The promissory basis of Section 90.

AuthorYorio, Edward

Introduction

As conceived and drafted, Section 90 of the Second Restatement of Contracts is based primarily on principles of reliance.(1) It rests on the proposition that a person sho has led another to rely on a promise ought to compensate the other for any harm suffered in reliance.(2) This Article shows that the prominence of reliance in the text of Section 90 and in the commentary on the section does not correspond to what courts do in fact. Judges actually enforce promises rather than protect reliance in Section 90 cases.(3)

Section 90 has been described as the Restatement's "most notable and influential rule"(4) and as "perhaps the most radical and expansive development of this century in the law of promissory liability."(5) The section has had a profound influence on the law of contracts because it ratifies cases enforcing a promise in the absence of bargained-for consideration.(6) By giving its imprimatur to those cases, the Restatement has encouraged courts to expand contractual liability beyond the traditional doctrinal limits of consideration.(7)

Most commentators, like the Second Restatement itself, hold that the objective of Section 90 is to protect promisees from loss caused by reliance on a promise.(8) Some commentators even argue that Section 90 has contributed to the replacement of promise with reliance as the basis of contractual liability.(9) As this Article shows, however, these commentators are wrong about the way courts have decided Section 90 cases. Rather than using Section 90 to compensate promisees for losses suffered in reliance, judges use it to hold people to their promises by granting specific performance or by awarding expectation damages.

Part I places the conflict between promise and reliance theories of Section 90 in historical perspective, showing that Section 90 of the original Restatement was conceived and drafted primarily in terms of promise and that the changes adopted by the Second Restatement reflect an endorsement of reliance as the principle governing both liability and remedy under the section. Part II shows that the remedy courts routinely grant under Section 90 is specific performance or (if feasible) expectation damages.(10) Cases granting less than expectancy relief are relative rare, and the only substantive explanation for that outcome is a defect in the promise or in the proof of the promise. By fully enforcing promises with expectancy relief rather than limiting the remedy to reliance,(11) courts belie the claim that the objective of Section 90 is to compensate promisees for losses suffered in reliance. Part III shows that courts may enforce a proise under Section 90 in the absence of reliance or detriment. Conversely, courts may not enforce a promise under the section despite detrimental reliance by the promisee. Both results are inconsistent with a reliance-based theory. Part IV shows that the critical question for courts under Section 90 is which promises to enforce, not what remedy to award or how to protect reliance. A promise will be fully enforced under the section if the promise is proven convincingly and is likely to have been serious and well considered when it was made. Issues of both liability and remedy turn on promise showing that the basis of Section 90 in the courts is promise, not reliance.(12)

Our findings indicate that Section 90, like the doctrine of consideration, works to enforce promises that are likely to be serious. The role of the consideration doctrine in screening for serious promises is well understood.(13) Although it is not so widely recognized the prospect of definite and substantial reliance generally required under Section 90 also screens for seriously considered promises.(14) A promisor who can foresee definite and substantial reliance is likely to be careful about making a promise.

The consideration doctrine and Section 90 have a common remedial implication as well as a common screening function. If a promise is identified as serious through a finding of either consideration or a prospect of definite and substantial reliance, the court will enforce it. In our system, enforcing a promise generally means awarding expectancy relief.(15)

Although many commentators, and the Second Restatement itself, regard reliance as an appropriate measure of relief, courts routinely award specific performance or expectation damages in Section 90 cases.(16) Faced with the primacy of expectancy relief in the courts and the prevailing reliance theory of Section 90, some commentators conclude that contract law is incoherent.(17) Others have tried to explain the primacy of expectation with theories of Section 90 that fail to address many of the reported cases, including those cases that led to the promulgation of Section 90 in the first place.(18) This Article offers a coherent and inclusive explanation of the Section 90 cases, albeit one that may be in keeping with what was once considered an entirely conventional, promise-based view of contract law.

Section 90 reflects the legal relief's recognition that the best way to understand law is to analyze what courts are doing instead of trying to force cases into accepted theories.(19) In particular, Section 90 recognizes that courts often enforce promises in the absence of a bargain. Ironically, soon after escaping the shackles of bargain theory, scholars embraced a reliance theory of Section 90 that does not conform to the reality of the reported cases. This Article shows that the original cases on which Section 90 was based and the more recent cases that purport to follow it are best explained by an old conception of contract law: courts respond to an impulse to enforce serious promises.

Our thesis is not that the basis of Section 90 ought to be promise. Rather, we describe and analyze the reported cases and show that the basis of the section is promise.(20) Because Section 90 conventionally is viewed as the archetypical reliance provision, our conclusions support the claim that the law of contracts is generally based instead on promise.(21) Conversely, our findings undermine the contention that contract law is being absorbed into a general theory of civil liability based on the tort concept of compensation for harm.(22) If contract were dead (or drying), signs of rigor mortis would surely appear in the cases decided under Section 90.(23) But the governing principle of Section 90 in the courts is promise, and the central importance of promise shows that contract remains a vital theory of obligation distinct from tort. Although our primary objective is to describe and analyze the cases, our conclusions may have important implications for the normative debate between promise and reliance theorists because a normative legal theory derives part of its strength from application and acceptance by the courts. Those who contend that reliance ought to be the basis of contract need to explain why their arguments have failed to persuade judges to resolve cases arising under the archetypical reliance provision in accordance with reliance principles.(24)

  1. A History of Section 90

    The Second Restatement of Contracts revised Section 90 of the First Restatement in three major respects.(25) First, it eliminated the requirement that the action or forbearance foreseen by the promisor and induced by the promise be "of a definite and substantial character."(26) Second, it provided that "[t]he remedy granted for breach may be limited as justice requires."(27) Third, it added a new subsection providing that "[a] charitable subscription or a marriage settlement is binding . . . without proof that the promise induced action or forbearance."(28) These charges illuminate the respective theories of the First and Second Restatements regarding enforcement of promises in the absence of a bargain. To understand the importance of these changes, it is necessary to analyze the reasons for the original provision in the First Restatement and the explanations given for the revisions in the Second.

    1. The Remedy for Breach

      V2

      During the 1926 proceedings of the American Law Institute, a member of the audience asked Professor Samuel Williston, the reporter for the First Restatement of Contracts, about the following hypothetical. Uncle, aware that Nepphew is thinking about buying a car, promises to give Nephew $1000. Nephew buys a car for $600. If Uncle reneges on his promise and Nephew sues, what does the Nephew recover, $1000 or $600? Williston responded that Uncle would be liable for $1,000, the amount of his promise.(29) Although Williston's response satisfied the immediate questioner,(30) Frederick Coudert, the famous New York lawyer, challenged Williston's answer in an exchange that has since become one of the most quoted passages in American contract law:

      MR. COUDERT: Allow me to trespass once more, Mr. Reporter,

      by asking this question. Please let me see if I understand it rightly.

      Would you say, Mr. Reporter, in your case of Johnny and the uncly,

      the uncle promising the $1000 and Johnny buying the car--say, he

      goes out and buys the car for $500--that uncle would be liable for

      $1000 or would he be liable for $500?

      MR. WILLISTON: If Johnny had done what he was expected to

      do, or is acting within the limits of his uncle's expectation, I think the

      uncle would be liable for $1000; but not otherwise.

      MR. COUDERT: In other words, substantial justice would require

      that uncle should be penalized in the sum of $500.

      MR. WILLISTON: Why do you say "penalized"?. . . .

      MR. COUDERT: Because substantial justice there would require,

      it seems to me, that Johnny get his money for his car, but should be

      get his car and $500 more? I don't see.(31) Coudert's bewilderment was shared by other memberes of the audience, who returned repeatedly to the car hypothetical:

      HOMER ALBERS (Massachusetts): I am still not satisfied that

      Johnny could have the car and $500 both, if he bought a second-hand

      Buick for $500 . . . .(32)

      . . . .

      JUDGE PAGE...

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