the basic components ar present and meet legal criteria for a valid contract:

All parties must have capacity to enter the contract.

An offer must be made.

Consideration must be exchanged.

The parties must be in mutual agreement.

The contract's object and purpose must be legal.

The form of the contract must meet the legal requirements. http://www.otto-graph.com/samples/3/contractlaw.html

I would seriously consider the merits of your professor because this is basic contract law knowledge. I would ask the your Dean the same question, if he doesn't know the answer, I would withdraw from the school.

 

[sratiug]

A google search of illegal contract will give you much better information than your professor:



I would seriously consider the merits of your professor because this is basic contract law knowledge.

I'm sure his contract with the school guarantees that he receive top quality instruction from knowledgeable professors and the courts will sort this all out.

 

[pcosmar]

You own a farm, but from your responses it is clear you have no idea about how business elsewhere is done.
Land in prime locations are most of the time not for sale, only lease contracts are available. If the location is that important to a business, a contract is vital, for both parties. Again they would have to write down 'conditions' in the contract, not 'promises'. When a contract is broken, the 'conditions' have to be enforced. Otherwise there is no value in a contract and no business will take place. Without enforceable contracts no 'free market', but a 'the strongest wins' market.

Already read some 'mises'? Because if you support Ron Paul, you should at least know how contracts are enforced in a libertarian society.

How many contracts have you entered into? I have had several.
Are contracts broken? All the time.

And I won't even get into the contracts that were placed on my life. (2 that I know of)

I have been able to break a contract, or more accurately,, cause the other party to break the contract to my benefit.
I have also fulfilled contracts. I do know a little and none of it was Book Learning.
I have had some actual experience with contracts of various types.

So I ask again? How many contracts have you entered into?

 

[Khun Jean]

How many contracts have you entered into? I have had several.
Are contracts broken? All the time.

And I won't even get into the contracts that were placed on my life. (2 that I know of)

I have been able to break a contract, or more accurately,, cause the other party to break the contract to my benefit.
I have also fulfilled contracts. I do know a little and none of it was Book Learning.
I have had some actual experience with contracts of various types.

So I ask again? How many contracts have you entered into?

As a owner of several apartments, land and having a few businesses i have many contracts. Probably in the thousands signed, if i make an estimate there would be a few dozen type of contracts.
Most contracts are like "i give you something" and "you give me something in return".
I do my part of the contract and they do theirs.
If they do not then in fact they 'steal' from me. This is very enforceable, and in cases that i had to go to court i won.
I honor my contracts, so i have never been in a situation that i have 'stolen' from someone. Never had to go to court to defend myself.
The smallest contract i make is a subscription. I deliver hardware and services and to cover costs and make a profit i make 3 year contracts.
If someone decides to break the contract they would have to pay the balance, i go to court if needed. If by some misfortune they are unable to fulfill the contract i have provisions for that and try to make a deal so that i not make a loss and they don't have the burden to have to pay me for the remainder of the contract.
Without contracts i would not be able to have viable businesses, and my customers would not be able to use my products and services.
If i would break a contract my customers not really have a good case to get compensation. A customer has the power to not pay me when i not deliver, that is in most cases powerful enough. For instance if i rent out an apartment and the heater is broken and i don't fix it, they are in their right to stop payments to me until i fixed it, or they fix it themselves and send me the bill. Contracts should be fair to both parties.

 

[Khun Jean]

Nonsense, everything is for sale. They just don't put up for sale signs because leasing is an investment for them.

If you offer enough, they will sell it to you.

You are right everything is for sale, but that is only theory.
Example, if i bought some land for a million and lease it out for 10.000 a month. Would a business that would like to lease it from me suddenly be capable of buying it? Because my asking price would be 10 million. So yes of course it is for sale, but is it practical or even possible? No!