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Should Profane Contracts Be Sanctified?

Contracts are protected and sanctified by the courts, but they can be written in order to violate the law – and to shield the crime itself from the law. Such profanity does not deserve, and should not receive, the legal blessing its authors seek.

CAMBRIDGE – Is there such a thing as too much sanctity? After all, even the word sanctimonious indicates an excessive show of devotion. The fervor for sanctification may hide darker motives, and attaining it may be deeply counterproductive. The sanctity of contracts, especially those involving the public sector, is a case in point.

Sanctity of contract rests on the notion that “once parties duly enter into a contract, they must honor their obligations under that contract.” If you give your word, you should abide by it, because a person is only as good as his or her word. Violating this maxim is a sin before others, if not before God.

Economics provides a strong rationale for this argument. People enter into agreements that involve time: you do something for me now, and I do something for you later. The problem is that such agreements are not self-enforcing: once you have done something for me, I am better off not paying you for your service or not returning the money you lent me. That is why collateral was invented: if I do not repay the money you lent me, you can take possession of something worth more than the loan.

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