Reviewing Larry DiMatteo, Principles of Contract Law and Theory, Part XII
This is the Twelfth post in my series on Larry Di Matteo‘s Principles of Contract Law and Theory (Principles). The aim is to call some attention to this book while using it to stimulate my thinking as I once again consider how to teach contracts law to first-year students. Principles is a scholarly textbook addressing advanced topics at a very high level of sophistication.
I find Professor DiMatteo treatment of reliance pretty confusing. First, he states that the common law recognizes a cause of action for promissory estoppel, while England does not. (269) Then he says that detrimental reliance is “an alternative basis for finding a contract,” which I think is incorrect, but then he repeats his statement, which I regard as accurate, that Section 90 recognizes a cause of action for promissory estoppel. (270) If detrimental reliance were a basis for finding a contract, there would be no need for a separate cause of action. The remedies for breach of contract and promissory estoppel can also differ. He then describes a 1947 Lord Denning opinion as showing that the principle of promissory estoppel “can be used to substitute for the requirement of consideration in that reliance on a promise can make an agreement binding.” (273) That would explain why England would not need to recognize promissory estoppel as a separate cause of action. Such a cause of action would be unnecessary if a party can just enforce a contract based on reliance. But I’m not sure that is Professor DiMatteo’s point.
I am better able to follow if not entirely agree with Professor DiMatteo’s discussion of the role of fault in contract law. (276-78) The subject is complex, and Professor DiMatteo touches on it in other parts of Principles. I sense a bit of conflation between notions of moral and legal fault. We have legal rules that place the burden of liability on the party best positioned to avoid the loss. Such parties are legally at fault because they “failed to act reasonably” or did not act based on information that they “should have known.” The language sounds moralistic but can also be understood in economic terms. Damages for breach of contract are set up to be, for the most part, neutral as to moral culpability. Legislators jump to provide punitive damages for breach of contract in a variety of contexts, but their censorious nature is not attributable to the common law, which still is set up to provide that a contract is a promise to either perform or pay damages.
Other cases, where notions of moral culpability seems to apply occur at the margins of contracts law. As Professor DiMatteo appropriately notes, claims for insurers’ bad faith refusal to pay claims (276) or for agents’ refusals to use best efforts (279-83) are on the margins where contracts meet fiduciary duties. In the next chapter, Professor DiMatteo will criticize theories of contract that cannot account for parts of doctrine and therefore deems them to be outside of the realm of contract law. Yet he also acknowledges that we have no master trope that can unlock all of the mysteries of contracts doctrine. I’m pretty comfortable accounting for the vast majority of contract doctrine as a system of economic incentives, while acknowledging that we supplement that incentive-based system with moral opprobrium borrowed from related doctrinal areas, such as tort or fiduciary law.
Professor DiMatteo next provides a detailed discussion of preliminary agreements. (285-90) It is a challenging subject matter because courts have articulated different tests for determining whether such agreements can be enforced, and the analyses tend to be very fact-specific. Consistent with the chapter’s theme, Professor DiMatteo explores the possibility that parties can be bound to negotiate in good faith (288-90) in the context of what courts have called “Type II preliminary agreements. (286) Lord Denning is persuasive on the inherent repugnance of the notion from the perspective of freedom of contract, but Professor DiMatteo notes the tension in situations when consideration has been exchanged. (288) My difficulty with the problem is more practical. If ordered to negotiate in good faith, a party can put on a good show and still escape any legal commitment. Professor DiMatteo proposes promissory estoppel as a means of providing a remedy to disappointed counter-parties. (289) Perhaps. My sense is that the old chestnut, Hoffman v. Red Owl Stores, remains in our syllabi because it is so unusual. Courts are reluctant to grant a remedy to a commercial party that did not manage to get a written commitment from its counterparty.
The first post in this series, providing an introduction, covering history, law and equity, justifications for contract law, rules principles, and standards, specialized rules, and boundaries of contract, can be found here
Part II, a foray into comparative contracts law, is here.
Part III, a discussion of freedom of contract and five tensions through which contract law navigates, is here.
Part IV, on formalism, is here.
Part V, about substantive elements of contract, is here.
Part VI, remedies, excuse, and privity, is here.
Part VII, about defenses, is here.
Part VIII, on interpretation, is here.
Part IX, about standard terms and form contracting, is here.
Part X, on legal history and theories of legal development, is here.
Part XI, about classical contract theory, is here