Promises and paternalism.

• Author: Farnsworth, E. Allan

Consider the case of Jack Tallas, an immigrant from Greece who had achieved considerable success as an insurance agent and landlord during the nearly seventy years he spent working in Salt Lake City.(1) Jack, who lived in a hotel during the last years of his life, wanted to give $50,000 to Peter Dementas, a close friend of fourteen years, who had helped him during that time.(2) Jack dictated a memorandum to Peter in Greek.(3) It stated that Jack owed Peter, who "treats me like a father and I think of ... as my own son," $50,000 for his kindness in having Jack at weekly dinners with Peter's family, his help in driving Jack to the doctor, and his assistance in the management of Jack's rental property.(4) The memorandum promised that Jack would change his will to make Peter an "heir" and leave him $50,000.(5) Jack kept the Greek document, retyped it in English, notarized the English version with his own notary seal, and delivered the documents to Peter three days later.(6) Jack died six weeks later, leaving behind a substantial estate, but bequeathing nothing to Peter.(7)

Too bad for Peter, decided an appellate court in Utah.(8) Jack's promise was unenforceable because there was no consideration for it.(9) Jack's intention to be bound legally could not have been clearer, but this was not enough. Not only was such an intention insufficient, but no formality would have been enough. Utah law afforded Jack no means of making an enforceable promise to make a gift to Peter.(10) Jack could, of course, have gone to the trouble of changing his will and having it witnessed, but even then he would have been free to change his will again.

I want to convince you that for centuries the common law's treatment of promises such as Jack's--promises to make gifts--has been profoundly paternalistic. So let me at the outset explain what I mean by paternalism. It is commonly said that a legal rule is paternalistic if, for a person's "own good," it prohibits the person from doing something, such as using drugs, or requires the person to do something, such as wearing a helmet while cycling. I will use paternalism more broadly to include legal rules that for a person's "own good" disable that person from making a binding commitment, such as making an enforceable promise to give up relief under the bankruptcy laws.(11) I will then apply this notion of paternalism to a broad category of promises: promises to make gifts. As suggested by the examples of drug use, helmets, and bankruptcy, paternalism can sometimes be justified, but in a legal system that prizes freedom of contract, we ought to eschew paternalistic restraints on that freedom. I intend to show that it is mainly for a promisor's "own good" that our rules of contract law trump the preferences of a promisor who, like Jack, seeks to make a binding promise to make a gift and that there is no justification for this paternalistic intervention.

Because my argument assumes that a promisor, such as Jack, might have a preference for making a binding promise to make a gift, I turn to the reasons why that might be so. In most cases, a promisor wants to be able to make a binding promise because of self-interest. In order to get something that the promisor wants, such as a new Ferrari or a promise of one, the promisor has to make a promise to pay the price of the Ferrari. Furthermore, it is in the promisor's self-interest that the promise be binding, for otherwise the seller will balk at delivering or at promising to deliver the car. In such transactions we exchange our promises for things, including other promises, that we want; however, that is not always so. Jack did not exchange his promise for something he wanted. Rather, Jack promised to make a gift. Jack's situation thus raises a question as to why someone would promise to make a gift.

Before asking why one makes such a promise, it may be well to ask why one makes a gift. Is it pure altruism--an unselfish regard for the interests of others? Altruism unalloyed, as in the classic case of the saintly person who gives a fortune to a beggar, is a rare if praiseworthy commodity.(12) Saint Anthony, we are told,

was twenty years old when he heard these words of Jesus read in the church: "If thou will be perfect, go sell what thou hast, and give to the poor!" At once Anthony sold all his goods, gave the profit to the poor, and went off to the desert to become a hermit.(13) Today, however, most significant gifts are made either to someone in one's circle of friends or family, or to a charity. Those who make them are not motivated solely or even primarily by altruism.

According to fundraisers for higher education: "The most promising models of donor behavior favor exchange over pure altruism: They say donors are motivated by receiving `goods' in exchange for gifts, and a repeated disequilibrium leaves donors with a need to respond to recognition and acknowledgement with even more gifts."(14) To say that one asks for nothing in return is not to say that one expects nothing in return. For example, when real estate developer Samuel LeFrak promised to give $10 million to the Guggenheim Museum in New York City, he said that he made the promise "with no strings attached," meaning that he asked for nothing in return.(15) It was understood, however, that he expected to see his name on the outside of the museum's rotunda, and it surely came as no surprise when he was reported to be rethinking his decision after the New York City Landmarks Preservation Commission refused to approve this form of recognition.(16)

Such an expectation of an enhanced reputation is only one of many reasons for making a gift.(17) In the case of a gift to a charity, one might expect to gain tax advantages.(18) In the case of a gift to a relative or friend, as in Jack's case, one might hope for love and affection or, if death seems near, better treatment in the hereafter. A decision to give often results from a complex mixture of these and other motives that sometimes are difficult to identify.(19) Although one may get something in return for one's gift, one does not get it as the result of a swap. Despite the exchange, there is no bargain.

Whatever Jack's reasons for his initial decision to give $50,000 to Peter, Jack's decision was not to make a present gift.(20) Why defer the gift?(21) Perhaps he wanted the use of the $50,000 until his death, or he did not have the money to spare at the time of his promise. Perhaps he had $50,000, but it was tied up in collectibles, or he thought he could get a tax advantage by deferring the payment of the $50,000. Perhaps he thought he could earn a higher rate of return on the $50,000 than Peter could, or he was unsure of his initial decision to give $50,000 and hoped to keep his options open.(22) Whatever the explanation, the $50,000 was not to be paid until Jack's death.(23)

Our first question remains: Why would Jack make such a promise? If he wanted to make a deferred rather than a present gift, why not simply tell Peter he had made a firm but nonbinding resolution to leave him $50,000? Look back to the time that Jack made the promise. To the extent that altruism motivated him, he had an interest in maximizing the benefit to Peter.(24) If Jack had actually made a gift by handing over $50,000, that gift, being complete and irrevocable, would have been worth its face value of $50,000 to Peter.(25) Even if he had made a legally binding promise, Peter would have had to discount the value of the gift to take into account the difficulty of enforcement should Jack renege.(26) Peter would have had to discount a nonbinding resolution even more deeply because of the greater likelihood that Jack would renege and the impossibility of enforcing the resolution.(27)

In two situations Jack might have been particularly anxious to commit himself in order to dispel Peter's potential uncertainty. First, if there was a significant chance that Peter would mistrust Jack's resolution as not representing an actual decision to make the gift, Jack might have wished to dispel that misapprehension and enhance the value of the prospect of his gift by committing himself.(28) Had Peter thought Jack untrustworthy, Jack might have wanted to make a binding promise to make a gift rather than a nonbinding resolution.(29) Second, if there was a significant chance that Peter would overestimate the likelihood that Jack might change his mind, Jack might have wished to disabuse Peter of this misapprehension in the same way.(30) Had Peter considered Jack to be excessively capricious, Jack might have preferred a binding promise to make a gift over a nonbinding resolution to make the same gift.(31)

Remember that Jack was near the end of his life. As a matter of law, the promisor's death has the same effect as a capricious revocation, and thus the promisor's death may be of no less concern to the promisee than the promisor's caprice.(32) Litigation over promises to make gifts frequently arises following the promisor's death when a rule that denies effect to the promise favors those who will share in the promisor's estate--not the promisor--over the promisee.(33) Because the executor or administrator of the promisor's estate has a fiduciary obligation to resist questionable claims on behalf of those who will share in the promisor's estate, extralegal sanctions have no effect.(34) The promisor therefore may be particularly anxious to dispel the promisee's uncertainty in the event of death.

Having explained why Jack might have had an interest in making an enforceable promise to make a gift to Peter, I will now follow the story of Jack and Peter through history and trace the influence of paternalism at seven stages: first, in the institution of the seal;(35) second, in the abolition of the institution of the seal;(36) third, in the establishment, at least in Utah, of a substitute for the seal;(37) fourth, in the abolition, at least in Utah, of the substitute for the...