REMEDIES
In this section, we are going to take a look at what kind of remedies can be applied in the event of a contract breach. We are also going to take a look at how would this be done from an Absolute Austro-Libertarian point of view.
Restitution and Compensation
In legal terms, restitution is the law of gains-based recovery. Compensation is the law of loss-based recovery.
There are many classifications and legal principles underpinning the different rules, regulations and points of view judges take. Some of these rules actually make sense and some are utterly ridiculous, such as the concept of “unjust enrichment” which we dealt with in a previous section.
We mention these two principles because they exist in today’s judicial system and we need to look at them from an Absolute Austro-Libertarian point of view. In this point of view, it is irrelevant which law is applied. For one, there are no laws and for other, contracts are private affairs. Therefore, classifications have exactly academic value, this is to say zero value. This is not true in the Democratic judicial system, where classifications matter because they affect damages through judge’s decisions.
In our point of view, both types of principles apply to any contract or part of a contract if breached. Contracts are absolute and therefore breach of them implies absolute damages. Any and all elements that were damaged because of a breach in a contract are included. There are no artificial limiting or classifying rules or regulations.
Which concepts are chosen to calculate damages depend on the contracting people. They are the ones that will need to negotiate them. It is up to them to seek the best advice they can.
The only valid question is how far can damages go. We have mentioned in previous lessons that damages for murder extent to activities that the dead person would have had if it continued to live. These would include other people who would have interacted with the diseased through economic relationships (e.g. vendors and merchants). Would this concept also apply to contract breaches?
The answer is no. This issue is simple. Contracts are affairs between defined parties. In the case of damages paid to the afflicted person, these damages will restitute other economic actors through the afflicted person. In other words, If Kagiso pays damages to Chun, Chun will use this money more or less as he would if the contract had been fulfilled. Chun would buy shoes and milk, a car or pay a gardener. Other economic actors see little or no loss.
However, in the event of death, damages cannot be paid to the victim directly, because this person is dead. But damages still exist. They must be compensated to all the people that were directly damaged by this death (friends and relatives) and the economic actors who suffered and will suffer financial losses due to said death. Critics may say that some of these damages are not real, that they are still in the future and they may have never happened. True. But, but we also know that damages can never be calculated exactly. There is always an element of uncertainty. However, for all practical intents and purposes, we don’t need an exact number. We just need a statistical number. Why statistical? Because we know that these statistics work. They work quite well for insurance companies. Actually, they work so well that insurance companies make a living of them. They are not certainty, but they are good enough.
However, at which point in the chain does the compensation stop? As soon as damages are paid to the closest economic actor. Contracts are affairs between people. As soon as one of them is paid, this person can then continue economic activities as if nothing would have happened. Secondary economic agents are compensated through this person. The same applies in the event of death. For example, once a supermarket is paid damages, this supermarket will pass on profits to its suppliers. There is no need to compensate supermarket’s suppliers.
Damages
In a typically bureaucratic manner and as it could be expected, the current Democratic judicial system classifies damages in several categories. This is important because damages are calculated differently depending on the category they belong to.
- Compensatory: this is the simplest concept. The person breaching the contract must pay the other person the amount of money necessary to cover all the damages the breach caused. They can be consequential (damages are calculated based on the consequences the breach caused) or direct (damages are calculated because of the actual loss the breach caused). These two concepts are not difficult to understand. However, these types can in term be expectation damages (payment reflects contract expectations), reliance damages (when contract estimates are unreliable, then only costs are paid as damages) and resititutionary damages (payment reflects contract profits).
- Liquidated: losses estimated according to the contract. Most of the time, these are simply contract terms or “penalty clauses”.
- Nominal: these are token damages, typically just for the record.
- Punitive: when they are used to punish the person at fault.
All of these damages with the exception of implied punitive damages are valid from an Absolute Austro-Libertarian point of view. The objective of damages is to provide an incentive to fulfill contracts, it is not to punish, unless penalty clauses are included in the contract. Implied penalties are a figment of the legal imagination. Implied by whom? If penalty clauses are not in the contract, this means that the contracting people felt unnecessary to place them in there. And if they felt it unnecessary, why should we put them in there?
The objective of damages is to make both parties more responsible for the agreement. Damages are in and by themselves punishment enough. There is no rationale to add arbitrary conditions on to them.
Duty to mitigate
This is yet another figment of the legal imagination. The current judicial system demands that if there are unexpected events that prevent one person to fulfill a contract, this person is expected to try to mitigate this event. This is, of course, idiotic. Why would the judges so expect? Where does the expectation comes from? Remember, we are not discussing self-interest, we are discussing an obligation which was not in the contract to begin with.
From an Absolute Austro-Libertarian perspective, if this expectation was not in the contract, then both contracting people either did not foresee it or did not care about it. In either case it is up to both people to set damages, if any. This is not the right of a third party (a judge for example) that had nothing to do with the original contract.
Furthermore, knowing that damages will be assessed, the party that is unable to fulfill the contract will try to mitigate damages out of self-interest. This is our way. No rules, no regulations, no laws. Just results.
Specific performance
Specific performance is when a judge forces a contract breacher to provide something else instead of money to the other person. For example, if a person bought a rare car but the other person refuses delivery, the judge may order its delivery. The idea behind this is that in this case damages would equal the amount of paid money. Allowing the plain restitution of payment would be “unjust” because this would open the door for non-compliance to all kinds of contracts. Of course, the nature of this “specific performance” is “discretionary”. In other words, anything goes. The judge is the sole deciding person. Ridiculous!
In an Absolute Austro-Libertarian system, if the seller of the rare car refuses delivery, this person has breached contract. As such and in agreement with the Master Contract he/she just lost all right with the exception of slavery. Furthermore, this person is responsible with all his/her properties for all the damages. It is now to the damaged person to decide what and how to collect damages. This person may choose to get the money back. Or this person may choose to get the car. It is up to each person to whom damages are owed to make that decision. No judge or doctrine necessary.
Procedure
Typically in a Democratic judicial system, damages can be obtained by either starting a lawsuit or by arbitration. Many contracts state that arbitration is mandatory. In many countries, arbitration is non-appealable.
However, so-called “criminal” cases are not subjected to neither arbitration nor lawsuits, but to the criminal “justice” (what a joke) system. Which removes from the hands of the offended person all rights.
To make matters even more ridiculous, certain contracts are non-arbitrable because they contain elements of “public interest” (whatever that may mean).
Lastly, contracts may be forced unto execution by “injunctions” to prevent “irreparable damages”. Ridiculous! Preposterous!
In an Absolute Austro-Libertarian system all breaches of contract are compensated by damages. We don’t distinguish “civil” from “criminal”. Damages are damages. In our system, the people can reach an agreement by themselves or through the use of mediators. Mediators can also be mediated by other mediators depending on their contracts (in current legal terms, the decision of a mediator can be appealed to other mediators). However, not too many mediators would be willing to do so. We have explained how this system works in our lesson Justice in the Austro Libertarian System.
And finally, we have the concept of “injunctions”. They are issued by judges to prevent “irreparable damage”. Funny, very funny, considering that all damages are irreparable. It is simply not possible to go back in time and make things as if nothing would have happened. The purpose of damages is to approximate this as best as possible through a financial arrangement. As such, damages already account for “irreparable damage”. There is no need for injunctions whatsoever. If a person intends to breach a contract and this breach is severe, then the damages will also be severe. There is no need to curtail the other person’s liberty by forcing this person to fulfill the contract. Damages are incentive enough.
Note: please see the Glossary if you are unfamiliar with certain words.
Continue to Contracts Are The Key To Coexistence - Part 8
