1. 1 George Mason School of Law Contracts I D.Theories of Enforcement F.H. Buckley fbuckley@gmu.edu

2. Today 1.Some remaining problems with Paretian ethics 1.Fairness in division 2.Greed 3.Envy 2.Darwinian economics 3.Promising from a libertarian, non- economic perspective 4.Quasi-contract 2

3. Fairness in division 3

4.  Some of you had problems with Paretian ethics  One person better off, no one worse off 4

5. As it happens, a little green man just gave me $100 5 And he asked me to divide it with you The ultimatum game

6. As it happens, a little green man just gave me $100 6 And if you turned down $5 you’re not a Paretian

7. As it happens, a little green man just gave me $100 7 You “paid to punish”

8. Fairness in division  The Paretian is indifferent about how the bargaining gains are to be divided  One can’t say “that wasn’t a fair split” 8

9. 9 The move from A to either B or C is a Pareto-superior transformation Mary Bess A   B C D E  F   

10. 10 Anything within the bargaining lens works Mary Bess A   B C D E  F   

11. Are you OK with that? 11

12. What about greed? 12

13. Do Paretian standards celebrate greed? 13 Greed is good!

14. 14 Dollars in Time 1 0 Dollars in Time 2 More is better: I 2 > I 1 I1I1 I2I2 More is better

15. Is acquisitiveness always bad? 15 I’m not into the whole rat race thing, man!

16. Can you distinguish between normal acquisitiveness and greed? 16

17. 17 How does envy come in? Gericault, Portrait

18. 18 How does envy come in?  The Paretian is not a “nontruist,“ not an altruist. He doesn’t have preferences as to other people

19. 19 Varieties of envy  The Paretian is not a “nontruist,“ not an altruist. He doesn’t have preferences as to other people  Which excludes both charity (positive altruism) and spite (negative altruism)

20. 20 Varieties of envy  Is Spite always bad?

21. Malicious Spite Great Expectations’ Miss Havisham 21 X imposes a cost on Y

22. But there’s also Benign Spite: Horatio at the Bridge 22 X imposes a cost on Y to benefit Z

23. As it happens, a little green man just gave me $100 23 You “paid to punish”: Was that benign or malicious spite?

24. Now … Darwinian Economics 24

25. W.D. Hamilton 25

26. Hamilton on the Gene’s Eye View The selfish gene  Bodies are temporary, genes (or their copies) are forever  The gene directs the body 26

27. Hamilton on the Gene’s Eye View The selfish gene  The gene’s command to the body: Be fruitful and multiply 27

28. Hamilton on the Gene’s Eye View The selfish gene  The gene’s command to the body: Be fruitful and multiply Maximize the (copies of the) gene Max B (genetic fitness) – C (genetic cost) 28

29. Hamilton’s insight What about relatives?  From the gene’s perspective, promoting genetic success includes kin with whom one shares one’s genes The coefficient of relatedness r 29

30. What about relatives?  What is r? We share 50% of our genes with our parents, children and (non-identical) siblings, and 25% with grandchildren 30

31. Hamilton’s Rule  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 31

32. 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 grandchildren 32

33. Altruism and kinship selection  One imagines r taking a value between 0 and 1 But can you see how r might be greater than 1? 33

34. George VI bids goodbye to Princess Elizabeth Jan. 31, 1952 34

35. 35 For George VI, as to Elizabeth r = 2.5 in three generations

36. Asymmetry of relatedness  Which is how we are to understand the social contract 36

37. 37 Cordelia understood this, Lear didn’t CORDELIA: I love your majesty according to my bond; nor more nor less.

38. Hamilton’s Rule Altruism and kinship selection  Can you see how r might be less than 1? 38

39. Hamilton’s Rule Altruism and kinship selection  Benign spite:  Suppose I wish to impose a genetic cost on Y (to whom I am unrelated) in order to confer a genetic benefit on Z (with whom I am related and with whom Y is in competition)  In that case r y – r z is a negative number 39

40. The limits of kinship selection  Such altruism as we see, amongst men and animals, is importantly explained as a genetic survival instinct that prefers brothers to strangers 40

41. 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. 41

42. Hume on promising 42 “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.”

43. What kind of economy would we have in a kinship selection society? 43

44. What kind of economy would we have in a kinship selection society? 44 Edward Banfield’s “Montegrano” Chiaramonte, Italy

45. What’s the take-away from Darwinian Economics?  Spite as a barrier to Coasian bargains. You turned down the ultimatum game. 45

46. What’s the take-away from Darwinian Economics?  Families matter in business A constrained sympathy for non-family 46

47. What’s the take-away from Darwinian Economics?  The bequest motive in tax law 47

48. What’s the take-away from Darwinian Economics?  Inequality and immobility Is aristocracy the natural state of society?  What happens when a sense of relative preferences is added to the bequest motive?  How then would you expect the law to look? 48

49. What’s the take-away from Darwinian Economics?  Inequality and immobility Is aristocracy the natural state of society?  How would you design contract law to produce an aristocracy? 49

50. Why perform promises?  Efficiency and Libertarian (autonomy) theories 50

51. Contract Law from an economic perspective  Contract law as a solution to the trust problem in PD games  Promisor makes a credible commitment  Promisee trusts 51

52. 52 ReliesDoesn’t Rely Performs Beneficial Reliance Loss of Beneficial Reliance Doesn’t Perform David Ebenezer Credible commitment permits beneficial reliance

53. 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 to- day, 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. 53

54. Are there non-economic explanations for why promises are binding?  Consider the stakes: corporate law, bankruptcy, secured lending, securities law  Family law?  Constitutional law? 54

55. Varieties of libertarian theories  Autonomy  Consent  Will 55

56. Autonomy Theories  In order that I be as free as possible it is necessary that I should be permitted to bind myself Positive Liberty: Freedom as the expansion of the domain of alternatives 56

57. 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 an economic perspective)? 57

58. Autonomy Theories  Can autonomy theories explain why the institution of contract law should exist? If it’s not there, how can one promise? 58

59. Autonomy Theories  And if the game of biathlon golf didn’t exist, one couldn’t play it. 59

60. Consent Theories  Can I bind myself at law or in morals by giving my consent to an act? 60

61. 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 61

62. 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? 62

63. Will Theories 63 Can I will an obligation to perform a promise (e.g., by clenching my teeth)?

64. Hume on conventions 64 “A promise is not intelligible naturally, nor antecedent to human conventions.”

65. Will Theories  Suppose the institution of promising doesn’t exist: Can will theories explain why they ought to exist? 65

66. 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? 66

67. 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. 67

68. So the value of promissory institutions may supply a justification for enforcement  But is there another reason to enforce promises? 68

69. Some vocabulary  Obligation: a moral requirement voluntarily undertaken  Duty: a moral requirement imposed when not voluntarily undertaken 69

70. Is there a tertium quid?  Obligation: a moral requirement voluntarily undertaken  Duty: a moral requirement imposed when not voluntarily undertaken  What about requirements we ought to have voluntarily undertaken? 70

71. 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. David Hume 71

72. The common law struggles with the basis for enforcement 72  Suppose A sold X goods and X didn’t pay. What remedy? And what should the pleading look like?

73. Pleadings: Trespass on the case in indebitatus assumpsit The King to the sheriff &c. as in Trespass to show:  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. 73

74. So the basis for enforcement is unclear in the 16 th century  B give A promissory notes amounting to £6.  A then sells and endorses these over to C. C promises not to sue A if B does not pay.  B does not pay  C sues A and collects £6 in a Court of Equity  A sues C for £6 before Lord Mansfield 74

75. 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." 75

76. Just what does “natural justice and equity” mean?  In the circumstances of Bailey v. West? 76

77. Bailey v. West 77 StraussWest Trainer Kelly (driver) Bailey

78. Bailey v. West 78  Was there a contract “implied in fact”?

79. Bailey v. West 79  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.

80. Bailey v. West 80  Was there an Implied Contract?  Restatement § 19(1): What about “by failure to act”?

81. The Five Guys hypothetical p. 10 81

82. What is an implied at law contract? 82

83. What is an implied at law contract? 83 Quasi-contract Quantum meruit Unjust Enrichment Restitution

84. 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

85. Bailey v. West 85  When is quasi-contractual liability imposed?

86. Bailey v. West 86  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

87. Bailey v. West 87  When is quasi-contractual liability imposed? Is consent by the recipient necessary?

88. Bailey v. West 88  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

89. Bailey v. West 89  When is quasi-contractual liability imposed? Is consent irrelevant?

90. Consent and the definition of a benefit? 90  I think orange aluminum siding is neat. When you are on holiday I cover your house with it. A benefit?

91. What is a benefit? 91  No recovery for “officious” benefits from “volunteers” What does this mean and just how do you tell?

92. What is a benefit? 92  What about the Good Samaritan?

93. What is a benefit? 93  What’s the difference between aluminum siding and the Good Samaritan?

94. Day v. Caton p. 11 94 Poussin, Summer

95. What is a benefit? 95  In what way is the aluminum siding example unlike the day laborer?

96. What is a benefit? 96  In what way is the aluminum siding example unlike the day laborer? The informational problem  How might the informational problem be cured?

97. What is a benefit? 97  Should Bailey be permitted to recover for the first 4 months of board?

98. What is a benefit? 98  So what would you have advised Bailey?