Intent to contract

Virginia Law Review

Volumn 95, Issue 6, 2009, Pages 1437-1503

  Klass, Gregory ^a  

^a GEORGETOWN UNIVERSITY LAW CENTER   (United States)

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EID: 70449971885     PISSN: 00426601     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Review

References (273)

1. Balfour v. Balfour [1919] 2 K.B. 571,579.
2. Restatement (Second) of Contracts §21 (1981).
3. While §21 accurately represents the rule in almost all U.S. jurisdictions, the United States is a signatory to the United Nations Convention on Contracts for the International Sale of Goods (CISG). Article 14(1) of the CISG establishes something like the English rule for contracts for the international sale of goods: "A proposal for concluding a contract addressed to one or more specific persons constitutes an offer if it.. indicates the intention of the offeror to be bound in case of acceptance." United Nations Convention on Contracts for the International Sale of Goods art. 14, Apr. 11, 1980, S. Treaty Doc. No. 98-9 (1980), 1489 U.N.T.S. 3.
4. E. Allan Farnsworth, Precontractual Liability and Preliminary Agreements: Fair Dealing and Failed Negotiations, 87 Colum. L. Rev. 217, 253 (1987).
5. 33 Pa. Cons. Stat. Ann. §6 (1997).
6. Restatement (Second) of Contracts §21 cmt. c (1981).
7. Cohen v. Cowles Media Co., 457 N.W.2d 199, 203 (Minn. 1990).
8. P.S. Atiyah, An Introduction to the Law of Contract 153 (5th ed. 1995).
9. Consider, for example, the following claim of Barnett's:In a system of entitlements where manifested rights transfers are what justify the legal enforcement of agreements, any such manifestation necessarily implies that one intends to be "legally bound," to adhere to one's commitment. Therefore, the phrase "a manifestation of an intention to be legally bound" neatly captures what a court should seek to find before holding that a contractual obligation has been created. Randy E. Barnett, A Consent Theory of Contract, 86 Colum. L. Rev. 269, 304 (1986) (footnotes omitted);
10. see also Randy E. Barnett, The Sound of Silence: Default Rules and Contractual Consent, 78 Va. L. Rev. 821, 861 (1992) [hereinafter Barnett, Sound of Silence] ("To make a contract according to this approach.. a party must explicitly or implicitly manifest assent to be legally bound.").
11. T.M. Scanlon, Promises and Contracts, in The Theory of Contract: New Essays 86, 104 (P. Benson ed., 2001).
12. Dori Kimel, From Promise to Contract: Towards a Liberal Theory of Contract 136-139 (2003).
13. Eric Posner propounds a version of the second claim: Economies assumes that people exchange promises when both benefit from the exchange, but it does not follow that the law should enforce all promises. Courts make errors, and legal sanctions are sometimes clumsier than nonlegal sanctions. As a result, people who make and receive promises often do not expect, and would not want, courts to provide legal remedies if the promisor breaks the promise. But when the promisor wants the promise to be legally enforceable, and the promisee expects the promise to be legally enforceable, courts should enforce promises. Economics, then, implies that courts should enforce promises when parties want their promises to be enforceable, and not otherwise. Eric A. Posner, Economic Analysis of Contract Law After Three Decades: Success or Failure?, 112 Yale L.J. 829, 849-50 (2003) (footnotes omitted);
14. see also Lisa Bernstein, Merchant Law in a Merchant Court: Rethinking the Code's Search for Immanent Business Norms, 144 U. Pa. L. Rev. 1765, 1788-95 (1996);
15. Sidney W. DeLong, The New Requirement of Enforcement Reliance in Commercial Promissory Estoppel: Section 90 as Catch-22, 1997 Wis. L. Rev. 943, 951-958
16. Ian Ayres & Robert Gertner, Filling Gaps in Incomplete Contracts: An Economic Theory of Default Rules, 99 Yale L. J. 87 (1989) [hereinafter Ayres & Gertner, Filling Gaps];
17. Ian Ayres & Robert Gertner, Majoritarian vs. Minoritarian Defaults, 51 Stan. L. Rev. 1591 (1999) [hereinafter Ayres & Gertner, Majoritarian vs. Minoritarian].
18. Gregory Klass, Three Pictures of Contract: Duty, Power, and Compound Rule, 83 N.Y.U. L. Rev. 1726 (2008).
19. The Commission of European Contract Law, Principles of European Contract Law art. 2:101 cmt. B (Ole Lando & Hugh Beale eds., 2000).
20. See generally id. at arts. 2:101,2:102 and accompanying notes (discussing European sources of law).
21. Id. at 139 n.2.
22. Id. at 146 n.2(b).
23. Id. at n.2(c).
24. Restatement (Second) of Contracts §21 (1981). Or as one court observed in a rare judicial articulation of the rule: "It is not necessary that the parties are conscious of the legal relationship which their words or acts give rise to, but it is essential that the acts manifesting assent shall be done intentionally."
25. Sulzbach v. Town of Jefferson, 155 N.W.2d 921, 923 (S.D. 1968)
26. Section 2-313(2) of the U.C.C. similarly provides that it "is not necessary to the creation of an express warranty that the seller use formal words such as 'warrant' or 'guarantee' or that he have a specific intention to make a warranty."
27. Restatement (Second) of Contracts §21, cmt. a, illus. 2 (1981).
28. 1 Arthur Linton Corbin, Corbin on Contracts §34, at 135 (1st ed. 1950).
29. 1 Samuel Williston, The Law of Contracts §21 (1st ed. 1920) [hereinafter Williston 1920 Edition]. Neither Williston's treatise nor the First Restatement cites a clear judicial authority for the rule. The only case Williston cites that is remotely on point is
30. Davison v. Holden, 10 A. 515 (Conn. 1887), cited in 1 Williston 1920 Edition §21, at 22 n.12. But Davison is more about corporations and agency law than contracts, holding that a group of individuals who had informally joined together to purchase wholesale meat were individually liable to the sellers for payment, despite not having intended to be so liable. It is worth noting, however, that one of the cases Williston cites for the opt-out rule,
31. Wellington v. Apthorp, elsewhere suggests that an intent to be bound is an element of legal liability. 13 N.E. 10,13 (Mass. 1887), cited in 1 Williston 1920 Edition §21, at 23 n.15 (stating that a contract existed only if "it appears there was a promise by the defendant's testator sufficiently definite to be enforced, and made with the understanding and intention that she would be legally bound thereby").
32. Williston's named target in the first edition is Pollock, whose 1911 treatise argued that social arrangements (for example, an appointment to have dinner) are not contracts "[o]nly because no legal bond was intended by the parties." Frederick Pollock, Principles of Contract: A Treatise on the General Principles Concerning the Validity of Agreements in the Law of England 4 n.c (8th ed. 1911). A similar rule appears in the 1906 edition of Anson's English Law of Contract.
33. William R. Anson, Principles of the English Law of Contract: And of Agency in Its Relation to Contract 2, 11 (11th ed. 1906).
34. Williston 1920 Edition, supra note 23 §21, at 21. Williston's argument in §21 of the first edition regularly lapses into arguments based on the objective theory, and even cites
35. Hotchkiss v. National City Bank of New York, the source of Learned Hand's famous "twenty bishops" pronouncement, for the proposition that "the law, not the parties, fixes the requirements of a legal obligation."
36. Id. at 22 n.13
37. (citing Hotchkiss v. Nat. City Bank, 200 F. 287, 293 (S.D.N.Y. 1911));
38. see also id. at 23 n.18 (quoting objective theory expressed in Hoggard v. Dickerson, 165 S.W. 1135 (Mo. App. 1914)).
39. Thus the First Restatement reads: A manifestation of mutual assent by the parties to an informal contract is essential to its formation and the acts by which such assent is manifested must be done with the intent to do those acts; but.. neither mental assent to the promises in the contract nor real or apparent intent that the promises shall be legally binding is essential. Restatement of Contracts §20 (1932) (emphasis added). The text of this section is nearly identical to that of the earliest available of Williston's tentative drafts. Restatement of Contracts §20 (Tentative Draft, Mar. 31, 1925).
40. Williston was hardly oblivious to such details. The first edition of his treatise contains, in addition to the rejection of the subjective theory, at least three other arguments for the Restatement rule: where such a rule is in place, "the intent is frequently fictitiously assumed" an intent-to-contract requirement is not necessary to prevent the enforcement of social or domestic arrangements; and intent-to-contract requirements run counter to the principles of the common law of contract, as embodied in the doctrine of consideration. 1 Williston 1920 Edition, supra note 23 §21, at 22-24.I discuss the first of these arguments in Part II, the second in Section IV.C, and the third in the Conclusion.
41. Balfour v. Balfour [1919] 2 K.B. 571, 579. Williston discusses Balfour in the second edition of his treatise.
42. Samuel Williston, A Treatise on the Law of Contracts §21, at 38 n.14 (2d ed. 1936) [hereinafter Williston 1936 Edition].
43. 29SeC, e.g., B.A. Hepple, Intention to Create Legal Relations, 28 Camb. L.J. 122, 128-29 (1970);
44. Raphael Tuck, Intent to Contract and Mutuality of Assent, 21 Can. Bar Rev. 123, 124-25 (1943);
45. J. Unger, Intent to Create Legal Relations, Mutuality and Consideration, 19 Mod. L. Rev. 96, 98 (1956).
46. Baird Textile Holdings Ltd. v. Marks & Spencer pic [2001] EWCA (Civ) 274, [59] (Eng.);
47. see also 1 Chitty on Contracts 198 (H.G. Beale ed., 29th ed. 2004) ("[I]t has been held that an agreement, though supported by consideration, was not binding as a contract because it was made without any intention of creating legal relations." (footnotes omitted));
48. J. Beatson, Anson's Law of Contract 69 (28th ed. 2002) ("[I]t is now established that an agreement will not constitute a binding contract unless it is one which can reasonably be regarded as having been made in contemplation of legal consequences.");
49. M.P. Furmston, Cheshire, Fifoot and Furmston's Law of Contract 121 (14th ed. 2001) ("[I]n addition to the phenomenon of agreement and the presence of consideration, a third contractual element is required-the intention of the parties to create legal relations.");
50. Guenter Treitel, The Law of Contract 149 (10th ed. 1999) ("An agreement, though supported by consideration, is not binding as a contract if it was made without any intention of creating legal relations." (footnote omitted)).
51. Beatson, supra note 30, at 71;
52. see also Chitty on Contracts, supra note 30, at 200 ("In deciding issues of contractual intention, the courts normally apply an objective test.. The objective test is, however, here (as elsewhere) subject to the limitation that it does not apply in favour of a party who knows the truth." (footnotes omitted));
53. Treitel, supra note 30, at 158 ("The test of contractual intention is normally an objective one, so that where, for example, an agreement for the sale of a house is not 'subject to contract,' both parties are likely to be bound even though one of them subjectively believed that he would not be bound till the usual exchange of contracts had taken place." (footnotes omitted)).
54. There is another type of preliminary agreement: when the parties have reached agreement on all the material terms they expect to put in the agreement, have finished negotiating, and are only awaiting a formal expression in writing. The test for enforceability of such agreements is similar to that for preliminary agreements with open terms. See Restatement (Second) of Contracts §27 (1981).
55. A separate question is what obligations an enforceable preliminary agreement imposes on the parties. While courts generally agree on when a preliminary agreement should be enforced, they take different approaches to the parties' obligations under them. Under one approach, the preliminary agreement is simply an incomplete contract. The court enforces the terms the parties have agreed upon and supplies missing ones with generic gap-fillers. The other approach reads the preliminary agreement as an agreement to negotiate. Rather than enforcing the partial agreement and filling in gaps, a court will find a breach only if one party walks away from or otherwise improperly terminates negotiations. See Farnsworth, supra note 4, at 249-253
56. 670 F. Supp. 491, 499 (S.D.N.Y. 1987). With respect to the content of the agreement, Teachers Insurance took the latter of the two approaches identified in the preceding footnote. Rather than filling in missing terms and enforcing the incomplete agreement, Leval concluded that the preliminary agreement created a duty to negotiate open terms in good faith.
57. Id.
58. Farnsworth, supra note 4, at 253. Farnsworth distinguishes between how courts approach preliminary agreements with open terms and how they approach agreements to negotiate. In the former, the salient question is more often the substance of the parties' agreement, as opposed to whether they intended legal liability.
59. Id. at 26369.
60. 870 F.2d 423, 425 (7th Cir. 1989) ("Parties may decide for themselves whether the results of preliminary negotiations bind them.").
61. See, e.g., Brown v. Cara, 420 F.3d 148, 156-58 (2d Cir. 2005);
62. Trianco, LLC v. IBM Corp., 583 F. Supp. 2d 649, 657-60 (E.D. Pa. 2008);
63. Cochran v. Norkunas, 919 A.2d 700, 710-711 (Md. 2007).
64. Restatement (Second) of Contracts §21 cmt. c (1981).
65. 457 N.W.2d 199,203 (Minn. 1990), rev'd on other grounds, 501 U.S. 663 (1991).
66. 33 Pa. Cons. Stat. Ann. §6 (1997) (emphasis added);
67. see also Uniform Written Obligations Act §1, in Handbook of the National Conference of Commissioners on Uniform State Laws and Proceedings 584 (1925). I refer to the latter source as the "Model Written Obligations Act" throughout this Article, which has become common practice given most states' failure to enact it.
68. See James D. Gordon IH, Consideration and the Commercial-Gift Dichotomy, 44 Vand. L. Rev. 283, 311 n.176 (1991).
69. 111 N.E. 822,826 (N.Y. 1916) (Cardozo, J., dissenting).
70. Restatement (Second) of Contracts §33(3) & cmt. a (1981);
71. see also id. §33 cmts. c ("The more terms the parties leave open, the less likely it is that they have intended to conclude a binding agreement.") & f ("The more important the uncertainty, the stronger the indication is that the parties do not intend to be bound.").
72. U.C.C. §2-204(3) (1968). While the 2003 proposed amendments to Article 2 would change some of the language of §§2-204(3) and 2-305(1), they would not change the substance of those provisions. As of the publication of this Article, no states have adopted the 2003 amendments.
73. See http://www.nccusl.org/Update/uniformact-factsheets/uniformacts-fs- ucc22A03.asp (last visited May 26,2009).
74. U.C.C. §2-305(1) (1968). There is an argument that 2-305 as drafted has a problem with the neglected middle. While the first subsection suggests that an agreement with an open price term is binding only if the parties so intended, the fourth stipulates that where "the parties intend not to be bound unless the price is fixed or agreed and it is not fixed or agreed, there is no contract." U.C.C. §2-305(4) (1968). The rule does not say what the outcome is where the parties manifest no intent one way or another.
75. See Restatement (Second) of Contracts §33 cmt. e (1981) (describing the U.C.C. rule in terms of only two cases: where the parties "intend to conclude a contract" and where they "manifest an intention not to be bound").
76. PEB Study Group Uniform Commercial Code Article 2, at 63 (Preliminary Report, Mar. 1,1990).
77. U.C.C. Revised Art. 2 Sales §2-203(b) (Council Draft No. 1, Nov. 9,1995) ("If the parties so intend, an agreement is sufficient to make a contract even if.. one or more terms are left open or to be agreed upon.").
78. Linda J. Rusch, A History and Perspective of Revised Article 2: The Never Ending Saga of a Search for Balance, 52 SMU L. Rev. 1683 (1999);
79. Richard E. Speidel, Revising UCC Article 2: A View from the Trenches, 52 Hastings L.J. 607 (2001).
80. See, e.g., Lee v. Joseph E. Seagram & Sons, Inc., 552 F.2d 447,453 (2d Cir. 1977) (stating that the test for incomplete contracts is whether "the parties themselves meant to make a 'contract' and to bind themselves to render a future performance");
81. Schade v. Diethrich, 760 P.2d 1050, 1059 (Ariz. 1988) (finding that by their actions, "the parties clearly manifested their joint understanding that they were bound by their promises").
82. See, e.g., Lush v. Terri & Ruth, 324 F. Supp. 2d 90, 92-94 (D. Maine 2004) (inferring parties' lack of intent from the absence of key terms in the contract);
83. Price v. Grimes, 677 P.2d 969, 974-75 (Kan. 1984) (finding "sufficient evidence" of a contract in the parties' actions);
84. Grayson v. La Branche, 225 A.2d 922, 923 (N.H. 1967) (same);
85. Cobble Hill Nursing Home, Inc. v. Henry & Warren Corp., 548 N.E.2d 203, 206 (N.Y. 1989) (concluding that "the price term was sufficiently definite for an enforceable contract");
86. Nilavar v. Osborn, 738 N.E.2d 1271, 1284 (Ohio App. 2000) (quoting Second Restatement, but discussing no evidence of intent);
87. McCarthy, Lebit, Crystal & Haiman Co. v. First Union Mgt., Inc., 622 N.E.2d 1093, 1097-1098 (Ohio App. 1993) (holding that "[a] contract is binding and enforceable if it encompasses the essential terms of the agreement").
88. Terms are reasonably certain "if they provide a basis for determining the existence of a breach and for giving an appropriate remedy." Restatement (Second) of Contracts §33(2) (1981). I know of no systematic study of judicial application of this rule. But an examination of the first 50 cases generated by "Keyciting" §33 and listed under the "Citing Cases" heading revealed no cases in which the outcome turned on the parties' intent with respect to legal enforcement. Out of the 50 cases examined, 27 held the agreement unenforceable. Of those 27, 16 did not mention the parties' intent at all. See, e.g., Jessen Elec. & Serv. Co. v. Gen. Tel. Co. of Cal., Nos. 95-56175, 9556176, 1997 WL 30328, at *1 (9th Cir. Jan. 21, 1997) (finding insufficient definiteness for enforcement without discussing the parties' intent). Of the remaining 11 decisions, none examined the parties' intent to be legally bound, as distinguished from their intent to finalize the agreement, and many separately found that the reasonable certainty requirement was not satisfied.
89. See, e.g., Spurling v. The Forestland Group, LLC, 187 F. App'x 566, 572 (6th Cir. 2006) (concluding that there was no current intent to recognize parties as an agent without further negotiations);
90. Pae Young Chung v. Byong Jik Choi, No.07-2187, 2008 WL 3852237, at *3 (E.D. Pa. Aug. 18, 2008) (finding "that defendants did not manifest an intent to enter into a bargain on the terms proposed in plaintiffs' offer");
91. SDK Invs., Inc. v. Ott, No. CIV. A. 94-1111,1996 WL 69402, at * 7-12 (E.D. Pa. Feb. 15,1996) (finding that whether or not parties intended to be bound, terms were so uncertain as to be unenforceable).
92. Williston 1920 Edition, supra note 23 §21, at 22-23.
93. See Treitel, supra note 30, at 151-159
94. [1975] Lloyd's Rep. 162, rev'd, [1976] 1 W.L.R. 1078,40 M.L.R. 227;
95. see also Treitel, supra note 30, at 159.
96. [1975] Lloyd's Rep. at 167-168 Reading the decision, it appears that a U.S. court would have more likely applied the parol evidence rule to the case.
97. [1976] W.L.R. at 1081 (Denning, M.R.);
98. see also id. at 1083 (Roskill, LJ.) (employing similar reasoning).
99. Treitel, supra note 30, at 159.
100. Stephen Hedley, Keeping Contract in Its Place-Balfour v. Balfour and the Enforceability of Informal Agreements, 5 Oxford J. Legal Stud. 391, 393 (1985).
101. Id. at 394.
102. Id. at 395-396
103. Id. at 397.
104. See Ian Ayres & Gregory Klass, Insincere Promises: The Law of Misrepresented Intent 119-126 (2005).
105. Stuart Macaulay, Non-contractual Relations in Business: A Preliminary Study, 28 Am. Soc. Rev. 55, 60 (1963);
106. see also Hedley, supra note 57, at 396;
107. Mary Keyes & Kylie Burns, Contract and the Family: Whither Intention?, 26 Melb. U. L. Rev. 577, 585-87 (2002).
108. Barnett, Sound of Silence, supra note 9, at 880. The statement occurs in Barnett's analysis of contract gap-filling rules, as opposed to rules governing formation.
109. See Atiyah, supra note 8, at 154 ("[T]here is a strong presumption that business or commercial dealings are intended to have legal effect.");
110. Cheshire, Fifoot and Furmston, supra note 30, at 126 ("In commercial agreements it will be presumed that the parties intended to create legal relations and make a contract.");
111. Chitty on Contracts, supra note 30, at 199 ("In the case of ordinary commercial transactions it is not normally necessary to prove that the parties to an express agreement in fact intended to create legal relations.");
112. Treitel, supra note 30, at 157 ("But where a claim is based on a proved or admitted express agreement the courts do not require, in addition, proof that parties to an ordinary commercial relationship actually intended to be bound.").
113. [1964] 1 W.L.R. 349,355 (Q.B.).
114. The Mercedes Envoy [1995] 2 Lloyd's Rep. 559,562 (W.B.).
115. Home and Overseas Ins. Co. v. Mentor Ins. Co. (UK) [1989]
116. 1 Lloyd's Rep. 473 (Q.B.);
117. Home Ins. Co. v. Administraria Asigurarilor de Stat [1983]
118. 2 Lloyd's Rep. 674, 676 (Q.B.).
119. Tomlin v. Standard Teles. & Cables Ltd. [1969] 1 W.L.R. 1378, 1382;
120. see also Cheshire, Fifoot and Furmston, supra note 30, at 27-30;
121. Treitel, supra note 30, at 15051. An exception is the phrase "subject to contract" in agreements for the sale of real estate. This phrase has taken on a conventional meaning in such transactions, and English courts interpret it to negative contractual intent.
122. See Atiyah, supra note 8, at 159-162
123. See Atiyah, supra note 8, at 154-155 (describing cases).
124. Hedley, supra note 57, at 412.
125. Atiyah, supra note 8, at 153
126. (quoting 1 Samuel Williston, A Treatise on the Law of Contracts 39 (3d ed. 1957)).
127. Ayres & Gertner, Filling Gaps, supra note 13.
128. See, e.g., U.C.C. §2-303 (1968).
129. Ayres & Gertner, Filling Gaps, supra note 13, at 120 (discussing U.C.C. §§2-303 & 2-206).
130. Id.
131. see also Ayres & Gertner, Majoritarian vs. Minoritarian, supra note 13, at 1593-1594
132. Ayres and Gertner discuss this potential benefit in Ayres & Gertner, Majoritarian vs. Minoritarian, supra note 13, at 1598-1600;
133. see also Eyal Zamir, The Inverted Hierarchy of Contract Interpretation and Supplementation, 97 Colum. L. Rev. 1710, 1738-53, 1755-1758 (1997).
134. See A.W.B. Simpson, A History of the Common Law of Contract: The Rise of the Action of Assumpsit 22-25 (1987) (describing the specialty requirement for the writ of covenant). In fact, the historical seal requirement was considerably more complicated than is conveyed here, since exceptions were often made and enforcement might be had under other writs. My point is not about the historical function of the seal, but about its possible uses.
135. Further elaboration on this point can be found in Klass, supra note 14, at 1744-1747
136. Uniform Written Obligations Act §1, supra note 40, at 584.
137. Restatement (Second) of Contracts §21 (1981).
138. The comments to §21 appear to assume that the "manifestation of intention that a promise shall not affect legal relations" will appear as a "term" in the agreement. Restatement (Second) of Contracts §21 cmt. b (1981). A search of decisions in the past sixty years revealed no arms' length commercial transactions in which a court declined to enforce an agreement based on a finding of no intent to contract absent express language in the agreement to that effect. In Hamilton v. Boyce, the Minnesota Supreme Court affirmed a trial court's finding, based on parol evidence, that an agreement between two sisters and one's husband "was drawn up and signed by the parties not for the purpose of creating a partnership among themselves, but merely for the purpose giving plaintiff legal authority to operate the rest home while defendants were away on a proposed extended trip." 48 N.W.2d 172, 173 (Minn. 1951).
139. And in Russell v. District of Columbia, the court held that a statement in a speech by D.C. Mayor Marion Barry "was in the nature of a campaign promise, which would not have been interpreted by most listeners as creating a legally binding contract." 747 F. Supp. 72, 80 (D.D.C. 1990). But decisions treating common forms of arms' length commercial agreements require a TINALEA clause of one type or another.
140. See, e.g., Burbach Broad. Co. of Del. v. Elkins Radio Corp., 278 F.3d 401, 406 (4th Cir. 2002) (holding words "letter of intent" imply intent not to contract);
141. Schwanbeck v. Federal-Mogul Corp., 578 N.E.2d 789, 792 (Mass. App. Ct. 1991) (holding words "this letter is not intended to create.. any binding legal obligation" created safe harbor against enforcement);
142. Hirschkorn v. Severson, 319 N.W.2d 475, 478 (N.D. 1982) (finding "gentlemen's agreement" referred to unenforceable agreement);
143. Fed. Express Corp. v. Dutschmann, 846 S.W.2d 282, 283 (Tex. 1993) (holding disclaimer in employee handbook negated contract liability).
144. See generally Effectiveness of Employer's Disclaimer of Representations in Personnel Manual or Employee Handbook Altering At-Will Employment Relationship, 17 A.L.R. 5th 1 (1994).
145. This is not to say that an express opt-out will always suffice to avoid legal liability under U.S. law. Wendell Holmes reports that "[a]n analysis of [the] cases suggests that, contrary to traditional dogma, [TINALEA] clauses are not regularly enforced by courts on any systematic basis." Wendell H. Holmes, The Freedom Not to Contract, 60 TuI. L. Rev. 751, 755 (1986). I observed in Part II that English Courts often treat TINALEA clauses with suspicion, reading ambiguous terms against the defendant. Holmes's conclusions suggest that many U.S. courts are similarly apprehensive about allowing parties to expressly opt out of legal liability altogether.
146. See Atiyah, supra note 8, at 155-59 (same);
147. Chitty on Contracts, supra note 30, at 204-12 (describing types of cases in which the parties' intent to contract is litigated);
148. Treitel, supra note 30, at 150-157 (same).
149. Richard Craswell, Offer, Acceptance, and Efficient Reliance, 48 Stan. L. Rev. 481, 485-86 (1996) [hereinafter Craswell, Offer, Acceptance];
150. see also Richard Craswell, Contract Law, Default Rules, and the Philosophy of Promising, 88 Mich. L. Rev. 489, 503-04 (1989).
151. Craswell's symmetry thesis is correct as applied to interpretive rules that concern terms in a contract that are presumed valid. With respect to these rules, we cannot say a priori that the parties' ignorance of the law or of their potential legal liability will systematically make one or the other default more or less sticky. That will depend on empirical facts, such as whether more parties prefer one or another term and the relative legal sophistication of parties preferring one or another term. The distinction here is something like Craswell's between "background rules" and "agreement rules" in Contract Law, Default Rules, and the Philosophy of Promising, supra note 84, at 503. The above quoted text, however, addresses "agreement rules"-rules that fix the conditions of contractual validity.
152. For a discussion of the many reasons defaults tend to be sticky, see Zamir, supra note 76, at 1753-1768
153. A more thorough discussion of the themes in this and the following paragraphs can be found in Klass, supra note 14. The pluralist theory of contract law I describe in that article is something like a reinvention of Lon Fuller's wheel.
154. See Duncan Kennedy, From the Will Theory to the Principle of Private Autonomy: Lon Fuller's "Consideration and Form", 100 Colum. L. Rev. 94 (2000).
155. See H.L.A. Hart, The Concept of Law 96 (2d ed. 1994).
156. 89For the first two functions-protecting reliance and preventing unjust enrichment-see, for example, P.S. Atiyah, Promises, Morals, and Law (1981),
157. and Lon L. Fuller, Consideration and Form, 41 Colum. L. Rev. 799, 806-13 (1941). The relianceprotecting function of contract law is also defended by
158. Neil MacCormick in Voluntary Obligations and Normative Powers-I, 46 Proc. Aristotelian Soc'y 59, 62-73 (Supp. 1972). For the idea that contract law supports the practice of undertaking and performing voluntary obligations,
159. see Joseph Raz, Promises in Morality and Law, 95 Harv. L. Rev. 916, 933-38 (1982)
160. (reviewing P.S. Atiyah, Promises, Morals, and Law (1981)).
161. Bernstein, supra note 12, at 1789-1790 (footnotes omitted).
162. Zamir, supra note 76, at 1756-1757
163. But similar considerations may also explain why we do not require parties who make one-sided modifications to say that they also intend to change their legal relationship. This is so, for example, when one party agrees to forgo some of her contractual rights for the sake of preserving the relationship. While both parties to the modification might understand and prefer that the modification be legally binding, expressing that preference can interfere with the function of the proffered concession, which is inter alia to signify cooperation or goodwill.
164. Bernstein, supra note 12, at 1796-1802.
165. See generally Lisa Bernstein, The Questionable Empirical Basis of Article 2's Incorporation Strategy: A Preliminary Study, 66 U. Chi. L. Rev. 710, 760-76 (1999).
166. Macaulay, supra note 62, at 58.
167. Patricia J. Williams, Alchemical Notes: Reconstructing Ideals from Deconstructed Rights, 22 Harv. C.R.-C.L. L. Rev. 401, 407 (1987).
168. Id.
169. Id.
170. In re Greene, 45 F.2d 428, 430 (S.D.N.Y. 1930). For an overview of the treatment of nominal consideration in U.S. law,
171. see Joseph Siprut, Comment, The Peppercorn Reconsidered: Why a Promise to Sell Blackacre for Nominal Consideration Is Not Binding, But Should Be, 97 Nw. U. L. Rev. 1809, 1811-30 (2003).
172. Handbook of the National Conference of Commissioners on Uniform State Laws and Proceedings 194 (1925);
173. see also E. Allan Farnsworth, Changing Your Mind: The Law of Regretted Decisions 82-88 (1998);
174. Richard A. Posner, Economic Analysis of Law 99 (6th ed. 2003) ("The real mystery in the 'moral consideration' cases is why the law doesn't simply make available a form for making binding promises without requiring consideration..Promises made under seal were enforceable without consideration. This was, seemingly, a useful device; its disappearance is a puzzle.");
175. Melvin A. Eisenberg, The Principles of Consideration, 67 Cornell L. Rev. 640, 659-60 (1982).
176. Eisenberg, supra note 99, at 662 (footnote omitted).
177. Melvin A. Eisenberg, The Theory of Contracts, in The Theory of Contract Law: New Essays 206, 230 (Peter Benson ed., 2001).
178. Uniform Written Obligations Act §1, supra note 40, at 584.
179. There is, however, a difference between a peppercorn as a signal of contractual intent and an express statement of such intent: a peppercorn does not wear its meaning on its sleeve. Another reason for rejecting the peppercorn rule therefore is that nominal consideration is a bad opt-out rule, which is likely to result in party error when one side does not understand the act's meaning or effect. This might explain why nominal consideration is sufficient to support the enforcement of an irrevocable offer or a promise to act as a surety, but not the enforcement of most other sorts of agreements. See Restatement (Second) of Contracts §§87-88 (1981). Irrevocable offers and surety agreements are usually made by sophisticated parties, who can be presumed to understand the legal meaning of a peppercorn.
180. Alan Schwartz & Robert E. Scott, Precontractual Liability and Preliminary Agreements, 120 Harv. L. Rev. 661 (2007).
181. Teachers Ins. and Annuity Ass'n of Am. v. Tribune Co., 670 F. Supp. 491, 499 (S.D.N. Y. 1987).
182. Judge Easterbrook's opinion in Empro suggests that courts should limit the inquiry by excluding parol evidence when the preliminary agreement is in writing. His argument for that rule involves a sleight of hand: Easterbrook correctly observes that the question of intent is an objective one, from which he incorrectly concludes that "[p]arties may decide for themselves whether the results of preliminary negotiations bind them .. through their words."
183. Empro Mfg. Co. v. Ball-Co Mfg., Inc., 870 F.2d 423, 425 (7th Cir. 1989). The parties' objective intent is usually understood as the intent a reasonable observer would attribute them in light of the totality of the circumstances, not only on the basis of their words. In any case, Empro's textualist approach similarly ends up considering multiple factors: the text, the structure of the document as a whole, and the implicit meaning of terms.
184. See id. at 425-426
185. 107 670 F. Supp. at 499-503.
186. Farnsworth, supra note 4, at 261 (footnotes omitted);
187. see also Schwartz & Scott, supra note 104, at 675-676
188. Schwartz & Scott,
189. supra note 104, at 676. 110 Farnsworth, supra note 4, at 259-260
190. Schwartz & Scott, supra note 104. Schwartz and Scott also have a descriptive thesis: that the holdings in preliminary agreement cases generally conform to their proposed rule-that courts "appear to have an intuitive grasp of the necessary conditions for finding a preliminary agreement."
191. Id. at 701. And they have something to say about the proper scope of the parties' legal duties under such an agreement and the proper remedy for its breach. Rather than have courts impose a duty to negotiate in good faith or fill the gaps in the agreement, Schwartz and Scott would have courts impose a duty not to deviate from the agreed investment sequence. In the event of a breach, they suggest that the appropriate remedy is verifiable reliance damages.
192. Id. at 704.
193. Id. at 677-678
194. Id. at 676-691
195. 114 Id. at 701;
196. see also id. at 704 ("[T]he parties must agree on the type of project, such as a shopping center or a financing; on an imprecise but workable division of authority for investment behavior; and on the rough order in which their actions are to be taken.").
197. Schwartz and Scott's argument does not demonstrate that legal enforcement adds value only when these conditions are met. Their model, if successful, shows that enforcement adds value to precontractual agreements that meet these conditions, not that there are not other situations in which it does so.
198. Schwartz and Scott mention only that parties should be able to opt out of legal liability when their agreement meets the three conditions.
199. Id. at 704. I am assuming that they would also permit parties to opt into such liability for agreements not meeting their three criteria, so long as the agreement satisfies the other conditions of contractual validity, such as reasonable certainty of terms.
200. This is not the only reading of their proposal. We might instead read it along the lines of the duty-imposing reading of §21 described in Section III.B above. On this reading, Schwartz and Scott recommend that courts depart from the intent inquiry altogether (except when the parties expressly say they do not want legal liability) and ask instead only about the efficiency of enforcement. But this would be a curious reading, given the considerations discussed in the next paragraph.
201. Craswell adopts a similar approach to a variety of formation rules. Craswell, Offer, Acceptance, supra note 84, at 544.
202. Richard Posner makes the general point: Now consider what to do about cases in which the parties' intentions, as gleaned from the language of the contract or perhaps even from testimony, are at variance with the court's notion of what would be the efficient term to interpolate into the contract. If the law is to take its cues from economics, should efficiency or intentions govern? Oddly, the latter. The people who make a transactionthus putting their money where their mouths are-ordinarily are more trustworthy judges of their self-interest than a judge (or jury), who has neither a personal stake in nor the first-hand acquaintance with the venture on which the parties embarked when they signed the contract. Posner, supra note 99, at 96. The classic critical diagnosis of this methodological commitment can be found in
203. Arthur Allen Leff, Economic Analysis of Law: Some Realism About Nominalism, 60 Va. L. Rev. 451, 462-69 (1974). A general defense of this thesis, without reliance on efficiency as the ultimate value, can be found in Randy 's neo-Hayekian theory, the basics of which can be found in Barnett, Sound of Silence,
204. supra note 9, at 832, and a more extended version in
205. Randy E. Barnett, The Structure of Liberty: Justice and the Rule of Law 29-40 (1998).
206. Alan Schwartz, The Myth that Promisees Prefer Supercompensatory Remedies: An Analysis of Contracting for Damage Measures, 100 Yale L.J. 369, 370 (1990).
207. Charles J. Goetz & Robert E. Scott, Liquidated Damages, Penalties and the Just Compensation Principle: Some Notes on an Enforcement Model and a Theory of Efficient Breach, 77 Colum. L. Rev. 554, 587, 588-593 (1977).
208. Of 87 cases that Westlaw identified as "examining" or "discussing" Teachers' Insurance (three or four stars), 53 applied the rule. Of those, 43 cases concerned preliminary agreements between corporate entities (though in several principles or other individuals were also named parties), and 44 involved claims worth one-million dollars or more. Forty-six of the 53 cases fell into one or both of those categories. See, e.g.,
209. Tractebel Energy Mktg., Inc. v. APE Power Mktg., Inc., 487 F.3d 89, 95-96 (2d Cir. 2007) (finding a binding preliminary agreement in business transaction worth tens of millions of dollars);
210. Trianco LLC v. Int'l Bus. Mach. Corp., 583 F. Supp. 2d 649, 653, 657 (E.D. Pa. 2008) (finding a Type II agreement for a subcontractor bid on a $300,000,000 government contract deal); see also
211. Mark Andrew of Palm Beaches, Ltd., v. GMAC Commercial Mortgage Corp., 265 F. Supp. 2d. 366, 379 (S.D.N.Y. 2003) (finding no binding preliminary agreement on a nine-million-dollar commercial loan agreement);
212. Spencer Trask Software & Info. Servs. LLC v. RPost Int'l Ltd., 383 F. Supp. 2d 428, 441 (S.D.N.Y. 2003) (finding no binding preliminary agreement in a venture capital transaction).
213. Of the 53 cases applying Teachers' Insurance described in the previous note, 48 involved a written agreement. Of the 14 decisions from the set that held the preliminary agreement to be enforceable, 13 involved a written agreement.
214. I owe this point to Conrad Deitrick.
215. The above description follows the trial judge's account of the consideration in the case. [1919] 2 K.B. 571, 571-572
216. Frederick Pollock, Principles of Contract at Law and In Equity: Third American from the Seventh English Edition 3 & n.c (Gustavus H. Wald & Samuel Williston eds., 1906). One finds a similar argument in Anson: On a like footing stand engagements of pleasure, or agreements which from their nature do not admit of being regarded as business transactions...The acceptance of an invitation to dinner or to play in a cricket match forms an agreement in which the parties may incur expense in the fulfillment of their mutual promises. The damages resulting from breach might be ascertainable, but the courts would probably hold that, as no legal consequences were contemplated by the parties, no action would lie.
217. Anson, supra note 24, at 49.
218. Atkin's opinion in Balfour makes Pollock's argument: [I]t is necessary to remember that there are agreements between parties which do not result in contracts within the meaning of that term in our law. The ordinary example is where two parties agree to take a walk together, or where there is an offer and an acceptance of hospitality. Nobody would suggest in ordinary circumstances that those agreements result in what we know as a contract, and one of the most usual forms of agreement which does not constitute a contract appears to me to be the arrangements which are made between husband and wife.. To my mind those agreements, or many of them, do not result in contracts at all, and they do not result in contracts even though there may be what as between other parties would constitute consideration for the agreement.. [T]hey are not contracts because the parties did not intend that they should be attended by legal consequences. [1919] 2 K.B. at 578-579
219. I Williston 1920 Edition, supra note 23 §21, at 24 n.19. In the second edition, Williston applies the same argument to domestic arrangements: "The real difficulty, however, in finding a contract in such cases is that the parties do not manifest an intent to make a bargain, that is, to exchange a promise for an agreed consideration." Williston 1936 Edition, supra note 28, at 39 n.14. 128 I Williston 1920 Edition, supra note 23 §21, at 23-24.
220. Corbin, supra note 22 §34, at 138 (footnotes omitted). Corbin also was characteristically attentive to the fuzziness of the line between these two categories: The line of division between what is 'social' on the one hand and what is legally operative on the other, between agreements that make contracts and those that do not, can be determined only by inductive study and comparison of what the courts have done in the past. Case by case, they have drawn a line, although like other lines, it is drawn with a wide and imperfect brush, not with a draftsman's pen. Being drawn by many hands, there are gaps in places and there are conflicting lines in other places. Id. at 141.
221. Restatement (Second) of Contracts §21 cmt. c (1981).
222. Sally Wheeler & Jo Shaw, Contract Law: Cases, Materials and Commentary 165 (1994);
223. Hedley, supra note 57.
224. Hedley, supra note 57, at 403.
225. Balfour v. Balfour, [1919] 2 K.B. 571, 579-580
226. Id. at 579 (Atkin, L.J.);
227. see also id. at 577 (Duke, L.J.) ("The proposition that the mutual promises made in the ordinary domestic relationship of husband and wife of necessity give cause for action on a contract seems to me to go to the very root of the relationship, and to be a possible fruitful source of dissension and quarrelling. I cannot see that any benefit would result from it to either of the parties, but on the other hand it would lead to unlimited litigation in a relationship which should be obviously as far as possible protected from possibilities of that kind.");
228. Hedley, supra note 57, at 391-392 ("[E]ven a brief reading of their lordships' judgments will show how reluctant they were to extend the law of contract into the area of matrimonial rights and duties.").
229. For a general account of this principle, see Micah Schwartzman, Judicial Sincerity, 94 Va. L. Rev. 987 (2008).
230. Keyes & Burns, supra note 62, at 578.
231. See, e.g., Dodson v. Nat'l Title Ins. Co., 31 So.2d 402 (FIa. 1947) (agreement regarding proceeds of jointly-held property);
232. Peaks v. Hutchinson, 53 A. 38 (Me. 1902) (agreement that building constructed by husband on wife's land would remain husband's property);
233. Papa v. Vacchina, 321 P.2d 245 (Nev. 1958) (agreement to pay sum to wife's daughters);
234. Horton v. Horton, 487 S.E.2d 200 (Va. 1997) (wife's promise to dissolve joint venture and execute power of attorney for payments from husband);
235. Klotz v. Klotz, 117 S.E.2d 650, 651, 656 (Va. 1961) (business partnership agreement).
236. 725 N.E.2d 1051 (Mass. 2000).
237. Id. at 1056. The parties' marriage relationship was not at the core of this decision. Later in the same decision, the court stated in dicta that "even had the husband and the wife entered into an unambiguous agreement between themselves regarding the disposition of the frozen preembryos, we would not enforce an agreement that would compel one donor to become a parent against his or her will."
238. Id. at 1057.
239. Lesnik v. Estate of Lesnik, 403 N.E.2d 683, 687 (111. App. 1980).
240. Pyeatte v. Pyeatte, 661 P.2d 196, 201 (Ariz. App. 1982).
241. Jill Elaine Hasday, Intimacy and Economic Exchange, 119 Harv. L. Rev. 491, 500-02 (2005);
242. Reva B. Siegel, The Modernization of Marital Status Law: Adjudicating Wives' Rights to Earnings, 1860-1930, 82 Geo. LJ. 2127, 2174-96 (1994).
243. A recent example can be found in Borelli v. Brusseau, 16 CaI. Rptr. 2d 16 (Cal. Ct. App. 1993). There, the court reasoned both that "[p]ersonal performance of a personal duty created by the contract of marriage does not constitute a new consideration," and that the negotiations involved in "sickbed bargaining.. are antithetical to the institution of marriage as the Legislature has defined it."
244. Id. at 20.
245. Hasday, supra note 142, at 517. Siegal too emphasizes the "immense distributive consequences for women" of the prohibition on interspousal contracts for household labor.
246. Siegel, supra note 142, at 2209.
247. Hedley argues that in most noncommercial transactions, judicial intuitions about the appropriateness of contractual liability turns on whether there has been any detrimental reliance. In [noncommercial] cases, the rule is that agreements will be enforced only at the insistence of a party who has performed one side of the bargain; but there is no need to prove any intention that sanctions be available. In other words, the courts' concern is to prevent one side taking the benefits of the arrangement and refusing the burdens, but they are unconcerned at the prospect of breach of a purely executory arrangement.
248. Hedley, supra note 57, at 406.
249. Oddly enough, this argument suggests a defense of the form of the court's argument in Balfour, if not its substance. In Balfour, the Court of Appeal decided a legal question of first impression: in contemporary terms, the appropriate default for spousal agreements. One might argue that the answer to that question should turn on the sorts of general policy considerations that the court discussed-the costs and benefits of treating "each house [as] a domain into which the King's writ does not seek to run."
250. Balfour v. Balfour, [1919] 2 K.B. 571,579. This is not to say that the Balfour court correctly identified or weighed those costs and benefits. Similar partial defenses might be made for several other commonly criticized decisions under the English rule. See, e.g.,
251. President of the Methodist Conference v. Parfitt [1984] Q.B. 368, 377 (refusing to find a contract of service based on an ecclesiastical employment agreement);
252. Ford Motor Co. v. Amalgamated Union of Eng'g and Foundry Workers [1969] 1 W.L.R. 339, 355 (finding that no legal obligation arose from a collective bargaining agreement).
253. 457 N.W.2d 199 (Minn. 1990). Other courts that have considered the issue have generally followed Cohen's holding, if not always its reasoning.
254. See Ruzicka v. Conde Nast Publ'ns, Inc., 939 F.2d 578, 582 (8th Cir. 1991) (applying Minnesota law);
255. Pierce v. The Clarion Ledger, 452 F. Supp. 2d 661, 663-64 (S.D. Miss. 2006);
256. Steele v. Isikoff, 130 F. Supp. 2d 23, 31-32 (D.D.C. 2000); see also
257. Ventura v. The Cincinnati Enquirer, 396 F.3d 784, 791-93 (6th Cir. 2005) (holding that a reporter's confidentiality promise related to information concerning criminal activity was unenforceable on grounds of public policy). But see
258. Doe v. Univision Television Group, Inc., 717 So.2d 63, 65 (Fla. App. 1998) (holding that source should have been permitted to plead breach of contract and promissory estoppel).
259. Cohen, 457 N.W.2d at 203.
260. Cohen v. Cowles Media Co., 501 U.S. 663, 669-670 (1991).
261. Cohen v. Cowles Media Co., 479 N.W.2d 387, 390-392 (Minn. 1992).
262. Cohen, 457 N.W.2d at 203.
263. See id. at 203-205 (holding that First Amendment barred a promissory estoppel claim against the newspaper).
264. Klass, supra note 14, at 1754-1756
265. Restatement (Second) of Contracts §21 (1981).
266. Karl Llewellyn, What Price Contract?-An Essay in Perspective, 40 Yale L.J. 704,741 (1931).
267. Kimel, supra note 11, at 57-60, 78-80 (2003).
268. See Dori Kimel, The Choice of Paradigm for Theory of Contract: Reflections on the Relational Model, 27 Oxford J. Legal Stud. 233, 238, 250-253 (2007).
269. Eisenberg, supra note 101, at 230.
270. Kimel, supra note 11, at 74.
271. Seana Valentine Shiffrin, The Divergence of Contract and Promise, 120 Harv. L. Rev. 708, 710 (2007).
272. 1611 Williston 1920 Edition, supra note 23 §21, at 21-22. Williston makes a similar argument from quasi-contractual liability, highlighting that "[e]ven where one party makes it clear to the other that he is unwilling to enter into a contract, the law may nevertheless impose one upon him."
273. Id. at 24.