This is an idea to change contract law so as to ensure a degree of transparency in contracts between companies and people.

Suppose that I run a company and that in the course of business I promise to pay others at some future date, contingent, perhaps, on some possible event. Subsequently I want to sell stock in my company, and I must hire an auditor to evaluate the financial status of the company. Contingent promissory notes held by others bear on the viability of my company. How does an auditor learn of these? Recent history of failures of some large companies shows this to be a problem.

The idea is a contract registry and a concomitant change in contract law to require registration of such contracts lest they be legally unenforceable. It is permissible to encrypt the contract but upon enforcement proceedings the key must be revealed, at least to the judge. Further the registered contracts must be indexed by potential payer (presumably a signatory to the contract) and an amount at which the signer can buy out of the contract. The amount would be included in the clear in the registration. This amount serves as a bound on the liability. If I want to sell you stock in my company you may examine all index entries referring to my company. This lets you evaluate contingent exposure of the company. You are also in a position to demand of me keys to decrypt selected contracts with significant amounts involved. I may refuse and so then you may then refuse to buy stock. The auditor can be viewed as your agent.

Regarding transaction protocols, upon signing the contract you invoke authority provided by me, to register the contract. This protects you in the event of a legal enforcement proceedings. This can be automated thru a mutually trusted mechanism or thru escrow service. Perhaps I sign in effect by giving you the authority to register the contract and you sign in effect by registering it. Both of these acts include the secure hash of the encrypted contract.

An interesting economic question is whether business secrecy, which the above strives to protect, is actually good for business—that is whether it is good for the economy. To forego secrecy is bad for a company that does so unilaterally, but that is not the question. I am convinced that there are at least narrow circumstances where secrecy is good for the larger economy, such as trade secrets. I am less convinced about hedging contracts.

Tangential Service