Freedom from Contract

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The last 100 years of court cases, is a testament to the age old struggle between Common-Law customs and the Conscience of Equity. When the American Judiciary merged the formally separate courts of equity and law into one semi-uniform battlefield[efn_note] an interesting read on the topic: The Fusion of Law and Equity in United States Courts by Charles T. McCormick; 4-1-1928; Volume 6 | Number 3 | Article 3; North Carolina Law Review[/efn_note]; The main contempt has ever remained, what law ultimately controls contracts? The relationship between Law and Equity; is best described in the maxims “Le Contract fait la Loi” or “Le Contract, Loi des Parties”, or in English “The Contract makes the Law” or “The Contract, Is the law of the parties”. Law and Equity are the two sides to the coin of Justice; but to describe the relationship between them, it is more akin to Siamese twins. Its not in doubt that they are joined in some fashion; the doubt lies in who holds the greater sway from case to case. The Common-Law, by its right in custom, gives the parties the power to bind each other; Equity, conversely governed by conscionability, gives the parties the power to dissolve those bonds.

No figure makes this more apparent than the infamous Judge Benjamin Cardozo. Cardozo is famous for his poetic style of writing, classical liberal conceptions of morality and thought, and for his very unique ability to twist a fact to better suit with the “intent” of the parties [efn_note] Teaching Law Through Contracts and Cardozo by Christopher L. Eisgruber(2000).[/efn_note]. The cases that he has presided over, have had massive over-arching effects to the Law of Contracts (at least prima facie), historically the common-law (case-law) dominated the legal world of contracts: In contrast the courts of equity have focused on the intended benefits that come from contractual relationships and to enforce a level of fairness between parties; in the absence of this fairness, a party could be freed of its obligations. The advancement of Common-law based contract theory was given a proverbial black eye by the liberal application of conscionability [efn_note] Benjamin Cardozo and the Death of the Common Law; John C. P. Goldberg, Touro Law Review Volume 31 Number 1(2018) [/efn_note] to a variety of contracts and tort cases. The history books would laud him as one of the last great Common-Law judges[efn_note] To this authors opinion, it is the greatest irony that such appellation be applied[/efn_note]; that from a strict point of jurisprudence he was the proverbial Equity-Wolf in a Common-Law-Lambs skin.

We have a “Freedom to Contract”, but conversely we also have a “Freedom from Contract”. I would make the argument that because Equity is a logical jurisprudence, it recognizes certain logical truths. If I stand on the ground; then the inverse is true, the ground lifts me up. If you have the freedom to enter a contract as recognized by the common-law, then it would be logical that you can leave a contract. I am taking a few liberties, in boiling down the elements of a contract into five parts; chiefly this article will focus on one of the elements and its relation to Equity: The elements are Offer, Acceptance, Consideration, Obligation, and Capacity. Equity looks to the conscionability, capacity, morality, knowledge and the ethos of the parties[efn_note] A great article on the topic: An analysis on the moral content of the principals of Equity by Ralph A. Newman (1967).[/efn_note] Common-Law contract theory fixes itself upon the expression of a contract rather than the inward intent. [efn_note]To quote a better author “Equity . . . is simply a tendency to look to the spirit rather than to the letter of the law and to apply general ideas of what is fair rather than specific rules.”: H. Jolowicz, Lectures on Jurisprudence 262 (1963) [/efn_note] Consideration, in the common-law contract theory was rigidly bound by strict forms of expression and was intended to prevent a person from entering into a contract unawares[efn_note]The Roman Stipulatio: “Spondeo?” – “Spondes!”; in English Law the Waxen-Seal; and the written “contract”(a receipt) in “Modern-Legal” systems.[/efn_note]; Cardozo by utilizing the “intent” aspect behind consideration, reformed contracts and unmade them. He is one of the most famous judges utilizing equity while shrouding his actions in a cape of the Common-Law. Focusing on the topic of Consideration the following article outlines the importance of Consideration to a contract.

From the article “An Apology for Consideration” by Edwin Patterson:[efn_note] This is the first time that the phrase “freedom from contract” appears in academic circles (at least from the time of writing this post): It has started to develop into a legal theory in its own right. An Apology for Consideration, 58 Colum. L. Rev. 929, 949 (1958). See also for an interesting commentary on the conceptual development of this “apparently” revolutionary theory: W. Friedmann, Law in a Changing Society 90 et seq. (1959).[/efn_note]

“Freedom From Contract: Proof of Consideration
How well does the requirement of consideration protect the unwary singer or the casual promisor? Better, I think, than any formality, such as the seal, especially after it was turned into an (L.S.)[efn_note]Locus Segilli – LC[/efn_note] on a printed form, and better than merely a signed writing, or that plus a statement of intent to be legally bound. Any of these can be ingeniously disguised by the printed form and thus be unnoticed. Consideration requires something to be done outside the writing and that is less easy to fake. The casual promisor who promises a generous gift to a wheedling relative might be hooked by a “signed writing,” even by one containing Professor Williston’s formula[efn_note]That is, the statement of intention to be bound required by the Model Written Obligations Act subsection1 (1943) (Formerly Uniform Written Obligations Act subsection 1 (1925)).[/efn_note]; the requirement of consideration has stopped a good many gift-promisees from collecting on benevolent, casual, improvident, or inchoate promises. [efn_note]See in re Baers Estate, 196 Misc. 979, 92 N.Y.S 2d 359 (Surr. Ct. 1949) (benevolent letter to cousin in Germany). See also MacGowan v. Barber, 127 F.2d 458 (2d Cir. 1942); Foltz v. First Trust & Sav. Bank, 86 Cal. App. 2d 59, 194 P.2d 135 (Dist. Ct. App. 1948); Stanfield v. Kaufman, 195 S.W. 2d 848 (Tex. Civ. App. 1946).[/efn_note]  It sometimes protects businessmen against liability on overly generous promises that they make to their complaining customers,[efn_note]See Edwards v. Walton, 308 S.W. 2d 587 (Tex. Civ. App. 1958).[/efn_note] yet it is arguable that in such a case the “past consideration” should be sufficient. It is also arguable that some means should be available to make gift-promises enforceable. This suggestion will be discussed below. The widespread prevalence of exaggerated or groundless claims based on the law of torts suggests what may happen if the possibility of holding alleged promisors on vague expressions of hope were extended. Those who, like the poet and composer, want to stay out of the bargaining process as far as possible should not be dragged into inadvertent contract making.

While the proof of consideration is often less simple than in the case of a mere formality, it is more flexible and offers more weapons for enforcement by promises who have conferred consideration yet have not sufficiently formalized it. Such proof is not confined to the express terms of the contract; it may be inferred from those terms, together with usage, course of dealing, and other circumstances outside the explicit utterances of the parties. In the well known case of Wood v. Lucy[efn_note]Wood v. Lucy 222 N.Y. 88, 118 N.E. 214 (1917). See also Mandel v. Liebma, 303 N.Y. 88, 100 N.E. 2d 149 (1951)[/efn_note] the lady promised in a signed agreement to give Wood the exclusive right to negotiate sales of her endorsements on merchandise and to pay him a commission on sales, but the writing failed to state anything to be given or done or forborne by Wood in return. The court generously inferred a return promise by Wood to Lucy to use due diligence to promote sales, thus turning an apparently one-way promise into a two-sided obligation. The parol evidence rule gives effect to the integration of terms in a written agreement only so far as to exclude contradictory or, in some cases, additional terms; it does not exclude extrinsic proof of the process of bargaining, or of a preformance bargained for outside the writing. Thus a third person, T, who promises in writing to pay D’s overdue debt to C without expressing in the writing any consideration for his promise (or only a false consideration, such as “for value received”) may be held liable to C on the basis of an inferred “reasonable” forbearance by C as the consideration for T’s promise.[efn_note]See Alliance Bank v. Broome, 2 Drew. &Sm. 289, 62 Eng. Rep. 631 (Ch. 1864). Likewise in Griffin v. Louisville Trust Co., 312 Ky. 145, 226 S.W. 2d 786 (1950), the court inferred as a consideration for the employer’s promise the employee’s future services.[/efn_note] In a recent New York case the court was apparently unwilling to go this far, but it permitted proof that T before signing knew of C’s intended forbearance and from this inferred consideration.[efn_note]Ruegg v. Fairfield Sec. Corp., 308 N.Y. 313, 125 N.E. 2d 585 (1955).[/efn_note] While other courts have held that C mst promise a definite period of forbearance in return for T’s promise,[efn_note]See J.H. Queal & Co. v. Peterson, 138 Iowa 514, 116 N.W. 593 (1908); Van Bebber v. Vechill, 166 Ore. 10, 109 P.2d 1046 (1941). These cases protect the generous accommodation surety, who often needs it.[/efn_note] these cases are said to be “quite erroneous.”[efn_note] See 1 Corbin, Contracts subsection 137 (1950).[/efn_note] The “flexibility” of the inference of consideration may be used as merely an approved rational basis for granting or denying enforcement of a promise because of the court’s feeling of justice, but I have reason to believe that this occurs less often than was formerly supposed. Is proof of consideration the same as proof of agreement or “mutual assent” in the Anglo-American sense of offer and acceptance? One writer who defends consideration maintains that:

“…consideration in its essential nature is an aspect merely of the fundamental notion of bargain, other aspects of which, no less but no more important, are offer and acceptance. Consideration, offer and acceptance are an indivisible trinity, facets of one identical notion which is that of bargain.[efn_note] Hamson, supra note 7, at 234. It may be asked, of course, if this statement is not a mere tautology because “offer and acceptance” are so defined as to include exchange.[/efn_note]”

While a promise to make a gift may be, in a sense, “offered” and “accepted”,[efn_note] See Plowman v. Indian Ref. Co., 20 F. Supp. 1 (E.D. III. 1937); Kirksey v. Kirksey, 8 Ala. 131 (1845).[/efn_note] this sense is not the professionally correct meaning of “offer” and “acceptance” because the “offer” does not request an exchange. The above statement is essentially true because “offer” and “acceptance” are taken to imply exchange. Yet in application the two are not identical. For instance, in the cases where an indefinite forbearance was inferred or was proved as the consideration for T’s promise to C to pay D’s debt to C, the facts deemed sufficient to satisfy the consideration requirement would not satisfy the offer-and-acceptance requirement, that the offer state something requested in return and that the acceptance match the offer.[efn_note]Other cases that seem to illustrate this difference are: Allegheny College v. National Chautauqua County Bank, 246 N.Y. 369, 159 N.E. 173 (1927) (the promise of the college was at best indefinite and did not match the offer); Thomas v. Thomas, 2 Q.B. Rep. 851 (1842).[/efn_note] In such instances “consideration” seems to be given a broader meaning than “offer and acceptance.” Now let us look at the reverse facet: if consideration were abolished, would the offer-and-acceptance requirement then make enforceable promises which the consideration requirement makes unenforceable? Since an answer to this question would call for an extensive survey and exposition of terms sufficient for another essay, I can only say here that in some cases, such as possibly he purported exchange of a genuine for an illusory promise [efn_note] E.g., Strong v. Sheffeld, 144 N.Y. 392, 39 N.E. 330 (1895) (promise by C to forbear suit on D’s debt “as long as he felt like it” in return for T’s promise to pay the debt). Still, it may well be argued that an “illusory promise” is no promise, Restatement subsection 2,comment b, and hence T’s offer was not accepted. Similarly, the no-intention-to-contract limitation would still apply, and cases like White v. Bluett, 23 L.J. Exch. (n.s.) 36 (1853), would be decided the same way.[/efn_note]and clearly in the case of the pre-existing duty rule, a promise not unenforceable would become enforceable. Perhaps our present law of offer and acceptance (mutual assent) would have to be extensively supplemented if consideration were abolished.”

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