Paolo Pardolesi The Double Soul of Promissory Estoppel.

A Comparative View
(forthcoming in Comparative Law Review)

Abstract: The contrast between pre-contractual discipline at common and civil law represents, for the comparative scholar, a conceptual challenge that deserves to be harvested. Trying to formulate common principles capable of overcoming national laws, the European side seems to lean towards a cautious recognition of the binding nature of unilateral promise. Both the Draft Common Frame of Reference and the Principles of European Contract Law accept unilateral promises or undertakings as effective if they are intended to be legally binding without acceptance This feature may derive not only from the agreement between the parties but also from the mere willingness to assume a legal obligation, in the absence of any paradigm of reciprocal commitment. At first glance, an approach of this kind would seem to mark a break in continuity in civil law systems, which are focused on bilateral nature of the project of autonomy, as compared to common law systems based on the requisite of consideration. However, when looking deeper into the legal fabric developed in common law systems, one can find an instrument (promissory estoppel) which, in the course of its evolution, has progressively shown a predisposition to assume the role as an equivalent or even as a substitute to consideration. On this basis, promissory estoppel is not only the legal principle charged with the task of smoothing out the rigidity of the doctrine of consideration, but it also creates some kind of functional connection to the European culpa in contrahendo. Accordingly, the comparative analysis will be articulated at both the bargaining level and pre-contractual levels discounting that the elements of the two contexts may be largely overlapping in some cases, but not at all in others. The counterintuitive possibility of identifying the unilateral promise as a bargaining configuration (which revolves around the idea that the promisor wants to stress the seriousness of the commitment) or as an essential requirement of pre-contractual obligation (which it is closely linked to the desire to protect the expectation created in the promisee) requires some crucial theoretical articulations to be reconsidered.

1.- Introduction Estoppel -as a procedural remedy, according to the ancestral vocation of English law- was born as an equitable defence exception to prevent the enforcement of the customary rules in cases where their application would have produced unjust results. With a good deal of approximation, it corresponds to the civil law prohibition of venire contra factum proprium; but its nuances are so complex that any attempt to work out an impressionistic picture is doomed to failure1. Promissory estoppel took shape in the nineteenth century to smooth out the rigidity of the doctrine of consideration. Recently, the original concept has become diluted and, paradoxically, promissory estoppel has been undergoing an identity crisis at the very moment it seems to have found final approval.

In the fabric of this institute it is possible to identify at least three figures which have become progressively more and more important: 1) the estoppel by record or rem judicatam (which is equivalent to the prohibition of double jeopardy), 2) the estoppel by deed (which applies in proceedings of a formal nature: in short, it prevents the other party of the same agreement from denying as stated therein) and 3) the estoppel in pais (which is based on the idea that he or she, who has stated something then should not have the right to contest it). However, there are many attempts to reconstruct the estoppel in a unitarian body: the last one is the fascinating work of E. COOKE, The modern law of estoppel, Oxford e a., 2000, 1 ss.

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Needless to say, for the comparative scholar such 'tailspin' is food for thought. Already the original setting, which is centred upon reliance induced by the promise (a concept that law and economics translates in terms of relation-specific investment), opens the door to a sophisticated analysis. Anticipating concepts whose details will be explored later in this work, it is possible to convene that promissory estoppel provides a valuable investment protection mechanism in so far as it bars the promisor from opportunistic withdrawal of his undertaking when it can be expected that the promisors behaviour has induced the justified reliance of the promisee (so that ignoring such reliance would be contrary to justice). Nevertheless, it simultaneously poses the problem of the adequacy of such a protection, especially where there is a margin for trading ex-post which would render the imposition of liability unnecessary. Therefore, we will see that the focus shifts from the reasonableness of the conduct during the negotiations and moves in the direction of the obligation to act in good faith. This being the original inspiration, the theory, as already stated, has seen further developments in North America, which carry out a new version of the assault on the citadel, here represented by theory of consideration. This doctrine (in some ways a 'mystical moment in the Anglo-Saxon way of thinking about contract) subordinates the binding nature of the promise to the existence of a counter-performance or of a mutual promise. The reason behind placing this additional requirement for a contract to be legally recognized has been the subject of endless debates. On the one hand, consideration is said to be based on the need of the parties to have a meeting of minds or a single perception of the contract. On the other hand, it is rooted in an attitude of utmost caution with regard to free promises, because of their one-sidedness. The prodigal does not enjoy good press in the legal field and should be protected from his impulsive, and illconsidered, generosity, until it is proven that property was wilfully turned over without compensation (through formal mechanisms which are supposed to encourage more thoughtful reflection, or social control). A complex set of rules and interpretations of those rules has developed in this area. However, as attested by the key revisions fostered by the economic analysis of law, they continue to revolve around the bargaining principle. The bargaining principle requires that there be some type of exchange bringing value, monetary or otherwise, to both parties. Needless to say, even the traditional version of promissory estoppel scratches the rigor of this approach. However, emphasizing the element of induced reliance, the commonly received version creates a systematic exception. This exception is able to co-exist with the principle: the promise of non-reciprocity would fall on deaf ears if the pressing needs to avoid injustice, triggered by the change of the legal-patrimonial position to which the promisee was innocently led, did not

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bar the promisors option to withdraw. On balance, therefore, the importance of reliance resizes the lack of commitment of the counterparty. The new course, as we shall see, marks a sharp break from the traditional approach. After all, it is the supporters of law and economics who assert that the intrinsic value of non-mutual promises is gaining momentum, as this can lead to efficient outcomes. To cite the most prestigious interpreter of the new L&E, Richard Posner asserts that compulsory donation enables the donee to achieve anticipated profit from the commitment of the donor and, therefore, creates a significant reduction in the costs borne by the donor to give the recipient the desired level of utility2. In a broader view, the idea is that the unilateral promise is intended precisely to reassure the beneficiary about the seriousness of the undertaking and, consequently, to induce him to act on another's commitment. Thus, the focus shifts from the reliance of the recipient to the willingness of the promisor to assume the commitment. As a result, promissory estoppel ceases to appear as an exception and becomes, to a greater extent, an alternative principle to the traditional theory. From the comparative scholars perspective this picture is particularly intriguing and filled with fascinating suggestions. On the one hand, it is necessary to check whether, within a compact customary tradition, a revolutionary solution of continuity is being created (albeit hidden by the reassuring consistency of the formal institution). On the other, it is important to discount the echoes la Gorla of the naked promise, which invite us to reconsider, in more general terms, a conceptual framework of ancient lineage whose legacy of more immediate evidence is taken from the system of unilateral promises, starting from its typical rigidity. The following notes are the first steps on the path towards uncovering and examining this complex conceptual chain.

2 .- Origins of promissory estoppel in England. Before getting into the analysis of this legal instrument, it seems appropriate to briefly survey some crucial evolutionary features concerning its enforcement. For this purpose, it will be sufficient to start from the impact of the Judicature Acts (187375). Prior to these, the English system followed a dualistic approach, whereby rights and remedies could only be applied either by common law courts or by the chancery court. This approach was overwhelmed by a procedural fusion; the Acts affirmed the irrelevance of jurisdiction and the abandonment of the terms legal or equitable, which carry a complex array of implications3. However, this procedural simplification marked the start of a web of conflicting results, due to the fact that, in many cases, common law and equity dealt with the same elements, each adopting

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R. A. POSNER, Gratuitous promises in economics and law, 6 J. Legal Stud. 411 (1977). P. JAFFEY, The nature and scope of restitution, Oxford e a., 2000, 421.

different terminology and practical solutions4. These challenges mirror the different matrices of common law and equity and have produced, in addition to an intrinsic inconsistency, a terminological vagueness that spills over into the development of the discipline of promissory estoppel5. In 1854 the House of Lords, ruling on the case Jorden v. Money, held that the doctrine of estoppel does not apply to a case where the representation is not a representation of a fact, but a statement of something which the party intends or does not intend to do6. More specifically, the Court recognized estoppel based on simple reliance (namely in presence of a simple declaration of intent aimed to influence the conduct of a recipient who has acted in reliance): a move to which the same court had given its plain denial just nine years before in the decision Hammersley v. De Biel7. It took nearly a century (during which the will of the courts to reduce estoppel to a mere rule of evidence was to be mitigated only by the rise of proprietary estoppel, which allowed the plaintiff to establish a cause of action based on the expectation created by a declaration of future intent by the defendant where the underlying subject-matter respecting the representations was land)8 for the principle to undergo an important transformation by virtue of the statement by Lord Denning in the case of Central London Property Trust Ltd v. High Trees House Ltd9. The case involves a dispute regarding the request of the plaintiff/landlord to recover arrears of a lease (with a rental agreement lacking consideration) after having shown the defendant/tenant his willingness to accept a partial payment in view of the special conditions existing in London as a result of the Second World War. What is important to emphasize is the will of the plaintiff/landlord to obtain not only the return of the full price (namely the one established originally in the lease), but, given the lack of consideration, the recovery of the money saved by the defendant because of his promise. Lord Denning adopted a solution which in some ways was surprising. He held that, despite the fact that the promise was rooted in an assurance as to the future, estoppel should be granted since the promisor/lessor intended to bind himself, inducing the lessee to rely on the willingness of the landlord to accept a reduced amount compared to that provided by the contract. Therefore, although

One example for all: although the term contract (rooted in common law) was used in equity cases where specific performance was sought for an agreement binding at common law, the opposite route did not work.. An agreement relevant in equity, but not recognized at common law, could never have been classified as contract.; rather, in front of a hypothesis of this kind, it was alleged that the defendant, retracing his steps (that is, when he had resolved to break the agreement), had committed an equitable fraud, with the consequence of being subject to an estoppel for violation of a fiduciary duty (see P. JAFFEY, supra note 3, at 421-422). 5 G. SPENCER BOWER, The law relating to the estoppel by representation2, London, 1966, 332. 6 Jorden v. Money, 5 H. L. Cas. 185 (1854). For a reconnaissance of the events jointed to this case see J. M. NGUGI, Promissory estoppel: the life history of an ideal legal transplant, (2007) 41 U. Rich. L. Rev. 425. 7 Hammersley v. De Biel, 8 E.R. 1312 (H.L. 1845). 8 J. M. NGUGI, supra note 6, at 475. 9 Central London Property Trust Ltd v. High Trees House Ltd, (1956) All E. R. 256.

the landlord could ask to return to the initial contract terms, he was precluded from claiming the repayment of the sum which he had promised to relinquish. The court patently exceeded the limits laid down in Jorden v. Money10; but it took advantage of important changes set forth in Huges v. Metropolitan Rail Co11 and Birminghan & District Land Co. v. London and North-Western Rail Co.12 (which enshrine the principle under which reliance can only be implemented between actors bound together by a pre-existing contractual relationship or at least defined and distinct legal relations )13. The latter two cases lay sufficient foundation and legal basis on which one can assert the principle that a promisor is not permitted to drop the promise when certain conditions are met. More specifically, in cases where the intention to create legal relations is demonstrated (that is, promises were intended to be binding, intended to be acted on and in fact acted on), courts shall consider the party bound despite the fact that under the old common law it might be difficult to find any consideration for it 14. The rationale for the shift was based on the idea that one should not be permitted to act inconsistently since, if the holder of a contractual right, by his conduct, induces the counterparty to believe that this right will not be implemented or will be temporarily held in abeyance, then he should not be given the opportunity to withdraw and take advantage of the same right after the passage of the period of insured quarantine. Only in the presence of these distinct features may the promises give rise to the instrument of quasi-estoppel, which is more commonly known as promissory estoppel15. The holding by Lord Denning in the High Trees decision has played a vital role in the evolution of this legal instrument in England, but its interpretation has been uncertain. To what extent is the application of the High Trees decision limited solely to those subjects already bound by pre-existing contractual relations? Despite the fact that the jurisprudence was largely in favour of the need of the existence of a contractual relationship between the parties, the position of Lord Denning (in determining that the promise, intended to be binding, intended to be acted on, and in fact acted on, is binding so far as its terms properly apply) would seem to open the gates to the possibility that estoppel be imbued with an offensive soul, which, as will be seen, can be traced to U.S. jurisprudence.16 Moreover, in
See, Jorden v. Money, supra note 6. See, also, L. KOFFMAN E. MACDONALD, The law of contract6, Oxford, 2007, 84 (the law had moved on since Jorden v. Money to cover a broader principle than that traditionally represented by doctrine of estoppel by representation). 11 Hughes v. Metropolitan Railway Co., (1877) 2 App. Cas., 439. 12 Birminghan & District Land Co. v. London & North-Western Rail Co., (1888) 40 Ch. D. 286 13 J. M. NGUGI, supra note 6, at 475-476. 14 G. SPENCER BOWER, supra note 5, at 333-4. 15 The other one is the election. On this kind of instrument see G. SPENCER BOWER, supra note 5, at 285. 16 See M. P. THOMPSON, From representation to expectation: estoppel as a cause of action, 42 Cambridge L. J. 257 (1983), at 266.
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Combe v. Combe (a case of divorce marked by the promise and later the rejection of a husband to give an annual maintenance allowance to his wife who, relying on the binding nature of the promise, had failed to undertake the legal proceedings necessary to obtain the required court order), Judge Byrne endorsed the woman's arguments and held that the promise of the spouse, though not based on any previous contractual relationship or lacking consideration, had to be implemented on the basis of the principle enshrined in the High Trees case17. However, the appeal gave the author of the decision the opportunity to clarify the point and vigorously underline that the principle set forth in the High Trees case was not aimed at following in the footsteps of Section 90 of the Restatement (First) of Contracts (which states: [t]hat principle does not create new causes of action where none existed before [; i]t only prevents a party from insisting upon his strict legal rights, when it would be unjust to allow him to enforce them, having regard to the dealings which have taken place between the parties.)18 Moreover, this position has been further reiterated by the same judge in an essay where he expresses his belief that there was no need for equity to alter the English discipline of consideration since it ensured a much wider scope than that envisaged in the United States. This, according to Denning, could be explained as follows:, the saliency of this more flexible approach lies in the fact that, despite wanting an explicit request, an equivalent could be traced in the will to induce the counterparty to perform a positive act, or abstain from acting by virtue of reliance created by promises19. After all, some years before, in Bob Guinness Ltd. v. Salomonsen, Denning himself had stressed that consideration is sometimes the actual purchase price of a promise, and sometimes a mere fiction recognized to assure that the promise is enforceable20. The result of Dennings dicta is the implication that: [i]f the law is willing to imply a request, it follows that, under this definition, a majority of the cases covered by the American doctrine of promissory estoppel would immediately be transformed into consideration21.

Combe v. Combe, (1951) 2 K.B. 215 (C.A.). For a thorough analysis of the reasoning of Lord Denning in the case Combe v. Combe see J. M. NGUGI, supra note 6, at 477 482. 19 See A.T. DENNING, Recent developments in the doctrine of consideration, 15 Mod. L. Rev. 1 (1952), at 1, [the law for centuries has been that an act done at the request of another, express or implied, is sufficient consideration to support a promise (). The only essentials are the promise by the one and the forbearance by the other on the faith of it. Even though there was no request in fact for the forbearance, nevertheless if the promise was given with the intention of inducing the creditor to forbear on the faith of it, the law will imply a request (). In these circumstances it may be well that, instead of using the old language of request and consideration we can express the self-same principle by saying that a promise is binding in law if it was intended to create legal relations, intended to be acted upon and was in fact acted upon by the person to whom it was given]. 20 Bob Guiness Ltd. v. Salomonsen, (1948) 2 K.B. 42. 21 J. M. NGUGI, supra note 6, at 481 482 (this would, in turn, make the doctrine of promissory estoppel superfluous if offered to enforce relied-on promises-- simply because the law would imply a request by the promisor to the promisee to do the actions or forbearance which would be the basis of the estoppel action hence transforming such actions or forbearance into consideration).
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This solution has found confirmation in a variety of subsequent judicial decisions, which has led to the identification of five essential elements that characterize the rule of English promissory estoppel: 1) the presence of a promise or a statement put forth in a clear and unambiguous manner, by the party against which the estoppel is sought (the promisor)22; 2) the promisee must act to his detriment on the basis of the promise 23; 3) in a manner inconsistent with the promise/declaration made to the promise such that it would be unconscionable not to give legal recognition to the promise24; 4) the effect of estoppel must be to suspend (rather than terminate) the right challenged so that the person who has formulated the declaration/promise will not be 'locked' forever, but will regain the faculties paralyzed by providing reasonable notice where appropriate25; 5) finally, such a legal instrument has to prevent the execution of the rights covered by the promise/grant by the promisor, but may not allow for the creation of new rights26. Nevertheless, the debate about the limit laid down in the cases Huges and Birminghan27that estoppel may only be applicable between parties bound by a pre-existent contractual relationship- has not lost its vigour. After all, some courts (often referring to Combe for support) have held that the pre-existence of legal relations is a necessary element for the expansion of its scope. However, this result was achieved not by overruling the decision, but by arguing for recognition of a 'unified' estoppel which does not distinguish between proprietary or promissory estoppel. The result of such unification would be to make all justifiably relied on representations enforceable28. It is necessary to emphasize that the impulse toward unification took place not only through the direct influence of American jurisprudence (where this result had already been largely achieved), but in a 'mediated manner, through the stimulus coming from the decisions made by some Commonwealth courts (mainly Australian), which, in turn, had adopted the North American legal solutions29. The most important case is Waltons Stores (Interstate) Ltd. v. Maher, which not only established the transplantation of the U.S. model of promissory estoppel in the Australian legal tradition but also captured the attention of the English courts, becoming the main way of unifying

Motor Oil Hellas (Corinth) Refineries S.A. v. Shipping Corp. of India, (1990) 1 Lloyd's Rep. 391, 399 (H.L. 1989); Allied Marine Transp. Ltd. v. Vale Do Rio Doce Navegaao S.A., (1985) 2 Lloyd's Rep. 18, 25, 28 (C.A.). 23 Goldsworthy v. Brickell, (1987) Ch. 378, 411 (C.A.). 24 Jennings v. Rice, (2002) EWCA (Civ) 159; D. & C. Builders v. Rees, [1966] 2 Q.B. 617, 625 (C.A.). 25 National Westminster Bank Plc v. Somer, Int'l (U.K.) Ltd., [2001] EWCA (Civ) 970, [35], [2002] 3 W.L.R. 64, 79. 26 Combe v. Combe, supra note 17, at 220. 27 See: Hughes v. Metropolitan Railway Co., supra note 11, at 439; Birminghan & District Land Co. v. London & North-Western Rail Co., supra note 12, at 286. 28 J. M. NGUGI, supra note 6, at 484. 29 Waltons Stores (Interstate) Ltd. v. Maher, (1988) 164 C.L.R. 387; Foran v. Wright, (1989) 168 C.L.R. 385; Commonwealth of Australia v. Verwayen, (1990) 170 CLR 394.

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estoppel in a single discipline with offensive capabilities30. In fact, this case gave Chief Justice Mason (and Wilson) the opportunity to affirm that statements not supported by consideration might find a cause of action in estoppel with the equitable goal of preventing unconscionable conduct31. This analysis, which stays true to the traditional roots, reveals an obvious link with the U.S. doctrine: after all, as evidenced by both judges, in Section 90, paragraph 1, of the Second Restatement of Contracts, the connection between estoppel and the contract discipline appears to be close to the Australian version with its origins in the equitable concept of unconscionable conduct. This is because the U.S. version has progressively acquired the role of equivalent or substitute to consideration in the formation of the contract. Therefore, the proposition in Section 90 which, on the one hand, ensures the implementation of a promise conditioned on a reasonable expectation on the part of the promisor that his promise will induce action or forbearance by the promise and, on the other, the impossibility of allowing injustice to occur makes clear that the promise is enforced in circumstances other than simply unconscionable32. In light of these considerations, it is reasonable to conclude that the English discipline of promissory estoppel will complete an intriguing journey as a legal transplant: from England to the United States; to England and back through the Commonwealth. In any event, that would be a remarkable success rate for a legal transplant33.

3 .- The evolution of promissory estoppel in North American law. It is time to shift our attention towards the U.S., where promissory estoppel, at least in legal terms, seems to have achieved full recognition although it has matured in the face of tensions between theory and jurisprudence, a conflict worth highlighting. The evolution of this legal instrument in North America was not in response to a draft of the enlightened restaters, rather was rooted in a feeling, inspired by the more elastic U.S. system, which is inescapably different from the English spring. In any case,, many decades before the advent of the First Restatement of Contracts (1932), the U.S. courts, responding to the need to amend the proliferation of cases stained by the harm caused by reliance (triggered by the rigidity of traditional rules for the establishment, modification and termination of a contract), sought alternative routes,
This case has been recalled by many decisions: see, for example, Petromec Inc. v. Petroleo Brasileiro S.A. Petrobras, (2004) EWHC (Comm) 127; Brennan v. Bolt Burdon (2003) EWHC (QB) 2493; Actionstrength Ltd. v. Int'l Glass Eng'g, (2003) UKHL 17, [2003] 2 W.L.R. 1060; In re Goldcorp Exch. Ltd. (1994) 3 W.L.R. 199. 31 See J. M. NGUGI, supra note 6, at 490 (the reason courts intervene in equitable estoppel cases is to prevent unconscionable conduct, and, therefore, the court would intervene even if that entails the enforcement of voluntary promises). 32 Waltons Stores (Interstate) Ltd. v. Maher, supra note 29, at 387: () the emphasis is on the promisor's reasonable expectation that his promise will induce action or forbearance, not on the fact that he created or encouraged an expectation in the promisee of performance of the promise. 33 See J. M. NGUGI, supra note 6, at 484.
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referencing possible solutions used in common law jurisdictions and in courts of equity34. More specifically, the institute of assumpsit, which remedies the harm suffered from reliance on a promise, and the invocation of equitable fraud, for cases in which the promisor claimed the strict application of the contract doctrine after having induced promisee's justifiable reliance,35 had assumed great importance. Indeed, these legal instruments were capable of ensuring both a greater flexibility in contractual arrangements and the implementation of crafted novel promises to deal with uncertain economic conditions36. This openness to novelty, however, created a situation of substantial uncertainty within the framework of contract law. After all, following the establishment of the American Law Institute (henceforth ALI), whose primary purpose was to provide clarification and simplification of the law and its better adaptation to the needs of everyday life, Samuel Williston emphasized the difficulties of achieving a uniform definition of consideration. Furthermore, Williston stressed that, in principle, the same could have been detected in the three distinct and conflicting ideas of justifiable reliance, bargain, and a slender reed of moral obligation37. However, the perception that the courts considered justified reliance a valid basis (no less than a bargain) for establishing a binding contract did not stop Williston from isolating the exchange as the unitary paradigm of the Restatement to find sufficient consideration38. Comment c) of Section 75 of the First Restatement of Contracts, extrapolating the views of Langdell and Holmes (expression, as assessed by a careful observer, of a formalist reaction against the natural law that had flexibility crept into the sphere of promissory liability during the preceding decades)39, excluded that reliance on a promise could constitute consideration40.
On this profile see E. A. POSNER, Economic analysis of contract law after three decades: succes or failure?, 112 Yale L.J. 829, 851 s (2003), who highlights the ways in which the promissory estoppel evolved through the common law process as a device that helped avoid results that were perceived to be unjust in particular kinds of cases. See, also, R. A. PRENTICE, Application: gift promise and promissory estoppel, in Vision of contract theory. Rationality, bargaining and interpretation, Durham, N.C., 2007, 59, 81, who points out how the values advanced by the equitable doctrine of promissory estoppel are certainly consonant with principles well recognized by behavioural decision theory. 35 K. M. TEEVEN, Origin of promissory estoppel: justifiable reliance and commercial uncertainty before Willistons Restatement, 34 U. Mem. L. Rev. 499 (2004), 502 [these early sources found at law and in equity are not presented () necessarily as the direct progenitors of mid-nineteenth century reliance decisions; rather they demonstrate that support for the justifiable reliance impulse did not appear in a vacuum. Reliance hardship relief had been provided for centuries; the early decisional sources at law and in equity were available to the courts of the second half of the nineteenth century and that contributed to the evolution of what became the American doctrine of justifiable reliance]. 36 K. M. TEEVEN, supra note 35, at 500 (contrary to that accepted account, the following legal history of the justifiable reliance doctrine documents that courts regularly granted commercial promisees relief from reliance hardship for many decades prior to the first Restatement). 37 See S. WILLISTON, The Law of Contracts, New York, 1921. 38 K. M. TEEVEN, supra note 35, at 511-512. 39 K. M. TEEVEN, supra note 35, at 514. On this profile see C. C. LANGDELL, A summary of the law of contracts, Boston, 1880, 79; O. W. HOLMES, The common law, Boston, 1881. 40 This the comment c) to the Section 75 of the Restatement [Second] of Contracts: furthermore, although a price has been agreed upon and paid for a promise, the promise is not binding unless the law deems the price sufficient. The following Sections state when an agreed price or consideration for a promise is sufficient to make the promise binding
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Although, from this perspective, it would seem to be heresy to state that Holmes takes a formalist approach, it is necessary to remark on the complexity of his role. Holmes undertook a crusade against the possibility of justifiable reliance being understood as a basis for consideration41. In this vein, a reference can be drawn to the English case Coggs v. Bernard (case of damage caused by the violation of the depositors reliance on the free promise of providing for the transport of his goods by the depositary), in which the court had deduced the existence of a consideration that can bind the negligent depositary42. The anomaly consisted in the fact that this decision converted what normally fell within the scope of a tort action for negligent bailment into a contract action because the court applied the concept of consideration43. Specifically referring to this holding, Holmes described Coggs as the paradigmatic example of the inadequacy that follows when the general rule of contracts allows justifiable reliance to become a basis for consideration44. However, such drastic conclusions clashed with the prevailing theoretical view that (conforming to the developments of nineteenth century jurisprudence) looked favourably upon the need for justifiable reliance to be a worthy exception to consideration45. We have already talked about Willistons incoherence. More precisely, we saw how he had identified consideration as something different from the bargain (corresponding to cases where the promisor, by virtue of its promise, is able to create in the promisee expectations that lead him to adopt a particular conduct) and had emphasized the impatience of U.S. courts in relation to the restrictive bargaining theory in

and when such a price or consideration is insufficient. The fact that the promisee relies on the promise to his injury, or the promisor gains some advantage therefrom, does not establish consideration without the element of bargain or agreed exchange; but some informal promises are enforceable without the element of bargain. These fall and are placed in the category of contracts which are binding without assent or consideration (see 85-94). The Section 75 estabilishs that: (1) consideration for a promise is: (a) an act other than a promise, or (b) a forbearance, or (c) the creation, modification or destruction of a legal relation, or (d) a return promise, bargained for and given in exchange for the promise. (2) Consideration may be given to the promisor or to some other person. It may be given by the promisee or by some other person. 41 G. GILMORE, The death of contract, Ohio, 1974, 75. 42 Coggs v. Bernard, 72 Eng. Rep. 107 (K.B. 1703). 43 K. M. TEEVEN, supra note 35, at 515 (Coggs was an anomaly to the cases in which reliance supplied the consideration in the nineteenth century because bailment actions had not called for consideration, unlike cases that had always fallen under the consideration construct). 44 O.W. HOLMES, supra note 39, at 196. On this profile, see K. M. TEEVEN, supra note 35, at 516 (Holmes presented Coggs as a case representative of contracts generally and then readily pointed out that it was doctrinally flawed since Coggs was an easy target to undercut. Holmes used Coggs to side-step, while still trying to compromise, the raft of nineteenth century American reliance hardship decisions that involved transactions traditionally governed by the doctrine of consideration). 45 In this perspective the leading case is Rice v. Almy, 32 Conn. 297 (1864). On this point, see K. M. TEEVEN, supra note 35, at 522, who remarks how this case: provided perhaps an extreme example of how far some nineteenth century courts at law went to rationalize hardship relief for justifiable reliance. The Connecticut court traced consideration back to its foundations as a trespassory deceit action. That much was correct, but the court's claim that reliance relief for deceit remained available in contract law was a departure from judicial treatment because by the sixteenth century, the deceit element had been subsumed within a modern doctrine of consideration grounded upon reciprocal agreement. The opinion in Rice stated that consideration contained substantial elements of an estoppel in that a promise induces another to change his situation; if he is allowed to deny the validity of the promise he is enabled to perpetrate a fraud by his false promise.

reliance hardship cases46, urging him to adopt the label of promissory estoppel for this field47. Instead, Corbin reflected on the case law characterized by the sacrifice of reliance, highlighting how consideration may consist of acts of reliance upon a promise even though they were not specified as the agreed equivalent and inducement48. In spite of such marked fluctuations, the first version of what would become the First Restatement of Contracts adopted a highly restrictive concept of consideration, which effectively excluded from its sphere justifiable reliance49; Section 75 portrayed a setting strikingly close to Holmes50. However, this exclusion did not gather the necessary consensus to ensure consolidation. In fact, the drafters themselves knew that they had left a vacuum in relation to cases where harm is caused to the promisee due to his justifiable reliance. In the subsequent draft of 1925 the drafters tried to increase the value of judicial rulings in favour of promisees on the grounds of justifiable reliance in Restatement sections 85 through 94. A year later, the drafters of the Restatement elaborated in Section 88 (which would later become Section 90 in its 1932 publication) on a specific promissory relief for harm resulting from justifiable reliance (which soon became an object of heated debate within the legal community)51. One of the areas of contrast concerned the realization that, while Section 90 adopted an open language approach that foresaw the applicability of promissory estoppel in relation to promises made in a commercial setting, the doctrinal view took an approach which was diametrically opposed as it excluded the possibility of relief based on justifiable reliance in a commercial setting. The point is that, as discussed above, Williston and Corbin, while aware of practices adopted by the courts to grant relief reliance in relation to violations of the business promises, opted for a substantially different position52. More specifically, Williston pointed out how

See Wilson v. Spry, 223 S.W. 564, 568 s. (Ark. 1920); Spitzle v. Guth, 183 N. Y. S. 734, 747 (N.Y. Special term 1920). 47 S. WILLISTON, supra note 37 at. 139. 48 W. R. ANSON, Principles of the law of contract, 14 Am. L. Rev. 233 (1880). 49 Although Corbin, and in part Williston, treated justifiable reliance as a basis for finding consideration in their writings prior to 1926, Williston's conservative inclinations won out in section 90 placing promissory estoppel outside the exclusive bargain test for consideration enunciated in section 75: K. M. TEEVEN, supra note 35, at 527. 50 See G. GILMORE, supra note 41, at 56. 51 On the events connected to the drafting of the Restatement [First] of Contracts see G. GILMORE, supra note 41, at 56. 52 Even though the closing position taken by Corbin might seem counterintuitive (especially if we consider its relationship with the doctrine of the realists), it is necessary to stay far from superficial conclusions about his scientific (in)coherence. To this end, returning to the insightful comments made by G. Gilmore (see supra note 41, at 55), it is useful to recall that the Restatement [First] of Contracts was the result of the compromise that Williston and Corbin t were able to achieve notwithstanding the fact that they started from opposite points of view on almost all issues of law. In this perspective, however, Corbin's position was far from simple: he was a "revolutionary" who, belonging to an intermediate generation (or those between Williston and Llewellyn), had felt able to do more working within the establishment than staying outside with those to whom he was most certainly linked in ideological choices (realistic). This pushed him to support hard solutions (in this way it is possible to collocate the vicissitudes that accompanied the development of the concept of consideration under section 75) that explain why this uncertain trend of the positions of

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Section 90 constitutes a formalist retreat from the previous expansion of the promissory liability, affirmed under the principles of natural law, and states a general rule broader than has often been laid down53. On his count, Corbin, although prone in the years preceding the drafting of the Restatement to persuasively show that justifiable reliance could be understood in commercial promises, in doing so referred to the case of gratuitous promise of land54. Such authoritative indications seemed to prelude the general endorsement of the restrictive approach under which the remedy relating to justifiable reliance could have been applied only in relation to cases involving free promises and traditional relationships not covered by consideration55. Nevertheless, the solution proposed did not ensure satisfactory results. On the contrary, the muddled effects that it produced convinced the authors of the Restatement to backtrack in order to review its excessive shyness (which created many unacceptable restrictions regarding the objectives and the scope of the applicability of promissory estoppel). After all, both Williston (criticizing the closure of certain judicial decisions) and Corbin (noting that the definition of consideration was so reductive that the Institute was immediately compelled to construct a number of additional rules in sections 85 through 94, to deal with justifiable reliance and moral obligation)56 led to more opening, thus encouraging an application free from counterintuitive limitations. The results of a change of this kind were not long in coming. In Robert Gordon, Inc. v. Ingresoll-Rand Co., although the final outcome denied the application of promissory estoppel because the plaintiff had not been able to prove an irreparable detriment, the court emphasized that the mere fact that the transaction is commercial in nature should not preclude the use of promissory estoppel57. Three years later, in the Eng'g Co. v. Ellerman decision, there was a decisive step towards the recognition of the full efficiency of promissory estoppel in trade. In fact,
Corbin and clarify the schizophrenic nature which makes the Restatement, noted from historical point of view, the fascinating document that actually is. 53 ALI Draft and Comments 1928, 245. 54 For a more in-depth discussion of this profile, see K. M. TEEVEN, supra note 35, at 533-534. 55 For the doctrine see T. C. BILLIG, The problem of consideration in charitable subscriptions, 12 Cornell L.Q. 467 (1927); W. L. SHATTUCK, Gratuitous promises--A new writ?, 35 Mich. L. Rev. 908 (1937), 913 ss.; W. H. PAGE, Consideration: genuine and synthetic, 1947 Wis. L. Rev. 483; B. F. BOYER, Promissory estoppel: requirements and limitations of the doctrine, 98 U. Pa. L. Rev. 459 (1950), as well as Promissory estoppel: principle from precedents, 50 Mich. L. Rev. 639 (1952). For the jurisprudence see Bard v. Kent, 122 P.2d 8 (Cal. 1942); E.I. Dupont De Nemorous & Co. v. Claiborne-Reno Co., 64 F. 2d 224 (8th Cir. 1933); James Baird Co. v. Gimbel Bros., 64 F. 2d 344 (2d Cir. 1933); Heggen v. Clover Leaf Coal & Mining Co., 253 N.W. 140 (Iowa 1934); James Barclay & Co. v. Bailey, 34 F. Supp. 665, (E.D. Tenn. 1940). 56 K. M. TEEVEN, supra note 35, at 540-541. 57 Robert Gordon Inc. v. Ingresoll-Rand Co. 117 F. 2d 654 (7th Cir. 1941).

the Supreme Court of South Dakota, moving away from the nearly-dominant case-law, held that justifiable reliance could not meet an impediment in establishing a contractual relationship due to the inescapable prerequisite of consideration and affirmed that ordinary estoppel abolishes some legal requirement in its application58. This approach was readily confirmed in subsequent case law. One case which had a large impact (and demands attention as a milestone case in marking such a change) is the decision in Drennan v. Star Paving Co.59. In particular, Judge Traynor, overlooking the approach that had brought him some years before to decide the opposite way in Bard v. Kent (on the basis that the subcontractor has the ability to predict the reliance that its proposal could generate in the contractor), held that a clear and definite offer cannot be revoked when there is reasonable expectation that the offer will induce detrimental reliance of the counterparty and when the offer does, in fact, induce detrimental reliance. In other words, promissory estoppel forcefully asserted its essential role in relation to commercial promises. From this perspective, we can appreciate the purpose behind the reference (by the same judge) to the historical case Fontane v. Baxley, where the court ruled in favour of the promisee allowing the promise to be protected from harm caused by justifiable reliance. Such a finding embodied the tendency towards sensitivity, typical of the nineteenth century, to natural law (a tendency that Holmes had contrasted vigorously through the theory of consideration), encouraging North American courts to apply promissory estoppel in cases involving commercial promises60. Thus, the middle of the century marked the return to the state of the law before the publication of the Restatement of the Law of Contracts, where the commercial promises were deemed, with a remarkable degree of frequency, binding on the grounds of justifiable reliance. To be more concise, this indication would find convincing confirmation in the Second Restatement of Contract. The proof is the fact that, amidst the many adjustments made to Section 9061, the main
Engg Co. v. Ellerman, 10 N.W.2d 879 (S.D. 1943). Drennan v. Star Paving Co., 333 P.2d 757 (Cal. 1958). 60 Fontane v. Baxley, 17 S.E. 1015 (Ga. 1892). On this case see K. M. TEEVEN, supra note 35, at 567-568 (in that case, a railroad tie manufacturer in Georgia offered to supply ties at a set price for one year if the buyer's bids to sell ties were accepted by New York railway companies. Georgia's Chief Justice Bleckley said the tie manufacturer could have repudiated for lack of mutuality before [the buyer]...had incurred trouble and expense in complying with it on his part. The buyer had relied on the manufacturer's offer to sell railway ties by travelling from Georgia to New York, setting up office in New York, submitting bids to New York railway companies based on the manufacturer's price, landing contracts with two railways and securing assurances that he had submitted the low bids on three upcoming contracts. The court concluded that it would be a fraud to permit revocation after substantial reliance. The court held that the manufacturer's promise to supply the ties needed to fulfil contracts at a stated price was irrevocable once the buyer had reasonably relied on the supplier's promises of quantity and price in making his bids to railway companies, at least as to the two contracts actually formed with the railway companies). 61 See G. GILMORE, supra note 41, at. 64-65; C. L. KNAPP, Reliance in the revised restatement: the proliferation of promissory estoppel, 81 Colum. L. Rev. 52 (1981), 55 ss.; M. EISENBERG, The principles of consideration, 67 Cornell L.
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changes concerned the principle of reliance. To cite Gilmore, Section 90 went from featuring the unwanted stepchild of the Restatement (First) to being the mothers first son or the basic principle of Restatement (Seconds) that, as suggested by the comment, prevails, in case of necessity, on the theory of exchange referred to in Section 7562. From this point of view, the switch is patent: the structure of the new Section 90 clearly affirmed how the reliance principle, freeing itself from one of the major limitations provided in its original form, was applicable in both contexts (commercial or otherwise). In other words, the irreconcilable ambiguity between Sections 75 and 90 of the First Restatement was resolved quite clearly in favour of the principle of promissory estoppel in Section 90, which has absorbed the principle of exchange referred to in Section 75. The only situation that seems to implicate the use of paragraph 75 would be a case in which an exchange has not been fully performed by either party when both of them have no intention to carry out the action. Even there, as the cryptic comment suggests, the eventual reliance may be reason enough to provide a legal sanction without a preliminary investigation into whether or not there was consideration63.

3.1.- The evolution of promissory estoppel in North American: a second soul? The evolution of North American promissory estoppel does not end in the framework thus far considered64. Indeed, in some ways, it seems to have expanded into scarcely explored territories, that could redraw the contours of the institute. Let me now explain. The basic idea is that promissory estoppel can be characterized as having a dual core: a traditional one, based on justifiable reliance, and another markedly contractual one. As mentioned earlier, the advent of Section 90 of the Second Restatement of Contracts provides affirmation for the principle of reliance65. This solution is immediately confirmed by a wealth of cases. This includes the holding in the famous case Hoffman v. Red Owl Store, an action
Rev. 640 (1982), 657 ss; E. A. FARNSWORTH, Contracts scholarship in the age of the anthology, 85 Mich. L. Rev. 1406 (1987), 1454 ss.; J. E. MURRAY, Murray on contracts3, Charlottesville-Virginia, 1990, 278 ss.; E. YORIO S. THEL, The promissory basis of section 90, 101 Yale L. J. 111 (1991), 123 ss. The Section 90 of the Restatement [Second] of Contracts sets that: A promise which the promisor should reasonably expect to induce action or forbearance [of a definite and substantial character] on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise. The remedy granted for breach may be limited as justice requires. 62 G. GILMORE, supra note 41, 64. 63 G. GILMORE, supra note 41, at 65. 64 L. A. DIMATTEO R. A. PRENTICE B. D. MORANT D. D. BARNHIZER, Vision of contract theory. Rationality, bargaining and interpretation, Durham, N.C., 2007, at 8 (the evolution of promissory estoppel is of great historical significance and continues to be one of the central themes of modern contract theory). 65 See D.A. FARBER - J. H. MATHESON, Beyond the promissory estoppel: contract law and the invisible handshake, 52 U. Chi. L. Rev. 903 (1985). In particular, they note the reliance principle has been so important that law students share this idea with the American Law Institute and with treatise writers. Indeed, promissory estoppel is one of the few points of agreement between the critical legal scholars on the left and the law and economics writers on the right. Both agree that reliance has been the foundation of promissory estoppel, and both accuse the courts of incoherence in applying the doctrine.

for damages due to the interruption of negotiations for the granting of a grocery store franchise66. In particular, during the negotiations the executives of the defendant company (Red Owl Store) had assured the actor (Hoffman) that he would obtain the franchise if he made a financial contribution equal to the sum of $18,000. To this end, the plaintiff had been encouraged by the same managers to perform a series of actions in order to obtain the money to secure the franchise. In short, 1) the claimant sold his bakery; 2) he bought a small grocery store to establish the experience necessary; 3) subsequently he was urged to sell it, with the assurance that he would find a larger store in another town; and finally, 4) he rented a house in the city where he was supposed to open the franchise. Notwithstanding all these efforts, Red Owl unexpectedly increased the amount of capital required to obtain the franchise by almost double (about $34,000). Consequently, the exasperated plaintiff decided to stop the negotiation and sued the defendant company to obtain the rest of the losses sustained due to the reliance placed in the declarations and in the promises made by them. The Wisconsin Supreme Court awarded the compensation to the claimant, stating inter alia that the promise necessary to support a cause of action for promissory estoppel should not embrace all the essential details of an outlined transaction between promisor and promisee so as to be equivalent to the enforcement of a binding contract in the case of an acceptance of the promise67. Rather, the existence of justifiable reliance was enough: the court opted for the enforcement of the promises made during negotiations to protect the expectation that they have created in the promisee, whether or not the promisor has acted in good faith or with intent to manipulate the behaviour of the other68. But is this really the only key reading of promissory estoppel? After all, in the corners of that case there already appear two possible approaches, supported by diametrically opposite views. As evidenced by a perceptive scholar, the traditional approach ignores the reasons for the promisee's reliance, that is the possibility that the promisee is able to exercise a form of bargaining power to obtain a favourable result from the interaction. For those who move in this direction, the reliance of the promisee would seem to be aimed at influencing the decision of the promisor to sell the franchise on favourable terms69. In this way, it seems clear that the change of direction concerns

Hoffman v. Red Owl Stores, 133 N.W. 2d 267 (Wis. 1965). Hoffman v. Red Owl Stores, supra note 72, at 297-298. 68 On this case see L. A. DIMATTEO R. A. PRENTICE B. D. MORANT D. D. BARNHIZER, supra note 64, at 142158; G. KHNE, Reliance, promissory estoppel and culpa in contrahendo: a comparative analysis, 10 Tel Aviv U. Stud. L. 279 (1990), at 290 (the court viewed promissory estoppel as being extracontrattual in nature). Nevertheless, this decision by the Wisconsin Supreme Court has been heavily criticized: see A. SCHWARTZ - R. E. SCOTT, The law and economics of preliminary agreements, on ssrn.com; R. E. SCOTT, Hoffman v. Red Owl Stores and the myth of precontractual reliance, (2007) 68 Ohio St. L. J. 71; J. S. JOHNSTON, Communication and court ship: cheap talk economics and the law of contract formation, 85 Va L. Rev. 385 (1999), who stress that: while efficiency of the classic Hoffman v. Red Owl is much more debatable than previously assumed, as actually applied by courts today, promissory estoppel in this context may be surprisingly efficient. 69 L. A. DIMATTEO R. A. PRENTICE B. D. MORANT D. D. BARNHIZER, supra note 64, at 144 (Hoffman exercised his bargaining power to attempt to control the outcome of the parties interaction).
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the theory of promissory estoppel rather than the relevance of such reliance, prompting to look at both the strength of the promise and to the power relationship thus created70. To better understand the implications linked to the reconstruction indicated above, we turn our attention to the helpful suggestions worked out by Farber and Matheson in a famous essay containing a tremendous amount of critical substance. The authors, through a careful survey (covering the period between 1980 and 1985) of the case law concerning the application of promissory estoppel, not only exclude that reliance constitutes the only key interpretation, but arrive to envisage a new rule: any promise made in furtherance of an economic activity is enforceable71.In other words, they note, on the one hand, that the traditional doctrine of consideration tends to protect the trust generated by promises that involve social benefits (e.g. sales, rents, insurances and loans), and, on the other, that irrevocable offers72, guarantees73 and options74), are no-consideration promises, yet enforced for the pragmatic reason that, otherwise, several important business transactions would not be feasible. This approach puts emphasis on the fact that promissory estoppel fills a similar function by enforcing promises in other settings not amenable to traditional bargaining transactions, in which reliance is beneficial both to the promisor and to society as a whole75. Some, albeit brief, clarifications are necessary. The crucial assumption underlying the above approach revolves around the awareness that commercial commitments, aiming to promote economic activities (and related benefits), are common practice. These commitments are often undertaken outside the traditional contract framework. In this respect, the examples mentioned previously are emblematic: thus, when the offer is irrevocable (but the same holds true for the other circumstances), a party manages to assume an obligation though the counterparty is lacking valuable consideration. What, as Gordley observes76, led the U.S. courts to deny the binding nature of the promise for lack of consideration is to be found in a rather formal passage, which implied the intention to review the appropriateness of a commitment without compensation. But the expedient risked overshooting the target: in small part because it was exposed to the obvious technical
See E. YORIO S. THEL, supra note 61, at 162-163 (the critical and difficult question about Section 90 in the courts is not whether to protect reliance, but whether to enforce the promise at issue. It is neither sufficient nor necessary that the promise induce the promisee to rely to her detriment. Every promise may influence the promisee's behavior, and yet not every relied-upon promise is enforceable. What distinguishes enforceable from unenforceable promises is the quality of the commitment made by the promisor). 71 [A] new rule of promissory liability is emerging from the courts encounters with an economy in which Okun's invisible handshake is increasingly important: D.A. FARBER - J. H. MATHESON, supra note 65, at 905. 72 See U.C.C. 2-205 (1978) (firm offer rule). 73 See Restatement [Second] of Contracts 88 (guaranty). 74 See Restatement [Second] of Contracts 87 (option contract). 75 On this profile see D.A. FARBER - J. H. MATHESON, supra note 65, at 905. According to these authors, this new rule will make it possible to unify the promissory estoppel and other exceptions to the consideration requirement with consideration doctrine itself. 76 J. GORDLEY, Enforcing promises, 83 Calif. L. Rev. 547 (1995).
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elusiveness of making use of nominal consideration and, more importantly, in practical terms, those promises turned out, more often than not, anything but unfair. As it is not difficult to imagine situations in which the promisee needs more time and even has to invest in resources to decide on the convenience of going forward with the deal, it is a necessary condition that the interaction continues, and thus the promisor undertakes the necessary steps to make his proposal firm and is allowed the opportunity to make a mature decision: especially since such a commitment may be less costly for those who assume it (because of the lack of immediate alternatives), reducing the opportunities for an abuse of the counterparty. Thus, the overtaking of the required performance of the counterparty was realized (in first approximation) by promissory reliance (invoked to escape the rigours of consideration in contexts where the promises did not constitute an excessive burden for those who make them and did not raise serious issues of contractual injustice)77. Just one step further, however, the belief took form that the latter doctrine (which originated in the wake of free promises) was more often employed in commercial contracts78; and that, ultimately, the binding nature of a promise might part from the reliance of the promisee. Therefore, it is no surprise that the need to protect the certainty and stability of economic exchanges (together with the opportunity to motivate people to have trust in promises where that trust is socially beneficial) has pushed the courts in the direction of an expansive application of promissory estoppel, able to ensure, through new rule of promissory obligation, a strengthening of trust (understood in its double meaning of good moral and economic value) between traders, essential for the formation of valuable economic institutions79. From this point of view, the expectation referred to in Section 90 of the Restatement [Second] of Contracts would be only the highest point of a trend supported by a set of exceptions (to the necessary existence of consideration) designed to encourage useful commercial agreements. This new approach, while placing itself outside the traditional doctrine of contract law, at least as it concerns the lack of proof of both consideration and detriment associated with promissory estoppel, ends up sharing its main objectives. Therefore, as pointed out by the best literature,, it is possible to say that the rule sounds within contract law, and operates within its traditional area of concern: economic exchange promissory80. The alternative reading of promissory estoppel opens a scenario much different from that proposed by Gilmore81. The expansive application, rather than constituting evidence of the
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J. GORDLEY, supra note 76, 547. On this point see S. D. HENDERSON, Promissory estoppel and traditional contract doctrine, 78 Yale L.J. 343, 352 (1969). 79 D.A. FARBER - J. H. MATHESON, supra note 65, at 945-946 (a rule that gives force to this expectation simply reinforces the traditional free will basis of promissory liability, albeit in an expanded context of relational and institutional interdependence). 80 D.A. FARBER - J. H. MATHESON, supra note 65, at 929. 81 See G. GILMORE, supra note 41, at 79.

absorption process of the contract in tort, would witness the institution of a new theory characterized by a distinctly contractual obligation82. Finally, one element is unquestionable: without the ambition to assert itself as an absolute truth83, the new theory risks facing the problems linked to the implementation of promises executed in types of relationships which are acquiring increasing relevance in the modern economic reality84.

4.- In search of an Italian promissory estoppel? The work conducted thus far about promissory estoppel has allowed us to reach a few basic conclusions: 1) first of all, the blossoming of the institute in common law is rooted in the need to limit the sharpness (sometimes excessive) of the doctrine of consideration; 2) this objective has also become the main obstacle to a linear development in the English and American experiences and, finally, 3) it appears possible to identify a dual soul for promissory estoppel: the more traditional one, grounded on justifiable reliance and an additional one, fuelled by the desire of the promisor to be bound, and so based on the strength of the promise and on the power relationship created from it. This latter factor alone leads to a complex comparative path. In its original form, promissory estoppel precluded the promisor from being able to withdraw the promise when it had justified the reliance of the promisee whenever it was contrary to justice to deny legal validity to the promise even though the promise was not binding for lack of consideration. On the one hand, this offers a valuable instrument of protection for investments while shifting the focus on the reasonableness of the conduct in negotiations, and thus establishing a direct connection with the European experience of culpa in contrahendo, whose formulas and techniques of intervention differ, but reveal a substantially similar functional profile.
D.A. FARBER - J. H. MATHESON, supra note 65, at 906. On this profile see E. YORIO S. THEL, supra note 61, at 166 (far from evidencing the death of contract, the application of Section 90 by the courts demonstrates that promise is more vital than ever). For a different reading key see J. F. POWERS, Promissory estoppel and wagging the dog, 59 Ark L. Rev. 841, 842 (2007), which points out how the issue is not whether promissory estoppel is a contract or a tort theory, but whether cases decided under the doctrine are contract or tort cases, or whether they are something else. 83 D.A. FARBER - J. H. MATHESON, supra note 65, at 946-947. More specifically, the authors remarked how this new rule does not account for every case, but it does provide much surer guidance in understanding the case law. As a normative statement, the promissory estoppel doctrine expressed in section 90 has raised more questions than it has answered. In every case, it has required that courts return to first principles to ask whether injustice can be avoided only by enforcement of the promise. Busy judges, we think, deserve better guidance. 84 On this point see E. YORIO S. THEL, supra note 61, at 166 (the importance to courts of promise explains why the remedy for breach of a Section 90 promise is invariably expectancy relief (if measurable); why the absence of inducement and detriment is irrelevant; why some promises are not enforced despite detrimental reliance; and why the outcome (in terms of both liability and remedy) generally turns on some aspect of promise). For an opposite point of view see J. M. FEINMAN, The last promissory estoppel article, 61 Fordham L. Rev. 303, 316 (1992): the prescription, it seems to me, is to stop addressing old questions-by debating whether the core of Section 90 is promise or reliance, for example-and address the more fundamental issue of what kind of framework we should have, for that will determine the questions we should ask.
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With the new course, which emphasizes the strength of the promise and the underlying power relationship, the traditional teachings are seriously challenged. The expression of the will of those who want to assume the duty of promisor and the justifiable reliance of the recipient of that determination constitute two sides of the same coin, designed to recognize the binding nature of promises (anything but unfair) otherwise doomed to fall into voidness for want of consideration. This 'dual soul' (clearly visible in Hoffman v. Red Owl Store)85 allows us to reconsider the Italian experience from a vantage point. Given the duplicity of promissory estoppel, the work of comparison will be conducted on two different levels: pre-contractual and contractual86. More clearly, the ability to identify, in the voluntary assumption of a commitment, both a contractual configuration (which revolves around the idea that the declaration of intention is to reassure the seriousness of the promise on the promisor) and a pre-contractual obligation (which, by contrast, is closely linked to the desire to protect the reliance created in the promisee) comports with the discipline of unilateral promises and culpa in contrahendo (with particular reference to the issues underlying the unjustified withdrawal from negotiation).

4.1 .- In search of Italian promissory estoppel: the unilateral promise. The 'Italian way' to the legal setting of unilateral promises is, in a sense, forged by the endless tension between the theory behind the doctrine and its application. Perhaps, the very absence of linearity of outcomes, the positions which have matured over time and the precariousness of normative indications provided by the legislator have created a gray area in which the boundaries between the areas of contract and tort are increasingly blurred and confused. In the Italian legal system the problem with the binding nature of a unilateral promise is traditionally linked to the controversial co-existence of art. 1987 and 1333 c.c.87. Since the entry into force of the Italian Civil Code in 1942, the assumption of the unilateral formation of a bond (ex
Hoffman v. Red Owl Stores, supra note 66. It is important to stress that the argument discounts the risk of overlaps which might create several misunderstandings; but it is equally clear that this risk must be consciously addressed, if only because the work of comparison is measured precisely by the difficulty of connecting categories conceptually irreducible. In our case, we are still grappling with a path marked by the recruitment of a voluntary commitment (by a person) and by the reaction of someone who is subject to that commitment. Therefore, on legal grounds, it may be that the strong-willed determination aimed at ensuring the seriousness of the commitment is sufficient to determine the binding nature of the promise and, then, the reliance of the counterparty, which has even determined a significant change in its legal and financial sphere, will remain in the background. But it may be that the aspiration of the promisor to impose seriousness to his commitment is not sufficient to trigger, on systematic grounds, the binding effect that, instead, will occur, because that claim has created justifiable reliance in the counterparty, which has thus exposed itself having good reason to do so and needs to be protected for the expenses and investments incurred. The elements of the two cases are (or, better, can be) largely overlapping, but the way in which they are appreciated is certainly different. 87 For a thorough historical recostruction of the evolution of the issue of the nature binding of the promise in the Italian legal system see A. DANGELO, Le promesse unilaterali, in Il codice civile commentario diretto da P. Schlesinger, Milano, 1996.
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art. 1333 c.c.) has raised many compatibility problems with the precept of art. 1987 c.c.88. To look more in depth, while in art. 1333 c.c. the unilateral declaration to bind one would seem to be ascribed to the contractual sphere (making it part of the prerogatives of the private autonomy reserved by the art. 1322 to the contract)89, art. 1987 c.c. precludes any binding effect beyond the cases avowedly allowed by law90. In short, the same formula for the creation of a promise (characterized by the declaration of assumption of commitment and of its object) could be classified either as a proposal (ex art. 1333 c.c.) or as a promise (ex art. 1987 c.c.). Nevertheless, the consciousness of the impossible co-existence of different disciplines for the same phenomenon has spurred research aimed at finding the criteria of the foundation of a bond (and, therefore, the mandatory nature of the promises with regard to the reasons specifically related to the different typologies of their object) in the border area of contract and the sphere of tort91. Literature and jurisprudence have handled the issue of the compulsory nature of a unilateral promise by moving in two opposite directions. On the one hand, the more orthodox trajectory under which the foundation of the binding nature of all unilateral promises should be identified in the general discipline of contracts and, in particular, in the dual requirement of causal justification and of the nuances provided by the legislature. On the other, a more recent strand has focused on the reliance of the promisee as an independent criterion for recognition of obligations and responsibility of the promisor92. Nevertheless, given the limits of these notes and the obvious impossibility of scrutinizing both alternative routes in this article93, our attention will be centred upon the more recent one. Accordingly, we will focus on the approach that presents more affinity to the North American traditional one and identifies justifiable reliance of the promisee as the premise for the binding nature of the promise94. This approach moves away from damages awarded to those who have carried out activities, incurred costs or assumed risks based on reliance triggered by the statements of a promisor about the implementation of a future behaviour (not due to relationships of exchange). Rather, it shapes a

On these profiles see: G. TAMBURRINO, I vincoli unilaterali nella formazione progressiva del contratto, Milano, 1954, at 29-30; M. SEGNI, Autonomia privata e valutazione legale tipica, Padova, 1972, 347; A. RAVAZZONI, La formazione del contratto, I, Le fasi del procedimento, Milano, 1973; R. SACCO, Il contratto, in Trattato di dir. civ. it. diretto da F. Vassalli, Torino, 1975, 37; G. CASTIGLIA, Promesse unilaterali atipiche, in Riv. dir. comm., 1983, I, 331. 89 A. DANGELO, supra note 87, at 61-62. 90 See L. BARASSI, La teoria generale delle obbligazioni, II, Le fonti, Milano, 1946, at 299, according to whom the art. 1333 c.c. constitutes a perferct antithesis of art. 1987 c.c. 91 A. DANGELO, supra note 87, at 64. 92 In this sense see G. MARINI, Promessa ed affidamento nel diritto dei contratti, Napoli, 1995, at 245. 93 For a detailed survey see P. PARDOLESI, Promissory estoppel: affidamento e vincolativit della promessa, Bari, 2009, at 144-159. 94 On these profiles see A. DI MAJO, Promesse unilaterali, Milano, 1989, 48 ss.; G. ALPA, Introduzione alla nuova giurisprudenza, in I contratti in generale, I, Torino, 1991, 311 ss.

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solution after the wider review of criteria for recognizing a binding nature, as well as after the reconstruction of a basis of liability other than the binding force of promise as a contract or legal transaction. From this perspective, great importance would be given to the reasons for the bond rather than the obligatory nature of the promise. Thus, the reliance of the promisee becomes not only a specific criterion for the recognition of obligations and responsibility of the promisor but the focus of a comprehensive interpretation of rules and principles heterogeneous and distinctly related to the procedure for the formation of the bond and to the foundation of the latter95. Considerable headway in the debate around the recognition of the binding nature of unilateral promises can be detected in an Italian Supreme Court decision relating to letters of patronage. The decision, although isolated, has not been seriously criticized96. In this decision, the Supreme Court of Cassazione looked to the scheme proposal/failure to refuse pursuant to art. 1333 c.c. as a viaticum to escape from the necessary verification of a bilateral declaration and to trigger the recognition of the binding character linked to unilateral statements which come through the bottleneck of art. 1987 c.c. The tear takes place close to the heated debate concerning the identification of the legal nature of the letters of patronage and the responsibility to reconnect to them97. Starting from the observation that the specific function linked to such unilateral declarations is not so much to ensure someone elses performance, in the sense in which the word is understood in the discipline of financial guarantees, and of the other personal guarantees specifically provided by the legislature (in which the 'guarantor' assumes the obligation to perform the same performance due by the debtor). Rather, the function of such unilateral declarations is meant to strengthen the future

A. DANGELO, supra note 87, at 152. Cass. 27 settembre 1995 n. 10235, in Banca, borsa ecc., 1994, II, at 40. This decision has been commented by: G. CHIN, La cassazione sul patronage: una voce fuori dal coro, in Giur. it., 1996, I, 1, 737; C. STIGNONE, Lettere di patronage: dichiarazioni a contenuto impegnativo e qualificazione contrattuale della fattispecie, in Corriere giur., 1996, 301; P. CALICETI, Brevi note in tema di patronage, in Giust civ., 1996, I, 3007 ss.; A. FIGONE, Obblighi della societ patronnant, in Societ, 1996, 288; I. CAVANNA, Lettera di patronage ed estensione della responsabilit del patronnant, in Nuova giur. civ., 1996, I, 285. 97 On the theme of letters of patronage see, briefly, F. CHIOMENTI, Le <<lettere di conforto>>, in Riv. dir. comm., 1974, I, 348; A. DE SANCTIS RICCIARDONE, Patronage e <<raccomandazione>>, in Riv. crit. dir. priv., 1983, 397; F. DI GIOVANNI, Le lettere di patronage, Padova, 1984; U. RUFFOLO, Letters de patronage e responsabilit aquiliana, in Dir. impresa, 1984, 459; A. ATTI, Le lettere di <<patronage>> e i gruppi di societ: le fattispecie e il valore giuridico, in Contr. impr., 1985, 878; A. MAZZONI, Le lettere di patronage, Milano, 1986; M. SEGNI, Lettere di patronage, in Enc. giur., 1990, XVII; F. SEVERINI, Il patronage tra la promessa unilaterale atipica e la promessa del fatto del terzo, in Giur. comm., 1991, I, 884; M. BARBUTO, Il punto sulle <<lettere di patronage>>, in Impresa, 1994, 756; C. STIGNONE, op. cit., 301; G. CHIN I confini del patronage: un istituto ancora in cerca di autore, in Giur. it., 1996, I, 2, 257; P. CALICETI, op. cit., 3007; F. GALGANO, Lettere di patronage e promesse unilaterali atipiche, in Contratto e impr., 1996, 9; P.P. PAPALE, Lettere di patronage: gli sviluppi in Francia e in Italia, in Riv. dir. civ., 2000, II, 307; A. M. MUSY, Lart. 1333 c.c. e le lettere di patronage c.d. << forti>>, in Giur. it., 2001, 2254; G. GALLO, Le lettere di patronage tra responsabilit contrattuale e aquiliana, in Mondo bancario, 2001, fasc. 6, 55; O. CALEO, Patronage e art. 1333 c.c.: gli sviluppi della questione nei recenti orientamenti della giurisprudenza, in Temi romana, 2002, fasc. 2, 39; A. TURCO, Lettere di patronage impegnative e la problematica relativa allart. 1333 c.c., in Rass. dir. civ., 2004, 248; N. COREA, Le lettere di patronage: natura giuridica, effetti e responsabilit, in Obbligazioni e contratti, 2007, 642.
95 96

creditor, to whom the declaration is addressed, and corroborates the belief that the sponsor will meet its commitments. Thus, it is clear that the legal implications coming from the letters of patronage are a testing ground that is of absolute importance to any development in the matter98. The decision follows a linear trajectory. It states that generalizations, particularly in the field of letters of patronage, should be avoided, and it has identified a title of extra-contractual liability in unilateral statements for the injury caused by reliance that is a consequence of the release of false or inaccurate statements, or to the sequence of behaviors in conflict with their content99. Nevertheless, the statement of facts in the different legal disputes involving such unilateral declarations has pushed the interpreters to go over the tort profile. It is indisputable that such declarations have the common element of reliance created by the person who makes the declaration with respect to the behaviours and to the initiatives relating to the subsidiary. However, in order to identify the actual legal range of the individual letters of patronage it is necessary to distinguish between weak and strong statements. The former deals with declarations solely concerning information about the economic and financial situation of the company that is seeking financial support. The composition of the shareholders and, sometimes, of the modus operandi of administrative bodies100 seems to possibly identify a responsibility charged to the supporting person on the basis of the precepts formulated in artt. 1337 and 1338 c.c.101. In the second instance (i.e. in the case of strong statements), since the holding company assumes some specific commitments (such as safeguarding the solvency of the subsidiary, to give prior notice of its intention to divest its holding or of future maintenance of the same)102, it is necessary to check whether its liability can be established based on the negotiation plan. This last question (despite the presence of a significant doctrinal orientation aimed at recognizing the contractual nature of a breach of such unilateral declarations)103 persuades the Italian Supreme Court to lever, on the one hand, the principle of typicality (in art. 1987 c.c.) and, on the other, the complexity of the relationship between the latter and art. 1333 c.c., to reach the surprising conclusion by which the nature of the declaration of strong patronage must find its foundation in the scheme outlined in art. 1333 c.c. After all, this solution [is] perfectly suited to the letters of patronage, which have binding character, and consequently there is no reason to doubt their binding force, since those statements,
See Cass. 27 settembre 1995 n. 10235, supra note 96, at 40-41. G. MARINI, supra note 92, 505. For the doctrine favourable to the extra-contractual thesis see: F. CHIOMENTI, supra note 97, at 348; L. CHECCHINI, Rapporti non vincolanti e regole di correttezza, Padova, 1977, 178 ss.; F. GALGANO, Le societ per azioni, in Trattato di diritto commerciale e diritto pubblico delleconomia, diretto da F. Galgano, VII, Padova, 214. 100 See G. MARINI, supra note 92, 506-507. 101 Cass. 27 settembre 1995 n. 10235, supra note 96, at 40. 102 In this sense see G. MARINI, supra note 92, at 507. 103 On this point see A. MAZZONI, supra note 97, 99-100, who stress as is more persuasive that [the letters of patronage] are normally source of contractual liability rather than extra-contractual.
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albeit with different tools than those proper of typical guarantees, are still aimed to reinforce the protection of the rights of creditors and, therefore, to achieve interests certainly deserving of protection under the law104. Therefore, the Supreme Court goes over the black letters of art. 1987 c.c., looking at the scheme contemplated by the provision, well within contractual discipline, relating to the proposal which would imply obligations only for its author (i.e. art. 1333 c.c.). With that said, the procedure envisaged in art. 1333 c.c. responds to the sequence of a proposal without a refusal (from which can be inferred the sole will of the proposer with absolute exclusion of the recipient), and removes any declaration with bilateral character. Therefore, the conclusions that can be drawn from it are that for every free promise (i.e. a promise in which the obligation lies only on the promisor) the relationship can be constituted without acceptance but rather by the effect of a unilateral act Through the scheme of art. 1333 c.c. the letter of patronage is imputed to the area of contracts. Yet, the decision was a huge leap as it recognized the binding nature of such unilateral declarations105. In conclusion, in spite of the radical rejection of the equivalence between acceptance and a recipients failure to refuse an offer, and the requisite of will by the obliged party, the Italian civil codes conception of contractual consensus is extended, by virtue of an unprejudiced reading of art. 1333 c.c., to embrace the non legal process, consisting of the mere proposal of the person who is obliged (with the corollary fiction of the laypersons failure to refuse). 5.2 .- In search of Italian promissory estoppel: the culpa in contrahendo There are situations where the declaration of intent, aiming to assure the seriousness of the commitment, would seem sufficient to establish the binding nature of the promise. Here, it is necessary to take into account cases in which the binding effect is based on the justifiable reliance created in the counterparty (specifically causing him to incur expenditures and make investments that deserve some level of legal protection). Thus, there is a need to consider the discipline of culpa in contrahendo (with particular attention to the issues connected with unjustified withdrawal from negotiations). The Italian debate on the issue of culpa in conthraendo has ancient roots106. The overall picture, however, acquired consistency at the beginning of the twentieth century, both through the

Cass. 27 settembre 1995 n. 10235, supra note 96, at 43. G. CHIN, supra note 96, at 741. 106 D. CARUSO, La culpa in contrahendo. Lesperienza statunitense e quella italiana, Milano, 1993, at 157, who observes that before Jherings teachings were adopted by Italian legal system (the origin of this concept is conventionally connected with the publication of the article of R. VON JHERINGS, Culpa in contraendo oder Schadensersatz bei nichtigen oder nicht zur Perfektion gelangten Vertrge, in Jherings Jahrbcher, 4, 1861) both Italian doctrine and jurisprudence showed their indifference toward pre-contractual liability.
105

104

implementation of judgments penalizing unjustified withdrawals in negotiations107, and the achievement of an orientation that had completely metabolized the German reflection of good faith in contrahendo108. A natural consequence of this assimilation resulted in the elaboration of art. 1337 c.c., and the debate has gradually developed into the systematic classification and the nature of the pre-contractual liability109. In essence, there are three interpretive approaches that have marked the doctrinal and jurisprudential confrontation: 1) first, that liability for withdrawing from a negotiation would fall within the area of torts110; 2) second, that (remaining faithful to the German matrix) culpa in contrahendo should be specifically confined to non-fulfillment liability111, and finally, 3)
See, App. Napoli 27 marzo 1911, in Foro it., Rep. 1911, voce Contratto, n. 19; Cass. 6 febbraio 1925, in Riv. dir. comm., 1925, II, 248. 108 After all, before the Civil Code of 1942 introduced a rule ad hoc, some parts of the literature (see G. FAGGELLA, Dei periodi precontrattuali e della loro vera ed esatta ostruzione scientifica, in Studi per Fadda, III, Roma, 1918, at 269) had just provided for the introduction of the concept of unjustified withdrawal from the negotiations in precontractual liability. This theme has been (and is still today) the object of strong doctrinal debate: on this debate see, for example, A. VERGA, Errore e responsabilit nei contratti, Padova, 1941; L. MENGONI, Sulla natura della responsabilit precontrattuale, in Riv. dir. comm., 1956, II, 360; F. BENATTI, La responsabilit precontrattuale, Milano, 1963; F. CARRESI, In tema di responsabilit precontrattuale, in Temi, 1965, 440; G. VISINTINI, La reticenza nella formazione del contratto, Padova, 1972; M. BESSONE, Rapporto precontrattuale e doveri di correttezza, in Riv. Tri. dir. proc. civ., 1972, 962; A. RAVAZZONI, La formazione del contratto, Milano, 1974; U. MORELLO, Culpa in contrahendo, accordi e intese preliminari (un classico problema rivisitato), in La casa di abitazione tra normativa vigente e prospettiva, a cura del Consiglio Nazionale del Notariato, II, Le regole di comportamento, 1974; R. SPECIALE, Contratti preliminari e intese precontrattuali, Milano, 1990; C. TURCO, Interesse negativo e responsabilit precontrattuale, Milano, 1990; G. PATTI S. PATTI, Responsabilit precontrattuale e contratti standard, in Commentario al Codice Civile, diretto da P. Schlesinger, Milano, 1993; M. MANTOVANI, <<Vizi incompleti>> del contratto e rimedio risarcitorio, Torino, 1995; S. BASTIANON, Responsabilit precontrattuale, recesso ingiustificato e risarcimento del danno, in Resp. civ., 1996, 988; G. DAMICO, <<Regole di validit>> e principio di correttezza nella formazione del contratto, Napoli, 1996; P. G. MONATERI, La responsabilit contrattuale e precontrattuale, Torino, 1998; A. M. MUSY, Responsabilit precontrattuale (culpa in contraendo), in Digesto civ., Torino, 1998, XVII, 391; V. DE LORENZI, Correttezza e diligenza precontrattuale: il problema economico, in Riv. dir. comm., 1999, I, 565; D. PALMIERI, La responsabilit precontrattuale nella giurisprudenza, Milano, 1999; L. ROVELLI, La responsabilit precontrattuale, in Trattato di diritto privato, diretto da M. Bessone, XIII, Il contratto in generale, tomo 2, Torino, 2000, 199; N. MATERA, La responsabilit precontrattuale tra vecchi e nuovi spunti di riflessione, in Giur. it., 2000, 1178; P. MANINETTI, Responsabilit precontrattuale e risarcimento dei danni: verso una concezione sempre pi estensiva, in Danno e resp., 2000, 982; G. MERUZZI, La trattativa maliziosa, Padova, 2002; P. GALLO, Responsabilit precontrattuale: la fattispecie, in Riv. dir. civ., 2004, I, 295; P. PARDOLESI, Recesso dalle trattative: un esercizio di comparative law and economics, in Danno e resp., 2005, 597; G. DAMICO, La responsabilit precontrattuale, in Trattato del contratto, diretto da V. Roppo, V, tomo 2, Milano, 2006, 977; G. AFFERNI, Il quantum del danno nella responsabilit precontrattuale, Torino, 2008. 109 D. CARUSO, supra note 106, at 161. In this respect it is necessary to remark how this discipline follows different rules in other legal systems: see J. CARTWRIGHT M. HESSELINK, Conclusions, in Precontractual piability in european private law, Cambridge, 2008, at 461. 110 About the theory of aquilian nature see P. GRECO, Formazione di contratto nullo e responsabilit extracontrattuale, in Temi, 1952, 467; R. SACCO, supra note 88, at 676; F. CARRESI, Il contratto, Milano, 1987, II, 736; C. M. BIANCA, Il contratto2, in Diritto civile, Milano, 2000, III, 157 ss.; V. ROPPO, Il contratto, in Trattato di dir. priv., diretto da G. Iudica e P. Zatti, Milano, 2001, 184; P. GALLO, supra note 108, at 299; G. PATTI S. PATTI, supra note 108, at 45. For the jurispudence see, for example, Cass. 19 aprile 1983 n. 2705, in Foro it., Rep. 1983, voce Contratto in genere, n. 143; 18 giugno 1987 n. 5371, id., 1988, I, 181; 6 febbraio 1992 n. 2704, in Giur. it., 1993, I, 1, 1560; 13 dicembre 1994 n. 10649, in Foro it., Rep. 1994, voce Contratto in genere, n. 284; 1 febbraio 1995 n. 1163, id., Rep. 1995, voce cit., n. 284; 30 agosto 1995 n. 9157, id., Rep. 1996, voce cit., n. 259; 29 aprile 1999 n. 4299, id., Rep. 1999, voce cit., n. 356; 16 luglio 2001 n. 9645, id., 2002, I, 806; 10 ottobre 2003 n. 15172, id., voce cit., n. 317; 7 maggio 2004 n. 8723, id., Rep. 2004, voce cit., n. 359; 5 agosto 2004 n. 15040, id., Rep. 2005, voce cit., n. 426. 111 On this profile see: L. MENGONI, supra note 108, at 362; M. GIORGIANNI, Appunti sulle fonti delle obbligazioni, in Riv. dir. civ., 1965, I, 70 ss.; G. TUCCI, Il danno ingiusto, Napoli, 1970, 134; G. B. PORTALE, Informazione societaria e responsabilit degli intermediari, in Banca, borsa e titoli di credito, 1982, I, 25; F. BENATTI, Culpa in contrahendo, in
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that this type of responsibility should be linked to a tertium genus, working half-way between contractual and extra-contractual112. Recently, however, the general framework has been enriched by new contributions. The finding that unjustified withdrawal from the negotiation is the most common case in the precontractual liability and that among the essential prerequisites (to ensure that such a responsibility works concretely) is the legitimate protection of a party who relied during the negotiation (the other two are the lack of just cause in the termination and the proof of a compensable injury). This has been viewed as a reconstructive grid characterized by the division between liability for failure of negotiations based on the evidence of malice or guilt and a more objective withdrawal liability (i.e. independent of fault)113. Apart from the analysis of the complex positions articulated in the debate114, great importance should be given to the determination of the temporal element which can be considered as reasonable reliance on the future conclusion of the contract. The case law (almost) dominantly connects this moment to the attainment of an advanced state of negotiation115. More specifically, it is necessary for parties to have reached an agreement on all essential elements of the contract (the only element lacking is the signing of the deal) for reliance worthy of protection to be found. However, the same jurisprudence seems to request some direction sufficient to justify the partys belief about the future conclusion of the contract116.

Contratto e impresa, 1987, 303 ss.; C. TURCO, op. cit., 755 ss.; L. ROVELLI, op. cit., 126 ss.; G. MERUZZI, op. cit., 53 ss; A. DI MAJO, Vincoli unilaterali e bilaterali nella formazione del contratto, in Istituzioni di diritto privato, a cura di M. Bessone, Torino, 2004, 537; F. GALGANO, Diritto civile e commerciale, Padova, 2004, 635; G. DAMICO, La responsabilit cit., 1107 ss.; C. CASTRONOVO, La nuova responsabilit civile3, Milano, 2006, 502; G. AFFERNI, supra note 108, at 10-11. 112 The origin of this thesis belongs to R. SACCO, Culpa in contrahendo e culpa aquiliana, in Riv. dir. comm., 1961, II, 186. On this profile see P. RESCIGNO, Obbligazioni (diritto privato), in Enciclopedia del diritto, XXIX, Milano, 1979, 142; V. CUFFARO, Responsabilit precontrattuale, in Enciclopedia del diritto, XXXIX, Milano, 1988, 1265 ss. 113 G. AFFERNI, supra note 108, at 15-18. The thesis according to which two pre-contractual liabilities would exist is strongly expresed in the German doctrine: see, e.g., K. LARENZ, Lehrbuch des schuldrechts: allgemeiner teil14, Munich, 1987, at 107; C. W. CANARIS, Die vertrauenshaftung im lichte der rechtsprechung des BGH, in 50 Jahre bundesgerichtshof. Festgabe aus der wissenschaft, I, Munich, 2000, at 180; B. GRUNEWALD, Das scheitern von vertragsverhandlungen ohne triftigen grund, in Juristenzeitung, 1984, at 710 -711. 114 Traditionally the prevalent orientation of jurisprudence recognizes the duty to indemnify (to the extent of the negative interest) damages resulting from the injury to the legitimate reliance of the counterparty on the conclusion of the contract: see Cass. 10 ottobre 2003 n. 15172, in Foro it., Rep. 2003, voce Contratto in genere, n. 317; 14 febbraio 2000 n. 1632, id., Rep. 2000, voce cit., n. 347; 14 giugno 1999 n. 5830, in Foro it., Rep. 1999, voce Contratto in genere, n. 355; 25 novembre 1997 n. 11811, id., Rep. 1998, voce cit., n. 322; 9157/2005 cit.; 26 ottobre 1994 n. 8778, in Foro it., Rep. 1994, voce Contratto in genere, n. 286; 12 marzo 1993 n. 2973, id., 1994, I, 956; 30 marzo 1990 n. 2623, id., Rep. 1990, voce cit., n. 233; 11 settembre 1989 n. 3922, id., Rep. 1989, voce cit., n. 255; 25 gennaio 1988 n. 582, id., Rep. 1988, voce cit., 266. However the doctrine, while considering it essential that this responsibility has its basis in the culpability of the party which withdraws, outlines more diverse approaches: see C. M. BIANCA, supra note 110, at 168; G. PATTI S. PATTI, supra note 108, at 73. 115 See Cass. 13 marzo 1996 n. 2057, in Foro it., 1996, I, 2065; 25 febbraio 1992 n. 2335, id., 1992, I, 1766; 22 ottobre 1982 n. 5492, in Giur. it., 1984, I, 1, 1199; 13 luglio 1968 n. 2521, in Foro it., 1968, I, 2454. 116 G. AFFERNI, Responsabilit precontrattuale e rottura delle trattative: danno risarcibile e nesso di causalit, in Danno e resp., 2009, at 469-470 (in effect, (), the reliance may subsist even when have not been yet determined all

Therefore, it is not surprising that, in a climate of uncertainty, a substantial part of the literature (looking at possible solutions envisaged from German legal experience) has suggested the opportunity of matching the very advanced stage of negotiation with the achievement of practical certainty of the future conclusion of contract117. From this perspective, the futuristic solution proposed in the Dutch legal system deserves substantial attention. The Dutch legal system has created a general duty to negotiate in good faith, but it takes the view that the very nature of negotiations creates a relationship which the law should protect; and sees that relationship as one which develops during the course of the negotiations and its final stages almost merge into the same contract118. In other words, since the decision of the Hoge Raad in the case Plas/Walburg (in which three distinct levels characterizing the process of negotiation were set forth)119, the Dutch courts ruled that on the third stage (the beginning of which coincides with the moment when the claimant could reasonably expect that the contract would be concluded) the parties can exercise their right to withdraw from the negotiations120. For that reason, standing out from the groove of other civil law systems, Dutch law has taken steps to clarify the uneasy distinction between contract and negotiations through a gradual process whereby, after a certain threshold, the party that suffers the withdrawal can claim compensation which would place him in the same position that they would be found if the contract had been correctly concluded121. Therefore, looking at how withdrawal from the negotiation is
the essential elements of the coming contract and, vice versa, the reliance may lack when these elements have been already determined). 117 See G. AFFERNI, supra note 108, at 18. The idea come from the German jurisprudence (see BGH 29/3/1996, NJW, 1996, 1884; BGH, 22/2/1989, NJW-RR 1989, 627; BGH, 7/2/1980, BHGZ 76, 343; BGH, 12/6/1975, NJW 1975, 1774; BGH /2/1969, WM 1969, 595, 597), which adopts a resolute position in considering that the workability of the culpa in contrahendo does not depend exclusively on the fact that the counterparty have supported investments relying on the future conclusion of the contract; it is necessary, instead, that the refusal of coming to the agreement does not have a valuable reason, although the business would result in a sure achievement and the other party has supported burdens which are necessary to the conclusion of the contract (S. LORENZ W. VOGELSANG, Case 1: Negotiations for premises for a bookshop (for Germany), in Precontractual liability in european private law, Cambridge, 2008, at 3536). For an overview of the German doctrine see K. LARENZ M. WOLF, Allgemeiner teil des brgerlichen rechts9, Munich, 2004, 601; D. MEDICUS, Schuldrecht I: allgemeiner teil16, Munich, 2005, 49. 118 J. CARTWRIGHT M. HESSELINK, supra note 109, at 468-469. 119 HR 18/6/ 1982 (Plas/Valburg), NJ 1983, 723. More specifically, the Hoge Raad estabilished the following subdivision: 1) in the first stage of the negotiations, the parties of the negotiations are free to withdraw without any liability; 2) in the second, the parties although they may withdraw without coercion have to compensate the counterparty for the expenses supported; III) in the third stage, the party are no longer free to break off negotiation [M. HESSELINK, Case 1: Negotiations for premises for a bookshop (for Netherlands), in Precontractual liability in european private law, Cambridge, 2008, 45-46]. 120 J. CARTWRIGHT M. HESSELINK, supra note 109, at 468-469 (in the sense that if one party does break off he may be required not only to compensate the claimants out-of-pocket losses but even to compensate the expectation which he had from the contract; or even that the court will require the defendant not to break off at all, but to conclude the contract specific enforcement). 121 It is not impossible that negotiations concerning a contract may reach such an advanced stage that the act of breaking them off must in itself be regarded, in the prevailing circumstances, as a breach of good faith, on the basis that the parties may be assumed mutually to have relied on the expectation that some sort of contract would in any event result from the negotiations. In such a situation, it may also be legitimate to find that an obligation exists to pay compensation for lost profits: see HR 18/6/ 1982 (Plas/Valburg), supra note 124, 723.

precluded if it causes a real expectation of the future conclusion of the contract, Dutch jurisprudence not only eludes the problems related to the relationship between negotiation and contract, but emphasizes that [t]he wrong is therefore the breaking-off of the negotiations, and so the loss caused is the loss of contract, because if the defendant had not committed the wrong, he would have concluded the contract and thereby fulfilled, rather than disappointed, the claimants expectations122. These relevant innovations in pre-contractual liability, introduced by the practice of Dutch law, offer the opportunity to consider, on a more informed basis, the apparent polarity of the civil law and common law systems (namely, the English and the North-American system). Moreover, though the English system is traditionally regarded as the most restrictive in terms of precontractual liability, it seems appropriate to consider the possibility of detecting several points of contact, in their ways of framing the responsibilities that flow from the interruption of negotiations: [i]f English law were to take the step of accepting a development of the doctrine of promissory estoppel to cover contractual negotiations generally, rather than being limited (within the doctrine of proprietary estoppel) to promises relating to interests in land, both the rationale and the result of the liabilities might resemble the Dutch position123. Therefore, following this approach it is not surprising that certain parts of the doctrine have gone so far as to identify promissory estoppel as the appropriate tool to overcome the problems related to European pre-contractual liability. The aim of a new EC reliance doctrine should be merely to validate limited incursion into private bargaining, principally in order to restore reliance expenditure to A in situations where A has acted to his detriment on a reasonably held belief or view, inspired by or attributable to B, that a contract would materialize124. By common recognition, the English legal system appears to exhibit the strongest reluctance to impose pre-contractual liability. Even though, following the footsteps of the U.S. legal system (i.e. through the impulse of the decisions of Australian courts), the nearest that English law has come to recognizing the development of a new source of obligation within the precontractual phase is through the doctrine of estoppel125. However, the North American system, which can be characterized as favouring a dynamic and flexible approach, would appear to have
J. CARTWRIGHT M. HESSELINK, supra note 109, at 469 ([i]n this, Dutch law goes even further than most of the other civil law systems in our study, which will impose liability for breaking off negotiations () but will normally limit the damages to wasted expenditure: the reliance interest). 123 A party who has created in the other the expectation that he would receive the benefits of a contract, where the latter has acted in reliance on the belief that the contract would be concluded, might be estopped from denying that he is bound to complete the contract. That is, it would be open to the courts, in developing the doctrine of promissory estoppel, to allow the remedy to be based not simply on the value of the claimants reliance on his belief that the contract would be formed, but on his expectation from the contract. The claimants reliance is the trigger for the estoppel, but need not to be measure of his remedy under it: J. CARTWRIGHT M. HESSELINK, supra note 109, at 470. 124 See M. J. DORIS, Bargaining and reliance in new european contract law, in InDret, 2007, n. 3, at 16. 125 J. CARTWRIGHT M. HESSELINK, supra note 109, at 461.
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gradually adopted a softer attitude, capable of opening a bridge to the discipline of culpa in contrahendo. Moreover, despite the reasons traditionally given for denying entry to pre-contractual duties of good faith126, in recent decades the legal community has witnessed a remarkable opening on the part of the U.S. legal system to the imposition of an obligation of good faith and fair dealing in the execution of the contract127. As such, it is possible to track the advent of the Section 1-201(19) of Uniform Commercial Code (which gives entry to a definition of subjective good faith)128 and of Section 205 of Restatement [Second] of Contracts (which verbalizes a general duty of fairness)129. Nevertheless, American law was not and arguably is not yet ready to adopt a similar approach for bad faith in bargaining130. After all, although the decision of the (often cited) case Hoffman v. Red Owl Store131 is an application of the Section 90 to the pre-contractual stage able to open a direct connection with the culpa in contrahendo (with regard to the implementation of the duty of good faith, we can safely say that the principles of culpa in contrahendo, with the exception of a generalized duty of good faith arising out of the negotiations themselves, are by now implicit in the
In a work that meticulously collects the plethora of previous case law relevant to the area of withdrawal from negotiations, the most reliable doctrinal voice in U.S. identifies five essential reasons of inescapable relevance [E. A. FARNSWORTH, Precontractual liability and preliminary agreements: fair dealing and failed negotiations, 87 Colum. L. Rev. 217 (1987), at 242-243]: I) the so-called aleatory theory of negotiations (deeply rooted in the U.S doctrinal and jurisprudential views, in the sign of the belief that negotiation is a pitiless arena, where everyone works at his own risk, knowing that error will not be forgiven), under which, until the final conclusion of the contract, the outcome of negotiations remains unclear, leaving the parties free from any contractual relationship; II) the general indifference of the system with respect to the outcome of negotiation (except the cases where the conclusion of a contract responds to interests deemed worthy of protection from the order); III) the reduction in costs of administration of justice (through clear rules and simple application); IV) the uncertainty stemming from the difficulty to identify with absolute precision at which point in time should the parties of a negotiation be constrained by the duty of good faith, and, finally, V) the widespread concern that such an obligation is a relevant obstacle to the 'normal' course of the negotiations (both discouraging parties all times in which the probability of a deal appears remote and accelerating highly the negotiation in order to reach a final conclusion, even if hasty). These, in brief, are the reasons that, at least initially, led the U.S. doctrine and jurisprudence to adopt an attitude of substantial reluctance towards a generalized precontractual obligation of good faith. 127 S. COLOMBO, The present differences between the civil law and common law worlds with regard to culpa in contrahendo, 4 Tilburg Foreign L. Rev. 341 (1993), at 343. 128 The Section 1-201(19) of UCC (in the official draft of 1952) establishes: Good faith means honesty in fact in the conduct or transaction concerned. 129 The Section 205 of Restatement [Second] of Contracts orders that: Every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement. On this point see R. S. SUMMERS, The general duty of good faith Its recognition and conceptualization, 67 Cornell L.R. 810 (1982), who remarks how such section is one of the truly major advances in American contract law during the past fifty years. However, S. COLOMBO, supra note 127, at 344, stresses how such advance was produced amidst doubts and fears of judicial activism that, at least from a European perspective, are bewildering given the nature of common law system. In this perspective great importance is ascribed to the transcription of the 1970 Proceeding of the American Law Institute (at 814): Professor Braucher [the Reporter]: I have been asked Is this really a restatement of the law? Is this not an attempt to write the Sermon on the Mount into Restatement of Contracts?... I do not want to try to disguise what is being said here. This proposition is thoroughly acceptable if you define good faith very narrowly; but as you define good faith more broadly, the dubts begin to arise reference to what happened to the law of Germany under the heading of good faith. It became, in the days of the great inflation following World War One a license for judicial remaking of contract way beyond anything that ever happened in the United States. Now, I suppose if we got to a place where you had 25 per cent inflation every month that you might find some judicial activism here too. 130 S. COLOMBO, supra note 127, at 344-345. 131 Hoffman v. Red Owl Stores, supra note 66, at 267.
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American case law after a period of much experimentation with good faith notions by trial and error)132, the absence of a theoretical elaboration of a general obligation of good faith would seem to testify against the definitive overcoming of the ancestral reluctance to impose pre-contractual liability133. More clearly, although a significant step forward has been made by the legal community recognizing the concept of good faith ratified by the Section 1-201 (19) of Uniform Commercial Code and by the Section 205 the Restatement [Second] of Contracts, and by virtue of the expansive implementation of the Section 90 of the Restatement [Second] of Contracts, the real problem lies in the back-door technique of their use. The issue of good faith is not tackled head on and the problems, resolved in a roundabout and ad hoc manner, refuse to go away134.

6 .- The efficiency of American and Italian options in the light of the economic analysis of law. The comparison conducted in the preceding pages leads us to verify, in principle, two antithetical solutions. The Italian option has codified a duty of good faith and fairness in negotiations within article 1337 c.c. despite the discrepancy regarding the correlation between liability and unjustified withdraw. The American choice, which is concerned about the difficulties linked to a logical and systematically burdensome placement of liability in negotiations and the inability to regulate the practice (both in a pragmatic business environment and in a judicial setting), has adopted a solution of pre-contractual freedom of merchants. Prima facie, the comparison seems to indicate an unambiguous outcome: the U.S. rule focuses on the requirement of an agreement or meeting of the minds to prevent the risk of being constrained to an undesired contract135. From this perspective, it has been argued that the search of satisfactory arrangements for negotiation must be propitiated, lest that activity be prevented by the ominous idea of being bound even before having identified the items that allow one to maximize the joint value. A rule which commits the responsibility of the party (who has achieved the agreement) before he has acknowledged the value of the commitment in relation to a promised counterperformance promised would trigger the disadvantage of increasing the transaction costs by requiring continuous disclaimers, aimed at clarifying that interlocutory agreements do not imply any obligation and do not justify any confidence and compromise the degree and quality of trading.
S. COLOMBO, supra note 127, at 348. L. A. BEBCHUK O. BEN-SHAHAR, Pre-contractual reliance, 30 J. Legal Stud. 423 (2001), at 424 ([u]nder current U.S. law, the traditional rule assesses no pre-contractual liability. Parties are free to break off negotiations at any time, in which case each party bears the sunk cost of its reliance investments). 134 S. COLOMBO, supra note 127, at 349. 135 About this majoritarian position see S. SHAVELL, Foundations of economic analysis of law, Cambridge, Mass., 2004, at 327. On this profile see, also, O. BEN-SHAHAR, Contracts without consent: exploring a new basis for contractual liability, 152 U. Pa.. L. Rev. 1829 (2004), 1829 (when the parties represent different conceptions of the terms under which they intend to deal, no contractual liability arises, and both are free to walk away).
133 132

Nevertheless, the same doctrine is forced to recognize that the problem becomes more complicated when a party is induced to make significant efforts and make considerable investments in view of the conclusion of the contract. In such a case, it opens a passage, albeit narrow136, through which a broader path may be created137. To this end, it is good to step back and consider the degree of efficiency in the two so-called polar regimes of pre-contractual liability: on the one hand, the absence of responsibility and, on the other, the harshness of strict liability138. In regards to the first regime, a weak point can be found because such a system is vulnerable to risks of under-investment. The reason is clear. In the absence of pre-contractual liability, neither party is encouraged to invest in reliance because they do not have the slightest chance to recover the expenses resulting from reliance in cases where the contract is not concluded. Thus, parties lack incentive to undertake additional obligations139. In the opposite case (i.e. under the force of a regime of unconditional pre-contractual liability), the situation changes radically and the probable risk is that of a systematic overinvestment in reliance. Both contractors will have strong incentives to invest in reliance, having the practical knowledge that if the contract is not executed they may obtain full compensation from the counterparty. In fact, if we assume the court may have knowledge of only the investment in reliance140, the strict liability becomes an unavoidable result. After all, when the parties are unable to conclude a contract, the mere knowledge of the investments made in reliance by both the parties will not allow the courts to judge correctly either on the responsibility for the interruption of the negotiation, or on the adequacy of the reliance with the inevitable consequence of inducing the parties to opt for a level of reliance investment that is excessive, given the other party's investment. In other words, over-investment will result from the fact that each party will gain from his investments in reliance without having to bear any cost: each partys ability to recover all of its expenditures if a contract is not formed is translated into the contractual price in a way that shifts the entire cost of its own reliance to the other party141. The brief analysis about the opposite poles of the pre-contractual liability allows us to exclude that they may advance, in principle, efficient investments in reliance; in the case of no
S. SHAVELL, supra note 135, at 328. For an incisive analysis of the traditional North-American see O. BEN-SHAHAR, Freedom from contract, in Freedom from contract symposium foreword, 2004 Wis. L. Rev. 261, at 267. 138 On the efficient degree of the two polar regimes of precontractual liability see L. A. BEBCHUK O. BEN-SHAHAR, supra note 133, at 423. 139 L. A. BEBCHUK O. BEN-SHAHAR, supra note 133 at 425 (whereas a party that relies will bear full cost of reliance, this party will not capture the full benefit of the reliance, because the other party will be able to capture some fraction of the increase in surplus owing to the reliance investment). 140 This hypothesis, with the exception of the costs in reliance, supposes the total lack of information of the courts about all the elements which characterize the bargaining environment. 141 L. A. BEBCHUK O. BEN-SHAHAR, supra note 133, at 434.
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liability this outcome is due to the fact that the level of reliance is too little, whereas in case of strict liability because the same will be excessive. How can these blatant inconsistencies be overcome? In this regard, a prestigious scholarly contribution has emphasized the need to turn our attention to solutions that represent, so to say, a sort of intermediate regime of pre-contractual liability, also referred to as a third way142. This intermediate regime has identified at least three rules that could ensure an efficient level of investment in reliance if the courts respected the premise of full information. In short, the first ground for imposing liability focuses on the party who contracts in an ex-post opportunistic manner by proposing conditions which leave the other party with a negative balance143. This form of liability (stemming from strategic, substantially obstructive negotiations) should ensure the protected party the ability more favourable conditions and optimal incentives to rely [on]. In the second scenario, commonly referred to as the sharing rule, both parties should be called on to offset each other within a fraction of their own costs in reliance notwithstanding their faults in the interruption of the negotiations144. Finally, the third rule contemplates an unconditional liability, limited by a ceiling so that each party shall indemnify the other, but only within the threshold of a socially optimal level of reliance. Looking deeper into the problems triggered by the prospective application of these three rules145, it seems appropriate to focus on an unquestionable element, i.e. the result predicted in such an exercise of comparative law and economics would seem to reinforce the idea that in the complicated world of contractual negotiations an optimal level of efficiency (regarding investments made in reliance) has to be identified in an intermediate liability solution that (with appropriate adjustments) seems to trace the features of the Italian solution146. Therefore, a survey conducted in the wake of a sophisticated economic analysis stresses the opportunity, provided by the domestic
L. A. BEBCHUK O. BEN-SHAHAR, supra note 133, at 435-437. On the so-called no retraction principle see O. BEN-SHAHAR, supra note 135, at 1830-1831 (a party who manifests a willingness to enter into a contract at given terms should not be able to freely retract from her manifestation. The opposing party, even if he did not manifest assent, and unless he rejected the terms, acquires an option to bind his counterpart to her representation or charge her with some liability in case she retracts). See, also, O. BEN-SHAHAR, Pre-closing liability, available at: http://ssrn.com/abstract=1505614. The author, criticizing Judge Easterbrooks approach (according to which a letter-ofintent, which is subject to the preparation of a more comprehensive formal document, is not binding) conveyed in the landmark decision Empro Manufacturing Co. v. Ball-Co Manufacturing Co., Inc., 870 F.2d 423, emphasized how the intermediate liability at the pre-closing stage would induce more efficient levels of precontractual reliance, benefitting both parties. 143 L. A. BEBCHUK O. BEN-SHAHAR, supra note 133, at 426 ([s]uch an aggressive tactic can be regarded as the cause for the failure of negotiations to reach a contract and can, ex ante, deter the other party from expending reliance costs). 144 The parties will in effect share the cost of reliance expenditures. When both parties rely, each party bears part of the total reliance cost pays for part of other party reliance cost and recovers part of its own cost: L. A. BEBCHUK O. BEN-SHAHAR, supra note 133, at 438. 145 For a wider analysis of which see, once again, L. A. BEBCHUK O. BEN-SHAHAR, supra note 133, at 423-425. 146 Reflecting on the implications linked to the no-retraction principle, O. BEN-SHAHAR, supra note 135 at 1847, emphasizes their efficient degree compared with the traditional setting of mutual assent.
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approach, to exploit a degree of economic efficiency which is instead precluded to the rule (apparently much more liberal) adopted in American common law. It is presumably too early to close the match, but a hint of chauvinism sometimes does not harm.