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Taking Information Seriously: Misrepresentation and Nondisclosure in Contract Law and Elsewhere

Contract law attempts in various ways to regulate the information that contracting parties exchange. However, most contract law doctrines (and most contract law scholars) have yet to come to grips with the practical issues involved in regulating information. For instance, the disclosure of information can produce costs as well as benefits, by distracting parties from other, more important information; so it is often hard to decide which information should have been disclosed in any given case. Similar costs and benefits are often involved even in cases involving false statements (misrepresentations), where liability might seem less controversial.

While these issues are underappreciated in contract law, they are much more familiar in federal consumer protection law, especially in cases involving false advertising; and they are beginning to be recognized in products liability cases involving the duty to warn. This Article suggests various ways to improve contract law’s handling of misrepresentation and nondisclosure, all of which involve closer attention to the relevant costs and benefits.

The Promise of International Law

In their recent book, The Limits of International Law, Professors Goldsmith and Posner throw down the gauntlet to scholars of international law. They advance a deeply pessimistic account of international law and its role in affecting state behavior — alleging that customary international fails to act as “an exogenous influence on states’ behavior,” and expressing skepticism that multinational collective action problems can be solved by treaty. This review represents a response to the book’s claims. It is demonstrated that there is no theoretical reason to conclude that international law is ineffective, whether it addresses bilateral or multilateral problems and whether it takes the form of written agreements or customary law. Adopting the same rational choice framework used by Goldsmith and Posner, it is shown that rational states have a reason to value a reputation for compliance with international law and, therefore, a reason to comply with their international legal obligations. The mechanism through which international law affects state behavior is obviously of central importance to those seeking to understand the international legal system. This review both explains the assumptions required to generate the results provided in The Limits of International Law and illustrates how more reasonable assumptions support a theory of international law in which state behavior is constrained by their international legal commitments.

Exclusionary Amenities in Residential Communities

This article identifies an important mechanism by which segregation arises in new residential developments. The Fair Housing Act and other antidiscrimination laws closely regulate real estate sales, advertising, and racial steering. As a result of these laws and other factors, purchasers of homes often lack accurate information about the likely demographic makeup of a new neighborhood or condominium building. Yet these laws have not eroded the incentives for housing consumers to obtain this data. This article argues that developers can circumvent fair housing laws by embedding costly, demographically polarizing amenities within a new development and recording covenants mandating that all homeowners pay for those amenities. Its central claim is that developers will select common amenities not only on the basis of which amenities are inherently welfare-maximizing for the residents, but also on the basis of which amenities most effectively deter undesirable residents from purchasing homes in the development. The article dubs this approach the exclusionary amenities strategy and shows how it causes sorting and focal point mechanisms to act in concert, thereby engendering substantial residential homogeneity. The inability to exclude functions as an inducement to spend. 

During the 1990s, the United States experienced a boom in the construction of residential developments built around costly golf courses. This occurred at a time when golf participation functioned as a noticeably better proxy for race than income, wealth, or virtually any other characteristic. Curiously, substantial numbers of Americans who purchased homes in mandatory-membership golf communities played no golf. This article offers circumstantial evidence suggesting that by purchasing homes in these communities, homeowners may simply have been paying a premium for residential racial homogeneity. The article then identifies a number of other examples where developers, or even municipalities, appear to be pursuing an exclusionary amenities strategy. It also identifies instances in which the use of exclusionary amenities may further neutral, or even laudable, objectives. 

The article then notes the possibility of inclusionary amenities, and shows how a few developers, common interest communities, and municipalities have used these amenities to achieve greater residential heterogeneity than would otherwise have been possible. It concludes by evaluating the law’s current stance of leaving exclusionary amenities largely unregulated, and examines various strategies for curbing the use of exclusionary amenities to achieve racial homogeneity.  

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