Document Type

Working Paper

Publication Date

2013

Center/Program

Center for Contract and Economic Organization

Center/Program

The Charles Evans Gerber Transactional Studies Center

Abstract

Reliance plays a central role in contract law and scholarship. One party relies on the other’s promised performance, or its statements, or its anticipated entry into a formal agreement. Saying that reliance is important, however, says nothing about what we should do about it. In this paper the focus is on the many ways that parties choose to protect reliance. The relation between what parties do and what contract doctrine cares about is tenuous at best. Contract performance takes place over time and the nature of the parties’ future obligations can be deferred to take account of changing circumstances. Reliance matters in this context since one or both of the parties might want to rely on the continuity of the arrangement; but they might also want the flexibility to adapt as new information becomes available. If one party has the discretion to react (terminating or adjusting quantity, for example) the other party can confront the decision maker with a price reflecting its reliance. That price need bear no relation to the formal remedies of contract law. The paper also considers other roles of reliance, including determination of compensation following excused performance, the irrevocability of an offer, and in a particular type of complex transaction — a corporate acquisition.

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