scholarly journals Can Blockchain Solve the Hold-up Problem in Contracts?

2021 ◽  
Author(s):  
Richard Holden ◽  
Anup Malani
Keyword(s):  
Contract Law ◽  
Smart Contracts ◽  
Liquidated Damages ◽  
Ex Ante ◽  
Commitment Devices ◽  
Vexing Problem

A vexing problem in contract law is modification. Two parties sign a contract but before they fully perform, they modify the contract. Should courts enforce the modified agreement? A private remedy is for the parties to write a contract that is robust to hold-up or that makes the facts relevant to modification verifiable. Provisions accomplishing these ends are renegotiation-design and revelation mechanisms. But implementing them requires commitment power. Conventional contract technologies to ensure commitment – liquidated damages – are disfavored by courts and themselves subject to renegotiation. Smart contracts written on blockchain ledgers offer a solution. We explain the basic economics and legal relevance of these technologies, and we argue that they can implement liquidated damages without courts. We address the hurdles courts may impose to use of smart contracts on blockchain and show that sophisticated parties' ex ante commitment to them may lead courts to allow their use as pre-commitment devices.

scholarly journals THE CONCEPT OF SMART CONTRACTS FROM THE LEGAL PERSPECTIVE

2019 ◽  
Vol 34 (3) ◽  
Author(s):  
Karolina Kasprzyk
Keyword(s):  
Contract Law ◽  
Regulatory Framework ◽  
Legal Issues ◽  
Comparative Perspective ◽  
Smart Contracts ◽  
Legal Definition ◽  
Smart Contract ◽  
Legal Perspective ◽  
Definition Of

The purpose of article hereof is to introduce the significant characters of the smart contracts and certain ideas and proposals de lege ferenda on regulatory framework for smart contracts. Furthermore, present legislation with regard to the legal definition of the smart contract will be discussed from a comparative perspective. Particular note will be devoted to smart contracts in a relation to the contract law. Substantively, legal issues arising from the use of smart contracts, focussing upon actual and potential conflicts with established principles of contract law, will be introduced.

scholarly journals Contractual Penalties in Australian Law after Andrews: An Opportunity Missed

2013 ◽  
Vol 18 (1) ◽  
pp. 1 ◽  
Author(s):  
Anthony Gray
Keyword(s):  
Contract Law ◽  
Court Decision ◽  
High Court ◽  
Liquidated Damages ◽  
The Law

This article considers the extent to which an Australian court might be willing to declare a contractual clause to be a ‘penalty’, and so not be enforceable. A recent High Court decision takes a broader view of the courts’ jurisdiction to relieve against ‘penalties’ than has previously been the case. This article has two purposes; first, it critically considers whether the Court’s position is correct, having regard to the long history and rationale for the rule. Secondly, it considers whether the doctrine forbidding penalties in contracts remains an appropriate stand-alone doctrine in contemporary contract law, or whether a recasting of the law in this area is desirable. It concludes that the High Court missed an opportunity to consider more thoroughly the reform of the penalty-liquidated damages distinction, and should have subsumed that principle within the organising principle of unconscionability.

scholarly journals Regulation of the Smart Contract in (Romanian) Civil Law

2021 ◽  
Vol 8 (2) ◽  
pp. 95-111
Author(s):  
Raluca Onufreiciuc ◽  
Lorena-Elena Stănescu
Keyword(s):  
Civil Law ◽  
Computer Code ◽  
Computer Programs ◽  
Legal Regulation ◽  
Contract Law ◽  
Use Case ◽  
Smart Contracts ◽  
Crucial Question ◽  
Smart Contract ◽  
The Subject

The research aims to organize, examine, and analyze the provisions on smart contracts available in Romanian civil law. “Smart contracts” are not smart, and are not necessarily contracts, although they can be. As self-executing computer programs, smart contracts are operational on the blockchain and unlike traditional legal contracts, once the agreement has been concluded and the smart contract is set in motion, no party can intervene and it will be executed without interruption, modification, or breach. The crucial question in the final contract law topic is what happens when the smart contract's outcomes deviate from those required by law. To answer this issue, we must first understand that whether a smart contract becomes legally enforceable is determined by several circumstances, together with the unique use case, the type of smart contract employed, and the existing legislation. The paper addresses the subject of determining and regulating smart contracts under Romanian current laws. Particular emphasis is placed on two ambiguous definitions of smart contracts: as computer code and as a civil-law contract. The authors conclude that the concept of smart contracts requires more legal regulation, particularly in terms of managing their meaning and comprehension.

Blockchain and contract law: Smart contracts

2021 ◽  
pp. 192-208
Author(s):  
Pietro Sirena ◽  
Francesco P. Patti
Keyword(s):  
Contract Law ◽  
Smart Contracts

The Penalties Rule and Compensation

2019 ◽  
pp. 147-172
Author(s):  
Prince Saprai
Keyword(s):  
Contract Law ◽  
Special Role ◽  
Undue Influence ◽  
Breach Of Contract ◽  
Compensation Principle ◽  
Liquidated Damages ◽  
Penalty Clauses

According to the penalties rule, agreed damages clauses that grossly over-compensate the promisee for breach of contract are invalid and unenforceable. This chapter argues that the ‘promise theory’ has struggled to explain how the rule is justified, because promissory logic seems to require that such clauses be enforced. It is only by rejecting the idea that promise plays a special role in contract law that an explanation comes into view. The penalties rule, like undue influence, is a ‘composite’ doctrine, that is, it involves and is justified by the interaction of a multiplicity of moral concerns. The main normative concerns in this context are promise and the compensation principle. This combination explains puzzles such as why penalty clauses are not enforced but, in contrast, liquidated damages clauses are, and why breach of contract is a condition for the application of the penalties jurisdiction.

International institutions: weak commitments and costly signals

2017 ◽  
Vol 9 (3) ◽  
pp. 353-380 ◽  
Author(s):  
Lisa L. Martin
Keyword(s):  
World Trade ◽  
International Institutions ◽  
Institutional Design ◽  
Empirical Work ◽  
Costly Signaling ◽  
Weak Institutions ◽  
The World ◽  
Ex Ante ◽  
Costly Signals ◽  
Commitment Devices

As commitment devices, international institutions encourage cooperation by imposing costs on members who do not live up to their commitments. However, the costs that institutions can impose are limited, so that their commitment capacity is weak. Institutions can also impose costs as a condition of membership, allowing them to serve as costly signals. A model of weak commitment and costly signaling leads to a number of hypotheses about patterns of cooperation, institutional membership, and states’ preferences over institutional design. For example, existing members of an institution should impose higherex antecosts when a potential new member could either gain significant benefits from reneging on their commitments in the future, and when the new member expects to gain high benefits from future cooperation. These results are consistent with empirical work on institutions including peacekeeping and the World Trade Organization.

Wrapped and Stacked: ‘Smart Contracts’ and the Interaction of Natural and Formal Language

2018 ◽  
Vol 14 (4) ◽  
pp. 307-343 ◽  
Author(s):  
J.G. Allen
Keyword(s):  
Speech Acts ◽  
Formal Language ◽  
Contract Law ◽  
Complex Nature ◽  
Smart Contracts ◽  
Human Beings ◽  
Legal Rules ◽  
Contract Formation ◽  
Smart Contract ◽  
Legal Entities

Abstract This article explores ‘smart contracts’ from first principles: What they are, whether they are properly called ‘contracts’, and what issues they raise for national contract law. A ‘smart’ contract purports to record contractual promises in language which is both intelligible to human beings and (ultimately) executable by machines. The formalisation of contracting language that this entails is, I argue, the most important aspect for lawyers—just as important as the automation of contractual performance. Rather than taking a doctrinal approach focused on the presence of traditional indicia of contract formation, I examine the nature of contracts as legal entities created by words and documents. In most cases, smart contracts will be ‘wrapped in paper’ and nested in a national legal system. Borrowing from the idiom of computer science, I introduce the term ‘contract stack’ to highlight the complex nature of contracts as legal entities incorporating different ‘layers’, including speech acts by the parties in both natural and formal languages as well as mandatory legal rules. It is the interactions within this contract stack that will be most important to the development of contract law doctrines appropriate to smart contracts. To illustrate my points, I explore a few issues that smart contracts might raise for English contract law. I touch on the questions of illegality, jurisdiction, and evidence, but my focus in this paper is on exploring issues in contract law proper. This contribution should be helpful not only to lawyers attempting to understand smart contracts, but to those involved in coding smart contracts—and writing the languages used to code them.

Smart Contracts and Contract Law

2019 ◽  
pp. 3-18 ◽  
Author(s):  
Larry A. DiMatteo ◽  
Michel Cannarsa ◽  
Cristina Poncibò
Keyword(s):  
Contract Law ◽  
Smart Contracts

scholarly journals Blockchain as a method of resolving hold-up problem

2021 ◽  
Vol 3 (2) ◽  
pp. 9-22
Author(s):  
Predrag Cvetković
Keyword(s):  
Data Integrity ◽  
Third Parties ◽  
Smart Contracts ◽  
Opportunistic Behavior ◽  
Classical Analog ◽  
Decentralized System ◽  
Contractual Relationship ◽  
Legal Relationship ◽  
Ex Ante

The hold-up problem is a form of opportunistic behavior of contractual partners. It occurs when the optimal volume and structure of transactions cannot be defined with ex ante certainty. The consequence of the hold-up problem is that, once a contractual relationship has been established, one of the parties seeks to modify the distribution of benefits in such a way that it has a higher level of profit from the contract than is justified by the contractual investments it has made. The paper examines the potential of the Blockchain concept to, applied as a framework of "smart" contracts, contribute to the elimination or reduce opportunities for the emergence of a hold-up situation. The Blockchain concept with its characteristics (transparency, protection of data integrity, shareability) deploys the foregoing potential in three ways: by witnessing the transaction via the Blockchain; ensuring the execution of a (by Blockchain certified) transaction; by verifying transactions through a decentralized system that replaces verification by third parties (courts or arbitration). Consequently, the Blockchain concept for storing and managing information substitutes the role played by the institute of trust in the classical ("analog") legal relationship.

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