NARRATOR: Thanks for joining this episode of the No. 86 lecture series, in which Professor Richard Epstein discusses the Roman Law of Contracts. Topics in Episode 2 include: Complexities in contractual agreements The importance of formal terminology Involvement of third parties How certain contracts would have been enforced differently in the Roman system versus the modern law This lecture is part of a series with Professor Epstein on how this ancient legal system can provide crucial insights about modern problems. Professor Epstein is one of the most prominent legal scholars of our day. He is the inaugural Laurence A. Tisch Professor of Law at NYU School of Law, a Senior Fellow at the Hoover Institution, and Professor of Law Emeritus and a senior lecturer at the University of Chicago. As always, the Federalist Society takes no position on particular legal or public policy issues; all expressions of opinion are those of the speaker. PUBLIUS: In the last episode, you discussed the basic principles of contracts and gave examples of relatively simple contractual agreements. What happens when contracts become more complex? RICHARD EPSTEIN: One class of contracts that are extremely important are the formal contracts known in Roman law as the contracts with stipulation. These are contracts which are primarily used to discharge financial obligations. The financial obligations tend for the most part to be relatively certain and they arise in one of two contexts. First there could be financial obligations to repay a loan and secondly there could be financial obligations to pay for services that have been rendered or for goods that have been sold. When you start to deal with these contracts what you discover is that they are unilateral. What do we mean by unilateral in Roman law is somewhat different from what we mean by unilateral in the common law. The common law has this very odd class of a contract which is called unilateral in which one person performs an act first and then the other person is designed to essentially there after promise and do something. Roman law does not do that at all. What unilateral means in this particular case is wholly without regard to any prior act. A contract is unilateral if all the rights fall on one side and all the duties fall on other sides. The opposition to unilateral is essentially bilateral which means that the obligations as in the case of buying goods for cash run on both sides, the seller having to essentially deliver the goods and the buyer having to pay the cash. The difference between these two things is extremely important. When you are dealing with unilateral contract, the Roman terms was that these were strictly yours as opposed to bona fide. What strictly yours meant was that we are going to have a very powerful well nigh conclusive presumption that there will be no excuses for the performance of this particular obligation. Since one side essentially has all the duties and the other side has all of the rights, it would be very odd to try to figure out why it is that there would be some reasons that somebody who was in a position of having only claims should somehow or other be required to relax them. There are reasons why this would take place, chiefly dealing with modifications of preexisting arrangements, but the basic intuition is very strong. On the other hand, when you are dealing with bona fide obligations, the reason why this becomes much more complicated in bilateral situations is what I do may well be contingent upon what you have done. There are so many permutations that can start to take place in terms of these sequence of performance time issues that bona fide is basically the notion which says when you are trying to stabilize these bilateral arrangements, each person has to take that particular act at any given point in time, which is going to minimize the probability of some form of dislocation in the longer arrangement. That's why the illustration of having to pay money for goods, we have bona fide obligations you must tend to before you can collect, whether you are dealing with the buyer or the seller side. It gets more complicated as the underlying transactions become more complicated. Since these transactions through stipulation are unilateral and they typically tend to be for fairly large sums of fixed money, it becomes extremely important to understand whether or not the obligation itself has been made. What happens is in the Roman law there are basically a series of words that have to be used in order to convey the particular obligation and a very strict requirement that the words that are used on the asking side have to be used on the answering side. The need for the correspondence and arguably the need for the specific terms is essentially designed to allow you to determine when the negotiations have stopped and when it is that the obligations have become fixed. When Gaius starts to talk about this particular issue in the Digest, excuse me, in the Institutes, this is the way he goes. He says, "Do you promise to pay?" "Yes, I promise to pay." "Do you promise to give?" "Yes, I promise to give." "Do you promise to guarantee?" "Yes, I promise to guarantee," and so forth. That particular formality essentially has several functions, all of which remain true to this day. One is it allows you to make sure that the seriousness of the understanding is shared by both parties, because formalities like this don't just happen in random conversation. It's very important before people be bound that they have a clear since of the obligations that they've incurred or the rights that they have received. Secondly, in the ex post world what it means is if you had these particular hard words the questions of proof are going to be somewhat simplified because of the way in which the particular transactions have taken place. PUBLIUS: Can you talk more about the importance of these formalities? What particular terms were used and by whom? RICHARD EPSTEIN: Well, the first complication that you get is who is entitled to use what word, when. This may well seem to be an odd situation, but at the time that Gaius wrote there was a sharp differentiation between Roman citizens on the one hand and people who were under Roman rule who lived in the provinces on the other. The term “spondeo” which means to promise was thought to be a term with some sort of sacred overtones and so forth. Hence it was only allowed to Roman citizens. You need to have promises made by non citizens in order for this commercial system to work. You had to use another word. In this case “promitto”, which is an obvious variation on the word to promise. It's to pick up the aliens. What you do in effect is you now have to tracks of words that are going based upon this citizenship. It will apply not only in the case of simple contracts that we start to have, but it will also apply in the case of more complicated arrangements, particularly those which are assumed with respect to guarantees and then there's an additional set of complications that I'll talk about known as the ad stipulation, which is essentially the so called co credit. The ad meaning to the basic obligation, which was distinctive in Roman times and eventually faded away for reasons that we can talk about. Having said all of this session is then what is the particular arrangements that we start to worry about and some of the problems that come up with these formal promises? One of the questions that you always have to worry about in Roman law is the question about whether or not an obligation survives the death of either the promisor or promisee. The Roman maxim was that a personal action tends to die with the person. This then needs to create obligations that exist in other people who can step forward after the personal obligation is over. In modern law we don't have that view. What happens is the obligation goes to the estate of the promisor and it has to be paid out before distributions can be made to the beneficiary on the one side. On the other side the right to get the promise goes to sends to the estate so that they could collect. If you don't have this arrangement then you have to figure out all this stuff. PUBLIUS: You just mentioned something that often complicates contractual arrangements - the introduction of third parties after a contract has been made. Can you discuss more about how the Romans handled that situation? RICHARD EPSTEIN: As I mentioned earlier on, one of these strange sorts of relationships that the Roman law had was called the ad stipulation. This was a case in which it turns out that you had somebody else who was on the deck. Some people translate the word ad stipulation as joint creditor. That in my view is incorrect because the Latin word there is “ad” which means “to.” It's not as though this person is of equal dignity with the primary obligor. It turns out that what we are doing is we are giving an additional degree of assurance so if it turns out that you have this post mortem problem, somebody else can sue. Now, once you start to do this, you see the following ambiguity start to arise, which is life is much more difficult when you have three parties to a transaction than when you only have two parties to the transaction. If you have three parties to the transaction you first have to figure out what the relationship is between A and B and then the relationship between A and C and then the relationship between B and C. You get three times the trouble by adding only one party into the situation. How does this particular situation work? Well, what happens is you now create this case. Typically in order to deal with the situation of death, but in some cases if somebody was in fact the recipient, the stipulator and had to travel far away for law, what the co creditor did was essentially to act as a guarantor of this particular arrangement on the creditor side so that you could pick up the arrangement and start to sue. You are suing as a principle, not as an agent. That's what this arrangement did. What are the difficulties that you have to have? Difficulty number one that you have to have is it has to be a situation in which it turns out that if the co creditor collects the money from the original debtor, how are we going to make sure that that money gets back to the original and primary party on the situation? The one for whom the benefit is given? If you go back into early times we have this following very strange situation, which is the lex Aquilia which is a statute primarily dealing with unlawful physical harm and the destruction of property between sections number one dealing with the deaths of certain kinds of animals and section number three dealing with the burning, breaking, and so forth of various kinds of things that are not covered by section one. You have a provision which gives the person who is the primary obligation an action against the co creditor for the fraudulent release of the stipulation, meaning in effect he goes to the other fellow and he says you don't have to pay me, I'm giving you a release. At that particular point, the whole thing has been disrupted and it turns out that if you wished to make a release as a co creditor of the primary debtor then you become the primary debtor yourself. There's an interesting question as to whether or not if this is fraudulent, whether or not the original creditor or the original stipulator can go after this person. It's again these kind of difficult tri part arrangements. It also turns out that things are even more complicated than that. It's not just the simplication of whether or not what you do this thing, it is going to be an outright release. One of the things that you discover with all financial obligations, which is as true in Roman times as it is today is that sometimes what you want to do is to make a composition of the debt. What we mean by that is a fixed and permanent obligation to pay 100. The fellow doesn't have the 100 and so he comes to you and he says, "If you give me a complete and full release, I'll pay you $80 today and if you don't do that, I can't pay you today. You can take your chances of finding me tomorrow and it may be that I'll only have $20 where some other creditor will have come in the place and swooped away the asset that I've had." Oftentimes it is the case that what happens is you make one of these compositions in perfectly rational sense on the theory that $80 in hand or 80 sestersii in hand is worth more than $100 or sestercii in the books. These are good faith compositions. How do we know this? If you get rid of the add stipulator and simply look at this as a transaction between the two original parties, the most common thing in the world is to accept a partial payment on a debt as a complete release of what's going on. Generally speaking under Roman law the partial acceptance would be fine. They wouldn't talk about that later. Under the common law, it was generally quite difficult to figure out whether or not this thing as a release was binding. This is an area where the clarity of the Roman law was generally more serious than that of the Anglo American law. Now, if you are doing all of these things, you then have to worry about the questions, what kind of judgment is the co creditor making in dealing with this situation? This is the way in which the problem starts to work is there are some cases where in fact it's a sweetheart deal. To give you the ugliest form what happens is the guy says, "Look, I'll accept $80" and then he gives $5 on the sign back to the guy for the release. Generally speaking if you are a co creditor and money comes it has to go back to the primary obligation. You could treat this as a bribe for the release. That's behavior which would be in bad faith. As the law becomes more modern, the stipulation is not governed by the contract or this particular action under the lex Aquilia. It's governed by what they call the actio mandati. This is the agency relationship in which I represent you in a transaction with a third party and now I'm under a good faith obligation to make sure that any settlement that I make with that third party is honest so I can bring the actio mandati if it turns out I'm claiming that the release was given in bad faith and of course the defense can take place to say that it's in good faith. This is not an easy line to draw in many cases because often they are dual motives or there's genuine uncertainty about the status of the debtor, genuine uncertainty about the knowledge of the co creditor with respect to what's going on on these cases. It's quite clear that the Romans understand the issues that are at risk in this particular case and hence they can deal with it. The other question that you start to do again is you have to worry about debt. When Gaius reports these kinds of arrangements he says "One of the more peculiar features of the ad stipulation is that the action does not descend to the heir under any circumstances." PUBLIUS: Why wouldn’t the action “descend to the heir”? Why is that a logical consequence? RICHARD EPSTEIN: Why does that turn out to be the case? Well, think about it. What happens is you pick Mr. X to be somebody who is going to be your guardian. You didn't pick his children. You didn't pick the son or anybody else. These obligations, the peculiar obligations of trust and the general rule is that these cannot be delegated by the person who is subject to the obligation to some other person because your ability to rely on somebody who you don't know is going to be more likely you'll ask that than bad faith. More likely that I'll keep the money and so forth. What happens is the add stipulation drops. Now, what do you do in order to respond to the possibility that your as stipulated may die. Sometimes what you do is you take more than one ad stipulator. Sometimes for the same full amount. Sometimes you take half from this and half from that so as to diversify your particular kind of portfolio. What you are trying to do in every case is to make sure that when the money is collected by the co creditor it gets turned over to the principal, an issue that we have to face today. There's also another rule out there which again makes perfectly good sense which says that under these circumstances the ad stipulator cannot be a slave. Now, why is it that you have that particular rule? Because the slave is already bound to the master. Anything that the slave gets the master gets first dibs on so it's going to be extremely difficult that the master can claim everything that's collected under these circumstances. That it turns out that the actual creditor can recover from the slaves master because he certainly can't recover from the slave. The Romans did is they developed this very, very elaborate system. It's describe in immense sophistication and in effect every single risk that you can imagine they cover with. What happens? Well, the institution will eventually die. Why does it die? Because what we start to do is develop more mature agency kinds of relationships. The creditor, the stipulator can do is to take somebody else and says "I would like you to be my agent for the purposes of collecting this particular weight." Then you have to turn it over to me. You can appoint the agent for collection at anytime. Not only the time of the formation of the debt, but at any time when you'll want to collect. The arrangement turns out to be more flexible given the fact that you could wait a little bit longer before you have to commit to this thing. The add stipulation no longer seems to have any use. It disappears. By the time you get to just stay in there's no trace. This is one of the interesting lessons that you learn about Roman law, which is if you would just look at Justinian before Gaius came around. If you were trying to guess that there had been this kind of relationship, you'd never be able to figure this out because you would not have essentially an awareness. The action for agency was always thought to be difficult. All our obligations were thought to be personal. With agency relationships we are hiring somebody. Somebody was thought to be a real stretch about the way in which the system worked. When you put it in the place and you have the mandate, well, you have all the same problems you had before. This agent can forgive a debt which you are not to do. The agent can take the money and then divert it for some other purpose. It's not as though the standard risks of delegation don't exist. It's just that they take it a place within a simpler framework. The systematic advantages that you can pick your agent at the time of collection rather than having to pre commit this arrangement very early on. PUBLIUS: What other parties might be involved in this type of arrangement? RICHARD EPSTEIN: Then there's the other side of this thing, which is perhaps more important, which is the problem with respect to the guarantor under the contract of stipulation. What you do is you look at the Roman text and it turns out that there are three kinds of guarantors that you can have. In Gaius one of them is called the sponsor. Spondeo. Then there's a fido permitor and then there's the fido usur. The question is why do you have three terms with respect to these arrangements? This illustrates two themes. The first theme we've already alluded to which is that the term spondeo is thought to be freighted with signifiant religious significance. That it's not going to be available to people who don't meet the requirements of Roman citizens. On the other hand you are going to have to have some other way of some other transaction to do that. Just as the word permito became a substitute for sponeao with respect to primary obligations, fido promisor means you are loyal to somebody. This becomes a guarantee. Then there's the fido usur. Well, what's going on is that you've got these two classifications in front of me. The Romans then do something very smart. They say look we now have these two flavors of arrangement and what happens is we have very strong signaling effect. What we mean by that is once you use the word sponsor or final promisor. What we are doing is limiting ourselves necessarily to certain kinds of arrangement. For example, just to take one of the many variations around this, suppose what happens is that it turns out that there are multiple guarantors. It turns out the principal debtor defaults on this kind of arrangement. You then have to worry about the question as to whether or not a particular promisor is liable for the entire debt or is only liable for a pro rata share of the debt in question. The final promisor situation tends to say, "we are going to only do the pro ratio." Then you have to worry about the question of what are you going to do if one of these people dies so that that obligation falls out. Then you have to worry about the question if they are pro rated and one person pays the potential guarantors, pays 20# of the debt, can they recover the excess from the other party. Then you have to worry about the further question as to whether or not if you actually pay these debts to the third party, can you recover the debts either individually or collectively from the underlying first promisor. Essentially what the promisor, sponsor arrangement was is that the creditors who took these things on essentially were less likely to be hit financially than the fido usur you saw which was the other guy in which we had multiple people under these circumstances. Each of them was bound for the whole with respect to the other party so that you did get the forgiveness by virtue of the sharing. If you'll look at these kinds of arrangements and you ask yourself, " What's going on here?" What you discover is in financial arrangements, what you want do is that very clear categorization so that people will know what the nature of the obligations are. One of the reasons why you want to do it is to make sure that the relationships between the guarantor and the original promisor are there. But there's also the other problem that happened is that suppose you start with one of these guarantors and then you want to add another. If in fact when you use a word like promisor it has a clear meaning, anybody else who is coming on will know what the obligations are vis-a-vis that party because these standard terms are completely inflexible. There's on the other hand if you use the word Fido usur, you now know that it's a different set of expectations, but it's also clear. What formality does is it gives notice to the rest of the world about the way the transactions work so that by standardizing and relationships people were coming in later on could get a better assessment of the risks are going to be like. PUBLIUS: So is formality the most important element of contracts? RICHARD EPSTEIN: Standardization turns out to be the absolute key on this things. When we tend to think about contracts often we think about them as unique engagements between two individuals where a lot of product differentiation and unique determinations are there. When you are dealing with arrangements with a unilateral promises to pay money, these variations are relatively unimportant in these things. What really matters is you get clarity in terms of the way in which the way it works. Now, does this have any application to modern world? The answer is let me give two which I think show how it work. One of these things that we have typically in Anglo American law, the difference between a bill and a note, a check and a note and what's the key difference between the two of them? If you are talking about a check it means that if you write a check out to somebody else, this check is freely negotiable so that if it is transferred in the ordinary course of business to a holder in due course they can sue the original obligor on the check for the full amount of the situation. That's true even if there's a beef that the original promisor has against the party to whom they have given the goods. Essentially what you are saying when you give this thing it's like money. It goes free and clear to somebody else, whereas if you used a note and you signed that to somebody else, the rule with respect to a note is that the assignee takes subject to all defense that could be raised against him. Which of these two arrangements is better? Nobody can say in the abstract, which is why that both of them turn out to persist for hundreds and probably thousands of years. The important thing is to have an absolutely clear line between them so that when you get this piece of paper you know whether in the world in which you take free and clear of defense or in the world in which the defenses exist. That will determine the way in which the pricing of these things will start to take place. You will pay more money to get a free and clear obligation than you will pay to get something else. The same kind of formal distinction takes place here. If you look at your standard check, they are basically only four boxes you can fill in. The date, the payee, the amount of money that's paid in numerals and then a signature. The moment you start adding a condition, only payable if goods are delivered, it's no longer a check. What happens is the clarity of the form essentially allows the third parties to know. The other point about standardization has to do with modern transactions and securitization. Typically what happens is that when people originate loans in a given territory, there's a kind of lack of diversification with respect to the geographical stuff. These particular loans, they are all coming from the same farm area. If it turns out there's a flood on one, it's likely to effect all the others. What happens is we have a bunch of loans all drawn from the same neighborhood. There's a risk that if one goes bad, all will go bad. Generally people like to have diversification. So what you want to do is to put these loans into portfolios with other loans coming from other territories and slice them and dice them in other ways so that the first payment may well go to one guy from a particular loan, the second to another, and so on down the line. What you discover in this case is the only way that you can securitize a loan is to standardize all their collateral terms. Otherwise, when you put them into a big bundle, some of these loans may have defenses that are not available to others, and nobody can quite figure out how the portfolio works. And so it's exactly the same principle as the Roman fighter you usur and promisor. When you want obligations to be built for speed, what you have to do is to slim them down so that everything turns out to be absolutely standardized and so those are the conditions that are imposed upon modern portfolios. What they've done, in effect, is they've updated the same kind of stuff that you had when you're dealing with the contractor stipulation under other circumstances. And so now what we've done is we've talked about these three kinds of parties and so forth, but there are other kinds of things that we have to worry about in addition. And one of the things, again, involves the question of third-party beneficiaries. And just to re-hash the terms, in a standard kind of contract, there can be three people, not two. Person number one is the obligor or the promisor. Person number two is the promisee. And person number three is the party to whom the promisor agrees to make the particular payment in question. And since you tend to be talking about stipulations here, you're not talking about the performance of the few service obligations, for the most part. What you're talking about is the payment of particular amounts of money. And what happened is the Roman law and the English law often devoted a situation in which they had the principle of privity of contract. And what that meant is that only the persons who had signed the agreement would be able to obtain any rights with respect to the whole thing. And you could see what's going on there. What it does is it eliminates that third party. And if you think back to what we said about the adstipulator, every time you have a tri-party relationship, it becomes a lot more complicated than if you have a two-party relationship. And so simplification is there. PUBLIUS: Can you talk more about arrangements that necessarily involve third parties, either as debtors or beneficiaries? RICHARD EPSTEIN: But of course, this promise is not a promise which we have to inflict harm upon the third party. And if A and B enter into an agreement whereby they agree that C will pay each of them $100, if you allow that agreement to go, civilization as we know it comes to an end because now any two parties can always exact anything from any third party. And so you have an endless array of promises of binding strangers to them. You don't need a detailed explanation for the inefficiency of these arrangements. But on the other hand, when you had third-party beneficiaries and somebody writes an agreement that says, "I hereby agree to pay it to somebody else," what ought to be the way in which this particular thing should be treated? And so the Romans start to deal with that. Well, one of the cases they give is a situation in which the rule is if, in fact, we make the payment to the third party, now everything has been discharged and so there's no right of action that the promisee has against the promisor, the stipulator has against the promisor, because everything has been discharged. But suppose the thing has not been paid. The question that you then have to start to ask is whether or not the third party can sue on this particular obligation. And the Roman law said that they could not. And this immediately gives rise to a very interesting kind of puzzle, which is why is it that there's a reason of positive law to impose the privity of contract restrictions on people if, in fact, what they say between themselves is, "We hereby wish to make a promise." A makes a promise to B that A will pay C $100. A wants C to have the enforceable right of action. Is there any reason to override their particular consent under those circumstances? And people become very hard-pressed to say that there is one of these things, and yet the law remains pretty stubborn on this point, subject to fixes that we talk about later. And so the early view was that these things were essentially unenforceable. What's the logic behind it? The simplest thing is, as we mentioned before in connection with adstipulation and other kinds of promissory relationship, it often happens that you get yourself a situation somebody wishes to modify the original kind of obligation in question. And so if it were simply a payment to the promisee, you may say, "I'm gonna cut this down from 100 to 80," you may say, "I'm gonna postpone payment by a week or by a month and so forth." You may add a condition in. The moment the third party has a vested right, then all of that goes out the window because now when they try to modify the promise, they're modifying the rights of a third person, and he can veto the transaction. It is generally the case that most people, to the original obligation, are very reluctant to have that kind of limitations imposed upon them. So if you look at modern contracts under the American law where third-party beneficiary contracts are enforceable, generally speaking, what you see is two things happening. One is they're very, very careful to give a very narrow definition of which third-party beneficiaries can sue because if you're a so-called "incidental beneficiary," somebody who's gonna benefit, say because the house next door is gonna be built to make their life a little bit nicer, those people don't get to sue. You have to be designated to sue. And then when you actually look at written contracts, what you typically discover is that they contain the following kinds of clauses as a general case. "Nothing under this particular agreement creates any third party right whatsoever. The two parties reserve the right to alter the agreement as between themselves." And so in a world in which there's some loose presumption and favor of allowing third-party beneficiary contracts, what you see is something very instructed, contracting out of that kind of an arrangement in order to preserve the initial facility. PUBLIUS: Clearly arrangements with third parties are much more complex to navigate. Did the Romans try to avoid these types of contracts? RICHARD EPSTEIN: So at least it tells you something about the intuitive wisdom of the Roman system, which is you try to create two-party relationships. You're very reluctant, under these circumstances, to create three-party relationships because of the mechanical difficulties that are otherwise going to take place. And it turns out that makes sense. Does it make sense in all cases? And it's like everything else, the answer turns out to be no. And so what we want to do is to go back to a problem that we've already faced. What do we do with obligations that are only going to be enforced after the death of either or both of the parties? And the modern version of this is essentially the life insurance contract, in which somebody essentially goes to an insurance company and says, "What I would like you to do is to pay after my death $ 10,000 to Mrs. X." And what happens is Mrs. X is not a party to that contract. If, in fact, what you say is you have no third-party beneficiary rules under these circumstances, then at the death, the person who has the right turns out to be the heir of the original promisee. If you go back to what we said about the adstipulation, it's quite clear that the interests of the heir may easily diverge from that of the original promisee, and she or he may decide to keep that money for themselves and not hand it over in due course to the person who is named the beneficiary under the insurance contract. Now this third person hasn't paid anything. They're classically a gratuitous party. But if you're an insurance company, you're trying to sell a policy to somebody that says, "I want you to make this payment after my death to that person over here," and they says, "I can't guarantee you that because these third-party promises are not enforceable." There's a serious risk that this market is gonna somehow or other collapse or you're gonna have to devise some very complicated business sorts of arrangements in which the payment, instead of being made to the heirs, is gonna have to go to somebody else, but who and whether or not they'll discharge the obligation are open questions. So what you can do is you can take one of two attacks on this, and one of them is to say, "Well, we have to reverse the general rule," and that's foolish because then you're sweeping all the commercial arrangements where people don't want these rights. The other thing to do is to pass a statute, which is what happened in England, in which you announce whenever there's a life insurance contract, after the death of the person on whom the contract is written, the action can be enforced by the person who's designated under the contract. It's very clean, it makes a lot of sense. And so what you discover is, as you get distinct kinds of contracts, generally speaking the world that you're going to be in is a world in which you try to give tailored solutions to particular problems as they arise, rather than relying on general juris prudential principles that everybody could be able to do everything that they want. And sure enough, these problems, again, are not time-bound in any obvious sense, and the issues that we're talking about on the post-mortem stuff in England, in 1915, when the statute was passed, are identical to the post-mortem stuff that you have underneath the various forms of the Roman law. PUBLIUS: What other types of complexities might enter into consideration for contracts? RICHARD EPSTEIN: There is also a very long and learned discussion in Roman law about the following question. Can you make various kinds of stipulations subject to conditions? And if so, what are the conditions that are permissible and which are not? And so, for example, to take a perfectly innocuous condition, what you can say is, "If it turns out that X dies, I hereby agree to pay you a 1,000 sesterces," and that's, of course, just a contract of insurance written on the life of the person who happens to die. And the reason why you want to make it conditional is that if you've paid a premium in a separate transaction, the last thing you want to do is to say that the money is never owed or is always owed. You're making a bet on the life of this person, and what the condition does is allows you to make the obligation work under these kinds of circumstances. But sometimes, the Romans get themselves a bit more speculative. And so one of the things that you would start to say is, "Can you make a promise on the sense that I will pay you 1,000 sesterces if it turns out a hippopotamus learns how to fly." And there you start looking at that promise and say, "What are you talking about under these cases? What's going on?" And at this particular point, there's something vaguely absurd about the way in which the stipulation is going to be put into effect, and so what you have to do is to decide whether or not to ignore the contract or to decide, in effect, that the condition is what's to be struck and the promises are what is to be kept. And the Romans constantly worry about the question of whether this thing is “in utilus,” and in “utilus” means unenforceable because of the fact that you've got this strange appearance that will never occur. And somebody will come up and say, "Well, why are we doing this? Would somebody ever want to make a conditional contract once the condition can never be satisfied?" And so that becomes kind of an academic sort of question, but it becomes fairly important in the following case. What happens if it turns out that you do this in a contract on the one hand, or you do it in a will on the other hand? And it turns out that what Gaius says is the general rule is that we regard the thing as unenforceable because of the impossible condition. And he said, "The rule turns out to be good with respect to contracts, but not with respect to wills." And he says, "It's very difficult to find a reason why it is that we accept this particular kind of differentiation." And so the question that we then have to ask is can we come up with that reason? And I go back to my own teacher, David Daube, and he says, "Of course you can find the reason. And again, it has to do with the peculiar status of post-mortem transactions." Suppose it turns out that the person is alive and kicking and immediately you understand that this particular transaction is void. If they really want the promise to go through, they could draft another agreement, get rid of that condition or put in one that's more sensible, and life will go on. But if it turns out you're talking about a will, what happens is the will only takes effect at death. So anything you do before death to modify a will, anything that you want to do, but after the will becomes fixed, then old Daube used to say, "Look under those circumstances." If in fact you treat this thing as though it voids the underlying obligation, you cannot expect the heir or the beneficiaries under the will to follow the term of somebody else. And so therefore what you do is you void the condition under those circumstances, instead of voiding the obligation, on the grounds that he purported to do something, and it's beyond his power to correct the overall situation. If you go forward in both Roman law and an Anglo-American law, where these obligations now are allowed to descend, what you often discover is very strange things start to happen when it turns out that there's a promise made by a given person, who then turns out to die. And now the heir decides not to honor it. And what it is is it goes extensively to consideration and all sorts of bargained arrangements. PUBLIUS: Would this situation be handled differently in modern law versus Roman law? RICHARD EPSTEIN: Under the Anglo-American law, if there's no consideration for a particular promise, then the thing is not enforceable. And by consideration, we basically mean that if I want to get something to you, I have to sacrifice something to you. I either have to promise to do something for you or have to forbear to do something that I'm otherwise entitled to do. And it's a very narrow restriction. Roman law does not have that as a universal principle, but the common law does. And so what you do is in the most famous case called Williams and McGowan, you have a situation where somebody is standing on the ground, his employer's up top, and a log starts to fall on his head. And the poor employee rides this thing down, saves the master, who then promises to pay him $10 a month for the rest of his life. And then he dies and his estate refuses to pay the money. You can see what the risk is. So they now go around, they're just enraged about this because they understand what the intention is, and they don't think that this was a bargain because the so-called consideration was passed. Everything that was supposed to be done lay in the past, not in the future, and so therefore it's not a bargain but it's a gift conditional upon something happened, which is gift meritorious. Romans would have very little problem in enforcing this promise, and so what the American angle, American law does is it starts to invent other exceptions to the consideration doctrine in order to let this thing go. And this is a lesson that every lawyer has to understand is whenever you negotiate a contract with X, it turns out that the assignment risk and the post-mortem risk is always there. And going back to what we started with with usufruct, is the moment you change the nature of the person who's the obligor, you change the nature of the particular risk in question. And this doctrine applies whether you're dealing with leases and sub-leases, with usufructs and assignments, with delegations of particular duties. At every case, it's relatively easy to make an assignment of a right to collect a fixed sum of money, because that right is fixed no matter who gets it. But if it turns out you're on the other side, the credit risk or the performance risk becomes great. And so you can now start to understand why it is that these various kinds of restrictions that are imposed upon this particular contract of stipulation. Let's stop there, all right? NARRATOR: Thank you for listening to this episode in the Roman Law unit of the No. 86 lecture series. The spirit of debate of our Founding Fathers animates all of the No. 86 content, encouraging discussion and critical reflection relative to how each subject is widely understood and taught in law schools and among law students. Subscribe to the No. 86 Lecture series on your favorite podcast platform to have each episode delivered the moment it’s released. You can also go to fedsoc.org/no86 for more lectures and videos on Property, Contracts, and the Common Law. Thanks for listening. See you in class!