Promissory Fraud: A Cost-Benefit Analysis

22 Pages Posted: 27 Sep 2004

See all articles by Kevin E. Davis

Kevin E. Davis

New York University School of Law

Date Written: 2004

Abstract

The purpose of this comment is to analyze the potential benefits and costs of the doctrine of promissory fraud, prompted by the generally positive evaluation of the doctrine contained in an accompanying article by Ian Ayres and Gregory Klass. The analysis is premised upon the notion that the principal effect of the doctrine of promissory fraud is to encourage prospective promisors who believe that there is a low probability that they will perform their promises either to disclose this information or to refrain from promising. However, using the doctrine of promissory fraud in this fashion only seems likely to be beneficial in circumstances where the promise is not otherwise enforceable under contract law. Moreover, in these circumstances, for a variety of reasons, the threat of liability for promissory fraud is likely to discourage promisors from making certain types of socially beneficial promises. These costs have to be balanced against any benefits associated with the doctrine, keeping in mind the fact that to the extent that the doctrine qualifies as a default rule both its costs and benefits are limited by the costs of contracting around it.

Suggested Citation

Davis, Kevin E., Promissory Fraud: A Cost-Benefit Analysis (2004). NYU, Law and Economics Research Paper No. 04-027. Available at SSRN: https://ssrn.com/abstract=595146 or http://dx.doi.org/10.2139/ssrn.595146

Kevin E. Davis (Contact Author)

New York University School of Law ( email )

40 Washington Square South
Vanderbilt Hall, Room 335
New York, NY 10012-1099
United States
212-992-8843 (Phone)

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