Thursday, June 03, 2010

Promise(s) and Contract Law: An Introduction

The following is an introductory piece on "promise(s) and contract law" I wrote in 2003. I plan on updating it in light of the literature since that date. I welcome any comments (please keep in mind that I want this to remain a short and very basic introduction to the topic ).

It is hard to quibble with the contention that “the law of contract is for the most part the law of promises”(Eisenberg in Benson 2001: 225, n. 39). Indeed, and perhaps more to the point, “with few exceptions, contract law cannot get off the ground unless a promise has been made”(Eisenberg: 225). All the same, one should take the trouble to distinguish between promising as the embodiment of a social convention, an illustration of Humean “artificial virtue,” or the expression of a Kantian-like moral principle, from its role in contract law proper. Therefore it will not do, for example, to understand contract law as simply or solely the legal enforcement of a duty of fidelity, the moral duty to keep a promise, for promises cannot—any more than consent—fully account for the nature of contractual obligation. In due course the relation between promising and contractual obligation will be outlined in its essentials.

For Hume, the promise is not a “natural” rule of morality but rather an “artificial virtue” owing to its origin in human conventions that have, in turn, arisen from the “necessities and interests of society.” Philosophers from Kant to Searle (for whom almost all speech acts have an element of promising) have been intrigued by Hume’s enchantment with and puzzlement over promises, over the mysterious manner in which each act of promising gives rise to a (freely willed) obligation, in which each act “may even be compar’d to transubstantiation, or holy orders….” Searle would simply say that it is through “speech acts” that conventions or institutions are created. Promising as a performative utterance or magical verbal formula binds the promisor to the (future) performance of an action. Or, as Searle would say, promises are by definition creators of—nonmoral—obligations, and obligations are by definition reasons for action, the binding force of promises is here, contra Rawls, internal to the convention of promising (Zaibert in Smith 2003).

Performance as promised assures others of your trustworthiness, whereas failure to perform is a sign of the converse. The keeping of promises reinforces the social bonds of mutual confidence and security. According to Annette Baier, this is what in fact makes promises the philosophically provocative things they are, for “we can at will accept this sort of invitation to trust, whereas in general we cannot trust at will”(Baier 1995: 111). Contract theories are a dyadic departure from “this most ingenious social invention,” building upon the act of promising as “a complex and sophisticated moral achievement”(Baier: 112).

Kant famously employed the hypothetical adoption of a maxim of false promising as part of the explanation of the universalization principle that animates the Categorical Imperative. The attempt to uphold the maxim of promising falsely is doomed to fail and therefore cannot be willed as a universal law, for it involves what today is termed a pragmatic contradiction (on the order of the command, ‘Be spontaneous!’). Rawls’ discussion of promises pays homage to both Hume and Kant, while bringing us closer to the spirit of contract law. He notes the Humean-like benefits that accrue from promising as a social convention, but views the moral obligation to keep a promise as a consequence more strictly of the “principle of fairness,” for promising involves the invocation of the rule of a constitutive convention, and “Once a person says the words ‘I promise to do X’ in the appropriate circumstances, he has made a bona fide promise”(Rawls 1971: 346). But the moral obligation to keep one’s promise does not follow from the rule of promising as such, but rather the “principle of fidelity” which holds “bona fide promises are to be kept.” Assuming the just convention of promising exists (as a Humean artificial virtue), the act of promising simultaneously entails invoking the aforementioned rule and accepting the benefits intrinsic to a just convention or social arrangement. Nonetheless, it is our awareness of those benefits, and our desire to communicate such awareness to others, that prompts us to undertake the obligation in the first place: “promising is an act done with the public intention of deliberately incurring an obligation the existence of which in the circumstances will further one’s ends. We want this obligation to exist and to be known to exist, and we want others to know that we recognize this tie and intend to abide by it. Having then, availed ourselves of the practice for this reason, we are under an obligation to do as we promised by the principle of fairness”(Rawls: 347).

In contract law, promising entails committing oneself to perform in a certain way, with the promisee entitled to hold the promisor responsible for nonperformance, she is entitled to seek sanction for nonperformance. In both moral philosophy and contract law, the obligatory nature of promising is not absolute. If, for instance, one has promised to tell the truth, that promise may be trumped by circumstances that find your mother’s ex-lover and would-be murderer at the door, wanting to know her whereabouts. Similarly, all contracts, and by implication their promises, are defeasible in some circumstances. If, after Kant, one understands the categorical imperative: “keep your promises” as a morally binding rule, one can appreciate the legally binding character of the analogical contractual imperative: “keep your promise(s).” In contract law, a promise is endowed with a legal meaning apart from, or in addition to, any moral resonance it may assume or connote. For purposes of contract formation, a promise is defined as the manifestation of intent to act (or undertaking to act) or refrain from acting in a specified way so as to warrant the inference—by the promisee—that a commitment has been made.

Contracts involve an “express” or “implied” promise or set of promises that are legally binding, that is, recognized by law as enforceable, and for the breach of which the law provides a remedy. A bilateral contract entails a mutual exchange of promises. Arguably perhaps, the foremost purpose of contract law is to make particular kinds of promises legally binding. Traditionally, and in general, gratuitous and illusory promises are not legally enforceable (exceptions: relatively ‘formal’ promises to charity or those with a clear commercial rationale, as in an option contract). The concept of consideration allows the court to distinguish enforceable promises from gratuitous ones. Consideration, which must arise in the voluntary context of a bargained-for-exchange (hence the maxim, ‘past consideration is no consideration’), is defined as any act or forbearance that is a benefit to the promisor or detriment to the promisee. And the waiver of a legal right is sufficient consideration for a promise. Finally, the aforementioned act or forbearance must have some value. As Eric Posner explains, “The consideration doctrine prohibits the enforcement of gift promises not because of a policy against gift-giving, but because courts want to encourage parties to be specific about the content of their exchanges in order to ease the burden of judicial interpretation”(Posner 2000: 64). Last century it became increasingly clear that a growing number of contract cases had been enforced absent consideration, yet were united by the fact that the promisee had relied upon the promise (to her detriment, as it were). The doctrine of “promissory estoppel” (with historic roots in ‘equitable estoppel’) allowed for the enforcement of a gratuitous promise contingent upon the finding of three criterial elements: foreseeability, reliance, and injustice. Subsequently, the doctrine of promissory estoppel further expanded such that it is now fairly characterized as a “mender of ailing contracts” (Calamari and Perillo 1998: 248). Put differently, promissory estoppel need no longer be linked to questions of consideration (cf. Hoffman v. Red Owl Stores, Inc.).

The classical model of contract clearly derives contractual obligation from a promise, but if there is “no such thing as a typical contract,”(Atiyah in Linzer 1995: 82) this derivation may not always capture the essence of contractual phenomena, thus some have argued that “consent” better explains the nature of contractual obligation (Barnett 1986). In any case, and at the very least, a promise(s) is prima facie evidence of legal binding or, as Atiyah would say, serves as prima facie evidence of the fairness of contractual exchange.

Contemporary contract theorizing is dominated by autonomy (deontic) and economic (consequentialist) models that determine the differential emphases placed upon and different roles played by promises in the respective ideal-typical theories (Kraus in Coleman and Shapiro 2002). Boldly exemplifying the former type is Charles Fried’s endeavor to construct the moral and simultaneously legal basis of contractual obligation on the “promise principle,” the voluntary nature and centrality of which is derived from an attenuated and axiomatic Kantian conception of moral autonomy (Fried 1981). Fried attempts to directly tie the moral obligation to keep promises to the justification for legal intervention, but others, notably Scanlon, do not see “the rationale for the law of contracts…[as] an instance of the legal enforcement of morality”(Scanlon in Benson: 99-100). Scanlon does not deny, however, that there is some connection between the morality of promise-keeping and the legitimacy of contract law, but the connection is more circuitous, involving other contractualist principles and the centrality of the “value of choice” along the way. Barnett’s contract theory is also autonomy-based (and again, as Eisenberg reminds us, in an attenuated sense), but now contractual obligation is more Nozickian (i.e., the Nozick of Anarchy, State and Utopia) in spirit if not formulation, as it is a “rights-based” analysis in which contracts are first and foremost about the voluntary transfer of entitlements. Thus the obligation to perform a promise is derived from a prior and primary obligation to respect the property rights of others. Likewise, the enforceability of promises follows from the state’s legitimate power to enforce individual rights.

The earliest and simplest economic analyses of contract law focus on the “efficiency” of carrying out the promises of a contractual agreement. As Craswell explains, this approach treats enforcement as equivalent to the eventual performance of the promised action. And it is in this early economics literature that one finds the theory of “efficient breach,” that is, in some circumstances it is simply not (or no longer…) economically efficient (differing metrics are used to assess welfare or well-being) to perform a contract, and the law should allow for or even encourage nonperformance in such circumstances. Contract law casebooks notwithstanding, “most economists have long since moved on to a much more complex analysis of efficiency and contract law”(Craswell in Benson 2001: 26). These more sophisticated economic analyses treat enforcement (the prospect thereof) as altering the incentives of the contracting parties: “Whenever a party to a contract must make a decision about something, there will be a corresponding economic analysis of how the incentive to make that decision might be altered by various remedies for breach”(Craswell: 28). The question of the efficiency of enforcing contractual promises becomes dependent upon a host of variables that arise prior to, during, and after contractual formation.

Pluralist theories (e.g. Eisenberg’s) only complicate matters as to what promises are legally enforceable, and what are the appropriate remedies for breach, provided we aim to protect expectation, reliance and restitution interests. Even a cursory examination of the role of promise(s) in contract law would countenance H.L.A. Hart’s conclusion that the “operation of a promise…is in many ways a far better model than that of coercive orders for understanding many, though not all, features of law”—well, in any case, fundamental features of contract law.

References & Further Reading:

  • Atiyah, Patrick S. “Contracts, Promises and the Law of Obligations,” 94 Law Quarterly Review 193 (1978), reprinted in Linzer (below): 78-91.
  • Austin, J.L (J.O. Urmson and Marina Sbisà, eds.) How to Do Things with Words (Cambridge, MA: Harvard University Press, 2nd ed., 1975).
  • Baier, Annette C. Moral Prejudices: Essays on Ethics (Cambridge, MA: Harvard University Press, 1995).
  • Barnett, Randy E. “A Consent Theory of Contract,” 86 Columbia Law Review 269 (1986).
  • Benson, Peter, ed. The Theory of Contract Law (Cambridge, UK: Cambridge University Press, 2001).
  • Calamari, John D. and Joseph M. Perillo. The Law of Contracts (St. Paul, MN: West Group, 4th ed., 1998).
  • Craswell, Richard. “Two Economic Theories of Enforcing Promises,” in Benson (above): 19-44.
  • Eisenberg, Melvin A. “The Theory of Contracts,” in Benson (above): 206-64.
  • Foot, Philippa. Moral Dilemmas (Oxford: Clarendon Press, 2002).
  • Fried, Charles. Contract as Promise (Cambridge, MA: Harvard University Press, 1981).
  • Hume, David. A Treatise of Human Nature (Oxford, UK: Oxford University Press, 2nd ed., 1978).
  • Kraus, Jody S. “Philosophy of Contract Law,” in Jules Coleman and Scott Shapiro, eds. The Oxford Handbook of Jurisprudence and Philosophy of Law (New York: Oxford University Press, 2002): 687-751.
  • Linzer, Peter, ed. A Contracts Anthology (Cincinnati, OH: Anderson Publ., 2nd ed., 1995).
  • Posner, Eric A. Law and Social Norms (Cambridge, MA: Harvard University Press, 2000).
  • Rawls, John. A Theory of Justice. (Cambridge, MA: Belknap Press of Harvard University Press, 1971).
  • Raz, Joseph. The Morality of Freedom (New York: Oxford University Press, 1986).
  • Raz, Joseph. Practical Reason and Norms (New York: Oxford University Press, 1999 ed.).
  • Scanlon, T.M. “Promises and Contracts,” in Benson (above): 86-117.
  • Searle, John R. Rationality in Action (Cambridge, MA: MIT Press, 2001).
  • Wood, Allen W. Kant’s Ethical Thought (Cambridge, UK: Cambridge University Press, 1999).
  • Zaibert, Leo. “Intentions, Promises, and Obligations,” in Barry Smith, ed., John Searle. Cambridge, UK: Cambridge University Press, 2003).

Patrick S. O’Donnell (2003)


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