Post by Sapphire Capital on Oct 3, 2008 11:43:15 GMT 4
Mutual Misunderstanding in Contract
Benjamin Alarie
University of Toronto - Faculty of Law
July 16, 2008
CLEA 2008 Meetings Paper
U Toronto, Legal Studies Research Paper No. 08-11
Abstract:
It is accepted throughout the common law that agreements founded on a mutual misunderstanding are void ab initio. It follows from this that unenforcement is necessary and inevitable; indeed, there is simply no contract to enforce. Curiously, however, in cases involving mutual misunderstanding the parties themselves usually believe and behave as if they have settled upon a knowable and enforceable agreement from the outset. It is typically only sometime later that the mutual misunderstanding between the parties comes to light. In this article I question the wisdom of the widely accepted common law rule surrounding mutual misunderstanding. I present and defend an alternative legal rule that significantly improves upon the efficiency of the results in cases involving mutual misunderstanding. The rule I propose would allow each party to an agreement founded on mutual misunderstanding to have the option to enforce his or her reasonable understanding of the agreement vis-à-vis the other party. This rule can be shown to preserve the reasonable expectations of the parties, promote reliance on promises, and provide implicit insurance against the risk that a mutual misunderstanding will interfere with the realization of expected contractual surplus.
papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1161244_code384494.pdf?abstractid=1142941&mirid=1
Benjamin Alarie
University of Toronto - Faculty of Law
July 16, 2008
CLEA 2008 Meetings Paper
U Toronto, Legal Studies Research Paper No. 08-11
Abstract:
It is accepted throughout the common law that agreements founded on a mutual misunderstanding are void ab initio. It follows from this that unenforcement is necessary and inevitable; indeed, there is simply no contract to enforce. Curiously, however, in cases involving mutual misunderstanding the parties themselves usually believe and behave as if they have settled upon a knowable and enforceable agreement from the outset. It is typically only sometime later that the mutual misunderstanding between the parties comes to light. In this article I question the wisdom of the widely accepted common law rule surrounding mutual misunderstanding. I present and defend an alternative legal rule that significantly improves upon the efficiency of the results in cases involving mutual misunderstanding. The rule I propose would allow each party to an agreement founded on mutual misunderstanding to have the option to enforce his or her reasonable understanding of the agreement vis-à-vis the other party. This rule can be shown to preserve the reasonable expectations of the parties, promote reliance on promises, and provide implicit insurance against the risk that a mutual misunderstanding will interfere with the realization of expected contractual surplus.
papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1161244_code384494.pdf?abstractid=1142941&mirid=1