Precontractual Liability and Preliminary Agreements

2006

accentuating the role of precontractual reliance expenditures as "investments [that] increase the value of the completed transaction."). 2 In the legal jargon, the term "contractual holdup" sometimes refers to "situations in which a party accedes to a very disadvantageous demand due to the party's being in a circumstance of substantial need:" Steven Shavell, Contracts, Holdup, and Legal Intervention, HARVARD LAW AND ECONOMICS DISCUSSION PAPER No. 508 (2005). Following the economic literature, we use a broader meaning of the term "holdup problem" here, as explained in the text. See, e.g., Benjamin Klein, HoldUp Problem, in 2 THE NEW PALGRAVE DICTIONARY OF ECONOMICS AND THE LAW 241 (Peter K. Newman ed., 1998).

Any sunk costs associated with specific investment proposals by firms should not be included in NPV estimates of those projects. However, in certain instances, expected sunk costs associated with future investment proposals should be included in NPV estimates of current projects. If the future expected sunk costs, where appropriate, are not considered, there will be a bias toward rejecting the current investment proposals. This paper develops the appropriate decision rule for the inclusion or exclusion of future sunk costs.

University of Pennsylvania Law Review, 2004

In Contracts Without Consent: Exploring a New Basis for Contractual Liability, 1 Omri Ben-Shahar, a talented and creative economic analyst of law, advocates a principle-which he calls the "no-retraction" principle 2-that is so at odds with the existing structure of the common law of contracts 3 as to basically turn contract law upside down. Ben-Shahar's no-retraction principle would radically alter the line between agreement and no agreement, between liability for unkept promises or assurances and no liability for such unkept promises or assurances. Indeed, under a no-retraction regime, there would be no line between agreement and no agreement, and contractual liability could exist even in the absence of any communication (or what Ben-Shahar calls a "proposal") 4 at all. Transactions could be forced upon parties who want nothing to do with them-either because they've walked away from failed negotiations or because they were never in any negotiations to begin with-but only on the terms that were or would have been demanded by the unwilling party. By incurring reliance expenditures early in a contractual negotiation (or, apparently, before a negotiation had even begun), a relying party could hold the other negotiating party liable for those reliance expenses, regardless of † Robert G. Fuller, Jr. Professor of Law and Director, Program on Law and the Environment, University of Pennsylvania Law School. 1 Omri Ben-Shahar, Contracts Without Consent Exploring a New Basis for Contractual Liability, 152 U. PA. L. REV. 1829 (2004). 2 See id. at 1838-53 (explaining the reasoning behind and the benefits of this principle). 3 Inasmuch as "[t]he central tenet of the civil law. .. is that promissory estoppel does not exist,"

Legal Studies, 2001

The common law has solved questions of liability arising in the context of precontractual negotiations by resort to a range of different doctrines and approaches, adopting in effect 'piecemeal' solutions to questions of precontractual liability. Consequently, debate has arisen as to how best to classify or categorise claims for precontractual work and as to which doctrines are best suited to solving problems arising from anticipated contracts. The purpose of this article is to consider this question of how best to classify (cases of) precontractual liability. The initial focus will be on the ongoing debate as to whether principles of contract law or principles of unjust enrichment can better solve problems of precontractual liability. I will be suggesting that unjust enrichment theory offers little by way of explanation of cases of precontractual liability and, indeed, draws on principles of contract law in determining questions of liability for precontractual services rendered, though it does so by formulating those principles under different guises. Irrespective, however, of the doctrines utilised by the common law to impose liability, it is possible to identify a number of common elements unijjing all cases of precontractual liability. In identifying such common elements of liability, it is necessary to draw on principles of both contract and tort law. How, then, should cases ofprecontractual liability best be classified.? A consideration of the issue of classification of precontractual liability from a perspective of German civil law will demonstrate that a better understanding of cases of precontractual liability will be gained by classifying such cases as lying between the existing categories of contract and tort. * This article was written during a research semester spent, for the most part, utilising the facilities of the Rechtswissenschaftliche Fakultat