*George Mason School of Law

Contracts I

A. Common Law Illegality

F.H. Buckleyfbuckley@gmu.edu

Weve discussed why promises should be binding

Now: when should they not be binding?*

Weve discussed why promises should be binding

Now: when should they not be binding?Weve assumed that bargains make people better off. But what if they dont?*

What does it mean to choose badly?

Immoral choices Choices that Harm Others Self-Defeating Choices

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1.Immoral Choices

Should the state enforce morals? The Borders of Private and Public Law

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2.Choices that Harm Others

Third Party ExternalitiesBut what counts as a harm?

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3.Self-defeating ChoicesDo the parties have capacity to choose wiselyDid they consent to the choice?*

3.Self-defeating Choices

Capacity to ContractI wanted x but somehow I chose not-x.*

3.Self-defeating Choices

Vices of ConsentFraudDuressUnconscionability?*

Mill On Liberty (1859)

What does this mean?It really is of importance, not only what men do, but also what manner of men they are that do it. Among the works of man, which human life is rightly employed in perfecting and beautifying, the first in importance surely is man himself. *

Immoral Choices

Wait, that was a value judgment!!!!*

Immoral Choices

Clint and Bill meet up*

Immoral Choices

The moral landscape: subjectivists and anti-subjectivistsSubjectivism: Each individual is the source of his personal moral judgment and there is no external basis for morality (relativism)Anti-subjectivism: An individuals moral judgment may be second-guessed, even when the individual holds it sincerely

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Immoral Choices *Vaughn WalkerMaggie Gallagher

Immoral Choices Is there such a thing as being too judgmental?*

Immoral Choices Is there such a thing as being too judgmental?Especially when the state enforces morals?*

Enforcing morality*

MoralsAnti-subjectivismSubjectivismLawPerfectionism(Illegality)Neutralism

Mills Position*

MoralsAnti-subjectivismSubjectivismLawPerfectionism(Illegality)Neutralism

Neutralism

Mills harm principle: The only purpose for which power can rightfully be exercised over any member of a civilized community, against his will, is to prevent harm to others. Mill, On Liberty (1859)

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Neutralism

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John Stuart Mill & Harriet Taylor*

The Film Version: as done by Merchant & IvoryWith Hugh Grant as JSM*

The Film VersionAnd Emma Thompson As Harriet Taylor*

Hi Mom. Hi Dad. Im home!And Jerry Mathers As The Beaver*

Mills harm principle

What does this mean?It is proper to state that I forego any advantage which could be derived to my argument from the idea of abstract right as a thing independent of utility. I regard utility as the ultimate appeal on all ethical questions*

Mills harm principle

The only purpose for which power can rightfully be exercised over any member of a civilized community, against his will, is to prevent harm to others. And just what does that mean?

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Mills harm principle

The only purpose for which power can rightfully be exercised over any member of a civilized community, against his will, is to prevent harm to others. Self-regarding harms dont provide a basis for state interference

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Mills harm principle

So what does that leave?What choices would Mill restrict?

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Neutralism

So what does that leave?Other-regarding harms: ExternalitiesChildren, etc.The time when mankind have become capable of being improved by free and equal discussion

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The Legal Response

Statutory and Common Law Illegality*

*Statutory and Common Law Illegality

Contracts rendered illegal by statute: Watts v. Malatesta

Contracts illegal at common law: Baby M

Statutory Illegality: Gambling*The game is poolstraight pool

Statutory Illegality: Gambling*The HustlerLooks like a church Yeah. The Church of the Good Hustle.

Why should gambling be stigmatized?*

*Is gambling inconsistent with the norms of capitalism?*Daniel Bell, The Cultural Contradictions of Capitalism

You can scissors-and-paste the Ross Douthat piece

Gambling: Criminal SanctionsVA 18.2-325.

1. "Illegal gambling" means the making, placing or receipt, of any bet or wager in this Commonwealth of money or other thing of value, made in exchange for a chance to win a prize, stake or other consideration or thing of value, dependent upon the result of any game, contest or any other event the outcome of which is uncertain or a matter of chance

NY 991 in Watts*

Gambling: Civil Law EffectsVA 11-14. Gaming contracts void. Except as otherwise provided in this section, all wagers, conveyances, assurances, and all contracts and securities whereof the whole or any part of the consideration is money or other valuable thing won, laid, or bet, at any game, horse race, sport or pastime, and all contracts to repay any money knowingly lent at the time and place of such game, race, sport or pastime, to any person for the purpose of so gaming, betting, or wagering, or to repay any money so lent to any person who shall, at such time and place, so pay, bet or wager, shall be utterly void.

NY 992 in Watts*

But its OK when we do it 11-14. Gaming contracts void. Except as otherwise provided in this section, all wagers, conveyances, assurances, and all contracts and securities whereof the whole or any part of the consideration is money or other valuable thing won, laid, or bet, at any game, horse race, sport or pastime, and all contracts to repay any money knowingly lent at the time and place of such game, race, sport or pastime, to any person for the purpose of so gaming, betting, or wagering, or to repay any money so lent to any person who shall, at such time and place, so pay, bet or wager, shall be utterly void. Notwithstanding any other provision of law, a contract governing the distribution of state lottery proceeds shall be valid and enforceable as between the parties to the contract.

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Watts at 481What happened*

Watts

*Lost and paid $37,500Lost and paid net $100,000

sues to recover his losses.

Can offset against this claim his far greater losses to ?

Watts*

What does Ex turpi causa oritur non actio mean?

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Watts*

What does Ex turpi causa oritur non actio mean?Contract void as to future performance

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Watts*

How as this changed by NY 994?

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Watts*

How as this changed by NY 994?any person can recover gambling losses

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Watts*

How as this changed by NY 994

Which rule has better incentive effects?

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Watts*

What does In pari delicto portior est conditio defendentis mean?

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Wait a minute

Just how do professional gamblers collect their winnings?*

How do professional gamblers collect their winnings?Remember Nick the Chin

*Im tinkin youse should pay what youse owe

The real problem

Is every contract made in breach of statute void for illegality?

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Simple regulations with no criminal penalty attached

If breached, what are the consequences in contract law?*

Not every breach of a stature makes a contract unenforceableRestatement 181. If a party is prohibited from doing an act because of his failure to comply with a licensing, registration or similar requirement, a promise in consideration of his doing that act or of his promise to do it is unenforceable on grounds of public policy if (a) the requirement has a regulatory purpose, and (b) the interest in the enforcement of the promise is clearly outweighed by the public policy behind the requirement. *

Statutory Illegality

What is a regulatory purposeCf. Restatement 181, Illustration 1.*

Statutory Illegality

What does public policy mean here?Cf. Restatement 181 illustrations 2 and 4*

Common Law Illegality

That was contracts illegal by statutebut what about contracts illegal at common law?*

Common Law Illegality*Restatement 192 ff. Promises to commit a tort

*Common Law IllegalityRestatement 178(1): Unenforceability on Grounds of Public Policy

(1) A promise or other term of an agreement is unenforceable on grounds of public policy if legislation provides that it is unenforceable or the interest in its enforcement is clearly outweighed in the circumstances by a public policy against the enforcement of such terms.

*Common Law IllegalityRestatement 178(2)

(2) In weighing the interest in the enforcement of a term, account is taken of (a) the parties' justified expectations,(b) any forfeiture that would result if enforcement were denied, and(c) any special public interest in the enforcement of the particular term.

*Common Law IllegalityRestatement 178(3): Unenforceability on Grounds of Public Policy

(3) In weighing a public policy against enforcement of a term, account is taken of:

the strength of that policy as manifested by legislation or judicial decisions,

(b) the likelihood that a refusal to enforce the term will further that policy,

(c) the seriousness of any misconduct involved and the extent to which it was deliberate, and

(d) the directness of the connection between that misconduct and the term.

I assume youve all had your chakras aligned recentlyA customer at a yoga studio runs up a tab of $1,000. The studio is not licensed.

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I assume youve all had your chakras aligned recentlyA customer at a yoga studio runs up a tab of $1,000. The studio hasnt paid city taxes for the last two years.

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The effect of arbitration clauses

Buckeye at 485: Whats the argument that the arbitration clause is voided?And what did the Court hold?*

Common Law Illegality: Baby M at 487

What happened?*

Common Law Illegality: Baby M at 487

How do you see Mary Beth Whitehead?*

Mary Beth Whitehead*

Baby MMary Beth Whitehead*

Baby MThe Sterns*

Baby M*Why did the Whiteheads enter into the contract?

Baby M*Why did the Sterns not have their own children?

So what did the court hold? *

So what did the court hold?

Why was it contrary to statute?

*

So what did the court hold?

Why was it contrary to public policy? *

So what did the court hold?

OMG, no lawyers, no psychologists to advise her!!!! *

Baby M: Who gets the child?*

Baby M: Who gets the child?Whos got the better c.v.?*Who is more likely to:subscribe to The New Republic? attend an Arthur Miller play?read a Jonathan Franzen novel?

Baby M*Did Whiteheads actions render her an unfit mother?

Surrogacy ContractsShould they be enforced?How would you have redrafted the Whitehead contract?*

Surrogacy ContractsShould they be enforced?Note that the industry has expanded, AFTER Baby M.*

Surrogacy ContractsShould they be enforced?Note that the industry has expanded, AFTER Baby M.Why not just enforce them, if the yuppies win anyway? *

Surrogacy ContractsAre there any limits?An ultrasound reveals that the child has Downs Syndrome. The agreement provides that it is void in this case.

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What about the following?

A sale of a kidney?

A futures contract for a kidney?*

What about the following?

The sale of a child?

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What about the following?

The sale of a child?Why do we find this revolting? Are we wrong to do so?

**

Whats wrong with hog-dog fights?*

Whats wrong with hog-dog fights?*Meet Ariarriving at Reagan Airport

Are Emotions Moral?

Most of us feel repugnance at things like hog-dog fights, even if we cannot articulate a rational basis for our feelingsShould this inform our moral code?*

Are Emotions Moral?Most of us feel repugnance at certain things, even if we cannot articulate a rational basis for our feelingsLets say we are taught not to feel repugnance at certain acts, by a social worker. Have we lost something of value? Or have we been morally improved?*

Are Emotions Moral?

What about moral externalities?Are we influenced by the moral feelings of those around us?**

Externalities

Externalities are the third party effects where my actions either confer a benefit or impose a cost on others.*

*Which suggests two kinds of Perfectionism

Private Perfectionism overrules personal choice to make the subject a better person

Social Perfectionism overrules personal choice to protect third parties from moral externalities

*Social Perfectionism

Mills harm principle: The only purpose for which power can rightfully be exercised over any member of a civilized community, against his will, is to prevent harm to others. Mill, On Liberty (1859)

But what counts as a harm?

Physical externalities*

Moral externalities?*Hells AngelsThe original 1%

*Social Capital: Do norms rub off on other people?

*Do we have a stake in who our neighbors are?Three different kinds of capital

Physical Capital

*Social Capital

Physical capital Human CapitalIntelligence and healthPrivate virtue, good character

*Social Capital

Were there externality concerns in Baby M?Are surrogate parents any worse than natural parents?

*Social Capital

Were there externality concerns in Baby M?Does surrogacy affect the feelings of natural parents?

*Social Capital

Were there externality concerns in Baby M?Are surrogate parents any worse than natural parents?

What about same sex marriage?

*

*George Mason School of Law

Contracts I

A. Common Law Illegality

F.H. Buckleyfbuckley@gmu.edu

*Social Capital

Physical capital Human Capital Social CapitalDo you have any preferences about your neighbors and fellow citizens?

*Social Capital

Physical capital Human Capital Social CapitalDo you have any preferences about your neighbors and fellow citizens?And does that supply an argument for the enforcement of morals?

Recall Mills harm principle

The only purpose for which power can rightfully be exercised over any member of a civilized community, against his will, is to prevent harm to others. Mill, On Liberty (1859)

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*Promises detrimental to marriage

Restatement 190(1): if it would change some essential incident in the marriage relationship in a way detrimental to the public interestCf. Illustration 1*

*Promises that encourage divorce

Restatement 190(2): a promise that tends unreasonably to encourage divorce or separaitonCf. Illustration 5*

Marriage: Marvin at 499Does the state have an interest in promotingmarriage? And how do the incentives cut?

*Palimony: Lee Marvin and Michelle Triola*

Marriage: Hewitt at 499

Does marriage matter? The casebook describes the Hewitts relationship as merely lacking legal formality

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Marriage: Hewitt at 499

Does marriage matter? The casebook describes the Hewitts relationship as merely lacking legal formalityLets say you suggest a divorce to your spouse, for that reason

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Marriage: Hewitt

Does marriage matter? The casebook describes the Hewitts relationship as merely lacking legal formalityGlasgo at 499: Did the plaintiff see it that way?

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Some remaining issues

Affirmative legal dutiesSlippery slopesWhat about social norms?Can we trust the state?Moral improvement*

Affirmative Legal DutiesWas Mill a libertarian?There are also many positive acts for the benefit of others, which he may rightfully be compelled to perform; such as, to give evidence in a court of justice; to bear his fair share in the common defence, or in any other joint work necessary to the interest of the society of which he enjoys the protection; and to perform certain acts of individual beneficence, such as saving a fellow-creature's life, or interposing to protect the defenceless against ill-usage, things which whenever it is obviously a man's duty to do, he may rightfully be made responsible to society for not doing. *

*The Battle of the Slippery Slopes

What counts as a harm?I fully admit that the mischief which a person does to himself, may seriously affect, both through their sympathies and their interests, those nearly connected with him, and in a minor degree, society at large.

*The Battle of the Slippery Slopes

What counts as a harm?If, for example, a man, through intemperance or extravagance, becomes unable to pay his debts, or, having undertaken the moral responsibility of a family, becomes from the same cause incapable of supporting or educating them, he is deservedly reprobated, and might be justly punished; but it is for the breach of duty to his family or creditors, not for the extravagence. Whenever, in short, there is a definite damage, or a definite risk of damage, either to an individual or to the public, the case is taken out of the province of liberty, and placed in that of morality or law.

*The Battle of the Slippery Slopes

What counts as a harm?Is there a limit to this: slippery slopes.

*The Battle of the Slippery Slopes

In a slippery slope, I want to do A and do not want to do B. But if I do A I am led into doing B.

*The Battle of the Slippery Slopes

In a slippery slope, I want to do A and do not want to do B. But if I do A I am led into doing B. Is there a fallacy here?

*The Battle of the Slippery Slopes

In a slippery slope, I want to do A and do not want to do B. But if I do A I am led into doing B. Is there a fallacy here?Or is this an informational problem?

*Perfectionism and Slippery Slopes

The Perfectionist fears that a slight change in moral habits will lead to the Decline and Fall of our civilization.

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*Slippery Slopes in RomeCouture, Les Romains de la dcadence, 1847

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*Neutralism and Slippery SlopesThe Neutralist fears that any enforcement of morals will lead to the most severe restrictions on liberty.

What about social norms?

Society can and does execute its own mandates: and if it issues wrong mandates instead of right, or any mandates at all in things with which it ought not to meddle, it practices a social tyranny more formidable than many kinds of political oppression, since, though not usually upheld by such extreme penalties, it leaves fewer means of escape, penetrating much more deeply into the details of life, and enslaving the soul itself. *

*Can the state be trusted to legislate morals?

*Can the state be trusted to legislate morals?

President Johnson signs the 1964 Civil Rights Act

*Can the state be trusted to legislate morals?

Jim Crow laws were legislated by the states

*Does Neutralism promote nobility?Among the works of man, which human life is rightly employed in perfecting and beautifying, the first in importance surely is man himself.

He who lets the world, or his own portion of it, choose his plan of life for him, has no need of any other faculty than the ape-like one of imitation. He who chooses his plan for himself, employs all his faculties.

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