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    Nature of Contracts and The Value of Freedom

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    Laurene Quiros

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    i adults shoul no longer Be the primary concern of the criminal law. ee tee Criminal Iaw reforimers had begun to apply analysis of etme and punishment. Diferentat 3g between publfe nd private offenses wos clealy yar ofthis ovement. ‘The law remained sonminly opposed te sme Hinds of bea ioral deviations asin the past. Statutes agaist adultery, fornication and bastardy were nat repealed. Proscitons for blesphemy continued into the 18308. Nevertheless these Kinds of Private Law and Individual Interests Sie offenses were in areds that the Jaw increasingly ‘viewed as within the sohere of private life and, therefore, Beyond the legitimate seach ofthe criminal process. ‘To freedom of conscience and freedom of poli ical expression and association, then, must be added the growing freedom of sexual expre sion—another manifestation of the effects of legal privatization. In short. in sharp contzast with 8 colonial past, government in the postevolui period was becoming less activist CHAPTER THREE The Nature of Contracts and the Value of Freedom he jaw of contracts s often considered a paradigm of private iay. 30 law requiring peo- or pra mm it You may make s contract wittanyoneal hibited by party agyees and the activity 09 aw docs sot. tell you wha you 3 bataimaly bow Zit you wack to make a Tegal agresment priced lw to th\ GS how Io-ake agreements? In = sense, we don't: We ‘canfinake cenpbnts of any sort with edt otheand take our chances that each of ws will keep the agree sei/eiven the tales of human beings, however, here is a good chance that one party will ‘Duplloucot a bargain, leaving the other pety witha Toss. Most people feel rather iasecare about $39 factof human nature, snd the more important the agreement, the longer it takesto fulfill fond tne Jess well acquainted the parties are with one another, the greater the insetiity becomes. {Be advanced socistes where the agreement may be of eniciol importsnee to the well-being Fretinood of many people the terms ofthe agreement may span many yea and the partes may fal steangers, the sk of agreement without enforcement would be imojerable, Thus, contract Tho zaye: If you want to protest your agceements withthe enforcement of law follow these rules pis your bargaia will be recognized a8 a binding legal contact enforceable a a court of Jaw. plying wh the roles of contact la, then, i rather Hike buying an insurance policy. Tis not : Blegal noyto, but most people do so because the risk is too great without legal protection TButhermore, tie more pope celyon such devices, the moe becomes possible in practice, Ro confonm-Fist, this is because others will not deal with you unless you agree to follow th L Bics tat enable them to protect themselves. Second, following thete rules becomes the esab- Tished practice, and thus people reasonably expect that te rles are being followed, since they sual are, and the law fends to protect the reasonable expectations of people in general. You _, may therefore be held to the rules even if you thought you were not following them oF never gave 2 the rules a thought unless you explicitly rebut the reasonable assumptions generated by staudard AE. prectice In other words, a feature of standard practice ~not justin contract Iw bat in general—Is EM ® attends to become the only gue in ow, sow speak. Consequenty npacice,f pecomes ‘ery affeak ot to play. Dut tis i not because tbe law requires you to ply. Ti because there isn't anything els to play. Everybody plays the same game. 1s te only game in town. Now if You are ingenious, you can make up your owa game. Most people ae simply not creative enough 9 do thi, but even if you at, no one else wil ow bow to ply. They al know how to ply their ume, and most people cannot imagine any other, se prebably no one wil play your game. But ou break no law if you refuse to play ther game. @Ontract law does not require you to make any ‘ontacts, What does, in pbc, require you to make coatracts are other people, otber laws, and ‘widespread standard practise. Tf you do not follow the rules of contract, you do not break any law: What you relly doi fall © snake lve This san important entre of contract law and of enabling lw in general. Sia, i {you do not follow he rules for making wil, you do not break the lat, bat you fi to make a wil 293 | i I i 294 The Nawure of Contracts and the Value of Freedom ‘Whatever you are trying todo, if you fail to comply with the law that enables you to doit, you will not thereby brek the lw; you will fail to accomplish your purpose. You may have a pice of paper swith words oa it, but it wil not be a contract or a will ora morigage or a martiage cetificete, as you intended, because all of those instruments have to be recognized by law. To accomplish that you must follow the rules. Ifyou fellow the rules, you will succeed in making a legally binding contract. ‘This isan important feature of contract law, but obviow'y its not a distinctive one. ‘What is distinctive about contract law? What sets it apart from all otber forms of law? It has Jong been said that the idea of a contract “results from the combination of two ideas: agreement and obligation. iatractual obligatior. is that form of obligation which springs from agreBiment” (Gee W.R. Anson, Principles of te Law of Contracts, 2d ed, 1882). Ths is only one view among, many theories and definitions of contract. Is worth noting, however, that all are variations om a theme which incorporates some notion of agreement or consent coupled with the idea of special obligation and special rights. Consider the following examples. RESTATEMENT OF CONTRACTS Sec. 1. Contract Defined. A contrsct is promise or set of promises for the breach of which the law gives a remedy, or the performance of which the law in Some sway recognizes a dusy, UNIFORM COMMERCIAL CODE See, 1-201. General Deflaitions: (12) “Contract” means the total obligation in law which results trom the parties’ agreement as affecied by this Act and any other ‘applicable cules of law. (Compare “Azreement.") existence of rights oF ObNgatons. Tn the case of criminality the obligations are in no sense voluntary and cannot be changed in any way by agreement. Indeed, a contract to porform a crime is void. Furthermore, the rights and obligations involved are not special —that is, applicable only to particular individuals—bat gon- cral—that is, applicable to all people. All people are obligated not to commit criminal acts against any other people, and all people bave rights not to be victimized by crimes. But contractual rights and obligations apply only to the contracting partes, and the rights and obligations are whatever the partes specify. Property ownership involves a cluster of rights set by common rules of acquisition and transfer ‘and held by a particular pasty (the owner) against all others. It is often said that property rights (ights in rem) ace rights “inthe thing itself” held “against all the world.” Obvious!y, these are geite unlike contract rights (which are rights én personam, “in the person,” held against the con- tracting party only). Property rights can be altered by agreement, but that is incidental to property Jaw. It simply shows that within the bundle of rights that comprise ownership is the right to make ‘agreements about one’s property. But a person could acquire, maintain, dispose of, of lose prop- erty without ever making an agreement about it. ‘The Nature of Contracts and the Value of Freedom 295 “Legal relations based on status may generate rights and obligations that are somewbat like con tractual relations in that they may iavolve only particular parties, such as parent and child. That is, the rights and duties involved are special (like contract rights) rather than general (like rights against criminal acs), However, they are not generated by or based on agreement but rather on the position held the status of the person iavolved. ‘The best example is the parent-child relation, ‘which elearly is not governed by agreement. Most forms of the status relation have tendedto dis- Solve into contractual relations. Slavery, for example, was replaced by goniractuel employment. ‘The contrast between contractual obligation and obligation based on sts as often been taker to exemplify the distinction between freedom and bondage, between voluntarily assumed obligations and noavoluntary ones. Thus, a foundation of agreement is precisely what distingishes these two areas of aw. ‘Asa starting tie th digg re cmc he en of cpibighs snd er aeateant ab wher peas o betes Siry Conceptual condition as well as 2 distinguishing feature. All other areas of law seem to be Si cnet cal acto Es of speomess Daf we ents oon ot Se i es ees) tees of conraceoate angen So seme (an or prea ad phlonepea plbtems aise) m chase the Sane ee ee arc cament, wba clu sen) ad in cxplnng Gh cee ar ion Gy and whee eal an ecto oot Teegly 7 tht cote a og dng apenas Ba win ae 8 78- rina hat wes conta sblgatot Conse he following example. Somos Soe ee ane yer and ensayo 0 Seen ey cece ic ek ta stan yo ts peng ts It pg we come 0 Se ee a ee oar dort rclywany yoda abe et er Gauge worth $500 to me Meee mime, Wehave ag ageemeat soot thi!” Pen Ne ae Perl changed my mist don't vant Ieymer” Saacrenar ecu Weave comune ose snd youn js chang our ind bona you el et" nd aa Know. “I chang my mind about l soni ings le in, 90 So ee ca chueg ay fod de is Se ee eae orice aowg whl pong me nie ule wih your So- cerns ty ta bys grec’ lee You cot tas wh” ee aan rey eee, opus 1 endertand thet kind of fngbge. Anyone eee an ar a cessing yon dt tep you apes FQ You a ease ate te cep wih your demand, atta st coercion Cle canny es you wants barly same pusading ih no Ams Poe me coon 2 mo chaglg mf mln” Soe ee ee in yon rpg wit sone cofisin, “Look, teen fr sng eld ee renee tuto tn noe occared ome tht ined Sting, een 0 S82 ove ke yeu™ seal et tt ea aaa else te cee NS agri easnd are you sng fo pe? Ax cnsgeoss a is Ce ee ee, alot one equ forza, We could Se eee a coa inate a fe eam ave, DY 296 The Nature of Contracts and the Value of Freedom should you be able to do s0? Why should you be able to go to court, and if you do, why should ‘you win? Why should anyone be bound by his or her agreements? What is it about am agreement ‘that makes it binding? What elements must be present or absent? Another way to ask the same question is to ask ¥llt kind of agreement is or ought to be legally binding. Obviously, not all agreements are legally binding. If we agree to meet for dioner we are not legally bound. If you agree to let me go fishing with you, you are not legally bound. If your grandfather and I agree ‘with cach other that we will both give you $500 so that you can go to school, we are not legally bound. None of these situations is legally binding unless we further embroider the story. Many agreements, promises, and other voluntary transactions of that sort are not binding in law. So the question is, from among the vast array of agreements into which human beings might conceivably ‘enter, which ones should be enforceable by lav, and more important, why? Clearly, the Restatement of Contracts definition given earlier wil not help us. Nor will that in the Uniform Commercial Code, Those definitions presuppose that the distinction between legal ‘and nonlegal agreements has already been made. Note that the Uniform Commercial Code and the Restatement of Contracts define contracts as agreements (or promises) thar are legally recognized. [But that is hardly helpful. Our question is, What makes an agreement 2 contract (that is, what makes it legally binding)? The Uniform Commercial Code and the Restatement definitions say that an agreement is a contract when itis legally recognized. But that just says thet an agreement is tegally binding when itis legally binding. Or more expansively, the definitions say that en sgreement is legally binding when the law says it is. These are’cerainly tric statements. Infact, they are tautologies —that is, statements which are truc by definition, trac in virtue of the meaning of the words in them. To say that what the law says i legally binding is infact legally binding has to be true because thet ia just what legally binding means. So whereas these definitions are Con prised of true statements, they are uninformative for our purposes. They don’t telus anything we id not already know. Consequently, we cannot use these definitions for what we want to find out ‘What we need is a principle or a theory of justification. Is there a theory or guiding principle that explains what makes an agreement a contract? What is it exactly that generates contractual obliga- ‘ion? Several theories have been offered to explain this question. In Chapter Three we will consider three contemporary theories that provide rather different insights. Since there are three of them, it should be obvious that the theoretical rationale for the law of contracts is far from settled. As you study these three options, consider which one would provide you with the best explanation for why the law is right o compel me to pay you your $500. Furthermore, assess whether these theories are incompatible with one another or not. It may be that we need not choose only one but rather that ‘some combination of two or all of them will provide the best justification of coatractial obligation On the other hand, you may fiad none of the theorics satisfactory. Finally, keep in mind that con- tract law is complex, covering a wide range of social and economic circumstances. One theory may apply to certain aspects of contract law while other theories best capture other aspects. Again, con- sider whether that is acceptable or indicative of contradictions in the law —or both. Irfghe:first selection Charles Fried defends the classical conception of contract as promise. The wide acceptance of this view is reflected in the Restatement definition. But as a principle that explains the idea of contractual obligation by distinguishing it from agreements which ure not legally binding, the notion of a promise leaves much to be desiced. Nevertheless, Fried argues that the idea of a promise generating obligation, which is central to the liberal individualist tradition, is the operative and fundamental principle of contracts. Since no other principle, for example, reliance or receipt of benefits, holds up under scrutiny, Fried argues, the practice of promising :aust be taken as the foundation of contractual obligation. Since the doctrine of “consideration” ‘The Nature of Contracts and the Value of Freedom 297 apparently causes problems for this view, Fried confronts it specifically and directly. Is his approach adequate? Ts his view on consideration a descriptive or a normative view? Patrick S. Atiyah rejects the traditional view of contracts as the enforcement of promises, atgu- ing that there is too much ia the Jaw which the traditional view does not and cannot capture. ‘Atiyah focuses on the receipt of benefits and reliance as the sources of contractual obligation. Fie ‘argues that these ideas provide a better explanation of the disposition of court cases, in fact. 1s he also arguing that these ideas provide a better normative foundation for contract law? If so, why? In many ways Atiyah’s and Fried’s theories can be viewed as opposites, since Atiyah is arguing that the doctrine of consideration and not the notion of a promise accounts for contractual obliga tion, What normative arguments are there for selecting Atiyah’s or Fried’s view? ‘Max Radin presents « very different view, suggesting that no single principle can account for ‘modern contract law. Radin’s view is very much in the legal realist tradition and as such might be fairly considered a “nontheory” or “antitheory.” That is, itis the denial that a systematic, concep- tual theory is possible without distortion of the subject matter and the suggestion of a functional approach instead. Each of the theories presented here provides a different approach and perspec- tive with its own set of assumptions. Each captures an important aspect of cnntract law. Use the ria for evaluating theories in Chapter Two to make your overall assessments of these views. ‘concerned to place contract law within a social and historical context rather than to engage in conceptual analysis in the abstract. Law exisis and functions in a society. But what is the relationship between society and contract law? What does the law of contracts imply about an economic and social system withia which or with regard to which it functions? Does it imply a ‘commitment to individual freedom? To growth and commerce? Does it require some notion af a fair bargain? What would that include, and who should decide —the partes to the contract, the legislature, the courts? Some philosophers have argued that the only requiresnents for a fair bargain are that the parties be competent, uncverccd, and not defrauded. Others have argued that “background” faimess must be coosidered as well. That is, if patties are in positions of grossly (or perhaps moderately) unequal bargaining power (especially that feature is inherent ia the contractual situation or type of bargain), one party is placed at such a disadvantage that the contract cannot be fair. Bighteeath-century judges seemed to hold this posi- tion. Courts and legislatutes have always recognized this view within limits. To do so is to imit individual freedom in the name of justice or the public interest. Balancing these values is not en casy task, and no principled way of doiag so has yet been articulajed. The selections in this ebap- ter are intended to raise questions about the relationship between contract Jaw and economic development. Preceding Radin’s contextual thesis are two brief historical sclections. Heary Maine provides the classical account of the development of contract law. Maine is famous for the general contention that the development of modern society is marked by a gradual expansion of individual freedom, ‘and that this development 's reflected and facilitated (or oven made possibe) by the evolution of Jew from obligation based on status to obligation based on contract. In ancient societies, according to Maine, members received theit responsibilities free the place they held, generally from the posi- jon into which they were born. A mark of a modera civilization is that individuals rather than fami- lies assume responsibility for transactions and that they assume it on the basis of consent rather than status. Does Maine assume, then, thatthe idea of contract is essentially individualistic? If, is that a reasonable assumption? If not, what is meant by the notion of agreement? 1M. E. Tigar and M. R. Levy trace the development ef contract Jaw dusing the transformation of feudal cociety by the industrial revolution. They. contest the apparent claim of legal historians like 298 ‘The Nature of Contracts and the Value of Freedom ‘Maine of the power of contract iaw (or the individualistic ideals it was taken to embody) to trans- form social institutions, According to Tigar and Levy, the transformation rons the other way — from social (or economic) change to legal change, not fiom legal change to social change. Fried and Maine represent the individualist view of contracts, whereas Atiyab, Tigar and Levy, and Radin represent challenges to that view from three different perspectives. The line of cases at the end of this chapter traces a piece of Supreme Court history that embodies this very debate. "The Supreme Court in the late nineteenth and early twentieth centuries developed a linc of cases intended to protect the “freedom of contract.” This line of cases had a profound impact on USS. business and labor relations for at least thirty years until it was essentially abandoned as a judicial policy. In this famous (or infamous) period of Court history, the persistent efforts of the ‘Court to protect the freedom of contract from goverament interference ultimately resulted in a serious conflict between the judiciary and the legislature. Attempts at progressive labor reform primarily through wage and hour legislation were repeatedly blocked by the Court. The U.S. Con- ‘ress and state legislatures were up in arms over what they saw as judicial encroachment on lcg- {slative jurisdiction, and President Franklin D, Roosevelt was threatening to pack the Court with, Justices more favorable to New Deal policy. Furthermore, the composition of the Court itself ‘changed over the years, and internal dissent became strong and unrelenting. Then in Nebbia v. New York Sustice Owen J. Roberts changed his vote, thereby reversing a judicial policy of some fifty years and climinatiag a formerly recognized constitutional right protecting the frecdom to ‘contract without legislative interference. ‘These eases raise many issues while illustrating the development of a judicial doctrine. What went wrong with this doctrine? Why was the Court wrong to protect individuals from government aterference? Was the Court wrong ta assume liberty of contract 25 a fundamental value of the USS. system of government? If $0, why? Is the Court guilty of a conceptual error? Is its interpreta- tion of the Coostitution flawed? Ta what way? Is the reasoning invalid? Is this line of cases wrong, from the beginning or at some later step? Where is the mistake? Does the Court assume an improper fonction? At what point? This line of cases has much to tell us about both the judicial process and the nature of contracts, ‘There are, in fact, traditioual limits on the right to contract, which all theories try 10 aecommo- date in one way or another. The most standard of these are elements that concera the process of formation and performance of contracts, such as fraud, duress, or bad faith. These limits are defensible because they suggest a flaw in the contract itself. If deception or coercion is involved, then thete never was any real agreement. The problem with these elements is not whether they should be limiting factors but rather in identifying what they encompass. What counts as fraud, coercion, or bed faith? These limits are required by any theory of contracts because not meeting. them would violate both values of freedom and fairness. That is, fraud and coescion are uyjust precisely because they violate the autonomy of their victim. Other commonly used limits, however, are not free from controversy for example, uncon- scionability and public policy. In Anglo-American law a contract can be declared void because it is against public policy or because it “shocks the conscience of the court.” These limits go to the ‘substance or content of the contract rather than to the process of formation or performance. ‘Unconscionability is typically aimed at the unequal bargaining power of the partis. It looks to Agreements no reasonable person would make except in consequence of inexperience or of eco- ‘omic duress (such «s poverty or emergency). In such cases it is assumed that someone is being taken advantage of because of the intrinsic unfuimess of the bargaining situation. The contract is declared void as unconscionabie, as grossly unfair. 1 ‘The Nature of Contracts and the Value ofFreedom 299 Tate no tn 9 cy ors is A aly Ca eect nec hs @ A ey ent boat ein, bei nor ecb nts Peg ot ag Oa ae macnn i teat a Sy Tes uo cc gap ioctl nr en Pe ne a tg ee sn he nin ren et erp ae nn tg en rw eo caste myn ree an ae In fact, ths-seope of indi ie examination 5 Gait t0 cosract isthe recogsige ABiie question to ask yodroelhie wey-or how does th ent that generates obligation (and thereTore aso TIED) rosed obligations (and rights) be enforced or sanctioned by society? ‘CHARLES FRIED, from Contract as Promise in what justi thatthe clas- 1; Charies Fried wants to explain what justifies enforcing contracts. He points out ¢ eee aivideal freedom and fespect fr all persons. bis respec for aGivideal autonomy hat been considered the foundation of moral responsibility by philosonbers ae an ante ant in the seventeenth century to Jobo Rawls inthe twentleth. The rationale of this view is that each person, “p tbe free to pusgue her lal ee 4 ; 500 ‘The Nature of Contracts and the Value of Freedom ‘so long as she recognizes an equal freedom on the part of all others. We all may use whatever we ‘will to pursue our goals so long 2s we do not use another person. The great accomplishment of the discovery of contract or promise, Friedtargues, is that it enables people to use one another—to cf enlist cooperation, without violating anyone’s right to be respected as an individual. This was accomplished by enabling people to bind themselves by their own free will by their agreements. ‘What value does F-ied say is basic to this enterprise? ven that the convention of promising is a significant social practice and a crucial mecha- nism for explaining the law of contracts, it is important to examine the nature of promising. Fried asks why a promise is binding, How can a simple communication turn a morally neutral statement into a moral requirement? He considers several possible answers. Can a prohibition ageinst lying account for the binding force of a promise? Why or why not? 3. I is sometimes argued that promises must be kept because breaking them causes harm or ‘unfair benefit. How does Fried view these arguments? Does the fact that a promise invites reliance provide the ground for its being binding? Why do some people think so? What does Fried think? “4. What does Fried mean by his observation that promises are conventional? What is the signif icanee of that convention? Is this the ground that Fried has been looking for? 'S. Even ifit is the case that a single promise is binding because promises are always binding by convention, what justifies this convention, according to Fried? What value(s) are basic to and encouraged by this convention? Are other justifications possible for the convention of promising? 6. Consideration is a legal term that refers to the value exchanged in a covtractual transaction. If Tagree to wash your car every week for one year for $10 a week, the consideration —the value ‘exchanged — is the service for the money. It has Jong been held in Anglo-American law that a con- tract without woisidesation will-not be enforced. For example, if I promice to wash your car for a year for nothing, the contract is not enforceable because no valuc is exchanged. Virtually all legal Systems distinguish “mere” promises from contracts in more or less this way, which poses a prab- tem for Fried’s theory of contract 2s promise. Al promises are not enforced. Fried is well aware Of this and proposes to undermine the objection by showing that the doctrine of consideration is neither necessary nor sufficient for contractual obligation. What examples does he give? Are they ‘compelling? Is a promise necessary or sufficient for contractual obligation? 17. Fried also tries to show that the doctrine of consideration is intemally inconsistent. What are the two inconsistent principles embodied in the doctrine; according to Fried? Does this inconsis- tency account for the inconsistent cases he cites? Could there be another explanation? Would eliminating the requirement of consideration eliminate these inconsistencies? Would that be a {good thing? '8. Finally, Fried acknowledges that most legal systems distinguish gifts from bargains. But he suggests that they should not do so. Do you think charitable promises should be enforceable? Do you think they are essentially the same as contract obligations? If you think that they are different, do you have any ideas as to what accounts for the difference? rt 11 ia frst principle of liberal politcal morality that we be secure in what is ours—so that our persons and property not be open to expleitation by others, and that from a sure foundation we aay express our will and expend our powers in the world. By these powers we may create good things or low, useful articles or luxuries, things extraordinary or banal, and we will be judged ‘accordingly —as tainly or mean, skillful or ord nary, industrious and fortunate or debased, friendly and kind or cold and inhaman. But whatever we accomplish and however that ecomplishment is judged, morality requires that twe respect the person and property of others, Inoving thom frve to make thelr lives as We are Ieft free to make ours. This is the liberal ideal. ‘This is the ideal that distinguishes between the ‘300d, which is the domain of aspirstion, and the Fight, which sets the terms and limits according to which we strive. This ideal makes what we ‘chieve our own and our failures our resporsibil- ity too—however much or litle we may choose to share our good fortune and however we may hope for help when we fail. ‘Everything must be available to us, for who ‘can deny the human wil the ttle to expand even into the remotest corner of the universe? And ‘when we forbear to bend some external object 0 ur use Because of its natural preciousness we toe it still, for itis to our judgment of its value that we respond, our own conception of the good that we pursue, Only other persons are not avail able to usin this way —they alone share our self ‘consciousness, our power of self-determination; thus to use them as if they were merely part of ‘external nature is to poison the source of the moral power we enjoy. Dut others are part of the ‘external world, and by denying ourselves access to their persons and powers, we drastically shrink the scope of our efficacy. So it was a ero- Contract as Promit ial moral discovery that free men may yet freely Serve each others" purposes: the discovery that beyond the fear of reprisal or the hope of reeipro- eal favor, morality itself might be eniisted to ‘assure not ooly that you ng but that you actively serve ‘lone. ae "The device thalapi = palpable form ree. Bye promising We fn another man’ hands a nev power 1, plish his will, fous hee sought 10 dh alone he may now expect 10 with our promied help, and to give him E ry purpose in prestifsing. By promising we transfornra choice that was fnorally neutrel into one that is morally com pelled. Morality, which must be permanent end ‘eyond our particular will ifthe grounds for our Wg are tobe secure, i itseif invoked, molded to allow us better to work that particular wi ‘Morality then serves modest, humdrum ends: We ‘ake appointments, buy and sel, harnessing this Ioftiest of all foress. "What is a promise, that by my words I should make wrong what bofore was morally indiffer- eat? A promise is a commenication —usvally ‘exbal; it says something, But how can my say- ng something put moral charge on 2 choice that before wat morally neutral? Well, by my sisleading you, or by lying, Is lying not the very ‘paradigm of doing wrong by speaking? But this {won't do, for & promise pus the mora! charge on 302 ‘The Nature of Contracts and the Value of Freedom 2 potential act—the wrong is done later, when the promise is not Kept—while a lie is a weong committed at the time of its utterance. Both ‘wrongs abuse trust, bu in different ways. When T peak I coramit myself to the truth of my utter- ance, but when I promise T commit myself 1 act, later, Though these two wrongs are thus quite distinct there has been a persistent tendency 10 run them together by teating @ promise as a afterall, but a particular kind of lie: a lie about ‘one’s intentions. Consider this esse: 1.1 sell you a house, retaining an adjacent vaca) Jot. At the time of our negotiations, I state tht intend to build a home for myself on that lot ‘What if soveral years [ater T sell the lotto apex son who builds & gas station on it? What if sell only one month Inter? What if I am already negotiating for its sale as 2 gas station at the time I sell the hovse to you? HET was already negotiating to sell the lot for a 28s station at the time of my statement to you, 1 have wronged you. I have lied to you about the sate of my intentions, and this is as much a Te as a Tie about the state ofthe plumbing. If, however, Tell the lot many years later, Ty you wo wn ‘There are no grounds for saying Tied about my intentions; I have just changed my mind. Now if had promised to use the lot only as a residence, the situation would be different. Promising is more than just truthfully reporting my present intentions, for I may be free to change my mind, as Lam not fiee to break my promise. Let us take it as given here that Iying is wrong ‘and so that itis wrong to obtain benefits or cause ‘harm by lying (including lying about one’s inten tions). It does not at all follow that to obtain a ‘benefit or cause harm by breaking a promise is also wrong. That my act procures me a benefit oF ‘causes harm all by iself proves nothing. IFT open a restaurant near your hotel and prosper as 1 draw your guests away from the standard hotel are {you offer, this benefit I draw from you places me ‘under no obligation to you. T should make resti= tution only if benefit unjustly, which I do if T deceive you—as when I lie to you about my intentions ia example i. But where is the injus- tice if I honestly intend to keep my promise at tho time of making it, and Ister change my mind? Lf we feel T owe you recompense in that case (00, it cannot be because of the benefit have ‘obtained through my promise: We have seen that benefit even at another's expense is not alone ‘sufficient to require compensation. If owe you 3 ‘duty to return that benefit it must be because of the promise. It is the promise that makes my enrichment at your expense unjust, and not the enrichment that makes the promise binding. And thus neither the statement of intention nor the benefit explains why, if at all, a promise does any moral work. ‘A more common attempt to reduce the force of a promise to some other moral category Invokes the harm you suffer in relying on my promise. My statement is like a pit Ihave dug in the road, into which you fal. I have harmed you and should make you whole. Thus the tort princ ple might be urged to bridge the gap in the argu- ‘ment between a statement of intention and a ise: Thave a duty just because T could have leed it was my intention) that you would rely on my promise and that you would suffer harm when I broke it, And this wrong then not only sets the stage for compensation of the hharm caused by the misplaced reliance, but also supplies the moral predicate for restitution of ary enefits Tiniay have extracted from you on the strength of my promise. But we still beg the question. If the promise is no more than a truth- ful statement of my intention, why am J respons ble for harm that befalls you as a result of my change of heart? To be sure, it is not like @ change in the weather—I might have kept to my original intention—but how does this distinguish the broken promise from any other statement of intention (or habit or prediction of future con- duct) of mine of which you know and on which {you choose to rely? Should your expectations of me limit my freedom of choice? If you rent the apartment next fo mine because I play chamber ‘music there, do T owe you more than an expres- sion of regret when my ftiends and I decide to meet instead at the cellis’s home? And in gen- eral, why should my liberty be constrained by the hharm you would sufier from the disappointment of the expectations you choose to entertain about sy choices? ‘Does it make a difference that when I promise ‘you do not just happen to rely on me, that I com- rmunicate my intention to you and therefore can bbe taken to know that changing my mind may [pt you at risk? But then T might be aware that you would count on my Keeping to my intentions ponies The Nature of Contracts and the Value of Freedom 303 ‘even if | myself had not communicated those intentions to you. (You might have told me you ‘were relying on me, oF you might have overheard ie telling some third person of my intentions.) It might be said that I become the agent of your reliance by telling you, and that this makes my responsibility clearer: After all, I can scarcely control all the ways in which you might leain of ‘my intentions, but I can control whether or not I tell you of them. But we are still begging the ‘question. If promising is no more than my telling, ‘you of my intentions, why do we both not know ‘hat T may yet change my mind? Perhaps, then, promising is like telling you of my intention and felling you that I don’t intend to change my ‘mind, But why can’t] change my mind about the latter intention? Perhaps the statement of intention in promis- ing is binding because we not only foresee reliance, we invite it: We intend the promisee to rely on the promise. Yet even this will not do. If invite reliance on my stated intention, them that is all I invite. Certainly I may hope and intend, in examplet, that you buy my house on the basis of what T have told you, but why does that hope bind me to do ‘compatible with my later changing my mind. In every case, of course, I shoukd weigh the harm 1 will do if I do change my mind. IT am 2 doctor and [ know you will rely on me to be part of an ‘outing on which someone may fall il, T should certainly weigh the harm that may come about if that reliance is disappointed. Indeed I should ‘weigh that harm even if you do not rely on me, bt ate foolish enough not to have made a provi- sion for a doctor. Yet in none of these instances ‘am I bound as I would be had I promised. ‘A promise invokes trust in my future actions, ‘ot merely in my present sincerity. We need t0 Isolate an additional element, over and above benefit, reliance, and the communication of intention. That additional clement must commit me, and commit me to more than the truth of some statemeat. That additional element has 30 far eluded our analysis thas eluded us, I believe, becanse there is a real puzzle about how we can commit ourselves toa course of conduct that absent our commit- iment is morally neutral. The invocation of bene- ft and reliance are attempts to explain the force ‘of a promise in terms of two of its most usual ‘effects, but the attempts fail beceuse these effects {depend on tho prior assumption of the force of the commitment. The way out ofthe puzzle is © recognize the bootstrap quality of the argument: ‘To have force in a particular case promises must bbe assumed to have force generelly. Once that ‘general assumption is made, the effects we inten tionally produce by a particular promise may be morally attributed to us. This recognition is not ‘as paradoxical as ts abstract statement here may sake it seem, I es, after all, Debi tees, and most ‘Lat us put to one side the question of how a convention comes into being, or of when and why we aro morally bound to comply with its terms, while we look briefly at what a conven- tion is and how it does its work. Take the cl ‘eal example of a game, What the players do is ‘defined by a system of rules—sometimes quite ‘vague and informal, sometimes elaborate and. ‘codified. These rules apply only tothe players— that is, to persons who invoke them. These rules are a human invention, and their consequences. (Castling, striking out, winning, losing) can be ‘understood only in teris ofthe mules. The play- crs may have a variety of motives for playing (profit, fun, maybe even duty 10 fellow players ‘who need participants). A varity of judgments are applicable to the players—they may be deemed skillful, imaginative, bold, honest, oF slishonest—but these judgments and motives too ‘can be understood only in the context of the ‘game. For instance, you can cheat only by break= ing rules to which you pretend to conform. “This almost canonical invocation of the game example has often been misunderstood as some- how applying only to unserious matters, to play, so that it is Said to trivialize the solemn objects (ike law or promises) that it fs used to explain But this is a mistake, confusing the interests involved, the reasons for erating and invoking & particular convention, with the logica! structure fof conventions in general. Games are (often) played for fun, but other conventions —for {instance religious rituals or legal procedures ~ may have most earnest ends, while still other conventions are quite general. To the last cate- ory belongs Tanguage. The conventional nature ‘of language is too obvious to belabor. I is worth 304 pointing out, however, that the various things we {do with language — informing, reporting, promis- ing, insulting, cheating, lying—all depend om the conventional structure's being firmly in place. ‘You could not He if there were not both under- standing of the language you lied in and a gen- ‘eral convention of using that language trathfal “This point holds irespective of whether the inst tution of language has advanced the situation of always, or never wrong. Promising too is a very general convention — though less general than language, of course, since promising is iiself a use of language. The convention of promising (like that of language) hnas a very general purpose under which we may bring an infinite set of particular purposes. In order that 1 be as free as possible, that my will have the greatest possible range consistent with the similar will of others, it is necessary that there be 2 way in which I may commit myself. I is necessary that Ibe able to make nonoptional a course of conduct that would otherwise be ‘optional for me. By doing this I can facilitate the projecte of othore, beeauze I oan make it possible for those others to count on my furure conduct, and thus those others can purste more intricate, ‘more far-reaching projects. If it is my purpose, my will that others be able to covat on me in the pursuit of their endeavor, it is essential that I be able to deliver myself into their hands more firmly than where they simply predict my future ‘course. Thus the possibility of commitment per- mits sn act of generosity on my part, permits me to pursue a project whose content is thet you be permitted to pursxe your project. But of course, concern is the situation father's projects, wherd ‘Schematically the situato Tere we facilitate eae ‘You want to accomplish purpose A and 1 wan to accomplish purpose B. Neither of us can suc- ceed without the cooperation of the other. Thus I ‘want to be able to commit myself to belp you achieve A so that you will commit yourself to help me achieve B. Now if A and B are objects or ections that can bbe transferred simultaneously there is no need for commitment. AS hard over A. you hand over B, ‘The Nature of Contracts and the Value of TOD). On ‘reedom and we are both satisfied. But very few things are like that. We need a device to permit a trade ‘overtime: 10 allow me to do A for you when you ‘need it, in the confident belief that you will do B or me when I need it. Your commitment puts your Future performance into my hands in the present just as my commitment puts my future performance into your bands. A future exchange is transformed into a present exchange. And in ‘order to accomplish this all we need is a conven tional device which we both javoke, which you know Iam invoking when I invoke it, which T know that you know I am invoking, and so on. ‘The only mystery about this is the mystery that surrounds increasing autonomy by providing means for restricting it. But really this is pseudomystery. The restrictions involved in promising are restrictions undertaken just in ‘order to increase one’s options in the long ru and thus are perfectly consistent with the prin ple of autonomy—consistent with a respect for ‘one’s own autonomy and the autonomy of oth- cers. To be sure, in getting something for myself now by promising to do something for you in the future, 1am marigaging the interest af my fim self in favor of my present self. How can 1 be sue my future self will spprove?* This is a deep and difficult problem about which I say more later in this chapter. Suffice it to say here that ‘unless one assumes the continuity of the self and the possibility of maintaining complex projects over time, not only the morality of promising but also any coherent picture of the person becomes impossible. ‘Ape Minst Obligation of Promisey .ceeThave invoked the iristtution of promising, promise? My argument so far does not answer that question. ‘The institution of promising is a way for me to bind myself to another so thatthe other may expect a future performance, and binding ‘myself in this way-is something that I may want Note that this problem docs not ass where T make a present sacrifice for funze benef, since by Hypothesis Tam presently willing to make that saci- feeand in ‘The Nature of Contracts and the Value of Freedom to be able to do. Bat this by itself does not show that Iam morally obligated to perform my promise at a later time if to do so proves incon- ‘venient or costly. That there should be a system fof currency also increases my options and is use- ful to me, but this does not show why 1 should not use counterfeit money if Ycan get away with {In just the same way the usefulness of prot ing ia general does not show why I should not ,dvantage of it in a patticular case and yet fail to keep my promise. That the convention ‘would cease to fnetion in the tong rv, would cease to provide benefits if everyone felt free to violate it is hardly an answer to the question of why [should keep a particular promise on a par~ ticular occasion. David Lewis has shown that a convention that it would be in each person's interest to observe if everyone else observed it will be established and maintained without any special mechanisms of ‘commitment or enforcement. Starting with simple ‘conventions (for example that ifa telephone con- ‘versation is disconnected, the person who initiated * the eal isthe one who calls back) Lewis extends his argument to the case of language. Now promising is difforent, since (unlike language, it is overwhelmingly in the interest of all that everyone comply with linguistic conventions, even when language is used to deceive) it will ‘often be in the interest ofthe promisor not to con- form to the convention whea it comes time to ren- der his performance. Therefore individual self- interest is not enough to sustain the convent ‘and some additional ground is needed to keep it from unraveling, There are two principal candi- dates: extemal sanctions and mora obligation. David Hume sought o combine these two by proposing that the external sanction of public ‘opprobriun, of loss of reputation for honesty, which sociely attaches to promise-breaking, 's intemalized, becomes instinctual, and accounts for the sense of the moral obligation of promise. ‘Though Hume offers a possible anthropological or psychological account of how people feel about promises, his is not a satisfactory moral frgoment, Asgume that I can get away with break= ing my promise (the promises is dead), and I am now asking why T should keep it anyway in the face of some personal inconvenience, Humo’s ‘account of obligation is more like an argument 305 how any feelings of obligation that I may harbor have come to lodge in my psyebe and thus isthe first step toward ridding me of such inconvenient prejudices. ‘Considerations of self-interest cannot supply the moral basis of my obligation to keep 3 promise. By an analogous argument neither ean ‘considerations of utility. For however sincerely ‘and impartially I may apply the wilitarian injunc- tion to consider at each step how I might increase the sum of happiness or utility in the workd, it wil allow me to break my promise whenever the balance of advantage (including, of course, my ‘own advantage) tips in that direction, The possi- ‘bie damage tothe institution of promising is only ‘one factor in the calculation. Other factors are the alternative good 1 might do by breaking my promise, whether and by how many people the breach might be discovered, what the actual effect on confidence of sueh a breach would be. “There is no a priori reason for believing that an individual's calculations will come out in favor ‘of Keeping the promise always, sometimes, or ‘most of the time. ‘Rale-utilitarianism secks to offer a way out of this conundrum, The individual's moral obliga tion is determined not by what the best action at a particular moment would be, but by the rule it ‘would be best for him to follow. thas, 1 believe, been desnorstrated that this position is incoher- cent” Either rule-utilitarianism requires that rules be followed in a particular caso even where the result would not be best all things considered, fand so the utilitarian aspect of rale-wtiitarianism js abandoned; or the obligation to follow the rule is 50 qualified as to collapse into act-uilitarien- ism afterall. There is, however, a version of rule- utilitarianism that makes a great deal of sense. In this version the utilitarian does not instruct us ‘what our individual moral obligations are but rather inotruts legislators what the best rules aro. If legislation is our focus, then the contradictions. of rale-utilitarlanism do aot arise, since we are Instructing those whose decisions can only take the form of issuing rules. From that perspective there is obvious utility to moles establishing and enforcing promissory obligations. Since 1 am Concemed now with the question of individual ‘obligation, that is, moral obligation, this legista, tive perspective on the angoreent is aot availa 306 {ftesobligation to keep a promise is grounded ‘got it arguments of utility but in respect for indi- ‘Vidual autonomy and in trust. Autonomy and trest fate grounds for the institution of promising 2s Well but the argument for individual obligation is ‘ot the same. Individual obligation is only a step away, but that step must be taken. An individual {s morally bound to keep his promises because he has intentionally invoked a convention whose function it is to give grounds—moral grounds — for another to expect the promised performance. ‘To renege isto abuse a confidence he was free 10 wite oF not, and which he intentionally did fnvite, To abuse that confidence now is ike (but only like) lying: the abuse of a shared social insti- tution that is intended to invoke the bonds of trust. A Har and if you need ‘what you say whgn yo the promise is made. Ther&ill, of course, be great social utility to a general regime of rust and Confidence in promises and truthfulness. But this jjust shows that a regime of mutual respect allows, ‘men and women to accomplis: what in a jungle Of unrestrained self-interest could not be accom- plished. If this advantage is to be firmly estab- ished, there must exist a ground for mutual conft- ‘dence deeper than and independent of the social vty it permits. “The utilitarian counting the advantages affirms the general importance of enforcing contracts. ‘The moralist of duty, however, sees promising as ‘a device that free, moral individuals have fash joned on the premise of routual trust, and which gathers its moral force from_thet premise~ ‘moralist of duty shus"posits a general obligation is€5, of which the obligation of con- ‘The Nature of Contracts and the Value of Freedom ments. This convention provides 9 way that a person may ereate. expectations in others. By ‘Virtue ofthe basic Kantian principles of trust and ‘expect, it is wrong to fnvoke that conveatios ‘order to make a promise, and then to break it ‘What a Promise Is Worth If | make a promise to you, I should do as promise; and if 1 fail to keep my promise, it is fair that] should be made to hand over the equi alent of the promised performance. In contract. doctrine this proposition appears as the expect tion measure of damages for breach. The expec tation standard gives the victim of a breach no more or less than he would have had had there ‘other words, he gets the ben Wriso and been hos tat hot mat be ade aeead that ite conracrbeakr as obtained esr he ml be ade pay rhs se en Totes your aque shop 084 gult ae Tea ger tt wl tng ah ore. ee a esti pi bing Mout estates you pid or kao ine oc When at vome trpet of my dc Bee ee snl nh ony vit bee be cert ne Bese lutpbone toy tn longer eat the chest. if a See above exept inthe mente you SiC weaed ss poled to coe a hed vane sieaysn ng ny Joe . Eien sove excep hve te we of Sens fe SiTaonte wae your shop Sioa for tsovatone ‘To require me to pay for the chest (0m if you resell it case ILA, to pay any, profit you lost, eee Yost business volume) is to give you youT bgpectation, the benefit of your bargain. In TB if gil T must compensate is:your effort 1 am Jing your relianee, and in I-C to force ‘pay a fair price for the use have had of ‘chest is to focus on making me pay for, re, an actual benefit Ihave received. "The assault on the classical conception of con- tract, the concept I call contract as promise, has centered on the connection—taken as canonical i The Nature of Contracts and the Value of Freedom for some hundred years—between contract Law ad expectation damages. To focus the attack on {his connection is indoed strategic. As the critics recognize and a5 I have just stated, to the extent that contract is grounded in promise, it seems intial to messare relief by the expectation, that fer by the promise itself. If that link an be threat- ‘ened, then contract itself may be grounded elsc- SMhere than in promise, elsewhere than in the will Of the parties. In his recent comp:shensive trea the, The Rise and Fall of Freedom of Contract, Patsick Atiyan makes the connection between the Tecourse 10 expectation damages and the emerg- ng enforceability of executory contracts ~ that M contracts enforced, though no detriment has been suffered in relisice and no benefit has been Conferred. (Case I-A is an example of an execs fory conuaet) Before the nineteenth contury, BE iirpbes, a contractual relation referred generally tovone of a number of particular, community ‘SSoctioned relations between persons who in the ‘course of their dealings (28 exrriers, innkeepers, Surgeons, merchanis) relied on each other to their Getiment oF conferred benefis on each other. It ras these detriments and benefits that bad to be Wehmbureed, aun au explicit promice —if there Jhappened to be one — was important primarily to tstablish the reliance or to show that the benefit had been conferred in expectation of payment, not officiously of as 2 gift. Atl this, Atiyal tortes, turned inside out when the promise itself ‘came to be seen as the basis of obligation, so that Gelther benefit nor reliance any longer seemed ‘necessary and the proper measure of the obliga- tion was the promize itself that is, the expectar fon. ‘The promise principle was embraced ss an ‘expression of the principle of liberty—the will binding itself, to use Kantian language, rather than being bond by the norms of the eollectiv- fty_-and the award of expectation damages fol~ owed as a natural concomitant of the promise principle. "The insistence on reliance or benefit is related to disputes about the nature of promising. AS 1 ince on a promise cannot alone explain its force: There is reliance because a [promise is binding, and not the other way around. ‘But if @ person is bound by his promise and not ‘by the keri the promisee may have sutfered in reliance on it, then wat he Ts bound to is just its performance. Put simply, ! am bovnd to do what T 307 promised you I would do—or I am bound to put Sou in as good 2 position as if I had done so. To bind me to do no mors than to reimburse your reliance is to exouse me to thal extent from the ‘Obligation 1 undertook. Af your reliance is less than your expectation (in case I-A there is no fellance), then to that extet a reliance standard ‘Excuses te from the very obligation [undertook fand so weakens the force of an obligation I chose to assume, Since by hypothesis I chose to assume the obligation in its stronger form (that i, to ren der the performance promised), the reliance rule ‘doed precludes me from incurring the Very obligation I chose to undertake at the time of promising, The most compeling ofthe arguments for resisting this conclusion an for urging that tve settle for reliance isthe sense tht it is some times harsh and ungenerous to insist on the full measure of expectancy. (This is part of Atiysh’s thrust when be designates the expectation stan- dard as an sspect of the igid Victorian promisy Sory morality.) The harshness comes about because in the event the promisor Finds the obbi- ation he assumed too burdensome. ‘This distress may be analyzed into three forms: (1) The promisor regrets having to pay for Avhat Be as bought (whies may only Trave been {he satisfaction of promising a gif or the thell of buying a lottery ticket or stock option), though the would readily do the same thing gain. 1 take it shat this Kind of rogret merits no sympathy

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