Nexus Of Contracts Research Articles

Small farm as sustainable nexus of contracts: understanding the role of human capital and policy based on evidence from Poland

Small farm as sustainable nexus of contracts: understanding the role of human capital and policy based on evidence from Poland

Not by Contract Alone: The Contractarian Theory of the Corporation and the Paradox of Implied Terms

Contractarians view the corporation as a nexus of contracts, constituted by the express or implied consent of each party to or contracting with it. Strong-form contractarianism takes this claim literally and holds that a corporation can be created and sustained by contract alone, thanks notably to the courts’ supportive gap-filling role. We argue that this view is undermined by the way courts actually treat implied terms. While courts do attempt to fill gaps and hold parties to their bargains, they do not typically manufacture counterfactual consent by resorting to the hypothetical bargain logic of contractarianism. Even under the most flexible form of contract law, the common law contract, the capacity of courts to imply third-party obligations in multi-party contracts is highly limited. This makes the contractarian reliance on contract and the courts to construct the complex set of multi-party obligations that make up the corporate form implausible.

Является ли хозяйственное общество гражданско-правовым сообществом? Концепция коммуникатора

The article examines the legal nature of a business company. The concepts of the contractual community of participants, the personalized property and the nexus of contracts are consistently studied and rejected. It is permissible to consider a business company as a civil law community only if such a community is not reduced to a group of its participants who are in decentralized legal relations with each other. It is proposed to consider a business company as having a dualistic legal nature. On the one hand, it is recognised by the state as a legal entity, having its own will, interests, and separate property (statutory nature). On the other hand, a business company is organised by means of centralised corporate relations having features of civil law contracts and in the interests and goals of the business company separate common interests and goals of its participants are reflected (contractual nature). Thus, a business company performs the functions of a communicator.

From Corporate Governance to Crypto-Governance

In this paper I examine governance from a corporate perspective and then apply some of those ideas to blockchain governance. There is no need to re-discover or reinvent governance. The principles of governance have been established and understood for a long time – what is new is blockchain technology. The technical innovation associated with blockchain masks some commonalities with the industrial economy. Organisations in need of governance are a nexus of contracts. Blockchain applications as organisations are a nexus of smart contracts. Once this perspective is adopted, it is very clear that blockchain governance cannot simply be a strategy to decentralise and then vote as a group on all decisions. I then explain why a hypothetical blockchain foundation would have concentrated control and would be a non-profit organisation.

Not by Contract Alone: The Contractarian Theory of the Corporation and the Paradox of Implied Terms

Contractarians view the corporation as a nexus of contracts, constituted by the express or implied consent of each party to or contracting with it. Strong form contractarianism takes this claim literally and holds that a corporation can be created and sustained by contract alone, thanks notably to the courts’ supportive gap-filling role. We argue that this view is undermined by the way courts actually treat implied terms. While courts do attempt to fill gaps and hold parties to their bargains, courts do not typically manufacture counterfactual consent by resorting to the hypothetical bargain logic of contractarianism. Even under the most flexible form of contract law, the common law contract, the capacity of courts to imply third-party obligations in multi-party contracts is highly limited. This makes the contractarian reliance on contract and the courts to construct the complex set of multi-party obligations that make up the corporate form implausible.

Mandatory Arbitration and the Boundaries of Corporate Law

A storm is brewing on the corporate law horizon. Several recent judicial developments, which this Article ties together for the first time, present the most refined opportunity yet for mandatory arbitration—today prevalent in consumer and employment contracts—to enter the corporate law sphere, shutting the courthouse doors before corporate entities and shareholders precisely where legal remedy is most needed. Yet, for this scenario to unfold, the Supreme Court would have to declare that corporate charters and bylaws are contracts. Otherwise, restrictions on arbitration (including those recently enacted by Delaware) cannot be preempted by the Federal Arbitration Act. As this Article innovatively explains, scholars have long resorted to inaccurate metaphors, such as nexus of contracts, in the corporate context. If, however, we move away from legal realist conventions, embrace the idea that corporate law is a self-standing category within private law, and examine its distinctive properties—most importantly, its principled reliance on ex post judicial supervision over open-ended factual scenarios—we find that corporate law is nearly the structural opposite of contract law. This legal distinction also generates a set of powerful economic benefits. Existing scholarship has focused on procedural and doctrinal aspects, such as directors' power to amend corporate documents without shareholders' consent. This Article ties the arguments into an overarching theoretical framework, originally bringing together the literature on private law theory, law and economics, and corporate litigation. Similar to the 1980s takeover wave, and recent debates surrounding corporations' constitutional rights and corporate purpose, the specter of mandatory arbitration offers an opportunity to take a fresh look at corporate law's theoretical foundations. The economic benefits and non-contractual, equity-based structure of corporate law are two sides of the same coin. To avoid both inefficiency and injustice, courts and scholars must recognize the implications of corporate law's distinct nature.

Design Rules, Volume 2: Chapter 3—Transaction Free Zones

In Chapter 2 we saw that the most economical locations for transactions in a task network are the so-called thin crossing points—places where transfers are easy to define, count and pay for. However, in many places in the task network, transfers of material, energy, and information are so dense and complex that the costs of treating each one as a transaction would be prohibitive. Such areas can become transaction free zones. The purpose of this chapter is to build a theory of transaction free zones within a task network. I first consider how transaction free zones are related to the economic view that a firm is a “nexus of contracts.” I then explain how transaction free zones are created and governed. I describe three types of transaction free zones: (1) corporations in which all decision rights flow from a single, central authority; (2) commons organizations which govern through consensual rule-making and monitoring; and (3) collaborative communities with open boundaries which govern through consensus and shared norms.

Narratives of the Digital Economy: How Platforms Are Challenging Consumer Law and Hierarchical Organization

Abstract Digital platforms are the essential infrastructures of electronic commerce, online communication, and digital social relationships. They connect two interdependent groups of web users (parties offering goods, services, and digital content; and parties interested in accessing this supply) and enable their transactions. Moreover, they provide additional services such as online payment, collection of reviews and feedback, and internal instant messaging. However, the term “platform” can be misleading, since it seems to denote a virtual space or a technical tool without legal personality. In other words, platforms are masking corporations who hide behind them in order to avoid the legal responsibilities stemming from their status as social institutions. This exploits the dominant theory of the firm as a nexus of contracts and is intended to release the agents involved in the system of production from the restrictions that protect weaker parties in the age of industrial capitalism. Companies who organize production through platforms thus obtain both indirect and direct benefits. In particular, indirect benefits derive from making consumer law more complicated to apply by creating conditions that frustrate the traditional distinction between professionals and consumers. In fact, any user can provide services and sell or share their personal goods (e.g., cars, apartments, clothes, etc.) and other commodities through platforms. However, this does not mean that information asymmetries do not continue to exist, or that weaker parties do not need to be protected. This confusion benefits companies that enable these transactions, since online relationships are not burdened by informative duties. In this case, companies use the platform narrative to facilitate peer-to-peer transactions, where simple, ubiquitous exchanges yield advantages. In addition, platforms provide direct benefits by eliminating the hierarchical organization of their production system in order to adopt the least burdensome and most flexible forms of employment. Companies generally rely on ICT tools to show that the parties offering the service are independent and are not subject to their control. The platform narrative glosses over the labor exploitation issues generally referred to as “uberification”. In addressing the questions outlined in this introduction, the paper will be organized as follows. Part I will discuss how the platform economy is challenging consumer law by short-circuiting its legal grounds in ways that allow companies to benefit. Part II will focus on the direct effects of the platforms’ denial of hierarchical organization: starting from the Italian Supreme Court’s ruling in the Foodora lawsuit, we will explore emergent models for organizing the system of production and their impact on the main categories of private law.

The Transnationalization of Corporate Governance: Law, Institutional Arrangements and Corporate Power

This Article presents a critique of corporate governance theory against the background of a fundamental transformation of the political economy in which the corporation is embedded. This transformation is effectuated, on the one hand, by the denationalization and privatization of corporate governance rule making, which now encompasses a wide range of new transnational fora and actors. On the other hand, this transformation is a substantive one which touches on the core beliefs that have shaped corporate law and corporate governance for more than a century. The coalescence of these two driving forces places the current debate around “corporate purpose” and alternative visions of the corporation in the context of political economy changes which require a serious engagement with the question how it can be prevented that the corporation continues to become even further insulated from democratic political intervention. With these two forces in mind, this Article makes a socio-legal intervention, exploring the actual, regulatory landscape of corporate governance norm production today. We study the connections between law and norm creation on both the nation-state and the global level – rather than treating transnational law as the exception – and seek to engage corporate governance as part of a larger critique of law’s troubled relationship with the business corporation as an entity that exists not only in legal doctrine but in a wealth of actual socio-economic relationships. Complementing this analysis, the Article engages with the question whether the corporation’s purpose can be exhaustively be captured by tying it to the maximization of shareholder value. In light of the global financial crisis and its devastating consequences not so long ago, particularly for retail investors, workers and mortgage debtors, and the present-day collapse of world-wide economic activity due to Covid-19, it would seem unlikely were we to find that the allegation, uttered some two decades ago, whereby the shareholder value maximization paradigm constituted the “end of history of corporate law”, was still seen to be true. But, this very belief seems alive and well so that when, in the spring of 2020, business appeals to government for “rescue” in an historically unknown fashion, we must take a closer look at the historical relationship between “the state” and “the market.” What becomes evident from a historical perspective is the linearity of how mainstream corporate law has over time prepared the ground for a far-reaching autonomization and insulation of corporate governance from “society at large.” The Article analyzes the arguments and policies in support of this alleged autonomy of corporate governance and finds that the roots reach deeper than even the current debates over “stakeholderism” let on. While we are intrigued with the recent advances made in these debates and by important “players” such as the Business Roundtable, it is not at all clear what their lasting impact might be. Our analysis shows that corporate law’s distance from “non-shareholder” interests has long been tied into an economistic concept of the business corporation, from which all memory of the corporation as creature of law is eventually removed. By depicting the corporation through the concept of an in itself reductionist “nexus of contracts” that prioritizes investor-management relations at the exclusion of all other contractual and affected stakeholders of the firm, corporate governance can “take off” into Rudolf Ihering’s heaven of “pure legal concepts”, all the while betraying its deeply ideological character and actual economic and political power.

Planetary Boundaries and Corporate Reporting: The Role of the Conceptual Basis of the Corporation

AbstractThere is a broad call to integrate planetary boundaries and life-cycle based reporting into accounting theory and reporting standards. Although many practitioners back this call, including insurers, shareholders with a long-term orientation, and company law specialists who suggest that the inclusion of long-term stakeholder interests is necessary to counter both corporate and systemic risks, it remains unanswered. We argue that dominant assumptions about the status and architecture of corporations in corporate governance theory stand at the centre of this unanswered call in accounting theory and practice. As the status of the public corporation is interpreted as a nexus of contracts and its architecture as a restricted dyadic relation between ‘principals’ and ‘agents’, the object and audience for corporate reports are restricted to a very specific set of actors, interests and time-horizons. We argue that this conceptual setup unduly restricts notions of accountability and is connected to a specific notion of political economy. A broadening of reporting standards needs, therefore, to be accompanied by a critical assessment of the assumed object and audience of reporting in corporate governance theory.

In Search for the Existence of the 'Holy-Grail, One Size Fits All' Theory: An Examination of Corporate Governance from Robber-Barons to Unicorns

In Search for the Existence of the 'Holy-Grail, One Size Fits All' Theory: An Examination of Corporate Governance from Robber-Barons to Unicorns

Contracts and Hierarchies: A Moral Examination of Economic Theories of the Firm

ABSTRACT:An influential set of economic theories argue that the firm is a nexus of contracts that institute a hierarchy to overcome the problems of incomplete contracting in the market. However, the economic theory of the firm as a hierarchy violates the moral requirement to respect the autonomy of those who contract into the firm. The internal logic of the theory depends on a morally unacceptable abdication of a part of the employee’s capacity to set her own ends in the future. So a different theory is needed to understand the nature and purpose of the firm. The development of such a theory can benefit from business ethicists engaging with existing economic theories of the firm to explore concepts like contracts, agency, and property.

Theories of the Firm

Since the seminal contributions of Coase, Williamson, Jensen and Meckling, and Easterbrook and Fischel, the characterisation of the firm as a nexus of contracts, its boundaries determined by the relative costs of markets and hierarchical organisation, has dominated the economic theory of the firm. The capabilities-based approach of Penrose, largely ignored by economists but developed in the resource-based theory of business strategy, provides a more illuminating perspective on a globalised and evolving business environment.

Managing Subjectivity: Neoliberalism, Human Capital and Empowerment

In this paper, I suggest that, even more than the state, capitalist enterprise is the most influential institution of neoliberalism, both for the effect it conveys in terms of management in public institutions (New Public Management) and its influence on the subjectivity of neoliberal individuals. However, one could stress, from the perspective of economic theory of the firm, the neoliberal transformations of the capitalist enterprises itself. Two transformations that are taking place from the 1980s seem particularly important. The first is the firm’s transformation in a “nexus of contracts” as claimed by the agency theory of Jensen and Meckling that describe and enable the current financialization of the economy. The second is the transformation of organisations in a “nexus of skills” as claimed by the cognitive paradigm of the firm that apply to the company economic reasoning in terms of “human capital”. I then examine the effects on neoliberal subjectivation of these two major changes, from the labour point of view. First, the neoliberal subject imagines, describes and manages itself as the subject of investment in “human capital”. Second, the disappearance of traditional employment contract corresponds to the emergence and intensification of another form of contract, the “psychological contract”, which tends to become a major form of relationship-employed but also a model for relationships between individuals. Finally, lifelong learning is becoming the major form of empowerment of employees, but also a “lifestyle” based on the appreciation of one’s own human capital and the infinite task of perfecting oneself to match up our “skills portfolio” with the labour market. These transformations of neoliberal subjectivity have costs that can be summarised by the widespread phenomena of burn out, but also the birth of a new form of racism, based on “quality” of human capital (skills, abilities, capabilities).

‘Shareholder Supremacy in a Nexus of Contracts: A Nexus of Problems’

This article focuses on shareholder supremacy and exclusivity derived from a view of the company as a nexus of contracts. The nexus of contracts theory is the dominant theory within English company law. It defines the company as a contract between private individuals. The shareholders and the company are recognized as the only parties to that contract. While corporate membership is reserved exclusively for shareholders, the rest of the stakeholders are viewed as external to the company. The article will question the theoretical and doctrinal validity of shareholder supremacy and exclusivity within this context. It argues that while the nexus of contracts theory promotes shareholder exclusivity in a rather dogmatic manner, not only the law but also the courts have limited the rights of shareholders to a significant extent. The article does not place into doubt the importance of shareholders within the corporate context; after all the shareholders are the capital providers of the company. It does however criticize the current status quo in English company law where theoretically the shareholders are sitting on the corporate throne in a company which includes no one else but them, but in practice their supremacy is challenged by the courts to such a degree that it is difficult to exercise even the rights stemming from their shares and to have access to effective remedies against managerial abuse. The article will therefore underline the controversies inherent in the nexus of contracts theory. It will shed light on the distorted application of the theory within English company law. It argues that the theory should be reformed to adjust to the new reality. On the one hand, it should certainly protect the rights of shareholders stemming from their shares and it should allow for effective shareholder protection against mismanagement. On the other hand, the theory should adopt a more inclusive definition of the company that will not leave the stakeholders off its context. Especially those stakeholders who clearly have a contractual relationship with the company should be factored into corporate governance. Therefore, the article will argue against the doctrinal dominance of shareholder exclusivity and supremacy by arguing that they nowadays flow from a flawed interpretation of the nexus of contracts theory. The article will focus on shareholder protection; it will examine section 994 of the Companies Act 2006, which provides for one of the main remedies against directorial abuse. The jurisprudence of the courts embodies a clear mismatch between theory and practice. Absolute shareholder supremacy should have entailed an enhanced level of protection to match the status of shareholders as the only members of the company. After all, the nexus of contracts theory defines the interests of the company as the interests of the shareholders. Yet, the judicial stance on this matter proves that the courts have actually curtailed the protection granted to shareholders by the Companies Act 2006; this clearly testifies to the deeply problematic nature of shareholder supremacy within the context of the nexus of contracts theory. The article will therefore argue that the dominant views in theory, academia and law, which continue to recognize a notion of absolute shareholder supremacy and exclusivity, flow mostly from ideology rather than reality. Ideological dogmatism has resulted in a very narrow, and in many ways distorted, definition of the company; one which left only the shareholders within its context albeit and paradoxically with a limited set of rights to control the management. The article argues that the current law should be reformed, aiming at creating a more inclusive company where shareholders would actually enjoy a bundle of rights appropriate for capital providers. The law should also be reformed so that stakeholders whose interests are integrally linked with the company’s fortune – such as employees and creditors – should be factored into the company. This is in the interests of both the company and the stakeholders

Reasoning by Analogy and the Progress of Theory

Many influential theories of organization rest on an analogical foundation: we think of the organization as if it were a governance structure, a nexus of contracts, a social network, or an informat...

The Modern Corporation Statement on Economics

From the early decades of the twentieth century, a dominant characteristic of the modern “capitalist” corporation, especially in the United States, was the separation of asset ownership in the form of publicly traded shares from allocative control over the corporation’s resources by salaried managers. By the 1950s some depicted managerial-controlled large enterprise as the “soulful” corporation in which the allocation of resources resulted in enhanced social welfare. In the 1960s, however, some conservative academics looked to market forces, dubbed the ‘market for corporate control’, to ensure that managers as employees would give primacy to shareholders in the allocation of corporate resources. This market for corporate control could enable hostile takeovers in which shareholders who accumulated large public equity stakes in a company could discipline managers to allocate resources in ways that “the market” deemed to be efficient. The notion that market allocation could control managerial organization was then developed theoretically based on the conceptualisation that the corporation (and indeed any firm) could be conceptualised as a ‘nexus of contracts’ or a ‘collection of assets’. Rather than view the corporation as a social organization with its unique history and competitive capabilities in which public shareholders had come to play a peripheral role, neoclassical economists conceptualised the corporation as a set of voluntary contracts among owners of resources and as a portfolio of assets with different market-determined rates of returns. This conceptualisation of the corporation to fit with the dominant neoclassical theory of the market economy had implications. We provide this Summary of certain fundamentals of economics in an effort to help prevent analytical errors which can have severe and damaging effects on corporations.

“No Body to be Kicked?” Monopoly, Financial Crisis, and Popular Revolt in 18th-Century Haiti and America

Contemporary law and legal theory are resigned to the view that the corporation is a mere nexus of contracts, a legal person lacking both body and soul. This essay explores that commitment to the immateriality of the corporation through a discussion of the 18th-century revolt against the Indies Company in Saint-Domingue (Haiti) and British North America. Opponents of the joint-stock monopoly in these Atlantic settings believed, like critics of transnational corporate power today, that the company form represented a merger of wealth and power operating to subvert the liberties of disenfranchised outsiders. Financial crisis served to destabilize the fiscal and political environment that insulated the Indies Company from its critics, who took advantage of these openings by attacking the material embodiments of the corporation in the name of “free trade.” The 18th-century opposition to monopoly privilege suggests that corporate personality was neither dismissed as fiction nor accepted as reality, and that in some circumstances, at least, the corporate body could indeed be held to account for the sins of a person without conscience.

Beyond asset ownership: Employment and assetless firms in the property rights theory of the firm

This paper enriches the celebrated Grossman–Hart–Moore (GHM) property rights model with employment relationships. By combining the GHM view of the firm as a bundle of asset ownerships with that of Alchian and Demsetz (1972), who viewed the firm as a nexus of contracts, the model yields, in some cases, optimal asset ownership different from the implications of the GHM model. We show that the nexus of contracts is a meaningful instrument to govern transactions even in the presence of asset ownership. The optimal contractual network structure depends on the relationship-specificity of investments, unlike the GHM model where the asset ownership depends solely on the asset specificity of investments.

The Corporation is Not a Nexus of Contracts. It's an iPhone

A dominant view in the Coasean law-and-economics tradition is that the firm (including in its form as the corporation) is nothing but a nexus of contracts: the firm is entirely a matter of contract law, and the corporate entity, the legal fiction of corporate personhood, is nothing but a name for a bundle of contracts. This view has implication both for the theory of the firm and for the political economy of the corporation – for the question of the “rights” of corporate entities. By asserting that the corporation is nothing but a set of contractual arrangements, the nexus-of-contracts view implies that any rights possessed by contracting individuals “pass through” to the corporation itself. Unsurprisingly, the powerful phalanx of writers who wish to limit the rights of the corporation take square and largely exclusive aim at the nexus-of-contracts view, assuming that arguments against that view are necessarily arguments against all kinds of “bottom up” accounts of the corporate form. I will argue that critics of the nexus-of-contracts view are indeed right in one sense (though by no means in every sense). Yet, despite this, the fact that the corporation cannot be constructed solely out of voluntary contract narrowly understood does not destroy the argument that the corporation is ultimately “nothing but” a form of cooperation among rights-holding individuals. The corporation understood from the perspective of property rights is both an object of ownership and a form of ownership. Much of the confusion in the literature arises from a procrustean attempt to appraise the corporation in light of simplified and partial accounts of the rights involved.