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The Paradox of a Promissory Basis for Contract Law

July 31, 2019
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contract

Ananaya Agrawal is first-year student at National Law University, Delhi.

Introduction

The reason why one might want to justify promise to be the basis for a contract is that too often contract law becomes vulnerable to getting reduced to a subcategory of tort law or fiduciary obligation. 

The distinctive feature of contract law is that it concerns private obligations that have been voluntarily chosen/assumed by parties intending to create a legally binding promise. However, its theoretical basis is vulnerable to being recast as a special type of tortuous obligation arising when a party is placing their reliance on another’s promise of present or future conduct. Alternatively, when we consider cases for a breach of contract where the court has not only awarded expectation damages but also a part of the gains the promisor has made ex post the breach the “supracompensatory” remedy drags contract law closer to fiduciary obligations as the court has placed an obligation on the promisor to fulfill the terms of the contract for the interest of the promisee not only in terms of the benefit they were expected to receive but further on to the future gains that became possible such as the profit made by the defendant promisor owing to his breach of the contract.

 
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As Daniel Markovits writes, “This should perhaps come as no surprise. A legal form that establishes special obligations of a sort that do not arise among strangers but equally rejects the affirmative and open-ended obligations that arise among intimates deprives itself of the most natural arguments in its favour. And this has rendered the grounds of contract uncertain, and contract itself vulnerable to encroachments from tort or fiduciary law.”

There thus arises a need to reassert contract as an independent field of law apart from tort law (to which it traces its common law origins) and fiduciary obligation (to which it has been linked due to recent court decisions). This can be done if we are able to show that contractual obligations are chosen by parties entering into a promise created out of their free will.

Reasons Entering into a promise

Promise can be understood as a tool of human beings which used for interaction, transactions and forming relationships with others in social, economic and to some extent even political spheres of our lives. In a liberal world, we are all free individuals who seek to create objects of work having value so as to live our lives fruitfully. For this purpose, we employ the common natural resources in various shapes and forms. 

However, by virtue of living in a society, we also find a use for the talents, resources or company of other human beings which makes us want to engage in a form of quid pro quo with the other party. In other words, we seek to obtain something of value from the individuals around us due to which we find the need to enter into a transaction of sorts. Once another person has the capacity to provide us with something that we seek, we have an incentive to create a relationship for co-operation with that person and thus emerges the reason for creating a promise. 

When a promise is made, the promisor has given the promisee a right which can be enforced against him. This right did not exist with the promisee before, thus the promisor doing or not doing what he has now promised to do or not to was previously a morally neutral choice. By his act of promising, the promisor has exercised his will as a free individual and made it a morally binding duty upon himself. Why might one create such a duty so as to restrict our future freedom? 

As Charles Fried explains, “When my confidence in your assistance derives from my conviction that you will do what is right (not just what is prudent), then I trust you, and trust becomes a powerful tool for our working our mutual wills in the world. So remarkable a tool is trust that in the end, we pursue it for its own sake; we prefer doing things co-operatively when we might have relied on fear or interest or working alone.”

Therefore, it can be argued that in order to really ensure co-operation or trust among two people regarding a give-and-take, the affirmations made should be such that the other party can rely upon your statement and can direct his action accordingly. That there is some amount of surety of performance is not just in the interest of the promisee but also necessary for the promisor. If the promisee can not expect to hold you, as a promisor, to your claims, then the nature of your reciprocal arrangement will inevitably be such that neither can you have a reason to expect anything of the other party. 

As we want to rely upon our promise we want there to be certainty in our transaction and hence we make a promise. Therein also emerges a moral obligation to uphold our promise because the other party is also placing a reliance on our promised conduct. 

A promise is also, thus, placed a higher pedestal than a mere expression of our intentions. For example, if I tell you that I plan to grow some exotic plants in my garden and bring some to share at your housewarming party, and you thus invite me to this party for which I don’t bring the plants, can I be said to have broken a promise? The answer is no, because even though I have reason to know that you could be relying on my previous statement and my not bringing the plants will cause you harm (in terms of expectation or otherwise), I have not wronged you because I have not given you a cause for relying upon my communication. I merely stated my intention or plans for future action but did not give you any reason to direct your future actions keeping in mind our communication. An easy method to test whether my words constitute a promise is to check whether they invite another party to rely upon them. In this case I have not done so as I have only communicated my idea for the future yet at the same time I retain my choice or will to change my future of course of action. I have not granted you a right as against myself and hence have not bound my liberty to act differently in the future. 

The bare reason theory

Therefore, promises are binding because when we make a promise, we are asking the other party to depend on us fulfilling our part of the deal. Our promises will have no value if it is not trusted upon. Thus, in order to maintain the effectiveness of our power to promise, which in turn encourage co-operation in achieving one’s goals and creation of relationships of dependency and trust, we must fulfil our promises. 

Promise as the basis for the contract also delivers the rationale for the doctrine of promissory estoppel in contract law which is the idea that when promisee has altered their position by relying upon the promisor’s promise then they are entitled to performance even though they may not have provided consideration or have suffered detriment owing to their reliance.

The above analysis also highlights that the reason for keeping a promise is the fact that we have made a promise in the first place and not specific to the content of the promise. As has been described by Joseph Raz, “promissory reasons are content independent reasons”. He further adumbrates: “If I promise to feed your cat next week, to come to your party…or whatever the action I promise to perform (or to refrain from) the reason is the same: my promise. Of course, these are different promises. But normatively speaking, they are the same, they are all binding on me because they are promises I made, regardless of what is the act promised.” 

This is a school of thought is also known as the Bare Reason Theory i.e. we have reasons to act as we promised because we have promised to act as such. A promise is itself the bare reason to uphold the promise because it’s a product of the use of a valuable normative power which enhances our life by giving us a degree of control over the same. Thus also emerges the reason for the contract as promises to be binding. As Fried too summarizes, “The moralist of duty thus posits a general obligation to keep promises, of which the obligation of the contract will only be a special case in which certain promises have attained legal as well as a moral force. But since a contract is, first of all, a promise, the contract must be kept because a promise must be kept.”

Limitations of the bare reason theory

However, this bare promise theory is not without its own gaps. A promise when made may be in our present interests but there is no guarantee that its performance will not prove to be impossible, costly or simply inconvenient for our future selves.  For example, you promise to supply seven kilos of rice to a merchant in two weeks at a given price but towards the delivery date, you receive a second offer from another merchant who quotes three times the first consideration if you deliver the bags of rice on the same date to him instead. Now the rules of economic efficiency appear. 

Despite having a moral obligation towards the first merchant fulfil your end of the bargain, you have an incentive to forsake the initial promise and supply the goods to the second merchant. Even if you are sued for breach of contract, you can offer to pay the damages and still get away with a neat profit. Though such an approach would be deleterious to the overall concept of promise and its social utility, there is nothing stopping you in this particular case from rescinding your promise save for the moral duty to not do so and societal censure.  However, even morality and social censure are not complete bulwarks against breaking a promise. 

The moral duty arises because we wish to protect ourselves from the guilt of not performing but the moment we are able to relieve ourselves of such pressures, moral duty ceases to have force. Take for instance the fact that you will be shelling out the sum of damages in order to compensate the promisee; now they will be receiving nothing less and nothing more than what they would have got had you performed your promise. So should you then be blamed for taking advantage of a better deal when your profiting thereof has not caused any uncompensated loss to the other party? Indeed, it is true that your profit might have accrued to the promisee but again, your own promise entitled him to nothing more than what you had given him reason to believe he would receive and you shouldn’t be penalized for deciding to maximize your happiness or utility but shifting to a more gainful course of action. The same calculation of utility that induced you to enter into the contract can at a later date, encourage you to breach the contract. 

Similarly, if the chances of societal condemnation are reduced- say that very few people have any chance of finding out, or that the promisee is dead, or that the actual effect of the revelation shall have minimal consequences on your reputation and power to make promises- then again you have an impetus to break your promise.  

Conclusion

Thus, we realize that neither moral considerations nor social criticism can provide a complete reason to uphold one’s promises. We create promises when they suit our self-interest in the best manner known to us, and when some better alternative comes along, we make the switch after weighing the costs of breach alongside its gains. Hence a promise may be a crucial stepping stone towards entering into a contract, but it is not a foolproof justification for fulfilling the contract’s terms or for enforcing the terms of the contract. Therefore, all legal systems have an additional criterion for converting a mere promise into a contract such as the intention to create legal relations, consideration, capacity to contract etc. and so despite a promise not being a comprehensive justification for upholding a contract, the promise remains the basis for the formation of a contract. Hence contract law remains an independent field of law as its raison d’être arises out the morally binding nature of promises that are made legally enforceable.

If you want to read about the Essentials of a contract Click Here 

If you want to know about the Formation of contract of sale Click Here

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