Book contents
- Frontmatter
- Contents
- Preface
- Readings in the economics of contract law
- Part I Some preliminaries
- Part II Contract law and the least cost avoider
- Part III The expectation interest, the reliance interest, and consequential damages
- Part IV The lost-volume seller puzzle
- Part V Specific performance and the cost of completion
- Part VI Power, governance, and the penalty clause puzzle
- Part VII Standard forms and warranties
- Part VIII Duress, preexisting duty, and good faith modification
- 8.1 Duress by economic pressure, I
- 8.2 Gratuitous promises in economics and law
- 8.3 The mitigation principle: toward a general theory of contractual obligation (2)
- 8.4 The law of contract modifications: the uncertain quest for a benchmark of enforceability
- Questions and notes on duress
- Part IX Impossibility, related doctrines, and price adjustment
- Questions and notes on impossibility and price adjustment
- References
- Index of cases
- Author index
- Subject index
8.3 - The mitigation principle: toward a general theory of contractual obligation (2)
Published online by Cambridge University Press: 10 November 2010
- Frontmatter
- Contents
- Preface
- Readings in the economics of contract law
- Part I Some preliminaries
- Part II Contract law and the least cost avoider
- Part III The expectation interest, the reliance interest, and consequential damages
- Part IV The lost-volume seller puzzle
- Part V Specific performance and the cost of completion
- Part VI Power, governance, and the penalty clause puzzle
- Part VII Standard forms and warranties
- Part VIII Duress, preexisting duty, and good faith modification
- 8.1 Duress by economic pressure, I
- 8.2 Gratuitous promises in economics and law
- 8.3 The mitigation principle: toward a general theory of contractual obligation (2)
- 8.4 The law of contract modifications: the uncertain quest for a benchmark of enforceability
- Questions and notes on duress
- Part IX Impossibility, related doctrines, and price adjustment
- Questions and notes on impossibility and price adjustment
- References
- Index of cases
- Author index
- Subject index
Summary
Contract rules policing contractual modification are another response to the heightened risk of extortion in specialized environments. For example, the common-law preexisting duty rule can be usefully contrasted with the more permissive regulation of contractual modification under the Uniform Commercial Code. The preexisting duty rule denies enforcement of a renegotiation or contractual modification where an obligor agrees merely to do that which he is already contractually obligated to do. The rule is primarily designed to reduce the incidence of extortionate modification in construction, employment, and other specialized contractual relationships. …
The preexisting duty rule, however, often fails accurately to mirror the underlying bad faith behavior. First, the rule discourages cost reducing negotiations in addition to threats. Moreover, the obligor satisfies the rule by assuming any additional obligations whether or not the “additional” duties are themselves part of the strategic maneuver. The Code [U.C.C. 2–209(1)] abandoned this ill-fitting rule of thumb and instead applies a general good faith standard. … Because this standard is substantially more difficult to enforce, however, the Code may not deter extortionate renegotiation as effectively as did the common law. Nonetheless, if parties generally execute contracts for the sale of goods in the context of a well-developed market for substitutes, the costs saved through legitimate renegotiations will exceed the increased enforcement costs of policing bad faith modification.
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- Readings in the Economics of Contract Law , pp. 199 - 200Publisher: Cambridge University PressPrint publication year: 1982