- Each party must have the capability to deliver on their promise.
- Promising something which you have no significant probability of delivering is fraud (unless all sides recognize and document this is the case, e.g. the probability of making a scientific breakthrough).
- Each party must have the capability to understand all provisions of the contract in the same way.
- If certain parties don’t understand the terms of the contract, the contract is unlikely to be honored by deliverables, so it is wasteful to make this agreement.
- If one party asserts that language in the contract has other than ordinary meaning, the contract is unlikely to be honored by deliverables, so it is wasteful to make this agreement. By disputing the plain language, that party also is committing fraud.
- Each party must have some economically effective and politically acceptable means of compensation, recourse, or punishment in the event that a counterparty does not deliver.
- If a party doesn’t have feasible means of recourse, they are giving charity to the other party, not a contract. Hence using a contractual mechanism is fraud, as it implies this is a fair exchange.
It seems simple, but here are common situations where people make such bogus propositions:
- Making a political agreement in a democracy, on the basis of the delivery of future benefits from future officeholders. Even if the individual is good to their word, they have no capability to enforce that promise if those future officeholders change the law. (unless they mean to kill them regardless of the law at that time)
- An emissary, whether it is in business or diplomacy, making or implying a commitment (vs. the suggestion to carry on a negotiation or work out terms). The emissary usually does not have signature authority, budget authority, or hire and fire. Therefore they cannot live up to their promises.
- Endless situations where people “construe”, “interpret”, or otherwise assert non obvious meanings, or meanings contrary to the context of an agreement.
- Situations where a false statement about the past, or human behavior, is offered as an assurance.
- The most important point is that the past people, are not the current people who offer the contract, nor the future people who will have to enforce it. Hence the behavior of one section of the past people at one time is not the most relevant fact. Appealing to the past is valid as a means of assessing likely adherence to the future contract, but only if you include all individuals in the similar situation; from a current analysis of the history to date, we already can state that future adherence to contracts is questionable for non-screened people. Even Bernie Madoff (Ponzi scheme) still stole everyone’s money despite some people getting paid out in the beginning – that’s not even a different person.
- The second point is that by making a false statement, at least, the party does not understand the situation, so even if they have good intent, their eventual ability to honor the terms of the contract is dubious. Saying “no one is trying to take your guns” is not merely historically incorrect, it betrays at least a fundamental misunderstanding of how the slippery slope facilitates public opinion, and the impact on an individual’s recourse to future betrayal. Hence from a contractual perspective, those who are agreeing to further gun restrictions are giving a charity to their political opponents, and not entering into a contract that guarantees some future state.
Note, you also could start talking about agreements under duress as an alternative form of no recourse, but there the more correct way of phrasing it is that it is not a contract at all: it was an order given by the clearly stronger (and therefore governing) party in the situation. The counterparty was compelled to agree, therefore they could not have meaningful recourse.