Legitimate Expectations in Contract Law

Christina Anna Kjerside & Amanda Senker Holbech

Student thesis: Master thesis

Abstract

The purpose of this Master thesis is to investigate legitimate expectations’ legal protective framework in the matter of contract law. Furthermore, it explores to what extent legitimate expectations affects the contractors and society in relation to risk profile and behavior. The range of legitimate expectations is analyzed using Danish case law to determine the legal framework. The analysis showed that the legal figure when pleaded is ratified by the courts. Nor does the court differentiate between whether the injured is a merchant or a consumer. The argumentation might be slightly different, but the result stays the same – the injured gets compensated for the inconvenience or damage caused by the expectation. An overview of the economic assumptions is developed in the next chapter, which forms the basis of the psychological economic analysis of the parties risk sensitivity and behavior in connection with invoking legitimate expectations. One of the key findings in the following analysis using Prospect Theory showed that the injured, whose risk profile should be riskaversion, is paradoxically exercising risk-seeking behavior, when presented to a loss scenario. This behavior is expressed in making more of an effort in order to gain more or prevent a loss. The next key finding shows that even though Prospect Theory predicts risk-seeking behavior, the theory of Framing dictates that when faced with a loss scenario, one would exercise opportunistic behavior to avoid a loss rather than risk-seeking behavior. Controlling or changing the behavior when faced with legitimate expectations is desirable and this irregularity in behavior makes it necessary to investigate ways to avoid or guard against claiming legitimate expectations. Findings from the analysis revealed that none of the general legal levers would be successful in guarding against legitimate expectation. Conversely game theory showed that the behavior can be altered through commitments and threats of Grimm Trigger behavioral schemes. Finally, the thesis evaluates the society’s efficiency at the possibility of claiming legitimate expectations. It appears that the claiming is not efficient or inefficient, what is more relevant is the size of transaction costs spent both in writing contracts or subsequent judicial review.

EducationsMSc in Commercial Law, (Graduate Programme) Final Thesis
LanguageDanish
Publication date2018
Number of pages106
SupervisorsKim Østergaard