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George Mason School of Law
Contracts I
IV. Formation
F.H. Buckley
[email protected]
1
Last day
 We saw the economic argument for
contractual enforcement
2
Last day
 We saw the economic argument for
contractual enforcement
 Contract law as a solution to the trust
problem in PD games
 Promisor makes a credible commitment
 Promisee trusts
3
Credible commitment permits
beneficial reliance
David
Performs
Ebenezer
Doesn’t
Perform
4
Relies
Doesn’t
Rely
Beneficial
Reliance
Loss of
Beneficial
Reliance
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.
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
 Bodies are temporary, genes (or their
copies) are forever
 The gene directs the body
10
Hamilton’s Rule:
Altruism and kinship selection
 Gene to Body: be altruistic if
 rB > C, where
 r = the genetic relatedness of the recipient to the actor,
B = reproductive benefit gained by the recipient of
the altruistic act,
 C = reproductive cost to the individual performing the
act
11
Hamilton’s Rule
Altruism and kinship selection
 rB > C: How does that work?
 We share 50% of our genes with our
parents, children and (non-identical)
siblings, and 12.5% with first cousins
 I would spent $5 to confer a $10 benefit
on a brother
12
Hamilton’s Rule
Altruism and kinship selection
 Gene to Body: be altruistic if
 rB > C, where
 r = the genetic relatedness of the recipient to the actor,
B = reproductive benefit gained by the recipient of
the altruistic act,
 C = reproductive cost to the individual performing the
act
 JBS Haldane: I would give my life for
two brothers or eight cousins
13
Hamilton’s Rule
Altruism and kinship selection
 Gene to Body: be altruistic if
 rB > C, where
 r = the genetic relatedness of the recipient to the actor,
B = reproductive benefit gained by the recipient of
the altruistic act,
 C = reproductive cost to the individual performing the
act
 Bonus questions:
 Can you see how r might be greater
than 1? Less than 1?
14
Hamilton: Altruism and kinship
selection
 Let us hypothesize that we are
genetically programmed to ensure
the survival of our genes
 We share nothing with strangers
15
Hamilton: Altruism and kinship
selection
 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
 Where have we seen the distinction
made?
17
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.
18
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 them.
 So what happens when everyone is
supposed to be your brother?
19
20
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
 Now: Is there a libertarian (noneconomic) argument for contract
enforcement?
25
Varieties of libertarian theories
 Autonomy
 Consent
 Will
26
Autonomy Theories
 In order that I be as free as possible
it is necessary that I should be
permitted to bind myself
 Freedom and the domain of alternatives
27
Autonomy Theories
 In order that I be as free as possible
it is necessary that I should be
permitted to bind myself
 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
 Can autonomy theories explain why
the institution of contract law should
exist?
 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
 Can I bind myself at law or in morals
by giving my consent to an act?
34
Consent Theories
 Can I bind myself by giving my
consent to an act?
 E.g., I consent to your taking something
which belongs to me
35
Consent Theories
 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
 Suppose the institution of promising
doesn’t exist: Can will theories explain
why they ought to exist?
39
Will Theories
 Suppose the institution of promising
doesn’t exist: Can will theories explain
why they ought to exist?
 Suppose the institution of promising
exists: Can will theories explain why it
shouldn’t be abolished?
40
Will Theories
 Suppose the institution of promising
exists. Can will theories explain why it
shouldn’t be abolished?
 If everyone could take a mulligan
whenever they wanted, the game of golf
would disappear. So what?
41
The Humean Account of Promising
 Assumes that happiness is desirable,
that institutions which promote
happiness are morally desirable.
 Assumes that people are happier in
societies with promissory institutions.
 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
 But is there another reason to enforce
promises?
43
So the value of promissory institutions may
supply a justification for enforcement
 But is there another reason to enforce
promises?
 Are there promises which ought to be
made, and as such ought to be
enforced?
44
Natural obligations?
 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.

45
David Hume
The common law struggles with
the basis for enforcement
 Suppose A sold X goods and X didn’t
pay. What remedy?
 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:



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 16th century
 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
 "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?
 In the circumstances of Bailey v. West?
50
Bailey v. West
 Was there a contract?
51
Bailey v. West
Strauss
West
Trainer
Kelly (driver)
Bailey
52
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. In such cases a
resulting contract may be voidable because of fraud,
duress, mistake, or other invalidating cause.
53
Bailey v. West
 Was there an Implied Contract?
 Restatement § 19(1): What about
“by failure to act”?
54
Bailey v. West
 Was there a implied contract?
 Was § 19(3) triggered? “The conduct
of a party may manifest assent even
though he does not in fact assent.”
 What did Kelly tell the plaintiff?
 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?
 Quasi-contract
 Quantum meruit
 Unjust Enrichment
 Restitution
58
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."
59
Bailey v. West
 When is quasi-contractual liability
imposed?
60
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
61
Bailey v. West
 When is quasi-contractual liability
imposed?
 Is consent by the recipient necessary?
62
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
63
Bailey v. West
 When is quasi-contractual liability
imposed?
 Is consent irrelevant?
64
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?
65
What is a benefit?
 No recovery for “officious” benefits
from “volunteers”
 What does this mean and just how do
you tell?
66
What is a benefit?
 What about the Good Samaritan?
67
What is a benefit?
 What’s the difference between
aluminum siding and the Good
Samaritan?
68
Day v. Caton p. 11
69
Poussin,
Summer
What is a benefit?
 In what way is the aluminum siding
example unlike the day laborer?
70
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?
71
What is a benefit?
 Should Bailey be permitted to recover
for the first 4 months of board?
72
What is a benefit?
 So was the care of Bascom’s Folly
officious?
73