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.