George Mason School of Law

1. George Mason School of Law Contracts I Contract Law in the State of Nature F.H. Buckley fbuckley@gmu.edu

2. Housekeeping • Statutory Supplement • Dawn Moore had sold copies less author’s discount till Aug. 25, but will still sell them if you contact her at 993-8093 or dmoore@gmu.edu (after 500 pm) or Katie Hickey at 993-8271 (before 400 pm)

3. Housekeeping • For Next Week • Illegality

4. Hobbes on the State of NatureHobbes, Leviathan 14.18 (1651) If a covenant be made wherein neither of the parties perform presently, but trust one another, in the condition of mere nature (which is a condition of war of every man against every man) upon any reasonable suspicion, it is void… For he that performeth first hath no assurance the other will perform after, because the bonds of words are too weak to bridle men's ambition, avarice, anger, and other passions, without the fear of some coercive power; which in the condition of mere nature, where all men are equal, and judges of the justness of their own fears, cannot possibly be supposed. And therefore he which performeth first doth but betray himself to his enemy. 4

5. Contract Law as a solution Suppose that the defector is penalized through legal sanctions so that the incentive to defect disappears. 5

6. Contract Law as a solutionLeviathanUpon Earth there is not his like (Job 41:33) 6

7. But what if we’re in a State of Nature? Where there is no legal enforcement of contracts… 7

8. States of Nature International “law” 8

9. States of Nature International “law” Weak rule of law 9

10. States of Nature International “law” Weak rule of law Legally unenforceable promises 10

11. 1. International Law Signing of NAFTA Treaty 1992 11

12. 2.Weak Rule of Law Just what does the rule of law mean? 12

13. 2.Weak Rule of Law: Corruption Deputy Mayor of Moscow Vladimir Resin sporting a $360,000 wristwatch 13

14. 2. Weak Rule of Law: Corruption Fisman and Miguel, Cultures of Corruption: Evidence from Diplomatic Parking Tickets, 115 JPE1020 (2007)

15. 2. Weak Rule of Law: Corruption

17. 2.Weak Rule of Law 17

18. 2.Weak Rule of Law: Law vs. Politics Can we speak of the rule of law where every legal decision is determined by political considerations? “Telephone Justice” 18

19. 2.Weak Rule of Law: Law vs. Politics: Raison d’Etat Section Spéciale, Costa Garvas 1975 19

20. 2.Weak Rule of Law: Law vs. Politics Are we sure we subscribe to the ideal of neutral legal principles, shorn of politics? Duncan Kennedy 20

21. 2.Weak Rule of LawThick and Thin Just what does the rule of law mean? Thick RoL: civil rights, democracy, personal liberty Thin RoL: enforcement of contracts, property rights 21

22. 2.Weak Rule of LawThick and Thin Just what does the rule of law mean? Thick RoL: civil rights, democracy, personal liberty Thin RoL: enforcement of contracts, property rights Must they go together? Washington Consensus vs. Beijing Consensus 22

23. 3. Legal Unenforceability Examples? 23

24. But what if we’re in a State of Nature?Unenforceability Marriage under no-fault 24

25. But what if we’re in a State of Nature?Unenforceability Bankruptcy 25

26. But what if we’re in a State of Nature?Unenforceability Illegal Contracts 26

27. But what if we’re in a State of Nature?Unenforceability Vague Contracts 27

28. But what if we’re in a State of Nature?Unenforceability Social and Family Promises 28

29. But what if we’re in a State of Nature?Unenforceability Excessive legal excuses? Justice Roger Traynor 29

30. An Excess of Law? Magee, The Optimum Number of Lawyers, 17 Law and Social Inquiry 667 (1992)

31. Can one make credible commitments in a State of Nature? 31

32. Credible Commitments in a State of Nature 1. Self-binding 32

33. Credible Commitments in a State of Nature 1. Self-binding 2. Union 33

34. Credible Commitments in a State of Nature 1. Self-binding 2. Union 3. Reciprocal Altruism 34

35. Credible Commitments in a State of Nature 1. Self-binding 2. Union 3. Reciprocal Altruism 4.Social and Internalized Norms 35

36. Further readings Kronman, Contract law in the State of Nature, 1 JLEO 5 (1980). 36

37. 1. Self-binding I might persuade another party to trust me if I make it painful for me to breach Can this be done without using contracts? 37

38. 1. Self-binding I might persuade another party to trust me if I make it painful for me to breach Doing this without contract law: The use of hostages 38

39. 1. Self-bindingThe Burghers of Calais Rodin 1885 39

40. 1. Self-bindingNot hostages: The burgers of Calais McDonald's at Walmart, 8 South St., Calais, ME 04619 40

41. 1. Self-binding: Hostages Earl of Derby: “Sir Christopher, tell Richmond this from me:That in the sty of this most bloody boarMy son George Stanley is frank'd up in hold:If I revolt, off goes young George's head;The fear of that withholds my present aid.Richard III, IV.v 41

42. 1. Self-binding: Hostages Before taking hostages: Defection dominates for Derby Richard III Derby  

43. 1. Self-binding: Hostages After taking hostages: Defection no longer dominates for Derby Richard III Derby  

44. 1. Self-binding: HostagesWhat is needed to make the hostage game work Derby places a greater value on his son’s life than he does on fighting for Bolingbroke 44

45. 1. Self-binding: HostagesWhat is needed to make the hostage game work Derby places a greater value on his son’s life than he does on fighting for Bolingbroke Bolingbroke can’t compensate Derby for the loss of his son 45

46. 1. Self-binding: HostagesWhat is needed to make the hostage game work Derby places a greater value on his son’s life than he does on fighting for Bolingbroke Bolingbroke can’t compensate Derby for the loss of his son Derby places a higher value on his son’s life than Richard III does on the son’s life or death 46

47. 1. Self-binding: Pawnbrokers 47

48. 1. Self-binding: Pawnbrokers In a possessory security interest, the borrower values the collateral more than the lender, which makes the promise of repayment credible 48

49. 1. Self-binding: Pawnbrokers In a possessory security interest, the borrower values the collateral more than the lender, which makes the promise of repayment credible Why possessory security interests are replaced by non-possessory security interests—and why they’re not 49

50. 1. Self-binding: Rings 50