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Relative Consent and Contract Law

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18 NEV. L.J. 165, KIM - FINAL 12/15/17 12:41 PM RELATIVE CONSENT AND CONTRACT LAW Nancy S. Kim* What does it mean to consent? Consent is an essential component of contracts, yet its part in contract law is obscure. Despite its importance, there is no independ- ent doctrine of consent; rather, it plays a key, but ill-defined role in assessing doc- trines such as assent or duress. This Article addresses this significant omission in contract law by disassembling the meaning of contractual consent into three con- ditions: an intentional act or manifestation of consent, voluntariness and knowledge. This Article argues that consent can only be understood relative to these three conditions. Accordingly, consent is not merely a conclusion but a pro- cess and a dynamic that depends upon a variety of factors, including the relative blameworthiness of the parties, their relationship, third party effects and societal impact. This Article, through an examination of classic and modern cases, demon- strates how the concept of relative consent provides a coherent framework for un- derstanding contract law. TABLE OF CONTENTS INTRODUCTION ....................................................................................... 166 I. CONSENT CONSTRUCTION AND CONSENT DESTRCUTION .......... 169 A. Consent Construction .......................................................... 170 1. Intentional Manifestation of Consent ........................... 171 2. The Knowledge Condition ............................................ 172 3. Voluntariness ................................................................ 172 4. Assessing the Consent Conditions ................................ 173 B. Consent Destruction ............................................................ 176 II. CONSENT CONSTRUCTION AND CONTRACT FORMATION ........... 178 A. Offer, Acceptance and Mutual Assent ................................. 179 1. The Knowledge Condition in Two Classic Cases ......... 180 B. Consideration ...................................................................... 188 1. Consideration and the Voluntariness Condition in Two Classic Cases ................................................................ 189 C. Capacity to Contract, Knowledge, and Voluntariness ........ 193 III. CONSENT AND CONTRACT ENFORCEMENT ................................. 195 * ProFlowers Distinguished Professor of Internet Studies and Professor of Law, California Western School of Law and Visiting Professor, Rady School of Management, University of California, San Diego. The author thanks Heather Daiza and Vivian Lin for their hard work and excellent research assistance and the editors of the Nevada Law Review for their careful editing and diligence. 165 18 NEV. L.J. 165, KIM - FINAL 12/15/17 12:41 PM 166 NEVADA LAW JOURNAL [Vol. 18:165 A. No Consent and Void “Contracts” ..................................... 199 1. Fraud ............................................................................ 199 2. Duress ........................................................................... 201 B. Defective Consent. .............................................................. 203 1. Undue Influence ............................................................ 203 2. Unconscionability ......................................................... 205 3. Mistakes ........................................................................ 206 C. Extinguished Consent .......................................................... 210 1. Changed Circumstances ............................................... 210 2. The Effect of a Basic Assumption on the Knowledge Condition ...................................................................... 213 D. Enforceability and Illegal Contracts .................................. 214 E. Blameworthiness and Forfeiture ......................................... 216 CONCLUSION .......................................................................................... 219 INTRODUCTION Contracts play an essential role in a free society. They are the tools by which individuals may transfer their rights, create obligations for themselves, and bind others. A contract is a legally enforceable promise, which means that the state, through the courts, has the power to require each party’s performance.1 A con- tract allows the parties to create their own private law, but the state enforces it.2 In this way, the state plays an essential role in the redistribution of private prop- erty. But why should the state intervene in purely private matters? There are several grounds upon which state interference in contractual mat- ters is justified.3 One of the most often cited is that a contract promotes the au- tonomy of individuals by allowing them to decide how to allocate their property rights.4 A contract permits an individual to rent out a room in her home or sell her car. A contract thus allows her to use her property as she sees fit. Another common justification is that state enforcement provides security of transactions which is necessary to the stability of a credit-based economy.5 A credit-based 1 RESTATEMENT (SECOND) OF CONTRACTS § 1 (AM. L. INST. 1981) (“A contract is a promise or a set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty.”). 2 Id. 3 For a discussion of contract law theories, please see STEPHEN A. SMITH, CONTRACT THEORY (2004). 4 See Owen M. Fiss, The Autonomy of Law, 26 YALE J. INT’L L. 517, 518–19 (2001) (“Contract law is also indispensable to assure parties who are bargaining with each other that their prom- ises will be enforced. Neither contracts nor property law, nor any other body of law . that might be needed for the market to function, are self-enforcing.”). 5 See Morris R. Cohen, The Basis of Contract, 46 HARV. L. REV. 553, 576 (1933) (stating that the law will enforce contracts “in the interest of the general security of business transactions.”). 18 NEV. L.J. 165, KIM - FINAL 12/15/17 12:41 PM Fall 2017] RELATIVE CONSENT AND CONTRACT LAW 167 economy allows more utility from property ownership and allows a more sophis- ticated and expansive marketplace.6 For example, credit permits a farmer to use a tractor now and pay for it after the harvest. Without credit, the tractor would sit idle, there would be fewer crops, and the farmer would have less money after the harvest to buy goods and services from others. Without the backing of the state, the future performance of an individual would depend upon his word—or the brute strength of the one to whom performance was owed. Without contracts, commercial exchanges would be local, limited to barter exchanges, and enforced by the threat of vigilante justice. Melvin Eisenberg argued that modern contract law has—and should—be- come more substantive, subjective, individualized, dynamic, and less formalistic, objective, binary, and static.7 He explained that the best possible rules of contract law should conform to the following, which he referred to as the “basic contracts principle”: First, if but only if appropriate conditions are satisfied, and subject to appro- priate constraints, contract law should effectuate the objectives of parties to a promissory transaction. Second, the rules that determine the conditions to, and the constraints on, the legal effectuation of the objectives of parties to promissory transactions, and the manner in which those objectives are ascertained, should consist of the rules that would be made by a fully informed legislator who seeks to make the best possible rules of contract law by taking into account all relevant propositions of morality, policy, and experience.8 Eisenberg described the basic contracts principle as rejecting single-value theories of contract, such as autonomy theories. Instead, he argued that contract law should recognize the complexity of the human condition and consider “all meritorious values . even if those values may sometimes conflict.”9 The basic contract principle also “deemphasizes the role of contract law in providing effi- cient incentives to contracting parties. Under the principle, the purpose of con- tract law should be to effectuate the objectives of parties to promissory transac- tions, not to lead them into acting efficiently.”10 The basic contracts principle rejects the position that contract law is not promise-based, but requires that “promises are to be enforced only under appropriate conditions and only subject to appropriate constraints.”11 Importantly, the basic contracts principle “rejects the position that contract law should always assume that contracting parties are 6 For a general discussion of how contract shapes and is shaped by a credit economy and marketplace changes, see NANCY S. KIM, WRAP CONTRACTS: FOUNDATIONS AND RAMIFICATIONS 17–34 (2013). 7 Melvin Aron Eisenberg, The Emergence of Dynamic Contract Law, 88 CAL. L. REV. 1743, 1745 (2000). 8 Id. 9 Id. at 1747. 10 Id. 11 Id. 18 NEV. L.J. 165, KIM - FINAL 12/15/17 12:41 PM 168 NEVADA LAW JOURNAL [Vol. 18:165 perfectly rational” and instead adopts the view that contract law should be based upon “how people act.”12 This Article affirms and extends Eisenberg’s basic contracts principle. If the purpose of contract law is to “effectuate the objectives of the parties to a prom- issory transaction,” consent is a prerequisite, an assumption so obvious that it scarcely needs to be mentioned. The law typically views promises made without consent as not being promises at all. A promise made under duress, for example,
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