Just Curious

The uncertainty inherent in the common law

So far we've been studying mostly the common law, that is, rules formulated by judges in deciding actual cases. We've read a little bit of blackletter law, mostly formulations contained in secondary sources, such as the Restatements of Contracts, etc., and some primary authorities like the Uniform Commercial Code, but for most part we study cases.

This is so very interesting, because it reveals the fallacy of the average person's idea that we actually have "laws out there, ready to be applied to individual cases." This is probably quite a naive formulation, since in so many cases, judges simply have to act as "activists" and come up with new rules to fill the gaps in the existing bodies of case law to cope with circumstances that arise in moments of great socio-economic changes...

Last night I read an English case, decided in the 1820s in the Court of Common Pleas in London. The Chief Justice of the Common Pleas wrote the opinion himself. It was about whether an actor who breached one of the stipulations in an employment contract should pay the entire sum specified in the contract as 'liquidated damage.' Sir Nicholas Tindal the Chief Justice ruled that he does not. And when he ruled, he didn't cite any authority to support the ruling; he merely noted that for "a very large sum should become immediately payable, in consequence of the nonpayment of a very small sum...appears to be a contradiction in terms, the case being precisely that in which courts of equity have always relieved, and against which courts of law (such as the Common Pleas-JC) have, in MODERN TIMES (such as ours...) endeavored to relieve..."

He ruled this way since to require the breaching party to pay a very large sum in this case is to impose a penalty on it. Now if the objective of contract law is to force parties to perform the contracts, this would be fine. The more penalties, the better. But then this is not the point of having contract law in a capitalist society. In a credit-oriented society, the point is not to penalize the breaching party, it is to offer the following option to it: either you perform your contractual obligations, or you pay the other party the interest he would expect to gain by entering into this contract with you (I believe it was Justice Oliver Wendell Holmes who said this.) If we attach too much penalty to a contract, people would have problems entering into it in the first place, and such a tendency may hurt an economy based on the institution of credit, or money-lending.

So the law is malleable. And I'm glad that it is.

posted by James Chang @ 1:52 PM