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Performance is a legal term which indicates the degree to which a contract was executed. The question we need to answer, is what happens if there is an impediment to complete the entire contract? There are several possible cases.


Uncertainty or Incompleteness

What happens if some contractual terms are uncertain or incomplete? According to current legal standard, there is no contract. This idiotic idea comes from a flawed logic that if the parties were unable to agree on a few key issues, the entire contract is invalid. Judges assume an all or nothing posture, because as they say, an agreement to agree does not constitute a contract. Preposterous!

If two persons agree to find an agreement, there is an offer and an acceptance. Therefore, there is a contract.

If this contract that was agreed upon is incomplete, this means that the contract is deficient or flawed, not that the contract never existed!

If the contract was commercial, then the courts will probably attempt to reconstruct it. They will impose external or “assumed” standards, or force a “reasonable”??? price, or it may simply adopt a “common” practice.

Have you discovered the tiny flaw in the process yet? The arrogance? The “court” will decide. Not the contracting people!!! The court will use whatever they feel that they need to use to “reconstruct” the contract in any way they see fit. And the contracting people? Thank you very much, but you don’t exist!

If a contract cannot be “re-constructed” then some parts may be severed. If this is possible is determined “objectively” (what a bad joke) by determining if a “reasonable person” would see the contract remaining viable without the terms in question. Yes. That’s objective indeed.  Right….Whatever…

In an Absolute Austro-Libertarian system, since there are no courts or judges, the contracting parties will have to meet and fix the agreement as best they can. As there are no judges, there is no incentive not to reach an agreement. They know that they won’t be able to convince the other person as they could a judge. This is a gigantic incentive to get the contract right in the first place and, if there are errors, sit down and fix them in a mutually agreeable manner. This manner may include cancelling the contract, fixing it or severing some terms. However, whichever solution they choose, it will be their solution, not an imposed one.


Against the offeror

The general idea is that when contractual terms are in doubt, they must be interpreted against the person who drafted said term. This is so because the person drafting the contract usually has a clear vision of the goal he/she wishes to achieve, while the accepting person may not. Furthermore, many of such contract are called “of adhesion”. They are take-it-or-live-it contract where the offering person has most of the negotiating power.

This all sounds nice and just, fair and righteous. It is, of course, garbage. We have seen in previous sections that a negotiating person always has the option to say no. If the person says yes, then the contract is valid as-is. Caveat emptor. Buyer beware. The power is with the person accepting or rejecting the contract, not with the offeror.

Furthermore, as contracts are always about obtaining a perceived advantage, they are all as one-sided as negotiating people can make it.

Besides, let’s face it. Most one-sided contracts are there because of government interference and limitations. A classic example of a one-sided contract where this general principle applies is insurance. These contracts are adhesion-only for mere mortals such as us. Take-it-or-leave-it. However, why do we insure our house and car? Because the government says that we must. In other words, the government created an artificial monopoly and mandated a trapped customer group. What would happen if insurance companies would actually have to go out and not only bid for consumers, but to convince consumers that insurance is necessary? We know what would happen. We know so because this is how it used to be. Suddenly one-sided contracts would be much more flexible and beneficial to the accepting party. Voila! Most of the problems have been solved without the need of governments or judges. The free market did it all by itself!


Good faith

The general idea behind this concept is that contracting people will act in such a manner that the deal will be fair and executed in good faith and honesty. In this manner, both parties will receive the benefits of the bargain.  A person may attempt to use to use a term of the contract to refuse to perform obligations, or use a technical excuse to breach it, despite more general obligations to the contrary. This is,  to go against the “essence” of the contract. Then, the judge may declare that this person is acting in bad faith, and either force the execution of the contract or assign damages for breach.

This is, again, plain stupid. In an Absolute Austro-Libertarian system, both contracting people are very aware that this may happen.

Considering that a contract can be executed in “good faith” versus “bad faith” is ridiculous. All people negotiate in bad faith. That’s the reason why contracts exist. Each negotiating person wants to extract the maximum value from the other. If there are terms or conditions that could be used to act in “bad faith” then it is a problem of the accepting person. This person should have looked and analyzed the contract better.

They are also aware that there will be no judge that could be swayed either way. Therefore, they will have a huge incentive to negotiate and execute the contract in a manner that all terms will be fulfilled.

All this “good faith” versus “bad faith” is just lack of due diligence. Laziness, plain and simple. Why bother negotiating properly if “daddy” government is there to provide a safety net in the even one of the parties “misbehave”.

Note: please see the Glossary if you are unfamiliar with certain words.

Continue to Contracts Are The Key To Coexistence - Part 7

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