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To what extent does the law require or encourage parties to long-term contracts to renegotiate the terms of the transaction in order to cope with changes in circumstances?
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To what extent does the law require or encourage parties to long-term contracts to renegotiate the terms of the transaction in order to cope with changes in circumstances? The rules governing the enforceability of contracts are held in a balancing act. With one hand they must maintain the integrity of this essential instrument of market exchange whilst with the other allowing consenting parties to vary their obligations to exploit new opportunities and optimally manage market fluctuations. This paper will examine the extent to which this balance is held, and will use historical commentary to link changes in market conditions with changes in the law to determine the extent to which the law requires or encourages renegotiation. The 'classical' approach perceives contracts as legal expressions of the intentions of rational, utility-maximising individuals making discrete exchanges in perfectly competitive markets1. It is typified by a 'binary' approach to concepts like offer and acceptance, formalities...
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