New Horizons in Law and Economics series
1. INTRODUCTION We all make an elevated number of contracts everyday. In the vast majority of cases, these contracts are realized in the manner envisaged by contracting parties, in the sense that one of the parties delivers the goods or services solicited according to the terms of the agreement and with the quality expected. In other cases, however, one party does not comply with that which was agreed, in terms of obligations, either partially or completely. These situations in the majority of cases are resolved by agreement between the parties. For instance, where a party supplies goods with a defect it may agree to substitute them for another without defect, or offer monetary or other compensation for the difference in quality. If a good was delivered late and a penalty clause was included in the contract for such cases, the issue may be resolved by reducing the sum the purchaser of these goods has to pay. If the buyer fails to pay the agreed sum by the agreed-upon date, he may return the merchandise to the seller. Cases where one of the parties does not comply with an agreement and refuses to compensate the other party are relatively few. A disgruntled individual has various options. First, he may do nothing. Indeed, in many economic transactions that fail to live up to our expectations, this is the solution we adopt. A meal of mediocre quality in a restaurant or a session at a cinema with poor sound will rarely lead to...
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