Contract Law

We live in times of change, and in such times new contracts are written and old contracts are renegotiated

Whether we are aware of it or not, our lives revolve around contracts. We buy and sell goods and services based on legal arrangements encapsulated in often written but often unread contracts.

Our tickets to go to the movies are contracts. Our valet parking slips are contracts. We agree to all sorts of contracts when we use all sorts of social media platforms. Our jobs, rental agreements, brokerage account opening forms, and mortgage loan applications are all housed in legalese called contracts.

Government and corporate bonds, Islamic sukuk, and municipal bonds are contracts. So are derivatives and many other financial instruments. IMF bailouts are contracts, as are bilateral and international aid programs.

There is even something called social contracts - a kind of unwritten understanding between a people of a country and those who rule over them. More common in developing countries where citizen rights are less well defined in constitutions and civil laws, social contracts are based on expectations and the willingness and ability of ruling elites to fulfil the expectations of those they govern. Failure to fulfil such expectations can lead to upheaval and instability in the concerned country.

There are contracts based on signed documents and there are contracts based on expectations - expectations between friends, business partners, citizens of a country. Expectation based contracts often stem from a common frame of reference. Absent a common frame of reference shared by a group, there will result an expectations gap between group constituents, and that is a recipe for discord.

During decades of turbulent relationships, an Arab head of state was quoted saying to successive Israeli governments pressing him to sign a peace treaty: if we trust each other we do not need agreements, and if we do not trust each other then agreements are useless.

Lawyers would disagree with that but trust and goodwill are important elements in human relationships. Trust and goodwill impact and influence how contracts are implemented between two parties. The more litigious a society is, the less the role of goodwill and trust and the more the role of the written word in regulating human relationships of all kind.

In the 1970 movie (and subsequent PBS TV series) The Paper Chase, a fictitious Harvard University Law School Professor Kingsfield teaches a class on contract law. Using the case study method, Kingsfield famously uses The Hairy Hand case of Hawkins v. McGee to introduce students to contract remedies. In this case, a doctor promised a 100% restoration of a burned hand but instead produced a “hairy hand,” leading to a landmark ruling on expectation damages.

We live in times of change, and in such times new contracts are written and old contracts are renegotiated. To what extent they will be upheld is another story.