Sunday, April 27, 2014
In the last few years I have been fortunate enough to teach law and economics in Rio. My students are generally other professors, graduate students, and attorneys. One of them, Luciano Timm, a contracts professor, alerted me to the idea of the social function of contracts and an article he had written on the subject. The subject is important because under the Brazilian Civil Code , "The freedom to contract shall be exercised by reason and within the limitations of the social function of the contract”.
This naturally leads to the question of what is the social function of contract. The notion of balancing the idea of freedom of contract with the social function of contract is an interesting one if one knows what the social function of contract is. I can think of many social functions of contract law but I am not sure what social functions would be inconsistent with freedom of contract. My best quess would be something consistent with a Rawlsian view of contract law which would advance his Difference Principle. Or perhaps that all contracts should result in true Pareto Superior outcomes. By "true" I mean not what the parties expect when making the contract but how they actually feel after experiencing the contract. (Much more on this later.)
In any case, it is a puzzle evidently now being worked through by Brazilian courts. As usual, comments are welcome.