Download D. Theories of Enforcement

George Mason School of Law
Contracts I
D.Theories of Enforcement
F.H. Buckley
[email protected]
1
Today
1
The Logic and Limits of Paretian
ethics
 Greed
 Altruism and “non-tuism”
2. Darwinian economics
 Fairness in division
3.
Promising from a natural rights
perspective
4.
Natural Duties and Quasi-contract
2
The Logic of Parethian ethics
3
Contract damages solve the PD
game problem
Player 2
Player 1
4
Cooperate
Defect
Cooperate
3, 3
2, -3
Defect
-3, 2
0, 0
What is collectively rational is
now individually rational
Player 2
Player 1
5
Cooperate
Defect
Cooperate
3, 3
2, -4
Defect
-4, 2
0, 0
The trust this generates fosters
beneficial reliance
Where David would
have been had he relied
B 100, 100
100
I 200
E150, 50
50
David
spends
only 50 in
period 1
Inoreliance
0
100
6
Goetz and Scott, 89 Yale L.J. 1261 (1980)
150
And results in a wealthier and
happier country
7
The Limits of Paretian ethics
 Pareto-superiority: one person is
better off and no one is worse off
 Pareto-optimality: no unexploited
opportunities for Paretian
improvements
8
How about the more is better assumption?
Dollars in Time 1
More is better
I2
I1
0
Dollars in Time 2
9
But do Paretian standards celebrate
greed?
Greed is
good!
10
Michael Douglas in Wall Street
Do Paretian standards celebrate
greed?
222 Broadway
OMG!!!!
suspenders
Closing books
Ash tray
11
Is acquisitiveness always bad?
I’m not into the
whole rat race
thing, man!
12
When does greed turn into a vice?
 If greed and sloth are both vices,
when (and why) does acquisitiveness
become excessive?
13
The Limits of Paretian ethics
 Does Paretianism provide a complete
moral code?
14
Does Paretianism provide a
complete moral code?
 What’s left out: compassion,
empathy, altruism
15
Paretianism as “non-tuism”
 Paretian man is not (or need not be)
an altruist
 He need take no interest in the other
person
16
Paretianism and Altruism
 Paretian man is not (or need not be)
an altruist
 He need take no interest in the other
person
 Is caring about others always a good
thing?
17
Absolute and Relative
Preferences
 I have absolute preferences when I
want more
 I have relative preferences when I
want more than people to whom I
compare myself
18
A bad kind of altruism: Envy
19
What would envy look like in
bargaining games?
20
Paretianism as neutral about
splitting the bargaining surplus
 On Paretian standards, one person is
made better off, and no one is worse off
 And it doesn’t matter how the gains are
divided
21
The move from A to either B or C is a
Pareto-superior transformation
Bess
A

D
E
 F
C
B 
Mary
22
But there is a zero-sum game at the
heart of the bargaining game
Bess
A
 E

D
 F
B
G
C
Mary
23
Fairness in division
 Do we have fairness intuitions
about bargaining?
24
As it happens, a little green
man just gave me $100
And he asked me
to divide it with you
25
Fairness in division
 The Ultimatum Game
 “Sender” divides up an amount of
money
 “Receiver” can either accept or reject
the Sender’s offer
 If Receiver rejects, no one gets
anything
26
As it happens, a little green
man just gave me $100
I’ll keep $95 and
offer you $5.
Are you OK with
that?
27
As it happens, a little green
man just gave me $100
Will you “pay
to punish”?
28
Fairness in division
 The Paretian is indifferent about how
the bargaining gains are to be divided
 But do we observe fairness constrains
in bargaining?
 Ultimatum Games
 Fisher and Ury, Getting to Yes
 The store’s refusal to price-gouge
29
Fairness in division
 Franz de Waal
30
Now … Darwinian Economics
Charles Darwin,
1809-82
31
Now … Darwinian Economics
 What happens when we take the
basic ideas of economics and apply
them to evolutionary psychology?
32
W.D. Hamilton
33
1936-2000
Hamilton on the Gene’s Eye View
 Bodies are temporary, genes (or their
copies) are forever
 The gene directs the body
 Richard Dawkins, The Selfish Gene
34
Hamilton on the Gene’s Eye View
 The gene’s command to the body:
 Be fruitful and multiply
35
Hamilton on the Gene’s Eye View
 The gene’s command to the body:
 Be fruitful and multiply
 Maximize copies of the gene
 “Genetic fitness”: what increases the
probability that copies of the gene will
increase
 “Genetic cost”: the opposite
36
Hamilton on the Gene’s Eye View
 The gene’s command to the body:
 Be fruitful and multiply
 Maximize copies of the gene
 Hamilton’s Rule: Max Benefit (genetic
fitness) – Cost (genetic cost)
37
Individual vs. Evolutionary
Rational Behavior
 Classical economics: Individuals
maximize (gains – costs)
 Evolutionary Economics: Genes
maximize (reproductive fitness –
reproductive costs)
38
Sewell Wright’s Coefficient of
Relationship
 A parent and his child share 50
percent of their genes
 A parent and his grandchild shares
25%
 Siblings share 50%
 Cousins share 12.5%
39
Hamilton on the genetic costbenefit calculation
 Hamilton’s Rule: Max Benefit (genetic
fitness) – Cost (genetic cost)
 Gene to Body: be altruistic if rB > C,
where
 r = Coefficient of Relatedness
 B = Genetic benefit
 C = Genetic cost
40
This incorporates Kinship Selection
 Gene to Body: be altruistic if
 rB > C, where
 JBS Haldane: I would give my life for
two brothers or eight grandchildren
41
The Biological Social Compact
 We take from our parents and,
without repaying them, give to our
children
42
Strangers vs. Brothers
 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
 Deuteronomy 23:20.
43
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.”
44
The largest family firms…





45
Walmart
Ford Motors
Cargill
Mars
Koch
What’s the legal take-away
from Darwinian Economics?
 Family businesses
 The assumption of parental fitness
 The asymmetry of family support
obligations
 The bequest motive in tax law
46
Relative Preferences
 What happens when a sense of
relative preferences is added to the
bequest motive?
 I have absolute preferences when I
simply want more
 I have relative preferences when I want
more than the next fellow
47
You’re in the top quintile at present: Of
World I and II, which do you prefer?
48
Is aristocracy the natural
default state of society?
 If we have a bequest motive as to our
children, and relative preferences as
to how they will fare compared to
other people’s children, does this add
up to aristocracy?
49
How we rank on
intergenerational mobility
U.K.
Italy
U.S.
France
Spain
Germany
Sweden
Australia
Canada
Finland
Norway
Denmark
50
Country
Immobility
0.50
0.48
0.47
0.41
0.40
0.32
0.27
0.26
0.19
0.18
0.17
0.15
Correlation of father’s and son’s earnings
Contract and Aristocracy
 Is the move now from contract to
status?
51
Is aristocracy the natural
default state of society?
 And what does that do for social
cohesion and trust?
52
53
Why perform promises?
 You have made a promise. Unless you
have a good excuse, you should
perform.
 Why is that?
54
Why perform promises?
 If you don’t perform, the institution of
promising (contract law) may
unravel.
 And so?
55
So you’d lose the benefit of
trust (beneficial reliance)
 Contract law as a solution to the trust
problem in PD games
 Promisor makes a credible commitment
 Promisee is enabled to trust
56
Hume
on Beneficial Reliance
 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.
57
Is there another explanation for
promising and contract law
 Is there a natural right to have
promises performed?
58
Autonomy Theories
 To be free and autonomous, I should
have the right to enter into a contract
59
Autonomy Theories
 To be free and autonomous, I should
have the right to enter into a contract
 But when I do so at time1 I restrict my
choices at time2.
 Self-bonding
 Whose autonomy do we prefer? If the
former, why is that?
60
Will Theories
 Can I will an obligation to perform a
promise?
61
Hume on conventions
“A promise is
not intelligible
naturally, nor
antecedent to
human
conventions.”
62
The need for a linguistic convention
 Can will theories explain why the
institutions of contract law and
promising should exist?
 If they’re not there, how can one
promise or contract?
63
Tonga: Where people don’t promise
The Queen of Tonga
with the Queen Mother
at the Coronation, 1953
64
Could promising exist without
promissory institutions?
There is apparently no
word for “promise” in
Tonganese
65
Could promising exist without
promissory institutions?
“I intend to do x, but
if I change my mind,
well, then was then,
now is now.”
66
Could promising exist without
promissory institutions?
In such a place, is a
will theory intelligible?
67
Hume on Conventions
 If Hume is right, it is meaningless to
talk about an obligation to perform
one’s promises or contracts without
an underlying convention of
promising or contract law
 The prior question, then, is whether it
is desirable that such conventions
should exist
68
Hume on where we are without
promissory or contractual conventions
 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.
69
Hume on where we are with promissory
and contractual conventions
 The conventions of men … create a new
motive, when experience has taught us, that
human affairs wou'd be conducted much more
for mutual advantage, were there certain
symbols or signs instituted, by which we might
give each, other security of our conduct in any
particular incident, After these signs are
instituted, whoever uses them is immediately
bound by his interest to execute his
engagements, and must never expect to be
trusted any more, if he refuse to perform what
he promis'd.
70
Hume on Conventions
 No promissory or contractual
obligation can arise without a
background promissory or contractual
convention.
 These are “artificial” and not natural
 Efficiency considerations provide an
explanation why such conventions
should exist
71
Quasi-contract
 But is there another reason to enforce
promises?
72
Some vocabulary
 Obligation: an “artificial” moral
requirement voluntarily undertaken
 Duty: a moral requirement imposed
when not voluntarily undertaken.
E.g., tort law duties
73
Hume on natural duties versus
conventional obligations
 A father knows it to be his duty to take care of his
children: But he has also a natural inclination to it.
… 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.
74
Promissory obligations vs.
natural duties
 Obligations are content-independent
(so long as not illegal)
 Natural duties are content-dependent
75
Promissory obligations vs.
natural duties
Natural duties are content-dependent
 Parent’s duties to their children
 The action for money had and received
in Moses v. Macferlan
 How contractual obligations grew out of
natural duties
76
The slow evolution of a remedy
for breach of contract
 Suppose A sold X goods and X didn’t
pay. What remedy is available, before
an action for breach of contract?
 The forms of action
77
Trespass on the case in indebitatus assumpsit
as the remedy for breach of contract
The King to the sheriff &c. as in Trespass to show:



78
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.
The slow evolution of a remedy
for breach of contract
 Note how this turned breach of
contract into the tortious duty not to
commit fraud
 Legal fictions
79
The rise of quasi-contract out of the
forms of action
 There are natural duties and contractual
obligations, but is there a tertium quid of
liability for promises we ought to have
made?
80
Moses v. Macferlan
 B promises to pay A £6, giving him a series of promissory
notes
 A then assigns and endorses these over to C, so C can
collect from B.
 It is a condition of the assignment that C promises not to
sue A if B does not pay (a non-recourse note)
 B does not pay
 C sues A and collects £6 in a Court of Equity
 So C recovers in spite of his promise not to sue
 A then seeks to recover the £6 from C before Lord
Mansfield “for money had and received”
81
Moses v. Macferlan
 C did not promise that he would account
to A for money A was ordered to pay C by
the Court of Equity
 But does he nonetheless have the duty
to do so, since the note was non-recourse
(i.e., he promised not to sue A).
82
Moses v. Macferlan
2 Burr. 1005 (1760)
per Lord Mansfield
 "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."
83
Quasi-Contract
 Does an action lie for a performance
which ought to have been made,
even where there is no promise?
 Quasi-contract, unjust enrichment,
restitution
84
Just what does “ties of natural
justice and equity” mean?
 In the circumstances of Bailey v. West?
85
Bailey v. West
Strauss
West
Trainer
Kelly (driver)
Bailey
86
Bailey v. West
 Was there a contract “implied in
fact”?
87
Bailey v. West
 Restatement § 19 CONDUCT AS MANIFESTATION OF
ASSENT
 (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.
 (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.
 (3) The conduct of a party may manifest assent even
though he does not in fact assent.
88
Bailey v. West
 Was there an Implied Contract?
 Restatement § 19(1): What about
“by failure to act”?
89
The Five Guys hypothetical p. 10
90
Day v. Caton p. 11
91
Poussin,
Summer
What is an implied at law
contract?
Lord Mansfield
92
What is an implied at law
contract?
 Quasi-contract
 Quantum meruit
 Unjust Enrichment
 Restitution
93
Moses v. Macferlan
2 Burr. 1005 (1760)
per Lord Mansfield
 "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."
94
Bailey v. West
 When is quasi-contractual liability
imposed?
95
Bailey v. West
 When is quasi-contractual liability
imposed?
 Benefit conferred on defendant by
plaintiff
 Appreciation by defendant of the benefit
 Acceptance and retention of benefit by
defendant where it would be inequitable
to retain the benefit without payment
96
Bailey v. West
 When is quasi-contractual liability
imposed?
 Is consent by the recipient necessary?
97
Bailey v. West
 When is quasi-contractual liability
imposed?
 Is consent by the recipient necessary?
 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
98
Bailey v. West
 When is quasi-contractual liability
imposed?
 Is consent irrelevant?
99
Consent and the definition of a
benefit?
 I think orange aluminum siding is
neat. When you are on holiday I
cover your house with it. A benefit?
100
What is a benefit?
 No recovery for “officious” benefits
from “volunteers”
 What does this mean and just how do
you tell?
101
What is a benefit?
 What about the Good Samaritan?
102
What is a benefit?
 What’s the difference between
aluminum siding and the Good
Samaritan?
103
What is a benefit?
 In what way is the aluminum siding
example unlike the day laborer in Day
v. Caton?
104
What is a benefit?
 In what way is the aluminum siding
example unlike the day laborer?
 The informational problem
 How might the informational problem be
cured?
105
What is a benefit?
 Should Bailey be permitted to recover
for the first 4 months of board?
106
What is a benefit?
 So what would you have advised
Bailey?
107