New Rules for Promissory Fraud

Abstract:     
This article summarizes our recommended reforms to the law of promissory fraud. We present these recommendations as a Draft Prestatement of the Law of Insincere Promising. The basic propositions of the Prestatement are taken, with some modification, from our book, Insincere Promises: The Law of Misrepresented Intent (2005). This article adds extensive comments, in the style of the Restatements, and a prose introduction identifying three reforms we deem most important. First, courts should drop their insistence that every promise represents an intent to perform, and treat that representation instead as a default. Second, courts faced with claims of promissory fraud should pay more attention to scienter. This means both that promissory fraud claimants should be required to produce separate evidence of intent or recklessness, and that courts should recognize the largely overlooked possibility of negligent promissory misrepresentation. Finally, courts should acknowledge that promissory representations of intent are material only because they say something about the objective probability of performance, and should interpret a representation of intent to perform as saying, absent evidence to the contrary, that there is at least a fifty-percent chance that the promisor will perform.

Keywords: promissory fraud, contract, fraud

JEL Classifications: K12, K13

Accepted Paper Series