Transcript ex aequo et bono

George Mason School of Law
Contracts I
D.Theories of Enforcement
F.H. Buckley
[email protected]
1
Today
1. Some remaining problems with
Paretian ethics
1. Greed
2. Envy
3. Fairness in division
2. Darwinian economics
3. Promising from a libertarian, noneconomic perspective
4. Quasi-contract
2
But first…what is this?
3
Are Paretian Standards morally
attractive
 Pareto-superiority: one person is
better off and no one is worse off
 Pareto-optimality: no unexploited
opportunities for Paretian
improvements
4
More is better: I2 > I1
Dollars in Time 1
More is better
I2
I1
0
Dollars in Time 2
5
Do Paretian standards celebrate
greed?
6
Greed is
good!
Do Paretian standards celebrate
greed?
222 Broadway
OMG!!!!
suspenders
Closing books
Ash tray
7
Is acquisitiveness always bad?
I’m not into the
whole rat race
thing, man!
8
A golden mean?
 If greed and sloth are both vices,
when (and why) does acquisitiveness
become excessive?
9
Paretianism and Altruism
 Paretian man is not (or need not be)
an altruist
 He need take no interest in the other
person
10
A bad kind of altruism: Envy
11
But the Paretianism might be an
altruist
 I might make myself better off
through a gift to another
 Or I might fell worse off when
another person receives a gift
12
Fairness in division
 Do we have fairness intuitions about
bargaining?
13
Fairness in division
 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
14
The move from A to either B or C is a
Pareto-superior transformation
Bess
A

D
E
 F
C
B 
Mary
15
But there is a zero-sum game at the
heart of the bargaining game
Bess
A
 E

D
 F
B
G
C
Mary
16
As it happens, a little green
man just gave me $100
And he asked me
to divide it with you
17
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
18
As it happens, a little green
man just gave me $100
I’ll keep $95 and
offer you $5.
Are you OK with
that?
19
As it happens, a little green
man just gave me $100
Will you “pay
to punish”?
20
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
21
Now … Darwinian Economics
22
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%
23
W.D. Hamilton
24
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
25
Hamilton on the Gene’s Eye View
 The gene’s command to the body:
 Be fruitful and multiply
26
Hamilton on the Gene’s Eye View
 The gene’s command to the body:
 Be fruitful and multiply
 Maximize the (copies of the) gene
 Hamilton’s Rule: Max Benefit (genetic
fitness) – Cost (genetic cost)
27
Hamilton on the Gene’s Eye View
 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
28
Altruism and Kinship Selection
 Gene to Body: be altruistic if
 rB > C, where
 JBS Haldane: I would give my life for
two brothers or eight grandchildren
29
Altruism and Kinship Selection
 Gene to Body: be altruistic if
 rB > C, where
 What does this tell us about families?
George VI says farewell to his
daughter, Princess Elizabeth,
as she leaves on her honeymoon,
31 January 1952
30
31
The Biological Social Compact
 We take from our parents and,
without repaying them, give to our
children
32
Who loved Lear more?
 GONERIL: Sir, I love you more than
words can wield the matter; Dearer
than eye-sight, space, and liberty…
 REGAN: I profess myself an enemy to
all other joys…
 CORDELIA: I love your majesty
According to my bond; nor more nor
less.
33
The largest family firms…






34
Walmart
Ford Motors
Cargill
Mars
Koch
Bill, Hillary and Chelsea Foundation
But just how far does kinship
selection take us?
 To what extent is the altruism we
observe, amongst men and animals,
explained as a genetic survival
instinct that prefers brothers to
strangers
35
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.
36
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.”
37
What kind of economy would we have
in a kinship selection society?
38
What kind of economy would we have
in a kinship selection society?
39
Edward Banfield’s “Montegrano”
Chiaramonte, Italy
Are there Green Beards?
40
What’s the take-away from
Darwinian Economics?
 Families matter in business
 A constrained sympathy for non-family
41
What’s the take-away from
Darwinian Economics?
 The bequest motive in tax law
42
Now: Do we all have relative
preferences?
43
Relative Preferences
 What happens when a sense of
relative preferences is added to the
bequest motive?
44
You’re in the top quintile at present: Of
World I and II, which do you prefer?
45
Is aristocracy the natural
default state of society?
 If we have a bequest motive as to out
children, and relative preferences as
to how our they will fare compared to
other people’s children, does this add
up to aristocracy?
46
How we rank on
intergenerational mobility
U.K.
Italy
U.S.
France
Spain
Germany
Sweden
Australia
Canada
Finland
Norway
Denmark
47
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
Is aristocracy the natural
default state of society?
 And what does that do for social
cohesion and trust?
48
49
Is aristocracy the natural
default state of society?
 How would you design contract law
rules to promote inequality?
50
Why perform promises?
 Compare Efficiency and Autonomy
(Libertarian) theories
51
An efficiency explanation for
contract law enforcement
 Contract law as a solution to the trust
problem in PD games
 Promisor makes a credible commitment
 Promisee is enabled to trust
52
Credible commitment permits
beneficial reliance
David
Performs
Ebenezer
Doesn’t
Perform
53
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.
54
Libertarian explanations for contract law
enforcement
 Autonomy
 Will
 Consent
55
Autonomy Theories
 To be free and autonomous, I should
have the right to enter into a contract
56
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.
 Which way did autonomy theories cut in
Printing v. Sampson?
57
Autonomy Theories
 To rescue autonomy theories, we
have to take sides with the person at
time1 rather than time2.
 In order that I be as free as possible it is
necessary that I should be permitted to
bind myself
 And just why is that?
58
Autonomy Theories
 Can autonomy theories explain why
the institutions of contract law and
promising should exist?
 If they’re not there, how can one
promise or contract?
59
Tonga: Where people don’t promise
The Queen of Tonga
with the Queen Mother
at the Coronation, 1953
60
Could promising exist without
promissory institutions?
There is apparently no
word for “promise” in
Tonganese
61
Could promising exist without
promissory institutions?
“I intend to do x, but
if I change my mind,
well, then was then,
now is now.”
62
Could promising exist without
promissory institutions?
In such a place, is an
autonomy theory
intelligible?
63
Hume on conventions
“A promise is
not intelligible
naturally, nor
antecedent to
human
conventions.”
64
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
65
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.
66
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.
67
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
68
Hume on Conventions
 On Hume’s theory of conventions,
neither autonomy nor will nor consent
theories can account for promissory
or contractual obligations
69
Will Theories
Can I will an obligation to perform a promise
(e.g., by clenching my teeth)?
70
Will Theories
 Suppose the institution of promising
doesn’t exist. It’s not in our language
 Can will theories explain why it ought to
exist?
71
Consent Theories
 Can I bind myself at law or in morals
by giving my consent to an act?
72
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
73
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?
74
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 one has invoked.
75
So the value of promissory institutions may
supply a justification for enforcement
 But is there another reason to enforce
promises?
76
Some vocabulary
 Obligation: a moral requirement
voluntarily undertaken
 Duty: a moral requirement imposed
when not voluntarily undertaken
77
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.
78
The slow evolution of a remedy
for breach of contract
 Suppose A sold X goods and X didn’t
pay. What remedy?
 And what should the pleading look like?
79
Pleadings: Trespass on the case
in indebitatus assumpsit
The King to the sheriff &c. as in Trespass to show:



80
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 basis for enforcement remains
unclear in the 18th century
 There are natural duties and contractual
obligations, but is there a tertium quid of
liability for promises we ought to have
made?
81
Moses v. Macferlan
 B promises to pay A £6 in a series of
promissory notes
 A then sells and endorses these over to C, so C
can collect from B.
 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 before Lord Mansfield
“for money had and received”
82
Moses v. Macferlan
 Will a court recognize non-recourse
negotiable instruments?
 What is paramount:
The promise not to sue
Or the principle of negotiability?
83
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."
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