The no-retraction principle and the morality of negotiations.

• Author: Markovits, Daniel
• Position: Response to article by Omri Ben-Shahar in this issue, p. 1829

The central philosophical puzzle about contract law involves the ground upon which contractual obligation arises. Omri Ben-Shahar's intriguing essay, Contracts Without Consent: Exploring a New Basis for Contractual Liability, (1) proposes a new theory of contractual liability and contains the seeds of an appealing new approach to this puzzle. In place of the traditional agreement-based conception of contractual liability under which, as Ben-Shahar says, "a contract forms only when the positions of the two parties meet," (2) Ben-Shahar proposes a new regime. His proposal imagines that offers and counteroffers generate a converging sequence of liability, under the principle that "[a] party who manifests a willingness to enter into a contract at given terms should not be able to freely retract from her manifestation." (3) Ben-Shahar's contribution to the philosophical foundations of contract does not figure prominently in his own presentation of this principle of "no-retraction," however, which emphasizes an economic approach. (4) Indeed, Ben-Shahar expressly admits that "[i]t is beyond the scope of [his] Essay to inquire into the philosophical underpinnings of the non-rejectability of an individual's own representations." (5) I shall therefore devote these pages to bringing out some of the philosophical ideas that are immanent in Ben-Shahar's view but that are not emphasized in his own account of this view. Although these ideas differ markedly from my approach to the philosophical foundations of contract, (6) I shall not, in the main, try to test Ben-Shahar's views against my own. I prefer, instead, to present a sympathetic reconstruction of Ben-Shahar s position. (7)

I begin by briefly explaining the philosophical puzzle about the foundations of contractual liability. Next, I discuss the elements of Ben-Shahar's essay that most conspicuously address the puzzle and argue that these efforts to connect the no-retraction principle to the grounds of contract liability represent wrong turnings in the philosophical analysis of no-retraction liability and distract from the proposal's true promise. Finally, I introduce a more auspicious connection between the no-retraction principle and the grounds of contractual liability and connect it to some of Ben-Shahar's own observations and examples. Although I shall not seek to develop this positive account in any detail, I do hope to lay out its main lines with sufficient clarity to reveal its potential.

1. THE GROUNDS OF CONTRACT

   Many different types of obligation typically arise in connection with contractual promises. (8) A promisee may make a payment or other return performance in exchange for a contractual promise that remains executory, and a contractual promisor may incur restitutionary obligations in connection with receiving such benefits from her promisee. Similarly, a promisee may reasonably incur costs (including opportunity costs) in anticipation of a promised performance, and a contractual promisor may incur tort-like obligations in connection with her promisee's reasonable reliance. But contract may also stand unadorned by restitution or tort, as it does when contractual promisors have received no benefits and their promisees have incurred no costs. Moreover, this freestanding conception of contract accords with our practical experience of contractual obligation. It receives doctrinal expression, for example, in the fact that contractual liability (unlike the liability for misrepresentations that arise in restitution or tort) is strict liability. The freestanding conception is also reflected in the expectation remedy, which enforces contractual obligation entirely apart from any enrichment in the promisor or harm in the promisee.

   The grounds of freestanding contractual obligation--of contract unbacked by restitution or tort--remain deeply mysterious, however. Contractual obligation must rest, in such cases, solely upon the force of the contractual promise itself, on the intentions--the state of will--that this promise involves. But the contractual promisor's will to be bound, standing alone, seems too slight to support legal obligation. To be sure, persons may incur obligations in conjunction with wilful actions in any number of ways, as they commonly do when their intentional actions, including perhaps representations of how they will act in the future, harm others. But the obligations that arise in all these cases are grounded in the effects that the actions in question have on others---in the harms that they do--and not in the bare willing in itself. Persons do not simply will these obligations into existence, as they would have to do in cases of contract unbacked by restitution or reliance. And it is hard to see how contractual obligation could possibly arise in this way because it is incredible that the will, on its own, could conjure into existence anything so substantial as an obligation.

   Indeed, even though contracts are among the commonest instances of legal obligation (and even though every child knows that promises must be kept), the question how such obligations are created presents a familiar puzzle in moral philosophy. It is at least as old as David Hume, who compared the idea that promissory obligation might arise out of the bare act of will involved in making a promise to the mystery of transubstantiation. (9) Moreover, although they have not generally received such a philosophical expression, these concerns have not been lost on contract lawyers, who have also long displayed uncertainty about the foundations of purely contractual obligation. The canonical statement of this uncertainty appears in Lon Fuller and William Perdue's classic article, The Reliance Interest in Contract Damages, (10) which observes that, when a contract claim asserts expectations that are unbacked by either restitution- or reliance-based claims, the "justification for legal relief loses its self-evident quality." (11)

   Such worries have led both philosophers and lawyers to retreat from regarding contract as a freestanding class of obligation and to seek, instead, to assimilate contract into forms of obligation that stand on ground more solid than the promissory will. These views accept that the willing of a promise may trigger contractual obligation, but they no longer require the will to underwrite it. The most prominent philosophical efforts in this direction seek to ground contractual obligation either in the harm done to promisees who have reasonably relied on contractual promises or in the social utility of the practice of enforcing such obligations. (12) The most prominent legal efforts, unsurprisingly, take up both themes and bring them to bear on contract doctrine including the doctrines that appear to express contract's freestanding, promissory character. Fuller and Perdue, for example, take up the first theme when they attempt to recast the expectation remedy in terms of harm and reliance. They claim that the expectation interest is most securely protected by courts in connection with business contracts--that is, contracts made by parties who have foregone other opportunities to make them. (13) When thick markets exist, these foregone opportunities will be only marginally less valuable to promisees than the contract they in fact made so that their contractual expectations may also be recast in terms of reliance losses--that is, the opportunity costs of not dealing with alternative promisors. (14) The economic approach to contract takes up the second theme when it emphasizes the efficiency of the expectation remedy and suggests, on this basis, that protecting contractual expectations maximizes the social value of the practice of contract. (15)

   These reductive approaches purport to explain contractual obligation without invoking any mysterious powers of the will. But they achieve this solidity only by distorting contractual practice--by emphasizing the forms of obligation that commonly arise around contract while repressing contract's characteristic core. The reductive approaches are embarrassed by the practical experience of contract, which does not defer to alternative forms of obligation or to the social utility of contractual practice as the reductive approaches require. Thus, the law acknowledges--but does not depend upon--detrimental reliance by promisees so that it will (as Fuller and Perdue themselves admit) (16) enforce contractual expectations that are not backed by these other forms of obligation. (17) Moreover, the law emphasizes the formal-category expectation damages in ways that, as Richard Craswell has observed, cannot be explained by any instrumental connection between the substance of expectation damages and economic efficiency. (18) Finally, and perhaps most importantly, the practical experience of contract identifies an obligation that functions, as Joseph Raz argues, precisely to remove the decision to perform contracts from the overall calculus of these alternative values so that we feel bound to keep our contracts even when doing so does not best prevent harm, maximize social utility, or promote the best consequences overall. (19)

   Efforts to recast contract in terms of harm or social welfare therefore do not so much explain our practical experience of contract as explain it away. This accounts for the fact that theories that treat contract as a freestanding form of obligation, rooted in the states of will of persons who engage it, enjoy an enduring appeal in spite of their mysterious nature.

2. TWO DEFLATIONARY APPROACHES

   Ben-Shahar expressly insists that, although no-retraction liability may resemble tort liability (presumably most closely resembling liability for the tort of misrepresentation, a comparison to which I shall return in a moment), it is in fact a species of will-based, freestanding contract. (20) He insists that "it is nonetheless the will of a party ... that ignites [no-retraction] liability," (21) and he...