Unreasonable Contracts

A friend sent me this lecture and we have argued about a question raised in the second half of this lecture about contracts.

The example in the lecture has some tricky aspects so I have simplified the problem for discussion as follows…

A contractor sells his services for an unreasonable price.
The contractor knows his price is unreasonable.
The purchaser is naive but of sound mind and pays the contractor his unreasonable price.

The question is – is a third party (e.g. a Judge) justified in taking the money (less a reasonable fee for the contractor’s services) from the contractor and returning it to the purchaser?

In the lecture example the unreasonable price was extremely unreasonable.
Should the degree of unreasonableness be a consideration?

45 thoughts on “Unreasonable Contracts”

  1. Fucking TVNZ7 lefism.

    It’s perfectly simple. The contractor did absolutely nothing unreasonable, because there is no such thing as an “unreasonable” price.

    Caveat Emptor.

  2. As long as that was the negotiated cost prior to execution that would be totally reasonable Reed.
    And by the way… It is great to have your contributions here @ Eternal vigilance! They are appreciated for their verve!
    Tim W

  3. Thanks Tim.
    On this topic we mostly agree – a third party taking the money from the contractor would not be justified.

    I disagree however over the actions of the contractor – I think it is possible to make unreasonable deals – and that I should not make such deals.

  4. Ex hypothesi “the purchaser is naive but of sound mind” … a contract is a contract.

    The degree of unreasonableness should be a consideration only to the extent that it indicates that the purchaser was not of sound mind or that there was an element of fraud. Otherwise … live and learn.

  5. How is the price unreasonable? If the customer was happy with the price it is by definition reasonable. If the customer discovers he could have got a lower price elsewhere he will be unhappy and resolve not to do business with that contractor again, lesson learned. However if a third party were to give back a portion of the fee to the customer he would not learn a lesson, he would not be vigilant in his dealings with other people and expect to be “rescued” when things do not go his way.

  6. Reed, Angry Tory & Tim,

    You are brave people indeed to easily and tritely dismiss a Harvard Law Professor. I believe he described those of your ilk as “ardent contractarians”. Perhaps I should start by inquiring whether Angry Tory & Tim actually viewed the clip that Reed posted?

    If you are going to dismiss this guy and several hundred years of case law in all western civilised countries could you please articulate why you think all these people have got it wrong for so long and how you imagine the world would be a better place if exploiters we encouraged to exploit?

    For the sake of clarity, I consider $50,000 a blatantly unreasonable price for fixing a toilet and if this woman was my mother I would want to protect her from such contractors and similar types such as the unscrupulous high pressure vacuum cleaner salesperson who wont leave til he gets sale.The fact that she was prepared to pay this indicates to me that she is vulnerable. A society can rightly be judged by how it looks after the vulnerable.

    Contracts can be voided for all sorts of reasons – unconscionable bargain, undue influence, breach of fiduciary duty – and rightly so.

  7. Rob, to clarify, do you consider the following statements true?
    1) A person that is vulnerable should not be bound by their contracts when their contract is unreasonable.
    2) A person that is not vulnerable should be bound by their contracts even when their contract is unreasonable.

  8. Reed, your question is flawed because it attempts to bring down to black and white what is in fact a colourful question. Or to put it another way you are attempting to establish your two options as what you would call “principles”. You would then want to bind me according to one of your “principles”. That’s not how the law or life works.

    The degree of vulnerableness is a relevant consideration and the degree of unreasonableness is a relevant consideration. For example if the contract was only a little bit unreasonable and the person was not very vulnerable then the person may struggle to get sympathy from the court. In that case the court may conclude that the person was simply naive and ought to learn a life lesson. On the other hand if the contract was extremely unreasonable and the person very vulnerable then the court is much more likely to offer sympathy.

    There may be a number of other relevant considerations as well. Did the contractor mislead the victim in any way? Was he in a personal relationship with that person that gave him a special opportunity to exploit? Was it some form of bribery? Did the person initially decline but the contractor refused to leave? Was the contractor in a conflict of interest? Did he owe her a fiduciary obligation? There could a hundred other relevant factors.

    This is what the image of the scales of justice represent – a weighing up of all the relevant factors and deciding on balance what is just in this particular set of circumstances.

    It seems to me only an unreasonable person would argue in favour of a contractor being able to charge $50,000 for fixing a toilet if he can get away with it.

  9. I find it interesting that the $50,000 toilet repair job hasn’t worked for some people. Perhaps that is because not many people get their toilet repaired and the issue is seems academic rather than personal. I propose an alternative narrative;

    Your car needs a warrant of fitness which you mention in passing to a friend. Your friend recommends that you go to his friend’s who is a mechanic and runs a garage.that does warrents. You are busy and follow his advice because it seems an easy option. The mechanic fails your warrant because, he says, a washer needs replacing. He says he can fix it for you, which you agree to – without agreeing on a price.

    You come back the next day and he has an invoice for $50,000. You say that is ridiculous. He says pay up or you don’t get your car back. The car is only worth $1,000. There is obviously no way you are paying that amount and there is no way he is going to give your car back. So, what do you do? Take him to Court.

    You do your research and you find that in fact the washer that he said needed replacing;
    (a) isn’t an issue that should cause a warrant to fail
    (b) couldn’t have needed replacing because a whole new system was fitted six months ago that included the alleged faulty washer.

    What would an “ardent contractarian” say the Court should do?

  10. Rob
    A person is bound by the terms of their contract.
    In your example an unreasonable price is not part of the contract – you could argue that with no price specified there is a tacit agreement to pay a reasonable price for a reasonable service.
    The customer can rightly refuse to pay the unreasonable amount.
    The mechanic can rightly return the car to its original condition.
    If the mechanic were to hold on to the car it would be theft.
    The owner or a third party would be justified in forcibly taking the car from the mechanic. Also, if the mechanic held on to the car then I say the Courts would be justified in taking a penalty from him and giving it to the customer – even if the mechanic was a vulnerable 84 year old widow.

  11. On what basis would you argue that “with no price specified there is a tacit agreement to pay a reasonable price for a reasonable service”?

  12. A person is bound by the terms of their contract.
    In your example an unreasonable price is not part of the contract… **snip**.
    The customer can rightly refuse to pay the unreasonable amount.
    The mechanic can rightly return the car to its original condition.
    If the mechanic were to hold on to the car it would be theft.
    The owner or a third party would be justified in forcibly taking the car from the mechanic. Also, if the mechanic held on to the car then I say the Courts would be justified in taking a penalty from him and giving it to the customer – even if the mechanic was a vulnerable 84 year old widow.

  13. Me? I’d have no basis. Notice that I said “you could argue…” and not “I could argue…”. That is what you would argue isn’t it? I was acknowledging a point of view.

    However, in the case of the contractor (plumber), even if we were to assume that a tacit agreement of “reasonableness” exists in the absence of an explicit agreement then the taking the money from the contractor and giving it back to the purchaser still wouldn’t be justified because they had an agreement about price.

  14. Of course you would have a basis. Most people prefer to defend their position rather than suffer the “indignity” of admitting an error, in this case publicly. Personally I prefer to learn important life lesson’s whatever the cost.

    I note your previous post – a classic Reedism…
    A person is bound by the terms of their contract… Therefore blah blah blah.

    Reed issues a decree declaring in his wisdom what he considers an immutable “principle” that apparently is uncontradictable. Therefore blah blah blah

    “The house is green, the grass is green” declares Reed. “Therefore the house is the grass”.

    Or if you prefer, “Contracts are binding, you made a contract” declares Reed. “Therefore you are bound”.

    Sorry dude, I don’t care about your simplistic arguments. The house is not the grass. Never has been, never will be and nothing you can say will ever persuade me otherwise. It just isn’t. While I’m at it, the moon isn’t made of cheese either. You know how I know? Because I’ve been there. And it isn’t.

    But Reed is persuaded, that he is right and the rest of the civilised world – including a Harvard Law Professor – has got it wrong. Personally, I would really be questioning myself if I were in that position.

    If your purpose for this conversation is simply your to defend your position then nothing I can say will be of assistance to you and we are wasting our time having this conversation. Personally I think you should put your “principle” paradigm “to death” and listen to the entire series by the Professor – starting at the beginning.

  15. A third example – may this will work ???

    George Speight led coup in 2000 kidnapping Prime Minister Mahendra Chaudhry with the assistance of Commodore Frank Bainimarama, the Commander of the Military who subsequently abrogated the constitution, made himself Prime Minister and swore in his own President. Chaudhry was released after he agreed not to prosecute anyone for treason. The contract was rescinded because it was procured under undue influence and Speight and 369 of his supporters were charged with treason.

    Or to put it another way, a gun was held to his head and he was told to sign this contract or else. So the contract was signed.

    What would the most ardent contractarian say?

  16. Of course you would have a basis. Most people prefer to defend their position rather than suffer the “indignity” of admitting an error, in this case publicly. Personally I prefer to learn important life lesson’s whatever the cost.

    I don’t know what you are talking about. A misunderstanding plus an insult I think.

    I note your previous post – a classic Reedism…

    An insult?

    A person is bound by the terms of their contract…

    If you disagree you could explain why.

    Therefore…

    There was no therefore.

    …blah blah blah.

    An insult?

    Reed issues a decree declaring in his wisdom what he considers an immutable “principle” that apparently is uncontradictable. Therefore blah blah blah

    Two or more insults?

    “The house is green, the grass is green” declares Reed. “Therefore the house is the grass”.

    A strawman insult?

    Or if you prefer, “Contracts are binding, you made a contract” declares Reed. “Therefore you are bound”.

    Not bad.

    Sorry dude, I don’t care about your simplistic arguments. The house is not the grass. Never has been, never will be and nothing you can say will ever persuade me otherwise. It just isn’t. While I’m at it, the moon isn’t made of cheese either. You know how I know? Because I’ve been there. And it isn’t.

    You sound upset.

    But Reed is persuaded, that he is right and the rest of the civilised world – including a Harvard Law Professor – has got it wrong.

    Everybody thinks they are correct. It would be beyond stupid to believe something you thought wasn’t correct. Appeal to authority X 2.

    Personally, I would really be questioning myself if I were in that position.

    You are in that position – Richard is a doctor of philosophy and he diasagrees with you.

    If your purpose for this conversation is simply your to defend your position then nothing I can say will be of assistance to you and we are wasting our time having this conversation.

    Another insult? Even if that were my objective you could argue your case for yourself or the reader. As iron sharpens iron, so one man sharpens another.

    Personally I think you should put your “principle” paradigm “to death”…

    There is right and wrong. We can identify principles of right and wrong.

    … and listen to the entire series by the Professor – starting at the beginning.

    Did you notice the Professor’s trickiness?

  17. Or to put it another way, a gun was held to his head and he was told to sign this contract or else. So the contract was signed.
    What would the most ardent contractarian say?

    The most ardent contractarian would say “just shoot me” or perhaps they would sign the contract and honour it. 🙂 No contract however should bind a third party – as in the Speight example.

    Plea bargaining is similar to the scenario you describe. “If you admit manslaughter then we won’t charge you with murder.” It’s an agreement made under duress.

    It’s a good question. I’m not sure.

  18. Rob
    I have been considering discussing blackmail on a blog for a while. I just realised duress is blackmail. Thanks for raising this aspect of blackmail – I hadn’t considered whether contracts made under blackmail/duress should be enforced. I think the answer is not what you intuit.

  19. Reed
    My comments were neither intended as insults not appeals to authority. If anything they were appeals to reason – essentially because your stance is absurdly, ridiculously, unreasonable. The fact that these appeals to reason failed is evidence that you are currently an unreasonable person – as demonstrated by your comment that an ardent contractarian would tell the person holding the gun to “just shoot me”.

    There are not words to express how completely f…ked in the head you must be to take this stance. If you were anybody else I wouldn’t bother engaging any further with you because basically you must be nuts.

    There ends my appeal to reason, which I’m sure will fail again for the reasons stated above.

    As you are aware, I am involved in running several cases at the moment, one of which I am seeking to have a contract voided because of undue influence. Thus I am not approaching this from a position of academic interest, but from “the coal face” and in the interests of justice.

    You have noted that I have not engaged you above in a logical rational argument of the kind you usually prefer. Partly because last week was the most intense week of my life and that I found any time at all to post anything speaks of my concern for you. Undoubtedly some impatience came through.

    I shall now take the time to attack your stance through your preferred methods;

    You say; “A person is bound by the terms of their contract.”

    I agree with that statement. It a no brainer. Of course people are bound by the terms of their contract. That is the whole purpose of contract law. I consider it axiomatic – a self evident truth. It establishes the default position of a contract – unless there are extenuating circumstances.

    The difference between us is that you consider your statement to be what you would call a “principle”. By this you mean “immutable principle” upon which no other principles can have relevance. This is the point at which you head off into ga ga land. It is your concept of the nature of principles that leads you astray.

    To illustrate my point, I shall now do a Reedism and issue a decree and follow the logic;
    “Contracts must be entered into freely.”.
    “This contract [George Speights] wasn’t entered into freely.”
    “Therefore, that contract can and should be voided.”

    I believe this follows your prescription of how a proper debate ought to be conducted.

  20. Rob, it wasn’t impatience that came through it was haughtiness – and not just in this thread. Consider yourself gently rebuked.

    Here is an example of someone that would choose to be shot rather than comply with duress.

    Contracts must be entered into freely.
    This contract [George Speights] wasn’t entered into freely.
    Therefore, that contract can and should be voided.

    Your second premise appears to contradict the first and your conclusion doesn’t follow from the premises. I don’t think the duress argument will tie back in to the original argument about unreasonable agreements.

  21. I don’t consider myself gently rebuked. I would say I used mockery not haughtiness. It is carefully considered mockery because you absolutely deserve it. Your unshakeable self confidence is in this case entirely misplaced.

    My second premise doesn’t contradict the first, it is the inverse corollary.

    The decree establishes the test.
    What you call the second premise is the application of the test. In my example (Speights) fails the test
    Therefore the inverse conclusion is what follows.

    You could apply the same logic with an example that passes..the test.
    Contracts must be entered into freely
    This contract was entered into freely
    This contract should not be voided.

    The problem with this post is I have descended to arguing at a simplistic Reed level which is fundamentally flawed and going nowhere. The point I was trying to demonstrate by using a Reedism is;
    – Your first premise is just an arbitrary axiom (which is why I mockingly called is Reed issuing a decree).
    You follow that up with some simplistic logic to make it look supported.
    And it is as persuasive as telling me the house is the grass.

    The basic flaw in your thinking – that you have carefully avoided addressing until now- is your idea that what you call principles are immutable and other principles cannot ever apply to the same situation. Please explain where on earth you got this notion? And on why on earth you hang onto it?

  22. I don’t consider myself gently rebuked. I would say I used mockery not haughtiness. It is carefully considered mockery because you absolutely deserve it. Your unshakeable self confidence is in this case entirely misplaced.

    Where should my self confidence be? 🙂

    My second premise doesn’t contradict the first, it is the inverse corollary…

    It’s not a logical argument.

    The basic flaw in your thinking – that you have carefully avoided addressing until now- is your idea that what you call principles are immutable and other principles cannot ever apply to the same situation. Please explain where on earth you got this notion? And on why on earth you hang onto it?

    There is right and wrong. Right and wrong can be understood. Understanding is a good thing. It’s never ok to do wrong.
    Consequentialism/pragmatism (a la Brian) is flawed and can be evil – e.g. killing a few to save many is an evil that a pragmatist can accept.

  23. Reed, your answers are non-answers and I note you couldn’t help but introduce another “Reedism”.

    “There is right and wrong. Right and wrong can be understood. Understanding is a good thing. It’s never ok to do wrong.”

    The reason I am bothering to continue this conversation is to help you understand “right and wrong”. You can never understand “right and wrong” using your simplistic methods of deduction. You need a new paradigm – a new way of thinking.

    Presenting a logical argument in support of evil does not justify the evil (which you are inadvertently doing). You are currently starting with what you call a “principal” and building an apparently irrefutable logical argument that disregards the outcome of following your advice as irrelevant.

    However, the scripture says that a good tree does not bear bad fruit. What a man sows, that he shall reap. A wise or foolish seed becomes evident in due course from the “fruit” it produces. It is possible to reverse engineer wisdom or foolishness because “wisdom is justified by her children”. This is not pragmatism. Rather it is the evidence that proves whether wisdom or foolishness has been applied.

    Although I didn’t mention it earlier, mostly because I was speechless, your suggestion that people ought to become martyrs rather than sign a contract under undue influence is the absolute height of stupidity and foolishness. I do not have words to express how abhorrent, foolish and evil your proposition is. I hope my friends and family never follow your advice. I certainly won’t.

    Your utter contempt and total disregard for the outcomes of people following your advice is scary and this makes you a dangerous person. All the more so because you are persuasive.

  24. If anyone (other than Rob) is still reading this thread I’d be curious to know whether you have changed your mind.

    An argument was made to me in person that parties to a contract have an expectation that the other party is acting in “good faith”. And, that in the case of the unreasonable contractor he wasn’t acting in good faith (evident by the unreasonable price) and therefore the contract is not binding – which would justify forcibly taking the money from the contractor and returning it to the purchaser.

    It’s a reasonable argument.

    What do you think?

  25. The fact that these appeals to reason failed is evidence that you are currently an unreasonable person – as demonstrated by your comment that an ardent contractarian would tell the person holding the gun to “just shoot me”.

    There are not words to express how completely f…ked in the head you must be to take this stance. If you were anybody else I wouldn’t bother engaging any further with you because basically you must be nuts.

    Robert, I get this sort of thing a lot on my other blog. I get called anything from “irrational” or “deluded” through to “dishonest” or even “worse than a piece of shit.” And you know why I get called those things? Because people don’t get my jokes! 🙂

  26. You say; “A person is bound by the terms of their contract.”

    I agree with that statement. It a no brainer. Of course people are bound by the terms of their contract. That is the whole purpose of contract law. I consider it axiomatic – a self evident truth. It establishes the default position of a contract – unless there are extenuating circumstances.

    The difference between us is that you consider your statement to be what you would call a “principle”. By this you mean “immutable principle” upon which no other principles can have relevance. This is the point at which you head off into ga ga land.

    I consulted my Roberto/Reedish dictionary and the phrase “immutable principle” in Reedish is synonymous with the phrase “self-evident axiom” in Roberto. 🙂

    “A person is bound by the terms of their contract.”

    Each of us agrees. The question is, how can a judge determine that a contractee is *not* bound by the terms of his contract? He cannot determine this!

    The question is – is a third party (e.g. a Judge) justified in taking the money (less a reasonable fee for the contractor’s services) from the contractor and returning it to the purchaser?

    Tricky, Reed. The judge is not justified in taking the money (*less* a reasonable fee) from the *contractor* and returning it to *the purchaser*. But the judge is justified in taking *all* the money from the *toilet repair person* and returning it to *Robert’s mother*.

    What I’m getting at is that either there is a *contract*—and both parties are bound by its terms—or there is *no contract* at all—i.e., it is null and void.

    The (dis)analogy here is to marriage. A marriage can be annulled. Or a spouse can get a divorce. But, whereas a marriage can end in divorce, a marriage cannot end in annulment. If a marriage is annulled, legally it never happened.

    Reed thinks (correct me if I’m wrong) that if a judge determines that a price paid for something was “unreasonable” then he has effectively annulled the contract. Legally speaking, the contract never happened. (So, Reed, the judge should return the entire amount to the would-be purchaser, not less a reasonable fee for the would-be contractor’s services, since no contract was entered into).

    Robert thinks (correct me if I’m wrong) that if a judge determines that a price paid for something was “unreasonable” then he has effectively altered the terms of the contract retrospectively, but there is still a contract.

    The practical upshot is much the same. Robert’s mother gets all (Reed) or nearly all (Robert) of her money back. But in terms of the philosophy behind this, I agree with Reed. Reed hasn’t abdicated his mind and evicted himself from the realm of reality! As I see it, he’s just concerned that we don’t water down the concept of a contract past the point where it ceases to be one. And, as I see it, a contract ceases to be a contract if/when a judge decrees that the parties to it are no longer bound by it.

  27. One other thing. The rule(s) for posting and commenting here are prominently displayed near the top of the right-hand sidebar. Consider yourselves bound by them!

    Do not let any unwholesome talk come out of your mouths, but only what is helpful for building others up according to their needs, that it may benefit those who listen.

  28. The degree of unreasonableness should be a consideration only to the extent that it indicates that the purchaser was not of sound mind or that there was an element of fraud. Otherwise … live and learn.

    Richard, have you changed your mind?

  29. Reed, no, I don’t think so.

    If the would-be purchaser is, e.g., deemed to be not of sound mind then the contract is invalid. Isn’t it?

  30. If the would-be purchaser is, e.g., deemed to be not of sound mind then the contract is invalid. Isn’t it?

    Sure. But the bit I was wanting you to confirm was that unreasonableness itself should not be a consideration for forcibly undoing a contract.

  31. Reed, I don’t think that unreasonableness in and of itself is sufficient to invalidate a contract.

    But I’d like to think it is (persuade me) … Loan sharks make me want to brandish a scourge of small cords, how about you?

  32. Loan sharks make me want to brandish a scourge of small cords, how about you?

    Should drug dealers, bottle store owners, cigarette companies, brothel owners, casino owners, etc. make me want to brandish a scourge of small cords?

  33. I know you were alluding to the cleansing of the temple.

    If the context is within the temple then brandish a scourge of small cords by all means. Be careful not to take an eye out. 🙂

    I think loan sharks, drug dealers, bottle store owners, cigarette companies, brothel owners and casino owners are similar in that the people that use their services are responsible for their own actions.

  34. I think loan sharks, drug dealers, bottle store owners, cigarette companies, brothel owners and casino owners are similar in that the people that use their services are responsible for their own actions.

    I’m a libertarian, I can’t argue with that!

    Is usury wrong?

  35. Reed, I’m looking forward to your post on blackmail (and duress).

    Someone tried (unsuccessfully) to blackmail me recently. (Long story.)

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