Intent to Contract and Trust

This chapter defends a republican reinterpretation of the intent to contract doctrine. According to the doctrine, for a contract to be legally binding the parties must have manifested an intention to be legally bound. This legal requirement sits uncomfortably with the ‘promise theory’. If Charles Fried was right that contracts are promises, why is this additional intention even necessary? That tension between the promise theory of contract or the ‘reflective’ view that contract should ‘mirror’ promise and the intention to create legal relations doctrine has led some to doubt the place of promise in contract. Dori Kimel, for example, says that the intent to contract doctrine is a portal between the realm of promise, where people are attached, and the realm of contract, where detachment prevails. This leads him to defend a ‘divisionist’ view of contract. But such dichotomies are misleading. Contract is not separate from promise. Nevertheless, although Fried was right to see that contract and promise serve similar ends, he failed to appreciate that they do so in distinctive ways. The republican view by being open to the variety of ends contract law might have, and the distinctive ways in which they might be interpreted and pursued, opens the door to a correct understanding of the intent to contract doctrine. Contract law on this view is one of the ways promise fulfils its function of securing the valuable good of trust-based cooperation and giving meaning and shape to human relationships.

The Penalties Rule and Compensation

According to the penalties rule, agreed damages clauses that grossly over-compensate the promisee for breach of contract are invalid and unenforceable. This chapter argues that the ‘promise theory’ has struggled to explain how the rule is justified, because promissory logic seems to require that such clauses be enforced. It is only by rejecting the idea that promise plays a special role in contract law that an explanation comes into view. The penalties rule, like undue influence, is a ‘composite’ doctrine, that is, it involves and is justified by the interaction of a multiplicity of moral concerns. The main normative concerns in this context are promise and the compensation principle. This combination explains puzzles such as why penalty clauses are not enforced but, in contrast, liquidated damages clauses are, and why breach of contract is a condition for the application of the penalties jurisdiction.

Restraint of Trade and Freedom

This chapter argues that on the republican view of contract law, freedom resides not in absence of interference per se (the liberal position), but rather in the absence of arbitrary interference or dominium by others. It claims that the restraint of trade doctrine protects this kind of republican freedom by preventing the promisee from using contract law to constitute a relationship of dominium over the promisor. Such contracts or contract clauses involve a subversion of the true purpose of contract law which is to structure intrinsically valuable relationships between the parties based on trust, equality, and cooperation. To explain the invalidity of clauses in restraint of trade, it is necessary to reach beyond promise to this constitutive purpose.

The Limits of Promise

This chapter critically assesses three ways in which promise might plausibly claim to play a ‘foundational’ or special justificatory role in contract. According to ‘justificatory necessity’, promise plays an essential or necessary role in the justification of each and every contract doctrine. According to ‘justificatory primacy’, promise defeats all conflicting principles in contract. And, finally, according to ‘justificatory presumptiveness’, the divergence of contract from promissory morality justifies an epistemic presumption that contract law is prima facie unjustified. This chapter shows how these interpretations are insufficiently sensitive to the fact of ‘normative pluralism’ in contract, and how this leads them to seriously mishandle contract doctrine. They end up either repudiating perfectly justified contract law doctrines, upholding problematic doctrines, or, finally, offering the wrong explanation of contract law rules. This chapter argues that the truth about contract law depends on reaching beyond the promise theory and its foundationalist assumptions.

Mitigation and Fairness

The doctrine of mitigation in contract law limits the recovery of damages available to the innocent victim of a breach of contract to cover only those losses that would have been incurred had the promisee acted reasonably in avoiding or not exacerbating the losses caused by breach. The doctrine has troubled ‘promise theorists’ who fail to see why the guilty party should not in such circumstances be responsible for all the losses that, after all, her own wrongdoing has caused. Charles Fried attempted to accommodate the doctrine by linking promise to the principle of altruism but that attempt has faced important criticisms; which reflect a deeper failure on Fried’s part to perceive that contractual relations involve an invocation of a ‘thinner’ type of trust than is usually found when promises take place in the context of close or intimate relationships. This chapter claims that the doctrine only makes sense if we recognize that it reflects the interaction between the promise principle and a principle of fairness that we find as a matter of first-order moral reasoning. On this view, contract law mirrors what we find in promissory morality (broadly conceived). It is another example of a ‘composite doctrine’ reflecting the interaction between multiple moral concerns.

Foundationalism and the Promise Theory

This chapter defines the book’s main target: the ‘promise theory’ of contract law. It claims that the promise theory is a ‘foundationalist’ theory of contract law, according to which the promise principle plays a special normative role in justifying contract law rules and doctrines. What exactly this special role is has been left obscure in the literature. This chapter offers three plausible interpretations. First, there is ‘justificatory necessity’ or the idea that promise plays an essential or necessary role in the justification of each and every contract law rule or doctrine. Second, there is ‘justificatory primacy’, according to which the promise principle overrides or defeats all other principles in cases of conflict. And, finally, there is ‘justificatory presumptiveness’, according to which there is an epistemic presumption that when contract law diverges from promise it is prima facie unjustified.

Introduction

This chapter introduces the dominant philosophical account of contract law: the ‘promise theory’. According to the promise theory, promise plays a ‘foundational’ or special normative role in the justification of contract law rules and doctrines. This chapter explains that the book’s purpose is to debunk the promise theory and its foundationalist assumptions. It provides an overview of the main argument of the book, which relies on showing that the promise theory obscures or underplays the role that other values and normative concerns have in shaping contract law rules and doctrines. Contract law is the product of ‘normative pluralism’, and this chapter explains how that theme is approached in the book in the following three interrelated contexts: contract theory, legal doctrine, and transnational trends toward the harmonization of contract law. The central claim of the book is introduced as a plea to move away from a ‘top-down’ theory of contract law such as the promise theory and toward a distinctly republican or ‘bottom-up’ approach to contract law that focuses on justifying the legal rules and doctrines we find in particular jurisdictions at particular times.

Contract Law Beyond the State

This chapter reflects on the increasing emergence of transnational efforts at both the global and regional level to bring about the greater convergence of national contract law regimes. The divergences between contract law regimes are seen as major obstacles to free trade, and removing these barriers is the primary motivation behind these initiatives. This chapter argues, using European Union (‘EU’) efforts to harmonize contract law in Europe as an illustration, that such efforts face a significant legitimacy burden, because on the republican view of contract law the principle of state sovereignty protects the freedom of states to interpret and balance the values that shape contract law in ways that reflect local needs, beliefs, customs, and so forth. That freedom protects the right to self-determination and is both constitutive and expressive of the political communities that nation states embody and represent. In the European context, there is no similar political community that legitimates the EU’s efforts to bring about the harmonization of the general law of contract. Furthermore, even if the issue of legitimacy could be overcome, it’s unclear that harmonization in the European context could be justified. The economic case made by the European Commission for convergence is based on questionable empirical assumptions, and attempts to bring about convergence face serious efficacy constraints due to the fact of ‘normative pluralism’.

Undue Influence and Exploitation

This chapter distinguishes two contexts in which promises might be made: in situations of ‘thick’ trust where the parties are in a pre-existing close or intimate relationship with one another, and cases of ‘thin’ trust where the relationship between the parties is more like that between what Lon Fuller called ‘friendly strangers’. Typically, contracts take place in the context of thin trust. However, ‘promise theorists’ have tended to lose sight of this distinction—assuming that contract must reflect the morality of promises that take place in close relationships. This chapter relies on this distinction to explain the undue influence doctrine, which applies in those much less common cases where contracts take place in the context of close relationships. Such cases create a risk of relational exploitation by the promisee, and this chapter argues that this normative concern plays an essential normative role in explaining the undue influence doctrine. The promise theory has tended to downplay the role of exploitation at the cost of explaining the doctrine. Undue influence is an example of what is described here as a ‘composite’ doctrine’, that is, it is the product of the interaction of a multiplicity of moral principles or values and cannot adequately be explained by a single value like promise alone.

Republican Contract Law

This chapter distinguishes two accounts of how and why areas of law are individuated. The first view, ‘conventionalism’, says that individuation serves epistemic ends. Conventionalists claim that legal officials carve up areas of law to promote the rule of law by making it more digestible, easier to follow, handle, and so on. In contrast, the second view, ‘foundationalism’, is a metaphysical interpretation of the practice. Foundationalists claim that individuation is part of the very fabric of law. On this view, areas of law track basic moral principles or categories, such as promise, corrective justice, and so on, which shape and structure legal norms. Having claimed in Chapter 3 that foundationalism—in the guise of the ‘promise theory’—fails as an account of contract law, this chapter argues that conventionalism is not the only alternative. Instead, a third possibility—‘republicanism’—is explored, which the chapter calls ‘republicanism’. Ronald Dworkin argued that legal categories are connected with ‘positive morality’ or popular views about the moral principles, categories, and distinctions that legal categories implicate. This serves the purpose of involving ordinary citizens in legal and political decision-making about matters of principle that are usually the preserve of the courts. This reveals a very often overlooked republican strand to his legal theory, which opens the door to a ‘bottom-up’ theory of contract law more sensitive to the multiplicity of moral values and concerns that shape its rules and doctrines in particular jurisdictions and times.