You gotta be sincere

Ian Ayres

What parent hasn’t heard a child say with no small degree of indignation, "You lied to me; you said you would (take me to the park, buy me an ice cream cone…)." You want to respond, "No. Lying and promise-breaking are two different things. I might be a scoundrel for breaking my promise, but I never lied to you. I just changed my mind."

But there is still a way that the child's intuition can be right. A promise can be a lie if the promissor never intended to perform in the first place.

The law has long recognized this possibility and reacted harshly to insincere promisors. If you breach because you never intended to perform, you can be liable for punitive damages under the doctrine of promissory fraud (and can even be criminally prosecuted for false promise).

Because of the prospect of punitive damages, it shouldn't surprise us that promissory fraud is frequently claimed. In many jurisdictions, promissory fraud is litigated more than mistake and impossibility combined. But it is almost never taught in law schools.

Greg Klass and I are trying to change this state of the world. Yale University Press has just published our book Insincere Promises: The Law of Misrepresented Intent.

It is a complete guide to the law of promissory fraud. Here are four take-home lessons:

1. The Restatement of Torts says that every promise implicitly represents an intention to perform. But courts should acknowledge that not all promises include that representation, and they should allow promisors to disclaim it. Thus a business traveler who pays a non-refundable deposit to stay at the Holiday Inn can go ahead and immediately try for a reservation at the Ritz. Similarly, sophisticated parties drafting complex contracts should consider disclaiming representations of intent to perform, thereby minimizing promissory fraud liability.

2. Even promisors who don’t represent an intention to perform still must not intend not to perform. It would be promissory fraud (even with a non-refundable deposit) to book a reservation at the Holiday Inn that you know you are not going to use. And a party who disclaims a representation of an intent to perform should still be liable for promissory fraud if, when it entered into the contract, it affirmatively intended to breach.

3. Promissory fraud liability may not be appropriate when the promisor didn’t realize what she was promising. Any defendant who is mistaken about the scope of her promise – and testifies that she never intended to do X because she thought she had promised to do Y – currently runs the risk of beheld liable for promissory fraud. Every failed "mere puff" defense raises the risk of promissory fraud liability. Courts and litigators need to pay more attention to scienter.

4. Promissory fraud is usually inappropriate when a promisor breaches because of changed circumstances. But in some contexts, a defendant promisor makes an implicit representation of an intent not to breach even if a better offer comes along. Thus a landlord who rents to you and then immediately solicits tenants at a higher price is asking for trouble.

The act of promising often represents multiple facts about the world -- not just that the promissor intend to perform, but that it is probable that she will perform, and even that she will not change her mind for frivolous reasons. But promissors sometimes represent much less than this. Courts and litigators have been too wooden in their single minded notion of what promissory fraud is and is not. But a more nuanced approach which expands liability in some areas and contracts liability in others -- and which gives promissors more control over the extent of liability -- would better match modern contracting behavior and the needs of society.

Promissory fraud also provides a new way to view old common law chestnuts -- like Peeveyhouse, Carbolic Smoke Ball, and Red Owl. President Bush said "Read my lips', when he probably knew he might have to raise taxes. Justice Scalia promised Delta Airlines to take a return trip when he never intended to. Once you look, promissory fraud abounds not just in art and politics but in the world all around us.

You can also read the first chapter of the book here: or even (gulp) buy a copy here.
Posted 11:22 AM by Ian Ayres [link]