George Mason School of Law Contracts I IV

George Mason School of Law Contracts I IV. Formation F. H. Buckley fbuckley@gmu. edu 1

Last day o We saw the economic argument for contractual enforcement 2

Last day o We saw the economic argument for contractual enforcement o Contract law as a solution to the trust problem in PD games o Promisor makes a credible commitment o Promisee trusts 3

Credible commitment permits beneficial reliance David Relies Performs Ebenezer Doesn’t Perform 4 Doesn’t Rely Beneficial Reliance Loss of Beneficial Reliance

Hume on Beneficial Reliance o Your corn is ripe to-day; mine will be so tomorrow. `Tis profitable for us both, that I shou'd labour with you today, and that you shou'd aid me to-morrow. I have no kindness for you, and know you have as little for me. I will not, therefore, take any pains upon your account; and shou'd I labour with you upon my own account, in expectation of a return, I know I shou'd be disappointed, and that I shou'd in vain depend upon your gratitude. Here then I leave you to labour alone: You treat me in the same manner. The seasons change; and both of us lose our harvests for want of mutual confidence and security. 5

Hume on promising “Men being naturally selfish, or endow'd only with a confin'd generosity, they are not easily induc'd to perform any action for the interest of strangers, except with a view to some reciprocal advantage. ” 6

Hume on promising [We may have altruistic sentiments, but it’s a constrained altruism] 7

Do we know who this is? 8

Do we know who this is? W. D. Hamilton 9

Hamilton on the Gene’s Eye View o Bodies are temporary, genes (or their copies) are forever o The gene directs the body 10

Hamilton’s Rule: Altruism and kinship selection o Gene to Body: be altruistic if n r. B > C, where o r = the genetic relatedness of the recipient to the actor, B = reproductive benefit gained by the recipient of the altruistic act, o C = reproductive cost to the individual performing the act 11

Hamilton’s Rule Altruism and kinship selection o r. B > C: How does that work? n We share 50% of our genes with our parents, children and (non-identical) siblings, and 12. 5% with first cousins n I would spent $5 to confer a $10 benefit on a brother 12

Hamilton’s Rule Altruism and kinship selection o Gene to Body: be altruistic if n r. B > C, where o r = the genetic relatedness of the recipient to the actor, B = reproductive benefit gained by the recipient of the altruistic act, o C = reproductive cost to the individual performing the act o JBS Haldane: I would give my life for two brothers or eight cousins 13

Hamilton’s Rule Altruism and kinship selection o Gene to Body: be altruistic if n r. B > C, where o r = the genetic relatedness of the recipient to the actor, B = reproductive benefit gained by the recipient of the altruistic act, o C = reproductive cost to the individual performing the act o Bonus questions: n Can you see how r might be greater than 1? Less than 1? 14

Hamilton: Altruism and kinship selection o Let us hypothesize that we are genetically programmed to ensure the survival of our genes o We share nothing with strangers 15

Hamilton: Altruism and kinship selection o Such altruism as we see, amongst men and animals, is importantly explained as a genetic survival instinct that prefers brothers to stangers 16

Strangers vs. Brothers o Where have we seen the distinction made? 17

Strangers vs. Brothers o Unto a stranger thou mayest lend upon usury; but unto thy brother thou shalt not lend upon usury: that the Lord thy God may bless thee n Deuteronomy 23: 20. 18

Strangers vs. Brothers o Unto a stranger thou mayest lend upon usury; but unto thy brother thou shalt not lend upon usury: that the Lord thy God may bless them. o So what happens when everyone is supposed to be your brother? 19

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What kind of economy would we have in a kinship selection society? 21

What kind of economy would we have in a kinship selection society? 22 Edward Banfield’s “Montegrano” Chiaramonte, Italy

Does contract law offer a way out of this? 23

Contract Law and Equality Pseudolus (Zero Mostel) in A Funny Thing Happened to me on the Way to the Forum and the novi homines 24

That was the economic case for promissory enforcement o Now: Is there a libertarian (non- economic) argument for contract enforcement? 25

Varieties of libertarian theories o Autonomy o Consent o Will 26

Autonomy Theories o In order that I be as free as possible it is necessary that I should be permitted to bind myself n Freedom and the domain of alternatives 27

Autonomy Theories o In order that I be as free as possible it is necessary that I should be permitted to bind myself n But if I promise I limit my future autonomy, and why is ex ante autonomy better than ex post autonomy (except from a consequentialist perspective)? 28

Autonomy Theories o Can autonomy theories explain why the institution of contract law should exist? n If it’s not there, how can one promise? 29

Tonga: Where people don’t promise The Queen of Tonga with the Queen Mother at the Coronation, 1953 30

Could promising exist without promissory institutions? There is apparently no word for “promise” in Tonganese 31

Could promising exist without promissory institutions? “I intend to do x, but if I change my mind, well, then was then, now is now. ” 32

Could promising exist without promissory institutions? In such a place, is an autonomy theory intelligible? 33

Consent Theories o Can I bind myself at law or in morals by giving my consent to an act? 34

Consent Theories o Can I bind myself by giving my consent to an act? n E. g. , I consent to your taking something which belongs to me 35

Consent Theories o Problem: Do I have the right (or the power) to bind myself with a contractual obligation where the institution of contract law doesn’t exist? 36

Will Theories Can I will an obligation to perform a promise (e. g. , by clenching my teeth)? 37

Hume on conventions “A promise is not intelligible naturally, nor antecedent to human conventions. ” 38

Will Theories o Suppose the institution of promising doesn’t exist: Can will theories explain why they ought to exist? 39

Will Theories o Suppose the institution of promising doesn’t exist: Can will theories explain why they ought to exist? o Suppose the institution of promising exists: Can will theories explain why it shouldn’t be abolished? 40

Will Theories o Suppose the institution of promising exists. Can will theories explain why it shouldn’t be abolished? o If everyone could take a mulligan whenever they wanted, the game of golf would disappear. So what? 41

The Humean Account of Promising o Assumes that happiness is desirable, that institutions which promote happiness are morally desirable. o Assumes that people are happier in societies with promissory institutions. o Grounds a duty to perform one’s promises in the duty to support just institutions to which one is tied by reasonable connecting factors. 42

So the value of promissory institutions may supply a justification for enforcement o But is there another reason to enforce promises? 43

So the value of promissory institutions may supply a justification for enforcement o But is there another reason to enforce promises? o Are there promises which ought to be made, and as such ought to be enforced? 44

Natural obligations? o A father knows it to be his duty to take care of his children: But he has also a natural inclination to it. And if no human creature had that inclination, no one cou'd lie under any such obligation. But as there is naturally no inclination to observe promises, distinct from a sense of their obligation; it follows, that fidelity is no natural virtue, and that promises have no force, antecedent to human conventions. n 45 David Hume

The common law struggles with the basis for enforcement o Suppose A sold X goods and X didn’t pay. What remedy? n And what should the pleading look like? 46

Pleadings: Trespass on the case in indebitatus assumpsit The King to the sheriff &c. as in Trespass to show: o o o 47 for that, whereas the said X heretofore, to wit (date and place) was indebted to the said A in the sum of £ for divers goods wares and merchandises by the said A before that time sold and delivered to the said X at his special instance and request. and being so indebted, he the said X in consideration thereof afterwards to wit (date and place aforesaid) undertook and faithfully promised the said A to pay him the said sum of money when he the said X should be thereto afterwards requested. Yet the said X, not regarding his said promise and undertaking but contriving and fraudulently intending craftily and subtilly to deceive and defraud the said A in this behalf, hath not yet paid the said sum of money or any part thereof to the said A (although oftentimes afterwards requested). But the said X to pay the same or any part thereof hath hitherto wholly refused and still refuses, to the damage of the said A of ___ pounds as it is said. And have you there &c.

So the basis for enforcement is unclear in the 16 th century o To take one case, suppose A holds promissory notes of B. A then sells and endorses these over to C. But B fails to pay C. Can C sue A (even if he has agreed not to do so? ) 48

Moses v. Macferlan 2 Burr. 1005 (1760) per Lord Mansfield o "This kind of equitable action, to recover back money, which ought not in justice to be kept, is very beneficial, and therefore much encouraged. It lies for money which, ex aequo et bono, the defendant ought to refund; it lies for money paid by mistake; or upon a consideration which happens to fail; or for money got through imposition, (express or implied) or extortion; or oppression; or an undue advantage taken of the plaintiff's situation, contrary to laws made for the protection of persons under those circumstances. In one word, the gist of this kind of action is, that the defendant, upon the circumstances of the case, is obliged by the ties of natural justice and equity, to refund the money. " 49

Just what does “natural justice and equity” mean? o In the circumstances of Bailey v. West? 50

Bailey v. West o Was there a contract? 51

Bailey v. West Strauss West Trainer Kelly (driver) Bailey 52

Bailey v. West o Restatement § 19 CONDUCT AS MANIFESTATION OF ASSENT o (1) The manifestation of assent may be made wholly or partly by written or spoken words or by other acts or by failure to act. o (2) The conduct of a party is not effective as a manifestation of his assent unless he intends to engage in the conduct and knows or has reason to know that the other party may infer from his conduct that he assents. o (3) The conduct of a party manifest assent even though he does not in fact assent. In such cases a resulting contract may be voidable because of fraud, duress, mistake, or other invalidating cause. 53

Bailey v. West o Was there an Implied Contract? o Restatement § 19(1): What about “by failure to act”? 54

Bailey v. West o Was there a implied contract? n Was § 19(3) triggered? “The conduct of a party manifest assent even though he does not in fact assent. ” o What did Kelly tell the plaintiff? o Was Kelly the defendant’s agent? 55

The Five Guys hypothetical p. 10 56

What is an implied at law contract? 57

What is an implied at law contract? n Quasi-contract n Quantum meruit n Unjust Enrichment n Restitution 58

Moses v. Macferlan 2 Burr. 1005 (1760) per Lord Mansfield o "This kind of equitable action, to recover back money, which ought not in justice to be kept, is very beneficial, and therefore much encouraged. It lies for money which, ex aequo et bono, the defendant ought to refund; it lies for money paid by mistake; or upon a consideration which happens to fail; or for money got through imposition, (express or implied) or extortion; or oppression; or an undue advantage taken of the plaintiff's situation, contrary to laws made for the protection of persons under those circumstances. In one word, the gist of this kind of action is, that the defendant, upon the circumstances of the case, is obliged by the ties of natural justice and equity, to refund the money. " 59

Bailey v. West o When is quasi-contractual liability imposed? 60

Bailey v. West o When is quasi-contractual liability imposed? n Benefit conferred on defendant by plaintiff n Appreciation by defendant of the benefit n Acceptance and retention of benefit by defendant where it would be inequitable to retain the benefit without payment 61

Bailey v. West o When is quasi-contractual liability imposed? n Is consent by the recipient necessary? 62

Bailey v. West o When is quasi-contractual liability imposed? n Is consent by the recipient necessary? o You ask me as your agent to trade your horse for a cow. I do so, and get a bribe of $100 which I pocket 63

Bailey v. West o When is quasi-contractual liability imposed? n Is consent irrelevant? 64

Consent and the definition of a benefit? o I think orange aluminum siding is neat. When you are on holiday I cover your house with it. A benefit? 65

What is a benefit? o No recovery for “officious” benefits from “volunteers” n What does this mean and just how do you tell? 66

What is a benefit? o What about the Good Samaritan? 67

What is a benefit? o What’s the difference between aluminum siding and the Good Samaritan? 68

Day v. Caton p. 11 69 Poussin, Summer

What is a benefit? o In what way is the aluminum siding example unlike the day laborer? 70

What is a benefit? o In what way is the aluminum siding example unlike the day laborer? n The informational problem n How might the informational problem be cured? 71

What is a benefit? o Should Bailey be permitted to recover for the first 4 months of board? 72

What is a benefit? o So was the care of Bascom’s Folly officious? 73