Limitations of Contract Law
This article aims at portraying the loopholes that the law of contract leaves and which forms the basis of it being criticized as being difficult to comprehend of its scope precisely. For instance when a contract as defined in the book “The Legal Environment of Business (9th Ed)”,and other articles of any agreement between two or more parties that is legally enforceable, which may be taken to include all promises or agreements, whether commercial or non-commercial; which in actual sense may be outside the scope of the law of contract. The concept is located in Unit ten of the book on page 165.
The law of contracts, for instance, provides that a contract must be legally enforceable, but the authority of this article finds that a contract must not be legally enforceable. Some of the contracts are self-enforceable, in which case the parties to the contracts fulfills their part of the contract in order not to break the goodwill (reputation) as held by the second party to the contract. So they remain faithful to their part of the contract and not due to the fear of the legal consequences of not meeting their part.” State enforcement of these agreements is unnecessary when the agreements fall within the self-enforcing range or can be enforced with reputational sanctions."One principal belief about the law of contract according to this article is that it is meant to provide the defaults for rules and regulations that guide the business agreements. This belief is virtually misguided. Such rules are only defaults where parties to the contract do not set their own conditions for the contract.
A commercial contract presupposes that for its legitimacy, it must present an offer that must be accepted by the other party and immediately a consideration is given in exchange for the offer. This presumption of the law has been challenged in that, at times of credit transactions, such consideration is not presented immediately but in the future.Traditionally, it was believed that the contract law aims at ensuring profit maximization by fostering efficiency in the institution’s management. When managers are contracted by shareholders to manage the company on their behalf, it expected by the law of contract that such managers are going to act in good faith in maximizing the wealth of the of the owners, that is-shareholders. However, often than not, managers may not act in good faith due to their vested interests. Managers may, for instance, divert wealth to themselves or even fail to take reasonable risks on behalf of the shareholders. The law, therefore, fails to ensure good faith between management and the owners of the enterprise.The law of contract promotes ethical practice as far as contractual relationships are concerned. This article finds its limitation in that guidelines that prohibits unscrupulous managers from their bad behavior fall in a scope outside the law of contract. They fall under the criminal, corporate, and securities law.