Article by Wendell H. Holmes
The Anglo-American legal tradition has long espoused the view that contracts are creations of the exercise of mutual assent. General rules of offer and acceptance require that the parties clearly manifest their intent to be bound. This manifestation ordinarily takes the form of promises, either express or implied, by each party to the other. This truism is subject to an important, although not necessarily inevitable, qualification: that the parties will be required to act in accordance with the manifestations of their intent measured by an objective standard. In the terminology of traditional contract law, it is the reasonable person's interpretation of the promisor's intent that is of paramount significance, rather than the promisor's unexpressed, subjective beliefs. So long as the promises both honestly and reasonably believes that the promisor intends to be bound, the law deems the requisite assent to be present.
From this fundamental proposition, traditional contract law proceeded to a corollary principle: regardless of the form of his promise, so long as a party manifests with sufficient clarity his intention not to be bound, then no legally enforceable obligations can result. Thus, what in every other sense would be considered a binding contract could, by use of appropriate language, be transformed into a ‘gentlemen's agreement’ evidencing a moral obligation, ‘enforceable’ only by the sanction of honor rather than the processes of law. According to traditional contract theory, then, the freedom of contract carried with it a correlative freedom not to contract. The logic would seem irrefutable: if all contracts are promises, then those promises that create contracts can be negated by express declarations that they do not bind the promisor.
The ‘promise model’ embraced by traditional contract law has had no shortage of critics. It is hardly revolutionary to suggest that no unitary law of contract now exists, if indeed it ever did. There is, however, no consensus regarding what has supplemented, or perhaps supplanted, the regime of consent. The most notable and obvious theory is that detrimental reliance may obtain independent standing with intent in the pantheon of contractual obligations. Others have argued that the results of modern contract cases may be more accurately described in terms of the status of the parties than the requirements of the promise model. A strong trend in alternative contract theory views the relationships between contracting parties as generating their respective rights and obligations. Nonetheless, arguably the most influential contemporary authority, the Restatement (Second) of Contracts, accepts the promise model and reaffirms the freedom not to contract, albeit somewhat diffidently: ‘Neither real nor apparent intention that a promise be legally binding is essential to the formation of a contract, but a manifestation of intention that a promise shall not affect legal relations may prevent the formation of a contract.’
This article seeks to consider the continued viability of this freedom not to contract through examination of the most common situations where ‘no-binding-effect’ clauses are utilized: employer-employee agreements involving bonuses, pensions, and death benefits, and the ‘letters of intent’ or ‘memoranda of understanding’ frequently executed in commercial settings. An analysis of these cases suggests that, contrary to traditional dogma, such clauses are not regularly enforced by courts on any systematic basis. The article examines the means by which courts avoid giving effect to such clauses, and their reasons—either apparent or real—for so doing. The discussion attempts to determine why parties continue to include such clauses in their agreements, and whether any useful purpose is served by doing so. Since my conclusion suggests that there has been a deterioration of the promise model of contracts, the article will consider whether the outcome of these cases may be more accurately explained by alternative theories of contractual obligation. The conclusion reformulates the current status of the freedom not to contract.
About the Author
Wendell H. Holmes. Associate Professor of Law, University of Mississippi. B.A. 1974, Millsaps College; J.D. 1977, Tulane University.
Citation
60 Tul. L. Rev. 751 (1986)