A Fuller Understanding of Contractual Commitment

What do recitals of contractual obligation actually do? Pennsylvania, uniquely, permits parties to contract into obligations under the Uniform Written Obligations Act. But many other states permit mere recitals of consideration to conclusively establish the enforceability of a contract, even gratuitous promises otherwise unsupported by bargained-for-exchange.

In contract theory, the enforceability of such naked recitals (and the UWOA) are contested. Law Professor Lon Fuller, writing in 1941, famously argued that such formal devices evidence, channel, and caution promisees. He thought that like other legal formalities−e.g., wax seals, the “requirement of a writing,” “attestation, notarization”−recitals of consideration induced individuals to feel and behave in a more committed way to the underlying term supported by the formal recitation.

In a draft paper, Professor Zev Eigen and I have tested Fuller’s hypothesis by means of an experiment on 2000 online subjects. The basic framework for the experiment involved paying participants to divide a sum of money between two third-parties. We then added an extra element—a formality—which depended on the experimental condition: (1) language reciting consideration (a “recital”), (2) a recital accompanied by a sum of money; (3) language disclaiming contract formation; or (4) a control, with no reference to contract at all.

Participants were given the opportunity to back out of their commitments and claim a portion of the funds they allocated to third-parties for themselves. Somewhat astonishingly—given the absence of legal sanction for breach of the contract, the anonymous nature of the survey, and reputed greed for small sums of cash among Internet survey respondents—a majority of all subjects across conditions refused to deviate from the allocations initially made. They stuck to their promises, with or without formalities. But some did not.

We found that recitals of consideration did no significant work in motivating individuals to stick with their commitments.

By contrast, bonus consideration—providing subjects a nominal amount of money (ranging from $0.25 to $1.00) to seal their agreement—significantly increased compliance. This tends to support Fuller’s argument that the only “really effective” form of consideration is “nominal consideration actually handed over.” And, in a finding of special relevance to current debates about “no contract” clauses (e.g., in term sheets), disclaimers of obligation appeared to perversely increase the likelihood that subjects would keep their bargains.

Two other findings are of interest. Women were significantly more likely to keep their bargains than men. And, generally, older subjects were more likely to remain committed to their initial allocations than younger subjects. The differences here are stark: 54% of subjects aged 18-24 backed out of their commitments, as compared to 24% of those 45-54 and only 22% of those aged 55-64.

Figure 1: Likelihood to back out of agreement, by age and condition

The paper (which you can download here) discusses these findings in more detail and suggests how they might cause us to rethink contract doctrine.

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