19 September 2014

"Public Policy" and Non-Enforcement of Contracts. Or, An Agreement to Terminate

A pregnancy, that is.

For the first decade or so of law teaching, my classes worked through the Baby M case to demonstrate the sort of circumstances that would justify non-enforcement of a contract on the ground of public policy. See a post about teaching the case from several years ago here.

For those who don't remember, the battle in Baby M was over the enforceability of a contractual obligation to terminate parental rights. The gestational surrogate (and biological mother) who gave birth to "Baby M" refused to surrender the newborn to the sperm-donor father and asserted her parental rights, both in contravention of the contract she had signed.

The New Jersey Supreme Court held the contract was unenforceable as against the state's public policy of terminating parental rights only when in the best interests of the child. In other words, the biological mother could not contract away the rights entailed by motherhood.

I no longer teach this case in part because "Baby M," Melissa Stern, is now an adult who as such terminated her legal relationship with her biological mother, agreed to be adopted by the wife of her biological father, and has gone on to pursue graduate studies. More to the point, the particular facts of the case are largely out of date because no longer does the gestational surrogate contribute her egg to the child in her womb. Instead, the child is conceived in vitro outside anyone's womb and only later implanted in the one who bears the baby through the course of pregnancy and delivery. Instead of Baby M, we now read and discuss two cases on the enforceability of such contracts, one concluding "no problem" and the other reaching the contrary result. We also look at Virginia's statute that requires judicial pre-approval for such contracts.

All of this is a long introduction to "You Are Obligated to Terminate This Pregnancy Immediately: The Contractual Obligations of a Surrogate to Abort Her Pregnancy (download here). Cribbing form the abstract:
When Crystal Kelley learned that a couple wanted to hire her as their surrogate, she was ecstatic. Raising two children of her own, Crystal yearned for the opportunity to help another couple achieve their dream to become parents. And while Crystal’s motives were certainly altruistic in part, she was a single mother with a high school degree, doing her best to provide for her own family. The $22,000 fee that Crystal would be paid would help not just with medical expenses, but also with rent and birthday gifts for her own girls. It seemed to be a perfect situation for everyone, especially when one of the two embryos that the intended parents already had frozen was successfully implanted and Crystal became pregnant.
About halfway through her pregnancy, Crystal and the intended parents learned some heartbreaking news about the fetus. The fetus appeared to have a cleft palate, a heart abnormality, and potentially Down syndrome. While Crystal was devastated by the news, the response of the intended parents was simply shocking: the intended parents mandated that the child be aborted — and soon. When Crystal refused, even after being offered $10,000 for her to have the abortion, Crystal and her lawyer returned to the surrogacy contract that the parties had signed months before, which included a clause discussing the termination of the pregnancy. The surrogacy agreement, which was signed in Connecticut where surrogacy contracts are legally enforceable, stated in part that Crystal would abort "in case of severe fetus abnormality." Crystal adamantly believed that the child should be given a chance to survive, even if it meant a childhood of countless surgeries and likely lifelong disabilities, so when her options were to abort the fetus, to surrender the child to the intended parents — who made clear that they intended to abandon the child to the foster system immediately upon her birth — or to flee to a state that did not legally recognize surrogacy agreements, Crystal took her two children and moved to Michigan. A few weeks later, Baby S was born and adopted by a loving family.
The shocking nature of the facts of this particular case and its contract, whose "termination term" apparently is standard in such contracts, recall to mind the limits of contract law. Commodification of all aspects of human life dominates the way of life with only a secular horizon. Thus, there would be no objection to enforcement of a termination term in a purely libertarian world, at least one in which there was no philosophical anthropology. In any event, I urge folks to download and read Brittney Kern's complete article.

A thick notion of human nature provides warrant for limits on the tool of contract. For my thoughts about that "nature" feel free to read Looking for Bedrock: Accounting for Human Rights in Classical Liberalism, Modern Secularism, and the Christian Tradition (download here). When considered from the point of view of full human beings--bearers of the image of God--the social practice of contracting represents more than a means of maximizing one's welfare. (Download and read my more-developed thoughts on the theological underpinnings of contracts and contract law in articles found here (short) and here (not-so-short).) Contract are a means by which such image bearers cooperate to carry out the blessing of dominion afforded the human race at its creation. A contract to eliminate one of those image bearers falls outside the end of contracting and should not receive state-sanction through judicial recognition.

18 September 2014

More on Unfair Discrimination in Bankruptcy!

For those who have followed the never-ending saga of posts first on the Stockton municipal bankruptcy and now on Detroit's (some recent ones here and here), you may have noticed that I've frequently directed those whose interest in the topic includes the legal details to an article I published in the late spring in the American Bankruptcy Law Journal: Municipal Bankruptcy: When Doing Less Is Doing Best (download here).

My article addressed several issues in connection with Chapter 9 bankruptcy but there and subsequently I argued for one point consistently: the Bankruptcy Code's prohibition of "unfair discrimination" in a city's plan creates a strong presumption that all creditors of equal priority, say, retirees with their pensions and bondholders with their bonds, should be treated equally. In other words, whatever percentage of claims is paid to one set of creditors should be matched with respect to the other set(s) of creditors. To be fair to myself, I also argued that the rule that a plan be in the "best interests" of creditors required a plan to discriminate in favor of pensioners in a state like Michigan which protects public employees pensions by law. (Read my article if you want to know my solution to this statutory conundrum.)

Of course, I acknowledged that there was only a presumption in favor of equality, which suggests it can be rebutted. Indeed, Congressional antipathy toward unfair discrimination suggests that there's such a thing as fair discrimination.

Go here to read Andrew B. Dawson's unpublished draft piece, Pensioners, Bondholders, and Unfair Discrimination in Municipal Bankruptcy (download here). Dawson addresses the history of unfair discrimination in municipal bankruptcy and, taking a cue from yet another rule (actually, an exception to another rule, i.e., the new value exception to the absolute priority rule), argues for a wide notion of "fair" discrimination permitted by the Code.

In short (and here I'm going deep into the weeds), just as a class of creditors who would receive nothing in a Chapter 11 liquidation may nonetheless retain an interest in a reorganized debtor if they contribute "new value," so too a Chapter 9 plan may tilt its distributions in favor of a class of creditors if that class contributes new value.

I would be hard pressed to disagree but for Dawson's additional assertion that the "new value" contributed by a class such as Detroit's retirees can include such non-quantifiable (or unrelated) matters as not opposing Detroit's eligibility to be in bankruptcy, the state of Michigan's "micro-bailout," and the contributions of various foundations to the city to enable it to keep the Detroit Institute of Art. Even reducing something to which the retirees had no special statutory right in bankruptcy, their retiree health benefits, counts as "new value" in Dawson's analysis.

Dawson's piece is a valuable contribution to what remains a largely unexplored topic. Yet I fear that his nebulous conception of new value will in practice be nothing more that the nose of the camel that will quickly occupy the tent. If giving up weak legal arguments and claims not backed by law is enough to make discrimination fair, then the prohibition of unfair discrimination is infinitely malleable that may in some cases be satisfied by nothing more than an appeal to the bankruptcy court's sympathies.

16 September 2014

Personalism and Contract Theory (Part 2)

Last week I posted a moderately long piece on part 1 of Robin Bradley Kar's Introduction to Contract as Empowerment: A New Theory of Contract (read it here). I expressed support for Kar's arguments but also wrote that I was reserving my criticisms to a later piece. This isn't that piece. Instead, I want to explore Kar's critique of the so-called contract law doctrine of promissory estoppel.

For those who haven't enjoyed the blessing of a semester of contract law, what makes a promise in a contract enforceable is the presence of "consideration." But for the secret sauce of consideration, failure to perform an unaccompanied promise (or nudum pactum as they used to say) is likely a moral fault but it raises no legal consequences. Although the origins of the doctrine of consideration wasn't the primary burden of my piece, The Puritan Revolution and the Law of Contracts (download here), there's enough about it from the sixteenth and seventeenth centuries to warm an antiquarian's heart. (Plus, so far as I am aware, the only analysis of a question and answer from the Westminster Larger Catechism in a law review article.)

In short, consideration is most simply understood as a bargained-for exchange. Or, in slightly shorter form, consideration is equivalent to reciprocal inducement. In any event, there must be two to dance the contract tango. Most of the time we find consideration expressed as a promise for a promise; I promise to paint your house in exchange for your promise to pay me $2000, for example.

The exchange-nature of a contract explains why a promise standing alone isn't a contract; it wasn't made in exchange for anything else. The promise may have been motivated by altruism or with a less-than-honorable motive but that makes no difference. Or at least it didn't until the early decades of the twentieth century.

The history of the rise of promissory estoppel is complicated but suffice it to say that by the 1930s the august American Law Institute recognized as a rule of contract law that a promise, made to induce reliance, and which did induce the promisee to rely--to his detriment, anyway--was a breach of contract that could give rise to a claim for contract damages. The purists among us have always doubted the wisdom of such a rule and the courts of some states, like Virginia and North Carolina (the two states where I've taught contract law), persist in their view that whatever promissory estoppel may be, it's not part of contract law. But suffice it say that a rule recognizing a claim for promissory estoppel has largely carried the day throughout most of the United States.

I'm pleased to report that Kar agrees with the paleo-conservatives and that his theory of "contract as empowerment" provides a sound rationale for his conclusion. Consider the policy Kar provides for contract law: "People sometimes need to use promises to induce other people to make return promises or engage in various actions in return." In other words, the purpose of the subset of contract-type promises is to empower the promisor so she may induce the promisee. Many promises are made for other reasons including altruistic ones but those promises, however real they are and as significant as they may be, are not contract promises.

Contract law, according to Kar, goes one step further:
The effectiveness of promises for this purpose will typically depend upon whether the specific addressees of these promises trust the specific promisors to fulfill them. interpersonal trust of this kind can sometimes be generated in informal ways, but--especially among relative strangers in many modern settings--is often lacking absent law. When this is the case, legal enforcement mechanisms can therefore empower people to use promises as tools to influence other peoples' actions.
Contract law backstops a contract-party's promise with the threat of legal sanctions for non-performance. By exposing herself to such sanctions, the promisor makes it more likely the other contract party will trust her to perform. As paradoxical as it may seem, contract law works primarily to increase the influence of the promisor and only secondarily to rectify an injury to the promisee. That such is the case is clear from the fact that very few contracts lead to breach and of those even fewer result in litigation. Contract law clearly works to accomplish its purpose: to empower promisors.

By now it should be clear why a naked promise is not a contract; the promisor did not make it to induce the promisee to make a return promise or engage in a particular action. Perhaps the promisor intended the promise as an expression of love. Perhaps as a means of increasing social status. But, unless sought in connection with an exchange of some evident sort, the unaccompanied promise was not made to empower the promisor vis-a-vis the promisee.

Kar is quick to note that failure to keep a non-contract promise may give rise to a claim by a promisee who has relied to his detriment under some body of law other than contract. Tort springs easily to mind. But contract as empowerment is effective to scrub the barnacle of promissory estoppel from contract law and for that I am grateful.

15 September 2014

It's Only Money, Isn't It?

More details on the settlement between Syncora and the city of Detroit that will go far (but not necessarily all the way) toward confirmation of Detroit's plan of adjustment. Financial Guaranty Insurance Corporation (FGIC) and others remain opposed, and the issue of feasibility remains a large speed bump (download and read my articles about feasibility here, here, and here), but the skids have been greased and the car given a giant push.

The title of this post is a point I regularly mention to my students in Contracts. Sufferers of a breach of contract, especially the institutional sorts I regularly represented, are not interested in abstract vindication of their moral rectitude. Sure, a few paid me to battle with breachers far beyond any likely improvement in the litigation return because they deemed a reputation for a hard-nosed strategy in their long-term benefit. But that was only one or two. The balance of my clients wanted to get as much as they could for as little as they could pay (me) and call it a day.

So too Syncora and, one assume FGIC and the other objectors to Detroit's plan. The problem Detroit's holdouts face, however, is that bankruptcy is a zero-sum game. In other words, every additional dollar paid to one creditor must come from either another creditor (which would only create another objector) or the future taxpayers or the recipients of the city's services. In Detroit's case, the current city has apparently come to believe that its future iteration will have "just a little bit more" than previously thought and so be able to pay Syncora more than originally offered.

All the newly-discovered future income renders the success of the city as it operates for years into the future under the plan less and less likely. Hence, with every settlement, the "feasibility" of Detroit's plan is called into greater question. And, of particular interest to me, the report and opinion of Martha Kopacz, the court-appointed expert who has opined that Detroit's plan is feasible, becomes less and less relevant. After all, the plan on which she opined has changed and not for the "better" in terms of feasibility. (I must admit that I'm partial to her report because in it she quoted from one of my articles. But I digress.)

All of this is to raise a question larger than Detroit's bankruptcy: Why is it that Western culture in general and Americans in particular don't take breach of contract more seriously? Indeed, why do we as a culture say "It's only money"? Such is not historically the case. For hundreds if not thousands of years, failure to pay one's debts was a mark of dishonor and the one thus dishonored would treat it as such, a duel or at least imprisonment representing the way of "honorably" treating one's debtors.

I established in Principled Pluralism and Contract Remedies (download here) that a civil polity may offer recourse for breach of contract in the form of expectation damages but I did not address why a lawsuit for damages should be the preferred remedy. The answer to the why question would take me far afield but suffice it to say that the transposition of money for honor is one aspect of the secularization of Western culture. For my elaborations on that topic you can read my comments on an article about the market by Nate Oman here or simply search my blog for my multiple entries on Charles Taylor's "A Secular Age." (You can start here.)

Before not reading any of those links note that I am not opposed to the process of secularization. Secularism is a problem as the folks at Trinity Western University can tell you but I am certainly not one to denigrate the advances Western culture has made since the desacralization of society beginning in the Middle Ages.

In any event, the growth of political liberalism (not to be confused with so-called progressivism) and a market economy have brought many blessings. And both (indeed, all three) find their roots in the pluralizing Christianized society of the medieval era.

None of this is to say there are no moral aspects to contract law. I have previously addressed them in connection with the mortgagor's moral obligation to pay even on a mortgage where the value of mortgaged property has fallen below the amount of the debt. (Check here and here.) But even there, I made a point that the mortgagee has a reciprocal duty of forgiveness, one that the market has spun off into bankruptcy law. And more to the point, failure to perform a moral duty is not equivalent to an affront to honor.

In any event, the balance has clearly and decisively shifted in favor of money over honor. Thus, when it comes to contract law, indeed, it's only money.

14 September 2014

More Intolerance from the Northland

A whopping 137 out of 1,600 members of the New Brunswick Law Society (the equivalent of an American state bar association) voted to ask their bar council to reverse its decision to permit graduates of Trinity Western University's law school (scheduled to open its doors to students in the fall of 2016) to practice law in New Brunswick. Sadly, however, 137 were a majority of those who voted. Read the details here.

Yet another step along the road to "totalitarian libertarianism." (For earlier comments go here, here, and here.)

12 September 2014

The Sun Isn't Shining in San Bernardino ...

... at least not for some unionized employees. Yahoo News report here that Bankruptcy Judge Meredith Jury has approved the city's motion to cut drastically its share of the cost of employee benefits for its firefighters.

A private employee, even one undergoing a Chapter 11 reorganization, as a practical matter could not do what San Bernardino will do. Congress, however, exempted cities in a Chapter 9 municipal bankruptcy from the restrictions it imposed on the power of private employers to modify collectively bargained agreements with unions.

This exemption for cities in bankruptcy strikes me as a fair one. As I argued in Municipal Bankruptcy: When Doing Less Is Doing Best (download here), increases in public employee benefits have far outstripped those in the private sector. Coupled with state laws like California's that prohibit any reduction in pensions, shifting the cost of OPEBs ("Other Post-Employment Benefits") to employees is one of a bankrupt city's few resources when it comes to reducing its costs of operations.

11 September 2014

Coming Soon! Regent Law School Summer Program in International Human Rights

Over the noon hour I spoke with 30 or so students about the 2015 iteration of Regent Law School's summer program in Strasbourg, France. You can read all about it here.

I will be directing the program and will be joined by faculty members including former Attorney General John Ashcroft, who will be teaching a course in Civil Liberties and National Security Law, and Professor David Smolin who is an expert on the international human rights law and practice. I will be teaching a course in Comparative Law, focusing on the law of contracts here in the United States and there in a number of European countries.

Registration will be open soon but I encourage readers who are law students to be watching the website and those who aren't students to let friends and family who are in law school know about this exciting opportunity.

10 September 2014

Personalism and Contract Theory (Part 1)

The title of Robin Bradley Kar's Introduction to Contract As Empowerment: A New Theory of Contract (download here) states it all.  And in case we didn't believe him, the first sentence of the Introduction reiterates that "This article and its sequel present a new theory of contract ..." That was nearly enough to make me not read it. After all, why do we need a new theory of "contract" when we have so many old ones (and even more not-so-old ones)? But I persevered in part because I had found Kar very helpful in my piece, Principled Pluralism and Contract Remedies (download here). I am glad that I did.

Like me, Kar is dissatisfied with the current leading contenders for the title of the theory of contract law. Like me, Kar is unwilling to throw in the towel and admit there is no theory of contract law, that instead contract law represents a pastiche of rules supported by various incommensurate theories that are held together by a label and nothing more.

I argued in Principled Pluralism that "the law of God and the cultural mandate, humanity's reflection of the image of God, and the existence of sin  ... are foundational [to contract law], but broadly so ..." By "broadly so" I meant that no one could deduce contract law from these four fundamental biblical truths. I went on, however, to find warrant (at least to my satisfactions) for one of the rules of contemporary contract law that has proved to be a sticking point in some theoretical analyses--the expectation measure of damages--in terms of those foundational principles. I did not argue that contract law  must provide for vindication of the expectation interest, only that it was permissible. I also explained why invoking nonpublic reasons, like God and sin, in contemporary theoretical discourse was not per se objectionable.

Kar's project is far more ambitious. Like me, he seeks a unifying principle but over the course of two articles applies that principle to many "hot topics" in contract law. Suffice it to say that I appreciate his principle--"empowerment" and agree with his applications but observe that his explicit (pre)suppositions are themselves vulnerable to attack as lacking warrant. Let me explain in two steps.

First, what is "contract as empowerment"?
Contract as empowerment assumes that people have a broad range of real human needs and interests, which they can systematically further if they are empowered to use promises as tools to induce others to act in some manner.
How is that different from the standard neo-classical economic presumption of individuals as rational wealth-maximizers?
Empowerment is not the same thing as free choice. ... Contract as empowerment does not ... assume that the legal enforcement of subjective choice is always genuinely empowering ...
"Contracts as empowerment focuses on the interests of promisors in being able to induce other to act with legally enforceable promises." In other words, Kar takes the contracting promisor as a full-fledged human being, not a desiccated wealth-maximizing center of subjectivity.

Second, what are the (pre)suppositions of contract-as-empowerment? First, "it is a rule-governed social practice. This is important because the leading contemporary alternatives--neo- Kantian autonomy and Coasian efficiency--see contract primarily in terms of individuals. Second, and here's where Kar's personalism comes into view
Contract law should be understood as aiming to promote a special form of interpersonal empowerment, whereby parties can use legally enforceable promises as tools to influence one another's actions and thereby meet a broad range of real human needs and interests.
Kar's account of the significance of contract law takes into account the standard welfare-maximization principle of law and economics; how could he not since, after all, contracts are frequently used to increase one's welfare? But contracts are not limited to subjective welfare. Instead, the sanctions that accompany contract law make contracts more useful than they otherwise would be at influencing others. Kar's empowerment theory takes the other as well as the subject into account. In other words, a "broad range of real human needs and interests" represents more authentically why people use contracts than does welfare maximization alone.

This "humanization" of the purpose of contract law has a significant side effect:
Instead of suggesting that the law should always defer to the subjective choices of individuals who voluntarily impose obligations on themselves, it therefore recommends enforcing contracts only when needed to empower people to sue contracts as tools to influence other's actions and thereby meet a broad range of human needs and interests.
In other words, limits on "freedom of contract" are not always assumed to be impediments to a presumptively unfettered  libertarian "right" to maximize subjectively perceived welfare.

In my next post I plan to address the political theory that justifies state action, what Kar calls "contractualism," and how he distinguishes it from "contractarianism." In addition, I hope to indicate where I think his new theory falls short.

09 September 2014

Let's Make a Deal (Detroit Style)!

News from Detroit: the city of Detroit and Syncora, one of the two holdouts from Detroit's plan of adjustment have reached a deal. Read about it here.

This is of course, what I opined might happen here and what I argued should be allowed to happen in my article, Municipal Bankruptcy: When Doing Less Is Doing Best (download here).

Detroit's confirmation battle is not over because one bond insurer remains on the outside but the pressure on Financial Guaranty Insurance Company will soon prove unbearable.

UPDATE: For more deal details read Reuters here.

07 September 2014

... to the Tragic

Last night we went to the Regent University Theatre production of The Glass Menagerie. I seem to remember reading the play in English class in high school, and I vaguely remember watching short portions of the film adaptation (or perhaps the TV version staring Shirley Booth) on television many years ago. In any event, I had forgotten so much that viewing the play was virtually seeing it for the first time.

As is usually the case with the Regent Theatre, the play was superbly staged. Laura's glass menagerie was exceptionally well-designed for audience viewing. Rosette Jarriett, who played Laura, was most believable as a physically and emotionally challenged young woman in her early 20s. Shaunté Tabb, who played the controlling and delusion mother Amanda, was a bit young for the part and I thought that Theodore S. Holmes, III underplayed Tom's anger. Yet the cast overall did an excellent job and I would highly recommend catching the play next weekend.

From the Hilarious ...

Over a week ago I took in Marvel Studio's Guardians of the Galaxy. A full-scale review would take the film more seriously that its creators could have intended. In short, I took it to be a spoof--but a sentimental one--of the contemporary genre of over-the-top action super-hero films. Yet, whatever its point, Guardians of the Galaxy was great fun. Most important to its success was that the film did not take itself seriously. It's plot made little sense but the characters were a hoot and the special effects were great.

More need not be said but I'm glad I went. A great two-hour escape.

05 September 2014

What Hath Edinburgh To Do with Vancouver?

Not too long ago I posted here about a "totalitarian libertarianism" that seeks to strangle in the crib the efforts of Trinity Western University to begin a Christian law school. TWU is located in Vancouver. Earlier posts can be found here and here.

From the other side of the Atlantic you can read here a thoughtful and incisive post by Robert Haldane about the threat of an aggressively secular Scottish government should the upcoming referendum on Scottish independence pass. Suffice it to say that the dissolution of the United Kingdom would have negative ramifications across the globe but even more serious consequences for Scotland's citizens and churches that take their religious faith seriously.

What joins these secularists at the hip is not a commitment to liberty but to a freedom of a particular sort, one that mandates a persistent and consistent vision of human beings as free from history and (human) nature. Unconstrained libertarianism thus leads to an insidious tyranny.