Rethinking Interpersonal Trust in Short-Term Contracts: An Interdisciplinary Study

The statement that reciprocal loyalty encourages collaboration needed for contract performance is a truism, practically a cliché. Courts have long emphasized the significance of honesty, cooperation, and reciprocity for maintaining decent contractual relations. However, contract law theoreticians have not yet developed a comprehensive account of interpersonal trust in short-term contracts outside the conventional understanding of fiduciary relations or relational contracts.

In a recent article, I explore the notion of interpersonal trust in one-shot contracts by introducing to the legal audience the philosophy, economics, and psychology studies on this subject. 

Generally, philosophers believe that trust requires the promisee not to monitor other people's conduct constantly, reflect well of others, and being optimistic that other parties will not only be competent in certain respects but also be committed to doing what we trust them to do for the right reasons. Also, a fundamental component of trust relations is the chance that the promisee will be betrayed by the promisor (Baier (1986); Jones (2012); Hawley (2014)). 

Promissory theories of contract, such as the will theory of Charles Fried (1981, 2015) asserts that contract law is founded on a convention of promising, which is a cultural perception that allows one party to be bound to another in a manner that generates expectations and trust between contractual parties. Fried argues that breaking a promise is an abuse of the trust we granted when we promised, and it contradicts the Kantian imperative against using people as a means for promoting others’ objectives. Fried explains that we trust people when they make promises to us, even in the absence of any act of detrimental reliance. While Fried’s claim seems to be intuitive, it nevertheless conflates between trust and distrust. For instance, I may trust your good intentions to eat lunch with me, but will not necessarily be vulnerable to any betrayal in case you will not stand for your commitment. Thus, in case you breached your promise to eat launch with me, no breach of trust has occurred because I have not relied on your promise and did not change my current affairs adversely. Therefore, the sharp distinction between promise, reliance, and harm, as advocated by Fried, is doubtful if one wishes to understand the notion of moral trust as a core constituent of Fried’s promissory theory of contract.

Accordingly, only an integrated theory that combines promissory and reliance considerations, which are associated with betrayal rather than mere disappointment, can entail a meaningful validity to moral trust. The incorporation of reliance considerations into promissory theories foundations has several normative implications. For instance, anchoring expectation damages as the default remedy for breach of contract; explaining the insignificance role of fault considerations in establishing promisor liability; as well as defending the principle that promisors are liable only for those consequential damages that could reasonably have been foreseen at the time of the contract formation (Hadley v. Baxendale, 156 Eng. Rep. 145 (Ex. 1854)).

The efficient breach theory assumes that contractual parties are flawlessly rational, and the threat of legal liability is the only reason to perform. However, less attention was given to explore the role of trust within the assumptions of the theory. Neoclassical economics indicate that the choice to perform or breach can be conceptualized as a decision under risk, involving the integration of probabilities and outcomes. From the perspective of prospect theory, the risk-taking aspect of trust behaviour depends on two additional elements: risk aversion and loss aversion. Risk and loss aversion are highly contextual and may differ across persons or matters, such as financial, health, ethical, or social domains. However, Law and Economic proponents have not integrated the insights on the development of trust into the efficient breach theory assumptions to adjust economic thinking with fundamental moral views by considering the implications of different kinds of contractual obligations on the establishing of various risk and loss attitudes.

Psychology studies present certain factors within individuals that predispose them to trust or distrust others. These factors include cognitive and perceptual shortcuts – such as stereotypes, rapid judgments, or responses to facial descriptions. Several other sociodemographic variables, such as education, income, and employment, are also important factors for predicting the extent of contractual trust. These insights explain the unavoidability connection between the distributive justice and fairness conceptions of contract law. Specifically, fairness in contracts is achieved when the performances the parties exchange are economically equivalent, so that ex-ante, neither party has been put in a better position. However, designing such contract terms is conditional upon the extent of interpersonal trust between the parties, which in turn is partly based on appearance and socio-demographical attributes. When such qualities are in the present, jurists could assume that the parties didn't design fair contract terms. Furthermore, many deprived parties incorrectly assume that such a result is just and fair because any other disadvantaged group members frequently contract on similar terms. Such a conclusion may at least justify embracing a weak version of distributive justice that follows the American procedural and substantive unconscionability principles, which aim to void any contractual arrangements that increase the unjust allocation of resources.

The interdisciplinary foundations of interpersonal trust and their implications for redesigning various contract theories resemble different views of pluralism in contract law and provide a better justification for various transactions between a variety of contractors’ types in different legal settings.

Leon Anidjar is a Doctoral Candidate at the Rotterdam School of Management, Erasmus University.