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
- 6.1 Transaction cost determinants of “unfair” contractual arrangements
- 6.2 A relational exchange perspective on the employment relationship
- 6.3 Liquidated damages versus penalties: sense or nonsense?
- 6.4 Further thoughts on penalty clauses
- Questions and notes on power and penalty clauses
- Part VII Standard forms and warranties
- Part VIII Duress, preexisting duty, and good faith modification
- Part IX Impossibility, related doctrines, and price adjustment
- Questions and notes on impossibility and price adjustment
- References
- Index of cases
- Author index
- Subject index
Questions and notes on power and penalty clauses
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
- 6.1 Transaction cost determinants of “unfair” contractual arrangements
- 6.2 A relational exchange perspective on the employment relationship
- 6.3 Liquidated damages versus penalties: sense or nonsense?
- 6.4 Further thoughts on penalty clauses
- Questions and notes on power and penalty clauses
- Part VII Standard forms and warranties
- Part VIII Duress, preexisting duty, and good faith modification
- 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
1. Posner and Kronman (1979, p. 225) criticize Clarkson et al. (1978) by noting that the danger of the promisee's trying to provoke a breach should be reflected in the initial negotiations over the price and other terms of the contract. The parties could determine whether such external supervision was necessary. Hence, a refusal to enforce a clause on this ground presumes that the parties were incapable of weighing the merits of supervision on their own. A response to this is that since parties would want courts to fine-tune penalty clauses by selective enforcement, it is reasonable to incorporate such enforcement as an implied term. Do you think that parties would generally accept such a term? Should they be allowed to disclaim the implied term?
2. Ronko is a newspaper columnist whose contract provides him with a salary of $200,000 per year for five years. If he quits before the contract expires he is required to pay a penalty of $50,000 per year for each year he has worked. If he were to quit after the third year, therefore, he would owe his ex-employer $150,000. Should such a penalty be enforced? Compare this to the contract of Banks, a columnist at another paper. Banks's contract provides him with a salary of $150,000 per year plus $50,000 per year deferred income, which is paid only if he works all five years. Banks quits at the end of the third year and sues for his deferred compensation. Should he recover?
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- Information
- Readings in the Economics of Contract Law , pp. 164 - 166Publisher: Cambridge University PressPrint publication year: 1982