CONCERNS FROM TORTS AND CONTRACTS AND THEIR INTERACTION WITH ECONOMICS

We have seen in the previous column of Part I, how ‘economic analysis of ‘law and economics’ as two subjects of legal and economic treatment of social and economic issues, play roles in respective domains. Economic analysis of law helps us to know, impact, set value, efficiency and rationalization or status of a Statute or Act or even a single legal rule as to intended influence, effect, impression or an over-all bearing that legal provision or their sets desire to create. Tools of microeconomics come to use here. Let us consider law relating to torts and economics.

A rational man common to both torts and economics takes reasonable care to maximize satisfaction, calculates costs and benefits from available alternatives and takes precautions to minimize injuries and liabilities. This means, losses due to tortious injuries, cost of preventing them and cost of administering legal system on these issues are part of economic analyses of law. Its assumptions can be; existence of rationality in human behavior, absence of laws regulating external costs, absence of external agents reducing precaution (insurance versus moral hazard), existence of defendant’s capability to pay plaintiff’s damages in full and finally, as discussed in Part I, presence of minimum litigation-cost if not zero-cost in State legal system and consequently, monitoring system’s efficiency. What do all these signify? In sum, if between plaintiff and defendant, costless negotiation is likely, then cost vindicated level of tortious injuries will lead to avoid systematized court-justice through legal system and judiciary. Benefits of negotiation or bargain will enthuse parties go for mutually strategic or beneficial injury-economic-giveaway to finally reduce joint costs or losses that aid legal-economic process (Coase theorem elements). When other costs of legal system come, such as negotiation, enforcement, policing, contract-specificity, issues of tort legal liability increase. If we avoid all these, it results in market deterrence of torts to become inefficient and high.

At this juncture, should a State and its legal system promote this socio-economic legal situation for human and social behavior to an unsubstantial rationality when tortious injuries of one make another suffer badly losing one’s inherent right of freedom and liberty? Will this not promote injustice to those (injured defendants) who cannot relate, litigate and function? In addition to tortious injury, parties are wounded again by State and legal system. Will this not be unjust to those (erring plaintiffs) who easily get away by parting a little from coffer? Plaintiffs go unchecked in social and economic life leading to take tortious injuries as nihil-novi (nothing new). This finally leads to chaos of social order in the state of Nature devaluing foundation of rule of law, Constitution and State system. How then, should this be addressed and prevented if State-action wants to be rational or if society which created State wants it to be rational?

In relation to law of contracts and economics; rational planning of transactions (offer, acceptance and consideration between parties) with contingencies of future foreseen (respective clauses in agreement) and, use of legal provisions mutually agreed, induce performance (Section 10 of Indian Contract Act, 1872), interchange or compensate for non-performance (amendment to agreement) etc. Lex-mercatoria, customs, precedents and standard forms of contract play crucial roles to avoid costs, delays and loss of face and enhancement of goodwill in contract management. Case-precedents on contracts show that these analyses fail because, prediction of market-forces (uncertainty), constant expansion from competitors (freedom of business and development), innovation (science, technology and transfer), and complexity from growing internationalizations (globalization) always put tools of economics unreliable or non-foundational or floating-like without stability when maximization of returns becomes norm of human behavior in social and economic life.

Then, can all these be contemplated in advance and brought in agreement? Even consensus ad idem (identity of mind) has its concessions (exceptions to contract)!Yet, another major problem is that tools of economic analysis of law and its reports become records of what already happened in past or in continuing present and leave this as a post-mortem exercise. How then, can we prevent damages during course of actions? What can State, and legal system do to address these concerns?

Do law and economics offer a solution here if added with macroeconomic tools considering that legal system considers drawbacks of economic analysis of law and its microeconomic tools? Law and economics generally through its macroeconomic tools try to address larger pictures; how economy grows, performs and is made into national policies to understand and satisfy aggregates, national income, employment, aggregate supply and demand, total income, output, employment and unemployment, over population, scarcity of goods, low output, hyperinflation etc. These visible benefits too have drawbacks. They too haunt legality of justice in terms of noble functions, nature of law, and State responsibility of collective, social and psychological wellbeing that are beyond mere economic strength needed for material life. This brings us a bigger question from discipline of law as to what is the true nature of State and legal system. Is State and law only a means of economic gains alone for citizenry? Does this end here? Viewed from this angle, macroeconomic tools and law and economics bring other non-economic problems to State, law and its Constitutional system.

It makes excessive-generalization that cannot point to individual variables which can be different in behavior given their contexts that usually cannot be controlled by State created to permit Constitutional freedom, liberty and fulfillment of all variables. Quantification by statistical units dilutes value of conceptual normative quality-values of legal idealism. Variables from aggregates are not always necessary when every individual and each single right is to be respected and allowed to coexist. Aggregates though formed from collectivity cannot be taken as homogenous. Misleading conclusions can emerge from indiscriminate use of statistical numerality. Collective or group behavior cannot be counted automatically for individual behavior.

And finally, individual differences that do exist within an aggregate but got subsumed become invisible and are left unattended. All these can cause serious problems to findings of law and economics through macroeconomic tools when State, Constitution and legal system have other non-economic issues to consider which get impacted by mere economic determinisms. Where are the research problems then? Can such interrelationship-based research be made in all laws, for a Statute, Act or provision of any law aiming at noble functions of law in society where economics of materials, goods and services understand, adapt and play positively, the philosophy and practice of Constitutional justice for all? Follow the concluding Part III of integral dimension of law between law and economics where methodological reasoning on economics, integral economics and futuristic suggestions are outlined