The Balance Theory of Contracts: Seeking…

29 McGill L. J. (Revue de droit de McGill) 24 (1983)
by Joel Levin*

The central contract in the traditional theory was consideration, a notion typical of other contract concepts in its theoretical untidiness. Consideration can be best understood by seeing the set of reasons behind it. Its absence could vitiate agreements thought to be too unfair to be enforced. Consideration was a spectacular improvement over its predecessor, the seal. With the addition of promissory estoppel, which protects the reliance interest, it is largely successful in achieving its purpose. That is, problems of fraud illegality, mistake and duress aside, most contracts one might believe ought to be enforced do have consideration; most that should not be enforced do not. Why then jettison consideration?

The problem lies in the Byzantine nature of consideration. At one time, perhaps with the first edition of Williston’s Contracts, one could use the traditional contract theory of consideration to understand fairly well what the courts were doing and why. Even then, there were serious problems of fit between the cases of concept. The traditional concept of consideration would not permit promissory estoppel recovery on gratuitous promises, modification of ongoing transactions where one party was performing a pre-existing duty, or enforcement of a promise motivated by the moral consideration of repaying a valuable benefit which had been conferred gratuitously in the past. Yet, the courts were often enforcing such promises in spite of the doctrine of consideration. In trying to develop doctrine that both retains the old concept and incorporates the results of these later cases, consideration has become a patchwork of rules too fragmented to be successful. Fragmentation is fetal in several ways. First, the connection between the cases and the concepts becomes attenuated. Fit in law is like fit in clothing. If the theory needs constantly to be altered, taken in at the waist while making room for a third arm or a second head, eventually it loses its value. It is not a complete failure, it is just not worth the trouble of keeping. Second, continuing fragmentation causes a loss of the predictive value necessary in legal theory. Where rules have exceptions to exceptions to exceptions, one cannot be very certain as to how a particular case, always factually unique, will be categorized. By definition, no central principle organizes a fragmented theory.

However, the most telling failure of patchwork theory lies in its difficulty in complying with the similarity imperative. For example, suppose a contract theory holds that a bilateral contract would arise only if a valid offer were met by a timely acceptance. It subsequently becomes evident in cases of ongoing business relationships that often no offer or acceptance is made for any particular transaction. The theory is changed to allow implied offer and acceptance, or else just to pose the question whether the parties intended that a deal had been struck. The old theory, ex hypothesi, would not consider such transactions to be contracts. A lawyer who once endorsed the old theory but now accepts the change is forced to violate the similarity imperative, at least over time, for like cases are being treated differently than they once were. If this seems a trivial injustice, consider the consequences of a system where the received theory is in constant flux. If one is in doubt as to whether a rule, its exception, or its revision applies, the theory, by being fragmented, is unable to provide guidance. Perhaps ongoing relationships that break down ought to be given only restitutionary protection through unjust enrichment. The theory cannot answer questions of this generality. Only the relatively less important questions are answerable.